RTG Mining (TSX: RTG; ASX: RTG) has a good track record in the Philippines.
The junior is led by the previous management team of CGA Mining, which developed the Masbate gold project in the Philippines — now the largest operating mine in the country — and then merged with B2Gold (TSX: BTO; NYSE-MKT: BTG) in a US$1.1-billion scheme of arrangement in January 2013.
In March, RTG completed a feasibility study on the near-surface, copper-gold-magnetite Mabilo project, just 15 months after its first resource estimate. An initial resource estimate had been updated with infill drilling in November 2015.
“When we first invested in Mabilo there were only 33 drill holes, and within 18 months we have prepared two 43-101 resource statements, and a definitive feasibility study showing a robust development opportunity, even at current commodity prices,” Justine Magee, RTG’s executive director and CEO, noted in an email to The Northern Miner.
The feasibility study envisions a two-stage operation to defer the more capital intensive components of primary ore production through a direct-shipping ore (DSO) operation during the first stage. RTG says that early cash flow from stage one would minimize equity dilution when financing the primary production plant in stage two.
“In the coming year we hope to permit the planned [first-phase] direct-shipping operation, and within five months we could be up and running, and generate cash flow,” Magee notes of the project in southeastern Luzon.
“It is an exceptional project that delivers high grades near surface, and has an oxide layer that is perfect for an 18-month DSO. This requires limited capital to start up and will generate cash flow to help finance the construction of the planned 1.4-million-tonne-per-year plant.”
In stage one, the company will mine the oxide ore at Mabilo down to 95 metres deep. Oxide skarn and high-grade supergene chalcocite will be crushed at a nearby carbon-in-leach processing plant (upgraded to a 300,000-tonne-per-year throughput), and trucked 40 km to the port of Larup for a DSO. DSO production will be 25,000 tonnes copper and 39,000 oz. gold, or 34,700 equivalent tonnes copper.
In stage two, primary ore will be processed through a plant on-site. The process plant will be built alongside the oxide mining phase and stage-two permitting process.
RTG says the processing plant would take 15 months to build and be a simple crush, grind and float operation producing three concentrates: a 27% copper and 21-gram-gold-per-tonne concentrate, a 3-gram-gold-per-tonne pyrite concentrate and a 65% magnetite concentrate. The plant would produce 38,300 equivalent tonnes copper a year.
Both stages are robust, with DSO enabling start-up and early cash-flow generation within four to five months of getting the DSO operating permits. Capital expenses for the DSO are relatively nominal at US$18 million, and the project could generate net operating cash flow after tax of up to US$68 million.
“The project is one of a few development opportunities that are profitable even today, with the cost profile of US80¢ per equivalent lb. copper, or US$425 per equivalent oz. gold, providing significant protection on the downside,” Magee writes.
Based on a 1.4-million-tonne-per-year treatment rate, the study projects a 33.4% after-tax internal rate of return at metal prices of US$5,000 per tonne copper, US$1,200 per oz. gold and US$50-per-tonne iron.
DSO capex and operating costs are an estimated US$17.4 million and US42¢ per equivalent lb. copper, while plant capex and opex costs run to US$161.4 million (plus US$24.4 million for plant pre-strip) and US80¢ per equivalent lb. copper.
Payback for the plant could take two and a half years.
“Given the high grade [north of 5 grams per tonne equivalent gold reserves] and lowest quartile cost profile, the project is highly leveraged to improvements in commodity prices,” Magee notes. “With just a 10% lift in the copper and gold price, the net present value of the project lifts by more than 30%.”
Mabilo has total indicated resources measuring 8.9 million tonnes grading 1.9% copper, 2 grams gold, 9.8 grams silver and 45.6% iron, while inferred resources stand at 3.9 million tonnes averaging 1.5% copper, 1.5 grams gold, 9.1 grams silver and 29% iron.
Magee points out that it is early days in terms of determining scale and tonnage. “There is exceptional near-term growth potential, with the conversion of 1.6 million tonnes of inferred resources already falling within the pit shells, and high confidence in extensions along strike and down-plunge.
“Given we are one of the few new development projects that are financeable in this market, we have been pleased with the strong demand from both financiers and off-take parties keen to get involved,” she says.
Tara Hassan of Haywood Securities said in a research note that “with low [US$18-million] upfront capital costs for the first phase, RTG is well positioned to commence operations, with only minimal external funding required,” and added that “even after revising our estimates, we forecast that RTG can generate enough free cash flow in phase one to pay for 40% of the phase-two capital costs of US$186 million.”
But the analyst said that despite encouraging economics, “a number of technical areas returned negative surprises that resulted in weaker economics than we considered,” such as “higher capital costs for both phases, lower recoveries and payables, and a higher strip ratio.”
RTG last traded at 60¢ per share in a 52-week trading range of 33¢ to 75¢.