VANCOUVER – Mt. Todd, the largest undeveloped gold project in Australia, took a big step towards production with a prefeasibility study that gives owner Vista Gold (VGZ-T) a choice: the company can either spend a billion dollars to build a large operation that would mine much of the project's millions of ounces of gold, or it can develop a smaller mine that churns out less gold but bears more manageable capital costs.
Either way, the study suggests a mine at Mt. Todd would produce millions of ounces over about a dozen years at a cost of US$685 to US$773 per oz.
"I hope you will take away the following key results," said Frederick Earnest, Vista's CEO. "First of all, that Mt. Todd is a large, robust project and that Vista has options in how to develop this project. Second, that Mt. Todd is well advanced – there has been an incredible amount of work completed around the project and we are very proud of that work. Third, that Vista has worked to earn a good reputation in the region and we enjoy strong support from the community and the Northern Territory government. And finally, that we will continue to advance the project: we will not rush into a feasibility study, but we will move ahead knowing we have an advanced stage project ready to develop in the appropriate market."
Mt. Todd, in Australia's Northern Territory near the town of Katherine, hosts gold in sheeted veins laced through altered shales and siltstones. Mineralization starts near surface and extends along 1.5 km of strike, a geometry that lends itself to open pit mining.
As an open-pittable deposit offering 300 million measured and indicated tonnes grading 0.81 g/t Au plus 84 million inferred tonnes averaging 0.76 g/t for almost 10 million contained ounces, Mt. Todd is destined to be a large operation. The question for Vista is how large.
To help answer that question the prefeasibility study assessed two potential scenarios for a Mt. Todd mine: a 50,000-t/d mine producing 369,850 oz of gold annually over a 13-year mine life and a 33,000-t/d operation producing 262,826 oz of gold annually for 11 years.
Economics of scale mean more of Mt. Todd's resources convert into mineable reserves in the 50,000-t/d plan, as the larger operation can handle a reserve cut-off grade of 0.4 g/t. That cut-off generates a proven and probable reserve of 222.8 million tonnes at an average grade of 0.82 g/t Au, for 5.9 million contained ounces.
The 50,000-t/d mine would recover 4.8 million of those ounces over its 13-year mine life. Production would be highest in the first five years, when output would average 481,316 oz. annually. Costs would also be lowest in that first half decade, averaging US$662 per oz. Over its lifespan, cash costs at the larger operation are expected to average US$773 per oz.
The 50,000-t/d Mt. Todd scenario generates an after tax net present value (NPV) of $591.3 million and a 15.9% after-tax internal rate of return (IRR), using a 5% discount rate and a gold price of US$1,450 per oz. The operation would bear an average strip ratio of 2.7 tonnes of waste to each tonne of ore.
It would costs just over a billion dollars – $1.05 billion to be exact – to build the bigger mine. The study suggests that Vista could expect to repay that investment in 3.5 years.
The smaller Mt. Todd scenario envisions a mine churning through 33,000 t/d. Smaller operations require higher cut-off grades to define economic reserves; Vista used a cut-off grade of 0.45 g/t for the smaller scenario, which resulted in proven and probable reserves of 124 million tonnes grading 0.9 g/t Au. That reserve contains 3.6 million oz of gold.
In its first five years of operation, output at the smaller mine would average 294,502 oz annually, at a cash cost of US$676 per oz. Over its 11-year lifespan annual production at the smaller operation would average 262,826 oz at a cash cost of US$684 per oz., for life-of-mine production of 2.9 million oz.
Both mining scenarios incorporate a 58 MW gas-fired power plant that utilizes the natural gas line that already services Mt. Todd. The plant would produce more power than necessary for the smaller operation, and Vista would sell that extra power to the state grid, creating a credit that helps to lower operating costs within the smaller scenario.
The 33,000-t/d scenario gives Mt. Todd an after-tax NPV of $440.2 million and a 16.9% IRR, again using a 5% discount rate and a gold price of US$1,450 per oz. The mine would have an average strip ratio of 2 to 1.
To build the smaller mine would cost Vista $761 million, an outlay the company should be able to recoup in 3.2 years.
"We chose to report these different scenarios to demonstrate that Mt. Todd is a robust project and that Vista has options," said Earnest. "The 50,000-t/d case maximizes the development of the resource, generates a higher NPV at all gold prices, supports a longer mine life and higher production rate, and demonstrates more leverage to a rising gold price. The 33,000-t/d scenario develops a smaller, higher grade reserve but results in a shorter mine life, demonstrates a higher IRR at today's gold prices, bears lower initial capital requirements, and allows later expansion if justified."
This is the second prefeasibility study Vista has completed at Mt. Todd. The first was released in early 2011. Soon after, Vista embarked on a feasibility study. That study was postponed, however, when the company realized there was, as Earnest put it, "a considerable opportunity to increase the resource at Mt. Todd."
"In the fall of 2011 we initiated a drilling program that was supposed to be 8,500 metres," said Earnest. "As a result of the outstanding results of that program, it was extended to 18,000 metres and this led to a significant increase in the resource."
The deposit grew so much that Vista had to go back to the drawing board and completely redesign many aspects of the planned mine. The new prefeasibility study is the culmination of that effort and represents the newest look at a long-known gold deposit.
The main Batman deposit was mined between 1902 and 1914. Several companies tried to restart operations in the 1980s but failed due to low gold prices, high operating costs, and poor metallurgical recoveries. Vista has dedicated considerable effort to understanding the metallurgy at Mt. Todd and believes it can succeed where these previous operators failed.
Historic operations at Mt. Todd left behind useful infrastructure that Vista says will reduce construction costs and risks. For example, there is already a tailings facility at the site that, with two raises, will work to contain the first 62 million tonnes of tailings. Similarly, an existing fresh water reservoir could be raised to collect sufficient storm water for mine operations.
The site is also already served by a natural gas pipeline, a power grid connection, and a paved connection to a nearby highway. There is also a rail line that runs alongside the highway and a port in Darwin, 300 km away. Earnest says all of this infrastructure will save Vista roughly $130 million in capital requirements.
With the new prefeasibility study in hand, Vista can finalize and submit the Mt. Todd environmental impact study. The company anticipates gaining environmental approval for the project at the end of the year. In April, the Northern Territory government granted Mt. Todd major project status, a designation given to projects that have the potential to provide significant economic opportunities for the territory.
On news of the new study, Vista's share price gained 10¢ to reach $1.50. The company has a 52-week share price range of $1.27 to $3.99 and has 82 million shares outstanding.
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