It is anticipated that Rigs 3 & 4 will be assigned for the foreseeable future to Imwauna on a full capacity basis. As a result, running Rigs 3 & 4 should produce approximately 4,000 metres per month of drilling at Imwauna. Rigs 1 & 2 are lighter than Rigs 3 & 4 and consequently can be flown and are built to operate underground. Until they are required for underground drilling on Imwauna, they are needed to fill a number of imperative functions. Primarily, Rigs 1 & 2 will be used to explore untested known gold anomalies throughout the El 1091 Normanby and EL 1069 Sehulea projects. These drills will also allow for minimal drilling interruption at Imwauna in the case of equipment failure. In addition, Rigs 1 & 2 provides the opportunity for a dedicated training program of national drillers without impacting the Imwauna output. The benefit of training national drillers is clear in terms of community and government relations but is expected to further reduce drilling costs in the future. Training is expected to add to core output in the short term as these rigs can be deployed in other areas, such as Sehulea, without affecting drill rates at Imwauna, allowing the Company to meet its other licence commitments.
The Company expects to minimize capital expenditures in 2013 and manage its cash balance by scaling its drilling and administrative operations as circumstances dictate, in order to remain in a financially flexible position. Since filing the Company's September 30, 2012 financial statements, the Company has drilled over 10,000 metres with purchased drill rigs and concluded a baseline environmental study.
The investments made to date in equipment and rigs has reduced cost per metre drilled to less than half of that previously paid to an Australian contractor last year. Based on the Company's plan to drill approximately 4,000 metres per month, combined with the savings in drilling costs already achieved to date, the Company expects further reductions in drill costs to fully achieve payback of its investment in drill rigs by the end of the second quarter in 2013.
Exploration and Mining in Papua New Guinea
Papua New Guinea's reliance on gold is significant as measured in terms of the value of gold produced as a percentage of GDP. According to Papua New Guinea's Mineral Resource Authority ("MRA"), mining has been the most significant contributor to the country's economy since 1973. Mining products, primarily gold, are currently the country's top mining exports, according to the Australian Minister of Foreign Affairs (November, 2012). Papua New Guinea is a preeminent gold producing region as evidenced by such publications as the U.S. Geological Survey's January 2012 Mineral Commodity Summaries which estimates that the country has more gold in the ground compared to Canada and current production approaching that of Mexico. Because of its importance, gold exploration and development is welcome and the government makes every effort to encourage active exploration companies.
Papua New Guinea offers a growing economy favorable to mining companies, with real GDP growth rate in 2012 expected to be approximately 8% (source: MRA). In addition to a growing economy, the country was ranked by the Fraser Institute's Annual Survey of Mining Companies 2011-2012, as the third best jurisdiction in the world for policy and mineral potential in 2012, suggesting a sound political landscape for fostering the success of mining companies in the area.
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