JOHANNESBURG (miningweekly.com) – ASX-listed gold explorer Red 5 would start construction of its flagship 849 000 oz/y Siana gold project, in the Philippines early next year, after receiving the final regulatory approval from the Filipino government for the $73-million development.

The government has issued the order approving the declaration of mining feasibility, which represented the final permit requirement necessary to start mining development, the company reported on Monday.

Construction was expected to shortly, subject in part to completion of project financing over the next few months.

Red 5 MD Greg Edwards said that the approval represented a major milestone for the company, following the release of the bankable feasibility study (BFS) for the Siana openpit and underground development earlier this year, confirming a long-life mining operation.

The BFS indicated a cash flow of $228-million and a pre-tax internal rate of return of 38%, using a base case gold price of $800/oz. Based on the existing total mineral resource estimated in accordance with joint ore reserve committee guidelines of 1,1-million ounces, production from known resources was forecast to reach 849 000 oz over a ten year mine life at an operating cash cost of $351/oz.

“With gold prices currently at record levels, Siana has the potential to deliver very attractive cash flow to the company,” Edwards commented.  “We are very much looking forward to bringing the project into early production to capitalise on the projected strong margins.”

The notice to proceed from the Filipino government followed the successful review and approval last week of the technical content of the BFS by the Filipino Mines and Geosciences Bureau, and approval of the environmental protection and enhancement programme and the final mine rehabilitation and decommissioning plan by the Contingent Liability and Rehabilitation Fund Steering Committee.

Funding required to bring the project to sustainable positive cash flow was forecast in the BFS at $72,5-million, comprising $63,5-million in capital development to first gold pour and working capital for the first six months of operation of $10-million. Underground development expenditure will be funded from cash flow. Total life-of-mine costs, including capital, average $473/oz.

Edwards said that indicative offer terms had been received for financing the mine development, with the company currently in “advanced negotiations” with several parties regarding funding.

“The board is considering several options with various debt and equity components and expects to award a mandate in the immediate future. Independent technical and legal due diligence required by financiers is expected to be well advanced before year-end,” he said.

“In the interim, tenders for construction and mining contracts have been prepared and will be issued, subject to the board’s approval of allocation of current funds to early infrastructure development,” Edwards concluded.