from June...a good re-cap.
When American businessmen Rich Munson and John Adams made their first trip to Guyana as private investors in 1999 and picked up the rights to the 626 sq. km Toroparu gold concession in a remote part of the Upper Puruni River region, the only way they could access the property was by boat or helicopter.
“There was one helicopter in the country and it was an old, Russian one that Russia had left from when they were there in the 1960s,” Munson recalls. “We did take it in a few times, and it was always kind of an adventure, because it shook more in the air than on the ground.”
The rest of the time they travelled by boat. Typically, water access was only available during the rainy seasons in May to June and November to December, when the rivers were high enough to get over a series of rapids in the river. During high water, the trip took three to five days due to portages around waterfalls. Passage by smaller boat was available at other times of the year, but it could take between eight and 10 days.
“We worked on the project for a while, and then John came to me one day and said: ‘We’ll never develop this project if we don’t build a road,’” Munson says. “I said, ‘Well, I respect your instincts because they’ve been rewarding over the years, but we don’t have one deep drill hole on this property.” And he said: ‘We don’t need one. I know there are 10 million oz. gold there.’”
So the partners, who founded Sandspring Resources (TSXV: SSP; US-OTC: SSPSXF) to develop the gold project, shuttled engineers down to the property. They estimated it would take six months and US$750,000 to build a 225 km road to the project from deep water on the Mazaruni River at Itabali Landing, 80 km from the capital of Georgetown.
Sandspring Resources’ Toroparu gold project in Guyana. Credit: Sandspring Resources.
“Two years and US$4.3 million later, we daylighted the road, and John was right on both points,” Munson says. “Without a road there would be no project, and now we have a global resource in excess of 10.5 million oz. gold.”
The road was completed in December 2003, and today, Toroparu ranks as the largest undeveloped gold deposit owned by a junior company in South America, with 252.6 million measured and indicated tonnes grading 0.91 gram gold per tonne for 7.4 million contained oz. gold, and another 129 million inferred tonnes averaging 0.76 gram gold for 3.2 million oz. gold.
The open-pit project, 50 km from Guyana Goldfields’ (TSX: GUY) Aurora gold mine, also has support from the mining industry. In November 2013, Wheaton Precious Metals (TSX: WPM; NYSE: WPM) signed a gold-purchase agreement, and in 2015, added a silver by-product stream to the agreement.
Other investors backed the project too, including Frank Giustra, whose Fiore Group came in 2015, and now owns 9.3% of the company’s stock, and last year, Gran Colombia Gold (TSX: GCM) became a shareholder with 16.7% equity, which has increased to 19.96% after Sandspring’s $4-million private placement in early June.
SRK Consulting completed a prefeasibility study (PEA) of Toroparu in May 2013, outlining an open-pit mine that would produce 200,000 oz. gold over an initial 16-year mine life. But the mine plan envisioned two processing circuits — leach and flotation — that would produce gold-rich concentrate at a hefty price tag of US$500 million. The dual-circuit mine plan didn’t make much sense for a project so far from deep water, and the company went back to the drawing board to incorporate more gold-only shallow ounces from Sona Hill, a satellite deposit 5 km from Toroparu that it found in 2012.
“Sona Hill is not that big — it’s about 750,000 oz. — but it is a little higher grade and is on a hill, so there’s no strip, so that can be mixed with some of the gold-only parts of our main deposit, and it allowed us to come up with a mine plan of gold-only production in the first 10 years,” Munson says. “And we’re in control of our gold — it will be produced as gold dor. We’re not relying on refiners to tell us how much gold they’re giving us back from concentrate.”
A truck at Sandspring Resources’ Toroparu gold project on Guyana. Credit: Sandspring Resources.
Sandspring has released a re-scoping study of the project that includes Sona Hill, and fine-tunes its processing strategy to start with gold-only production, with a silver by-product from a carbon-in-leach circuit for the first 10 years, followed by an expansion in year 11, with the addition of a parallel flotation processing.
The preliminary economic assessment concludes that Toroparu would produce 4.5 million oz. gold — 3.64 million oz. which would be in the form of gold dor bars — over a 24-year mine life. In addition, Toroparu would produce 4.46 million oz. payable silver and 124.7 million lb. payable copper over the mine’s life.
During the first 10 years, the mine would produce 1.48 million oz. gold dor. In the second, 14-year phase, it would produce 2.15 million oz. gold in the form of dor, and another 876,000 oz. gold in concentrate.
The study estimates all-in sustaining costs would run to US$812 per oz. over the mine life.
Pre-production capex has dropped from the US$501 million outlined in the 2013 prefeasibility study to US$378 million in the PEA — a US$123-million decline.
Furthermore, with US$106 million in pre-production financing from Wheaton Precious Metals’ precious-metal purchase agreement, which was last amended in December 2017, Sandspring’s share of initial capex in the mine’s first phase works out to US$272 million, while capex for the US$232-million expansion in phase two could come from internal cash flow.
“I have little concern about whether Wheaton will participate, but I can’t speak for them,” Munson says. “They are fully aware of the numbers we’ve calculated, but until we deliver a final prefeasibility study to them, they’re not going to say ‘yes, that’s the number,’ or ‘no, that’s not the number.’ They have been a tremendous partner — I see them as a partner — and I see this is a good project for them. It’s big with a lot of potential gold production, and they got in on pretty favourable terms, and have seen that Fiore, Frank Giustra and Gran Colombia continue to invest in the project … so I have little concern about whether Wheaton will participate, but I can’t speak for them until they see the final feasibility study.”
Drill core on display at Sandspring Resources’ Toroparu gold project in Guyana. Credit: Sandspring Resources.
With Wheaton’s participation, and at US$1,300 per oz. gold, Toroparu would generate a 20.25% after-tax internal rate of return. Without Wheaton’s participation, the rate of return would drop to 16.56%.
The project’s after-tax net present value at a 5% discount rate would be US$495 million with Wheaton’s participation, and US$519 million without Wheaton’s participation, at US$1,300 per oz. gold. At the same gold price, initial capex would be paid off after tax in just under three years with Wheaton’s participation, and just over four and a half years without Wheaton.
Munson says Sandspring can finish the final feasibility before year-end because the company has done so much work at Toroparu already, including environmental studies and permitting. Sandspring got an environmental permit for the project in 2012, which is good for five years. It was renewed in 2017, and it will be renewed again in 2020, Munson says.
In 2011, Sandspring completed a mining permit agreement with the national government, which set out terms of the tax structure, as well as land and legal rights. “That is their agreement that upon delivery of a positive feasibility study they will issue a mining licence … so, when we get closer to that we can have the mining permit issues,” he says.
In addition, the company completed most of the tailings management work and planning in 2014.
“We have a good relationship with the government. We’ve opened up a big road, which is one of the main arteries for the country and for local miners to bring out their gold. So the government is fully aware of the contributions we’ve made, and that we’ve done what we said we would do.”
Sandspring shares are trading at 17.5¢ in a 52-week range of 15¢ to 35¢. The company has a $37-million market capitalization.