Geopacific muscling into giant territory with PNG gold majors

They say that it’s often the second owner of the big projects that make money from them and that may well be true of Geopacific Resources’ Woodlark Island project in PNG.

It was picked up for a song by Geopacific from Kula Gold and is positioned dead centre in the middle of a string of copper and gold infested islands that make up mineral rich Papua New Guinea.

In a region littered with mining projects that boast gold resources of up to 60m ounces, it is almost unthinkable that Geopacific’s mineral reserve would remain at just 766,000 ounces of gold – a number that would already have most junior explorers starting a conversation with an EPC contractor.

A quick glance at the existing PNG projects that form a neat radius around Geopacific’s Woodlark Island project leaves you with the distinct impression that this is indeed the land of the giants.

Neatly positioned around Woodlark is Newcrest’s 49m ounce Lihir project, St Barbara’s 6m ounce Simberi project, Rio Tinto’s former 23m ounce Panguna mine, the 29m ounce Hidden Valley project, the dual 17m ounce Ok Tedi and Frieda River deposits and the 24m ounce Porgera project.

The goliath amongst the giants however is clearly the 63m ounce Freeport Papua project that boasts one of the largest gold and copper resources in the world.

At 2m ounces of resource and 766,000 ounces of reserve going 2.2 grams per tonne, Geopacific’s deposit, as impressive as it is, drifts into obscurity amongst these giants.

The company is however continuing to furiously drill it out and with such huge projects in their midst, management’s expectation of a sizeable upgrade in reserve is perhaps not unreasonable.

Kula Gold listed on the back of the Woodlark project with a remarkable $1.80 float in November 2010 that resulted in a $203m market cap for the company.

They had $80m in the bank on listing day and spent the lot on the project and then some.

In fact by the time Kula ran out of financial puff last year they had plunged almost $150m into the project and associated corporate entities.

Amazingly, Geopacific picked up 87% of it earlier this year through a series of corporate and project level plays for the paltry sum of just $10m worth of script and $650k worth of expenditure on the ground.

And the project came gift wrapped too, courtesy of the PNG Government who will buy 5% of it when it is ready to be mined by paying the equivalent of 5% of sunk costs to-date. This could see the PNG Government shell out more than $6m for just 5% of the project.

Geopacific started their quest for control of Woodlark initially by entering into a farm in agreement with Kula, but later decided to take over the entire company in a 1 for 1.1 all script offer and to-date have secured 86% of Kula’s stock in a move that cost them only about $10m in script.

In addition to now holding 86% of Kula who own 95% of Woodlark, Geopacific already own 5% of the actual Woodlark project after spending $650k on it as part of their farm in agreement.

They also have further farm in rights and creep abilities that will most likely see them own almost all of it save only for the PNG Government’s 5% share in due course.

Woodlark could very well be a miners paradise too, with a reserve that may well keep growing and a project that is already fully permitted from both an environmental and mining perspective.

The project came with a veritable storehouse of drilling data from over 275,000 metres of drilling and Geopacific have added over 20,000 additional metres since getting involved.

Even though the global resource grade at Woodlark is 2.2 grams per tonne, the three different prospects within the project boast some impressive high grade breakouts.

These include a 32m intersection grading 7 grams per tonne gold, 48m @ 10.39 g/t, 36m @ 12.52 g/t, 11.2m @ 36.3 g/t and 22m @ 7.54 g/t gold, all of which are from the Kulumadau prospect which is still open to the west and East.

Geopacific discovered an 84m mineralised zone at Kulumadau with several well mineralised intercepts including 10m @ 7.84 g/t, 13m @ 3.11 g/t and 12.3m @ 2.23 grams per tonne gold.

Other impressively long intersections at the project include 21m @3.27g from 40m, 23m @ 4.82 g/t from 102m, 52m @4.5g/t, 19m @ 3g/t, 27m @ 2.5g/t, 34m @ 3g/t and 33m @ 4 grams per tonne gold.

Kula completed a feasibility study on the project some years ago which will most likely require updating now but will serve as a cost effective base for Geopacific’s own study of the resource.

Kula concluded that the project could turn out 674,000 ounces of gold over the first 6 years of mine life from a 1.8mt per annum plant.

They predicted that figure could increase to 813,000 ounces over the first nine years when in-pit inferred resources and lower grade stockpiles were utilised.

Cash operating costs were predicted to come in at around US$730 an ounce with capital costs looking like being somewhere in the order of US$160m.

Kula’s study also identified several out of pit areas that could potentially increase the ore reserve in time, particularly at the Kulumadau prospect where a further 4mt at 2.9 grams per tonne for around 400,000 inferred ounces were identified but not included in the pit design at the time.

Kula were looking to upgrade these resources with further drilling and the grand plan was to eventually amalgamate the Kulumadau east and west pits.

Geopacific recently raised $10.5m in an oversubscribed capital raise to continue the considerable work already carried out on Woodlark by Kula and they are now armed and dangerous as they hurtle headlong towards a decision to get into production.

The market is expecting an upgrade to the mineral reserve at Woodlark sometime soon as Geopacific completes its own study on the project and continues its extensive drilling campaign.

Geopacific management appear have form too. The management team, led by Geologist Ron Heeks point to the 10 mines in six different countries they have developed between them as evidence that they can make Woodlark fly. Notably Heeks was the technical manager at Straights Asia and was partly responsible for turn around at the Muro gold mine and also at the Sebuku coal mine amongst other things.

The institutions are also sitting up and taking notice of Woodlark too with the likes of Tembo Capital, RCF, Pacific Road, Franklin Advisers and RMB Australia sitting comfortably on the Geopacific register now.

Woodlark is a fast developing story that looks to still have some upside with the potential to really surprise given the monolithic projects on its doorstep.

PNG is a region that does not consider a 2 million ounce resource or even a 2 million ounce reserve to be remarkable – at just 2.7c a share and with a market cap of around $50m, Geopacific and Woodlark look interesting amongst a sea of amazing projects.