A feasibility study on Battle North Gold’s (TSX: BNAU; US-OTC: BNAUF) Bateman project in the Red Lake district has defined a seven-year, 1,315-tonne-per-day underground operation.
The development features a 21-month construction and ramp-up period, which includes 14 months of gold production that would offset some of the capital expenditures.
The project funding requirement stands at $93.2 million, and includes $109.3 million in initial capital, offset by an expected $34.2 million from the sale of 47,829 pre-commercial oz. gold, assuming a gold price of US$1,525 per ounce.
Life-of-mine sustaining capital outlays are pegged at $188.8 million.
During commercial operations, the mine would generate an average of 79,308 oz. gold annually, at all-in sustaining costs of US$865 per ounce.
The development would bring in a net present value estimated at $305 million, based on a 5% discount rate and a US$1,525 per oz. gold price, with a 50.3% internal rate of return and 3.6-year payback.
“There are few stand-alone projects in the world that are as substantially derisked, with significant infrastructure, with a short timeline to initial production, in a safe jurisdiction, as the Bateman gold project,” George Ogilvie, Battle North’s president and chief executive, said in a statement.
Ogilvie added that, subject to board approval, Battle North is looking to start construction at the site. The developer has also been planning out the development of this asset, with an assessment to mitigate ramp-up risks. This includes scheduling capital development nine months ahead of the mine plan, infilling the F2 deposit at 10-metre centres and establishing ramp access to increase shaft capacity.
“Most importantly, we have an operating team with extensive experience in building, operating and turning around underground mines; the collective operating experience of the Battle North team will be a significant factor in ultimately achieving a successful ramp-up to commercial production.”
In terms of capital and sustaining costs, the feasibility calls for a total of 36,657 metres of underground waste development over the life of the mine. An additional $34.1 million in upfront capital would be required for surface and mill upgrades, which includes an expansion of the existing tailings facility. There is a 1,800-tonne-per-day mill at the site, with the potential to stage up to approximately 2,500 tonnes per day.
On the mining side, Battle North is planning on a predominately bulk mining operation at Bateman. The project includes a 730-metre shaft and over 14,000 metres of underground workings.
The company has $55 million of cash on its balance sheet and is in advanced discussions with lenders about a potential debt facility to secure the remaining development capital.
Battle North has approximately $704 million of tax loss pools available for deductions over the commercial production period. The base-case feasibility scenario assumes no resulting income tax over the life of the project, with $407 million of pools remaining at the end of mine life.
Looking at the scenario analysis, the pools start to deplete at a gold price of US$1,900 per oz., and at Canadian to U.S. dollar exchange rates below 0.74. The press release notes that, in today’s gold price environment, the tax loss pools would be depleted over the life-of-mine.
The reserve statement from the feasibility study, including proven and probable categories, stands at 3.6 million tonnes, grading 5.54 grams gold per tonne, for a total of 634,838 contained oz. gold, derived using a 3.41 grams per tonne cutoff grade. Additional measured and indicated resources total 1.5 million tonnes at 7.24 grams gold, with a further 1.3 million inferred tonnes at 6.5 grams gold.
The resources and reserves are within the F2 gold deposit, which remains open at depth and along strike. With excess mill capacity, Battle North sees potential to process additional incremental tonnes from potential extensions of F2, as well as from the McFinley and Pen zone targets. Resource estimates for McFinley and Pen are expected in the fourth quarter of this year and first quarter of 2021, respectively.
In a note to investors, Andrew Mikitchook of BMO Capital Markets, highlighted the feasibility study as “careful and conservative,” with potential upside from mine life and production growth; an accelerated development plan (which, in his opinion, could deliver production as early as the second half of next year); and lower cut-off grades amongst a higher gold price, which could add ounces to the mine plan.
On the other hand, Ryan Hanley of Laurentian Bank Securities, noted that the average annual production of 79,300 oz. in the feasibility came in below his “perhaps overly optimistic expectation of closer to 100,000 oz. per year.” The mining analyst added that this difference in production profiles was from lower throughputs in the latest study, of 1,315 tonnes per day, versus with his prior expectation of up to 1,750 tonnes per day.
Ultimately, the two maintain “outperform” and “buy” ratings on the stock, respectively. With the study release, Mikitchook raised his target price to $4.00 per share from $3.30; and Hanley lowered his target to $4.00 from $4.75.
Over the last year, Battle North’s shares have traded in a range of 54¢ and $2.25 and at press time were selling at $1.80. The company has about 129 million common shares outstanding for a $232 million market capitalization.