Goldsource Financing Sufficient to Lead Eagle Mountain Gold Project to Production in 2015
There’s still hope for resource investors! If all goes according to plan, the Eagle Mountain gold project, located in Guyana and owned by Goldsource Mines (GXS – $0.15), will be in production by mid-2015. The Company raised over $6.6 million this week, which is sufficient to complete the Phase I mine and processing plant construction.
Phase I development consists of a 1,000 tonnes per day open pit ‑ gravity plant for an 8 year mine life with estimated preproduction capital costs of US$5.9 million and cash operating costs of $480 per ounce of gold. Sustaining capital and future expansions are intended to be paid for through operating cash flow.
This goes to show that, despite a difficult resource market, a well-respected management team can still finance a low-CAPEX gold project into production.
$7.5 Million Private Placement
The Company issued 44,453,166 units at a price of $0.15 per unit for gross proceeds of $6,667,975. Each unit consists of one common share of Goldsource and one‑half of a warrant, with each whole warrant being exercisable for one common share of Goldsource at a price of $0.25 per share for a term of 3 years.
Certain directors of Goldsource also participated in the Private Placement and purchased 15,335,000 units. It’s always great to see that management is willing to put its own money on the line. A true confidence builder.
Moreover, the Company may announce more proceeds shortly as it can raise up to $7.5 million under the current Private Placement.
The Road to Production
In 2012, ACA Howe prepared the following mineral resource estimate for the Eagle Mountain gold deposit.
Contained Ounces Au
Eagle Mountain Mineral Resource. Source: Company press release.
In August 2014, Goldsource was granted a Medium Scale Mining Permit by the Guyana Geology and Mines Commission for its Eagle Mountain gold deposit in Guyana, which grants permission to mine gold, diamonds, precious metals and precious minerals within a 250 hectare portion of the 5,050 hectare Eagle Mountain prospecting license.
This week, the Company also steered clear of the most challenging rock – finding the necessary money to take the project to production.
In order to minimize initial capital and project risk, Goldsource is applying a phased-approach model in which the easy accessible near-surface soft weathered rock (gold mineralized saprolite) will be mined first.
This conceptual approach encompasses four phases over four years. Phase I mining rates would be 1,000 tonnes per day (one 12-hour shift, 7-days per week) with low impact and low cost gravity-only processing in year one. Excavators, bulldozers and wheel-loaders will be used to excavate and separate materials within the open cut with downhill gravity transport by slurry to the processing facility. Gold concentrate from the gravity concentrators will be further concentrated using a shaking table and refined on site for production of dore bars.
Upon successful completion of Phase I, the Company plans to systematically install and operate three additional similar plants over a four-year schedule with a cumulative rate of 3,500 to 4,000 tpd. The additional processing plants will be paid for through operating cash flow.
Expanding Production in Coming Years
Pre-production capital costs for Phase I are estimated to total $5.9 million including a 15% contingency. Initial capital costs include rehabilitation of the access road, dredging and preparation of tailings settling ponds, construction of the modular processing facility, initial mining equipment purchases, and preproduction development and infrastructure requirements. This includes pre-production and construction of facilities over a period of six months.
Infrastructure in the Eagle Mountain area is in reasonable condition. An existing 7 kilometre road connects the project with the local airport and the main road to Georgetown, which is approximately 230 km away. The local community of Mahdia would be the primary source for skilled workers. The capital costs for the initial four years – the time it will take to advance the project from Phase I to Phase IV – are summarized below.
All figures in 000s
|Plant Feed (t/year)||300||600||900||1,200|
|Gold Recovered (oz)||5.3||13.7||20.5||27.4|
|Revenues ($1,250/oz Au)||6,625||17,125||25,625||34,250|
|Post Tax Cash Flow||(1,480)||2,278||7,255||14,027|| |
Eagle Mountain Production Schedule and Financial Model. Source: Company press release.
The PEA incorporates a gold price of $1,250 per ounce gold. Highlights of the Base Case economic estimates are as follows:
- Pre-tax Internal Rate of Return (“IRR”) of 84% and after-tax IRR of 63%.
- Phase I, pre-production capital costs of $5.9 million including a 15% contingency.
- Total capital costs including all proposed expansions (Phase II, III & IV expansions) and sustaining capital are estimated at $24.2 million.
- Cash operating costs, exclusive of sustaining capital, for saprolite mine life averages $480 per ounce gold including a 15% contingency.
- Conceptually, the first four years of gold production would be 5,600, 14,400, 21,600 and 28,800 ounces gold, respectively.
- Not considered in the PEA are the in-situ “fresh-rock” resources of Indicated 2,331,000 tonnes @ 1.52 g/tonne Au containing 114,000 oz and Inferred 13,433,000 tonnes @ 1.13 g/tonne, containing 486,000 oz (both at 0.5 g/t Au cut-off).
While these are tough times for resource companies, it’s great to see that projects can still be taken into production.
The creativity of the phased construction approach, its modular design and the simplicity of the mining and processing of the saprolite material have resulted in an optimized development scenario for the 100% owned Eagle Mountain deposit.
The project has attractive valuations. Even at a gold price as low as $1,100 per ounce, it’s expected to remain quite profitable with an IRR of 49%.
In addition, the underlying hard rock resource (600,000 ounces gold), which is not included in this PEA, provides significant ‘blue-sky’ potential for further development.
Goldsource is led by a management team with plenty of experience in achieving construction on time and budget. The Company clearly wants to move forward as fast as possible. We wouldn’t be surprised if pre-construction activities commence right after the holidays.
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