PERTH (miningweekly.com) – Gold miner Kingsgate Consolidated has executed an option agreement to divest of its Challenger gold mine, in South Australia, to a 50:50 joint venture (JV) between ASX-listed WPG Resources and Diversified Minerals.

The sale would take place at the completion of the current life-of-mine plan and the exhaustion of reserves in February 2016.

Kingsgate CEO Greg Foulis said on Friday that the sale of the Challenger mine was key to the company’s strategy of reinvigorating Kingsgate.

“It gives us the opportunity to refocus our priorities and pursue meaningful new business and mine development opportunities.”

Under the terms of the agreement, Kingsgate would operate the mine up until the completion of commercial production in February, with the mine then being placed on care and maintenance.

In the meantime, the JV parties would have until December to exercise their option over the mine and would use the option period to finalise their legal, regulatory and technical due diligence and to complete and execute a share purchase agreement.

Once this had been finalised, the JV parties would assume all ongoing closure liabilities.

In return for the asset, Kingsgate would receive A$1-million, to be paid in equal quarterly instalments from the start of mill operations by the JV partners, as well as a A$25/oz royalty on the Challenger south south west zone, which would take effect after the first 30 000 oz of production.

“Kingsgate retains a A$25/oz royalty on the Challenger south south west zone, as a key part of the agreement, which will ensure we can capitalise on any future exploration upside with the purchaser taking on the full closure and rehabilitation liabilities,” Foulis said on Friday.

Kingsgate estimated that between 20 000 oz and 25 000 oz of gold would be produced at Challenger between the end of September and the completion of commercial production in February.

Meanwhile, WPG executive chairperson Bob Duffin noted that the Challenger asset had been on the WPG radar for some time and could be successfully reopened through a combination of smaller scale mining and reducing mining dilution.

“The Challenger gold mine has operated successfully for over ten years and has produced in excess of one-million ounces of gold. Kingsgate has successfully demonstrated over the last 18 months that, by controlling costs, the mine can be operated profitably and we expect further savings through minimising mining dilution and further restructuring of the mine’s operating costs.”

Duffin also expressed pleasure in working with Diversified Minerals, given its expertise in the efficient mining of narrow orebodies, which would be key to the successful reopening of the Challenger mine.

“After the mine is placed on care and maintenance and following completion of the agreed mine plan by Kingsgate, we anticipate there will be over 140 000 oz of gold remaining in resource, which equates to a very attractive acquisition price of A$7.14/oz,” Duffin said.

He noted that Kingsgate had significantly written down the resource estimate at Challenger in its last resource and reserve report, after eliminating all inferred resource below the 215 shear, and a reduction in the Challenger West resource estimate.

“In addition to the existing resource envelope, mineralisation continues along plunge from current workings and excellent potential exists to develop parallel mineralised structures,” he added.

Duffin pointed out that the Challenger mine was located in close proximity to WPG’s existing Tarcoola and Tunkillia projects, which would provide significant operating synergies to all of the assets.

“We are targeting the production of gold at Challenger in the second quarter of 2016, and in the third quarter of 2016 at Tarcoola.”