IDM Mining’s (TSXV: IDM) executive chairman couldn’t hide his excitement while talking about the updated preliminary economic assessment (PEA) at the Red Mountain gold project in northwestern B.C.
“We have demonstrated a low-capital cost, high rate of return project with a near-term development strategy here that’s really been de-risked,” Michael McPhie said in an interview.
The revised PEA, released on July 12, envisions a larger and more profitable project at Red Mountain than the original PEA in 2014.
Over its five-year life, the proposed underground mine could deliver 348,000 oz. gold and 965,000 oz. silver. This would come from 1.8 million tonnes at a head grade of 7 grams gold and 21.45 grams silver per tonne, and average recoveries of 89% gold and 80% silver.
This compares to the earlier plan of processing 1.4 million tonnes at slightly higher grades to produce 277,000 oz. gold and 852,000 oz. silver.
“We are mining more tonnes, so we are producing more gold. We have added 100,000 oz. into developing the project, which is good because that increases our annual production and overall economics,” McPhie says.
Annual production should total 70,000 oz. gold and 194,000 oz. silver, up 25% and 13% from the previous study.
A driller working on in-fill and metallurgical sample drill program in July 2016 at the Marc zone and IDM Resources’ Red Mountain gold project in northwestern Bristish Columbia. Credit: IDM Resources.
To achieve the higher production, IDM has tweaked the mine plan. It will now mine 1,500 tonnes per day for eight months a year to feed a year-round, 1,000-tonne-per-day plant. This compares to its earlier plan of mining and processing 1,000 tonnes per day for nine months a year, and closing down during the worst winter months.
“Overall, economics are better because we are now generating cash flow 12 months of the year,” McPhie points out.
Estimated cash costs are $550.77 per oz. and $522.41 per oz., net of silver credits. The costs are higher than the earlier study due to the weaker Canadian dollar. The new study assumes a Canadian–U.S. dollar exchange rate of 0.80, instead of 0.95. But in U.S. dollars, the anticipated cash cost per oz. has fallen 15% to US$440.61, and 8% to US$417.93, net of silver credits.
Although the mine life remains at five years, start-up costs are now $111.2 million — including a $10.1-million contingency — as opposed to $76.1 million. Expected sustaining costs are $41.1 million, bringing Red Mountain’s total cost to $152.3 million.
The increase in initial costs resulted largely from the new mine plan and infrastructure plan, plus to a higher degree of detail in the cost estimates.
IDM plans to mine the deposit from underground using longhole stoping and drift-and-fill methods. It will process the mill feed through a flotation-regrind-leach circuit to lower operating costs, instead of a whole-ore leach process.
It has also relocated the proposed mill and tailings facility to Bromley Humps. The site sits at a lower elevation and has less of a risk for avalanches.
Mining companies, particularly juniors, have tended to underestimate construction costs, McPhie concedes. To avoid that mistake, IDM has doubled its sustaining capital cost estimate and padded its expenses for waste and tailings management and mine closure.
“We didn’t want to go light on any of those,” McPhie says, adding IDM wants to present a “fully costed project, with everything included” to the market, which it would refine in the next six months in the feasibility study.
Most importantly, the project’s economics remain “super solid,” McPhie says. Using a 5% discount rate and metal prices of US$1,250 per oz. gold and US$15 per oz. silver, Red Mountain generates an $86.6-million after-tax net present value (NPV) and 32.3% internal rate of return (IRR). The after-tax payback is two years.
The project should make an estimated $120.4-million after-tax free cash flow over the mine life, or $24.3 million annually, which is up 52% over the previous estimate.
McPhie says his team could cut the project’s capital costs and improve economics by buying a used mill and leasing equipment, and converting the inferred resource through infill drilling. These opportunities will be considered in the ongoing feasibility study.
Commenting on the underground infill program at Red Mountain, McPhie reckons that the drilling could convert 70,000 to 80,000 inferred oz. into measured and indicated. Initial assays should be out in the coming weeks.
It also plans to test targets with extension drilling, and McPhie explains that drilling should show the down-dip extensions of the JW zone and the 141 zone. “We see significant room for expansion in those areas. We just don’t have the drilling density to include them as part of the resource at this stage.”
Red Mountain’s resource estimate contains 1.64 million measured and indicated tonnes at 8.36 grams gold and 26 grams silver for 441,500 oz. gold and 1.37 million oz. silver. Inferred resources stand at 548,100 tonnes grading 6.10 grams gold and 9 grams silver for 107,500 oz. gold and 153,700 oz. silver.
Most of the resource sits in the Marc, AV and JW zones, and to a lesser extent in the 141 and 132 zones. The deposit — described as a porphyry-related, hydrothermal gold system, located in the Stikine terrain — has five mineralized zones.
IDM says it could shrink capital costs by sharing infrastructure costs for the road and powerline, with an independent power producer developing a run-of-river hydroelectric project next to Red Mountain’s proposed mill site. (IDM’s project requires 7 km of new road.)
Meanwhile, McPhie says the current drilling and exploration program would show that Red Mountain has a life beyond five years. IDM geologists are conducting extensive surface exploration work.
They have identified a new zone hosting high-grade, intrusive-related, gold-silver molybdenum mineralization at the Lost Valley area on the property. The retreating Cambria icefield helped expose that area.
“One of the fascinating parts of this story is the glacier retreat that has taken place over the last 10 years, which has opened up huge amount of mineralized areas that have yet to be explored. There’s on-surface mineralization, visible mineralization of sulphide and molybdenum… and others that we are chasing down that look very, very interesting.”
Pretium Resources’ (TSX: PVG; NYSE: PVG) nearby Valley of the Kings deposit, where a mine is under construction, has benefited from a similar glacier retreat.
“The Valley of Kings melted out from the under the ice over the last 10 years, and it led to the showings and the ultimate discovery of a world-class deposit. We are targeting a similar situation at Red Mountain … anchored by this existing deposit that we have very well defined,” McPhie notes.
Along with Red Mountain, the Valley of Kings and Seabridge Gold’s (TSX: SEA; NYSE: SA) KSM project, the Golden Triangle hosts a number of past-producing mines, including Premier, Eskay Creek and Snip.
The Red Mountain project is in Nisga’a traditional territory, where the junior has a “strong” relationship with the First Nation.
As part of its permitting process, IDM should file a project application report in late 2016. It anticipates publishing a feasibility study in early 2017, after which it will make an investment decision and secure project financing.
McPhie adds that IDM is fortunate to work in northwestern B.C., where there’s “extraordinary” geological potential, combined with a relatively straightforward permitting process and strong local support for mining.
“We really believe it is one of the best places in the world to be active. We think Red Mountain will be the next gold mine to come on-stream. We are excited about what the next number of months is going to deliver in terms of both geological potential and advancing the project towards development,” McPhie enthuses.
Depending on financing and permitting, Red Mountain could begin production in early 2018.
The junior has $10 million in its treasury and some well-known shareholders, including Osisko Mining (TSX: OSK) at 14%, Delbrook Capital at 9.8%, Sentry at 9.7%, Tahoe Resources (TSX: THO; NYSE: TAHO) at 6.6% and Premier Gold Mines (TSX: PG) at 6.5%.
“After getting through the last couple of years of difficult markets … we feel like we finally have a bit of wind in our back. And really now, it’s all about execution and fulfilling over objectives to meet our own timelines and the expectations that we have set in the marketplace,” McPhie says.
IDM recently closed at 25¢ per share, near its 52-week high of 25.5¢. It reached a 52-week low of 6.5¢ per share in January.
Ultimately in a conservative realistic opinion, how much could the per share value of the stock be worth at the different stages of the Red Mountain project?