A newly tabled prefeasibility study of Pershimco Resources’ (TSXV: PRO; US-OTC: RSPRF) Cerro Quema gold project in southern Panama outlines a low-cost, open-pit operation generating 78,500 oz. gold a year over five years, with production expected to get underway by late 2016.
The wholly owned project, located in Los Santos province, consists of the Quema and La Pava main oxide gold pits, where recent drilling has defined reserves of 488,000 oz. gold from 19.7 million tonnes grading 0.77 gram gold per tonne. The estimate uses a cut-off grade of 0.21-gram gold per tonne and a base case gold price of US$1,275 per oz.
The study shows an operator could recover 417,800 oz. gold over the mine’s life, using a two-stage crushing, conventional heap-leach and carbon adsorption-desorption recovery circuit.
While the study estimates a conservative average gold recovery of 86%, the company says recent laboratory testing yielded recoveries above 92%.
Total operating and all-in sustaining costs are anticipated to be US$574 and US$631 per oz.
“Our operating costs are really good,” project director Pierre Bureau said on a conference call, noting that the all-in cost yields a large margin of US$644 per oz.
The initial cost to bring the project online is also attractive. “Our Cerro Quema project has a low capex of US$117 million,” CEO Alain Bureau said.
Along with the low initial investment, the project offers good returns. It has a 33.7% internal rate of rate (IRR) and a US$110-million net present value (NPV), both after taxes and after royalties, using a US$1,275 per oz. gold price and a 5% discount rate. Payback should occur in a little over two years.
Pierre says the project’s economics are favourable at lower gold prices: If the base-case price drops 15% to US$1,084 per oz., the after-tax IRR and NPV would still be 22.2% and US$62.6 million. If it increases by the same amount, the economics would improve.
Given there’s higher-grade material near-surface at each of the deposits, the study assumes the project could crank out 100,000 oz. gold in its first full operating year, resulting in higher cash flow at the start of the operation and a short payback period. The project also benefits from a low 0.72-to-1 strip ratio.
CEO Bureau says the junior’s next steps include submitting a permitting addendum. He adds that Cerro Quema has already received an environmental approval and extraction permits for a 5,000-tonne-per-day proposed plant. He expects Pershimco will apply for an expansion permit by year-end, with approval slated for late 2015.
Meanwhile, the company is carrying on with engineering, process and metallurgy studies, along with project optimization. Pershimco is investigating ways to reduce start-up and operating costs through run-of-mine sequencing and using a mining contractor, among other possibilities.
The firm expects to skip a feasibility study and go straight into construction in 2016, subject to permitting and financing.
Alain says the company could finance the project through debt and equity, adding that its heavyweight shareholders Agnico Eagle Mines (TSX: AEM; NYSE: AEM) and the Sentient Group — which own 9.9% and 16.9% of Pershimco — could help.
He says there are several other oxide and sulphide targets on the property that Pershimco could test to boost the project’s value.
Despite the prefeasibility study highlights, Pershimco shares fell 7.6% to close out July 8 at 30.5¢.
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