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 president and CEO Brian Groves says could be in production by 2016.
Spanish Mountain’s PEA is the project’s first updated study since 2010, and the outcome fell largely in-line with expectations, including a series of cost jumps that pushed capital expenditures 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 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 holds a US$454-million pre-tax NPV with a 15% internal rate of return (IRR) at a 5% discount rate. The numbers get 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 2.7 years.
In late July, Spanish Mountain hit a 3 million oz. gold resource target 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 contained oz. gold and 4.7 million contained oz. 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 infill program,” Groves explains when asked about working towards a final resource calculation. “We understand the 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-tonne-per-day processing flow sheet that would produce 197,000 oz. gold annually, or 2.8 million oz. gold and 1 million oz. silver over a 15-year mine life.
Access to higher-grade ore during early-stage operations would result in a lower payback period and cash costs averaging US$526 per oz. gold over the first three years, where life-of-mine cash costs clock in at US$774 per oz. gold. Spanish Mountain also benefits from below-average strip ratios during this time, with ratios at 1.58 in the first year before falling to 0.90 in the second year. Early conditions would result in an above-average production profile over the first three years, with operations producing 268,000 oz. gold annually.
“You can clearly see that we have some near-surface, higher-grade material, which has been optimized and scheduled when compared with older studies,” Groves says. “Though we think our life-of-mine operating costs are tracking well with global averages . . . 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 building up more low-grade samples to test whether the decline in recovery is due to limited sampling, or if it would be consistent over the mine’s life. According to the study, gold recoveries would 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 memorandum of understanding with three First Nation groups, including the Williams Lake Indian Band, the Xat’sull First Nation and the Lhtako Dene Nation.
“I think it’s good 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 focused on target identification on its broader land package, completing its first broad-scale geochemistry campaign on the property and flying additional airborne geophysical studies. Groves believes the company has developed a strong foundation and can generate exploration upside.
“I think it is sort of a standard project history, where you have 10% to 15% of the package that’s received a detailed level of study, and the remainder stands closer to a grassroots stage,” he concludes.
Spanish Mountain had just over US$3 million in its treasury at press time and 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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