Foran’s positive PEA at McIlvenna Bay

Foran Mining (TSXV: FOM) has touched a milestone at its flagship McIlvenna Bay project in east-central Saskatchewan, with the completion of a promising preliminary economic assessment (PEA) on the zinc-copper-gold-silver volcanogenic massive sulphide deposit. 

Located in the Hanson Lake camp, McIlvenna Bay benefits from a large resource base. It has a long life, is 65 km west of Flin Flon, Man. — a major mining centre — and has access to roads, cheap power and a nearby railhead. 

“These advantages contribute significantly to the bottom line for the project and the robust preliminary economics … for McIlvenna Bay,” Foran president and CEO Patrick Soares said on a Nov. 13 conference call. 

The PEA proposes building a 5,000-tonne-per-day underground mining operation with a ramp and shaft, plus a stand-alone concentrator for $249 million. Costs to sustain the 14-year-operation are around $150 million, including a 20% contingency. This brings total costs to $399 million, which is in-line with existing mining operations in the region, Soares notes.

Given that the deposit’s uppermost portion is only 35 metres from surface, the company considered building a combined open-pit and underground mine, but “the potential benefit to the economics did not offset the added complexities,” Soares explained.

Once up and running, McIlvenna Bay would produce 58.9 million lb. zinc, 37.6 million lb., copper, 16,000 oz. gold and 398,000 oz. silver a year at cash costs, net of by-product credits, of negative 37¢ per lb. zinc, or 84¢ per lb. copper. 

Breaking down payable metal production by value, copper contributes 56%; zinc, 30%; gold, 10%; and silver and lead the remaining 4%. 

“The PEA was in line with what we had expected for a project in that area — which I think is important — and there weren’t any surprises in it with from that perspective,” M Partners analyst Derek Macpherson says. “Second, it was important for the company, as it sets a base value for the project both for investors and potential suitors.” 

Macpherson — who recently initiated coverage on the company, with a “buy” recommendation and a 12-month target of 50¢ — believes another firm may acquire the project before Foran builds it. 

“Hudbay Minerals remains the natural suitor, with regional synergies to the company’s existing operations in and around Flin Flon. However, the meaningful zinc content and nearby railways that would allow concentrates to be shipped to other smelters could make this project attractive to other suitors, particularly as overall zinc concentrate supply is expected to tighten,” Macpherson said in the Nov. 7 initiation report. 

The project has five zones with three mineralization styles, including massive sulphides, semi-massive sulphides and copper stockwork. PEA-level metallurgical studies found that the deposit could yield clean, marketable copper, zinc and lead-copper concentrates, with good grades and recovery rates.

The project’s economics are encouraging, with anticipated life of mine revenues of over $2.5 billion and a life of mine after-tax cash flow of $646 million. Using base-case metal prices — based on October spot prices and a 7% discount rate — this translates into an after-tax net present value (NPV) of $263 million, with a 19% internal rate of return (IRR). Payback is expected within four years. 

If spot prices improve by 10%, the after-tax NPV and IRR jump to $395 million and 24%. Similarly, if spot prices drop by the same amount, the NPV and IRR fall considerably. 

The study uses a March 2013 resource estimate of 13.9 million indicated tonnes grading 1.3% copper, 2.7% zinc, 0.49 gram gold and 17 grams silver, plus 11.3 million inferred tonnes of 1.3% copper, 2.97% zinc, 0.43 gram gold and 17 grams silver. Combined contained metal equals 719 million lb. copper, 1.6 billion lb. zinc, 377,000 oz. gold and 14 million oz. silver. 

Construction at McIlvenna Bay should last 18 months, with underground mine development taking another six months to complete.

“We view this as a potential opportunity, such that if we were to develop a nearby satellite deposit, we could begin feeding the concentrator prior to initial mine production from McIlvenna Bay,” Soares said.

The Bigstone and Balsam satellite deposits could also extend the mine life at McIlvenna Bay and “create a long-live mining camp similar to those in nearby Flin Flon and Snow Lake,” Soares added.

With the PEA checked off, Foran intends to go straight into a feasibility study. The junior’s management explains it has spent more than a year looking at various mining options and tonnage scenarios, which are activities often evaluated in a prefeasibility study.   

“The positive PEA results announced yesterday clearly show that McIlvenna Bay should move ahead to a feasibility study,” Soares said. “However, in concert with advancement at McIlvenna Bay, management will continue to advance new discoveries and historic resources surrounding the deposit, with the objective of developing Canada’s next base metal mining camp.” 

Foran shares last traded at 24¢, with 84 million shares outstanding.