Pretium Resources’ (TSX: PVG; NYSE: PVG) revised feasibility study for its Brucejack gold–silver project in B.C. shows the deposit is economical, even at low gold prices.
The study is on an updated December 2013 resource, and envisions a 2,700-tonne-per-day underground operation producing 504,000 oz. gold a year for the first eight years. Annual production over the mine life would average 404,000 oz. gold. The estimated mine life is 18 years.
Compared to a June 2013 feasibility study, the annual average life-of-mine production has jumped 26% from 321,500 oz. gold, while the mine life has fallen by four years from the previous 22-year estimate.
The higher gold production is due to higher grades. Reserves at the Valley of Kings deposit stand at 13.6 million tonnes grading 15.7 grams gold and 11 grams silver per tonne, while the West Zone deposit, set to be mined later in the mine life, has reserves of 2.9 million tonnes at 6.9 grams gold and 279 grams silver.
The new study pegs start-up costs, including contingency, at US$746.9 million, up from US$663.5 million. Pretium attributes the increased capital costs to a weaker Canadian dollar, as well as to higher costs related to power and camp size, among other things.
“The positive impact of higher gold grades more than offsets the US$80-million increase to capital expenditures,” Cowen and Co. analyst Adam Graf said in a note. He has bumped up his target price to $22.05, from $18.41.
The study shows Brucejack is attractive at lower gold prices. Using base-case metal prices of US$1,100 per oz. gold and US$17 per oz. silver, the project generates an after-tax net present value (NPV) of US$1.5 billion at a 5% discount rate, and a 28.5% after-tax internal rate of return (IRR). Payback after taxes would occur in 2.8 years.
For comparison, the 2013 study used base-case metal prices of US$1,350 per oz. gold and US$20 per oz. silver to generate an after-tax NPV and IRR of US$1.8 billion and 35.7%.
If gold and silver prices plunge to US$800 per oz. and US$15 per oz., the updated feasibility study shows Brucejack would have an after-tax NPV and IRR of US$1.3 billion and 16.5%.
“Even in an uncertain gold-price environment, Brucejack can deliver high margins, and from a safe jurisdiction,” the company’s CEO Robert Quartermain said in a statement.
The study calculates all-in sustaining cash costs of US$448 per oz. gold, net of silver credits.
The company anticipates starting commercial production at Brucejack in 2017. It expects to file its environmental application shortly. Cowen’s Graf says that Pretium could receive an environmental approval by early 2015.
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