The following article was written by Daniel Gleeson and published in the Mining Journal on September 16th, 2014.
Timing is everything when it comes to financing and Newstrike Capital Inc’s Ana Paula gold-silver project in Mexico has a hand up at just the right moment.
Putting out a preliminary economic assessment (PEA) less than a week after one of its neighbours was bought and the day the biggest gold event in North America starts can only be described as kismet.
“You can’t confuse luck with intelligence,” president and chief executive Richard Whittall told Mining Journal from his hotel room in Denver on Monday when explaining the initial exploration find at Ana Paula.
“Gill [Kearvell] and Craig [Gibson, the two main geologists on the Newstrike team] are very skilled at what they do and it was Craig that identified the importance of a breccia outcrop. We wouldn’t be there without them,” he said.
He’s right. This discovery was ‘the’ find the project needed to build momentum.
The company acquired the project from Goldcorp Inc back in June 2010 after the gold major’s Mexican subsidiary had drilled close to 3,700m and found nothing much but sulphide material with pretty poor metallurgical recoveries.
As a result, when Newstrike lost out to Torex Gold Inc in trying to buy a stake in Morelos from Goldcorp, it turned its attention to Ana Paula, a project which didn’t work for a major, but Newstrike and Whittall felt had potential.
“Again, we took the risk on exploration. I also think Goldcorp, at the time, simply with the amount of concentration it had in Mexico with Penasquito and others just didn’t need more in Mexico,” Whittall said.
Over three-and-a-half years after discovering the high-grade breccia zone which put Ana Paula on the Guerrero gold belt map, its PEA is making headlines.
The gold grades look good, the jurisdiction is favourable and the capital expenditure (capex) for a company like Newstrike is reasonable.
“This is the first scoping of the project to what I think fits the current environment. We’re trying to get something with a modest capex,” Whittall said.
On a base case scenario of US$1,300/oz for gold and US$20/oz for silver, it has an after-tax net present value (NPV) (at 5% discount) of US$232.1 million, an internal rate of return (IRR) of 32.8% and a 2.4 year payback period. Even at a US$1,100/oz gold price it still boasts a US$138.4 million NPV, an IRR of 23.1% and a 2.9 year payback.
Initial capex came in at US$163.9 million, with the total life of mine bill at US$219.7 million.
This could result in an openpit mine producing 116,000oz of gold and 239,000oz of silver over an 8.2 year life, with average head grades of 2.24g/t Au and 6.89g/t Ag, at all-in sustaining costs of US$567/oz.
“As a businessman, I love having paybacks under three years and this one is very, very impressive,” Whittall said.
An investment banker with a history on the Guerrero gold belt having served as a director of the first junior on the scene there, Miranda Mining Corp, from 1995 until 2003 when it was sold, Whittall knows what he is talking about.
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