Dolphin Tungsten Mine owner reveals cost blowout
The company behind a plan to revive a tungsten mine on King Island says it “remains committed” to the project despite a sharp rise in costs, as it reveals when the first ore is set for processing.
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The company behind the proposed revival of a shuttered tungsten mine on King Island says it “remains committed” to the project despite a blowout of $7.5m in construction costs.
The Dolphin Tungsten Mine formerly operated between 1917 and 1992, when it closed due to “extremely low tungsten prices,” according to the website of Group 6 Metals, the company formed to reopen the mine.
Group 6 expects to process its first ore in “early March”, when construction of its processing plant and tailings dam are complete.
Despite construction of the processing plant progressing “well against schedule”, Group 6 has been hit with a $7.5m cost blowout, equating to 8 per cent of its overall capital expenditure budget.
In a statement to the ASX on Monday, the company said it had “been advised by its lead engineering, procurement, and construction (EPC) contractor, Gekko Systems Pty Ltd, of constraints that have caused higher than expected costs in execution of the EPC contract”.
“These constraints relate to project-specific and market conditions impacting logistics, materials and installation costs, including inflation, shipping and transport, foreign currency exchange rates and labour constraints,” the company said.
Group 6 will “carry out a detailed assessment on these costs as a matter of priority”.
It said it is working closely with Gekko Systems to “mitigate these anticipated cost increases while optimising the safety, schedule and successful redevelopment of the (mine)”.
“The parties are also in discussions regarding options to limit the impact of these anticipated cost increases on the company’s cashflow while the plant is being commissioned and ramping up to nameplate production,” Group 6 said.
“While these newly anticipated construction costs are unfortunate, in today’s high inflationary environment for construction projects they are difficult to mitigate against.”
In November last year, Group 6 raised $20m from investors, with the approval of existing shareholders, to “to primarily fund ongoing construction and operating activities” at the mine.
Group 6 is in the process of seeking to raise an additional $3m, but has delayed the closing date to enable applicants “time to amend or withdraw their application”.
It previously raised about $90m, which included a $10m loan from the state government.
“The company remains committed to the successful completion and commissioning of the Dolphin Tungsten Mine which has an initial 14-year mine life underpinned by reserves, with significant regional exploration upside which the company will restart drilling on next week,” it said in its ASX statement.
The drilling, involving three to four diamond core holes, relates to an area known as ‘Investigator 24’.
Group 6 previously drilled an exploration hole in the area in 2018, where it “identified high grade mineralisation”.
This was significant as it took to three the locations on King Island where a “high-grade tenor of mineralisation” had been found (the other two being Dolphin and Bold Head).
“Pending the success of future drilling campaigns, the company would seek to delineate an economic reserve which would extend the life of mine beyond the current 14 years,” it said.
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