New Found Gold posts high-return economics

[Redator]

New Found Gold (TSXV: NFG; NYSE-A: NFGC) has outlined a staged development starting with toll milling and expanding to an underground mine and processing plant, according to a preliminary economic assessment for the Queensway gold project in central Newfoundland.

The study envisions a 15-year mine life producing 1.5 million oz. of gold, starting with a 700-tonne-per-day open-pit operation and later expanding to a 7,000 tonne per day underground mine, the company said Tuesday. The project carries an after-tax net present value (NPV) of C$742 million at a 5% discount rate and an internal rate of return (IRR) of 56%.

Initial capital for the first stage is projected at C$155 million, rising to C$442 million with the underground development in stage two. The study used a base case gold price of $2,500 per oz. while the project’s all-in sustaining cost is estimated at $1,256 per ounce.

“The PEA reinforces our conviction that Queensway can become a low-cost, high-margin, cashflow generating mine,” CEO Keith Boyle said in a release. “This unique combination of design elements allows for low initial capital investment, a rapid payback of that initial investment, using cashflow to grow the operation thereby providing for a superior rate of return, and minimizing dilution to shareholders.”

Shares in New Found Gold rose 7.8% by mid-Tuesday in Toronto to C$2.42 apiece, valuing the company at C$556 million. The stock has traded in a 52-week range of C$1.34 to C$4.23.

Three stages

The three-stage approach allows for near-term production through toll milling, reducing upfront costs and generating early cash flow, the company said. It is pursuing permitting for the stage-one open pit while continuing infill and expansion drilling across the 110-km-long Queensway property. It lies adjacent to the Trans-Canada Highway 15 km west of Gander.

New Found Gold is positioning Queensway as a project integrated into the local area, The Northern Miner found on a recent site visit. Boyle described the convenience of the location, noting that “your Tim Hortons doesn’t even get cold by the time you get to site.” He added the company wants to build a mine that “comes to the community, not the other way around.”

The new study outlines a conventional flowsheet including gravity separation, flotation and carbon-in-leach processing. The first stage would see ore trucked to a third-party mill in central Newfoundland. In-pit tailings deposition is planned to minimize the environmental footprint. In the second stage, New Found would build its own plant on site and transition to underground mining, followed by a third stage that expands underground output.

Spot gold price

If gold prices stay near current spot levels of $3,300 per oz., the project’s economics improve substantially. The after-tax NPV more than doubles to C$1.45 billion and the IRR jumps to nearly 200%, the company said.

The project has 18 million indicated tonnes grading 2.4 grams gold per tonne for 1.39 million oz. gold, plus 10.7 million inferred tonnes at 1.77 grams for 610,000 oz. contained metal, the company said in March, its first resource. The release came after years of drilling — more than 560,000 metres for a total of 723,387 metres when including past owners over the property’s four-decade history.

The project often posted strong drill results that led weekly global tables tabulated by The Northern Miner. But the company has had to overcome industry concerns the ore is too nuggety to be economically viable.

“Since day one, the objective of the new management team at New Found Gold has been to advance Queensway to cash flow,” Boyle said in the release. “A phased project design provides for early gold revenue generation, processing of the highest-grade mineralized material at the start of the operation and in-pit tailings deposition.”