GoldQuest Mining (GQC-V, GDQMF-OTC) got its PEA announcement out even faster than I thought they would and probably right after you finished reading the last email about them.  For that reason I felt I should send you a quick update.  Subscribers got theirs two days ago. I don’t plan to make a habit of sending things like this to the Free List but many of you responded to the news release so I’m doing this as a one-off.

I have to say, GoldQuest management did a better job than I expected of cost cutting.   There was a huge drop in upfront capital costs in the new study, thanks to removal of the shaft, decreasing the mill size to 2500 tpd and simplifying the mill and the production flow sheet.  The important  points from the study release are as follows:

2500 tonne per day operation at Romero that will mine material with an average grade of 5.39 g/t equivalent (4.02 g/t gold and 0.81% copper).    Nine year mine plan calls for annual production of 117,000 gold equivalent ounces per year. 

The new plan carries an NPV of $355 million ($219 million after tax).

A very impressive IRR of 46% (34% after tax) using a discount rate of 6% and metal prices of $1225/ounce for gold and $2.90/lb for copper.

The new plan calls for pre-production capital of $143 million, of which $20 million is contingency. 

The numbers that really stick out are the capital costs  and internal rate of return.  The capital cost was cut by over 60% and is now in the range of other developers on the HRA  list that have already been financed to production. The IRR  is among the highest in the sector.   Other companies with similar metrics are garnering  much higher values per ounce.  That is attainable for GQC as well now that management has a much stronger economic study to market.

These new numbers add a most important adjective to the description of the Romero project in my opinion and I’m going to bold and underline this word:  FINANCABLE.  I can’t stress enough how important that one word is to the future of the project and GoldQuest. This scale of capital cost with the sort of IRR the current study assumptions generate reflect a project that the bankers will get behind.   As we all know the percentage of development level projects that you can say that about with a straight face it very short. That is a game changer for Romero and indeed for the whole belt.   I said many times that this is a belt that deserves more respect from the market and I think now it will finally start to get it.

A couple  of  items that were referenced  in the  PEA  release deserve to be expanded on.  One is the fact the 84% of the resource in the mine plan is in the Indicated category.   That is crucial since feasibility level studies can only consider material that is in the Indicated or higher resource category.   As you may know, the main cost of many feasibility programs is drilling required to increase resource confidence. There will be very little of that required for Romero so the costs and timelines to get this project to something bankable should be relatively modest.   GoldQuest has the funds on hand to complete a pre-feasibility study.

The second and perhaps more important point is that there is a lot of blue sky both within Romero and the surrounding project.  The current mining plan and method will not “sanitize” the surrounding resources.  They  will still be available for future mining if gold prices improve and scaling up the mining operation would be relatively inexpensive.  Romero South is also still in the mix.   In addition to that there are many high quality prospects on GoldQuest’s surrounding project as well as new discoveries like Precipitate Gold’s Ginger Ridge on its neighbouring project.  Work in these areas will continue as Romero is advanced through feasibility.

The market is valuing GoldQuest at roughly one eighth of the base case NPV. Given that I believe this is a project that will become a mine and that should be able to be brought through feasibility in a timely and cost effective manner that number is quite low compared to its peers.   I expect the market value to grow as management tells its story and continues exploration.

As noted above, having a project accepted by the market as a real producer in the making can change the perception and the value of the belt that it’s in.  I think this will rub off on GoldQuest’s neighbours, particularly that unrated stock that is near and dear to me, Precipitate Gold (PRG-V; $0.14).   The strong study for Romero validates the potential for new and existing discoveries in the belt.  That should very much apply to Precipitate’s Ginger Ridge target which bears many similarities to more advanced prospects in the Tireo belt and has already delivered its own discovery hole. The potential for follow up testing to get recognition and traction from the market just increased substantially thanks to GQC’s new PEA.    I think that PRG and GQC both have more discoveries ahead of them in the Tireo.


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