TMAC targets commercial production at Hope Bay in 2017

TMAC Resources (TSX: TMR) aims to get its flagship Hope Bay gold project in Nunavut into commercial production in early 2017.

Located in the Kitikmeot region, 125 km southwest of Cambridge Bay and east of Bathurst Inlet, Hope Bay contains three known gold deposits: Doris, Madrid and Boston.

In 2015, TMAC de-risked Hope Bay by securing over $365 million in equity and debt to fund the path to production, starting with the Doris deposit.

TMAC — previously a private firm — had raised $155.1 million in its initial public offering last July and by exercising an over-allotment option in August. It also secured up to a US$120-million ($165-million) loan — maturing at the end of 2018 — and closed a $44.1-million private equity deal. In March 2016, it raised $9 million in a flow-through financing.

Last year, TMAC spent $165 million advancing Doris. It has budgeted $160 million in development and related costs for 2016.

The company’s objectives this year include shipping the processing plant to site from Australia during this year’s anticipated August sealift. Once on-site, TMAC will install the plant in the mill building that arrived in the 2015 sealift, with mill commissioning targeted for late 2016, TMAC’s vice-president of investor relations Ann Wilkinson says.

Meanwhile, TMAC intends to complete 5.6 km of underground development and grow its stockpiled ore to more than 110,000 tonnes ahead of commissioning the mill. “That 110,000-tonne ore stockpile should grade 15 grams per tonne and give us access to just over 55,000 oz. gold,” Wilkinson says.

The stockpile will help the mill produce 1,000 tonnes per day in 2017, before ramping up to 2,000 tonnes per day in early 2018. The high-grade stockpile will also help TMAC generate cash to pay back debt commitments until 2018.

An April 2015 prefeasibility study on sequentially developing and underground-mining the Doris, Madrid and Boston deposits envisioned Hope Bay could produce 160,000 oz. gold annually for 20 years. It pegged start-up costs at $206 million and all-in sustaining costs at US$785 per oz. The project has a $626-million after-tax net present value and 40% internal rate of return, using a US$1,250 per oz. gold price and 5% discount rate. Payback should occur within 21 months.

The upfront capital is low because Hope Bay benefits from more than $1 billion invested by its previous owners BHP Billiton (NYSE: BHP), Miramar Mining and Newmont Mining (NYSE: NEM).

BHP found the project’s three deposits between 1992 and 1995. Its successor Miramar conducted a number of exploration programs and engineering studies, starting in 1999. In 2007, Newmont acquired Miramar for $1.6 billion and created Hope Bay Mining Ltd. to control the Hope Bay project.

By the time it stopped working on the project in early 2012, Newmont had poured $800 million into Hope Bay. Shortly after, it took a $2.1-billion impairment charge related to the project and put the asset up for sale.

TMAC bought the property in March 2013 and has since worked to put it into production, with Newmont’s support. The gold major and Resource Capital Fund are TMAC’s largest shareholders at 29.4% and 35.5%.

The junior made headway on community relations last March. It signed a 20-year benefit and land tenure surface and sub-surface agreement for the Hope Bay property with the Kitikmeot Inuit Association (KIA) and Nunavut Tunngavik Inc. KIA owns 1.5% of the company.

TMAC plans to start developing the Madrid deposit in 2019, followed by the Boston deposit in 2025.

For now, it’s focused on preparing the site and bringing in the processing plant to start gold production at Doris by year-end. Wilkinson notes the plant’s delivery is on budget and on schedule for the mid-year sealift, and that “we are pretty pleased with the way things are going.”