VANCOUVER — It is nearly decision time for British Columbian explorer Spanish Mountain Gold (SPA-V) at its wholly-owned, multi-million ounce gold-silver project 60 km northeast of Williams Lake, B.C. On Nov. 15 the company released an updated preliminary economic assessment (PEA) on the project, which according to president and CEO Brian Groves, could be in production by 2016.
Spanish Mountain’s PEA marks the first updated study on the project since 2010, and the outcome fell largely in-line with expectations, including a series of cost jumps that pushed capital expenditures (capex) up 45% over the past two years.
“We're very pleased,” Groves comments during an interview at the company’s Vancouver offices, pointing out that rising costs were offset by a 30% increase in the gold price and a 100% jump in net present value (NPV). “It provides a lot more detail involving the operating and cost assumptions, and basically the scale and scope of the project relating to mine life. It has really evolved since where we were two years ago. Even though we've seen capital expenditures go up, it's tracking in the global average.”
Inflationary pressures have propelled Spanish Mountain’s capex to US$756 million, as steel and concrete prices have risen along with labour rates and fuel costs. At a US$1,462 per oz. gold price the Spanish Mountain project now holds a US$454 million pre-tax NPV with a 15% internal rate of return (IRR) at a 5% discount rate. The numbers get much more promising at prevailing gold prices, however; as a US$1,716 per oz. valuation sees the project yield a US$887 million NPV and 23% IRR with the payback period dropping to just 2.7 years.
In late July, Spanish Mountain succeeded in hitting a resource target of roughly three million oz. of gold on the project. The PEA assumes 216 million measured-and-indicated tonnes averaging 0.46 gram gold per tonne and 0.68 gram silver per tonne for 3.2 million oz. contained gold and 4.7 million oz. contained silver. The pit design encompasses an additional 317 million inferred tonnes grading 0.36 gram gold and 0.65 gram silver for 3.7 million contained oz. gold and 6.6 million contained oz. silver.
“We're in the process of defining the size of the in-fill program,” Groves explains when asked about a final resource calculation when it comes to advancing into the feasibility stages. “We understand deposit quite well now so we can see the impact of the spacing in particular sections. When you look at the current resource you can see these areas I refer to as 'low-hanging fruit' where you have inferred right up against indicated so you can convert those fairly quickly. We'll probably have a good understanding in the next few weeks of how many additional metres we'll need.”
Since Spanish Mountain is a low-grade, high-tonnage disseminated gold deposit, the company is modelling a 40,000-tonnes-per-day processing flow sheet that would produce roughly 197,000 oz. of gold annually or 2.8 million oz. of gold and 1 million oz. of silver over a 15-year mine life.
Access to higher-grade ore during early-stage operations will result in a lower pay -back period, and cash costs averaging just US$526 per oz. of gold over the first three years — where life-of-mine cash costs clock in at US$774 per oz. Spanish Mountain also benefits from below-average strip ratios during that time, with ratios at 1.58 in year one before falling to 0.90 in year two. Early conditions will result in an above-average production profile over the first three years, when operations will produce 268,000 oz. of gold annually.
“You can now see clearly we have some near-surface, higher-grade material, which has been optimized and scheduled when compared to older studies. Though we think our life-of-mine operating costs are really tracking well with the global averages these days as well,” Groves explains. “We think there is also still scope for optimizing recoveries.”
Groves points out a fall in recoveries as the average grade in the mill drops. The company is in the process of building up more low-grade samples in order to test whether the decline in recovery is due to a limited level of sampling or if it will be consistent over life of mine. According to the study, gold recoveries will average 90% for the first three years, though the average recovery over the mine’s life sits at 88%.
Spanish Mountain’s processing facility is a typical crush-and-grind gravity circuit followed by concentrate recovery via fine grinding and cyanidation.
On the permitting side Groves describes Spanish Mountain as “getting out ahead of the curve.” He explains that the company has been actively engaging surrounding communities and First Nations groups in a bid to establish a strong foundation for a social contract. Spanish Mountain maintains a Memoranda of Understanding with three First Nation groups, including: the Williams Lake Indian Band, Xatsull First Nation, and Lhtako Dene Nation.
“I think it's good to be able to identify issues and questions people may have regarding the project ahead of time, and work through those things with them,” Groves says.
It has only been in the past year that Spanish Mountain has begun to focus on target identification on its broader land package. The company completed its first broad-scale geochemistry campaign on the property and flew additional air-borne geophysical studies. Groves believes the company now has a strong foundation to begin generating new exploration upside.
“I think it is sort of a standard project history where you have ten to fifteen percent of the package that's received a very detailed level of study, and the remainder stands closer to a grass root stage,” he concludes.
Spanish Mountain has just over US$3 million in its treasury at time of writing and has traded within a 52-week range of 26¢ and 82¢. The company has 168 million shares outstanding and a $51 million press-time market capitalization. Spanish Mountain closed at 30.5¢ on Nov. 15.
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