Columbus Gold (CGT.V) has released the results of its Preliminary Economic Assessment on the Paul Isnard gold project in French Guiana, where partner Nordgold (LON:NORD) is earning a 50.01% interest by spending $30M in exploration expenditures and completing a feasibility study by March 2017.
Our expectations about the initial capital expenditures have come true and the initial capex remained limited to $366M. However, the sustaining capex ($216M) is a bit higher than we expected but this is due to the higher than expected strip ratio of 5:1. Roughly 75% of the sustaining capex involves stripping activities at and around the main pit and that’s what’s pushing the sustaining capex.
The all-in sustaining cost per ounce of gold remains limited to $711/oz which is great and exactly what partner Nordgold would be looking for. The after-tax IRR is 23% based on $1200 gold (which meets our expectations of an after tax IRR in excess of 20%), and that’s pretty good considering the relatively high taxes in French Guiana. The NPV8% might be a bit disappointing at $324M as the after-tax NPV8% is lower than the initial capex, but keep in mind a discount rate of 8% is relatively conservative for a project in a first-world country. If we would apply a discount rate of 6%, the after-tax NPV would increase to $405M and even to $451M if you’d use a 5% discount rate.
The PEA is quite robust as the NPV8% would still be positive at a gold price of $1000/oz, and it’s only at a gold price of $947/oz when the NPV8% reaches zero. Keep in mind Nordgold said the PEA was ‘deliberately kept conservative’, so we expect to see some cost-saving measures (a 1° change in the pit slope could already result in a lower sustaining capex) in the feasibility study which will start this quarter and should be ready by the end of 2016.
The technical report has already been filed and we will prepare an in-depth update report on the most recent developments!
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Disclosure: The author holds a long position in Columbus Gold. Columbus Gold is a sponsor of the website. Please see our disclaimer for current positions.
