The mining newspaper for Alaska and Canada's North
The mining newspaper for Alaska and Canada's North
Royal Gold, Contango ORE indicate a deal could come soon North of 60 Mining News – November 16, 2018
Avalon Development President Curt Freeman explains the geology of the Main and North Peak skarn deposits on the road accessible Peak Gold project near Tok, Alaska.
Excited about the robust economics outlined in a preliminary economic assessment finalized in October, Peak Gold partners – Contango ORE Inc. (60 percent) and Royal Gold Inc. (40 percent) are now looking at the potential of bringing on a partner to advance their high-grade gold deposit in eastern Alaska toward development.
"We are at a point I think where it would be healthy to have somebody else come in and move the project forward with their skill set," Royal Gold President and CEO Tony Jensen informed shareholders and analysts in early November. "We're just contemplating with our joint venture partner, how best that might happen."
Contango ORE Inc. has solicited professionals to help negotiate its part of a deal to bring on a mining company as a partner at this intriguing gold project.
"Given the positive response to the recently announced preliminary economic assessment that was completed on the Peak and North Peak resource areas of the Peak Gold project, the company has retained the investment banking firms of Cantor Fitzgerald & Co. and Petrie Partners, LLC to advise the board of directors on strategic alternatives," said Contango ORE President and CEO Brad Juneau.
Cantor Fitzgerald is a renowned global financial services firm based in New York City. Petrie Partners is a Colorado-based investment banking firm that assisted Contango ORE when it brought on Royal Gold as a joint venture partner at Peak.
Attractive economics
Given the tantalizing results from the PEA, Royal Gold and Contango ORE likely have no shortage of suitors wanting to advance this road accessible project through feasibility, permitting and into development.
This scoping level study envisions an open-pit mine feeding a 3,500-metric-ton-per-day mill that is forecast to produce 1.09 million oz gold and 2 million oz of silver over an initial eight-year mine-life.
Mined from two adjacent open pits, Main and North Peak, the potential ore for this operation consists of 9.3 million metric tons of skarn material from the Peak deposits averaging 3.99 g/t gold and 11.7 g/t silver.
The after-tax net present value (at a 5 percent discount) of this operation is calculated to be US$393 million and the after-tax internal rate of return is 29.1 percent.
The capital costs to develop Peak Gold are calculated to be US$340 million, which includes US$294 million for the initial costs to develop the mine and US$46 million in sustaining capital and closing costs.
The cost to produce an ounce of gold, based on the initial capital investment, is calculated to be an exceptionally low US$428/oz of gold recovered. With the sustaining capital included, this cost is only US$470/oz gold.
This combination of relatively low development and production costs, coupled with a mine-plan designed to maximize grade in the early years, means it is only expected to take two years to pay back the initial development capital, after taxes.
"Nearly four gram per metric ton gold grade, good metallurgical response and favorable access drives attractive economics," Jensen explained.
The mine plan
JDS Energy and Mining Inc., which completed the PEA for Peak Gold, updated a mid-2017 resource estimate with operating costs, pit-slope estimates and metal recoveries consistent with the operation outlined in the assessment.
This updated calculation outlines 9.2 million metric tons of measured and indicated resources averaging 4.08 g/t (1.2 million oz) gold, 14.19 g/t (4.2 million oz) silver and 0.15 percent (31 million pounds) copper; plus 1.34 million metric tons of inferred resource averaging 2.69 g/t (116,400 oz) gold, 16.06 g/t (694,100 oz) silver and 0.15 percent (4.5 million lb) copper.
North Peak hosts about 41 percent of the measured and indicated resource outlined so far. With this mostly oxidized resource averaging 4.35 g/t gold and 23.47 g/t silver, this deposit hosts slightly higher grades than the parallel and mostly sulfide Main Peak deposit.
The strip ratio over the initial eight-year mine life is 3.9 tons of waste for every ton ore fed to the mill.
At this ratio, an average of 15,000 tpd of material would be mined to feed the 3,500 tpd processing plant, which would include a two-stage crushing circuit, a two-stage grinding circuit, and a carbon-in-leach (CIL) circuit.
It is estimated that this circuit would recover 91.6 percent of the gold and 57 percent of the silver fed into the plant.
The bigger picture
While mining the Peak zones is intriguing, these high-grade skarn deposits represent only a fraction of the highly prospective land package held by the Peak Gold joint venture.
"The project considered in the PEA is a very small area of the consolidated land package of about 35,000 square kilometers (850,000 acres) we control in Tintina Gold Belt that runs through Alaska and the Yukon," said Jensen.
An exploration program carried out this year sought additional skarn mineralization in the area of the Peak deposits, as well as evaluating the potential for porphyry or epithermal deposits at other targets across the larger Peak Gold land package held by the JV.
This work included 74 line-kilometers of induced polarization and electromagnetic ground geophysics. Surveys were carried out on targets within an 8-kilometer (five miles) radius of Main Peak to identify targets similar to the skarn deposits already identified. Additionally, electromagnetic surveys were carried out on three porphyry targets identified from airborne geophysical surveys.
Copper Hill, a prospect about 25 miles southeast of the Peak zones, is one area tested this year for porphyry mineralization. North Saddle, about two miles northwest of the Peak zones, is another.
Information from this work will likely come into play as Contango ORE and Royal Gold negotiate with potential partners that have the mining acumen to take Peak Gold to the next level.
"We believe (Peak Gold) is one of the most interesting early stage gold projects in the market today," said Jensen. "We look forward to working with our joint venture partner to realize the value of our investment."
The Royal Gold president said his company is not interested in a short-term payout for its interest in Peak Gold but is looking into realizing the long-term value of this exciting gold project.
He indicated that the details of such an arrangement could be coming soon.
"We're excited about what the future brings there and just give us a little bit more time and we'll provide a little bit more guidance as it becomes clearer to us," Jensen said on Nov. 1.
Over his more than 16 years of covering mining and mineral exploration, Shane has become renowned for his ability to report on the sector in a way that is technically sound enough to inform industry insiders while being easy to understand by a wider audience.
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