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.
Troilus Gold (TSX: TLG) shares are down 12% after it released a feasibility study outlining an open-pit gold-copper operation in Quebec with capital costs 21% higher than its net present value (NPV).
The namesake project has an estimated NPV (at a 5% discount) of $884.5 million, with initial development capital costs of $1.07 billion, including all mine pre-production costs, net of existing infrastructure. It has an internal rate of return (IRR) of 14%, reflecting long-term forecast prices of $1,975 per oz. gold, $4.05 per lb. copper and $23 per oz. silver.
“The (study) outlines a generational-scale asset, with a 22-year mine life and compelling economics, both at discounted and current metal prices,” Troilus CEO Justin Reid said. “The project has reasonable capex and capital intensity, including bottom quartile operating costs among the major Canadian gold mines.”
The study comes as both copper and gold have recently touched highs not seen in years, with the price of the red metal hitting $4.89 per lb. on Tuesday, its highest in more than two years; and gold trading at $2,358 per oz., slightly down from its all-time high of $2,394.95 on April 21.
However, shares of Troilus Gold fell to C$0.57 on Tuesday at mid-day, for a market capitalization of C$163.1 million.
Using current (April 2024 average) metal prices of $2,332 per oz. gold, $4.30 per lb. copper and $27.50 per oz. silver, the project’s after-tax NPV and IRR would rise to $1.55 billion and 19.5% respectively.
The feasibility study gives the project in north-central Quebec a payback period of 5.7 years, based on cumulative after-tax cashflows of $2.2 billion. It would produce 5.4 million oz. of gold, 382 million lb. of copper and 9.9 million oz. of silver over its life.
Average annual production of payable metal is pegged at 244,600 oz. of gold, 17.3 million lb. of copper and 446,700 oz. of silver annually, peaking at 456,100 oz. gold, 31.8 million lb. copper and 613,600 oz. silver in year seven.
With the feasibility study complete, Troilus will now move towards the project’s environmental and social impact assessment, which it hopes to complete by the end of this year. Also in progress are the provincial and federal permitting processes, which it began in May 2022.
Concurrently, Troilus will focus on exploration of the 435-sq.-km property. Numerous targets ranging from grassroots geochemical anomalies to early-stage drill targets are actively being explored, and the company believes “there is strong potential to further expand the scale of this project and extend the mine life beyond the 22 years.”
The proposed open-pit mine will have a processing capacity of 50,000 tonnes per day (tpd), a 43% increase on the 35,000 tpd contemplated in the 2020 preliminary economic assessment.
Mining will occur from four main zones of mineralization that together hold 380 million tonnes in mineral reserves grading 0.49 gram gold per tonne, 0.058% copper and 1 gram silver, containing 6.02 million oz. gold, 484 million lb. copper and 12.15 million oz. silver.
