Paint Your Wagon - It's Western Australia or Bust!

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Researched by Industrial Info Resources (Sugar Land, Texas)--Australian gold mining tenement holders are dusting off and re-examining old feasibility studies as the gold price oscillates around pricing levels that were not dreamed of a few years ago.

The price of gold went counter-cyclical to most, possibly all, other minerals as the global economic crisis bit deep. Another boon was that the price for executing a project dropped sharply as previously scarce resources such as steel, labour, and engineering capacity suddenly became abundant. The end result was a modern-day gold rush.

Australia is the third-largest gold producer in the world. South Africa is the second-largest, recently losing first place to China. The first Australian "Gold Rush" was only a few years after the Californian Gold Rush. In fact, many miners moved from the California rush to Australia, hoping to improve their luck.

There are two varieties of gold mine in Australia: the Kalgoorlie "Super Pit" variety, so named because the open cut now measures miles in length, where it's all about volume; and the much more common small, junior mine, where it tends to be all about quality (specifically, ounces per ton).

The state of Western Australia (WA) accounts for about half of Australia's total gold production. WA is also the home of the Super Pit and the small, remote gold mines that must be totally self-sufficient. These mines and miners are reminiscent of the miners of yesteryear.

Regis Resources Limited (ASX:RRL) (Perth, Western Australia) is constructing one such mine in what is almost the geographical centre of WA. (WA has approximately the same land area as everything west of the Rockies in the continental U.S.) The population of WA is a little more than 2 million. Perth, the capital city of WA and the most remote government city in the world, holds about 1.7 million of the residents. Of the remaining 400,000, about 300,000 live in the more temperate southwest corner of the state. That leaves a lot of space for the remaining 100,000.

So what does this mean for a miner like Regis Resources? First, a construction camp has to be built to house, wash and feed the people building the mine. This construction camp eventually will be upgraded and turned into the operations camp to house the fly-in/fly-out workforce for the mine. In this case, the mining contract has been won by Mining and Civil Australia (Perth), which specializes in contract mining these smaller, remote mines. Mining and Civil's contract is for five years for a reported value of US$110 million and will require 50 personnel on site.

Secondly, everything else required has to be brought in to site. Perth is a solid two days' drive from the Regis site, and the nearest town that would be of any help is one day's driving away.

Power, of course, is the other issue. There is no power available in these remote locations, so the miners have to provide their own. Or more correctly as is the trend in recent years, the miner will engage a third party to build, own, operate and maintain (BOOM) a power plant dedicated to the mine.

Depending on the size of the mine and its power requirements, the power "plants" can be full-blown, 300-MW gas fired power stations. In Regis' case, however, the mine requires a modest 8-MW plant. Pacific Energy (ASX:PEA) (Perth), which specialises in providing power plants in the 2-MW to 20-MW range to remote mines on a BOOM basis, won this contract.

This is serious business in Western Australia, where most of the mining occurs in the remote, sparsely populated inland. Pacific Energy alone is managing 11 individual sites, totalling about 100 MW of active generating capacity.

So perhaps the moral here is that some things never change. Just like in the original gold rushes, whether they were in California or Western Australia, making money wasn't necessarily about finding gold. Gold could be made from selling picks and shovels, or power plants, to the miners. Many a dynasty was started from similar beginnings.

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