Gascoyne Resources has entered a conditional letter of intent (LoI) with GR Engineering Services for an engineering, procurement and construction contract to develop a new 2.5Mtpa mineral processing facility at its Dalgaranga Gold Project in Western Australia. 

The award of the contract is subject to final Gascoyne board approval, receipt of final statutory approvals and Gascoyne securing necessary funds to finance the project.

The contract will be carried out on a guaranteed maximum price (GMP) basis.

Gascoyne managing director Mike Dunbar said: "Signing the LoI is an important step forward for the company as we move towards production. 

"The feasibility study that we completed in November envisaged an ECPM implementation strategy; however, this would have come with cost risk. 

"The board decided to further derisk the development by moving to a GMP style of implementation.

"We are pleased to have signed the LoI with GR Engineering as they are widely considered as the benchmark in terms of GMP project delivery in Western Australia.

"GRES have a reputation for delivering projects in Western Australia like Dalgaranga on time and on or below budget and by moving to a GMP implementation model, Gascoyne can share in any cost savings that GRES can deliver through the years of experience they have in building similar projects."

"Signing the LoI is an important step forward for the company as we move towards production.."

Gascoyne and GR Engineering intend to enter a formal contract in the upcoming weeks.

The Dalgaranga Gold Project is expected to start ore commissioning in the second quarter of the next year, subject to fulfillment of conditions.

The LoI comes following the recently completed heavily oversubscribed $50m capital raising, the mineral resource upgrade at the Gilbeys deposit and the Sly Fox gold discovery, which has the potential to significantly add to the mine life at Dalgaranga, as well as increase the early production profile through increased soft oxide and transitional mill feed.

Drilling is ongoing at the project with two rigs currently drilling at Sly Fox, to scope out the size potential, while also infilling the current drilling to enable estimation of an initial resource in the coming months.

The Dalgaranga project was discovered in the early 1990s.

From 1996 to 2000, it produced 229,000oz of gold with cash costs of less than $350/oz. 

The Dalgaranga project is estimated to contain proved and probable ore reserve of 552,000oz of gold.