Newcore hikes Enchi gold project value 75% on higher forecast output, bullion price

Newcore Gold (TSXV: NCAU, US-OTC: NCAUF) shares jumped to a 12-month high Thursday after the company increased the net present value (NPV) of the Enchi gold project in Ghana by three quarters over a 2021 assessment.

An updated preliminary economic assessment (PEA) shows a 75% increase in the after-tax NPV to US$371 million (discounted at 5%) and an internal rate of return (IRR) of 58% based on a gold price of US$1,850 per ounce. These figures compare with the previous assessment’s NPV of US$212 million and IRR of 42% using a gold price of US$1,650 per ounce. 

The new study forecasts a 36% higher annual production of 121,839 ounces. The project could cost US$106 million to build, slightly higher than the earlier US$97 million estimate.

“Enchi is in its own efficiency class,” president and CEO Luke Alexander said in an interview with The Northern Miner. “These figures equate to an NPV-to-capital ratio of 3.5 times. I challenge you to find another development-stage project with such metrics.”

Ghana is Africa’s top gold producer, according to World Gold Council data, and is considered a Tier 1 jurisdiction. Newmont (TSX: NGT; NYSE: NEM) invested more than a billion dollars in the Ahafo North project. Galiano Gold (TSX: GAU; NYSE American: GAU) last month bought full control of the 130,000 oz. per year Asanko mine from Gold Fields (NYSE: GFI; JSE: GFI) for US$170 million.

Newcore shares rose about 20% to close at 23¢ apiece on Thursday in Toronto. The stock has gained about 21% over the past 12 months and gives the company a market value of $39.7 million.

Alexander argues that most modest-sized gold development projects today involve capital outlays ranging from US$400 to US$500 million, with NPVs typically yielding ratios of only between one and two times capital.

He points out that at spot gold prices around US$2,350 per oz., the post-tax NPV rises to US$632 million and the IRR sits at an attractive 92%. It is generally understood that investors’ risk aversion eases at project IRR rates above 35%, with anything more than 15% still deemed worthy of a look.

Better economics

The PEA, prepared by Lycopodium Minerals Canada, plans for an 8.1 million tonnes per year open-pit mining operation over 9 years using heap leaching, compared to the previous study’s 6.6 million tonnes per year throughput over 11 years. It involves a waste strip-to-ore ratio of 2.67 and a heap leach feed grade of 0.6 gram gold per tonne. The operation expects to hire mining contractors.

Over the mine life, Enchi will produce just over a million ounces at all-in sustaining costs of US$1,018 per oz., lower than the US$1,066 in the previous study. The PEA update also budgets for higher sustaining capital of US$92 million versus US$23 million, and closure costs of US$18 million versus the earlier estimated US$22 million.

Newcore is to build the heap leach facility in three stages, with extra capacity planned for future expansion. Trucks are to carry ore from five deposits (Sewum, Boin, Nyam, Kwakyekrom, Tokosea) to a central crushing and heap leach facility between the Boin and Sewum deposits, which hold about 76% of the resources. The plan assumes that secondary crushing capacity will only be necessary when processing transitional and fresh rock in the latter half of the mine life, thereby reducing initial capital costs.

An updated resource estimate calculated at US$1,650 per oz. underpins the PEA. Enchi hosts 41.7 million tonnes indicated at 0.55 gram gold per tonne for 743,000 oz. of metal, with another 46.6 million tonnes inferred grading 0.65 gram for 972,000 oz. of gold.

Alexander says the next steps involve proceeding to the pre-feasibility stage, but a definite timeline has not yet been established.

In February, Newcore increased Enchi to 248 sq. km by adding the Omampe licence, where the company will proceed with early-stage drill target development.

The company has also completed an updated environmental and social baseline study, which it says was well received by the local mining authority and communities.