Belo Sun Mining (TSX: BSX; US-OTC: VNNHF) has gone with a start-small-but-finish-big approach in a preliminary economic assessment (PEA) for its Volta Grande gold project in Brazil’s Para state.
The PEA, replacing a May 2013 prefeasibility study (PFS), envisions developing Volta Grande in two phases to alleviate the funding and start-up risks surrounding large-tonnage projects. The study proposes mining the two pits at Volta Grande as a 3-million-tonne-per-year operation for the first seven years of production, before doubling throughput to 6 million tonnes a year from year nine and onwards.
This staged approach has more than doubled the mine life to 21 years while nearly halving the average mine-life production rate to 167,309 oz. a year. In comparison, the PFS contemplated a 7-million-tonne-per-year operation producing 313,100 oz. gold a year over a 10-year life.
But the initially smaller project has two advantages. First, it reduces upfront costs to US$328.7 million from US$749 million previously. Second, it slashes the project’s total capital expenditures, including expansion and sustaining costs, by more than a third to US$637.1 million.
Belo Sun has swapped higher initial throughput for reduced capital expenditures and higher grade for lower life-of-mine waste-to-ore ratio, writes BMO analyst John Hayes in a note.
The PEA assumes a life-of-mine resource grade of 1.14 grams gold per tonne, down 23% from 1.48 grams gold previously, as the company intends to process higher grades early in the mine plan. On the plus side, stripping ratio has dropped 38% to 4.3 to 1.
Other benefits identified in the PEA includes Belo Sun recovering more ounces over a longer mine life. The mine plan anticipates recovering 3.5 million oz. over 21 years compared to 2.6 million oz. over 10 years, Hayes notes.
The pit shell in the PEA uses a US$1,020 per oz. gold price and includes measured and indicated resources totalling 91.2 million tonnes at 1.65 grams gold for 4.8 million oz., with gold recoveries estimated at 92.8%. The previous study incorporated a US$910 per oz. pit shell and reserves.
The analyst points out that the gold ounces are now more “capital efficient” to extract. If one divides the total ounces recovered by the total capital costs, that number in the PFS was US$374 per oz. gold produced versus US$182 per oz. in the PEA, he says.
From a production perspective, total operating costs, including royalties over the mine life, are US$727 per oz., up from US$711.50 in the PFS.
Despite that, the economics for Volta Grande remain compelling. Using a gold price of US$1,300 per oz. and a 5% discount rate, the project has a US$418-million net present value and a 16.1% internal rate of return, both after taxes. Payback should take four years.
BMO’s Hayes concludes that the PEA “appears to present a better opportunity” for the project than the PFS. “Capital costs are far more manageable and capital efficiency is higher,” he says. Hayes rates the company as “market perform.”
Belo Sun closed Feb. 21 — the day after posting the PEA — flat at 49¢, within a 52-week range of 31.5¢ to $1.34.
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