Kaminak boosts confidence in Coffee with new studies

VANCOUVER — It’s hard to find a flaw in Kaminak Gold’s (TSXV: KAM; US-OTC: KMKGF) Coffee gold project, 130 km south of Dawson City in the Yukon. The economics of a proposed heap-leach operation have held up through falling gold prices, and now the company has proven up its geological and metallurgical assumptions with a new feasibility study that crystallizes development plans at the site.

Kaminak enjoys the twin benefits of good grades and recoverability, with 82% of Coffee’s life-of-mine material falling under the oxide classification and sitting near surface. The study is based on probable reserves of 46 million tonnes grading 1.45 grams gold per tonne for 2.2 million contained oz. The mine would crank out 1.86 million oz. gold over its decade-long life, assuming 86% gold recoveries.

The plan hasn’t changed much when compared to a preliminary economic assessment (PEA) published in mid-2014, though Kaminak has made a few adjustments.

First, the new operation features a ridgetop heap-leach model as opposed to the old valley-fill facility idea.

Second, the company plans to access the site along a 214 km, single-lane gravel road that runs north to Dawson City. Previous plans considered piggybacking on Western Copper and Gold’s (TSX: WRN; NYSE-MKT: WRN) proposed southbound access route to its large-scale Casino project.

“There have been some swings and adjustments in terms of costs. We cut capital expenses due to our plan to connect Coffee via the northern road,” president and CEO Eira Thomas said during a question-and-answer session. The estimated capital savings on the access route is $7 million.

“The movement from the valley-fill to ridgetop model also produced initial savings and the timeline for construction has come down a little bit, so that also added economic benefits,” she said.

Despite some savings on Coffee’s development, however, overall projected costs remain similar to those outlined in the PEA.

The company expects initial capital expenditure for construction and commissioning to be $317 million, which compares to $305 million under the previous study.

One thing that has increased is throughput, with average total mining rates jumping from 64,000 tonnes per day to 92,000 tonnes per day. Strip ratio has also risen to 5.8 to 1.

“The detailed geotechnical work that goes along with the feasibility process allowed us to more accurately model the quantity of earthworks and construction items, so these projections are obviously a lot more accurate,” director of mine development Fred Lightner explained.

“Our recent metallurgical test work focused on different degrees of transitional material in the deposits. In the mine plan we have some of that material, which explains why our life-of-mine recoveries have come down a little bit … the bulk of the deposit remains oxides, however, and further incorporation of transitional material during later life would require a pushback and likely higher gold prices,” he added.

Coffee would produce an average 193,000 oz. gold per year over its life-of-mine at an all-in sustaining cost of US$550 per oz. Assuming a US$1,150 per oz. gold price — and a US78¢ Canadian dollar — the project would generate a $455-million after-tax net present value at a 5% discount rate and a 37% internal rate of return. Annual after-tax free cash flow is estimated at $93 million.

As Lightner noted, Kaminak could tap into gold ounces in Coffee’s transitional material, but the company figures there is enough blue sky on its 150 sq. km property to keep an oxide-driven heap-leach operation humming well beyond 10 years.

“By that point we’ll have found our next million ounces of near-surface oxide material, since we’ll have had a chance to test more than 25 km of geochemical anomalies situated proximal to the main orebody,” Thomas said.

“Now that the heavy lifting on the study has been done, we’re looking forward to turning our minds back to our exploration initiatives. We recognize that this is a market that has not been paying for exploration so we’re not intending to go crazy, but because of where our project is located, and our facilities, it’s cost-effective to explore,” she continued.

Kaminak’s discoveries have been made by hunting for gold-in-soil anomalies to generate drill targets. The regional Dawson Range was not glaciated during the ice age, so erosion and deposition of till or outwash sediments did not occur over the property. The presence of undisturbed surface material has made soil-sampling a “highly effective and low-cost exploration tool,” with a 90% success rate in drilling underlying bedrock targets.

Kaminak is setting a loose timeline that would see Coffee in production by 2019.

That assumes a permitting turnaround of two years and a hybrid debt-equity financing package.

By comparison, Victoria Gold (TSXV: VIT; US-OTC: VITFF) received its final major water licence for a heap-leach operation at its Eagle gold project — located in central Yukon — in early December. The regulatory process took three years.

“We’re living in a serious commodity downturn, with many companies facing dire circumstances,” Thomas said. “We have 24 months of permitting in front of us, so we can think about what financing might look like. We feel confident because we have a project that works in the current gold-price environment, and we have a fairly modest capital requirement.”

Kaminak shares have traded within a 52-week window of 61¢ to $1.15, and closed at 92¢ per share at press time.

The company reported $28.5 million in cash at the end of October, and has 171.2 million shares outstanding for a $157.5-million market capitalization.