New study gives Vista more options at Mt. Todd

VANCOUVER — Mt. Todd, the largest undeveloped gold project in Australia, took a big step towards production with a prefeasibility study that gives owner Vista Gold (VGZ-T, VGZ-N) a choice: the company can either spend a billion dollars to build a large operation that would mine much of the project’s millions of ounces of gold, or it can develop a smaller mine that churns out less gold but bears more manageable capital costs.

Either way, the study suggests a mine at Mt. Todd would produce millions of ounces over a dozen years at a cost of US$685 to US$773 per oz. gold. 

“I hope you will take away the following key results,” says Frederick Earnest, Vista’s CEO. “First of all, that Mt. Todd is a large, robust project and that Vista has options in how to develop this project. Second, that Mt. Todd is well advanced — there has been an incredible amount of work completed around the project, and we are very proud of that work. Third, that Vista has worked to earn a good reputation in the region, and we enjoy strong support from the community and the Northern Territory government. And finally, that we will continue to advance the project: we will not rush into a feasibility study, but we will move ahead knowing we have an advanced-stage project ready to develop in the appropriate market.”

Mt. Todd, in Australia’s Northern Territory near the town of Katherine, hosts gold in sheeted veins laced through altered shales and siltstones. Mineralization starts near surface and extends along 1.5 km of strike, which lends to open-pit mining. 

As an open-pittable deposit offering 300 million measured and indicated tonnes grading 0.81 gram gold per tonne plus 84 million inferred tonnes averaging 0.76 gram gold for almost 10 million contained oz., Mt. Todd is destined to be a large operation. The question for Vista is: How large?

To help answer that question the prefeasibility study assessed two scenarios for a Mt. Todd mine: a 50,000-tonne-per-day mine producing 369,850 oz. gold annually over a 13-year mine life, and a 33,000-tonne-per-day operation producing 262,826 oz. gold annually for 11 years. 

Economies of scale mean more of Mt. Todd’s resources convert into the “reserve” category in the 50,000-tonne-per-day plan, as the larger operation can handle a reserve cut-off grade of 0.4 gram gold. That cut-off generates a proven and probable “reserve” of 222.8 million tonnes at an average grade of 0.82 gram gold, for 5.9 million contained oz. 

The 50,000-tonne-per-day mine would recover 4.8 million oz. over its 13-year mine life. Production would be highest in the first five years, when output would average 481,316 oz. annually. Costs would also be lowest in that first half decade, averaging US$662 per oz. Over its lifespan cash costs at the larger operation are expected to average US$773 per oz. 

The 50,000-tonne-per-day Mt. Todd scenario generates an after-tax net present value (NPV) of US$591.3 million and a 15.9% after-tax internal rate of return (IRR), using a 5% discount rate and a gold price of US$1,450 per oz. The operation would bear an average strip ratio of 2.7 tonnes of waste to each tonne of ore.

It would cost just over a billion dollars — US$1.05 billion to be exact — to build the bigger mine. The study suggests that Vista could expect to repay the investment in 3.5 years.

The smaller Mt. Todd scenario envisions a mine churning through 33,000 tonnes per day. Smaller operations require higher cut-off grades to define reserves. Vista uses a cut-off grade of 0.45 gram gold for the smaller scenario, which results in proven and probable “reserves” of 124 million tonnes at 0.9 gram gold. The reserve contains 3.6 million oz. gold.

In its first five years of operation, output at the smaller mine would average 294,502 oz. annually, at a cash cost of US$676 per oz. Over its 11-year lifespan annual production at the smaller operation would average 262,826 oz. at a cash cost of US$684 per oz., for life-of-mine production of 2.9 million oz. 

Both mining scenarios incorporate a 58-megawatt, gas-fired power plant that uses the same natural gas line that services Mt. Todd. The plant would produce more power than necessary for the smaller operation and Vista would sell that extra power to the state grid, creating a credit that lowers operating costs within the smaller scenario.

The 33,000-tonne-per-day scenario gives Mt. Todd an after-tax NPV of US$440.2 million and a 16.9% IRR, again using a 5% discount rate and a gold price of US$1,450 per oz. The mine would have a strip ratio of 2 to 1. 

Building the smaller mine would cost Vista US$761 million, which the company would recoup in 3.2 years.

“We reported these scenarios to demonstrate that Mt. Todd is a robust project and that Vista has options,” Earnest says. “The 50,000-tonne-per-day case maximizes resource development, generates a higher NPV at all gold prices, supports a longer mine life and higher production rate, and demonstrates more leverage to a rising gold price. The 33,000-tonne-per-day scenario develops a smaller, higher-grade reserve, but results in a shorter mine life, demonstrates a higher IRR at today’s gold prices, bears lower initial capital requirements and allows later expansion, if justified.”

This is the second prefeasibility study Vista has completed at Mt. Todd. The first was released in early 2011. Soon after, Vista embarked on a feasibility study. But that study was postponed when the company realized there was, as Earnest put it, “a considerable opportunity to increase the resource at Mt. Todd.”

He says that in late 2011 “we initiated a drilling program that was supposed to be 8,500 metres . . . as a result of the results of that program, it was extended to 18,000 metres, and this led to a big increase in the resource.”

The deposit grew so much that Vista had to go back to the drawing board and redesign the planned mine. The new prefeasibility study is the culmination of that effort, and represents the newest look at a long-known gold deposit.

The main Batman deposit was mined between 1902 and 1914. Several companies tried restarting operations in the 1980s, but failed due to low gold prices, high operating costs and poor metallurgical recoveries. Vista has dedicated considerable effort to understanding the metallurgy at Mt. Todd and believes it can succeed where the previous operators failed. 

Historic operations at Mt. Todd left behind infrastructure that Vista says will reduce construction costs and risks. For example, there is already a tailings facility at the site that, with two raises, could contain the first 62 million tonnes of tailings. An existing freshwater reservoir could also be raised to collect sufficient stormwater for mine operations. 

The site is already served by a natural gas pipeline, a power grid connection and a paved road to a nearby highway. There is a rail line that runs alongside the highway and a port in Darwin, 300 km away. Earnest says all of this infrastructure will save Vista US$130 million in capital requirements. 

With the new prefeasibility study in hand, Vista can finalize and submit the Mt. Todd environmental impact study. The company anticipates gaining environmental approval for the project at year-end. In April the Northern Territory government granted Mt. Todd major project status, which is only given to projects that can provide economic opportunities for the territory. 

On news of the study Vista’s share price gained 10¢ to reach $1.50. The company has a 52-week share price
range of $1.27 to $3.99, and 82 million shares outstanding.