Manuka bolsters production capacity with OceanaGold deal
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Manuka will substantially increase its production capacity in NSW’s Cobar Basin with a deal to buy OceanaGold’s Reefton processing plant at a bargain price, which the company will fund from existing cash.
Manuka Resources (ASX:MKR) has signed a binding agreement to acquire OceanaGold (New Zealand) Ltd’s 1 million-tonne-per-annum (Mtpa) flotation circuit for just $400,000, enabling the company to materially boost processing capacity.
Together with the existing 850,000tpa leach circuit at the company’s Cobar Basin operation, processing optionality and flexibility is significantly increased and allows the site to reach its full potential processing ore from the Wonawinta deposit and future surrounding resources.
While installing the flotation plant in a conventional configuration enables potential production capacity approaching 1Mtpa, Manuka will now have the required future capacity and ability to process oxide and/or sulphide ores as needed.
This flotation circuit will also be crucial for the processing of base metals that are being explored in the current exploration program. In early June, Manuka announced the initial exploration results from a potentially game-changing discovery of high-grade zinc and lead, along with high-grade silver, beneath the existing Wonawinta resource.
Manuka already had a leg up when it acquired the Wonawinta project with an existing processing plant. Now with this latest strategic acquisition, the company – which has already paid a $30,000 deposit – will be able to rapidly increase production capacity without enduring the lengthy time associated with the permitting and approvals required for a new facility.
Executive chairman Dennis Karp said the acquisition was a fraction of the cost of a new build.
“For a company to build a new 1Mta plant from scratch would cost in the vicinity of $200 million and take at least three years to secure approvals and complete construction,” he said.
“Manuka has saved a substantial amount of time and money by sourcing second-hand equipment in good condition to materially increase production.”
However, Karp said the company’s market value, which is currently around $80m, is a significant discount to what it would cost to build a new plant without assigning any value to the Mt Boppy and Wonawinta resources.
“We believe the addition of the flotation circuit adds materially to the inherent value of the company,” he said.
MST Access analyst Michael Bentley also believes Manuka is way undervalued.
Late last year, Bentley suggested shares should be trading at around 97c – nearly 234% higher than where they are sitting right now.
OceanaGold’s Reefton plant operated for around 10 years from 2007, during which time it produced over 600,000 ounces gold in concentrate from Oceana’s Globe Progress mine. Manuka says the plant has been on care and maintenance since 2017 and is in good condition.
The company expects to begin relocating the plant by mid-2022 and could have it production ready by early 2023 if required.
There are very few processing options in New South Wales’ Cobar Basin with just four of the 20 explorers and emerging producers in the Basin and Central West region, including Manuka, having a total of five operating production facilities between them
Machinery and equipment supply delays arising from COVID are extensively adding to project timelines. Adding this to an already time-consuming permitting and approval process is negatively impacting many development schedules.
Manuka said having process equipment readily available was considered a “material advantage”.
The company is also reviewing options for stand-alone flotation and leach circuits. This would enable around 850,000-1 million tonnes each year to be processed through each circuit, effectively doubling current capacity, but would be subject to the addition of a second crushing and grinding circuit.
Manuka is preparing to transition over to silver production once phase-one gold production at Mt Boppy is completed in late February/early March this year.
The company has banked around $12m in profit from Mt Boppy gold production in the past six months.
This article was developed in collaboration with Manuka Resources, a Stockhead advertiser at the time of publishing.
This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.