STLLR Gold PEA ‘resets’ Tower project as capex triples

STLLR Gold’s (TSX: STLR; OTCQX: STLRF) resource and preliminary economic assessment (PEA) updates on May 15 for its Tower project in Ontario saw investors selling and its Toronto stock dropping almost 30% in three trading days.

Compared with the 2022 PEA, the update raises average annual output by 41% to 273,000 oz., and lifts the after-tax net present value (NPV, at 5%) by 24% to $1.4 billion (US$976.5 million) at US$2,500 gold. It increases the initial capital outlay by 262% to $1.87 billion plus $1.7 billion sustaining capital. At today’s spot price of US$3,200 per oz., the NPV jumps to $3.3 billion and IRR to 24%.

“This conservative ‘reset’ tightens the [resource] and economics compared to the prior management’s 2022 PEA, removing a key overhang on the stock in our view,” SCP Resource Finance mining analyst Brandon Gaspar said in a Tuesday note.

Investors weighed the numbers against the prior 2022 PEA, which saw a 24-year mine life at 193,000 oz. per year, a $1,073 per oz. AISC, a $790 million NPV and a 32% IRR at US$1,600 per oz. on $517 million initial capex.

“We believe the 2025 PEA delivers compelling economics with defensible capital and operating cost estimates,” STLLR president and CEO Keyvan Salehi said in a press release.

The stock continued its downtrend on Tuesday, reaching a fresh 12-month low at 73¢, down 13% for the day, and down 29% over the past five trading days. STLLR has a market capitalization of $90.5 million.

Project reconfigured

The PEA calls for a bulk-tonnage operation averaging 273,000 oz. gold annually over 19 years, with peak output of 325,000 ounces. Tower carries a strip ratio of 6.3:1 and an all-in sustaining cost of $2,059 (US$1,537) per ounce.

The company’s most recent financial filings show working capital of $22 million.

STLLR rebuilt the geological model from first principles, Salehi said, integrating structural and lithological data to improve resource confidence and guide future drilling.

The deposit remains open at depth and along strike, pre-feasibility work targets 2027 completion, and permitting aims to have Tower shovel-ready by 2029.

Room to improve

Upside levers such as Tower’s improved outlook in a higher gold price environment and potential cost savings via equipment leasing, could make the project even more attractive, Gaspar noted. Drilling at the Jonpol and Garrcon zones to restore excluded ounces could also move the needle forward. A potential pre-feasibility study targeted for 24 months could be a catalyst to de-risk the project, Gaspar said.

Peer context sharpens the picture. STLLR’s own Colomac PEA in 2023 delivered a $1.17 billion NPV and a 34.6% IRR at $1,600 per oz gold on $654 million capex. Kinross Gold’s (TSX: K; NYSE: KGC) Great Bear PEA last year posted a US$1.9 billion NPV and a 17.8% IRR at $1,900 per oz. gold, while Probe Gold’s (TSX: PRB; US-OTC: PROBF) Novador PEA in April showed a $405 million NPV at $1,650 per oz. gold and led to a share sell-off.

Tower sits in the prolific Timmins camp alongside STLLR’s Hollinger tailings project and Gold Fields’ (NYSE, JSE: GFI) Windfall Lake mine.

 

Location map of STLLR’s projects. Credit: STLLR Gold

Project de-risking

Gaspar didn’t specify a single culprit or red flag explaining the sell-off and implied the discount reflects Tower’s risk profile. The market sees high upfront capital, a heavy reliance on inferred ounces and execution uncertainty as reasons for the 0.02x net asset value valuation, according to Gaspar.

“Unlike peers, who often defer capital swings to definitive feasibility study-level with less conservative PEA cost and mine plan assumptions, STLLR’s study – completed by G Mining Services [a subsidiary of G Mining Ventures (TSX: GMIN)] – takes a grounded approach, benchmarking costs against operating peers and recent builds like Greenstone and Blackwater, while incorporating detailed mine scheduling,” Gaspar said.

That’s why he highlights levers to de-risk the project to help close the valuation gap.

Resource upside

The new resource comprises 140.4 million indicated tonnes grading 0.89 gram gold per tonne for 4 million contained oz. and 200.3 million inferred tonnes at 1.08 gram gold for 7 million ounces.

The previous resource comprised 151 million indicated tonnes at 0.92 gram gold for 4.5 million contained oz. and 236 million inferred tonnes averaging 1.09 grams gold for 8.3 million ounces.