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Gold miners still looking at mega-projects, says BMO

Northern projects are in the mix.
An aerial view of New Gold’s Blackwater gold project in British Columbia.
An aerial view of New Gold’s Blackwater gold project in British Columbia.

Dormant mega-project gold mines are still a viable option, reports The Northern Miner.

The last five years have seen large-cap miners shelve — and often write-down — ambitious, greenfield development projects that carry significant development price tags and heightened risk.

The majors instead focused on stronger operating margins and lighter balance sheets, which were typically characterized by improved free cash flow generation and lower debt.

The last 18 months have marked a shift in sentiment for metal producers, however, as metal prices have strengthened and risk capital markets entered the nascent stages of recovery.

Furthermore, analysts are now speculating that precious metals companies could soon revisit these sidelined mega-projects in order to achieve long-term production stability in the face of falling discovery rates.

On Oct. 12, BMO Capital Markets released research on large-scale development opportunities defined by criteria that include: greater than US$1 billion in initial capital; in excess of a 15-year mine life based on current reserves; plant throughput greater than 30,000 tonnes per year; and gold equivalent production greater than 400,000 oz. annually.

“The move away from advancement of ‘mega-projects’ was also a consequence of a number of cost overruns, in part related to industry-wide inflationary pressures during this time frame,” BMO analysts write. “With balance sheets largely repaired, the sector generating free cash, and a more constructive outlook on precious metal prices, it is therefore no coincidence that that we are seeing the early signs of reemergence.”

BMO Research identified seven mega-projects within its coverage that match the majority of the criteria and have potential to produce in excess of 1.3 million oz. gold equivalent annually over an average mine life of 30 years.

The report assumes a long-term gold price of US$1,200 per oz.

New Gold’s Blackwater project in B.C.

New Gold (acquired the Blackwater project in 2011 via the $513-million deal for Richfield Ventures. The property hosts large-scale gold-silver mineralization within an intermediate sulphidation, epithermal system that occurs within two kilometres of clustered porphyry intrusive centres. Blackwater lies 160 km southwest of Prince George, British Columbia.

The company invested US$4 million in the project through the first half of 2017, which was largely focused on its federal and provincial environmental assessment technical review.

BMO Research models nearly US$2 billion in initial development capital for Blackwater, which would produce 452,000 oz. gold equivalent annually over a 16.8 year mine life.

BMO calculates that the 60,000-tonnes-per-day project currently carries a 3.1% internal rate of return (IRR) based on a feasibility study released in 2014. 

Barrick Gold and NovaGold Resources’ Donlin project in Alaska 

Barrick and NovaGold Resources (finalized a joint venture to advance the large-scale Donlin gold property in southwestern Alaska way in 2007.

The project hosts proven and probable reserves of 505 million tonnes grading 2.09 grams gold for 33.8 million contained oz. gold. The deposits are hosted primarily in igneous rocks and are associated with an extensive late Cretaceous hydrothermal system. Gold occurs in broad disseminated sulphide zones in rhyodacite and in vein networks.

The companies approved an US$8-million budget this year for geotechnical drill programs, and anticipate the U.S. Army Corps of Engineers will file a final environmental impact statement in 2018.

Northern Dynasty Minerals’ Pebble project in Alaska 

Northern Dynasty Minerals‘ Pebble copper-gold asset is the second mega-project with a history of sociopolitical disputes and related delays. In fact, Anglo American(LSE: AAL; US-OTC: AAUKY) walked away from the project in late 2013, after pouring $540 million into it over six years.

Northern Dynasty resolved its squabbles with the U.S. Environmental Protection Agency (EPA) earlier this year, which set the stage for it to revive the permit process. The company’s president and CEO Ron Thiessen told The Northern Miner in May that it is considering a “smaller operation” than the plan outlined in a 2011 preliminary economic assessment.

That study models a 200,000-tonne-per-day operation focusing on 5.9 billion measured and indicated tonnes grading 0.42% copper, 0.35 gram gold per tonne and 0.025% molybdenum, containing 55 billion lb. copper, 67 million oz. gold and 3.3 billion lb. molybdenum.

Other projects once dormanet and being looked at again include Goldcorp and Barrick Gold’s Cerro Casale/Caspiche project, and theTeck Resources and Goldcorp’s NuevaUnion project, both in Chile,Barrick Gold’s Pascua-Lama project in Argentin, and the Polyus Gold’s Sukhoi Log project in Russia.


Matthew Keevil - The Northern Miner

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