Golden Queen Mining (GQM-T) is looking to prove that there is still plenty of gold in California, even if it is of a much lower grade than what the old 49ers were used to.
The company filed an updated feasibility study on its Soledad Mountain project showing the large tonnage, low grade deposit could have what it takes to generate some positive returns for investors – provided metal prices remain at historic highs.
And the market seemed to be impressed. As recently as May 12 the company’s shares were trading for $2.98, but in Toronto on May 18 – a day after the report was filed — they closed 24% higher at $3.69.
The completion of the study comes after major approvals and permits were secured last year, the most significant of which was the water approval that came in July of last year which covers its waste discharge.
The feasibility study envisions an open pit, heap leach mining facility that would be built for US$88.9 million. That number, however, doesn’t include lease financing of the mining equipment, which is a significant added cost.
That capital outlay would get Golden Queen shareholders a low cost producer once silver credits are accounted for, as the project is expected to produce gold at a cash cost of just $133per oz.
Such an eye-catching number, however, has to be considered in relation to the high metal prices that were used in the study as a $1,457 per oz. for gold and $39.63 per oz. for silver.
Those aggressive numbers fly in the face of the best-practice rule of conservatism, so it should come as little surprise when they generate gaudy numbers in a discounted cash flow analysis.
The net present value (NPV) for the project came in at $722million using an 8.0% discount rate, but again, that is with the high silver and gold prices.
Golden Queen did release some information on the effect of more sensible metal prices as the study showed that a mere 10% drop in metal prices brings the NPV down by a significant US$143 million to US$579million.
But a mere 10% drop doesn’t get the company any closer to conservative numbers. A slightly more relevant metric to use in the NPV calculation is the 36-month average gold and silver prices and when those are factored in the NPV falls to US$343million.
Golden Queen still needs to find significant amounts of financing to get the project into production — financing that it says it will only be able to secure if gold and silver prices remain near those high levels used in its NPV calculations.
If the mine is constructed, it would target production rates of 75,000 oz. of gold and 950,000 oz. of silver per year, with a total of 936,332 oz. of gold and 10.4 million oz of silver produced over the mines 13 year life.
The project currently has measured and indicated resources of 90.4 million tonnes grading 0.744 grams gold and 0.35 grams silver for 2.2 million oz. of gold and 37.6 million oz. of silver.
There are another 32 million tonnes grading 0.49 grams gold and 0.32 grams silver in the inferred category for 511,000 oz. of gold and 11.2 million oz. of silver.
The strip ration outlined in the feasibility study was a low of 1.85:1.
In an effort to bolster more tonnage into higher categories, the company launched an infill drill program in April that was recently wrapped up with assay results due out by the end of May.
The program put nine holes in to the North-West open pit, which is planned to be the first location for mining. Another 11 holes were drilled in the area of the East open pit with an eye toward upgrading inferred resources into the reserve category.
High tonnage, low grade deposits, work best in area’s that are well developed, as existing infrastructure is a key component to keeping costs down. On that front, Soledad is well position as the project is situated near the town of Mojave in Kern County in southern California and is accessible by state highway.