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Hellyer

NQ Minerals 2019 has been an excellent year operationally

NQ Minerals plc (AQSE:NQMI) has provided final results for the year 31 December 2019. 

Non-Executive Chairman’s Statement

2019 has been an excellent year operationally for NQ Minerals Plc.  The Company’s first full year of operations at our flagship Hellyer Gold Mine operations in Tasmania, Australia, has been transformational for NQ. During the year, we saw regular improvements on a month-over-month basis in lead and zinc concentrate production and mine site operating profits, and we are targeting even better performances this year from this long-life asset.

We are also now venturing in to a new and exciting era of gold production with our recent deal to acquire the iconic and very rich Beaconsfield Gold Mine in Tasmania. We should be able to leverage well off our operational and management skills in Tasmania to create something quite special at Beaconsfield for shareholders in the years to come.

2020 should be a good year for NQ.

The COVID -19 pandemic has brought upon us unprecedented times. With some good fortune and thanks to the enormous efforts of our staff and Management, we have continued full operational status in Tasmania during this COVID-19 crisis.

The Tasmanian Government took bold steps early on in this pandemic to isolate the State from the Australian mainland and this has served well in limiting and containing the spread of the virus. Indeed, Hellyer has improved plant throughput through these difficult times as part of the 2020 programme to lift annual production rates to 1.2 million tonnes per year, which I am pleased to say was achieved in the last days of June 2020. The safety and security of our staff, contractors, stakeholders and communities is our number one priority at NQ.

The COVID-19 crisis should provide a few silver linings for NQ, or should I say gold linings. The first being the potential for significant lead and zinc price increases during 2020, as many base metal mines around the world are either cutting back on their production or in some cases suspending operations altogether and secondly, the global economic uncertainty has also seen a recent solid rally in the gold price.

The Bank of America recently forecast that the gold price could reach US$3,000 an ounce over the coming 18 months. NQ now has excellent exposure to a gold rally through our gold and silver credits in Hellyer’s concentrate production and through future gold production from the Beaconsfield Gold Mine.

Corporate

NQ has been active on several corporate initiatives which include enhancing the profile and visibility of the Company in the global capital markets space, diversifying our portfolio of assets, and moves to restructuring our debt that was put in place to start

The Company’s shares are now traded in the USA through the OTC Markets. We now have an American Depository Receipt traded in the United States under the ticker NQMIY and the ordinary shares trade under the ticker NQMLF. NQ believes that having an ADR traded in the United States will provide additional trading liquidity in the world’s largest capital market. To further expand our global market presence, the Company has also engaged specialists DGWA in Germany to seek a listing on the Frankfurt Stock Exchange (“Börse Frankfurt).

In late February 2020, we signed a binding staged acquisition agreement totalling £1.05 million to purchase a 100% interest in the historic high-grade Beaconsfield Gold Mine in Tasmania and after extensive due diligence, NQ took formal ownership of the mine in late June 2020. Beaconsfield is historically one of the richest gold mines in Tasmania, with past production totalling nearly 2 million ounces of gold from 1887 to 2012 at an average grade of nearly 15 grams per tonne gold, and we plan to bring Beaconsfield back to gold production as soon as practicably possible.

In July 2020, we announced that ING Bank N.V. (“ING”), a leading global resources bank, committed to provide the Company with a USD 41 million banking refinancing facility to assist with the restructuring of the corporate debt put in place during 2017 and 2018.  The facility also includes an accordion option to increase the amount up to USD 55 million, subject to further conditions, including credit committee approval for the further amount. 

The facility will allow the Company to repay Hellyer’s early project debt, reducing the Company’s interest expense by approximately USD 2.5 million per annum. 

During 2019, the Company also made a strategic investment in a private Tasmanian mining Company, Tasmania Energy Metals Pty Ltd (“TEM”), which owns the Barnes Hill Nickel and Cobalt project, which is adjacent to the Beaconsfield Gold Mine. TEM is targeting the development of a new low cost and long-life nickel/cobalt/gold/silver operation. This project has synergies with Hellyer, as the envisaged processing path has the potential to increase Hellyer’s gold and silver related revenues. The Company is jointly advancing this project and advanced technical studies continue.

Production

Hellyer Gold Mine – Tasmania, Australia

During 2019, we announced several record-breaking month-over-month production performances at Hellyer. In January 2020, we announced record production for the month of December and for the fourth quarter of 2019 at Hellyer. Production statistics for 2019 quarter- over- quarter were as follows:

Reconciled Production2019 Q42019 Q32019 Q22019 Q12019 Full
Lead Concentrate (tonnes)8,1606,6565,4524,71224,980
Zinc Concentrate (tonnes)4,9043,3104,4163,01515,646
Pyrite Concentrate (tonnes)20,88110,10928,37518,48877,853

We have seen strong improvements in metal recoveries in both our lead and zinc concentrate circuits during the 2019 financial year, with average lead recoveries in December 2019 exceeding 50% for the first time. Continuous plant improvements and expansion plans saw plant throughput increase steadily throughout the year and the mine managed to achieve production rates exceeding 1.2 million tonnes per year in June 2020.

Production to date has focused primarily on getting the best out of the lead and zinc concentrate streams, with optimisation work continuing to show gradual improvements. At the moment, less than 10% of Hellyer’s gold and silver inventory within the tailings dam is recovered in the current process flow sheet, with the balance being returned back into the tailings dam for reprocessing at a later date.

With Hellyer’s published JORC compliant Mineral Resource Estimated at 9.25 Mt (which is host to gold at 2.57 g/t for 764,300 oz, silver at 92 g/t Ag for 27,360,300 oz, Lead at 2.99% for 276,600 tonnes and Zinc at 2.57% for 217,400 tonnes), gold is the main Insitu value metal. A number of opportunities to economically recover gold and silver are being evaluated. Related studies are assessing process options, estimating capital and operating costs and establishing project execution approaches.

To compliment the Hellyer surface operations, NQ fortuitously managed to secure the rights to the exciting underground resources at Hellyer in the early part of 2020, and in so doing significantly increased the lease area around Hellyer four- fold.

The acquisition of the underground mineral rights included 1.175 million tonnes of underground JORC Resources grading 8.6% zinc, 4.9% lead, 1.66 grams per tonne gold and 96 grams per tonne silver. These resources offer significant potential for increasing Hellyer’s overall resources and add to the 10-year mine life of our current tailing’s operations. We have identified several advanced exploration targets and will commence an exploration program to expand the known underground resources later in 2020.

Development

Beaconsfield Gold Mine – Tasmania, Australia 

In February 2020, NQ announced the acquisition of the Beaconsfield Gold Mine in Tasmania for £1.05m. The acquisition includes the Beaconsfield Mining Lease, infrastructure, permitted tailings dam and a 350,000 tonne per year gold processing plant. Historic gold production at the Beaconsfield Gold Mine was in two main phases before ceasing operations in 2012 due to low commodity prices:

• 1877-1914 – 1.04M tonnes for 855,000 ounces of gold (avg grade 25.6 g/t gold)

• 1999-2012 – 2.72M tonnes for 920,000 ounces of gold (avg grade 10.5 g/t gold)

In May 2020, we announced a new Mineral Resource Estimate for the lower section of the Beaconsfield Mine, resulting in an increase in contained gold resources underground to 1.454 million tonnes grading 10.3 grams per tonne gold for 483,000 ounces of gold.

Beaconsfield Mine
Mineral Resource Statement – 30th April 2020

Ordinary Kriging Grade Estimates

Subdivided by Resource Category Above a Lower Cut-off Grade of 3g/t Au. 

 
Resource CategoryTonnesktGold GradeAu g/tContained MetalsAu koz
Measured48511.4177
Indicated49211.2177
Inferred4778.4129
Total1,45410.3483

Importantly, this new Beaconsfield resource is only for the lower section of the mine from the 415 metre level down to the 1,500 vertical metres depth, and the ore body remains open at depth. The deepest hole returning 2.5m at 32.4 g/t gold. No resources have yet been calculated for the rich upper section of the mine, which was mined from 1877-1914.

NQ plans to re-open Beaconsfield by developing a new modern mine commencing with the development of a 3.6km decline access from surface to reconnect into the existing mine workings at the 430 metre level. The Company believes Beaconsfield offers a genuine opportunity to develop a high-quality gold asset in short order.

Tasmania Energy Metals (“TEM”) Nickel and Cobalt Project – Tasmania, Australia

During 2019, the Company made a strategic investment in a private Tasmanian mining company Tasmania Energy Metals Pty Ltd (“TEM”). TEM and NQ have been developing plans for an integrated mining and processing facility located in Tasmania only 200 km by road from Hellyer. The it is envisaged that the facility would utilise the main by-product from the treatment of the pyrite/precious metals concentrate produced from Hellyer, generating sulphuric acid for the further production of nickel and cobalt salts for the sale in the electric vehicle battery market. In April 2020, an updated Mineral Resource Estimate was issued by Snowden Mining Industry Consultants Pty Ltd for the Barnes Hill Nickel Project. The new expanded resource has increased substantially to 25Mt @ 0.6% nickel and 0.05% cobalt using a 0.25% nickel cut-off grade. Recent metallurgical test work on the Barnes Hill laterites now supports an updated flowsheet that will serve as a new base case in the current Pre-Feasibility Study which is underway.

Exploration

Ukalunda Gold Project – Queensland, Australia

The 64.4km2 Ukalunda tenements, located 300 km South from Townsville have excellent potential to host a gold deposit of size. There are multiple shows of mineralisation of similar characteristics to major deposits in the regions, such as the historic Wirralie Gold Mine, with its previously produced 1.1 million ounces of gold. The area is highly prospective for gold, silver and base metals. Queensland Environmental Authority, it has now been granted a mining lease for NQ’s wholly owned Sunbeam Silver Mine. The granting of the mining lease allows for a more active exploration effort at the historic Sunbeam Mine and further assessment of the multiple surface which have been assessed to contain gold, silver, lead, zinc and antimony. The Company is currently working with its geological consultants to ascertain the true grade and tonnage available in the Sunbeam stockpiles with the view of monetising their value.

Square Post Gold Project – Queensland, Australia

The 168km2 Square Post licenses lie close to the main Flinders Highway only 50km south of the city of Townsville. The area is considered highly prospective for gold and is considered underexplored. Exploration is expected to start in earnest in 2020.

Safety & Environmental

The Company is determined and committed to making a positive impact in our communities. The Company continues to operate at the highest standards as it relates to Environmental, Community, Sustainability and Human Resource policies and procedures. We are committed to maintaining high performance standards and constantly strive to promote a culture of excellence that encourages our employees to exceed regulatory requirements for health, safety, community development and the environment. We reported no lost time due to accidents in 2019, which is a testament to all our teams.

Finance

ING Bank N.V. has committed to provide NQ with a refinancing facility.  This will allow the Company to discharge most of the current debt maturing in 2020.  The facility better aligns the cash flow from Hellyer with the repayment obligations and term of the proposed facility.  The Company has also been successful in raising equity and debt from issuances in 2019 and 2020.

Hellyer Gold Mine has improved its operational performance during 2019 to show a reduced loss of £4,921,449 (2018: £7,267,083). Net debt for the period is £9,636,963 (2018: £3,441,246) and a loss per share of £0.46 (2018: £0.66).

A summary of the Group financing position includes:

•     A net debt position as at December 31, 2019 of £56,378,310

•     The Group does not pay a dividend.  

Outlook

The Company’s first year of operations at Hellyer has been transformational for NQ. During the year, we saw improvements on a month over month basis in production and mine site operating profits. 2020 has continued on with operational success, with Q1 2020 seeing production of lead concentrate totalling to 8,127 tonnes and zinc concentrate production of 4,609 tonnes. In addition, Hellyer produced 1,081 ounces of gold and 230,441 ounces of silver during Q1 2020. The second quarter in 2020 (Q2 2020) continued to see further improvements in production, with 8,762 tonnes lead concentrates and 4,241 tonnes of zinc concentrates. In addition, Q2 2020 saw a total of 1,223 ounces of gold and 229,947 ounces of silver produced as payable precious metal credits in the lead and zinc concentrate streams.

The Company is implementing programmes to further enhance plant throughput at Hellyer in 2020. We have now successfully achieved a new record rate of production at 150 tonnes per hour (>1.2 million tonnes per year) through the plant and we continue to review ways to increase this further should the mine be required to achieve higher throughputs.

Our new Beaconsfield Gold Mine acquisition provides the possibility for significant near-term cash flow from gold production. The new JORC resource of 1.454 million tonnes grading 10.3 grams per tonne gold for 483,000 ounces is significant resource and could provide a stable low-cost operation for many years to come.

The Executive and Board have performed exceptionally well during a challenging commissioning year at Hellyer and have taken advantage of consolidating accretive transactions during the latter part of 2019 and into 2020. We are experiencing unprecedented times, but my experience has seen that in times of adversity, quality people face the challenges well and rise to the occasion. Our teams have done well protecting themselves from COVID – 19 and the Company, whilst continuing to turn in solid operational performances.

I remain optimistic for the Company’s prospects going forward. We have assembled a world class team, and on behalf of the Company, I would like to personally thank our shareholders and debtholders for their continued support.

On behalf of the board

Mr. David Lenigas

Non-Executive Chairman

July 31, 2020

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