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TABLE OF CONTENTS May 12 - 18, 2014 Volume 100 Number 13 - 0 comments

Castle Mountain Mining completes PEA milestone

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By: Trish Saywell
2014-05-07

In one short year as a public company, Castle Mountain Mining (TSXV: CMM) has delivered a resource estimate on the past-producing Castle Mountain mine project, 112 km from Las Vegas in San Bernardino County, Calif., and completed a preliminary economic assessment of the project.

“We’ve come a long way, baby, and that ‘we’ includes our board of directors, which is steeped in mining history,” president and CEO Gordon McCreary told analysts and investors on a conference call after the preliminary economic assessment (PEA) results were made public.

“I feel that we’ve got a tiger by the tail here,” McCreary said in his closing remarks on the call, “and we are pleased with the progress we’ve made in the last 12 months as a public company, and the period of time before that as a private company.”

The Castle Mountain heap-leach gold mine once owned by Viceroy Gold produced more than 1 million oz. gold from three open pits (the Oro Belle, Jumbo and JSLA) between 1992 and 2001, when the operation was suspended due to low gold prices. The mining permits were maintained after the mine ceased operating and have been extended since then until 2025.

The project has an indicated resource of 3.1 million oz. gold (165.1 million tonnes grading 0.6 gram gold per tonne) and 1.1 million oz. gold in the inferred (57.8 million tonnes at 0.57 gram gold). The resource includes a high-grade core (indicated resource of 2.56 million oz. averaging 0.94 gram gold and inferred resource of 0.83 million oz. gold averaging 0.94 gram gold.)

The game plan envisioned in the PEA is to mine six pits sequentially with the immediate backfilling of pits as they become depleted, which should reduce the operation’s surface footprint and trim haulage costs, the company says.  

In a 14-page press release issued April 24, the PEA outlined three scenarios: the static, the base and the unconstrained (blue sky). As a starting point, all three were calculated at US$1,300 per oz. gold. The biggest difference between the static and the base-case scenarios is that, under the base case, the company would have to amend its mine and operations plan during operations, even though it remains within the boundaries of the 3,910-acre environmental impact statement.

In the static case, which would involve no amendments to the company’s mine permit (and which allows for a disturbance area of 1,375 acres), the mining operation would produce 119,000 oz. gold each year over a seven-year mine life at all-in sustaining costs of US$919 per oz. Initial capex in this scenario is estimated at US$98 million and sustaining capex at US$90 million. The scenario presents a post-tax net present value (NPV) at a 5% discount rate of US$122 million, and a 29.7% post-tax internal rate of return.

In the base case, initial capex would stay the same at US$98 million, but the sustaining capital required would rise from US$90 million to US$250 million. The base case also involves expansionary capital of US$173 million, to bring production up to 176,000 oz. gold a year and extend the mine life from seven to 17 years.  All-in sustaining costs would rise from US$919 per oz. in the static case to US$949 per oz. gold in the base case, with the after-tax NPV climbing to US$352 million and the IRR falling to 20.1%. Unlike in the static case, where throughput would run at 6.4 million tonnes per year, the base case involves an expansion of throughput to 8.1 million tonnes in the third year of operation. In the base case, a modified milling circuit is added as part of the expansion in year three.

The third — or unconstrained case — is unrestricted by capital or the current mine and operations plan, but needs permitting, specifically an amendment of the mine permit to a throughput rate of 18 million tonnes per year before production can begin. In that scenario, initial capex would climb to US$421 million with sustaining capital of US$339 million. The mine would produce 291,000 oz. gold a year during a 12-year mine life at an all-in sustaining cost of US$801 per oz. In this blue-sky scenario, the post-tax NPV would advance to US$576 million and the post-tax IRR would come in at 21.7%.

In all three scenarios, heap-leachable material would be mined using a fleet of hydraulic excavators with dippers loading 170-tonne haul trucks. For the base case, after expansion in the third year, waste would be mined using larger rope shovels and more cost-effective 290-tonne haul trucks.

In the base and static scenarios, the operation would start up with diesel-power generators, with the base case converting to grid power as part of the expansion in year three. The nearest power line to the project is 29 km away. (In the unconstrained case, the power line would be built at the outset.)

If the remaining permits are acquired in parallel with the feasibility study — which management expects to finish before the end of 2014 — construction could start as early as 2015, the company says.

One of the biggest challenges, however, will be nailing down a reliable water supply, given the project is in the Mojave desert, and Castle Mountain Mining’s management team plans to start hydro-geological work soon. 

McCreary noted, however, that the good news is that the Castle Mountain project will not have any competition for whatever water exists in the area, and that since the last mining operation shut down in 2001, the aquifer has had time to recharge. He noted that average rainfall brings six inches a year.

With $4 million in its treasury and the planned exercise of $3.7 million worth of warrants, McCreary says the company will have enough funds to complete the feasibility study before year-end. Initial capex will be raised from debt and equity.

“One of my missions in life is to get out and tell this wonderful story to as many people as I possibly can,” McCreary joked to analysts and investors on the conference call. “It’s like politics: it’s all about shaking hands and kissing babies.”

The Toronto-based company closed down 5¢ per share, or 5.6%, at 84¢. Over the last year the company has traded in a range of 20¢ to $1.10 per share.



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Photos

A drill rig in the historic Oro Belle-Hart Tunnel pit at Castle Mountain Mining's namesake gold project, in San Bernardino County, California. Credit: Castle Mountain Mining
A drill rig in the historic Oro Belle-Hart Tunnel pit a...
Geologists inspect core at the Castle Mountain gold project. Credit: Castle Mountain Mining
Geologists inspect core at the Castle Mountain gold pro...

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