O3 Mining (TSXV: OIII) completed a preliminary economic assessment (PEA) of its Marban gold project in Quebec after only four months, and is on track to start a prefeasibility (PFS) study in 2021 and complete it by 2022.
The company, which was spun out from Osisko Mining (TSX: OSK) in early 2019, was able to fast-track Marban because more than $60 million had been invested in the asset before Osisko acquired it in 2016, including over 600,000 metres of drilling, at least six metallurgical studies, as well as some geochemical analysis in the ore and waste rock.
Today, Marban is worth more than twice O3 Mining’s $176-million market capitalization at a gold price of US$1,450 per oz. and four times its market cap at US$1,900 per oz., president and chief executive Jose Vizquerra said in an interview.
“We were really six steps ahead, but the most important part was that the amount of information that existed was really underestimated, to the point where we redid the resources and we ended up increasing them by 40% because we included areas that hadn’t been paid attention to before.”
“We ended up coming out with 2.5 million ounces of gold for a project that for many years people thought was marginal,” he added. “We showed there were 1.8 million mineable ounces and two-thirds of the resource is already in the measured and indicated category.”
The PEA, released in September, outlines an 11,000-tonne-per-day open-pit operation with a mine life of 15.2 years. The first 12 years will target production in excess of 130,000 oz. gold per year, peaking at 161,000 oz. in year nine, for an annual average of 115,000 ounces. The study forecast cash costs of US$741 per oz. and all-in sustaining costs (AISCs) of US$822 per ounce.
Initial capex of $256 million can be paid back, after-tax, in four years, and, at a long-term gold price of US$1,450 per oz., Marbon should yield an after-tax net present value (NPV) at a 5% discount rate of $423 million and an internal rate of return (IRR) of 25.2%. (At US$1,950 per oz., the NPV rises to $892 million and the IRR to 47.2%.)
“It is a standalone project — we don’t need anyone. We can put it into production ourselves,” Vizquerra said. “At US$1,450 per oz. it looks good, and at US$1,900 per oz. it looks great. We have essentially moved a project that was the ugly duckling, and we are starting to see the beginning of a world-class project.”
The project’s resource stands at 54.2 million measured and indicated tonnes grading 1.10 grams gold per tonne for 1.91 million oz. gold and 13.2 million inferred tonnes averaging 1.44 grams gold for 610,827 ounces. The August 2020 resource estimate uses a 0.30-gram gold cut-off grade.
Vizquerra says the plan is to work on baseline studies for the next six months, followed by environmental impact studies, while simultaneously demonstrating that the resource can grow. In June, the company tripled its drill program in Val d’Or to 150,000 metres, which is scheduled to be completed by December 2021. Vizquerra estimates that one-third of the drilling will go into Marban.
The exploration focus will be to expand existing zones along strike and at depth and to explore regional targets. Much of the drilling will focus on the extensions of the Orion 8, Gold Hawk, Malartic H, North Shear and North-North zones located near the Marban deposit. The deposit sits 12 km from the Canadian Malartic gold mine, jointly owned by Yamana Gold (TSX: YRI; NYSE: AUY) and Agnico Eagle Mines (TSX: AEM; NYSE: AEM).
“You will see there is a lot of drilling outside of the pit and some of that drilling is showing more than 5 grams gold per tonne, so I believe we can grow the resources in a very profitable way and will show that 2.5 million oz. is only the beginning,” Vizquerra said.
The Malartic property is 3 km north of the Cadillac Larder-Lake break and contains the Marbenite, Norbenite and North shears that run west-northwest across the property over more than 10 kilometres. the mineralization is mainly distributed along those shears and consists of quartz veining with disseminated pyrite hosted in iron-rich basalt and intermediate to felsic dykes within ultramafic flows. The Marbonate shear is related to the Marban deposit, the Gold Hawk zones and the Orion 8 zone, while the Norbenite shear is related to the Norlartic and the Kierens deposits, and the North shear to the North zone.
The property also contains the down-plunge extension of the mineralization related to the former Camflo mine. The mine infrastructure crosses the border of the Malartic property around the 2400 level, 800 metres below surface, and it has been mined out to a depth of 1,200 metres inside the property. Camflo produced 1.65 million oz. gold at 5.8 grams gold per tonne from 1965 to 1992.
Elsewhere in Quebec, O3 Mining will be drilling its Alpha project, 15 km southeast of Val d’Or. Two-thirds of its 150,000-metre drill program will be focused on Alpha.
Highlights from initial stripping at the project released in August include 176 grams gold, 38 grams silver, and 0.1% copper over 0.6 metre at Valdora Zone 4, and 9 grams gold over 1.3 metres at Valdora Zone L17.
In addition to its stripping campaign, the company has hired Mira Geoscience to use its artificial intelligence (AI) methodologies that employ 3D cells and machine learning in targeting exercises to generate mineralization probabilities.
“We created these three dimensional (3D) cubes of 25 metres by 25 metres by 25 metres – an algorithm – and gave specific characteristics to the three blocks,” Vizquerra says of the AI and machine-learning work. “We were essentially saying: ‘Tell me where the closest holes are, tell me the areas where there is the most potassium; or areas where there are more felsic rocks, or more mafic rocks. It took us three months and we came up with a very interesting map that showed four different styles of mineralization and more than 25 areas of prospectivity.”
In other news, O3 Mining signed an option agreement in May with QMX Gold (TSXV: QMX) to acquire a 100% interest in its fully permitted Aurbel mill, 10 km from Alpha. Under the agreement, O3 Mining can buy the mill, tailings and associated permits and liabilities for $5 million at any time over six years. “That has allowed us to show investors that we have a clear path to production,” Vizquerra said.
The company closed a $40.2 million bought deal financing in June and has also sold some of its properties in Ontario and Quebec. It sold its Hemlo properties in Ontario to Canadian Orebodies, now Hemlo Explorers (TSXV: HMLO); a package of 24 Tortigny claims in Quebec to privately held Kenorland Minerals and 627 Tortigny claims to Troilus Gold (TSX: TLG); and its Fancamp and Embry properties to Blue Thunder Mining (TSXV: BLUE).
“I think that’s part of being efficient in management,” Vizquerra said. “The job of a CEO is to allocate capital, and it’s in the best interest of our shareholders that we are focused, so those things not focused on should be sold. We kept a royalty in all the transactions we did, so, if they’re successful, we can always sell a royalty to a royalty company.”
As for potential acquisitions over the next 18 months, O3 Mining will only consider them on two conditions: First, if its share price is higher than it is today, and, second, only if the asset is undervalued, Vizquerra said.
“This company is focused on fundamental value,” he explained. “I don’t buy a company because it’s $5 million. I buy it if I think it’s worth $2 million and I can buy it for $1 million.”
Looking ahead at the prospects for gold, Vizquerra believes the metal can go much higher.
“This is just the beginning of the run in gold,” he forecast. “I don’t know if we’ll be talking about US$3,000 per oz. gold, but I don’t see why we can’t be at US$2,500 per ounce.”