Bluebird Merchant Ventures, the Korean focused gold-development group, has received a “Permit to Develop” the Kochang mine in South Korea. Production is expected later this year, with the potential to grow from an initial rate of 10,000 ounces per year to 30,000 ounces over three years.

The permit grants the holder the right to develop and operate a mine for a period of 13 years. The only constraint on the permit holder is the requirement to have production within three years. The permit may be extended by a further 20-year period by application 18 months prior to the end of the permit term. There are no government royalties in South Korea.

The grant of this permit by the South Gyeonsang Provincial Authority means that Bluebird has now achieved a second major milestone toward becoming the first foreign gold producer in South Korea since Ivanhoe Mines in the 1990s.

Together with the Gubong permit, received on 8 November 2019, the Kochang permit provides a solid base for the company to advance into production and then grow in a substantially organic manner.

The two projects have differing qualities, which give the company much opportunity for flexibility. Whilst both mines operated in similar timeframes and closed in the 1970s when the gold price was still below US$140 per ounce, Gubong, as the onetime second largest gold mine in South Korea, was flat dipping with 9 veins extending 500 metres below surface and known, through historical exploration drilling, to extend at least a further 250 metres.

However, the production opportunity for Bluebird prior to looking at deepening the mine is the 25 levels already developed with all the remnants and unmined areas left by the original miners. The 25 levels extend more than 120 kilometres in total length which indicates the size of the opportunity.

On the other hand, Kochang is very shallow (only mined to 150 metres below surface on 1 vein). It has three identified steep veins and has potential to expand operations to the southwest/northeast along strike and to depth as well as exploiting the already mined areas. Indeed, the vein system has been identified and mapped on surface where no mining has ever taken place. The overall strike length of the system is approximately 3 kilometres.

Both mines have geological systems that generally extend to 1,500 metres in depth. Initial production from both of the mines will come from sources which are the result of many years of previous mining.

Because gold grades vary across any mine it is natural that some parts of a mine will return a profit at a particular gold price and other areas will not. It is for this reason that parts of the mine will remain unmined. In the case of these two mines many areas were left unmined due to a much lower gold price.

For this reason and because all the tunnels necessary to extract this ore have been developed, this is less costly to mine than new areas. Neither of the mines were cleaned out before they were closed so a substantial amount of broken ore remains behind. This is very low cost production.

Both mines will continue to expand their mining area and build up inventory whilst the process plant design is completed and constructed. Estimated average cash cost per ounce (C1 level) is US$576 per ounce. This is based on both mines over the initial three years.

The Gubong and Kochang projects are a 50:50 contributing joint venture with Southern Gold, which is managed by Bluebird.

The cost of the initial production phase to the joint venture is US$2.2 million. Bluebird is actively having discussions with regards to non-dilutive debt funding in order to fund its 50 per cent share of the required funding. Over a three-year period, gold production will largely grow organically from 10,000 to 30,000 ounces per annum. A further US$7 million capital will be injected during this period, however the bulk of this will be injected from cash flow from production.

Colin Patterson, CEO, commented, “Despite getting our two permits faster than any other country I know of it has been a lengthier process than we first anticipated. This is now over and we are excited by the prospect of achieving gold production in the coming year. We trust that our shareholders will enjoy a revaluation of the company as we move forward.”

*Article published in the April-June 2020 issue of The Asia Miner

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