Hasbrouck and Three Hills are located in Nevada which is one of the best heap leach locations in the world (Image: Infomine)
This morning, $6 million market cap junior, West Kirkland Mining (WKM:TSXV) (halted at open)announced they intended to acquire Allied Nevada Gold's (ANV:TSX) Hasbrouck gold project in Nevada for $30 million. The deal is subject to West Kirkland being able to obtain the necessary financing. According to their third quarter financials, West Kirkland had less than $900,000 in cash on the balance sheet. Allied Nevada has also agreed to sell the Three Hills project which consists of six patented mining claims and 100 unpatented mining claims located nearby in Nevada to West Kirkland.
West Kirkland has agreed to pay $19.5 million upon closing (April 2014 expected). With the final $10 million to be paid within 30 months of closing unless Allied intends to maintain an interest in the property or West Kirkland cannot make the final payment. In that case, Allied Nevada would retain a 25% interest in the project. West Kirkland has already made a $500,000 good-faith payment.
Allied Nevada released a preliminary economic assessment on the project in April 2012. That report envisioned an open-pit heap leach operation with average annual production of 135,000 ounces of gold and 540,000 ounces of silver at an average annual adjusted cash cost of $555 per ounce for a five year mine life. The production plan assumes mining and processing the nearby Three Hills mineralization ahead of Hasbrouck mineralization.
The project requires significantly more drilling to update its current resource and mine-plan which hosts 1.2 million ounces of gold and 29.3 million ounces of silver in the inferred category (grading 0.009 opt Au and 0.228 opt Ag). The potential to extend the mine life exists as the Hasbrouck deposit remains open.
Hasbrouck Peak is slated to produce 135,000 ounces of gold per year (Image: The Northern Miner)
The initial capital cost of $78.1 million (life-of-mine capital cost of $90 million) for a conventional run-of-mine and crushed heap leach facility is manageable on its own, but combined with a $20 million upfront payment and West Kirkland will, already, be into this acquisition and development for $100 million. Again, the company's market capitalization is $6 million. Although heap-leach mines are attractive in this environment, due to their simplicity and low capital intensity, this seems like a tall order for a micro-cap company to attempt.
The project economics are quite robust, with a 60% after-tax IRR and an after-tax NPV (6%) of $98.7 million. Analysts valued Hasbrouck at much higher values, with Scotia's analyst, Trevor Turnball, believing the value to be closer to $75 million. Cowen and Co's Adam Graf believes the market value is closer to $60 million. The steep discount could be due to the fact that Allied Nevada has its hands full with Hycroft and needed to shore up the balance sheet in case of further weakness in the gold price.
According to Allied Nevada's website, base line environmental studies have begun at Hasbrouck to initialize the permitting program and it is anticipated that the mine could receive permits to begin construction in the second half of 2014. Given the change of ownership and the fact West Kirkland may elect to try and optimize the project to fit their financing abilities, a 2014 start may be tough.
