Gabriel looks at scaled-back Rosia Montana

Gabriel Resources (GBU-T) has received the results of a second definitive feasibility study on its 80%-owned Rosia Montana gold project in Romania. The study focuses on the potential for developing a smaller, 8-million-tonne-per-year, open-pit mine and processing plant that could later be expanded. The first study envisioned a 20-million-tonne-per-year operation.

The recent study was coordinated by Perth, Australia-based GRD Minproc, the same company that compiled the first study with the assistance of Perth-based Resource Service Group, Vancouver-based Knight Piesold and Toronto-based Planning Alliance.

For the second study, RSG pegged the project’s proven and probable reserves at 199.7 million tonnes grading 1.6 grams gold per tonne and 7.8 grams silver per tonne, or 10.1 million contained ounces gold and 50.4 million contained ounces silver. Another 296.5 million tonnes of measured and indicated resources run 1.4 grams gold and 6 grams silver. In addition there are 47.6 million tonnes of inferred material grading 0.9 grams gold and 4 grams silver. These figures were calculated using a cutoff grade of 0.6 gram gold per tonne.

Reserves are contained in four principal areas of low-sulphidation, epithermal-to-mesothermal mineralization — named Cetate, Cirnic, Orlea and Jig — that are situated close together, straddling the Rosia Montana Valley in western Romania’s Transylvanian mountains.

As per the original study, the latest study envisages initial mining targeting Cetate, as it is nearest the proposed processing plant and would require the least amount of development. Cirnic would be mined next, followed by Orlea and Jig. The overall, life-of-mine stripping ratio would increase to 0.98-to-1 from 0.86-to-1. Metallurgical tests by Minproc shows recovery rates of only 82.1% for gold and 54.2% for silver, cutting the recoverable ounces from reserves to 8.3 million oz. gold and 27.3 million oz. silver.

Operating 24 hours a day, 7 days a week, the open-pit operation would have an average mining rate of 8 million tonnes annually for 25 years. Annually production over the mine’s lifetime is pegged at 329,000 oz. of gold plus 1.1 million oz. of silver (.

The processing plant would remain as outlined in the first study — coarse crushing, semi-autogenous and ball-mill grinding, to be followed by gravity concentration and carbon-in-leach recovery.

Initial capital costs are estimated at US$192.4 million, including: US$9.4 million for preproduction mining; US$24 million for mining equipment and mine development; US$101.2 million for plant and infrastructure costs; US$13.1 million for tailings-facility costs; and US$20.8 million in “owners’ costs,” which include resettling the village of Rosia Montana.

Working capital needs are estimated at US$2 million for the first year, plus another US$153.5 million in sustaining capital. The study estimates that the project would have a total cash cost of US$124 per oz. over the life of the mine, assuming prices of US$275 and US$5 per oz. for gold and silver, respectively. The study indicates a total production cost of US$167 per oz. gold. On-site operating costs are pegged at US$5.42 per tonne of ore.

Using a 10% discount rate, the net present value of the Rosia Montana project is estimated at US$138 million, plus an after-tax internal rate of return of 20.1% on a 100% equity basis. The pay back period is 4.3 years.

Gabriel notes that the project’s economics benefit from the region’s status as a “disadvantaged zone” in Romania, as well as provisions in Romania’s mining law giving the project a tax exemption until October 2009 and a duty exemption over the life of the project. The project is subject to a 2% gross production royalty on all production payable to the Romanian government.

By comparison, the first study pegged initial capital costs at US$296 million, including: US$11.3 million for preproduction mining; US$41.4 million for equipment and development; US$169.9 million for plant and infrastructure costs; US$15.4 million for tailings-facility costs; and “owners” costs of US$57.9. Initial working capital was estimated at US$5.3 million, with another US$130 needed for sustaining capital. Total cash cost was US$107 per oz. over the 11.2-year mine life, assuming prices of US$275 and US$5 per oz. for gold and silver, respectively. Total production cost were US$158 per oz. gold. Using a 10% discount rate, the net present value of the entire Rosia Montana project was estimated at US$312 million. Over its life, the operation would churn out an average of 755,000 oz. gold and 2.6 million oz. silver annually.

The latest study concludes that the project economics are more sensitive to changes in metal prices and less sensitive to similar percentage changes in capital and operating costs.

Gabriel expects to complete a analysis of optimum throughput levels, potential alternate tailings management facility sites, contract mining scenarios, project debt capacity, as well as a variety of other studies designed to optimize Rosia Montana development by year-end. A production decision will follow.