VANCOUVER — It’s all about profitable ounces for junior Goldsource Mines (TSXV: GXS; US-OTC: GXSFF) at its fledgling Eagle Mountain project, 230 km southwest of Georgetown, Guyana.
In early March the company kick-started construction on a small-scale operation it hopes can lead to bigger things through a measured expansion that boasts low capital requirements and strong economic returns.
In a year, Goldsource has come a long way. The company scored its medium-scale mining permit through a local business arrangement in August 2014, and closed a $7-million private placement that should fund all development and capital costs for initial mine and plant construction at Eagle Mountain.
The financing was 47 million units at 15¢ apiece, with each unit comprised of a share and half a warrant exercisable at 25¢ over three years.
The twin achievements should position the company to hit a production target in late 2015, which shouldn’t come as a great surprise, considering the bench strength of its management team.
Eagle Mountain is the brain child of Silvercrest Mines’ (TSX: SVL; NYSE-MKT: SVLC) CEO J. Scott Drever and COO Eric Fier, who hold the same positions at Goldsource.
Meanwhile, former BHP Billiton geophysicist Ioannis Tsitos serves as president, and has 17 years of experience in Guyana.
The team is looking to overlay a similar blueprint to Silvercrest’s Santa Elena silver mine at Eagle Mountain. The strategy involves a staged-build approach to limit development risk and maximize capital return.
Production is scheduled to start modestly before ramping up over four phases.
Eagle Mountain should produce 5,600 oz. gold over its first year, but could hit 28,000 oz. annually by its fourth year.
Initial mining rates would be 1,000 tonnes per day, ramping up to 4,000 tonnes per day by year four. The operation will use conventional open-pit mining of gold-mineralized saprolite using a team of excavators, bulldozers and wheel loaders to extract and separate materials, with downhill gravity transport by slurry to the processing facility.
The stripping ratio is low and estimated at 0.9 over an eight-year mine life.
“I don’t like using the alluvial stigma because when I think of alluvials I tend to envision discontinuous feed and grade. We’re trying to optimize consistent grade and feeds,” Fier says during an interview.
“I told everyone early on that the topography and rainfall has to be our friend, and that’s how we designed everything. I realize that eight pits sound complex, but I would really classify it as cuts. We have an extremely low strip ratio, and the only thing that determines the edges of the pits are some one- to three-metre wide intervals, so I actually envision most of it as a single cut,” he adds.
Due to the deep and intense weathering of Eagle Mountain’s rock, the company is starting out with a pretty basic gravity circuit. That means the first phase of construction is costing below $5 million. The method will also keep cash costs down, with all-in sustaining costs pegged at just US$630 per oz. gold.
“It may look small, but we have terrific margins,” Drever elaborates. “It’s important to look at profitability over size in these markets. As long as we prove the concept and achieve these really low cash costs we’ll be in great shape, even at current gold prices.
“One of the things that we do have in our back pocket is the fact we can accelerate the program. If it works we don’t have to necessarily wait, so we could end up ramping up annual production quite quickly,” he continues, speculating that the company could move towards 50,000 oz. in annual gold production in the next few years.
One attractive attribute of Guyana’s mining law is that Goldsource isn’t permitted for a specific mining rate or process.
The company can, for example, add a gravity circuit or bump up its throughput under its current licence, which gives it more options as to how Eagle Mountain is developed. Under the existing permit, however, Goldsource is limited to a mining footprint no greater than 2.5 sq. km.
Total capital cost at Eagle Mountain, including all proposed expansions and sustaining capital, is estimated at $24.2 million.
A preliminary economic assessment released in July 2014 says the project would feature a US$45.6-million after-tax net present value at a 5% discount rate, and a 63% internal rate of return. All calcualtions assume a US$1,250 per oz. gold price.
Life-of-mine gold production under the current plan totals 169,000 oz., while the company will accrue an inventory of 162,000 oz. gold in its settlement ponds due to the gravity-only processing. Most of the gold sits in the inferred category, which totals 7.2 million tonnes grading 1.32 grams gold per tonne for 306,000 contained oz.
“Sometimes people compare apples to oranges when you’re talking about ore deposits. Here we’re dealing with a tabular body that extends over a significant distance,” Tsitos says. “That’s the reason a lot of our ounces are still in the inferred category despite the fact a lot of drilling has been completed. I think the salient point, however, is that 93% of the holes ever drilled at the project hit economic gold, and that produces confidence.”
Goldsource has already bought a 100-tonne-per-hour processing plant, and is in the midst of a pre-production drill program that should see mining by November. The company hopes to fund more expansion through cash flow before turning outward to the greater 50 sq. km Eagle Mountain property package.
The project sits in the Palaeoproterozoic greenstone rocks of the northern part of the Guiana Shield, with most known gold mineralization hosted within a composite granodiorite pluton intruding the greenstones. Mineralization is associated with a distinctive sulphide alteration assemblage and minor quartz veining.
“I’ve been working in Guyana for a long time now, and at last I’m really seeing the country emerge as a mining jurisdiction. You have a number of commercial gold mines going into production, and we’re heading into construction as well,” Tsitos says. “It just shows how positive the government is towards mining. So I see a lot of attention coming up here for the greenstone belt because there is some really great geology in the region.”
Goldsource has traded within a 52-week range of 12¢ to 31¢, and closed at 17.5¢ per share at press time. The company has 127 million shares outstanding for a $22-million market capitalization.