The first economic assessment of Marathon Gold’s (TSX: MOZ) Valentine Lake gold project in Newfoundland could host a “very robust” and “low cost” operation, president and CEO Phillip Walford says.
The much-anticipated study outlined an 11-year mine life and life-of-mine production of 1.90 million oz. gold, or 188,500 oz. per year, at average cash costs and all-in sustaining costs of US$557 per oz. and US$595 per oz. gold, respectively.
Pre-production capital is forecast at US$380 million and could be paid back in just under three years.
The after-tax net present value at a 5% discount rate is an estimated US$367 million, and the post-tax internal rate of return would be 25%. The study used a base-case US$1,250 per oz. gold price.
“The preliminary economic assessment (PEA) is a milestone, and it does show that there is a potential mining operation there because of the strong economics,” Walford says in an interview.
Valentine Lake is made up of four near-surface gold deposits: Marathon, Leprechaun, Victory and Sprite. The deposits occur over a 20 km, gold-bearing vein system and are open at depth and along strike.
Most of the resources are located in the Marathon and Leprechaun deposits, which also have resources below their pit shells. Gold mineralization has been traced down to 350 metres at Leprechaun and almost a kilometre at Marathon.
The PEA excluded the Sprite deposit as well as the project’s underground resource, due to insufficient drilling.
Valentine Lake’s measured and indicated resources from all four deposits — both open-pit and underground — measure 33.36 million tonnes grading 1.99 grams gold per tonne for 2.14 million contained oz. gold. Inferred resources add 17.27 million tonnes grading 1.99 grams gold per tonne for 1.11 million contained oz. gold.
Geological and geophysical studies suggest that the structure hosting the gold mineralization could continue east and west of the current resource, as well as down-plunge, the company says.
An aerial view of the mining camp at Marathon Gold’s Valentine Lake gold project. Credit: Marathon Gold.
“Valentine Lake is one of the premier exploration plays in North America — with potential to grow beyond its current 3.24 million oz. resource — and [is] an attractive takeover target for a mid- to large-cap gold producer,” Michael Carew, a mining analyst at Haywood Securities, said in a research note after the PEA announcement.
Marathon’s cost of finding a new ounce of gold on the 2,400 sq. km property is $10 per oz., Walford says, and only 15% of the project’s 20 km of strike length has been examined in any detail.
Moreover, the company has defined a 3 million oz. gold resource based on just 200,000 metres of drilling between January 2010 and March 2018.
“We’re very efficient at finding gold,” says Walford. “If you compare us to some of the other companies, we’re doing very well indeed in finding gold economically.”
Walford says there is exploration potential for more open-pit resources at the Sprite deposit, including the Bog extension area, the Marathon deposit to the southwest, the Victory deposit, and other mineralized zones, such as the Frank zone and the Rainbow zone. (Drill results from Sprite released in April had intercepts of 8.36 grams gold over 6 metres, including 15.07 grams gold over 3 metres in one hole, and 7.12 grams gold over 4 metres, with 25.84 grams gold over 1 metre in another hole.)
“There is also a large underground resource at the Marathon deposit that is not at present drilled off in sufficient detail to develop into a mine plan,” Walford says, noting that more drilling this year will define the underground resource in time for the next economic study.
Walford hopes to finish a prefeasibility study before the end of next year.
“We have more than 2 million oz. gold at a grade of 2 grams gold in open-pit resources that was used in the PEA, and it’s giving us a really good production profile,” he says.
“We’d like to get the 188,500 oz. per year defined in the PEA up to about 200,000 oz. a year for a longer length of time than the current mine life, but we’re on the right path, and we have a lot of exploration upside here, so I think we’ll achieve our goal of making this into an even better operation, with more drilling.”
The CEO also points out that Marathon Gold is independent. “We’re one of the few independents left that doesn’t have a strategic partner, which is by choice. Right now we want to stay independent. However, that may change in the future.”
The PEA envisioned two gold-recovery operations: a milling, flotation, carbon-in-leach plant, and a heap-leach plant.
Recent metallurgical tests have shown 93% to 98% recoveries via conventional milling and 50% to 70% recoveries via low-cost heap leaching at the Leprechaun and Marathon deposits.
Over the last year, Marathon’s shares have traded in a range of 85¢ (May 1 2018) to $1.28 (Jan. 4, 2018), and at press time were changing hands at $1.03 per share.
The company has 144 million shares outstanding for a $150.5-million market capitalization.
Walford holds 4 million of the company’s shares, which he says he has bought over the last five or six years.
In total, directors and officers of the company hold 4% of Marathon’s stock.
At the end of March, Marathon had $4.1 million in cash and equivalents.