Atacama Pacific Gold (ATM-T) has bright prospects for its Cerro Maricunga gold project in Chile following the release of a recent positive preliminary economic assessment (PEA), which was received positively by analysts.
The study envisions Cerro Maricunga as an 80,000-tonne-per-day operation with a potential of producing 270,000 oz. gold a year over a 10-year life. Output for the first five years should average 298,000 oz. gold a year.
Capital costs to build the open-pit heap-leach operation are pegged at US$514.6 million, with another US$249 million in sustaining costs including a 5% contingency.
“We view the news as positive as ATM has surpassed a significant milestone and continues to develop Cerro Maricunga,” comments Raymond James’ analyst Gary Baschuk. But he has lowered his target to $6.25 from $6.75 to reflect the higher-than-expected sustaining costs, noting his model remains conservative.
That said, Baschuk maintains an “outperform” rating and believes Cerro Maricunga is “relatively simple to process” with “good resource expansion potential.”
The PEA indicates that Cerro Maricunga could potentially deliver a total of 2.7 million oz. gold at life-of-mine operating costs of US$652 per oz. using conventional open-pit mining methods and leaching processes.
Atacama notes that the ore will be crushed in three stages to 19 mm in size before being conveyed to the heap leach pads. About 261 million tonnes grading 0.4 gram gold per tonne will be leached throughout the mine life. Gold recoveries of 79.5% and a strip ratio of 1.6-to-1 are anticipated.
Canaccord Genuity analyst Steven Butler writes some advantages of the large-scale project include “the relatively low strip ratio, high recoveries due to the oxide natures of the mineralization hosted in porous volcanic breccia, conventional crush requirements, and low-to-moderate cyanide and lime consumption levels.”
The constrained pit contains about 3.3 million oz. gold or about 75% of the project’s measured and indicated resources and 33% of its inferred resources on a global basis. The company notes there is room to expand the resource within the pit through additional drilling.
Atacama highlights its flagship asset boasts strong economics and a quick payback of roughly three years.
Cerro Maricunga has an after-tax 5% net present value of US$531 million and an internal rate of return of 26.6%, using a US$1,450 per oz. gold price.
Pleased with the results of the economic study, Atacama intends to go straight to a feasibility study and will consider ways to optimize the project.
Some opportunities that Atacama has identified include expanding the overall resource through further drilling, leaching coarser crushed ore in a “valley-fill heap-leach scenario” as well as possibly contracting the crushing and conveying operations.
Butler at Canaccord Genuity notes that the junior could materially bring down its initial costs if it finds a closer water source. The PEA assumes Atacama will spend US$85 million to build a pipeline to transport water to the project from its water exploration concessions, located 100 km away.
On the exploration front, Atacama is completing a 20,000-metre program with an aim of upgrading inferred resources and testing undrilled areas in the pit shell. An updated resource estimate for Cerro Maricunga should be out in the third quarter.
Bulter rates the stock as a “speculative buy” and believes Atacama is an appealing merger target given Cerro Maricunga is a “relatively straightforward high rate of return heap leach project.” But he has lowered his target to $6.75 from $8 to reflect the constrained 3.3-million-oz. resource, instead of the potential global resource of 5.1 million oz. in his model.
On the PEA, Atacama lost a percent to close at $2.97, within a 52-week range of $2.26–$4.40.
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