Centerra Gold PEA values Kemess project at $1.1B

Centerra Gold (TSX: CG; NYSE: CGAU) shares soared to a historic high Tuesday after a preliminary economic assessment (PEA) valued the company’s Kemess copper-gold project in British Columbia at $1.1 billion while boosting contained metal by more than 30%.

That base case post-tax net present value (at a 5% discount) comes with an internal rate of return (IRR) of 16.4%, Centerra said Tuesday. Initial capital costs for the past-producing open pit and underground mine, which is located in the Toodoggone district of north-central B.C., total $771 million. Kemess is about 250 km northeast of Smithers.

“Kemess is a relatively low capital intensity, long-life asset that offers attractive economics and adds critical mass/growth to Centerra’s North American portfolio alongside the flagship Mt Milligan copper-gold operations,” BMO Capital Markets analyst Raj Ray said in a note on Tuesday. Based on the PEA results, Ray increased the target price for Centerra shares to $32 apiece from $20.

Mid-tier in BC

Centerra shares surged 8% to $25.16 apiece on Tuesday morning in Toronto, valuing the company at $5 billion.

The PEA for Kemess ranks it among B.C.’s mid to upper-tier gold-copper development projects by economics and resource size, comparable to Northisle Copper and Gold’s (TSXV: NCX) North Island project and Taseko Mines (TSX: TKO; NYSE-A: TGB) Yellowhead project.

When factoring in spot commodity prices of $4,500 per oz. gold and $6 per lb. copper, the PEA almost triples Kemess’ NPV to $2.7 billion. The IRR increases to 29%.

Production at Kemess is pegged at 2.3 million oz. gold and 851 million lb. copper over the mine’s 15-year life.

Resources grow

The study lifts indicated resources about 27% to 244.4 million over the previous update from last May, at a grade of 0.42 gram gold per tonne and 0.21% copper for 3.2 million oz. of contained gold and 1.1 million lb. copper. Inferred resources are 77% higher at 299.6 million tonnes grading 0.37 gram gold and 0.19% copper for 3.5 million oz. gold and 1.2 million lb. copper.

“The study builds on a significant mineral endowment, outlining a de-risked restart plan that leverages substantial existing infrastructure and employs an integrated development strategy based on conventional open pit and longhole open stoping underground mining operation,” Centerra CEO Paul Tomory said in the release.

The project could become Centerra’s second long-life gold-copper asset in the province, complementing Mt Milligan further south and strengthening the company’s presence in the prospective Toodoggone district, Tomory added.

Kemess started as an open pit gold-copper mine in 1998 under Royal Oak Mines, then stopped a year later when the company went bankrupt. Northgate Minerals acquired the site in 1999 and operated it until 2011 when the ore was mined out. It produced 3 million oz. of gold and 800 million lb. copper in total.