GOLD OUTLOOK Inside gold's project pipeline - Mining Journal
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GOLD
OUTLOOK
Inside gold’s
project pipeline
In association with:
GOLD OUTLOOK | CREDITS
Editorial
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2 April 2021
INTRODUCTION | GOLD OUTLOOK
Gold projects needed
Lack of investment in early
stage projects coming
home to roost
Though the first half of the year has In the Americas, we identified 19 projects at the
feasibility stage in the hands of junior miners,
been dominated by talk of vaccines, representing 36.6Moz of aggregate potential
the post-COVID-19 recovery and a production, some 3.2Moz of potential annual gold
production and US$6.3 billion of initial capital
buoyancy in industrial metals
expenditure. Of these, two have been acquired and
markets not seen for a decade, four appear to be going nowhere fast, leaving just 13
precious metals promoters have not across both continents.
broken stride. But it was in Africa where the lack of investment really
With gold prices ticking back up above US$1,900/oz, showed: there are just seven FS-stage projects in
they remain upbeat about the effects of further doses development, and two of them - Cardinal’s Namdini
of stimulus, inflation and negative real rates. and Resolute’s Bibiani - have already being acquired,
both by China-based companies.
Higher gold prices since the summer of 2020 have
already sparked a wave of corporate activity, and with The information contained in this report was initially
prospects good for the gold sector over the short-to- published earlier in the year, so the status of some
mid-term, we thought it wise to take a closer look at projects may have changed since then, but the central
future gold supply. message is clear: a surge in supply any time soon is
unlikely
That the project development pipeline is not brimming
with top quality assets will come as a surprise to few
within the industry, especially given the lack of “The lack of meaningfully
exploration dollars dispensed by the majors in recent sized projects at the
years, but the relative lack of meaningfully sized
feasibility study stage
came as a bit of shock.”
projects to have reached the feasibility study stage still
Mining Journal, Tom Hoskyns
came as a bit of shock.
3
GOLD OUTLOOK | SRK
Remembering the lessons
from the last gold bull
market
In a cyclical industry such as markets, will cause the past to be repeated. We can look to
the errors of 2010-12 for indicators that the industry’s new-
gold mining, it seems simple to found discipline has been lost.
practice the concept of “buy low,
Indicator 1: Targeting volume over quality
sell high.”
In the last boom, assets with minimal historic value were
However, it always seems that M&A activity in the gold suddenly being snapped up for hundreds of millions and in
sector mirrors the gold price, peaking when prices are some cases billions of dollars. These were typically assets
highest. Of course, buying low is not as simple as it sounds with large resource bases but low grades and high
as when gold is in a bear market, cash flow tightens, debt
operating or capital costs (and often all three combined)
financing becomes harder to obtain and conservatism
that rendered them worthless at $1,200-1,300/oz gold
creeps into strategic forecasts. When gold enters a bull
prices but economic at $1,700-$1,800/oz. In short, the only
market and companies have the money and motivation to
thing they had going for them was that large resource base
acquire new assets, M&A roars back to life.
that stretched the definition of “reasonable prospects for
With gold potentially at the early stages of a bull market, economic extraction”. It is not a bad thing to pay $1 billion
now is a good time to revisit the mistakes of the previous for an asset when prices are high, even if you know that the
bull market a decade ago. More often than not, deals done value of the asset will fall to $500 million in your bearish
during that bull run crippled companies in the recent bear scenario – especially if it has a long mine life.
run, with estimates of at least $85 billion in write-downs
There is no such thing as a deal with a guaranteed positive
after the last bull market, according to research from
return in all scenarios and, because gold is cyclical, the asset
Paulson and Co.
will again increase in value when the gold price inevitably
The industry clearly learnt some lessons from the mistakes rises. However, it is an error to pay $1 billion for an asset
of the last bull run. Costs are down, profit margins are up whose value goes to zero when times are tough or, worse,
and M&A in the past five to six years has generally been hemorrhages cash instead of repaying back the debt taken
value accretive. on to acquire that asset.
Now, with the gold price elevated again, the question is The bottom line is that project evaluation should always
whether this forced discipline of the past half-decade can include robust scenario planning. All scenarios don’t need to
be sustained or whether the constant need to replenish show a positive return. However, in your worst-case outlook,
reserves, coupled with the exuberance inherent in bull if the projected short-term fall in value hurts, but is
4 May 2021
SRK | GOLD OUTLOOK
manageable, debt can still be serviced and mining can This is why it is critical to involve an appropriately
continue to at least break-even, that is very different from a knowledgeable geologist in the evaluation of resource
mine going significantly cash flow negative with only a upside and a mining engineer to evaluate if any of that
minor drop in gold price. upside has any potential to be economic.
In a large porphyry deposit that is simply undrilled at depth,
Indicator 2: Undervaluing qualitative risk it can be easy to argue that significantly more value is
present versus defined.
Good projects receive premiums for a reason. If a project is
technically good but still carries a discount in a bull market, For other deposit types, even numerous gold intercepts in
there is very good reason for it (often social or political risk). the region may not be anything more than interesting
When big deals start getting done in jurisdictions where it is mineralisation with no chance of economic extraction.
near-impossible to permit, and especially when these are Therefore, application of a probability of success to go with
greenfield projects, this is a good indicator that discipline hypothetical extended mine plans is key to appropriately
has vanished. valuing exploration upside.
Quantifying technical risk is usually relatively
straightforward. As a hypothetical, a geologist could analyse Conclusion
a resource estimate and conclude that the grade is
materially overstated. With a quick remodel and updated Everything in mining involves probabilities: the probability
mine plan fed into an economic model, you now have new of the gold being in the ground, the probability of being
cash flows to derive your value. Even the most-optimistic able to extract the gold at a certain price, the probability of
CEO would find it difficult to argue against a revised risk- moving a drill to point B and striking the same mineralised
adjusted scenario based on quantitative analysis. system you hit at point A.
On the other hand, it is much more difficult to adjust value When companies begin referring to their best possible
for qualitative risk. Let’s say an asset is worth $1 billion in a outcomes to justify the prices paid for assets, that is when
jurisdiction with a clearly defined and executed permitting we will know that we have returned to the levels of
process. In a more-complex jurisdiction where at best you’re exuberance that plagued the industry in the last bull
looking at several years of delays, or worse, you have a market. Only one thing has to go wrong for the best-case
binary risk situation (i.e., it may never be permitted), setting scenario to turn into your worst nightmare.
a risk adjusted value is very subjective. Should that same For those that are in the position of evaluating the
project be valued at $900 million, $500 million, $1 million? opportunities and making the decision as to what is most
This is a much more arbitrary decision and in an optimistic likely to bring value to shareholders, the bottom line is to
market, applying a minimal qualitative discount can result maintain discipline, keep in mind the lessons of the past and
in the perception that a mythical Tier 1 asset is available for not just due your due diligence, but do it properly. Often
a steal. In the middle of a downturn when valuations are times, passing on a deal is the best move, but knowing
low, a roll of the dice on a few million dollars for a high-risk, when a good deal is in front of you and being able to move
high-reward project may be a good investment. But when quickly is just as important.
valuations for very risky projects (especially those with
binary risk) run into the hundreds of millions or more, this is
one area where it pays to be conservative. Author: John Pfahl, Principal Consultant (Corporate
Advisory), SRK Consulting
Indicator 3: Extreme extrapolation of
resource potential
SRK – at a glance
Returning to the challenge of finding rational value in a bull
market, another common approach has been for
prospective buyers to target exploration upside for that Contact
value. Upside should never be ignored when evaluating a John Pfahl, Principal Consultant (Corporate Advisory) Rocio
mining project, and there have been instances where this Ramirez, Senior Marketing Advisor
strategy has been successful, even in a bull market.
Tel: +1 604 681 4196
However, it is another matter to pay a significant premium
for potential upside without a robust thesis to underpin Email: info@srk.com
your upside expectation. Web: www.srk.com
May 2021 5
GOLD OUTLOOK | ALTO METALS
Alto emerging on song
at Sandstone
Well-funded Alto Metals is managing director Matthew Bowles has his sights set on a
much larger update within the next 12 months or so.
hitting its stride this year as it
With about A$7.8M in cash, the company now has two rigs
begins to better demonstrate at work on a 30,000m campaign and a strong news flow is
the potential of its district-scale anticipated.
Sandstone gold project in The explorer has emerged from what Bowles described as a
challenging year, with the company seeing off not one but
Western Australia. three unsolicited takeover offers, raising $5.5 million and
receiving strong shareholder support for its major
It’s already discovered two new lodes in 2021 at the
exploration programme designed to prove up a bigger
previously-mined project, with its biggest drilling
resource base. What we did last year was build foundations
programme in years underway and starting to test the
for what I think 2021 is going to be, an exceptional year,” he
untapped potential.
told RESOURCEStocks.
What makes Alto unique for a junior is its control of virtually
Exploration is focused on resource growth and making more
an entire underexplored greenstone belt in a gold-class
discoveries, like the Orion lode which Alto found towards
address.
the end of last year, 200m south of Lord Nelson.
Alto recently acquired another tenement to take its
“That’s delivered some fantastic results,” Bowles said.
holdings in the Murchison to more than 900sq.km, covering
the majority of the Sandstone Greenstone Belt and in a “The highlight for me was 29m at 3.5g/t gold from 49m.”
region surrounded by multimillion-ounce gold mines such
as Gold Fields’ circa 10Moz Agnew to the east and Ramelius Other results at Orion included 23m at 3.8g/t gold from
Resources’ 6Moz Mt Magnet to the west. 106m.
Sandstone itself has previously produced more than 1Moz “Orion was a key catalyst for us and highlighted that there’s
from shallow oxide pits and historical underground a lot more potential to be found at the Lords Corridor,”
workings and the project has seen little exploration below Bowles said.
100m. Alto last year increased its Lord Nelson resource by The corridor spans over 3km between the previously-mined
60% to 109,000oz, taking the project’s total to 331,000oz Lord Nelson and Lord Henry deposits.
across several deposits, all of which remain open, but
6 May 2021
ALTO METALS | GOLD OUTLOOK
“As one of the geos
Wide-spaced “step out” exploration drilling in December,
1km south of the Lord Nelson pit, confirmed the discovery
said: the more we drill,
of a New Zone of gold mineralisation, where assays included
4m at 5.3g/t gold from 124m.
This news followed the discovery in February of another
new lode 400m to the south on the edge of an undrilled IP
the more we find.”
anomaly, where assays included 8m at 1.6g/t gold from 65m
and 1m at 6.1g/t gold from 222m within a broad “halo” of Results below Lord Henry have included 2m at 51.3g/t from
mineralisation. 70m.
Bowles said the mineralisation was the same as at Lord “The mineralisation doesn’t just stop at the bottom of the
Nelson and reminded Alto of the first few holes which led to old pits, we’re now looking into the continuation of
the Orion discovery, which further indicated the significant mineralisation down plunge and along strike,” Bowles said.
potential of the corridor and the entire Sandstone Gold The cashed-up company is expanding the team as
Project. exploration heats up.
“We’re introducing the bigger picture of how big the “My geological team are the happiest I’ve seen them in a
corridor will be and then we’re starting to look at other long time because they can actually go out and
targets, because we’ve got multiple targets over the systematically test a number of targets they have wanted to
property,” he said. drill for such a long time,” Bowles said.
Back at Lord Nelson, which had produced 207,000oz of gold He joined Alto as a director in 2019 and has been at the
at 4.6g/t gold from a pit mined to about 90m, Alto has helm since mid-2020, saying he had long thought of
previously reported high grades at depth, including 5m at Sandstone as an amazing asset.
13g/t from 99m and 16m at 5.2g/t gold from 240m in
primary mineralisation. “I just see so much potential,” he said.
Exploration results are imminent from ongoing exploration at Alto Metals’ Sandstone gold project
May 2021 7
GOLD OUTLOOK | ALTO METALS
“There’s still so much to be found at Sandstone and we are
still only just scratching the surface, but our results are
indicating the presence of a much bigger system.
Gold jurisdiction
Not only is Western Australia a mining-friendly jurisdiction,
with the government recently providing Alto with
exploration incentive funding, but the isolated state has also
been fairly insulated from COVID-19.
The only impact Alto is noticing, along with other industry
members, is the skills and people shortage due to border
closures.
In Alto’s case this meant a slight delay in securing a drill
crew last year, and the current backlog of assay results.
The current drilling programme began in February and
Bowles expects results to start flowing in April.
From there, momentum is expected to build. Alto Metals MD Matthew Bowles
“We’re looking forward to seeing the results when they
come through from a number of different targets,” Bowles “2021 is an exciting year ahead for us and shareholders have
said. a lot to look forward to,” Bowles said.
“We’re quietly very excited to see what that’s going to “We are in the strongest position we’ve ever been in, we are
reveal.” well funded and have a major drilling programme underway
to follow up recent high-grade drilling results, drive further
Meanwhile Alto has already conducted preliminary resource growth and make further discoveries.”
metallurgical testwork on samples from Lord Nelson, which
provided an average gold recovery of 96%.
Along with plus-92% recoveries from earlier testwork on Alto Metals – at a glance
other deposits including the Vanguard and Indomitable
Camps, Alto said the results demonstrated the Head Office
mineralisation was amenable to conventional cyanide Suite 9, 12-14 Thelma St,
extraction methods. West Perth WA 6005
Bowles said the results gave investors comfort around the Tel: +61 8 9381 2808
metallurgy so Alto could continue its current focus on Email: admin@altometals.com.au
exploration.
Web: www.altometals.com.au
The company has strong backing from its key shareholders,
Directors
and is tightly held with the top five holding about 48%.
Richard Monti, Matthew Bowles, Terry Wheeler, Dr Jingbin
The current exploration programme is about one-third Wang
complete and Bowles said there was already planning
Shares on Issue
underway for an expansion. The first rig is testing depth
450 million
extensions at Lord Henry, Lord Nelson and the Orion lode,
and will then remain in the Lords Corridor to further test the Market CAP (at March 23, 2021)
New Zone and IP target not yet drilled. A$34 million
The second rig has started step-out drilling at Vanguard and Major Shareholders
will then move on to a maiden drill programme at the Windsong Valley (18.42%), GS Group Australia (11.14%),
Chance target, before moving back to follow-up on first Middle Island Resources (8.89%), National Nominees (5.36%,
phase results in the Lords Corridor. Sinotech (Hong Kong) (4.12%)
8 May 2021
GOLD OUTLOOK
Global gold
M&A set to
take off? A look
at FS-stage
Americas
candidates
Buoyant precious metals While capital discipline continues to be a mantra in many
boardrooms, recent M&A has featured synergies as a key
prices and the rollout of rationale behind transactions involing companies seeking
opportunities to further pare back costs and increase
COVID-19 vaccines means margins.
Consolidation has also been a theme with growth-
that 2021 has begun with orientated companies seeking to increase their relevance
and access to finance at cheaper rates as their market
an air of expectation for capitalisation increases.
the realisation of pent-up As part of its Global Gold 2021 series of reports, Mining-
Journal.com is exploring the relatively finite universe of
merger and acquisition
development stage projects with the aim of identifying
which projects are most likely to advance into production
and these are most likely to be M&A candidates.
activity as corporate We start here with an examination of feasibility stage
teams will be able to projects in the Americas.
resume due diligence
Mining-Journal.com has identified 19 feasibility stage
projects in the Americas in the hands of junior miners,
representing some 36.6Moz of aggregate potential
site visits. production, some 3.2Moz of potential annual gold
production and US$6.3 billion of initial capital expenditure.
The projects have an average capital efficiency of $168/oz,
Much of the M&A in 2020 involved projects in average all-in sustaining cost of $706/oz, and an average
neighbourhoods where the acquirers were already after-tax internal rate of return of 29% at an average $1,351/
operating, but with many producers seeing record output in oz gold price. Of the eight projects in Canada, nine in Latin
2020, the need to replace depleted ounces is becoming America and two in the US, two have already been acquired,
more urgent, and the strong cash flows from high gold four will be developed by their current owners and four are
prices means many companies have the treasuries to going nowhere fast.
support M&A action.
Top of the reserves list are Horne 5 (6.1Moz), Hardrock
May 2021 9
GOLD OUTLOOK
(5.5Moz) and Stibnite (4.8Moz). In terms of grade, Cerro Two of the five projects are already subject to acquisitions,
Blanco (8.5 grams per tonne), Grassy Mountain (6.8g/t) and Monarch Gold announcing the sale of Wasamac to Yamana
Back River (6.3g/t) head the list. The costliest projects to Gold in November followed by Equinox Gold announcing
develop are Stibnite ($1.3 billion), Hardrock ($952 million) the acquisition of Premier Gold in December.
and Horne 5 ($740 million) with the least capital efficient
projects being Stibnite ($286.2 million/oz), Grassy Mountain Both Cerro Blanco and Premier are high-grade deposits with
($259.3 million/oz) and Lynn Lake ($226.1 million/oz). respective reserve grades of 8.49g/t and 5.99g/t. Premier is
being acquired - will Cerro Blanco be next?
The lowest AISC is Horne 5 at $399/oz, followed by Camino
Rojo at $543/oz and Cerro Blanco at $579/oz. At the other The main strike against Cerro Blanco is that it is in
end of the scale, Fenix comes in at $1,042/oz. Camino Rojo Guatemala, a country with a recent history of mines being
has the highest IRR of 62% although it uses the highest gold developed and then shut down as a result of community
reference price of $1,600/oz, followed by Premier with 51% opposition. Tahoe Resources’ Escobal silver mine was
at $1,400/oz and Bateman with 50.3% at $1,525/oz. So much shuttered in 2017 and subsequently sold to Pan American
for the numbers, but which projects are likely to be built or Silver, while in 2019 Guatemala’s Constitutional Court
acquired? ordered the closure of the Fenix nickel mine operated by
Swiss chemical company Solvay.
Six of these projects (Hardrock, Premier, Cerro Blanco,
Magino, Wasamac and Mara Rosa) are already under The Lundin group is a major shareholder of Bluestone. It is
construction, have received a positive construction decision also a major shareholder of Lundin Gold which operates the
or are under acquisition, representing 12.4Moz of aggregate Fruta del Norte mine in Ecuador, which was once considered
production or 34.2% of the total, and potentially adding a troubled project.
some 1.1Moz/y of production. Lundin Gold has shown it has a higher geopolitical risk
For all of them, 2020 was key. tolerance than many other companies and as it plans on
expanding beyond a single asset eventually, with few high-
Ascot Resources closed a US$105 million project financing grade projects out there, Cerro Blanco could be a good fit.
package in December to build Premier, Argonaut Gold
approved construction of Magino in October and secured It could take the diversification route into a large low-grade
up to $175 million in debt financing, Orla Mining received operation that Kirkland Lake Mines took with its November
an environmental permit to build Camino Rojo in August, 2019 acquisition of Detour Gold.
while Bluestone Resources has moved into construction of Hardrock is the most expensive development project with a
Cerro Blanco and raised much of the money to build it, as capex of $952 million, while the others are comfortably
did Amarillo Gold which raised C$57.2 million to build Mara under $500 million.
Rosa.
Hardrock ranks second in terms of capital efficiency at $190/
The need to replace depleting ounces in the global gold space is becoming more urgent. Image: Premier Gold
10 May 2021GOLD OUTLOOK
oz of production after Premier at $134/oz. The other three
projects come in around $200/oz. Premier and Cerro Blanco “Midas Gold’s
lead the IRR ranking at 51% and 34%, respectively, with
Magino and Wasamac the most marginal projects with IRRs
Stibnite project in
of less than 20%.
Idaho, USA,is
Several gold developers have updated their economic
studies recently to take into account the higher gold price
another project
environment. As many of the feasibility studies have
whose technical
aspects reduce
reference gold prices in the $1,200-1,300/oz range, it is
evident that project economics across the board will have
the field of
improved at current prices turning what were perhaps
marginal projects into more viable propositions. As such,
this will also indicate which projects have greater leverage
to the higher gold price environment. potential suitors”
Orla Mining’s Camino Rojo indicates the impact of updating
the reference gold price with a January 2021 feasibility
been very active on the M&A front such as the September
update, which extended the mine life, increased the
2019 acquisition of Barkerville Gold Mines by OGR, and the
reserves and boosted the estimated after-tax net present
various consolidation plays executed by O3 Mining in 2019
value to $452 million at a 5% discount rate with an after-tax
to build a commanding land position in the Abitibi gold
internal rate of return of 62% at a gold price of $1,600/oz
district of Quebec.
compared with a NPV of $142 million and IRR of 58.7% at a
gold price of $1,250/oz in the 2019 feasibility study. From the list of 17 feasibility projects, four (Mara Rosa,
Grassy Mountain, Bateman and Ollachea) with annual
Alamos Gold’s Lynn Lake project in Manitoba, Canada,
production of less than 80,000oz/y are too small to elicit big
would be a candidate to be dropped due to its 12.5% IRR,
company interest, although they are profitable to exploit on
which is below the 15% IRR rule of thumb commonly
paper and may be of interest to smaller consolidators.
utilised for gold investment projects, albeit this was at a
Together these projects represent aggregate production of
$1,250/oz reference gold price. Its feasibility gave a 21.5%
2.6Moz, some 7.2% of the total. Of the other feasibility
IRR and more than doubled its NPV at $1,500/oz gold, and
projects, Sabina Gold and Silver’s Back River in Nunavut is
so this a project with leverage to higher gold prices, and
arguably the most remote and presents unique challenges
unsurprisingly Alamos is permitting the project.
due to its Arctic location limiting the number of companies
Falco Resources’ Horne 5 in the Abitibi region of Quebec, potentially interested in it.
Canada, is also at the low end of the IRR scale at 15.3%, but
However, the January announcement that Agnico Eagle
it has a reference price of $1,300/oz, which puts it in a
Mines intends to expand its footprint in Nunavut via the
similar position as Lynn Lake.
acquisition of TMAC Resources’ Hope Bay mine arguably
In October 2020, the company entered into an agreement puts it at the top of the list for potential suitors for Back
with Glencore to process copper and zinc concentrates at its River.
nearby Horne smelter and Falco expects to obtain all
With Chinese gold companies effectively scared away by the
necessary permits, authorisation and financing to initiate
Canadian regulators’ rejection of Shandong Gold’s earlier
construction in the second half of 2021.
bid for TMAC, other potential bidders could be scared off by
That being the case, and with reserves of more than 6.1Moz Agnico increasing its presence in Nunavut on the grounds
and annual production of 340,000oz/y in a very well-known that Agnico has the greatest possibility of unlocking cost
neighbourhood, Horne 5 has a leading candidate for being savings and synergies than any other company, or
acquired. homefield advantage if you prefer.
To this end, a leading candidate is Osisko Development (OD) However, expanding and rightsizing Hope Bay is not going
which was created by Osisko Gold Royalties (OGR) in to be an easy task as Agnico chair and CEO Sean Boyd
November 2020 with the objective of becoming the next acknowledged and so the gold major may not be in any
mid-tier gold producer. hurry to expand further in the territory.
As part of its creation, OGR transferred its 18.3% ownership In this instance to those with experience of refractory ore
position in Falcon to OD. The Osisko group has historically processing and/or the facilities to do so. This makes Nevada
May 2021 11GOLD OUTLOOK
Gold Mines (NGM) joint venture the leading possible suitor Volta Grande in Para is the largest undeveloped gold
due to its autoclave and roaster facilities at Goldstrike in deposit in Brazil and while Belo Sun has obtained an
Nevada, to the south, particularly as JV operator Barrick environmental licence and construction licence its plans
Gold already has an ownership position in the junior. were stopped when an injunction was placed on its
However, if NGM were to make a move it would most likely construction license in 2017 (subsequently upheld by
be before Stibnite is built as the plan includes the Brazil’s Federal Court of Appeals) until an indigenous study
construction of a standalone pressure oxidisation (POX) on is updated. The company completed and submitted the
site, capital which NGM could view as an obvious synergy. study in early 2020 which included a consultation process
with indigenous communities and Belo Sun is currently in
However, there could be a twist in this tale as just prior to the process of responding to an information clarification
releasing its feasibility in December 2020, a management request from indigenous agency FUNAI.
and board transition under the auspices of major
shareholder Paulson & Co was announced with long-time Montagne d’Or is a joint venture between Orea Mining
president and CEO Stephen Quinn exiting the company. (44.99%) and private Russian gold producer Nordgold
(55.01%) in French Guiana, which is part of France and
Is Paulson perhaps looking to build a significant gold subject to French law and permitting requirements.
company?
The company has several steps yet to navigate including
Finally there are the projects whose road to development is renewing its mining concession, which the government has
less certain: Ixataca, Montagne d’Or, Volta Grada and Loma yet to do despite a December 2020 court ruling ordering it
Larga and are therefore cannot be seen as contenders for to do so within six months. The JV also has to submit studies
development or takeover until particular issues have been for project improvements and modifications, navigate a
resolved. French mining code reform and submit mining and
These projects represent 10.3Moz of aggregate production environmental authorisations and construction permit
potential, or 28.4% of the total. Interestingly, these four applications. Fortunately for Orea, it incurs no expenditures
projects number within the six most capital efficient until all permits to commence construction are granted.
projects. The company with the steepest hill to climb INV Metals is progressing through permitting for its Loma
is Almaden Minerals, whose environmental permit Larga project in Ecuador, which has been designated a
application for its Ixtaca project in Mexico was rejected in project of national interest. It has received an industrial
December 2020. water use permit and is in the environmental permitting
Brazil is not a jurisdiction to everyone’s taste, though process with the Ministry of the Environment and Water, the
successful gold producers such as Yamana Gold and more most significant permit required. However, the project has
recently Equinox Gold have thrived there. faced community opposition in the past including attempts
to hold a referendum to ban metallic mining in the region it
operates in.
The company has responded by working to reduce the
footprint of its proposed site and relocating some facilities
to less sensitive areas. With the company having to
undertake a consultation process, opposition could raise its
head again.
This analysis shows there is a finite universe of feasibility
stage projects in the Americas, with the better-quality
projects already in development or subject to acquisition.
The increase in precious metals prices has converted what
were marginal projects into realistic development
opportunities with some of the best leverage to higher
gold prices.
As such, we expect more companies to update their
economic studies and run the numbers at a $1,600/oz gold
price. The review also shows there are a good handful of
It has been a long, long road to development for Midas Gold at projects getting bogged down at the permitting stage,
Stibnite in Idaho, USA
particularly in Latin America.
12 May 2021WILUNA MINING | GOLD
GOLD OUTLOOK
OUTLOOK
WMX resetting the base
for new Wiluna future
Big gold inventories guarantee “Our geologists have done a fantastic job so far. We
exceeded peoples’ expectations with the reserve update
their owners exposure to the reported after the drilling we did last year. But Wiluna is still
metal’s inevitable highs, as well in development as a geological story.
as the lows, hence they usually “Mining engineers like to have something absolute to build
on [geological certainty]. So that is where we must get that
form part of the portfolios of shorter term and long-term balance right. We will stay very
large companies. focused on our plan for the next 18 months to maximise
cash flow while we build the stage-one production up. That
Wiluna Mining Corp (ASX: WMX), looking to build a means developing and mining ore that gives us the best
significant, profitable gold factory on a world class resource return for the money we spend on mine and stope
at Wiluna in the middle of Western Australia, is not a large development.
company today.
“At the same time we will continue to work on resource-to-
But executive chairman Milan Jerkovic says it has the reserve conversion, and on demonstrating the geological
platform to propel it into the mid-tier space populated by scale we all believe is there at Wiluna, while we also work on
other Yilgarn leaders that have emerged in the past decade. the long-term mining and processing options.”
“I’ve built enough mines,” the veteran industry leader says. Wiluna has yielded about four million ounces of gold over
decades of refractory sulphide, and free-milling oxide and
“There is no shortage of gold here. sulphide ore extraction from a nest of openpit and
underground workings near the small Wiluna township in
“You can’t over-capitalise Wiluna, but you can go too hard
WA’s north eastern goldfields.
for a small company and blow up in the process.
With current resources of circa 7Moz, it ranks among the
“When Wiluna has been successful in small patches in the
biggest regional endowments on Yilgarn belts – Wiluna,
past, there has been about 90,000m of drilling done every
Kalgoorlie and Laverton – containing about 240Moz.
year to convert compliant resources into reserves, and
they’ve been successful. To the east is Northern Star Resources’ 15Moz Yandal gold
hub, including regional jewel, Jundee, that the new
“As soon as they dropped off on their drilling, and finished
Australian major sees as a long-term, 400,000ozpa producer.
off [mine plan reserves], they fell off the perch – every time.
May 2021 13GOLD OUTLOOK | WILUNA MINING
“We’re de-risking
Jerkovic believes Wiluna, with its two-stage plan to reach
250,000ozpa in the next few years, can underpin WMX’s rise
and fundamentally
in the same way Jundee has been a core driver of Northern
Star’s ascent.
While a fundamental difference between the two expansive changing the story at
Wiluna and it will take
gold systems is Wiluna’s dominant refractory component –
which has drawn in Russia’s Polymetal as a buyer of
time for that to be fully
concentrate from a plant under construction now at Wiluna
– Jerkovic notes the vast volumes of the world’s mined gold
is coming from refractory centres in the US, Russia and
elsewhere, and says future production in WA, from the acknowledged,
Yilgarn and Pilbara, will drive heavy new industry
investment in pressure-oxidation processing capacity and
particularly here in
also renewable energy at some stage.
Australia.”
“Our current endowment and what is outlined [in mineral
resources] is shallow compared to Jundee at sub-600m,”
“Jundee’s average grade at the moment is 3-3.5gpt. All we
Jerkovic says.“Geologically, structurally, I have no doubt
need to do is maintain an average grade above 5gpt to
Wiluna is bigger than Jundee – with wider orebodies, and
more than account for that refractory component.
the potential along strike and at depth [for continuation and
repetition of the same, bulkier host structures]. “Jundee is a great orebody, but it has narrower, quartz-reef
style deposits – similar to Bellevue in a lot of ways – and
“We are waiting for modelling of a 2D seismic survey and
they’re having to go and chase them along a lot of working
the results, I think, will surprise people and start to
fronts. We won’t have to do anywhere near the amount of
demonstrate the true scale of the Wiluna system.
development per stope tonne, or stope ounce.
“That needs to be truth-tested with drilling, of course, but I
“It’s expensive in our current stage-one planning because
think it will lead us to do a 5km-by-5km 3D seismic survey
we’re still drilling out a lot of ounces around and between
later this year that will really point to the continuity of these
existing and planned development infrastructure.
structures [containing the gold] at Wiluna and the scale of
the [camp]. “But Wiluna will have by the end of this year a 10-year solid
plan based on reserves and very high-level resources, with a
cost structure fully defined, and the development cost per
ounce and the stoping dollars per ounce defined to a
feasibility level.
WMX is putting to bed new funding for its stage-one
production growth from 50,000-60,000ozpa to 120,000ozpa
(in FY22), including offshore equity and debt support,
mainly from Europe.
The company is looking at tapping what it sees as a deeper
pool of available institutional and retail equity investment,
via a London main board listing, when the timing is right
after laying the groundwork for a dual listing over the past
six months.
About A$150 million of current capex and stage-one
ramp-up costs (with some stage-two spend) can be lined up
against the new funding and projected operational cash
flows through to mid-2022, with the latter supported by
gold hedging at more than A$2,600/oz.
WMX has also entered into a long-term “alliance” with major
global underground mining contractor and engineering
group, Byrnecut, which brings not only the best
14 May 2021WILUNA MINING | GOLD OUTLOOK
underground workforce and fleet to Wiluna, but also deep
mine planning, engineering and underground infrastructure
(including paste fill system) expertise.
“What we’re doing now, for the first time, is putting together
a solid 18-month plan that focuses on cash flow, and that
encompasses introducing sulphides when the concentrator
is available,” Jerkovic says.
“We’re not worrying about exactly how much of either
material we’re producing gold from – maximising cash flow
is the aim. We’ll worry about how much steady-state
concentrate we can sell to the two offtake parties once
we’ve maximised cash flow at the site.
“We’re ramping up underground production from 10,000
tonnes per month to 20,000tpm in the next three months,
over three working levels, including the [high-grade, non-
refractory] Golden Age sulphide deposit.
“There was a belief that once we’d commissioned the between now and the end of the September quarter.
concentrator Golden Age had to stop, but it doesn’t have to Achieving that high average grade and tonnage intensity
because whatever comes out as gravity gold can stay on site for the infrastructure in place is where our focus needs to
and we can actually batch process through the CIL plant, or stay while we continue to build out the bigger picture at
in fact, whatever doesn’t come out via gravity gold and Wiluna.
doesn’t leach we can put through the concentrator; it’s a
sulphide, it’s just not refractory. “The past owners did these declines that followed high-
grade shoots down past 1km depth and when we first
“So that’s a small part of the overall plan [750,000t per started here everybody was saying the same thing: let’s go
annum underground production], but it wasn’t in the initial and do that. But that’s been, and is, a recipe for disaster.
plan and it can supplement what we’re doing with this
stage-one sulphide production. “We are doing this differently.”
“The concentrator is on schedule and we will be
commissioning in October. Then the ramp-up will take Wiluna – at a glance
about 12 months, when we will move from the [budgeted]
56,000oz this year, to 120,000ozpa. Head Office
“That [production level] could be 20-30% free gold at that Level 3, 1 Altona St, West Perth,
point, whether from gravity recovery on site, or Wiltails, and WA 6005
we will just produce and sell concentrate at a level that Tel: +61 8 6322 6418
helps maximise our cash flow.
Email: jmalone@wilunamining.com.au
“The biggest thing that’s going to improve our margin on Web: www.wilunamining.com.au
our initial plan is grade, and intensity of stoping tonnes for
the development we’re doing. Directors
Milan Jerkovic, Tony James, Greg FitzGerald, Neil Meadows,
“If we stay focused for the next five years on the Happy Jack Sara Kelly
and Bulletin areas [lodes/workings, including the new Essex,
and Golden Age orebodies] – which is where we’re saying, Shares on Issue
conservatively, we’re going to add 500,000oz of reserves at 119 million
5gpt, at less than $30/oz, by the end of this year – we are
Market CAP (at March 23, 2021)
going to be in a position to produce a lot of gold at the right
A$120 million
cost.
Major Shareholders
“There are currently seven rigs [including three
Delphi (25.6%), Sparta AG (8.3%), Franklin Templeton (4.9%),
underground] drilling all this out. We’re going to try to put
UBS (London) (4.4%), Maple Rock (4.4%)
out drilling results, in this top 600m, twice a quarter
May 2021 15GOLD OUTLOOK
A look inside
the Americas
gold PFS-stage
project
cupboard
While more numerous In terms of grade, the leaders are Copperstone (6.8 grams
per tonne), Romero (4.9g/t) and Bradshaw (4.8/t).
than the feasibility stage The costliest projects to develop are KSM ($5 billion),
Metates ($3.5 billion) and Livengood ($1.8 billion) with the
projects covered in the least capital efficient projects being Livengood ($270/oz),
Lobo Marte ($221.1/oz) and Metates ($212.6/oz). The lowest
first article in this series AISC is Romero at $595/oz, followed by Gramalote at $648/
oz and Springpole at $645/oz.
PFS-stage projects still At the other end of the scale San Francisco is $1,204/oz,
represent a finite universe Fenix $997/oz and Livengood $976/oz. Hasbrouck has the
highest IRR of 43% followed by South Railroad and
of quality ventures
Copperstone with 40%. So much for the numbers, but
which projects are likely to be built or acquired?
moving towards The projects at PFS stage represent a mixed bag of
development opportunities: 12 projects feature production
development. of more than 80,000oz a year, with five at about 300,000oz/y
or above.
Five have capex of around $1 billion or more and four are
Mining Journal has identified 18 PFS-stage projects in the decidedly marginal with IRR in single digits and two that
Americas in the hands of junior miners, representing some don’t even have an IRR!
83Moz of aggregate potential production, some 3.4Moz of
Poor IRR removes Metates, KSM, San Francisco and
potential annual gold production, and US$14.7 billion of
Livengood from consideration as development possibilities
initial capital expenditure, an average capital efficiency of
or acquisition targets, although, as noted in the previous
$141.8/oz, average AISC of $787.7/oz, and IRR of 23.53%.
article, metals prices are considerably higher now than the
There are nine projects in Latin America, five in Canada $1,250-1,400/oz reference prices used in their studies.
and four in the US. In summary: two projects have already
These are marginal projects with room for improvement and
been taken over, five look set to be developed by their
have maximum leverage to higher gold prices. That said, a
current owners, and six are going nowhere fast. Top of the
negative net present value at Livengood and negative cash
reserves list are KSM (38.8Moz), Metates (18.3Moz) and Lobo
flows at San Francisco are non-starters under their current
Marte (6.4Moz).
16 May 2021GOLD OUTLOOK
project concepts. Metates and KSM (Kerr, Sulphurets,
Mitchell) have large-scale production potential but are “In the past, Gold
hampered by excessive initial capital requirements of $3.5
billion and $5 billion, respectively, which, economics aside,
Standard’s market
make them challenging projects to finance.
cap has been as high
Chesapeake Gold has a market cap of C$257 million and
Seabridge C$1.9 billion.
as C$600 million
In a market where the gold majors continue to exercise which would have
capital discipline projects with such capex would be
challenging even with amazing economics. deterred many
Cognisant of this fact, Chesapeake Gold entered into an potential suitors, but
agreement to acquire private mining technology company
Alderley Gold in December 2020 to gain access to an now at $210 million
innovative precious metals processing technology which
may create a path towards a low-cost sulphide heap leach
that is no longer
development for its Metates gold-silver-zinc deposit in
Durango, Mexico.
the case”
KSM in British Columbia, Canada, may be the world’s largest Marathon Gold’s Valentine project in Newfoundland is a
undeveloped project by gold resources but Seabridge Gold clear acquisition target with its promise to produce
has also looked to pivot through the $100 million 145,000oz/y for 12 years following a $196 million initial
acquisition of the nearby Snowfield deposit in late 2020. investment. The company is looking to break ground by
Snowfield has a measured and indicated resource of year end with a feasibility study to be completed in the first
25.9Moz and 9Moz inferred, plus copper, and is expected to quarter, with project financing and permitting expected to
enhance KSM project economics. follow mid-year.
Seabridge is working on an updated PFS to incorporate ASX-listed St Barbara bought Atlantic Gold for C$722 million
Snowfield into the KSM mine plan, which could bring as it brought its Moose River mine in Nova Scotia into
higher-grade gold into the initial phase of mining, extend production, so will history repeat itself?
the years KSM produces over 1Moz/y of gold and potentially
postpone the capital-intensive development of the Iron Cap Gold Standard Ventures’ Railroad project promises higher
and Deep Kerr block caves until much later. production compared to Valentine at 156,000oz/y, but for
only eight years.
The PFS stage projects have an aggregate IRR of 29.4%,
compared with the 29% average for the feasibility stage The project is in Nevada and has a reasonable initial capital
projects, with the five standouts being Hasbrouck (43%), of $133 million. The project has been at an advanced stage
Copperstone (40%), South Railroad (40%), Valentine (36%) for quite some time and is on the Carlin trend which one
and Blackwater (34.8%), which are all in either Canada or the would think would make it a sure thing for acquisition, yet
USA. Blackwater leads the pack in the context of this article no one has made a move.
as it was acquired in 2020 by Artemis Gold for C$190 million
Why? In the past, Gold Standard’s market cap has been as
as a foundational asset for the company, which was spun
high as C$600 million which would have deterred many
out of Atlantic Gold when it was acquired by St Barbera
potential suitors, but now at $210 million that is no longer
in 2019.
the case.
With 9.5Moz of resources, Blackwater promises to be a long-
The creation of Nevada Gold Mines in 2019 through the
life asset with production of 248,000oz/y for 23 years
merger of Barrick Gold and Newmont Nevada assets would
following a $592 million initial investment.
also have been a knock by reducing two potential
With a market cap of C$775 million, Artemis would be tough candidates to one, and that one being occupied with
to acquire for cash, especially since major gold producers digesting a merger. There are other large players in the state
have only recently got their balance sheets in order so will 2021 be the year for some action for Gold Standard?
following their excesses of the previous gold cycle. It is
Also in Nevada, West Vault Mining’s Hasbrouck oxide heap
questionable whether investor appetite for large
leach project near Tonopah is a clear contender for
transactions exists yet.
May 2021 17GOLD OUTLOOK
production and possible acquisition given it received a production. Marmato was spun out of Gran Colombia Gold
record of decision (RoD) from the Bureau of Land to form Caldas Gold in 2020 and having secured $148
Management, the final major permitting step to allow million in stream financing from Wheaton Precious Metals
construction. The company believes Hasbrouck would yield and an C$85 million in financing it is all set to develop the
an after-tax IRR of 106% at current gold prices from Marmato Deeps deposit and produce 135,000oz/y for 14
production of 71,000oz a year for eight years for an all-in years following initial capex of $269.4 million.
sustaining cost of $709/oz following an initial capex of
$46 million. Dealmaker Serafino Iacono has already transacted the
company which is set to become Arias Gold under the
Its relatively modest annual output of 74,000oz/y would be leadership of Neil Woodyer—who was formerly head of
too small for larger companies but there are several small- Leagold Mining—and an all-star board as soon as Caldas
and medium-sized producers in the state which would secures a 30-year extension to its mining title, which is
benefit from its addition to their portfolios. However, West expected shortly.
Vault’s shareholders are content to wait for a 10-15%
increase in the gold price before building it, and so any M&A Gramalote is a joint venture between B2Gold and
overture would require a significant premium. AngloGold Ashanti with a feasibility study due to be
completed in early 2021 for an openpit operation heap
Arizona Gold’s (formerly Kerr Mine) Copperstone project in leach. The project could produce 284,000oz/y for 14 years
Arizona, USA, looks at annual production of less than following a $901 million capex.
40,000oz/y and a sub five-year mine life which is likely too
small to elicit M&A attention. The pre-feasibility used a $1,350/oz gold price and yielded
an IRR of 18.1% and so at current gold prices, and with the
While a $23 million capex is affordable, the project really feasibility likely to use a higher reference gold price,
needs to stretch its potential life. In Colombia, both the Gramalote will almost certainly move into B2Gold’s mine
Marmato and Gramalote projects look set to advance into build pipeline, which is timely since its mine build team
Metates gold-silver project in Durango, Mexico
18 May 2021GOLD OUTLOOK
completed the expansion of its Fekola mine in Mali in The delay has cost GoldQuest many key members of its
September 2020 and needs another big project to get its management team, and while the company’s fortunes could
teeth into. Mine building activity also looks set to ramp-up turn around at the stroke of the pen, few are holding their
in the Maricunga gold district of Chile where several players breath. Argonaut Gold’s Cerro de Gallo project in
are advancing projects. Guanajuato, Mexico, is also stuck in permitting as
environmental authority Semarnat refused to permit the
Kinross recently restarted its La Coipa mine which will project in early 2020.
produce into 2022 and 2023, and while this is a short life it
can provide a stepping-stone into its other organic This roadblock saw the company subsequently pivot to
opportunities in the region such as Lobo Marte. acquire Alio Gold for its Florida Canyon mine in Nevada and
greenlight the development of its Magino mine in Ontario,
Kinross is looking to make a construction decision in 2025 Canada. Condor Gold faces a different challenge at its La
for an operation which could produce 300,000oz/y for 15 India gold project in Nicaragua. The project is permitted but
years following a $995 million capex. Rio2 is looking at a it has to acquire all the necessary surface rights before it can
quicker development timeline for its nearby Fenix project, commence construction, which as of December 2020, some
which could produce 85,000oz/y for 16 years following a 7% were still outstanding. La India would produce
capex of $111 million. 79,300oz/y for eight years following a $110 million capex.
Rio2 management has successfully built openpit heap leach Condor’s approach has been to continue ticking-off the list
projects in the past in Peru (Shahuindo and La Arena) during of pre-development activities but it clearly wants to sell it
their previous gig at Rio Alto Mining, but with other larger rather than develop it.
players in the region including Kinross and Hochschild
Mining, Rio2 is a clear M&A candidate. As with the feasibility While the number of companies potentially interested in
list, the pre-feasibility list also includes projects that face setting-up shop in Nicaragua is limited there are recent
clear obstacles related to permitting and communities, such precedents: Calibre Mining obtained its Libertad and Limon
as Springpole, Romero, Cerro de Gallo and La India. mines in Nicaragua through acquisition in 2019, and Mako
Mining merged with Golden Reign Resources in 2018 to
First Mining Gold’s Springpole project looks attractive on obtain San Albino which it is building and on the verge of
paper, but as some projects do it has a challenge which commencing production.
could become an Achilles Heel, in this case the need to
build two coffer dams on one corner of Springpole Lake as Both are currently focused on implementing their respective
part of the deposit is underneath the northern bay of business plans and exploring the concessions they have,
the lake. The two coffer dams total be about 940m and have and so are not immediate contenders.
a maximum height of 17m and about 150 hectares which
needs to be dammed and dewatered. Will Condor have to undertake the final derisking activity
and build La India in order to find a buyer?
While First Mining studies say there are no endangered
species in the lake, it is popular with recreational fly
fisherman who will no doubt be concerned about any
disturbance. In any event, the $718 million capex is just
under three times the company’s $289 million market cap,
and as it will be a single asset company, financing the
project will be a challenge.
GoldQuest Mining’s Romero project in Dominican Republic
was a standout takeover candidate in 2017 when Agnico
Eagle Mines made a strategic investment into the junior due
to its attractive economics and district scale exploration
potential. But it lacks a crucial piece of paper: an
exploitation licence.
Photo: iStockphoto.com
Its exploitation licence received mining ministry approval in
January 2018 but has since languished on the desk of the
national president awaiting a signature.
Without this, the company cannot advance to the
environmental impact assessment and feasibility study.
May 2021 19GOLD OUTLOOK
Slim pickings:
Africa’s meagre
gold project
pipeline
Given the choice between is set to be developed away from Western markets after a
prolonged bidding war for control of Cardinal, with China’s
exploring and developing Shandong Gold poised to emerge victorious over Russia’s
Nordgold in the coming days.
an early-stage gold project The battle to develop Namdini has played out as hoped by
Cardinal’s CEO Archie Koimtsidis back in June 2020, who
or letting some following Shandong’s initial A60c bid told Mining Journal he
felt the company was valued “north of A$1”. Shandong’s final
unfortunate junior sweat offer came in at $1.075 per share, meaning the asset will
change hands for nearly double the company’s initial A$300
it out, the overwhelming million takeover offer. The project boasts a post-tax NPV of
US$590 million and IRR of 33%, with a capital efficiency of
preference among major US$91, based on capex of US$390 million and lifetime
production of 4.2Moz.
players over the past few Also in Ghana is Bibiani, described in a June 2018 feasibility
study as a 10-year, 100,000oz-per-annum operation yielding
years has been for gold at all-in sustaining costs of US$700-800oz per annum.
The project, which boasts a capital efficiency of $68 - the
the latter. lowest among FS-stage projects on the African continent -
has been developed to date by Resolute Mining, but in
December the company agreed to sell it to China’s Chifeng
Jilong Gold for US$105 million.
While the approach was understandable given market
conditions, it has left a limited number of quality projects up Resolute’s interim CEO Stuart Gale said on January 28 he
for grabs. This is especially the case in Africa, where only was “feeling pretty confident” about the deal completing in
seven junior-led projects of significance - we put the cut off March, having just undertaken a site visit with the buyer
at about 70,000 ounces per year - have reached the during a recent trip to West Africa. Resolute put Bibiani on
feasibility study (FS) stage, and sales are pending on two of “strategic review” in December 2019 despite being hailed as
those. Starting in West Africa, one of the world’s major a “compelling growth opportunity” by former CEO John
supply growth centres, the largest undeveloped resource is Welborn 18 months prior. It had been looking for a buyer
ASX-listed Cardinal Resources’ Namdini project in north since May 2020. So with China-based companies swooping
Ghana. However, the 5.1 million ounce shovel-ready project for Namdini and Bibiani, where are the region’s other stand
20 May 2021You can also read
