Exterra Resources Ltd";s (ASX:EXC) board has approved the plan to re-commence mining at the wholly owned Second Fortune gold mine within the Linden Project located in Western Australia.

The approval is significant and initiates the development phase, which will commence with the construction and mine de-watering.

Mining is scheduled for early 2017 and future cash flows will provide Exterra with the ability to self-fund future exploration.

The Second Fortune underground mine feasibility study estimates $34 million of net cash flow over 30 months.

John Davis, chairman, commented: 'We look forward to advancing the development of the project through to production over coming months.”


Background

Exterra";s projects are all located in the Archaean Yilgarn Craton of Western Australia, a world class gold province which includes the Kalgoorlie Golden Mile deposit, which has produced over 50 million ounces of gold.

The company is currently undertaking a development study on the Second Fortune gold mine, which is part of the Linden Project and positioned 220 kilometres by road north northeast of Kalgoorlie.

The Second Fortune underground mine feasibility study highlighted the low cost entry to gold production.

Study details include:

- 131,000 ounces at 8.5 g/t gold JORC Resource at Second Fortune;
- 56,300 ounces at 9.7 g/t gold JORC Reserve at the Main Lode only;
- $97 million revenue to 300vm on Main Lode over 30 months;
- $34 million net cash flow (at A$1700 an ounce gold price); and
- +/-A$5 million pre-production capital.

Exterra has executed a management and services agreement with the Mitchell River Group (MRG).

MRG brings the requisite skills to the Linden Project on a cost plus basis to ensure a smooth development pathway for the Second Fortune mine.

All regulatory approvals have been received to commence project development of an underground mining operation.


Drilling program

In addition to commencement of the mine development, drilling at Second Fortune will commence in coming days.

The drilling program is designed to provide additional information on those areas of the resource currently in the inferred categories and particularly those near the surface that may be mined during the early phase of operation.

Exterra retains a highly prospective land package in the Second Fortune area with numerous advanced exploration targets and projects at both Zelica and Malcolm.


Next steps

Key milestones to commencement of mining include:

- Approval of the surface Project Management Plan;
- Finalisation of ore sale/purchase agreement;
- Procurement of ore sorting machine;
- Construction of evaporation ponds;
- Award of mining contract;
- Approval of mine Project Management Plan;
- Pit and underground dewatering;
- Haul road construction;
- Sorting plant construction; and
- Portal development and crown pillar recovery.

Construction of the evaporation pond is expected to start in October and mining in early 2017.


Analysis

The board approval to commence the development phase at Second Fortune represents a core milestone for Exterra as it transitions from gold explorer to gold producer.

Second Fortune has the potential for a high-grade, profitable, narrow vein underground mining operation, with a low estimated capital cost via third party processing.

The mine feasibility study has already demonstrated the project is robust, generating free cash of $34 million at current gold prices, with preproduction costs of $5 million.

Recent ore sorting trials have proved successful for Exterra - by minimising the amount of ore needing to be hauled and processed, the company will be able to lower costs.

The potential to remove waste from ore also has a significant impact on the potential to mine narrow vein ore by removing mining dilution at low cost allowing for greater conversion of resources to reserves.

Exterra is trading up 680% year to date, currently priced at $0.078.

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