VANCOUVER — The last five years have seen large-cap gold miners shelve and write down many ambitious, greenfield development projects that carry significant price tags and heightened risk.
Miners instead refocused on having strong operating margins and light balance sheets, which were typically characterized by free cash-flow generation and low debt.
The last 18 months have marked a shift in sentiment for metal producers, however, as commodity prices strengthen and risk capital markets begin to recover.
Analysts are now speculating that precious metal companies could move their stalled megaprojects back onto the front burner to achieve long-term production stability in the face of falling discovery rates.
On Oct. 12, BMO Capital Markets released research on large-scale gold development opportunities defined by criteria that includes: greater than US$1 billion in initial capital; in excess of a 15-year mine life based on current reserves; plant throughput greater than 30,000 tonnes per year; and gold-equivalent production greater than 400,000 oz. annually.
“The move away from advancement of megaprojects was also a consequence of a number of cost overruns, in part related to industry-wide inflationary pressures during this time frame,” the BMO analysts note. “With balance sheets largely repaired, the sector generating free cash, and a more constructive outlook on precious metal prices, it is therefore no coincidence that that we are seeing the early signs of reemergence.”
BMO Research identified seven megaprojects in its coverage that match most of the criteria, which could produce in excess of 1.3 million equivalent oz. gold annually over a 30-year mine life.
The report assumes a long-term gold price of US$1,200 per ounce.
New Gold’s Blackwater in BC
New Gold (TSX: NGD; NYSE-MKT: NGD) acquired the Blackwater project, 160 km southwest of Prince George, B.C., in early 2011 via the $513-million deal for Richfield Ventures.
The property hosts large-scale gold-silver mineralization in an intermediate sulphidation, epithermal system that occurs within 2 km of clustered porphyry intrusive centres.
New Gold spent US$4 million on the project through the first half of 2017, primarily focused on its federal and provincial environmental assessments.
BMO Research models nearly US$2 billion in initial development capital for Blackwater, which would produce 452,000 equivalent oz. gold annually over a 16.8-year mine life.
BMO calculates that a 60,000-tonne-per-day project carries a 3.1% internal rate of return (IRR) based on a feasibility study released in 2014.
Blackwater hosts proven and probable reserves of 344 million tonnes grading 0.74 gram gold per tonne and 5.5 grams silver per tonne for 8.2 million contained oz. gold and 60.8 million contained oz. silver.
Goldcorp and Barrick’s Cerro Casale-Caspiche in Chile
In March, majors Goldcorp (TSX: G; NYSE: GG) and Barrick Gold (TSX: ABX; NYSE: ABX) created a fifty-fifty joint-venture to advance the Cerro Casale and Caspiche gold deposits in northern Chile’s Maricunga gold belt.
Goldcorp must spend at least US$60 million over the next two years, and at least US$80 million in each successive two-year period until a US$260-million project payment obligation is satisfied.
BMO Research estimates US$6.1 billion in initial capital expenses for developing mining operations for the twin gold-copper deposits, which lie 12 km apart. The conceptual operation would produce 684,000 equivalent oz. gold over a 36-year mine life.
Goldcorp reports that Cerro Casale hosts 1.2 billion proven and probable tonnes of 0.6 gram gold and 0.22% copper, while Caspiche has measured and indicated resources of 1.4 billion tonnes at 0.51 gram gold and 0.19% copper.
“The joint venture with Barrick has the potential to allow us to consolidate infrastructure to reduce capital and operating costs, reduce the environmental footprint and provide increased returns compared to two stand-alone projects,” Goldcorp president and CEO David Garofalo said about the arrangement.
BMO Research said the combined Cerro Casale/Caspiche development carries an 8.8% IRR based on internal estimates.
Barrick and NovaGold’s Donlin in Alaska
Barrick and NovaGold Resources (TSX: NG; NYSE-AM: NG) finalized a joint venture to advance the large Donlin gold project in southwestern Alaska back in 2007.
The property hosts proven and probable reserves of 505 million tonnes grading 2.09 grams gold for 33.8 million contained oz. gold.
The deposits are hosted mostly in igneous rocks and are associated with an extensive late Cretaceous hydrothermal system. Gold occurs in broad disseminated sulphide zones in rhyodacite and in vein networks.
The companies approved an US$8-million budget this year for geotechnical drill programs. They anticipate the U.S. Army Corps of Engineers will file a final environmental impact statement in 2018.
BMO Research estimates US$5.2 billion in capital expenses to develop a mine, that could produce 1.2 million equivalent oz. gold annually over a 26-year mine life.
The analysts peg Donlin’s IRR at 6%, though BMO notes it has “not considered a staged approach, given the large infrastructure requirements and lack of details.”
A feasibility study for Donlin completed in 2011 models an open-pit, truck-and-shovel operation with a 53,500-tonne-per-day processing facility.
Teck and Goldcorp’s NuevaUnion in Chile
Teck Resources (TSX: TCK.B; NYSE: TCK) formed a joint venture with Goldcorp in mid-2015 to combine their respective Relincho and El Morro assets, which lie 40 km apart in Chile’s Huasco province. The companies are due to release a prefeasibility study on the combined “NuevaUnion” development in early 2018.
The current plan models a conveyor to move ore from El Morro to a single-line mill and concentrator facility at the Relincho site, with an initial capacity of between 90,000 tonnes and 110,000 tonnes per day. The companies hope the mine would produce an average of 190,000 tonnes copper and 315,000 oz. gold per year over the first 10 years.
El Morro hosts proven and probable reserves of 600 million tonnes grading 0.46 gram gold and 0.49% copper.
Relincho has a reserve of 1.2 billion tonnes at 0.37% copper and 0.017% molybdenum.
The combined NuevaUnion development has 9 million contained oz. gold, 16.6 billion contained lb. copper and 464 million contained lb. moly.
BMO Research assumes a US$5-billion preproduction investment for the NuevaUnion development, which would generate a 6.3% IRR based on a 38-year mine life.
Barrick’s Pascua-Lama in Chile
Barrick has had its share of troubles at the massive Pascua-Lama project, 5,200 metres above sea level along the Argentina-Chile border.
The company reported a U$5.1-billion impairment charge on the asset before suspending development in late 2013. Barrick had spent US$5 billion of Pascua-Lama’s reported US$8.5-billion capital expenses at the time.
Furthermore, the Chilean Supreme Court continues to oppose the project after citing environmental concerns three years ago.
Late last year, Barrick announced it was taking a “fresh look” at Pascua-Lama with the intention of developing a “scalable starter operation” that could be built underground in Argentina.
The company is expected to release a prefeasibility study on the new plan by early 2018.
BMO Research notes that “the company has not provided sufficient information” on the underground mine to update valuations, and assumes the remaining capital expenses on the entire project total US$3.3 billion. Pascua-Lama project would feature a 16.7% IRR under current assumptions.
Andy Lloyd, Barrick’s senior vice-president of communications, told The Northern Miner in September 2016 that “from the big picture, we’ve definitely said that Pascua-Lama is a project that probably by its nature could bring a partner on, and it could certainly be a project of interest to Chinese partners, or others.”
The mine could produce between 800,000 and 850,000 oz. gold, and 35 million oz. silver per year, in the first five years of a 25-year life.
Northern Dynasty Minerals’ Pebble in Alaska
Northern Dynasty Minerals’ (TSX: NDM; NYSE-AM: NAK) Pebble copper-gold asset is the second megaproject on this list with a history of sociopolitical disputes and related delays. In fact, Anglo American (LON: AAL; US-OTC: AAUKF) walked away from the project in late 2013, after pouring US$540 million into it over six years.
Northern Dynasty finally resolved its squabbles with the U.S. Environmental Protection Agency earlier this year, which set the stage for it to revive the permitting process.
The company’s president and CEO Ron Thiessen told The Northern Miner in May that his company is considering a “smaller operation” than the plan outlined in a 2011 preliminary economic assessment.
That study models a 200,000-tonne-per-day operation exploiting a resource that stands at 5.9 billion measured and indicated tonnes grading 0.42% copper, 0.35 gram gold per tonne and 0.025% molybdenum, containing 55 billion lb. copper, 67 million oz. gold and 3.3 billion lb. molybdenum.
BMO Research assumes Pebble would cost US$4.8 billion to develop, and would generate 675,000 equivalent oz. gold annually over a 45-year mine life. The current assumptions feature a 14% IRR.
Polyus Gold’s Sukhoi Log in Russia
Polyus Gold (LON: POLG; US-OTC: PGILF) acquired the final 25% in the large Sukhoi Log gold deposit in Eastern Siberia’s Irkutsk region for US$146 million in July.
According to the Russian State Commission on Mineral Reserves, the project hosts reserves of 930 million tonnes grading 2.1 grams gold for nearly 63 million contained ounces.
BMO Research models preproduction capital at Sukhoi Log of US$2.5 billion, with the operation expected to produce 675,000 equivalent oz. gold annually over a 30-year mine life based on a processing rate of 60,000 tonnes per day. The model generates a 16.8% IRR.
Russia’s largest gold producer expects to crank out more than 2.7 million oz. gold annually by 2020. Polyus’ Natalka project enters production at year-end.
“While conventional-sized discoveries will dominate project development in the near-term, the lack of new discoveries will increasingly place an emphasis on development of megaprojects to provide long-term stability of production,” BMO analysts added.
“Constructively, many of the large gold producers that have exposure to megaprojects are focused on re-engineering the projects to reduce risk and improve returns through joint ventures, an infrastructure partnership, new technology, optimization and ownership of execution.”