Good Article on SSP Sandspring releases pre-feasibility for Toroparu, economics improve with $691M NPV
Sandspring Resources (TSX VENTURE:SSP) has waded further into the catalyst territory with the release of a pre-feasibility study on its Toroparu project in Guyana. The report also proposes an initial mineral reserve for the project.
The report proposes annual production of 246,000 ounces of gold at 1.32 g/t at a life of mine cash cost of $700 and cash costs for the first four years totalling $504 per ounce gold. Mine life is 16 years now, as opposed to the previous 14-year mine life from the 2012 PEA.
Numbers aside, the company has been quick to put this report together, and plan to have a DFS (definitive feasibility study) into my sweaty palms by 2014, another quick turnaround. You can’t overstate the importance of operating rapidly with mining projects. Companies that don’t hit their target deadlines (or don’t have them at all) tend to not surprise us with little progress. The overachievers—SilverCrest Mines, Prodigy Gold (sold for $341 MM to Argonaut Gold), First Majestic Silver, to name a few—have fared much better in poor markets such as these.
The fact that Sandspring has taken its lumps like the best of them out there may be cause for concern, however a tumble through the numbers says a great deal about this company and reveals some excellent potential for upside. To whit:
- The project has advanced into catalyst country (IE beyond PEA) with growing resources
- Operating in a good jurisdiction, near infrastructure, with river and road access, not too far from Georgetown in Guyana
- Has an NPV (after tax, with 5% discount) of $691 MM and an IRR of 23.1%
- A market cap of $34 million
- The company had $15 MM at the time of its last financial report (end Q3 2012)
- Shares are held by RBC Global Asset Management, Sprott, BMO Asset Management, Universal-Investment-Gessellschaft mbH and Rindlisbacher and Partner AG (according to a company report)
The story carries great promise in its sheer size alone: a combined 10 million ounces gold in all categories (measured, indicated and inferred). With reserve pit constraints placed on it, the contained ounces drop to four million ounces, plus 192 million pounds of copper as a by product. The gold is contained in 127 million tonnes of ore at a grade of 1 g/t, a 32% increase in life of mine gold grades.
The prefeas has tweaked a number of inputs to achieve a better story. For example, engineers redesigned the processing flow sheet to produce 78% of gold in doré on site, with significant cost savings to the company. These cost savings, as well as increased cash flow from high gold prices, culminated in a substantially higher IRR on the project. IRR was 18% and is now 23.1%. The after-tax NPV comes to US$691 million with a capital payback period of 2.6 years.
Although a lower LOM Capex of $784 MM has contributed to better economics (it was $853 MM), if this project could benefit from any improvement, a lower Capex would certainly help. And since the price of gold is out of their hands and the pit constraints depend largely on the price of the metals… it’s either going to be metallurgy or Capex that make the difference. Or both.
Nevertheless, as Yani Roditis Sandspring’s President and Chief Operating Officer said, “…Mine plan optimization and design improvements during the PFS resulted in a life of mine capital reduction of $129 million. The PFS increases our confidence and belief that Toroparu is a project that should be built and therefore Sandspring will continue to move forward with final permitting and development of the Project.”
Rich Munson, Chief Executive Officer has suggested that the company is actively seeking partnership to take the project to production. “We are encouraged by recent approaches from third parties expressing interest in developing Toroparu jointly with Sandspring. Despite the expressions of interest, we recognize that funding a project of this scale is challenging in the current environment. We have therefore engaged Cutfield Freeman & Co, a leading independent advisory firm in the mining sector, to conduct a process to determine the options available for financing the development of Toroparu and enhancing the value for our shareholders.”
Money in the present financing milieu is expensive stuff, so Sandspring will be shopping around carefully for a partner for its Toroparu project. That said, with a market cap of $34 million, it may well be on the radar of a few hungry producers. The deal is reminiscent of several others from the 2012 M&A period.
Below is a comparison of the new PFS and the 20212 PEA and sheds some light on how the project has evolved:
2013 PRE-FEASIBILITY STUDY:
- LOM 3.735 M oz recovered gold
- LOM 192 Mlbs copper
- Base case gold $1,400
- After tax NPV (5%): $691 MM
- IRR: 23.1%
- Mine life: 16 years
- Cash cost: $700 per ounce
- LOM Capex $784 MM (including some cashflow from saprolite ore to offeset costs)
- LOM Stripping ratio: 3.69:1
- Ore: 127.1 Mt
- Waste: 468.9 Mt
2012 PRELIMINARY ECONOMIC ASSESSMENT:
- LOM 3.65 M oz recovered gold
- LOM 192 Mlbs copper
- Base case gold $1,255/oz
- After tax NPV (5%): $540 MM
- IRR: 18%
- Mine life: 14 years
- Cash cost: $600 per ounce gold LOM
- LOM Capex: $853
- LOM Stripping ratio: 4.1:1
- Waste: 499 Mt