UpdatesHardrock Positive Resource Update
The North American-focused, junior gold producer and its joint venture (JV) partner,
Centerra Gold (CG.T), released an updated resource for the Hardrock gold project in
northern Ontario, which generated a bigger Measured and Indicated (M&I) open pit
amenable resource (+26%, 5.8 Moz) with a higher gold grade (+21%, 1.33 g/t) than the
2016 estimate.
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The JV partners completed a 1.5-year infill reverse circulation and diamond drill program
(~38,000-m, ~530 holes) that focused on the top seven benches (70 meters) of theproposed open pit.
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Critically, the program confirmed the continuity of the gold mineralization and reduced the amount of dilution applied to the previous resource estimate.
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Both the gold price (US$1,250, C$1,625) and cut-off grade (0.3 g/t Au) were the same for
the calculation of the 2016 and 2019 open pit mineral resource estimates (MRE);
therefore, according to the company, the increase in ounces was primarily a result of the following:
The 2019 MRE is constrained by a deeper open pit shell than in 2016 that added
more ore blocks into the estimate.
Adding ore blocks should add tonnage, but the reported tonnage increase was
only 4%.
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Infill drilling allowed for a reduction in the amount of unmineralized material (waste),
hence a higher average grade (+21%) with less smoothing of the grade estimates.
This significant de-risking event likely had a much bigger impact on the M&I
gold resource (+26%) than the increase in tonnage.
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Grade-control and validation drilling from 2018 to 2019 not only confirmed the
continuity of mineralization within the resource model but also resulted in a higher
than predicted grade (+15%) from the 2016 MRE.
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A remaining risk is the uncertainty related to void spaces from unmapped underground
workings; however, the majority of them are deep and occur later in the mine life outside
the 4-5 year payback period.
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At a gold price of US$1,250 per ounce, the 2016 Hardrock Feasibility Study generated a net
present value (NPV) of over C$700 million (100%), discounted at 5%, and an internal rate
of return (IRR) of ~14%.
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At gold spot prices, the project would have an NPV of over C$1.1 billion with an IRR of over 20%, without even considering the upgrade in the grade and ounces from the updated resource model.
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For Premier Gold, part of the planning before the decision includes deciding whether it
wants to:
maintain its 50% stake and take the Hardrock project through to production with
Centerra Gold and fund its share (50%) of the non-debt portion (40%, C$400 M) of
the upfront ~C$1.0-billion capital expenditure, which could be up to ~C$200 million,
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dilute its interest from 50% to a minority stake by having Centerra fund its portion of
the capital required, or
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sell its 50% stake to its partner or another suitor.
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The JV partners will be generating an updated internal financial model with a revised capital
estimate and operating costs to make a construction decision by the early part of 2020.
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They will also conduct more detailed engineering and advance the income benefit
agreements with the last group of First Nations communities.
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Lupita Drilling Results and potential expansion
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The company also reported high grade results (4.4 m grading 8.8 g/t Au with 67 g/t Ag)
from its 42,000-meter core drill program targeting the Lupita Extension and the San
Martin/Neo area at the Mercedes underground mine in Sonora, Mexico, which is its only
producing gold-silver asset.
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Drill results from the Phase 2 infill program (30 m X 30 m grid, 34 holes, 5,855 m) at Lupita
Extension is demonstrating the continuity of the veins to the west.
The overall results (12 holes pending) will inform the next program, and the goal is to upgrade the
targeted resources into reserves by year-end to begin mine development.
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Another positive is the potential discovery of a new zone (Neo) that lies about 400 meters
north of San Martin.
Further drilling in 2020 will test the potential to expand the mineralization up to 900 meters east to Diluvio.
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Premier Gold is a high-beta junior gold producer that performed well with the rising gold
price from May to early September (+70%), but has since fallen 20% potentially due to
concerns about the company’s ability to fund its stake of the Hardrock project.
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These concerns may weigh on its share price until it announces its intentions (fund, dilute, or sell),
hopefully, by early 2020.
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In the meantime, PG is ramping up production at its South Arturo joint venture with Barrick Gold (ABX.T, GOLD.NYSE) in Nevada while trying to resolve its issues at its only operating mine, Mercedes in Mexico, and advancing a highly levered gold asset (Hardrock) in northern Ontario.
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Acknowledgment: Exploration Insights Newsletter - Joe Mazumdar & Brent Cook - 10/06/19
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RJ