A surge in zinc demand over the last 12 months has MMG well placed as its $1.4 billion Dugald River mine nears first shipment in December, several months ahead of schedule.
Zinc remains in bullish territory as supply enters critically low levels and demand continues its steady march upwards – making it a great time for MMG’s $1.4 billion, 170,000ozpa Dugald River mine to enter production.
“With every operation that I have come across there is always an intention by management to try and see if you can push it above nameplate – especially while prices are good.”
SITTING on one of the world’s largest undeveloped zinc- lead- silver deposits, Dugald River will come online at an opportune time for MMG as it works towards its goal of becoming a top mid- tier mining company by 2020.
It will be a game changer; once Dugald River enters production MMG will add a further 170,000 tonnes of zinc ( at peak) to its group production a year.
This represents a sizeable increase on current group zinc production, which was expected to reach between 65,000t and 72,000t in 2017.
The improving zinc market will also work to the company’s favour.
It has already been a watershed year for the base metal; after steadily climbing over the course of the year following a sequence of mine closures, in August zinc surged above $ US3000 a tonne for the first time in almost a decade.
Higher prices were expected to continue out to 2019 as the global market rides through a deficit.
“Just looking at the fundamentals supply and demand wise there’s certainly the expectation that the current price situation won’t change overnight,” Dugald River general manager of project delivery Pierre Malan told The Australian Mining Review.
“It will take some time for what is currently about eight days of zinc stock in the international market ( eight days of consumption).
“That’s a very small stock position, and for that stock position to change, there will need to be some radical changes by the supply or demand side, and as we know on the supply side changes to increase takes a bit of time.”
Dugald River is expected to be one of the world top 10 producing zinc mines. The company’s optimised mine plan supports a 1.7mtpa zinc operation plus by- products including 18,000 tonnes of lead and 981,000 ounces of silver in concentrate per annum.
The project has been on the drawing board for some time, but wasn’t progressed until July 2015 when an updated development plan was approved.
Not wasting any time, MMG began construction a month later, and has since been pushing towards its goal of first production in 2018.
However a few months ago, the company announced production was in fact able to begin earlier than expected, with first shipments in late 2017.
When asked how the company was able to achieve this milestone ahead of time, Mr Malan attributed the progress to “good work from its contract partners” and the project management team on site.
“Our development program for this project was quite an aggressive one,” Mr Malan said.
“We haven’t had any major critical path delays and as a result we haven’t had to go significantly into any schedule contingency.
“That’s the reason we’ve been able to bring it forward into 2017.
“We are hopefully looking at December (before Christmas) getting our first shipment of concentrate out of the Port of Townsville.”
At the end of August the project, including the underground mine and surface infrastructure, was more than 80 per cent complete.
“We’re getting to a stage where we are focusing on commissioning and construction verification throughout the surface plant while producing ore from underground and stockpiling that on the surface,” Mr Malan said.
“We have already managed to [stockpile] about 330,000 tonnes of ore on the surface in readiness for start-up and ramp up.
“We’ll continue with that over the next two to three months, and add about another 100,000t to the stockpile prior to start up.”
While it was too early to determine ore quality, so far there had been “no surprises” from the three small stopes it had mined, Mr Malan said.
On the surface, MMG had completed about 97 per cent of construction works including the tailings storage facility, reclaim and utility areas, and was getting close to ore commissioning its grinding circuit and starting wet commissioning of its flotation plant.
“The intention will be to progress through wet commissioning into ore commissioning and hopefully produce the first concentrate somewhere late October,” Mr Malan said.
The expected remaining capital cost to project completion was still consistent with previous guidance of between $US600 million and $US620 million plus interest costs.
Recruitment was also in full swing, with all maintainers and plant operators now on board.
“They’ve all started,” Mr Malan said. “We have started to introduce at a limited scale, a night shift on the surface operations from the end of August, and that will form part of the wet commissioning and ore commissioning of the plant over the next two months.”
Once production begins, the company expects to employ a total of 350 employees; slightly under its initial estimate of 400.
Many of these employees will come from the nearby Cloncurry and Mt Isa regions, helping bring in economic benefits to the local communities.
“We don’t have any quotas; we have a process where we are very transparent and open about that we prefer to employ locally,” Mr Malan said.
“Only once we have exhausted all opportunities to employ people out of those two locations, or to get people who are interested to relocate to those centres, do we go out to Townsville and fill the rest of vacancies with suitably qualified people.”
The next phase
While commissioning and training staff was the primary tasks for the rest of 2017, the Dugald River team will soon shift its focus to ramp-up.
For the first six to nine months of next year, all efforts will be placed on safely increasing production from the mine and processing plant in order to hit nameplate capacity.
“We will be hoping and planning to achieve nameplate capacity towards the end of 2018 at which point we can see what opportunities there might be to further debottleneck the mining operation and processing plant [ to] boost the volume above nameplate,” Mr Malan said.
“With every operation that I have come across there is always an intention by management to try and push it above nameplate, especially while prices are good; the return on that incremental volume is often very good.”
Mr Malan said he had no “crystal ball” for zinc’s trajectory, but he was confident prices would be sustained, especially within the first few years of the project’s operating life.
“At the current price of around $ US1.40 per pound, that’s certainly a good price for us,” he said.
“We will be hoping to make some reasonable margins when we come into production.
“Coming into production even every week earlier than what you otherwise would will be beneficial for the company.”
Looking ahead, Mr Malan didn’t rule out an extension to the current 25 year mine life.
“We’ve got plenty of potential within the orebody, so what’s currently a 25 year mine life could potentially extend up to 40 years and beyond,” he said.
“However, there is a lot of work that will have to happen in later years to properly delineate that potential resource lying underneath the current orebody; [ we need to] work through details in terms of mining method and costs and see what needs to be done to bring that into the operation.”
“Our development program for this project was quite an aggressive one.”
The Dugald River tailings storage facility dam wall.
The project will begin first shipment in December 2017.
The Dugald River 1.7 million tonne per annum processing plant.
The expanded permanent village.