- Now that a new PEA has been completed, what are the next steps?
- The new PEA only covered the First Zone, does that mean the Second Zone has no value at this point?
- Given the Company’s resource having a relatively low average grade, is it fair to assume that it requires a much higher gold price in order to be economically feasible?
- Does the metallurgical recovery process prove to be a challenge in recovering gold from the resource?
- Does the mine tailing accident near your project area create big hurdles for your project?
1. Now that a new PEA has been completed, what are the next steps?
We believe that the latest PEA has convincingly validated our new Two-Zone project approach. The thesis is straight forward: Within the multi-million ounce resource, the high grade material alone would generate robust returns, the lower grade ones would add development flexibility (by expanding and extending production) and further values over time. Our next steps will be to further improve the mine plan defined in the PEA and de-risk the strategy. The PEA, by design only processed Measured & Indicated resource and therefore treated roughly 21 million tonnes of Inferred resource as “waste”. A logical first step would be to drill this portion to M&I categories. If successful, many more ounces can be added to the First Zone’s mine plan and the strip ratio can be improved as well. We are investigating this as well as a few programs that will de-risk and add values. .
2. The new PEA only covered the First Zone, does that mean the Second Zone has no value at this point?
We chose to focus on the First Zone as a standalone operation because we believe this scenario represents the best trade off between the use of capital and project returns. Having established the robust economics of the First Zone in the PEA, the Second Zone is a “bonus value” within the resource. There are a few ways to see how the Second Zone can also amount to significant value. First, the Second Zone is also sizable and can easily contain 3 to 4 million ounces of gold located WITHIN the existing resource. These ounces can expand and/or extend the already robust production profile of the First Zone once it is developed. Keep in mind that once the initial development costs (i.e. infrastructure & equipment etc.) are paid for with the First Zone, the economic cut-off grade will inevitably be lower increasing the margin from the ounces in the Second Zone. There is another way to “conceptualize” the value of the Second Zone. The market generally has no problem assigning value to lower grade ounces if they can be recovered with heap leach due to lower costs of construction/ operations. Similarly, costs associated with developing ounces from the Second Zone would be much lower as many cost items were already “sunk” or “spent” by the First Zone. Besides, not many heap leach projects would get 90% recovery! Lastly, the First Zone has a mine life of 24 years! There will be plenty of time to “operationalize” the Second Zone, perhaps to be funded with internal cashflow from the First Zone.
3. Given the Company’s resource having a relatively low average grade, is it fair to assume that it requires a much higher gold price in order to be economically feasible?
This is a popular assumption: resources with lower average grade requires high metal price to be economic. This is only a half truth! Yes, lower grade means lower “revenue” per tonne of resource. But economic returns must also factor in the “cost” side of the equation. Our many studies have demonstrated our project’s cost advantage given our excellent infrastructure and proximity to labour, suppliers and grid power. With the focus approach (lower throughput/ lower impact) adopted in our new PEA, our project’s economics have gotten even better. Compared to the 2012 PEA for the entire resource, the NPV for the First Zone alone has gone up 63% even with an assumed gold price that is US$210 lower. IRR has improved more than 50% (from 12% to 19%). We don’t try to compete on average grade but we are very competitive on economics and the size of our ever expanding resource!
4. Does the metallurgical recovery process prove to be a challenge in recovering gold from the resource?
We are aware of UNSUBSTANTIATED rumours about challenges in liberating gold for recovery in the metallurgical process hence the overall recovery from the ore is expected to be very low. The truth is ever since Dr. Morris Beattie’s (a highly respected metallurgist with 40+ years of experience; formerly COO & CEO) involvement in the project since 2009, the metallurgical process is one of the technical areas where we have the highest level of confidence. The high level of gold recovery (approximately 90%) has been substantiated with extensive sample testing. In fact, the new PEA has shown significant improvement to processing: a streamlined and more cost effective flowsheet while maintaining a high level of recovery.
5. Does the mine tailing accident near your project area create big hurdles for your project?
We have a long history of community engagement and transparency in operating our business. Community members have direct access to senior management to express any concerns they have about our project. We have not received any negative feedback regarding our project or the way we run our business in the aftermath of the accident. More importantly we believe that there are many significant differences in our proposed tailing design and water/ discharge management so that community’s concerns can be adequately addressed. The new PEA has incorporated our proposed design and water management strategy. At this point, changes in the permitting process in light of the accident do not appear to have materially impacted our project.