British Columbia is about to have a new gold mine. This morning, IDM Mining (IDM:TSXV) released the results of their updated preliminary economic assessment (PEA) on the high-grade Red Mountain gold project located in Rob McLeod’s (President and CEO of IDM) hometown of Stewart, BC.
“The great thing about the news today is that it is a simple, high-grade, low capex gold project that has a lot more potential,” Mr. McLeod said by phone earlier. “Even if we don’t find anymore gold, which I think is very unlikely, we have a project that could be a standalone mine today.”
Well respected EPCM firm, JDS Energy and Mining, completed the PEA which should give investors confidence in the figures presented. JDS built Capstone’s Minto Mine in the Yukon as well as Tahoe Resources’ Escobal mine in Guatemala.
Using metals prices of $1,250/oz gold and $20/oz silver, the base case scenario illustrates a 1,000tpd underground mining operation (previously 1,800tpd), producing an average of 55,000 ounces of gold (previous PEA 115,200 ounces per year) and 171,000 of silver per year at $455/oz cash costs (net of by-products) over a 5-year mine life. Life of mine metallurgical recoveries are estimated to average 87% for gold and 80% for silver.
With more underground drilling, Mr. McLeod told me he is confident that they will be able to extend the mine-life.
Based on the estimates for initial and sustaining capital and contingencies (total of $97.4 million) as well as 15% G&A, the project’s all-in sustaining costs per ounce is roughly $930 (net of by-products).
According to the report, the Red Mountain project generates an after-tax NPV (5%) of $58 million, an IRR of 32.8% and will payback the initial $76 million in capex (previous capex was $163 million) within 1.5 years. McLeod believes there is room for improving the capex by relocating the tailings ponds and by reducing the cost of the power line.
Overall, JDS and IDM focused on reducing the upfront financial commitment in order to build a profitable mine with the plan to expand it once in production. According to McLeod the mining infrastructure (mill, etc.) has been designed with expansion in mind.
Construction of the project is estimated to take 2 years.
“Most good mines are built this way. You start small and with success and cash flows you expand the mine,” he says.
In order to reduce the capex from the previous estimate, the decision was made to have a seasonal operation whereby in the snowiest months, between December and February, the project would be closed for maintenance which would eliminate the need for a $35 million tunnel (the tunnel would allow year-round access to the site even in the avalanche season). The 3 month period could be shortened to 2 months which would also improve the mine’s economics.
Important to highlight here is that this PEA is a starting point. The company plans to do significant infill drilling to bring inferred resources up to more confident categories as well as find new high-grade gold ounces which should help both expand the scale of the operation and improve the overall economics.
“Completion of a positive PEA for the Red Mountain Project is a critical milestone for IDM,” Mr. McLeod stated in today’s release. “With capital and operating costs that are estimated to be among the lowest in the global gold industry and a near term development plan now in place that provides a clear path to commercial operations, this study outlines both the potential economic and potential technical viability of the Red Mountain Underground Gold Project. With the significant exploration upside on the Property, along with additional drilling and engineering work, we anticipate the Project economics can be further improved.”
This is not a recommendation to buy or sell any security. IDM is a sponsor and the author owns shares and is therefore biased. Always do your own due diligence.