PMI Gold sets out financials for fast-growing Obotan project

Vancouver – Australia-based PMI Gold (PMV-V, PVM-A) has outlined a 205,000-oz.-gold-per-year operation in a prefeasibility study on its Obotan gold project in Ghana.

PMI is planning an 8,200-tonne-per-day open-pit operation with carbon-in-leach processing. Over the roughly 11-year mine life PMI expects to mine 2.26 million oz. gold from its 30.3 million proven and probable tonnes grading 2.32 grams gold per tonne at a 0.5 gram gold cutoff. With projected recoveries of 93%, including a 40% gravity recovery, the company could recover 2.1 million oz. gold.

Financially, the project has an after-tax net present value of US$416.4 million using a 5% discount and an internal rate of return of 31%, all based on US$1,300 per oz. gold and contract mining. A 10% change in the gold price leads to a 28% change in the net present value.

The financial projections take into account a 5% royalty to the Ghana Government and a 2% royalty to the project vendor, as well as the proposed increase in the Ghana corporate tax rate to 35% from 25%. The study does not factor in a potential 10% windfall tax, stating “the basis for any such tax is not known.”

Capital costs come to US$183.5 million, plus about US$68 million for a year of pre-stripping. Including the royalties, pre-stripping and refining, overall costs are estimated at US$690.16 per oz. gold. Payback should take just under three years.

The study comes not long after the company more than tripled the gold resource at the project in October.  As of the update, measured and indicated resources stand at 42.2 million tonnes grading 2.4 grams gold for 3.22 million oz. gold, while inferred resources stand at 17.5 million tonnes grading 2.35 grams gold for 1.3 million oz. gold. The resources span four deposits, with 80% of reserves hosted at the Nkran deposit and the rest at the Adubiaso, Abore and Asuadai deposits.

PMI expects another resource update sometime this quarter that will incorporate 28,000 metres of new drilling, while the previous updated included 26,600 metres of new drilling.

Obotan was an active mine as recently as 2002, with Resolute Mining (RSG-A) mining some 730,000 oz. gold at 2.2 grams gold from three open pits before closing operations. Thanks in part to the wealth of data from the previous operation PMI did not put out a preliminary economic assessment before the pre-feasibility study. And not slowing down, the company expects to have a full feasibility study out in the second quarter and a development decision out sometime in the third quarter.

PMI also controls the Kubi project, 65 km east of its Obotan project. Kubi hosts a total measured and indicated resource of 1.3 million tonnes grading 5.48 grams gold for 233,000 contained oz., plus 670,000 inferred tonnes grading 5.31 grams gold for 115,000 oz. gold. Overall PMI has 530-sq.-km of land holdings in the country.

PMI’s share price closed down penny at $1.07 with 1.15 million shares traded after gaining as much as 8¢ during mid-day trading. In October the company’s share price nearly doubled overnight from 58¢ on its resource update and climbed to a 52-week high of $1.42 in November.

As of the end of September the company had roughly $22.4 million in cash, but also had 44.8 million warrants out at prices ranging from 10¢ to 60¢ and 15.5 million options at exercise prices ranging from 20¢ to $1.05. Since the end of September roughly 21 million shares have been issued from the exercise of warrants and options, leaving the company with 221.4 million shares out.