Western Gold Resources (ASX: WGR) has released a positive scoping study for its wholly-owned Gold Duke project in Western Australia, demonstrating attractive value and potential cash generation over a broad range of gold prices.

The study evaluates a potential open-pit mining scenario with ore processing via toll treatment at an unconfirmed plant within a 50-kilometre radius.

Toll treatment has been determined to provide the lowest capital and operating costs and is believed to be the optimal commercialisation strategy for Western Gold.

Multi-pit development

The project economics are based on a $7.2 million multi-pit development that extracts 51% of the current published mineral resource of 2.9 million tonnes grading 2.07 grams per tonne for 234,000 ounces.

Mining has been approved for the Eagle, Emu and Golden Monarch deposits, with each pit estimated to have a mine life of less than 12 months and maximum cash drawdown occurring before the halfway mark.

The total project has an estimated mine life of approximately 10 months, with processing times dependent on mill availability.

Minimising costs

The Gold Duke development has been optimised to minimise upfront capital costs, utilising operational cash flow to self-fund the mining process and generating open-pit ore feed to nearby processing facilities.

Using a gold price of $3,500/oz, the production target mining inventory for the project has been determined at approximately 447,000t at 2.55g/t for 34,000oz.

The target generates an estimated undiscounted accumulated cash surplus of $38.1m after payment of all working capital costs and pre-mining capital requirements, estimated at $2.5m.

The study calculated a net present value of $35.1m at an 8.5% discount rate and a 617% internal rate of return.

The results suggest the project economics are robust for a broad range of gold prices, with positive outcomes returned above $2,340/oz.

‘Significant upside’

Managing director Warren Thorne said the Gold Duke scoping study indicated significant further upside for the operation.

“The mine plan has been designed to minimise risks associated with ramp-up and deliver a profitable gold producer in WA with significant upside to expand on the production profile and mine life,” he said.

“In parallel with our efforts to bring Gold Duke into production, we continue to advance exploration across the project with the intent of finding additional ounces to add to the mine plan.”

Next steps

Western Gold is now focused on securing a toll milling agreement and appointing a mining contractor to conduct operations at Gold Duke.

Mr Thorne said Western Gold would explore funding options to the value of $6.6m, including $2.3m in pre-production costs.

The company will also assess the potential of a non-dilutive joint venture arrangement.