Seafield shores up Miraflores

Seafield Resources (SFF-V) gave the market something to chew on after releasing a preliminary economic assessment on its Miraflores project in Colombia.

The deposit doesn’t rank with the big boys in the emerging gold country, but the SRK consulting study outlines a profitable mine that will boast low cash costs and a reasonable capital expenditure (capex).

The key metric out of any such study is the net present value, which SRK estimated at US$188 million using an 8% discount rate and a gold price of US$1,500 per oz. Perhaps more impressive was the 45% internal rate of return (IRR) that the project is expected to generate.

The IRR metric is meant to be compared to the project’s cost of capital. The greater the spread that the IRR enjoys over the cost of capital — or hurdle rate — the more profitable the project should be.

While it is too early to predict the capital cost for a future mine, David MacMillan, who is part of Seafield’s investor relations team, says the company would likely finance the project with 60% to 70% debt, while the rest would be made up of equity.

Debt financing is generally lower cost than equity financing, but finding a willing lender when you are a junior in the developing world can present some challenges.

MacMillan says that judging by conversations with bankers at this year’s Prospectors and Developers Association of Canada convention in Toronto, the appetite for making deals was healthy — especially in light of a volatile equity market.

Seafield should also benefit on the debt financing front from having Antonio Pichardo as a member of its board. Pichardo is a managing director at WestLB Bank’s Metals and Mining Group and has extensive experience in arranging debt financing deals in the materials sector.

The project’s capex also isn’t burdensome, which bodes well for the company.

The study estimates it will cost US$93.7 million to construct a mine that mills 4,000 tonnes of rock per day and turns out 71,007 oz. gold in the first eight years of operation. The total life-of-mine capex is expected to reach US$137 million.

Average cash operating costs in the first eight years are estimated at US$524 per oz., and during this time the mine could turn out 82% of its total gold production.

After these eight years, production is planned to come from processing lower-grade stockpile accumulated at the site. Seafield says stockpile production would likely total 114,173 oz. over the last six years of the mine’s life.

Processing the lower-grade material lifts life-of-mine cash costs to US$594.50 per oz.

Production is expected to come from open-pit and underground sources.

The mining model considers mining 6.97 million tonnes of ore grading 1.38 grams gold from open-pit mining, at a strip ratio of 2.04 to 1.

Another 5 million tonnes with an average grade of 2.27 grams gold can be mined through an underground operation.

This works out to 339,335 oz. gold production coming from the open pit and 400,359 oz. coming from the underground mine, which is only a portion of the measured and indicated resources for the deposit.

In January Seafield released a resource estimate on Miraflores that outlined 77.8 million tonnes grading 0.8 gram for 1.9 million oz. gold, and inferred resources of 5.5 million tonnes grading 0.6 gram for 103,043 oz.

Seafield is pursuing a 5,000-metre drill program focused on upgrading the quality of resources in the open-pit section of the deposit. It plans to launch a 4,000-metre underground program by year-end.

At presstime Seafield shares traded at 10¢ apiece, which is a 52-week low.  The company hit its 52-week high of 35¢ in June. Seafield has 168.6 million shares on a fully diluted basis.