Peak Gold JV seeks responsible miner

Royal Gold Inc. Feb. 6 said it has two criteria for any mining company interested in buying the Peak Gold project in Alaska – a willingness to make building a mine at the high-grade gold project a priority and a commitment to use the highest standards to do so.

"Royal Gold will remain committed to the project over the long term through our existing royalty interests, and our considerations for any potential transfer of ownership will include a commitment to advance the project as a priority while respecting best practices for responsible development," said President and CEO Tony Jensen.

Royal Gold owns a 40 percent interest in the Peak Gold project, a stake that is actually closer to 50 percent when you take into consideration the Denver-based royalty company also owns a 12.7 percent equity interest in Contango ORE Inc., a Texas-based mineral exploration company that owns the other 60 percent of Peak Gold.

The two adjacent skarn deposits at Peak Gold – Main Peak and North Peak – host 9.2 million metric tons of measured and indicated resources averaging 4.08 grams per metric ton (1.21 million ounces) gold and 14.19 g/t (4.2 million oz) silver.

A preliminary economic assessment published in September considers 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.

Due to its relatively small size, coupled with being road accessible from the Alaska Highway, 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 low costs and high gold grades add up to extremely good economics according to the PEA completed by JDS Energy and Mining Inc.

The after-tax net present value (at a 5 percent discount) for Peak Gold is calculated to be US$393 million and the after-tax internal rate of return is 29.1 percent.

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.

"We believe that Peak Gold is a very attractive opportunity for an operating company that can bring additional talent to advance the project towards production," said Jensen during a Feb. 7 conference call.

"We are also very cognizant of the importance of this project to the local community and a responsible development plan will be a key consideration before a change in management occurs," he added.

The Peak Gold joint venture is leasing 675,000 acres from Tetlin Village, an Alaska Native Claims Settlement Act (ANCSA) corporation that owns both the surface and subsurface rights to these lands. The JV holds an additional 175,000 acres of state of Alaska mining claims that run south of Tok, a crossroads town on the Alaska Highway.

In addition to its ownership in Peak Gold and Contango ORE, Royal Gold also holds 2 and 3 percent royalty interests in the property. This makes the royalty company a long-term stakeholder in the Alaska project, which bolster's its resolve to find a responsible miner motivated to put this future gold royalty stream into production.

"Remember that we already hold a royalty on the underlying ground, so an important consideration will be to make sure that any new partner will dedicate the resources to advance the project as a priority," Jensen informed shareholders and analysts.

Royal Gold also hopes to use this exciting gold property in Alaska to leverage its core business.

"As we consider our next steps in potentially bringing in a new partner, we would ideally like to convert our interest in the project to something that is closer in line with our core business, which could mean taking partial consideration for our interest in some form a stream on this or another asset in a new partner's portfolio," Jensen added.

Such a deal structure would likely lower the cash payment due to Royal Gold, which could be attractive to a company looking at advancing a mine at Peak Gold.

"We think it makes sense and we're hopeful that it will make sense to some of the parties that are looking at the project," said the Royal Gold CEO.

–SHANE LASLEY