George Frangeskides, Exec-Chair at Alba Mineral Resources, discusses grades at the Clogau Gold Mine. Watch the full video here.
The two main schools of thought are Solgold:
1) will develop into a producer by successively developing mines in Ecuador
2) will be bought out by BHP or someone else over the next couple of years after PFS/DFS at Cascabel
Both have their merits and drawbacks. Solgold must demonstrate they can and will follow path 1 otherwise they will end up being bought out for a pittance. Best way for shareholders is to minimise risk along the way, so a small open pit at Cascabel fits the bill, this also keeps the Ecuadorian government happy and will meet their commitment to spend on Cascabel over the next 2 years. No Brainer in my opinion. But they need some higher grade material – hence the need for a near vertical shaft to access some material from the Alpala core. This is all achievable with smaller up front investment and dilution than the original PEA plan.
Will someone bid for Solgold and When? – I don’t think anyone knows for sure. The ongoing macro situation with Copper and the green revolution makes it an attractive prize and it’s current shareholders show some are interested. However, it is in a new jurisdiction and in Latin America – both amber flags when looking at a large investment. Various arguments say both of these are being addressed, time will tell. The difference is that a large miner could just start the decline for Alpala block cave tomorrow as financing isn’t a problem, the timelines for a major would be very different.
Which of these people favour is more driven by personal circumstances – do you want a fast pay back and take risk off the table, or is the investment longer term and the potential greater reward worth the risk.
Personally, I think Rio could be the game changer. Will be interesting to see the next drill results. Still want to see the Molybdenum results for the first hole (not sure if analysis for this is in the plan).
Also noticed they have gone from 5 rigs at Tandayama (MDA) to 4 rigs (latest RNS), has the other rig gone to Rio or Celen – will give us an idea of what they have found so far at Rio.
Porvenir
I expect we will get a MRE this year as planned. It will probably be of a similar size to that for Tandayama – approx. 400mT of resource but a higher overall grade around 0.6%+ compared to 0.4%. Again, split into 2, half accessible via open pit and half an underground resource. It’s ok but nothing too special. The accessible higher grade core will make it economic at $3.3 Cu but not hugely valuable.
Since July they have expanded the drill count from 2 to 3 but 2 of those rigs are now drilling new prospects. Suggests that the July sizing hasn’t changed too much.
Porvenir doesn’t have some of Alpala’s advantages – it is in the middle of nowhere and on the boundary of a national park not a national highway. Road to get to it is small with numerous river crossings. There is no local power grid and no sizeable local workforce. It will take longer to develop than an open pit at Cascabel and will require more infrastructure spend.
The pretty pictures in the Porvenir RNS in July give us a first estimate of the resources at Cacharposa.
The relatively accessible higher grade section looks like it’s about 700m long, 400m deep and 100m wide – up to a max of 80mT (probably 50mT) at about 0.8% Cu eq (0.7% cutoff and not much above 1%).
This is surrounded by a halo of maybe of 200mT at about 0.4% cu eq. The size and grade will be improved if you can get at the higher grade resource located deeper underground and mix with the halo - in 7 to 10 years’ time.
For an open pit and extraction plant at 10mT/y you are looking at in the order of $0.7 to 1b capital cost and get a mine life of over 20 years.
This gives pay back at current copper price ($4.25/lb) of 2 years ($350 to $500m profit/y at higher grade before taxes etc), extending to 3 years at ($3.3/lb- expect long term price for PFS).
400mT at 0.6% Cu eq and 90% recovery is worth ~$20 billion at today’s prices in the ground.
Porphyries tend to turn up in clusters (look at Alpala) so the excitement will come if either of the 2 drills testing new targets hits something. Cacharposa isn’t necessarily the biggest deposit if there is a cluster.
Looked at the numbers in a bit more detail.
The reality is that the first ore processing plant will be much smaller 2.5 to 5 mT/y. This will be fed from a mixture of a surface pit at Tandayama, a surface pit at Alpala, and a vertical shaft at Alpala to higher grade material.
MRE 3 for Alpala shows a small surface resource (no figures for size and grade) but small high grade zone shown near surface. Tandayama MRE 1 gives 10mt at 0.4%. Vertical shaft will have limited capacity. All together could feed up to a 5 mtpy plant for 5-7 years whilst Alpala block cave mine is built. Small plant and surface pits could be on-line in less than 3 years.
If the mixed feed is around 0.8 to 1% Cu eq the concentrate produced would be around 300 tpd and so could be trucked to port. Removes the long lead & high cost pipeline.
Overall up front cost of say $500m ($250m for processing plant +$250m for open pits / shaft / infrastructure) and would throw off cash before tax of $200-250m.
This would be enough to fund most of the equity side for building the block cave at Alpala ($500m a year for 5-6 years).
On this basis a fund raise for $200-250m with the rest as debt for the first plant could largely fund the full size mine (alongside further debt).
So, 0.19 Cu eq break even grade for open pit at $3.3 per lb - equates to rock with a value of approx. $12.5 a tonne (assumes 90% recovery) for break even. Open pit resource is approx. double this grade on average, so would have a profit margin (before tax, other overheads, royalties, etc.) of $12.5/T. Large processing plant (i.e. half size of new proposal for Alpala) would be 15mTpa. This would give them about $180 before tax etc - call it $100m per year after tax. Cost to install plant plus transport infrastructure to port and all the rest approx $1b. So would just about wash it's face and would take $1b off the cost to build Alpala.
Sort of works but it is not compelling. If they can access higher grade material earlier, i.e. over 1.5% Cu eq the maths change dramatically, with the same size plant producing profit before tax etc. of $1b plus not $180m and suddenly it can finance Alpala without further cash raises.
All depends on the plan to drive a vertical shaft into Alpala core for early access.
Over the last two years SOLG have been trying to produce a PFS that overcomes the problems in part highlighted by the Crux report and in part due to inherent nature of the Cascabel resource (very deep without a significant surface mine). The PEA was overly bullish and simplistic – we will mine it all whatever grade with a very large plant and the timelines were unrealistic (look at how long any of the large block cave mines have taken to come online).
The first version of the PFS wasn’t good enough as it carried forward the PEA case and financiers wouldn’t provide the money as too much required up-front and too long to pay back – so back to the drawing board at the end of 2020.
The way forward this year was to make the mine smaller (less up-front cost), target the high grade core first (quicker pay back) and look for surface resource to feed an earlier plant while drift is dug (small up-front cost and income to finance the rest).
Problem is Tandayama surface resource doesn’t have good enough grades to finance much beyond building a little plant. Also, once you get into the detail of the drift shaft the timelines and costs go up (over 4 years to dig now). – So PFS delayed again end 2021.
New way forward – from Hannam note – dig a vertical shaft to access the top section of the high grade core – much cheaper and quicker. Also access the lower section of Tandayama that has better grades and requires a much shorter drift – quicker and higher grade. Use the material from these two to start up a smaller plant and then use this to finance the rest.
Taken a long time but they will come up with something that is economic and doesn’t require $3 billion up-front.
At Porvenir they started drilling at two new prospects during September. A month and a half later and they should have a good idea about whether they have found new deposits.
Would be very significant for Porvenir as it could turn it from a ok resource to a much larger scale plant fed from 3 open pit mines.
Hole 24 at Tandayama was stated as hitting 2% chalcopyrite at 507m with visible gold and this is taken to be a richer and deeper extension of hole 13 - approximately 160m away. Hole 13 had 72m of 0.48%Cu and 0.97g/t gold between 314 and 386m.
2% Chalcopyrite (~34% Cu) gives about 0.7% Cu - IF the ratio of Cu to gold stays the same the gold could be up at 1.5g/t. If the intersections run to 100m plus then they have discovered a gold mine on site at Cascabel.
Gold mines are easier to finance, smaller, so lower capital cost and quicker to build and can be used to finance the build for Alpala. Plus the copper content pays for mining and processing, so the gold comes free.
This could be a game changer in reducing the dilution required for anyone to finance Cascabel as a whole.
Bring on the next set of Tandayama results!
So Keith says 2029 for production from underground mine. If we take 3 years for mine drift and 2 years for subsequent tunnels. That means mine shaft start beginning 2024. So 6 months for PFS followed by 1 year for DFS - end 2023. Then 1 year for financing and approval. Gets us to beginning 2024 to start process and 2029 for production.
So from the pretty pictures in the Porvenir RNS we can get a first estimate of the resources at Cacharposa.
Currently the relatively accessible higher grade section looks like it’s about 700m long, 400m deep and 100m wide - so approx 80mT at about 0.8% Cu eq (0.7% cutoff and not much above 1%).
This is surrounded by a halo of approx 200mT at about 0.5% cu eq or better if you can get at the higher grade resource located deeper underground and mix with the halo - in 7 to 10 years’ time.
For an open pit and extraction plant at 15mT/y you are looking at in the order of $1b capital cost and get a mine life of over 20 years.
This gives pay back at current copper price ($4.25/lb) of 2 years ($500m profit/y at higher grade), extending to 3 years at ($3.3/lb- expect long term price for PFS).
Looks OK, but if Cu price falls markedly - i.e. back to $2/lb of a year ago - pay back goes out to 8 years and it would not be economic in that environment.
300mT at 0.6% Cu eq and 90% recovery is worth ~$15 billion at today’s prices in the ground.
Value of Porvenir is much more dependent of future Copper price than Alpala as the grade is relatively low.
From the results of the AGM
Newcrest and BHP voted together on all resolutions including against 3, 4, and 11
CGP voted against 1 and 3 only.
Looks like BHP and Newcrest are talking to each other but not to CGP
As Quady regularly preaches we have a diverse book - well just about diverse enough to keep NM in place. It took only BHP, Newcrest and CGP to nearly oust him.
If Blackrock had been persuaded to vote against NM the switch of their 115m shares would have finished NM, even with all the hard work to get the PIs to vote.
As I have said before we do not have a very diverse book - but NM got away with one and does need to be re-elected for 3 years.
BHP own 283m
Newcrest own 281m
CGP own 157m
Between them 721m, total voted against Nick was 751m so only those three plus 1.5% from elsewhere (30m) voted against Nick,
It was a just these three showing their displeasure with the FNV funding.
Personally I think the FNV deal was great value for us PIs.
Nick won't be up for re-election for 3 years, will be a very different company if it's still independent by then.
Trading today looks very odd - obviously some big orders in the background post the meeting?
In Alpala core there is 12,3m oz gold plus 3.6mT of Cu - equivalent to approx 26m oz gold - which SOLG owns 86% of (85% of ENSA and 5% of CGP). These 26m oz of gold are valued at are current market cap of $1b at $45 per ounce. Typical in ground valuation is in the order of $90 per ounce so up to 100% up rating due just for Alpala core. This assumes nothing for the remaining 18M oz equivalent in the rest of the measured and indicated at MRE3 plus all the other exploration targets over Cascabel, Porvenir, Rio, etc.
By comparison GGP currently has 30% of 4.2m oz and a market cap of $1.75b - for a gold in ground valuation of $1380. Even if they increase the MRE to 12m oz, still values gold in ground at approx $500. However with funds forced to buy in to GGP because of inclusion within indexes can't see GGP falling for a while yet.
The high grade core of Alpala consists of 442 Mt at 1.40% CuEq for 3.8 Mt Cu, 12.3Moz Au and 33.3 Moz Ag. At current metal prices that is $50b. This could be mined over the first 12 years of the mine (assuming 4 years to ramp up from 25mt/y to 50mt/y). The mine will take 5-6years to build and an initial cost of 3 to 4 $b. After taking out the $50b of metal from the high grade core in the first 12 years you are left with a mine and processing plant and another 40 years of minor profits.
It's not rocket science to see the value inherent in Alpala, the questions yet to be answered are:-
What share of this will be retained by the existing shareholders once financing is in place? - Conditional financing package expect first (or second) quarter next year will give us a better idea of the plan.
Will anyone else see enough value to make a reasonable bid - acceptable to the existing shareholders / board?
Will the drilling at Tandayama America materially change the value of the concession? next few months will reveal.
PFS will add so details and reduce some risks but won't materially change the big sums.
By the middle of January SOLG has to decide whether to increase the NSR given to FNV from 1% to 1.5% and get an extra $50m in funds. If they make this decision just on the basis of completing the proposed BFS (FS, DFS , FFS whichever term you prefer) questions will be raised over why the extra funds are required. If they have a new target to drill with exciting preliminary results it is much easier to justify drawing down the additional funds.
This is about justifying the decision to draw down the extra $50m - no problem with that, it's better to have the funds available.
If they hit good grades (sizeable intersections at over 1% Cueq) it will eventually improve the NPV of the project as the CAPEX, aimed at expanding Alpala from years 10 onwards of the operating mine when the head grades drop significantly below 1%, can be used to start mining the new prospect with no change to the upfront costs and an improved cashflow from this point onwards.
Porvenir grades are one of the talking points given Cu is currently around $3.50/lb and the grades over the full length of both holes average just over 0.5% Cueq, the material is around $40 per tonne. All in costs to mine the material (including processing, tax, royalties. profit shares etc) would be approx $25 per ton. So a reasonable margin once up and running.
With the resource starting from surface, mine infrastructure costs are much reduced but ore processing plant will still be expensive.
For Porvenir to be an attractive proposition it still needs a core of higher grade material or much more material at similar grades. However they have only got results from 1 and a half holes and they want to go back and extend hole 1. The surface anomaly extends over 1.7km long and 1km wide, we haven't checked out the full width at one location over the 1.7km length yet.
Porvenir will prove up over time, next 6 to 9 months will give us a great idea of what is there. Should be a fun ride.
Weird share price reaction - Last weeks was a very dull RNS - lower grades on the 500 to 750m section of hole 1 and average grades on the top 500m of hole 2 - share price went up
Today last 20m of hole 1 give real hope for some higher grades at depth, and the intersections in hole 4 give a real increase in the size of the deposit - extending to the east by 200+m and the increasing indications of chalcopyrite also give hope for higher grades at depth.
Much more hopeful RNS and the share price goes down?