LONDON (ResourceInvestor.com) -- AIM and TSX-V listed diamond miner and gold explorer BDI Mining [BMG] is producing good quality diamonds at its Cempaka alluvial project in Indonesia, and is using the cash flow generated from this to fund its exploration efforts, including those at the potentially sizable Woodlark Island gold project in neighbouring Papua New Guinea.
While BDI is currently suffering ‘a few hold ups’ at Cempaka according to its CFO Chuck Forrest, these problems should shortly disappear along with the torrential seasonal rain that is limiting the ability of the project’s mining contractors to keep to schedule. Production is currently below projections at around 60 carats per day, but by March when the weather improves output is expected to rise to 120-150 carats per day.
BDI recently installed a brand new processing plant at Cempaka, and this is reportedly working well. At an anticipated per carat price of $200 the company expects cash flow of around $10m per annum from Cempaka once it is properly on stream.
As well as Woodlark this will fund exploration in Indonesia on the company’s Bobaris project, a promising kimberlitic target that is thought to be the origin of the alluvial diamonds being mined ‘downstream’ at Cempaka. What remains to be seen is whether a significant amount of the original diamonds are still in place at Bobaris, but the company is hopeful and the market is likely to become much more excited about a significant kimberlitic find than about the current alluvial production.
BDI has employed a cohort of South African exploration staff who have had considerable experience in detecting Kimberlitic deposits, and investigative work will hopefully begin in Q2 of this year once the company has perfected its alluvial operation and secured the resulting revenue stream. If BDI were to make a significant Kimberlitic discovery, then Mr Forrest says that the likely costs and time involved in development would make it inclined to joint venture the project with a larger company should interest be expressed.
At Woodlark Island gold project in Papua New Guinea BDI has contracted an independent consultant to revaluate the existing exploration data using a new model, and this is anticipated to result in a significantly increased resource from the 370,000oz gold already delineated.
The company expects to begin a multi rig drilling programme at Woodlark on two known targets, Busai and Kulumadau, in April of this year, while an ‘aggressive’ programme of channel sampling is to take place at the Muniai prospect. BDI hopes to generate a credible resource estimate for Woodlark of in excess of 1moz before taking the first steps towards production. Although unwilling to make an estimate of capital costs for construction of a mine, Mr Forrest imparts that the company is in discussions with a ‘major London bank’ regarding project finance, and that funding would also be raised from the markets. Project costs reportedly look ‘attractive’, assuming that the gold prices remains close to its current level.
Though Woodlark is only at the preliminary stage of development, Mr Forrest estimates that production could theoretically begin in late 2006 to early 2007, expecting development to take ‘24 months from feasibility study to first cash flow’. The project apparently requires only relatively simple processing, both physical and metallurgical, and there are no real environmental stumbling blocks.
BDI enjoys a very good relationship with the government of Papua New Guinea, and Woodlark island is not in close proximity to any of the nation’s regions with known secessionist tendencies. Infrastructure on the island is ‘not bad’, though access is obviously by light aircraft or boat only.
If BDI is to rapidly progress Woodlark as well as its operations in Indonesia then cash flow from Cempaka is likely to prove insufficient, so Mr Forrest says that the company would go to the market for further funding that would allow serious exploration to take place.
The company is also currently negotiating for the acquisition of a further Australasian gold project which reportedly has 1moz plus potential, though falls short of the 5moz its current owner was looking for. The outcome of these discussions is looking uncertain due to a lack of agreement on the fair value of the project, but some news could emerge in the next 30 days. If the negotiations do not result in an acquisition then Mr Forrest says that the company will remain alert to further opportunities in the region, which will remain BDI’s geographical focus for the foreseeable future.
