An updated preliminary economic assessment of Marathon Gold’s (TSX: MOZ) Valentine Lake project in Newfoundland, which was based on 20,000 metres of additional drilling since February, among other work, demonstrates stronger economics than an earlier PEA completed in May.
The new PEA estimates the project will produce 2.72 million ounces of gold, an average of 225,100 ounces per year, over a 12-year mine life. The earlier study outlined a mine life of 10.2 years, for total production of 1.90 million ounces of gold, or an average annual production of 188,500 ounces.
Both studies use a gold price of US$1,250 per oz.
Valentine Lake’s measured and indicated resources in the updated study jump by 35% to 45.15 million tonnes; the grade declines by 7% to 1.85 grams gold per tonne; and the total contained ounces increases by 26% to 2.69 million ounces of gold. Inferred resource tonnes increase by 55% to 26.86 million tonnes; the grade declines by 11% to 1.77 grams gold; and the contained ounces increase by 30% to 1.53 million ounces gold.
The latest study lowers preproduction capex by US$25 million to US$355 million and trims the post-tax payback period from 2.8 years to 2.5 years. Initial and sustaining capital costs were cut by leasing the mining fleet rather than buying it, while early near-surface higher grade resources with a low strip ratio enable higher gold production in the early years of the operation and a fast payback.
At a 5% discount rate, the project’s net present value after-tax has jumped by US$126 million to US$493 million, while the internal rate of return has gone up 5% to 30%.
Throughput at the mill increased from 7,500 tonnes per day to 9,000 tonnes per day, while throughput on the heap leach pad remained constant at 9,000 tonnes per day.
The updated PEA, however, does show higher costs. Life-of-mine cash costs are estimated at US$603 per oz. (compared with US$557 per oz.), while all-in sustaining costs are US$666 per oz., up from the earlier estimate of US$595 per oz.
The company expects to complete a pre-feasibility study in 2019 and start initial production in 2022.
The Valentine Lake project is made up of four open-pit deposits: Marathon, Leprechaun, Victory and Sprite, but Marathon and Leprechaun contain the vast majority of the gold.
Sprite was excluded from mine development plan until the company has had a chance to do more exploration drilling and increase the resource there.
The recent increase in inferred resource is coming from infill holes at the Marathon deposit and step-out holes to the southwest of Marathon, which are extending the resource towards the Sprite deposit.
Marathon’s work for next year includes step-out drilling to expand the open pit resource along strike to the southwest and infill drilling to reduce inferred resources in the pit shell.
At the same time, the company will continue drilling at its Sprite deposit in an effort to extend the mineralized zone towards the Marathon deposit to the northeast.
The PEA did not incorporate the underground resource and infill drilling is expected to improve the company’s understanding of the underground mineralization, which it believes could contribute additional ounces that could be extracted using underground mining methods.
“The Marathon deposit has the potential to develop an underground mine, but for now it is more cost effective to find open pit resources at $10 per new ounce rather than more costly underground resources,” Phillip Walford, Marathon’s president and CEO, states in a press release, adding that “there is still room for further improvements to the mine plan and economics for the 2019 preliminary feasibility study.”
In the meantime, metallurgical work is underway to improve recoveries.
Barry Allan of Laurentian Bank Securities raised his target price on the news from $1.67 to $2.64 per share, noting that current resources “remain open, and with more drilling will likely increase again.”
The mining analyst also points out that infrastructure is “unusually good for a project at this stage of development” and that mining friendly Newfoundland “has well-established protocols for permitting mine development.”
As important, he adds, “there are no competing land-use issues and eight years of baseline environmental data already gathered has not identified any major issues.”
At press time in Toronto Marathon was trading at 74¢ per share within a 52-week range of 73¢ and $1.28. The company has about 160 million common shares outstanding for a market cap of around $118 million.