JOHANNESBURG (miningweekly.com) – Australian gold producer Southern Gold has entered an agreement with development partner Westgold Resources for the underground development phase at the Cannon gold mine, near Kalgoorlie, Western Australia.
Westgold will pay Southern Gold A$1.5-million upfront for a five-year right-to-mine within a defined area at the Cannon gold project, as well as a production payment on a dollar per troy ounce of gold produced.
For each ounce of gold produced from the defined area, Southern Gold will receive a cash payment equal to A$160/oz for the first 15 000 oz of gold and A$180/oz for each ounce of gold above 15 000 oz.
The rate increases to A$190/oz for under 15 000 oz and A$210/oz over 15 000 oz if the gold price averages in excess of A$1 800/oz in the previous reporting quarter.
“Southern Gold has turned a cash consuming asset into a cash generating one. And it has done so in alignment with Southern Gold’s development philosophy of bringing in third parties who know how to mine and manage risk, particularly the elevated risks of underground mining,” Southern Gold MD Simon Mitchell explained on Tuesday.
“This deal with Westgold should generate cash for Southern Gold based on the high-grade gold resource at Cannon, which stands at 24 000 oz at 5.2 g/t gold in the indicated and inferred categories. The arrangement also ensures Southern Gold remains significantly exposed to the upside should the deposit continue at depth,” he added.
The agreement shifts all financing and underground operating risk operating risk to Westgold.