Why Low Grade, High Tonnage Deposits can’t get developed As well known, grade is everything in metals and especially so for gold deposits .
As an example, a deposit with a grade of 4.5 grams per ton will produce the same net cash flows at 50,000 ounces of production as another similar deposit with a grade of 1.5 gms per ton at 150,000 ounces.
The reason is that to bring unit costs in line with the value per ton of the low grade ore, high tonnages must be mined .
I give you two examples below.
First Mining ( which holds the Hope Brook Option ) is developing a low grade gold deposit in Quebec.
Average grade is 1.51 grams per ton which is quite normal for open pits .
Its FS is contained in the link below..
But, at even a marginal IRR ...22%..First Mining needs to mine 15,000 tons of ore per day.
This requires a huge mining camp and associated infrastructure along with a 15,000 tod mill.
Total capex is listed at $1.45 billion which means that the mill is costing $100,000 per thousand tons of processing capacity .
And that's being conservative .
IMO, it won't get developed unless POG goes to $3000 per ounce.
The second example is Valentine Lake of Marathon Gold recently taken over by CXB.
Its 2022 FS is in the link below.
Average grade is 1.62 grams per ton .
It needs to mine 10,000 tons per day just for the same marginal IRR of 22% as First Mining.
A 400 person mining camp would be needed to mine and process the 10,000 tons per day.
Total capex costs were listed at $977 million which again is $100,000 tons pe thousand tons of milling capacity .
That is now much higher due to inflation induced cost over runs .
This goes back to Sprott's repeated point about the replacement value of gold mills at current prices makes current mills extremely valuable .
MAE two mills have 2100 tpd processing capacity which at the current rate of $100,000 per 1000 tons of milling capacity values them at about $200 million
Along with that no mining camps are needed, as the skilled mining crews live in nearby mining communities and unencumbered by long term debt such as Marathon had .
Thats why decent grade open pit deposits like Hope Brook or Matadors or NFG cannot ...excepting $3000 POG..be developed without access to excess milling capacity such as avaikable from MAE.
Furhermore, that also applies to those 134,000 ounces in the tailings Pond ..