Striking the right note16 Sep 2014 12:41pm GMT
Mining Journal
Timing is everything when it comes to financing and Newstrike Capital Inc’s Ana Paula gold-silver project in Mexico has a hand up at just the right moment.
Putting out a preliminary economic assessment (PEA) less than a week after one of its neighbours was bought and the day the biggest gold event in North America starts can only be described as kismet.
“You can’t confuse luck with intelligence,” president and chief executive Richard Whittall told Mining Journal from his hotel room in Denver on Monday when explaining the initial exploration find at Ana Paula.
“Gill [Kearvell] and Craig [Gibson, the two main geologists on the Newstrike team] are very skilled at what they do and it was Craig that identified the importance of a breccia outcrop. We wouldn’t be there without them,” he said.
He’s right. This discovery was ‘the’ find the project needed to build momentum.
The company acquired the project from Goldcorp Inc back in June 2010 after the gold major’s Mexican subsidiary had drilled close to 3,700m and found nothing much but sulphide material with pretty poor metallurgical recoveries.
As a result, when Newstrike lost out to Torex Gold Inc in trying to buy a stake in Morelos from Goldcorp, it turned its attention to Ana Paula, a project which didn’t work for a major, but Newstrike and Whittall felt had potential.
“Again, we took the risk on exploration. I also think Goldcorp, at the time, simply with the amount of concentration it had in Mexico with Penasquito and others just didn’t need more in Mexico,” Whittall said.
Over three-and-a-half years after discovering the high-grade breccia zone which put Ana Paula on the Guerrero gold belt map, its PEA is making headlines.
The gold grades look good, the jurisdiction is favourable and the capital expenditure (capex) for a company like Newstrike is reasonable.
“This is the first scoping of the project to what I think fits the current environment. We’re trying to get something with a modest capex,” Whittall said.
On a base case scenario of US$1,300/oz for gold and US$20/oz for silver, it has an after-tax net present value (NPV) (at 5% discount) of US$232.1 million, an internal rate of return (IRR) of 32.8% and a 2.4 year payback period. Even at a US$1,100/oz gold price it still boasts a US$138.4 million NPV, an IRR of 23.1% and a 2.9 year payback.
Initial capex came in at US$163.9 million, with the total life of mine bill at US$219.7 million.
This could result in an openpit mine producing 116,000oz of gold and 239,000oz of silver over an 8.2 year life, with average head grades of 2.24g/t Au and 6.89g/t Ag, at all-in sustaining costs of US$567/oz.
“As a businessman, I love having paybacks under three years and this one is very, very impressive,” Whittall said.
An investment banker with a history on the Guerrero gold belt having served as a director of the first junior on the scene there, Miranda Mining Corp, from 1995 until 2003 when it was sold, Whittall knows what he is talking about.
Despite these impressive numbers, Whittall was quick to point out room for improvement.
“Improvement on recoveries is the next big thing to tackle,” he said. Recoveries from limited metallurgical testwork on the basis of a gravity, flotation and carbon in leach (CIL) circuit were only 75% for gold and 50% for silver. “We get about 45% from gravity and, as a first step, that is an area to see if we can tweak it and get more out of it,” he said.
Another potential boon could come from a reclassification of some of the 12.5Mt of rock currently deemed waste as a resource should column leach test work support this, Whittall said.
Then there are mining costs, a change most project developers aim to bring down in time, in addition to optimising the taxes the company pays. “I think we can probably get a win on that one [the tax], I’m looking at [a reduction of] 10%-15%,” he said.
All of this will be part of a preliminary feasibility study the company is already starting work on, which could be completed next year, according to Whittall.
He reckons Newstrike will have to go back to the capital markets by the end of the year, but, in the meantime, he and all of management were acting prudently to preserve cash.
“We’re in good financial shape and just have to preserve cash and tick along here. I’m cheap, hence why I’m calling on Skype. That’s how we run the business,” he said.
For the time being though, Whittall will be kept busy with the “lion’s den” at the Denver gold forum this week.
“Well I got a few emails this morning [following the announcement]. I will be meeting with analysts and portfolio managers. Because of the current environment, I think it [the PEA] will take the next 60 days to settle in,” he said.
This study does not mean there is a ‘for sale’ sign above the Newstrike door though. Its biggest shareholder is the Lundin family, which has supported many a worthy project through capital raisings.
“It fits a profile, but it is the board’s intention to go the distance on it at this stage. I have to say that because you can’t predict what’s going to happen,” he said.
Case in point is Cayden Resources Inc, a junior which holds the Morelos Sur gold concessions on the Guerrero gold belt and the El Barqueño asset in Jalisco, Mexico, which was taken out by Agnico Eagle Mines Ltd (AEM) last week for a hefty C$205 million (US$185 million).
“I’m very keen on meeting with AEM, if only to quiz them as they are our new neighbours. I’m keen to see what their plans are in Guerrero,” he said.
With no resource on either of Cayden’s projects there is a clear premium emerging for Mexican gold assets, Newstrike is hoping it is in line for such returns.