Premier Gold Mines (TSX: PG; US-OTC: PIRGF) is nearing producer status at the South Arturo mine in Nevada that it jointly owns with Barrick Gold (TSX: ABX; NYSE: ABX), and Ewan Downie, the junior’s president and CEO, forecasts the mine will produce 200,000 oz. gold next year, with Premier’s share at 80,000 oz.
The open-pit operation could generate US$85 million in free cash flow in 2016 at a US$1,200 per oz. gold price, and Downie forecasts cash costs of US$400 per oz. and all-in costs of US$730 per oz.
Most of the ore from South Arturo will be processed at Barrick’s Goldstrike facility 8 km away, so Premier doesn’t need to build a mill or a tailings site, Downie says, noting that the company shares none of the risks associated with operating the mine.
Premier acquired a 40% stake in the project from Goldcorp (TSX: G; NYSE: GG) for US$20 million in cash. Barrick owns the remaining 60% and is the operator. (Under the deal with Goldcorp in May, in addition to the sticker price, Premier transferred another 5% interest to Goldcorp in their Rahill-Bonanza joint-venture in Red Lake. Now Goldcorp owns 56% of that project and Premier holds 44%.)
“South Arturo wasn’t exactly a huge mine in Nevada and it was noncore to Goldcorp, and we had something of interest to them — the additional 5% of Red Lake — so it was an opportunity where they could increase their ownership and land package in a core area for them, and we got something that really helps us to move our company forward sooner than we would have done without the asset,” Downie says in an interview with The Northern Miner.
The mining executive adds that it’s rare a junior can land such prime real estate in Nevada. “Getting a piece of ground like South Arturo, which is right downtown Carlin, is unique,” he says. “A lot of juniors who are exploring in what’s called the Carlin or Battle Mountain trends are typically on the fringes of the main trends, and the Newmonts and the Barricks have over the years really consolidated most of the best ground, so the only opportunity to park right in here comes from a deal like this, where you’re partners with one of the majors.”
Downie notes that at US$20 million, Premier “wasn’t betting the farm” on South Arturo, and that the company sees a lot of upside on the property in terms of underground potential, in addition to the three more or less adjoining open pits.
The first open pit (called phase two) — which is scheduled to start production next year — will operate in 2016 (200,000 oz.) and 2017 (200,000 oz.), at which point it will be depleted of ore, Downie says. But the deposit continues down the anticline to depth and has high grades below the pit. “There are opportunities to put a ramp in the pit and continue mining at depth, and that would involve one to two years of hiatus of mining that zone, as underground infrastructure is put in place.”
An underground operation beyond the phase-two open pit would not likely start until 2019, as it would take a couple of years to get permitted and lay down infrastructure for underground mining, he says. At that point, the joint-venture partners would contemplate mining the phase-one and phase-three open pits, which are in the late stages of permitting.
“Phases one and three would include a heap-leach operation, so we’d have to build a heap-leach facility right there on-site, and then mine those open pits,” Downie explains. “Over the next year or two we’ll be doing economics on that, and fine-tuning, and hopefully the gold price will go up. We look forward to the opportunity to push the mine life out many years from both open-pit and underground mining on the property.”
Downie also emphasizes that Premier was in a fortunate position to jump on the South Arturo acquisition, because of its joint-venture agreement in February with Centerra Gold (TSX: CG; US-OTC: CAGDF) on Premier’s Trans-Canada property in Ontario’s Geraldton-Beardmore greenstone belt. Under the deal Centerra paid Premier an initial $85-million cash for its 50% limited partner interest in Trans-Canada, which includes Premier’s Hardrock deposit.
The transaction “put Premier in the pretty unique situation of being cash-rich … and there are certainly a lot of opportunities, so we are in the financial position that if we wanted to acquire something, we could,” he says.
Premier expects to end the year with $75 million in cash and investments, and wrap up 2016 with $100 million, it announced as part of its guidance on July 28.
At press time, Premier’s shares traded at $1.99 within a 52-week range of $1.61 to $3.10.
Joseph Fazzini of Dundee Capital Markets has a $3-per-share price target on the stock, while Jeff Killeen of CIBC a $3.50-per-share target price.