Bay Street analysts are getting behind
Late last year, Gabriel completed two feasibility studies: one for a large-scale mine that would operate at an annual throughput rate of 20 million tonnes, and a second for an 8-million-tonne-per-year operation that the company could possibly finance itself.
The revised study, which was prepared by SNC Lavalin and released in February, proposes an optimized 13-million-tonne-per-year mine that would produce an average of 504,000 oz. gold annually for 16.2 years.
Gold would be mined from a massive but low-grade reserve base of 208 million tonnes grading 1.56 grams gold and 7.8 grams silver per tonne (or 10.4 million contained ounces gold and 52 million contained ounces silver).
Open-pit methods would be used, and processing would include conventional milling with carbon-in-leach recovery. Metallurgical recovery rates have been improved slightly to 82.1% for gold and 54.5% for silver.
The initial capital cost is estimated at US$253 million (far reduced from the original, larger plan), whereas cash-operating and sustaining capital are pegged at US$107 million and US$126 million, respectively.
Total cash costs are calculated at US$113 per oz.; total production costs, at just US$157 per oz.
Gabriel has since hired SNC to undertake the project’s basic engineering, which should be completed by the end of the third quarter of 2002.
By early 2003, Gabriel hopes to award an engineering, procurement, construction and management contract so that construction can get under way in the second quarter of 2003.
On a 100% equity basis and at a gold price of US$300 per oz., the payback period is 2.5 years; the internal rate of return, 33.8%; and the net present value, US$341 million at a 10% discount rate.
A major concerns is the relocation of a town from the proposed mining area. Negotiations with villagers are ongoing.
Dundee Securities analysts Joe Hamilton, Chantal Gosselin and Meghan Lewis write that a project of this size could be financed and built by Gabriel on a stand-alone basis.
“This feasibility study shows excellent economics, and reinforces the world-class status of the Rosia Montana deposit,” the analysts comment, adding that Gabriel has initiated discussions with lenders regarding project financing. The company believes it can strike a deal with a 70:30 debt-to-equity ratio.
Canaccord Capital analyst Mike Jones points out that “no bidders or bankers are likely to come forward” until the village relocation has begun and that, in the meantime, there is “still a good likelihood to make further commercial discoveries in the vicinity of Rosia Montana.”
Analyst Victor Flores of HSBC Securities writes that “we continue to believe that a larger-scale, low-cost undeveloped asset like Rosia Montana could prove very attractive to the industry’s largest producers, which now face the task of continuously improving their portfolio of projects.”
Dundee, Canaccord and HSBC all have “buy” or “strong buy” recommendations on Gabriel, though it should be noted that all three brokerage houses participated as underwriters in Gabriel’s $34.5-million public offering completed last December.
Sprott Securities analyst David Stein rates Gabriel a “buy” but notes that “compared to other companies developing gold resources, the geopolitical risk is high.” He adds that “as [Gabriel] reduces the risks and gets closer to production, interest in the company should increase, as will the frequency of takeover rumours.”
Mark Smith of First Associates also rates the company a “buy” but cautions against “certain risks inherent in the story.” He ventures that “one never knows when, or if, a senior gold company will move to take over the company [and that] hence the company may ultimately be forced to develop the mine itself.”
All five analysts’ ratings were made in late February, when Gabriel traded at around $3.50.
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