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 First Mining Gold‘s (TSX: FF) Duparquet project in the Abitibi region of Quebec puts an initial price tag of C$706 million ($516m) on the development of an open pit operation at the project. Sustaining costs and underground development will require another C$738 million investment.
The study forecasts a mine life of 11 years, with average annual gold production of 233,000 oz. per year. All-in sustaining costs are estimated at $976 per ounce. Total production is projected to be 2.5 million oz. of gold.
On a pre-tax basis, the study gives the project a pre-tax net present value (NPV) with a 5% discount of C$1.1 billion and an internal rate of return (IRR) of 24.9%.
The after-tax numbers put the project’s NPV at C$588 million and its IRR at 18%, according to the PEA.
The study results support development of a 15,000-tonne-per-day open pit and underground operation. The after-tax payback period will be 4.8 years (3.8 years pre-tax).
“The +200,000 ounce per year production profile, attractive capital and operating cost profile and strategic location of the deposit in the heart of the Abitibi gold belt all contribute to the recognition of Duparquet as one of the most meaningful development projects in Canada,” said First Mining CEO Dan Wilton.
“We are also pleased to have completed such a robust PEA within a year of consolidating the ownership of the project.”
In a note to clients, Laurentian Bank mining analyst Jacques Wortman noted that the scope of the project considered in the PEA is different than what had been proposed by previous owner Clifton Star in a 2014 prefeasibility study.
The addition of an underground component raised the expected capital costs, he said, and the project’s mine life has been shortened while its throughput and production are expected to be higher.
Wortman maintained a buy rating for the stock and a 12-month target price of C$0.70 for the stock, now trading at C$0.13.
The study includes the Beattie, Donchester, Central Duparquet, and Cumico claim blocks, but not the Pitt and Duquesne deposits.
First Mining acquired Duparquet last September through a C$24 million purchase of Beattie Gold Mines.
The PEA also estimates the open pit resource covers 163,700 measured tonnes at 1.37 grams gold per tonne (7,200 oz. gold), 59.4 million indicated tonnes at 1.52 grams gold (2.9 million oz. gold), and 34.6 million indicated tonnes at 1.16 grams gold (1.2 million oz. gold).
The underground resources include 5.5 million indicated tonnes at 2.26 grams gold (399,300 oz. gold) and 16.8 million inferred tonnes at 2.59 grams gold (1.4 million oz. gold).
Additionally, the tailings have 19,000 measured tonnes grading 2.03 grams gold (1,300 oz. gold) and 4.1 million indicated tonnes at 0.93 grams gold (3.4 million oz. gold).
Conventional open pit mining will begin in year one at a rate of 10,400 tonnes per day, while underground development will begin in the same year. Underground long hole mining is expected to start in year two at a rate of 3,500 tonnes per day. The peak mining rate for both mines will be 12,670 tonnes per day in year eight.
The mill is designed to treat 15,000 tonnes per day of ore plus reprocessing existing tailings. The flowsheet consists of primary crushing, SAG and ball mill grinding, rougher and cleaner gold flotation circuits, concentrate dewatering and loadout facilities. Flotation tailings will be thickened to produce for storage onsite.
First Mining shares traded at C$0.13 in Toronto at mid-day Thursday, valuing the company at C$111.7 million and touching the company’s 52-week share price floor. Its 52-week high is C$0.24.
