Mining’s old guard needs strong medicine
A new report details subpar investor returns in the mining industry over the last decade, particularly big cap diversified companies which have not adapted to new realities.
A preliminary economic assessment (PEA) for Blackrock Silver’s (TSXV: BRC) Tonopah West project in southwest Nevada gives it a net present value almost double its initial capital costs, the company reported Wednesday.
The post-tax NPV (at a 5% discount rate) comes to $326 million, with capital spending of $178 million (including a $22 million contingency) and a post-tax internal rate of return (IRR) of 39.2% at a 2.3-year payback period. That estimate assumes a base gold price of $1,900 per oz. and silver price of $23 per oz. for the project.
The NPV rises to $495 million at a gold price of $2,280 per oz. and silver price of $27.60 per oz., and the IRR bumps to 54%. The project is being developed four years after discovery at the site along US Highway 95 about 350 km northwest of Las Vegas, according to the PEA.
“It outlines the potential for it to be a key driver of domestic growth, increasing America’s annual silver production by over 12%,” Andrew Pollard, Blackrock president and CEO, said in a release. “Tonopah West benefits from existing infrastructure and a stream-lined permitting process, of which findings from this PEA will be used as a roadmap to kickstart.”
The company’s PEA represents one of the latest efforts to resume mining in the storied Tonopah silver district that produced 174 million oz. silver and 1.8 million oz. gold from 1900 to 1930.
The report and its higher metal price scenarios also come just two weeks after the actual price of the yellow metal hit a historic high of $2,532 per oz. and during an almost-six month period when prices have been higher than $2,200 per ounce.
Over an eight-year mine life, the project is expected to produce 31.8 million payable silver oz. and 424,000 gold ounces.
The report pegs all-in sustaining costs at $11.96 per silver equivalent oz., what Pollard calls one of the lowest in the world.
The PEA updates Tonopah West’s resource, giving it slightly more tonnage but lower grades than the previous estimate from last October. Inferred resources now total 6.3 million tonnes grading 2.82 grams gold per tonne and 237.8 grams silver, for 577,000 oz. of gold and 48.5 million oz. of silver.
In July, the company started a 20,000-metre drill program using three rigs that could de-risk an initial three years of production and add more ounces to the project, Blackrock says.
Blackrock shares gained 1.9% to C$0.26 apiece on Wednesday morning, valuing the company at C$66.6 million. Its shares traded in a 52-week range of C$0.19 to C$0.40.
