Premier wraps up pair of PEAs for Trans-Canada

North America-focused explorer Premier Gold Mines (TSX: PG; US-OTC: PIRGF) has released dual preliminary economic assessments of its 100%-owned Hardrock and Brookbank gold deposits, which make up part of its Trans-Canada project in northwestern Ontario.

The PEA studies contemplated open-pit mining at Hardrock and a combined open-pit and underground operation at Brookbank. Hardrock is 260 km northeast of Thunder Bay and a few kilometres south of Geraldton, a town of nearly 2,000 people, while Brookbank is 77 km west of Hardrock and 28 km northeast of Beardmore, a town with 400 people. Brookbank lies 12 km from the Trans-Canada Highway.

At a US$1,250 per oz. gold price and a 5% discount rate, Hardrock’s post-tax internal rate of return (IRR) works out to 19%, its post-tax net present value (NPV) runs to $359 million and its payback period on an after-tax basis is 3.9 years. Brookbank has a 24.7% post-tax IRR, a $52-million post-tax NPV and a 4.4-year post-tax payback period.

“The PEAs definitely met our expectations, despite the fact that we have seen a tail off in the price of gold of late, which has negatively affected some of the similar lower-grade projects,” Ewan Downie, the company’s president and CEO, says in a telephone interview after holding business meetings in Toronto.

“Our PEA results were strong at a US$1,250 per oz. gold price. We’re happy with the results, and now we’re going to be starting all the engineering work on the full feasibility for Hardrock. We’re going to make Hardrock the focus because that’s where the central mill will be and it’s the much larger project, so it will be the main driver and our main focus for the foreseeable future.”

The Hardrock PEA envisions a 15-year mine life. During the operation’s first eight years, gold production would average 253,100 oz. a year at a grade of 1.50 grams gold per tonne.

Over the 15-year life, production is expected to average 202,700 oz. a year at an average grade of 1.18 grams gold per tonne.

In the first two years, processing would run at 10,000 tonnes per day and expand to 18,000 tonnes per day in the third year.  

Initial capital costs are estimated to reach $410.6 million, including $83 million for contingencies. Over the mine’s life cash costs are anticipated to reach $737.11 per oz., with all-in sustaining costs at $803.14 per oz.

The PEA is based on an open-pit indicated resource of 64.7 million tonnes grading 1.18 grams gold per tonne for 2.45 million contained oz. gold, and an open-pit inferred resource of 24.7 million tonnes grading 1.18 grams gold for 938,000 contained oz. gold.

Premier says there are opportunities to improve the project’s economics, as the study was based on an August 2013 resource cut-off that doesn’t include 45,000 metres of infill drilling from 2013.

Premier plans to update the resource estimate in the second-half of 2014.

Follow-up drilling in the pit’s North Wall area could bring more resources into the optimized pit, the company notes, adding that it is completing an underground study to enhance project economics.

Jeff Killeen of CIBC says the upcoming feasibility study for Hardrock in the first half of 2015, like the PEA, will focus on an open pit-only scenario. “While Hardrock hosts an underground resource, management has indicated that it would focus on an open pit-only scenario in the current gold-price environment,” he writes in a research note to clients. “Although the underground resource may be excluded from the company’s current economic analysis, we believe that it provides investors with optionality to the gold price in the longer term.”

At Brookbank, the PEA contemplates processing ore at a future Hardrock mill. The study is based on processing an average 900 tonnes per day from an open pit and underground during the mine’s life.

For the first two and a half years, an open-pit mining operation would process 600 tonnes per day at a grade of 2.31 grams gold per tonne. Underground mining would start after the first year of open-pit production, at an average grade of 6.25 grams gold per tonne at up to 900 tonnes per day for six years. That would bring the mine life from both open-pit and underground mining operations at Brookbank to seven. 

Underground mining operations would be accessed via a single portal and a main ramp from surface. The operation would use longitudinal longhole stoping (25-metre sub-levels), with consolidated and unconsolidated rockfill as a mining method, and require up to 4,000 metres of pre-preproduction and sustaining capital development, and 7,000 metres of operating lateral development — with waste and silling — over the mine’s life.

Total capital costs work out to $106.6 million, which includes a $20.6-million contingency. Cash costs are estimated to come in at $619.57 per oz. over the mine’s life.

The Trans-Canada project may have more upside from a new open-pit target called Twomey, 10 km west of Hardrock and just south of Trans-Canada’s Key Lake open-pit deposit.

“We found in the files a few historic drill holes with really good grades, and we’re going to get a permit to drill that area,” Downie says. “It’s a prospective-looking target, and it could be a sizable deposit if it works out. The indications from historic drilling are a strike length in excess of hundreds of metres and widths of up to 100 metres in this porphyry. It isn’t a high-grade porphyry, but it is broad, so it’s a pretty exciting target and we expect to start drilling in the primary area by March or April this year.”

Premier has $70 million in cash and investments and a $5-million debt payment due in June 2014.

At press time the company, which is headquartered in Thunder Bay, was trading at $1.98 per share within a 52-week range of $1.28 to $3.79.

With the release of the first economics from the Trans-Canada project, Premier Gold Mines is positioned as a potential takeover target, according to Canaccord Genuity mining analyst John Kratochwil. He raised his target price on the stock after news of the PEAs from $3.50 per share to $3.75 per share. In a research note the analyst said he believes that the economics “compare favourably to recent studies issued for Blackwater [IRR 9.3% at $1,300 per oz.], Rainy River [IRR 11.3% at $1,300 per oz.] and Magino [IRR 18% at $1,250 per oz.].”

Killeen of CIBC has a 12- to 18-month target price of $4 per share and notes that “with a strong balance sheet and assets located in North America, Premier should trade at a premium to its non-producer peers.”

At Cantor Fitzgerald, Rob Chang has a 12-month target price of $3.85 per share.