Peru approves Sulliden Gold’s EIA

Nearly nine months after Sulliden Gold (TSX: SUE; US-OTC: SDDDF) submitted an environmental impact assessment of its Shahuindo gold project in Peru, the country’s Ministry of Energy and Mines has given the green light to the proposed open-pit heap leach operation.

The project is situated 80 km south of Cajamarca city, a regional city in northern Peru. Barrick Gold’s (TSX: ABX; NYSE: ABX) Lagunas Norte mine lies 30 km to the south and Newmont Mining’s (TSX: NMC; NYSE: NEM) Yanacocha mine 80 km to the north.

A feasibility study completed in September 2012 outlined pre-production capex of US$131.8 million and based on US$1,415 per oz. gold and US$27 per oz. silver calculated that Shahuindo’s post-tax internal rate of return would be 37.8% and the post-tax net present value, at a 5% discount rate, would reach US$248.6 million. The study ascertained an after-tax payback period of 2.2 years and estimated that over a mine life of 10.4 years the operation would produce about 84,500 ounces of gold and 167,200 ounces of silver each year.

The feasibility study considered only about 40% of the gold ounces from the total oxide mineral resource, however, and management says it will expand once in production. Currently measured and indicated resources stand at 147.31 million tonnes grading 0.52 gram gold per tonne for 2.44 million oz. contained gold and 7.1 grams silver per tonne for 33.37 million oz. silver. Inferred resources add another 71 million tonnes grading 0.71 gram gold for 1.63 million oz. contained gold and 20.4 grams silver for 45.56 million oz. contained silver.

“Approval of the EIS represents the most important milestone along the permitting path for Sulliden,” Andrew Kaip of BMO Capital Markets penned in a research note. The mining analyst forecasts initial production in the fourth quarter of fiscal 2015 expanding to 30,000 tonnes per day in the second quarter of fiscal 2017, and gold-equivalent production of 142,000 ounces at co-product cash costs of US$594 per oz. gold over a 12-year mine life.

Kerry Smith of Haywood Securities expects that receiving a construction permit should be straightforward and that—subject to financing—construction should start in late 2013. He also believes that Sulliden may be able to “realize some cost synergies” with the downturn in construction activity in general.

“We model first production and commercial production in August 2015 and February 2016 respectively, with inital production of 85,000 ounces at a total cash cost of US$500 per oz. from a low-cost oxide heap leach operation,” Smith says in a research note. “We subsequently model a US$100 million expansion to 30,000 tonnes per day, funded internally from operating cash flow, increasing annual production to 225,000 ounces beginning in May 2019.”

Smith also points out project financing can now go ahead. Late last year Credit Suisse and Barclays agreed to a limited recourse project finance facility of up to US$125 million on the condition Sulliden received its EIA approval.

The Shahuindo property lies in the regional flexure of a thrust and fold belt that contains an epithermal gold and silver system that extends over an area of 8 km by 4 km and vertically to a depth of at least 400 metres, the company explains on its website.  The current oxide mineral resource outcrops on surface and extends to an average depth of 150 metres along a 3.8 km strike length of one of the fault systems called the Central Corridor. 

The oxide mineralization in the Central Corridor is followed by a thin transition layer with non-oxidized material continuing below it at depth. Good gold grades continue to depth, but the company says due to the non-oxidized nature of the mineralization, a different processing method will be required.

Oxide ore will be mined in a shallow open pit with an owner operated mining fleet at a life-of-mine stripping ratio of 1.91:1. Ore will be trucked to a crushing facility near the mine and then conveyed to a leach pad.

Gold mineralization at Shahuindo occurs as very fine particles dispersed in iron oxides that are typically associated with structural features such as breccias and contact points between sediments and porphyries.  The ore exhibits very good gold recovery with conventional heap leach cyanidation the company says. 

News of the permitting approval sent shares of Sulliden Gold up 1.9% or 2¢ to $1.08 in mid-afternoon trading in Toronto.

Over the last year, Sulliden’s shares have traded in a range of 67¢-$1.15 per share.

Kaip of BMO Capital Markets has a target price on Sulliden of $1.40 per share.