TMAC targets production at Hope Bay in late 2016

A recent prefeasibility study shows privately held firm TMAC Resources’ Hope Bay gold project in Nunavut has what it takes to be a low-cost, long-life underground operation, with first production starting as early as 2016.

Based on reserves of 3.5 million oz. from 14.2 million tonnes at 7.7 grams gold per tonne, the study estimates the Doris, Madrid and Boston deposits could produce an average of 160,000 oz. gold a year for 20 years. All-in sustaining costs are pegged at US$785 per oz.

The study replaces a 2013 preliminary economic assessment that depicted higher annual production over a decade-long mine life, but included inferred resources and no reserves.

The cost to get Hope Bay online is $206 million, with total sustaining capital of $436 million. The start-up requirement is relatively low because the asset benefits from more than $1 billion already spent by previous owners BHP Billiton (NYSE: BBL; LSE: BLT), Miramar Mining and Newmont Mining (TSX: NMC; NYSE: NEM).

 “The main thing is that the invested capital that came before us, we’re leveraging that, and basically adding a mill, and continuing where the previous owners have left off and the good work that they have already done,” TMAC’s CEO Catharine Farrow says in an interview.

BHP started exploring Hope Bay in 1988. It assembled a large land package covering an 80 km long Archean-age greenstone belt — similar to the Abitibi belt that runs through Ontario and Quebec, and contains the Kirkland Lake, Val-d’Or and Timmins gold camps.

Miramar Mining took over in 1999. It saw open-pit potential and permitted production at the Doris deposit. But Newmont built most of the infrastructure after buying Miramar for $1.6 billion in 2007. The major miner spent $800 million developing the project but stopped work in early 2012, citing incomplete geological work and competition for funds from other projects. Shortly after, it took a $2.1-billion impairment charge related to Hope Bay and put the asset up for sale.

TMAC bought the property in March 2013. And Newmont, still believing in Hope Bay’s potential, remained a major stakeholder. It currently holds 37.8% of the junior.

“We’re very, very lucky and fortunate to be working on a project that has been so incredibly de-risked. So much infrastructure has been built, so that people know that it could happen,” Farrow says.

The Doris mine hosts an operational camp, tailings facility and fuel storage, and Farrow says there’s little guesswork left. “The logistical questions that may exist for other projects, we don’t have. We know that we can take advantage of being on tidewater.” This saves on shipping costs for the project, which is located 685 km northeast of Yellowknife in the Kitikmeot region. 

Hope Bay also benefits from robust economics. This will likely help the company attract the financing needed to begin production.

Using a US$1,250 per oz. gold price and a 5% discount rate, the project has an after-tax net present value (NPV) of $626 million and an after-tax internal rate of return (IRR) of 40%. Payback should occur within 21 months.

If gold drops to US$1,000 per oz., the post-tax NPV and IRR remain a promising $298 million and 26%.

The junior aims to raise $300 million by July in a mix of equity and debt. Negotiations are ongoing.

 “Everybody knows this is an incredibly tough market to do something like finance a project. But we had success in the past two years where other people haven’t, and we are hoping that success continues,” Farrow says.

TMAC attributes its good fortune of securing $157 million for Hope Bay to its supportive shareholders and experienced management team, headed by geologist and company builder Terry MacGibbon, who founded FNX Mining, which merged with Quadra Mining in 2010, and later became a subsidiary of KGHM Polska Miedz in 2012. Along with Newmont, the company’s other major shareholder is Resource Capital Funds. The private equity firm provided a total $105 million for a 39.5% interest in TMAC.

Once the financing is in place, the junior plans to bring mining equipment for the first year of production at Doris, along with building materials for the mill facility in the September 2015 sealift. The next year, it will ship the processing plant modules. The plant will come online at 1,000 tonnes per day in December 2016, before ramping up to 2,000 tonnes per day in the fourth quarter of 2017.

TMAC intends to use the cash flow from Doris to develop the underground infrastructure at the Madrid and Boston deposits. If all goes to plan, production from Madrid should start in 2020, and at Boston two years later. Over the 20-year mine life, the company should recover 3.2 million oz. grading 7.6 grams gold, at recoveries of 91%.

Farrow, a PhD geologist and former FNX executive, says it makes more sense to mine Hope Bay from underground versus from surface, as it lowers capital requirements and would help the company generate cash.

The project’s reserves sit near surface and extend 450 metres deep. All three deposits remain open to expansion. “They are all open at depth, and like most orogenic Archean greenstone gold deposits, they continue at depth,” Farrow says. 

To support development, TMAC recently signed a 20-year benefit and land tenure agreement with the Kitikmeot Inuit Association and Nunavut Tunngavik Inc. The agreements cover the Inuit-owned land surface and subsurface titles for the 80 km long Hope Bay belt.

“We have a plan to get Hope Bay up and running by the end of 2016. We were thrilled to be able to secure long-term land tenure with our Inuit-owned lands that we are working on … and to have the support of people of Nunavut and understanding that we are not a Toronto company, we are a northern company, and we have to come through and deliver for everybody up there. We’re focused on that, and we think that we can do it,” Farrow says.

TMAC had $59 million in cash at the end of March.