drm sept 2016 quarterly report - kitco.com · asx: drm asx release 21 october 2016 issued capital...

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ASX: DRM

ASX RELEASE 21 October 2016

Issued Capital 310.7m shares outstanding

52Wk Share Price Range $0.39‐$1.245

Market Capitalisation $186m (@$0.60)

BOARD

Peter Lester Non‐Executive Chairman

Allan Kelly Managing Director

Jay Stephenson Non‐Executive Director

Leigh Junk Non‐Executive Director

Peter Alexander Non‐Executive Director

Substantial Shareholders Hunter Hall 18.0%

Registered Office Level 1, 1292 Hay Street West Perth WA 6005

For further details contact Cameron Peacock +61 439 908 732

Activities ReportQuarter ended 30 September 2016

POSITIVE CASH FLOW FROM DEFLECTOR AS PRODUCTION RAMPS UP TOWARDS STEADY STATE

EXCELLENT SAFETY PERFORMANCE

1,119 days LTI‐free at Andy Well and 450 days LTI‐free at Deflector

ANDY WELL GOLD PROJECT

September Quarter production of 14,943 oz

All In Sustaining Cost of $1,432/oz

DEFLECTOR GOLD PROJECT

Open pit mining nearing completion

First underground ore development underway

Gold and concentrate production ramping up

Last oxide concentrate shipments expected during October

Deflector Project cash‐flow positive in September

EXPLORATION AND GROWTH

Significant RC and Diamond drilling campaign commenced at Turnberry

Regional drilling underway at Horse Well Project

Geophysical surveys completed at Deflector (VTEM) and Mt Fisher JV (Gravity)

FINANCE

Quarterly revenues of $42.6M

Cash and gold‐on‐hand of A$18.3M at 30 September 2016

First debt repayment of $6M made under Corporate Finance Facility

137, 387 ounces hedged at A$1,612/oz providing cash flow protection against gold price volatility.

Doray Minerals Ltd, Quarterly Activities Report – 30 September 2016

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Doray Minerals Limited (DRM:ASX, “Doray”, “the Company”) is pleased to present its Quarterly Activities Report for the period ended 30 September 2016.

For the Quarter, the Andy Well Gold Project (“Andy Well”) milled 84,494 tonnes of ore delivering production of 14,943 ounces at an average head grade of 5.6g/t. Quarterly cash operating (C1) costs at the Project were A$841/oz while All‐In‐Sustaining Costs (AISC) were A$1,432oz, some 7.5% lower than the June Quarter.

The September Quarter also marked the first full quarter of production at the Company’s recently commissioned Deflector Gold Project (“Deflector”). For the Quarter, the Project milled 105,721 tonnes of ore producing 8,215 ounces of gold through the plant’s gravity and flotation circuits in addition to 883 tonnes of copper. These production figures exclude approximately 70 tonnes of native copper concentrate, produced from the gravity circuit, and estimated to contain approximately 5,000 ounces of gold. Discussions are underway for the sale of this material to realise the considerable embedded value.

Doray’s Managing Director, Mr Allan Kelly, said the Company was very pleased with how the new processing plant had performed to date.

“We are now looking forward to completing the processing of the preliminary oxide and transition phase ore over the remainder of the year before commencing the processing of primary underground ore from early 2017.” Mr Kelly said.

Physicals Units Andy Well Deflector Total

Gold Produced

‐ Bullion oz 14,943 3,6241 18,567

‐ Concentrate oz ‐ 5,204 5,204

Total 14,943 8,828 23,771

Concentrate Produced dmt ‐ 3,071 3,071

‐ Contained Copper t ‐ 883 883

Gold Sold oz 15,929 3,175 19,104

Revenues

Bullion sales A$M 24.51 4.84 29.35

Average Price Received ‐ Bullion A$/oz 1,538 1,524 1,536

Concentrate sales A$M ‐ 13.26 13.26

Total 24.51 18.10 42.61

All‐In Sustaining Cost A$/oz 1,432 n/a

1 Excludes approximately 5,000oz contained in native copper middlings


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1. ANDY WELL GOLD PROJECT

1.1. Safety

As of 30 September 2016 Andy Well has achieved 1,119 days without a Lost Time incident (LTI) from the initial start of construction on site during November 2012.

1.2. Mining

Underground mining accessed both Wilber and Judy lodes on multiple levels. Development advanced 1,963m of which approximately half was ore drive development.

Stoping during the Quarter included areas in the upper part of the mine which, if deferred, could incur increased dilution from induced mining stresses caused by surrounding voids. Capital expenditure during the Quarter included costs to access these areas as well as deepening both declines to access higher grade zones of both Wilber and Judy lodes at depth.

Improvements in mining performance resulted in reduced stoping dilution. Optimisation of stopes continued to improve with ground support using waste backfill resulting in some Judy stopes extracted at a width of 1.4m.

Mining costs associated with capital development to access deeper levels to mine both Wilber and Judy lodes were improved as a result of negotiated decreased mining costs and rescheduling.

Table 1.1 Summary of mining physicals for Sept 16 Quarter.

Mining Units Sept 16 Qtr

Underground ore tonnes mined t 81,443

Underground grade g/t 4.94

Underground contained ounces oz 12,946

1.3. Processing and Production

The processing plant continued to have very high availability (99.5%) during the Quarter with gravity recoveries of 78% and total recoveries averaging 96.7% despite mill throughput of just under 85,000 tonnes.

Various projects to further improve gravity recovery; trialling of new materials within the mill and cyclones; and to balance the leach circuits at high throughputs were advanced to maintain the high performance of the treatment plant.

Table 1.2 Summary of processing physicals for Sept 16 Quarter.

Processing Units Sept 16 Qtr

Open pit ore milled t 1,460

Open pit ore grade g/t 3.25

Open pit contained ounces oz 153

Underground ore milled t 83,033

Underground ore grade g/t 5.68

Underground contained ounces oz 15,175

Ore Milled t 84,493

Mill Grade g/t 5.64

Contained Gold oz 15,328

Recovery % 96.7

Gold Recovered oz 14,821

Change in Gold in Circuit oz (122)

Gold Produced oz 14,943


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1.4. Cost Performance

Cost reductions negotiated with consumables suppliers and mining, catering and airline contractors as well as a cost effective roster change combined to decrease total and unit costs during the Quarter. All In Sustaining Costs (AISC) for the September Quarter were A$1,432/oz compared with $1,548/oz in the June 2016 Quarter, despite lower production.

Table 1.3 Summary of Andy Well cash costs and AISC for the September 2016 Quarter.

Andy Well –September 2016 Qtr A$000 A$/t A$/oz

Mining 8,146 96 545

Processing & Refining 3,030 36 203

Site Services 1,453 17 97

By‐Product Credits (61) (1) (4)

C1 – Total Cash Operating Costs2 12,567 149 841

Depreciation 2,677 32 179

Amortisation 8,331 99 557

C2 – Cash Costs 23,575 279 1,578

Royalties 775 9 52

Net Bank Interest 318 4 21

Allocation of Head Office Costs 116 1 8

C3 – Cash Costs 24,784 293 1,658

All‐In Sustaining Costs

Mining 8,146 96 545

Processing and refining 3,030 36 203

Site Services 1,453 17 97

Mining Operating Costs 12,628 149 845

By‐Product Credits (61) (1) (4)

Royalties 775 9 52

Corporate G&A 931 11 62

Reclamation & Remediation 44 1 3

Sustaining Exploration 1,088 13 73

Sustaining Capital Expenditure 5,997 71 402

All‐In‐Sustaining Cost (AISC) 3 21,401 253 1,432

2 C1,C2 and C3 cash costs calculated in accordance with Brook Hunt methodology 3 AISC calculated in accordance with World Gold Council guidelines (except for the exclusion of non‐cash P&L charges associated with the issue of employee options)


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1.5. Andy Well Extensional Exploration

During the Quarter, underground diamond drilling at Andy Well continued to focus on extensions amenable to potential underground mining at the Wilber and Judy Lode orebodies. These programmes are aimed at extending known Mineral Resources with subsequent conversion to Ore Reserves. Drilling was ongoing, with up to 3 drill rigs in operation.

During the Quarter, planning was well advanced for a programme of deep diamond holes targeting significant extensions to the Wilber and Judy orebodies at depth. These holes are to be drilled from surface. It is anticipated that this drilling will commence during the December Quarter.

1.6. Andy Well Near‐Mine Exploration

1.6.1. Gnaweeda – Turnberry Prospect

During the Quarter, Doray announced the maiden Mineral Resource estimate for the Turnberry prospect at Gnaweeda (see ASX Release 20th July 2016). This Resource estimate of 4.6Mt @ 1.8g/t Au for 266,000ozs (Inferred) was based on all RC drilling completed by Doray on Gnaweeda since it purchased the Project in 2014.

Following the completion of the maiden Mineral Resource estimate, a significant programme of RC and diamond drilling, totalling 21,000m RC and 1,000m DD was commenced at Turnberry. This programme is designed to infill the data spacing through the existing Inferred Mineral Resource, as well as testing potential extensions to mineralisation both along strike and at depth. At the end of the quarter, there were 2 RC drill rigs and 1 diamond drill rig on site at Turnberry completing this programme. In addition, planning was well advanced for an aircore programme to test the broader potential mineralised corridor at Turnberry as well as a programme testing the adjacent E51/1649 (Duffy Well) which is subject to an farm‐in/JV agreement between Doray and Mithril Resources Ltd (ASX:MTH).

As well as the aggressive drilling underway, during the Quarter, additional work was commenced for advancing the Turnberry prospect. This work included the commissioning of an initial Flora and Fauna survey, collection of hydrogeological data, scouting of a suitable haulage route between Turnberry and Andy Well, and the completion of a site‐wide heritage survey. These studies are essential for the rapid development of the Turnberry prospect as a satellite ore source for the Andy Well operation, should drilling be successful.

In addition to exploration activities at Gnaweeda, during the Quarter Doray followed its successful purchase of the residual 12% of Gnaweeda from Chalice Gold Mines (ASX:CHZ) announced in the March 2016 quarter with the purchase of a legacy 1% NSR Royalty that applied to the Gnaweeda tenements from JA Bunting and Associates (see ASX Release dated 20th July 2016).


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2. DEFLECTOR GOLD‐COPPER PROJECT

2.1. Safety

Deflector site achieved 450 days free of Lost Time injury (LTI) since construction commenced in July 2015.

2.2. Construction and Commissioning

All major infrastructure was completed by 30 June 2016. All utilities and infrastructure additional to the processing plant completed by GR Engineering Services Limited operated as planned during the Quarter with only minor teething issues noted. Commissioning of a gas supply as the preferred fuel for the hybrid diesel/gas power station was completed during the Quarter.

Additional pipelines were required to manage more water than forecast from the open pit and underground to manage surface water discharge using an existing open pit at Golden Stream as a settling pond.

2.3. Mining

Open pit mining proceeded with nearly 85% of the pit volume mined by the end of the Quarter.

Mining was completed from surface at 1280RL down to 1240RL, the level of the portal access to underground workings. The designed pit floor for the Western Lode, at 1200RL (80m below surface), is forecast to be completed during January 2017.

Confirmatory open pit grade control surface and in‐pit drilling confirmed the modelled contained gold, silver and copper metal. Additionally, results from surface drilling in progress are so far confirming the layout of initial planned stopes underground and are also targeting lode extensions both along orebody strike and vertically beyond the pit walls. A potential open pit southern extension is being drilled which if proven will be added to reserves for mining and processing following treatment of the primary ore.

Figure 1. Deflector mining progress.

Table 2.1 Summary of open pit mining physicals for Sept 16 Quarter.

Mining Units July August September Total

Open pit material moved bcm 237,131 142,888 137,641 517,660

Open pit ore mined t 53,831 40,338 39,060 133,229

Open pit gold grade g/t 4.94 4.13 4.94 4.69

Open pit ounces mined oz 8,550 5,356 6,204 20,110

Open Pit copper grade % 1.58 1.37 1.16 1.39

Open pit copper mined t 851 553 453 1,856


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Underground mining from the portal advanced down to 1187RL allowing development of ore of the Western Lode to commence at the end of September.

Subsequent to the end of the Quarter, high grade gold and copper mineralisation has been exposed on the 1200 level, as shown in Figure 2.

Figure 2. Deflector West Lode 1200 level ore drive (4m wide @ 11.2g/t Au, 91.2g/t Ag and 13.1% Cu).

Mining of the open pit has built up significant ore stocks containing approximately 8,300oz gold on ROM. These stocks will start to be supplemented by transitional and primary sulphide ore from underground whilst processing of open pit transitional ore is completed by early in the Quarter 31 March 2017.

2.4. Processing and Production

The ramp up of ore through the processing plant continued with recoveries increasing as anticipated by the end of the Quarter. Production was slightly less than budgeted owing to more moisture in the oxide ore retarding crusher performance and mill feed along with initial teething problems with concentrate filters.

The presence of native copper resulted in three products being recovered during preliminary oxide and transition ore phases.

In addition to gold bullion and gold‐copper‐silver concentrate, a stockpile of native copper concentrate is currently being stored and discussions are ongoing in regards to treatment and/or sale of this intermediate product.

2.4.1. Gold Production

Gold is currently extracted within a gravity circuit using Knelson concentrators and a Wilfley table which collects a portion of the gravity gold which is then smelted as doré bullion. It is anticipated that use of the table will cease once treatment of primary ore commences and the gravity circuit will revert to a more typical Knelson concentrator followed by use of the Acacia Reactor.


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2.4.2. Concentrate Production

Copper recovery from the flotation circuit rose to 50% in September and averaged just over 40% during ramp‐up.

Copper grade within the concentrate averaged between 26% and 33% whilst gold grades within concentrates averaged 53g/t during the quarter producing 5,207oz.

First concentrate shipments were made in July 2016 and five shipments were completed during the Quarter. Shipments of 500t each were sent to China and Malaysia as directed by MRI Trading AG who are responsible for marketing the product.

Table 2.2 Summary of processing physicals for Sept 16 Quarter.

Processing Units July August September Total

Ore milled t 35,660 37,600 32,461 105,721

Gold grade g/t 4.01 5.05 8.96 5.90

Contained ounces oz 4,597 6,105 9,351 20,053

Copper grade % 1.16 2.04 3.09 2.07

Contained copper t 414 767 1,003 2,184

Gold produced

‐ Bullion oz 717 1,052 1,855 3,624

‐ Concentrate oz 1,294 2,030 1,880 5,204

Total oz 2,011 3,082 3,735 8,828

Gold recovery (excluding middlings) 44% 39% 41% 41%

Copper produced t 138 239 506 883

Copper recovery 33% 31% 50% 40%

Concentrate produced t 417 917 1,737 3,071

‐ Gold grade g/t 97 78 36 53

‐ Copper grade % 33 26 29 29

2.5. Costs

Open pit costs were in line with budget whilst underground costs comprised capital expenditure required to access the orebody. Following the initial production ramp‐up, the Deflector Project achieved positive cash flow in the month of September.

2.6. Deflector Near‐Mine Exploration

During the Quarter, exploration drilling was hampered by delays in conducting heritage surveys over targets within the Deflector tenement package. These surveys are booked to commence during October. Following these surveys, RC drilling is scheduled for testing of the King Solomon/New Phoenix prospect, as well as aircore reconnaissance drilling of targets identified during the recent mapping and re‐interpretation of the geology at the broader Deflector Project.

In addition to preparations for drilling, during the Quarter a helicopter based VTEM survey was conducted over the eastern flank of the Gearless Well feature, covering the folded extensions of the host unit to the Deflector orebodies. At the end of the Quarter, final data was still outstanding from this survey.


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3. ANNUAL RESOURCE AND RESERVE STATEMENT

During the Quarter, Doray released its Annual Mineral Resource and Ore Reserve statement as at 30 June 2016 (see ASX Release dated 27 September 2016 for details).

This statement showed a 17% increase in Group Mineral Resource Inventory to 1.38Moz Au and 27,000t Cu whilst Group Ore Reserves totalled 467,000oz Au. A summary of the Mineral Resource and Ore Reserve inventory is included below:

Table 3.1 Doray Minerals Ltd Gold Mineral Resource Inventory – as at 30 June 2016.

Measured Indicated Inferred Total

Tonnes Grade Ounces Tonnes Grade Ounces Tonnes Grade Ounces Tonnes Grade Ounces

Units kt g/t oz kt g/t oz kt g/t oz kt g/t oz

Andy Well

164 13.2 70,000 1,020 9.1 298,000 5,337 2.4 419,000 6,521 3.7 786,000

Deflector 1,164 6.0 223,000 1,043 7.3 246,000 658 5.8 122,000 2,865 6.4 591,000

TOTAL 1,328 6.9 293,000 2,063 8.2 544,000 5,995 2.8 541,000 9,386 4.6 1,377,000

Table 3.2 Doray Minerals Ltd Copper Mineral Resource Inventory – as at 30 June 2016.

Measured Indicated Inferred Total

Tonnes Grade Cu Tonnes Grade Cu Tonnes Grade Cu Tonnes Grade Cu

Units kt % t kt % t kt % t kt % t

Deflector 1,164 1.5 17,000 1,043 0.6 7,000 658 0.5 3,000 2,865 0.9 27,000

TOTAL 1,164 1.5 17,000 1,043 0.6 7,000 658 0.5 3,000 2,865 0.9 27,000

Table 3.3 Proved & Probable Gold Ore Reserves – as at 30 June 2016

Gold

Tonnes (Kt) Au Grade (g/t)

Au Ounces

Andy Well 734 6.1 145,000

Deflector 1,781 5.6 322,000

TOTAL 2,515 5.8 467,000

Table 3.4 Proved & Probable Copper Reserves – as at 30 June 2016

Copper

Tonnes (Kt) Cu Grade

(%) Cu

Tonnes

Deflector 1,781 0.9% 16,000

TOTAL 1,781 0.9% 16,000


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4. EXPLORATION AND GROWTH

Doray has a highly prospective exploration tenement portfolio covering a total of approximately 50,000km2 in Western Australia and South Australia.

Adjacent to the Andy Well and Deflector Projects, Doray is actively exploring for gold mineralisation which has the potential to provide additional near‐term incremental development and production opportunities for both Projects.

The Company continues to explore for large, potential stand‐alone development opportunities across its exploration portfolio in WA and SA.

4.1. Western Australia Regional Exploration

Horse Well JV (Doray 60%, Alloy Resources (ASX:AYR) 40%)

During the Quarter, Doray commenced approximately 28,000m of aircore drilling at Horse Well. These programmes are aimed at both extending aircore drill coverage over the Big Kahuna and Crack o’ Dawn south prospects, as well as a major regional campaign testing approximately 7.5km of strike of the underexplored Celia Shear Zone, south of the Django prospect.

As at the end of the Quarter, drilling was still ongoing, with only incomplete assay results received to date. It is expected that this programme will be completed early in the December Quarter, with compilation and interpretation of results to follow.

Mt Fisher Farm‐in Agreement (Doray earning in, Rox Resources Ltd (ASX:RXL) 100%)

During the Quarter, Doray completed a detailed ground gravity survey covering the entire Mt Fisher tenement package subject to the farm‐in agreement, consisting of 14,425 stations on a 500x50m pattern (Figure 3). Initial observation of the data has highlighted several areas of interest that have not been adequately tested by modern exploration. Evaluation of the data will be completed and used to update the regional structural interpretation as part of a Project‐scale targeting exercise.

4.2. South Australia Regional Exploration

Nuckulla Hill Divestment

During the Quarter, Doray reached agreement with Wilgeena Resources Ltd (Wilgeena), to vend Doray’s 100% owned Nuckulla Hill Project into the proposed Wilgeena IPO. As consideration for the vending of the Project, Doray will receive scrip in Wilgeena upon completion of the IPO, conditional on Ministerial consent to the transfer of the Tenements.

Doray considers the divestment of the Nuckulla Hill Project to be a favourable outcome for the Company, with the Project becoming part of a strategically significant landholding and exploration focus in Wilgeena, while retaining exposure to the potential exploration upside through its resultant shareholding. In addition, the divestment allows Doray to focus its regional exploration efforts in South Australia on the extensive +20,000km2 West Gawler Farm‐in agreement with Iluka Resources Ltd, as well as its extensive near‐mine and regional exploration portfolio in Western Australia.

4.3. Business Development

Doray maintains an active business development program and examined a number of potential tenement, project and corporate‐scale opportunities during the Quarter.


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Figure 3. Mt Fisher gravity survey (1st vertical derivative)


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5. CORPORATE/FINANCE

5.1. Quarterly Cash Flow and Net Cash Position

For the Quarter Doray sold 23,695 ounces of gold and 883 tonnes of copper for revenues of $42.61 million.

Doray’s cash position at 30 September 2016 was approximately $14.9 million with $3.4 million of gold‐on‐hand. This gold‐on‐hand position does not include the estimated 5,000 ounces of gold currently contained in middlings inventory.

During the Quarter, the Company made its first scheduled debt repayment of $6 million under its corporate finance facility with Westpac Banking Corporation. While a further $29 million in quarterly instalments are presently scheduled to be repaid over the remainder of the 2017 financial year, the Company advises that it has begun negotiations with Westpac to re‐sculpt its repayment schedule over the remaining life of the facility to better align with the cash flow profile of its operations. The market will be advised of the outcome of these discussion in due course.

Table 5.1 Summary of cash, gold on hand and debt at 30 September 2016

5.2. Hedging

The Company advises that as at 30 September 2016 it had 137,387 ounces sold forward at an average price of A$1,612/oz. The current hedging profile equates to roughly 45% of forecast production to September 2019 in line with the term of the current Westpac debt facility.

Hedging future production represents a key component of the Company’s capital management strategy and is seen as a prudent practice while the Company has outstanding debt.

5.3. Marketing and Investor Relations

During the Quarter the Company attended and presented at the Beaver Creek Precious Metals Summit and the Denver Gold Forum, both held in Colorado, United States. These conferences afforded Doray the opportunity to meet with many of the world’s largest and most active precious metals funds and promote the Company’s operations and exploration endeavours. The Company also conducted a roadshow through Sydney and Melbourne to meet with both existing and prospective institutional investor groups.

Allan Kelly Managing Director

Item A$M

Cash 14.9

Gold on Hand 3.4

Total Cash and Gold on Hand 18.3

Debt Balance (74.5)

Net Cash/(Debt) (56.2)


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For further information, please contact:

Cameron Peacock Investor Relations Doray Minerals Ltd +61 (0)439 908 732 [email protected]

Margie Livingston Media Relations AMN Corporate +61 (0)438 661 131 [email protected]

About Doray Minerals Limited

Doray Minerals Limited is a high‐grade West Australian gold producer, project developer and successful explorer with substantial upside.

The Company controls two high‐grade Western Australian gold assets ‐ the Andy Well Gold Project (Andy Well) and the Deflector Gold Project (Deflector), which commenced production in May 2016. Doray's complementary project portfolio provides increased scale, liquidity and market presence, and a potential re‐rating based on its strengthened market positioning.

Doray has a strategic portfolio of gold exploration properties within Western Australia and South Australia and each presents multiple discovery opportunities. The Company's Board and management team has expertise in discovery, development, and production.

Competent Person Statements

The information in this announcement regarding Exploration Results, Mineral Resources or Ore Reserves has been extracted from various Doray ASX announcements and are available on the Doray website at www.dorayminerals.com.au or through the ASX website at www.asx.com.au (using ticker code “DRM”).

Doray confirms that it is not aware of any new information or data that materially affects the information included in the original market announcement and that all material assumptions and technical parameters underpinning the estimates in that market announcement continue to apply and have not materially changed. Doray confirms that the form and context in which the Competent Person’s findings are presented have not been materially modified from the original market announcement.

drm sept 2016 quarterly report - kitco.com · asx: drm asx release 21 october 2016 issued capital...

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