Eldorado Gold (TSX: ELD; NYSE: EGO) has released a feasibility study on its 80.5%-held Certej project in central Romania, showing modest returns that are in-line with analyst expectations.
The epithermal gold-silver deposit sits in the southern part of the Apuseni Mountains, 12 km northeast from the town of Deva in Hunedoara County. “This is a strategic asset for us in Romania, and we are excited about the prospectivity of the region,” Eldorado’s chief operating officer Paul Skayman said in an emailed response to questions.
The study envisions Certej as an 8,000-tonne-per-day open-pit operation, producing 140,000 oz. gold and 830,000 oz. silver annually as a gold-silver doré, assaying 15% gold and 85% silver. The estimated mine life is 15 years.
While annual production has increased slightly over the April 2014 prefeasibility study — which pegged the mine life at 15.7 years, based on a slightly larger reserve — the biggest improvements came on the cost front.
Initial anticipated costs have fallen 17% to US$449 million, down from US$539 million. Sustaining capital, including closure costs, are down 21% to US$203 million.
Raymond James analyst Phil Russo notes a third of the cost savings came from reduced contingency, while other savings came from lower costs associated with the plant and the pressure oxidation process. This reflects the “abating capital cost pressures in the industry,” he says.
Estimated cash-operating costs for Certej dropped 6% to US$568 per oz. gold. All-in sustaining costs fell nearly 30% to US$745 per oz. gold.
Of note, economics are more promising. Using lower metal prices of US$1,250 per oz. gold and US$16.50 per oz. silver, Certej generates a US$229-million after-tax net present value at a 5% discount rate, and a 13% internal rate of return (IRR). This compares to an $84 million after-tax NPV and an 8% IRR in the previous study at the same metal prices.
Haywood Securities analyst Kerry Smith says Certej delivered a modest IRR, but that the economics could likely increase with a 10-year mine life.
“We expect Eldorado is balancing longer-term social benefits with economic returns to demonstrate that Certej is a long-life project that can provide meaningful social benefits,” Smith writes.
Skayman says the company is optimizing the project, and doesn’t need a higher IRR to make a construction decision. The timing of that decision, however, will depend on Eldorado’s financial capacity and its current project pipeline, he says.
Raymond James’ Russo anticipates Eldorado will prioritize its capital spending on its Greek development projects Skouries and Olympias, followed by its Kisladag mine expansion in Turkey and Eastern Dragon project in China, before investing in Certej. He estimates first production at Certej in 2020.
The project, owned 19.5% by state-owned miner Minvest, has updated reserves of 44.2 million tonnes grading 1.69 grams gold and 10.9 grams silver, for 2.4 million oz. gold and 15.6 million oz. silver.
The study estimates Eldorado will extract 44 million tonnes over the mine life at a strip ratio of 2.96-to-1, and gold and silver recoveries of 87.4% and 80%. The mill should churn through 3 million tonnes a year, with 13 years of the mill feed coming from the open pit and from the stockpiled low-grade ore in the remaining two years.
Smith says the project would need an amended environmental impact assessment, as the original plan assumed Certej would use the Albion process instead of the pressure oxidation process to treat the refractory ore. He says the amendment will take a year, and that a formal construction decision comes after that.
Smith estimates a production timeline of 2019 to 2020 for the project.
He has a “buy” rating and a $7.75 price target on the stock, explaining that Eldorado is a low-cost producer with a strong balance sheet.
At the end of March, Eldorado had US$494 million in cash and equivalents, and US$375 million in available and undrawn credit.
Russo has a US$9 target and an “outperform 2” rating on the stock.
Certej is in western Romania