The logistics of the transition between the Roby Zone and the Offset Zone are proving to be more complicated than previously anticipated, which has resulted in a delay in stope development and a corresponding decrease in volume from the Offset Zone in 2013. Though the stope sequencing delay will result in reduced production from the Offset Zone in 2013, the long term benefit is that the Offset Zone can be mined more economically via the shaft in 2014.
Management believes that the low end of the 150,000 to 160,000 ounce production guidance will be difficult to achieve, and could potentially decrease by about 10% to 15%. As a result of decreased underground production levels and lower head grade of mill feed, cash costs are expected to increase. These estimates are indicative only, remain subject to the ongoing review of the mine plan and are contingent on the successful completion of a financing.
To compensate for the expected decreased production from the Offset Zone, the Company is actively pursuing additional mineralized material from other sources on the property, including the drilled off extensions of the Roby Zone and contributions from other surface sources (including stockpiles).
Recognizing that operating efficiency can only start to improve in a meaningful way once Phase II is completed, accelerating the shaft sinking beyond the Phase I 825-metre level will be the primary focus of the 2013 development plan review currently underway. As part of the ongoing reviews, the Company is also considering alternative bulk mining methods for the Offset Zone to further optimize mining volumes and production costs.
The preliminary project review has also indicated that the required capital expenditures to complete development of Phase I of the shaft project have been underestimated. After a review of certain procurement items and development plans (including accelerating plans to commence Phase II of the shaft sinking in 2013), management expects that capital expenditures in 2013 could be up to 35% higher than the prior guidance of $105 million. This estimate is preliminary, and is contingent on a financing.
The Company continues to look for opportunities to optimize its operations and development, and is actively sourcing opportunities for augmenting expected production with additional sources of ore. The Company also plans to strengthen its project team by engaging a professional project management contractor to assist with Phase II capital estimates, and to help implement improved cost and schedule controls for development.
"Overall, despite some of the transitional challenges that we will experience this year, I remain very optimistic about our future prospects at LDI," added Mr. du Toit. "The value creation from this point on will depend on our execution; therefore my focus over the next few months will be to ensure that the Company is prepared for the transition to shaft-based operations, and that our plans for Phase II fully optimize the asset."
LDI Mine Expansion Development
The Company continues to make steady progress with its mine expansion development activities and remains well positioned to start utilizing the shaft for underground production by the end of the third quarter in 2013.
Recent highlights include:
-- The shaft sinking is on schedule, recently reaching a depth of 695 metres below surface, representing 84% completion of the total 825 metres planned for the first phase of the shaft sinking.-- The production hoist is now operational, and the installation of the main skip dump is in progress.-- The first Offset Zone mining stope (where mining commenced in the fourth quarter of 2012) has been successfully mined out, and production commenced in the second Offset Zone stope. The development of additional mining stopes experienced some delays, but is in progress.-- The ramp extension reached the 825-metre level depth and the shaft station there has been excavated and is being prepared for the shaft.