After market today, Continental Gold (CNL.TSX) delivered their first economic study ever completed on the ultra high-grade Buritica gold project in Colombia. Their maiden Preliminary Economic Assessment (PEA) delivered industry leading economics with an after-tax NPV (5%) of $1.08 billion and an IRR of 31.5% on initial capital of $390.3 million (based on $1,200/oz Au and $17/oz Ag).
Given the unique high-grade nature of the deposit, even at $1,000/oz gold and $15/oz silver, the project returns a 24.1% after-tax IRR and an after-tax NPV (5%) of $700 million (over 3x the current enterprise value of the company).
Highlights of the PEA include:
- An 18-year mine life based on 20,055,000 tonnes grading 7.80 g/t gold and 19.35 g/t silver resulting in approximately 4.8 million ounces of recovered gold and 7.1 million ounces of recovered silver. Throughput will begin at a rate of 2,000 tpd and will ramp up to 3,500 tpd in year 3.
- The first 5 years of production will average approximately 314,000 ounces of gold and 507,000 ounces of silver annually, at a total cash cost of $389 per ounce of gold. Life of mine production will average 265,000 ounces of gold and 394,000 ounces of silver annually, at a total cash cost of $431 per ounce of gold, placing Buriticá in the lowest cash cost quartile globally.
- The after-tax NPV (5%) amounts to $1.08 billion.
- The after-tax IRR is 31.5% on an initial capital cost of $390.3 million with a payback of 2.8 years. The initial capex includes a $61.4 million contingency.
- Mining dilution of 58% was calculated under the assumption that all material located outside the hard boundaries of modeled veins is assigned a value of 0 g/t gold and silver. However, based on recent results announced on October 28, 2014 for the Veta Sur deposit, including 30 metres (true horizontal width) @ 9.6 g/t gold and 47 g/t silver, significant potential exists to improve the dilution grade assumption in future economic studies.
- Five master vein families contain 76% of the total gold mine production in the first three years. The focus on mining the San Antonio, Murciélagos and Centena vein families in the Yaraguá mineral resource and the 62 and 90 vein families in the Veta Sur mineral resource will result in a straight-forward development in the early years of the mine.
- Longitudinal Bench and Fill (long-hole) has been selected as the mining method, as both vein systems are steeply dipping and the host rock is competent. Drifts will measure 4 x 4 metres and the benches will be 8 metres in height.
Ari Sussman, CEO of Continental Gold is in New York City for the next few days updating investors there about the PEA. He told CEO.ca that he had low expectations for the market’s reaction to the PEA, given current market conditions, but that he is proud of the “great, conservative” study.
The PEA assumes ore will be processed through a conventional crushing-grinding-gravity-cyanidation circuit. Metallurgical test-work completed to date demonstrates average recovery rates of 94.98% for gold and 56.80% for silver on a blended basis from the Yaraguá and Veta Sur deposits.
The PEA is conservative for this outlier gold deposit, especially given that it does not take into account the recent spectacular drill results outside of the modeled vein boundaries which included 9.60 g/t gold and 47 g/t silver of 30 metres.
The current resource estimate highlights 8.39 million tonnes at 10.40 g/t gold and 31 g/t silver containing 2.80 million ounces of gold and 8.43 million ounces of silver in the Measured and Indicated category (using a 3 g/t cut-off grade). The PEA includes inferred ounces which makes up the difference in the estimated recovered ounces outlined in the PEA over the mine-life.
Although the initial capital is quite manageable at $390.3 million (48% of which is attributable to the process plant and tailings facilities), the project demands capital throughout its lifespan. Sustaining capital over the mine-life totals $346.7 million including underground development and replacing equipment when the ramp-up in year 3 occurs. As of September 30th, the company had $75 million in cash on hand.
“The results of this PEA outline a future mine at Buritica that will employ more than 500 people, with the size, cost structure, diluted grade and overall economics qualifying it to become one of the world’s leading gold mines,” Mr. Sussman said in the release. “The project design for Buritica minimizes, as much as possible, the impact on local communities, while adhering to the highest standards for environmental protection, operating efficiencies and workforce safety. Our commitments for 2015 are to complete the outstanding permitting for the project and update both our NI 43-101 resource estimate and PEA, incorporating data received from underground development sampling and drilling completed by January 31, 2015.”
Continental Gold shares have been cut in half since mid summer with the decline in gold equities and worries over Colombian permits. A number of Canadian companies are optimistically waiting for and working through permits. Continental believes that because a mining license has already been granted on the project, the environmental permit should come as well. Investors are still unwilling to accept the risk in any meaningful way.
Given that the company has now cleared its first major hurdle in showing that the project is economically viable and the fact that there is momentum gaining in the gold market, we wouldn’t be surprised to see Continental’s share price appreciate over the next few trading days.
The company says it remains on track for receiving their final permits by the end of 2015 and to update both the resource and PEA as well. They are still guiding initial production in 2017.
All facts are to be verified by the reader. Always do your own due diligence as this is not investment advice. Thank you.