Sabina’s Back River PFS leans on open pits

VANCOUVER — It’s a humbler market environment for mine developers, and Vancouver-based Sabina Gold & Silver (TSX: SBB) looks to have taken that into account with a more modest prefeasibility study (PFS) of its Back River gold project, 75 km from tidewater at the Bathurst Inlet in Nunavut.

The company is focusing on a shorter mine life and smaller resource base, as well as relying more heavily on open-pit mining. As a result Sabina has lowered its anticipated sustaining costs at Back River, even as upfront capital costs have jumped 34%, compared to a mid-2012 preliminary economic assessment (PEA).

Sabina’s processing model at Back River hasn’t changed much over the past year. The company still plans on running a hybrid open-pit and underground mine at a milling rate of 5,000 tonnes per day. What has changed is the market’s appetite for smaller operations that grow with cash flow, so Sabina is reorienting its attention to less than 50% of the project’s global resources, with its eye on open-pit ounces.

According to the company’s PFS, Back River’s mill would process 14.9 million tonnes of material over its lifetime at an average grade of 5.7 grams gold per tonne using open-pit and underground methods, which would recover 2.4 million oz. gold over 8.4 years.

In comparison, Sabina’s original plan showed 20.7 million tonnes of material would yield 3.7 million oz. gold, assuming an average grade of 6.13 grams gold and a 12-year mine life.

That’s a slice of Back River’s measured and indicated resources, which total 23.6 million tonnes grading 6 grams gold for 4.6 million contained oz. Inferred resources tack on another 7.3 million tonnes grading 8 grams gold for 1.9 million contained oz.

The most notable change in Sabina’s plans, however, involves the production split. The company initially focused on Back River’s higher-grade underground material, but the PFS relies on open-pit, lower-grade gold ounces.

Back River’s open pit would contribute 2.2 million oz. at an average grade of 5.3 grams gold, which represents 85% of mine production. Underground operations would chip in 564,000 oz. grading 8.11 grams gold.

In comparison, Sabina’s original model assumed that underground material would account for 2.1 million oz. grading 6.44 grams gold, with the open-pit tacking on 1.6 million oz. grading an average 5.6 grams gold.

Since the milling and surface infrastructure haven’t changed, Sabina’s new plan doesn’t affect Back River’s capital expenditures. In fact, the project’s upfront capital requirement projections have risen US$155 million year-on-year to US$605 million.

But Back River’s anticipated sustaining costs are down 42% — or US$162 million to US$226 million — likely because of underground development.

The project’s open-pit strip ratio remains high at 10 to 1.

Back River would produce 287,000 oz. gold annually at average cash costs of $685 per oz. assuming 88% recoveries, which would bring life-of-mine, after-tax cash flow of $582 million, and gross revenues totalling $3.3 billion.

Back River’s PFS features a US$290-million net present value (NPV) at a 5% discount rate, along with a 16.5% internal rate of return (IRR) and 3.3-year payback period, assuming a US$1,350 per oz. gold price.

Sabina’s 2012 PEA resulted in a $650-million NPV at a 5% discount rate, and a 25% IRR with a three-year payback at US$1,250 per oz. gold.

“Back River offers a rare opportunity for significant high-grade gold production by both open-pit and underground operations, in one of the world’s safest mining jurisdictions,” said president and CEO Rob Pease in a release.  “We believe we have presented an economically positive and realistic project as our base case, and are excited to be moving towards a final feasibility study. We also believe that, through the work done in 2013, we have identified a number of opportunities that could improve the project.”

Sabina has spent US$44 million in drilling initiatives at Back River over the past year, and notes that much of its new data has not been included in the PFS.

The company intends to continue metallurgical studies to tweak its recoveries, and could reduce capital and operating costs by using alternative underground mining methods, downsizing pre-stripping requirements or pursuing other tailing-disposal options.

In 52 weeks Sabina shares traded between 79¢ and $3.20, and lost 9%, or 7¢ per share, on 748,700 shares traded, en route to an 83¢ close at press time.

The company expects to end the year with $60 million in cash and equivalents, and it has 189 million shares outstanding for a $153-million market capitalization.