Show me where I'm wrong on these NPV assumptions?Hey all,
When reviewing the following numbers, please tell me why I'm crazy, why these assumptions make no sense, and why I'm being wildly optimistic.
I am trying some very rough back of the envelope calculations of Orenada, after guessing it's updated resource. I'm learning on the fly how to calculate this :-) Below is the current resource estimate from Orenada.
| Resource Category | Cut-off | Tonnes | Grade | Gold (oz) |
| Measured | 0.5 g/t Au | 4,329,383 | 1.36 | 189,302 |
| Indicated | 0.5 g/t Au | 6,027,277 | 1.01 | 195,719 |
| Inferred | 0.5 g/t Au | 4,708,810 | 1.16 | 175,614 |
So, for this exercise, I am going to pretend Orenada had an 1.5x increase of mineable area, while the grade improves to 1.75. I could make these more conservative, but I do think it's a reasonable floor based on what we know. However, my confidence is not strong on that :-)
Anyway, here is an update to the resource estimate with these assumptions.
| Resource Category | Cut-off | Tonnes | Grade | Gold (oz) |
| Measured | 0.5 g/t Au | 6,494,075 | 1.75 | 365,381 |
| Indicated | 0.5 g/t Au | 9,040,916 | 1.75 | 508,676 |
| Inferred | 0.5 g/t Au | 7,063,215 | 1.75 | 397,403 |
| | | 22,598,205 | | 1,271,461 |
Okay, now I am going to bring in Integra's PEA numbers, which can be dangerous :-)
| Deposit | Cut-off | Tonnes | Grade | Gold (oz) |
| Indicated | 5 g/t Au | 5,130,010 | 9.13 | 1,505,544 |
| Inferred | 5 g/t Au | 3,514,232 | 7.94 | 896,948 |
| | | | 8.69 | 2,402,492 |
Next, I recalculated the main assumptions from Integra about building a mine. My NPV number is very close to the one in the study found on Sedar.
| Capital Costs | $ 402,000,000 |
| Capital Cost / t | $ 53.60 |
| Operating Cost / t | $ 124.80 |
| Au g / t | 6.96 |
| Au g/t $CAD | 357.74 |
| Operating margin / t | $ 179.34 |
| Tonnes per Year | 625,000 |
| Operating Margin | $ 112,090,000 |
| pre-tax NPV | $ 591,481,876 |
Keep in mind Integra's market cap was around $550 million immediately after the deal was announced... and just before the market cap fell off a cliff -- thanks ELD! :-) Integra also had around $33 million in cash + investments, which is worth mentioning, because AZX basically has like $0 dollars right now.
Before plugging in our AZX assumptions, it's important to appreciate the cost differences that exist between underground and open pit, but the math should be about the same. After assuming the AZX resource above, I then assumed the following items:
- Capital costs: $75 million, this is based off of Agnico Eagle's estimate for preparing the Akasaba West project for $50 million. As I understand it, the main difference between this project and Orenada would be AEM has copper offsets, but with lower gold grade. I assume most infrastructure for an open pit mine should already be in place, but I placed AZX's capital costs higher due to uncertainty and larger mine size.
- Operating costs: I chose $15 a tonne after reading an article about this topic, which stated "As a rule of thumb, open pit mining can process ore for $10 per tonne" Source: https://www.mining.com/web/making-the-grade-understanding-exploration-results/
- I reduced processing grade from 1.75 g/t to 1.5 g/t, because why not :-)
- I'm assuming current CAD price per gram of gold: $51.40, which translates into $77.1 per tonne of thanks to the 1.5 grade revenue. They would probably use a lower number here.
- However, this creates a rough operating margin of $52.00 per tonne
- I'm assuming 4,000 tonnes per day, but I am not at all confident in this number. Anybody with some more accurate info on this would be most appreciated.
- I'm assuming 3-year time-frame before Orenada is operational with a mine life of 10 years. The 3-year time-frame is based again on Agnico Eagle's Akasaba West schedule.
- Once operational, this projection assumes around an operating margin around CAD $76 million per year.
- I plugged all of this into an NPV calculator with a 5% discount rate, the same discount as Integra used in their PEA, and the calculator spit out a pre-tax NPV of $432,384,938.
The summary numbers of these assumptions are below:
| Capital Cost | $ 75,000,000 |
| Capital Cost / t | $ 10.00 |
| Operating Cost / t | $ 15.00 |
| Au g / t | 1.50 |
| Au g/t $CAD | $ 77.10 |
| Operating margin / t | 52 |
| Tonnes per Year | 1,460,000 |
| Operating Margin | $ 76,066,000 |
| pre-tax NPV | $432,384,938 |
According to Probe's technical paper and previous resource estimate they provided a nice overview about the mills in the Val d'Or area:
Several mining operations and gold mills are currently active in the area, including - The Lac Herbin mine and Aurbel gold mill, held by QMX Gold Corporation, with a capacity of 1,500 metric tonnes per day (tpd) which can be upgraded to 2,500 tpd, located 6 km (straight line) from the Val-d'Or East property
- The Bevcon gold mill with a capacity of 900 tpd (upgradeable), also located 6 km away;
- The Sigma-Lamaque gold mine and mill, 24 km away, with a capacity of 2,400 tpd which can be upgraded to 5,000 tpd;
- The Goldex mine and mill operation, 39 km away, with a capacity of 8,000 to 10,000 tpd;
- The Wesdome mine and mill facility some 45 km away, with a capacity of 2,000 tpd;
- The Camflo mill at 60 km, with a capacity of 1,200 tpd;
- The Canadian Malartic mine and mill facility at 70 km, with a daily capacity of 55,000 metric tonnes.
I know... sooo many assumptions, but I am genuinely curious about how the upcoming resource estimate *could* impact a *possible* PEA study. Anyway, I wanted to throw these assumptions out to the AZX group, so someone can tell me why I'm dumb, wrong and crazy on these numbers... :-) This way I can plug in more realistic assumptions.
GLTA,
NP
Disclosure: Do not consider these numbers as accurate, and do not mistake this guess work as financial advice! haha