Cleveland Mining (ASX: CDG) is a South American-focused miner with gold and iron ore projects in Brazil, including the Premier Gold Mine, where commercial production recently began. Cleveland has an all-star Board of Directors, which includes Russell Scrimshaw (former Dept. CEO of Fortescue Metal Group Ltd., “FMG”), Jim Williams (former Head of Mining at FMG) and David Mendelawitz (former Head of Business Improvement at FMG).
Cleveland Mining Company locks in A$1.4M funding for Brazilian gold mine
Cleveland Mining Company (ASX: CDG) has secured A$1.4 million in additional funds to support the operational requirements of its flagship Premier Gold Mine in Brazil as it progress towards being cash flow positive.
The funds came from a large exercise of 4.46 million options totalling $892,000 by managing director David Mendelawitz as well as a short term $500,000 funding facility.
“The outlook for Cleveland is very positive in 2013 as we optimise and expand operations at the Premier Gold Mine,” Mendelawitz said.
“Our focus remains on growing the business, while underpinning the existing operations with cash flow from the sale of gold from Premier.”
Mendelawitz added that recent gold recoveries have been 10‐20% above budget from the gravity circuit while the opening of ore faces has significantly expanded the company’s knowledge of the ore‐body during the last few months of mining.
“This improved understanding means that we are now able to plan our expansionary drilling program to be even more efficient and provide better results per dollar invested.”
Mendelawitz’s options had vested against the company hitting the key milestones of completing a positive Feasibility Study for the Premier Gold Mine and the successful commissioning of its production plant.
The short term facility can be converted to fully paid ordinary shares in the Company at a price of $0.32 per share or repaid on the six and twelve month anniversaries of the facility. This conversion price is in line with the current share price of the Company.
The facility was entered into with an Australian based strategic investor and provides the Company with financial flexibility ahead of the Premier Mine becoming cash flow positive.
Premier Gold Mine
Premier Gold Mine is held as a 50:50 Joint Venture with Edifica Participacões.
It is located in an area that is very close to the town of Crixás with a population of 20,000 people, and includes gold mining infrastructure that supports operations at the Serra Grande Gold Mine.
Premier is a high potential brownfields gold project that is part of the Crixás Hub of 15 concessions that cover about 150 square kilometres, and contains an Inferred resource of 1.95 million tonnes at 1.42 grams per tonne gold for 89,000 ounces of gold. This resource was defined from historical data and a limited drilling programme that evaluated a very small portion of the total project area.
Cleveland had decided to build a small mine as quickly as possible rather than continue drilling in order to generate early cashflow, gain Brazilian construction and mining experience, implement systems and procedures, and develop an understanding of the permitting processes.
The mine is designed to be quickly expanded, which the company started planning for even before mining and processing of the first stage had begun.
Cleveland has completed and commissioned a Stage One process plant that was built for A$5 million and comprises crushing, grinding and gravity separation circuit that is rated at 40TPH and should produce between 10,000 and 20,000 ounces of gold per annum with a recovery of 25% to 65% gold.
The company plans to install a CIL cyanide circuit early in 2013 to boost recovery to 97% and will reprocess the tailings material from production coming before its installation.
A Stage Two process plant will soon be under construction, boosting throughput to 80 tonnes per hour. This will involve the installation of a second ball mill and will allow for production of up to 40,000 ounce per annum at an operating expenditure of about A$450 per ounce.
This expansion will be fed by the O Capitão resource about 10 kilometres to north.
O Capitão was the site of historical artisanal mining in the 1980’s that produced between 180,000 and 350,000 ounces of gold.
Cleveland has also identified a large gold in soil anomaly at the Premier South Zone that is measured at 2 kilometres in length and covers mineralised outcrop that has been partially drilled.
This mineralised zone lies immediately along strike from producing gold resources at Serra Grande and will be aggressively developed by further drilling programmes in the near term.
Cleveland has advanced its Premier Gold Project from a brownfields acquisition to gold production in less than 3 years with construction taking less than 12 months.
The funds will support the project’s operational requirements as the company moves towards installation of a CIL cyanide circuit and construction of the Stage Two process plant.
Premier is expected to produce 20,000 ounces of gold per year, at a cash cost of around $450 per ounce with production doubling within a year.
At the current gold price of about A$1,550 per ounce this equates to about $22 million of cash-flow basis, and before the 50:50 joint venture partners account for repayment of capital, taxes and other outgoings.
This significant and ongoing cash flow stream will be directed towards exploration, development and production upgrades within the Crixás Hub.
The recent purchase of a 5% interest in Cleveland Mining by BC Iron Ltd for $5.7M values Cleveland Mining at $114M or $0.64 per share, and the previously announced sale of a 6.25% interest in “Cleveland Iron” to Chinese interests that remains unconsummated places a potential valuation of $164M on the iron interests alone.
This equates to $0.93 per share, and underlines the tremendous discount that the market currently applies to Cleveland Mining.
Based on this metric alone, and applying a discount for conservatism, we value Cleveland Mining at between $0.54 - $0.73 against a current share price of $0.32.
This affords an opportunity for investors to acquire a newly minted gold producer – Cleveland Mining - before many investors discover the mis-pricing and uplift expected in the 12-18 months time.
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