VANCOUVER — The path to production is coming into focus for West Kirkland Mining (TSXV: WKM; US-OTC: WKLDF) at its Hasbrouck gold project near the town of Tonopah, Nev. The company is hoping to use a two-stage development strategy that would see its smaller Three Hills deposit serve as a launching point, and a recent decision by the U.S. Bureau of Land Management (BLM) appears to set the stage for initial permitting later this year.
West Kirkland picked up the Hasbrouck package — which consists of Three Hills and the larger Hasbrouck deposit — just over a year ago from now-bankrupt producer Allied Nevada Gold (TSX: ANV; US-OTC: ANVGQ). The company paid US$19.5 million for a 75% controlling interest in the asset, and has the option to acquire the remaining stake through October 2016 for another US$10 million.
On June 3 West Kirkland released a prefeasibility study (PFS) on Hasbrouck that crystallizes a development model it believes can capitalize on recent regulatory adjustments that should allow Three Hills to be permitted by year-end.
The company’s strategy hinged on the BLM allowing the smaller deposit to be reviewed under an environmental assessment (EA), which is quicker than the more burdensome environmental impact statement (EIS) process. The gamble paid off in early May when the BLM announced it would allow Three Hills to proceed with only an EA.
“The key change for us was breaking the project down into two development stages. Back when Allied Nevada had been looking at the mine, it had been modelled as an integrated scenario, but in reality it is two separate land positions and the impacts are quite different,” president and CEO R. Michael Jones said during an interview
“We were able to achieve the permitting option we wanted at Three Hills since the footprint for the mine was below the threshold of one square mile, and all the heap-leach infrastructure can go on patented lands,” he added.
The Three Hills mine should operate for two years, followed by six years at the Hasbrouck mine, with combined production estimated at 567,000 oz. gold. An adsorption-desorption-recovery (ADR) plant is planned at Three Hills for stripping loaded carbon from both sites.
Three Hills would be a run-of-mine heap leach operation using conventional open-pit mining. The operation would process material via a leach pad at up to 13,600 tonnes per day. A large-scale metallurgical test on uncrushed material predicts 79% gold recoveries.
Meanwhile, Hasbrouck is designed as a 15,900-tonne-per-day heap-leach operation. Crushing is designed to be by a primary jaw crusher, two secondary cone crushers and a tertiary high-pressure grinding roll (HPGR). Metallurgical tests predict that the tertiary crushing should result in 72.9% average gold recoveries and 11% silver recoveries.
“The big difference in the new study is how we sequence in the Hasbrouck deposit, and the metallurgical process is a really important component of that, since using the HPGR really brings up the gold recoveries,” Jones continued. “A lot of the work we did involved designing the dovetail of the two operations and how they work together. We always knew Hasbrouck would take quite a bit of crushing, but we needed to figure out the economic returns on how far we wanted to go.”
Initial capital expenditures to build Three Hills and the ADR plant are estimated at US$54.3 million. Further project investment of US$83 million in the first two years of production will be needed to build Hasbrouck. West Kirkland estimates that it could generate US$43.5 million in free cash flow from Three Hills to help fund the expansion.
Three Hills hosts proven and probable reserves of 8.7 million tonnes grading 0.51 gram gold per tonne for 175,000 contained oz. Hasbrouck’s reserves total 32.3 million tonnes of 0.48 gram gold and 8.42 grams silver for 588,000 oz. gold and 10.6 million oz. silver.
The project has a 26% internal rate of return and an after-tax US$75.3-million net present value at a 5% discount rate, assuming US$1,225 per oz. gold and US$17.50 per oz. silver. Processing would average 5.5 million tonnes of ore per year to annually produce 71,000 oz. gold. All-in sustaining costs are pegged at US$779 per oz. over the mine’s life.
The next steps for West Kirkland are twofold. The company will proceed with EA permitting at Three Hills and initiate its EIS process at Hasbrouck, while advancing talks on project financing.
Securing the capital to develop the mine could be tricky due to volatile equity markets and sub-par terms on debt facilities, but Jones has made a habit out of securing cash for mine development.
“I think the market is really kind of bifurcated right now. The retail investment market has completely evaporated, and average investors are just not looking at the mining sector at all. That’s really effected valuations. Now on the flipside senior investors see the opportunity, and recognize the depressed price levels and the low valuation on equities,” Jones says.
“I mean when you have a PFS-level study on a gold asset and you’re trading at a thirty-percent discount to net asset value that just smells of opportunity. I think the smart money is still playing, and the good projects always get financed,” he adds.
And West Kirkland certainly has a collection of notable shareholders that could step up to the plate.
The company has 294 million shares outstanding, with institutions holding 76% of that total. Major investors include: U.S.-based fund Sun Valley Gold, with a 25% equity interest; Liberty Metals & Mining, with a 14.3% equity interest; and U.K.-based fund Ruffer Gold, with a 10.2% equity interest.
West Kirkland has traded within a 52-week window of 5¢ to 15¢, and closed at 6¢ per share at press time for a $17.7-million market capitalization. The company reported cash of US$2 million.
“The plan right now is to be conservative with our expenditures. It’s not a market that’s paying for exploration, so we’ll be watching our bottom line closely. That being said we do see exploration upside at Three Hills, and a single year of additional production there would make an enormous difference on how our peak funding evolves,” Jones says.