Sulliden Gold (SUE:TSX) has cleared the final hurdle at its Shahuindo gold and silver project in northern Peru by receiving an ‘okay’ for their Environmental Impact Assessment. With this milestone complete, after an 18 month permitting process, the company expects to begin construction within 30-60 days (once final project finance package completed). The construction will take them into Q3/2014 when they expect to begin production.
Peter Tagliamonte, Chairman and CEO of Sulliden, commented: “We are very pleased about the approval of the Shahuindo project by the Ministry of Energy and Mines. This completes an extensive regulatory process and represents the most important step in bringing Shahuindo to production. We wish to acknowledge the local communities for their valuable input and support, as well as the Peruvian authorities for their expeditious review and approval.”
The Shahuindo project is slated to produce 90,000 ounces of gold annually during an initial phase of production at cash cost of $552/oz and will cost only $131 million to build. The economics are fantastic with a post-tax IRR of almost 40%. These types of economics put it in the top tier of projects, above PMI’s (PMV:TSX) Obotan, Lydian’s (LYD:TSX) Amulsar and Torex’s (TSX:TSX) Morelos. Sulliden has plans for a Phase 2 development in beginning in year 2 of operation and calls for an additional $100 million to get the operations from the initial 10,000tpd to 30,000tpd to get the production up from 90,000 ounces per year to 190,000 ounces per year.
Here’s the chart (which looks technically strong – breaking through resistance):
Unfunded mine developers have received a steep discount given the constraints in the equity markets, however, given Sulliden’s anticipated ability to finance, the company has been able to minimize the discount received in the markets even with the permitting overhang. In late 2012, the company signed a mandate letter with Barclays and Credit Suisse for a $125 million debt package. The company currently has $20 million in cash.
We believe this milestone makes Sulliden a prime target for a takeout. Look for Agnico-Eagle to be involved as they invested $24 million in Sulliden in April 2012 and are currently 9.96% shareholders. Also, given that Agnico is having permitting and operational issues in Mexico, I believe they would be interested in a permitted, low-capex, technically simple project like Shahuindo. Although I believe the company will be taken out before construction gets underway too far, if they don’t sell, the company has a competent mine building management team (Peter Tagliamonte, CEO & Chairman built Desert Sun Mining).