Integra Gold (ICG.V) has released the Preliminary Economic Assessment (PEA) we have been waiting for. The PEA calls for an initial mine life of 4.25 years with an average annual production of 112,500 ounces of gold per year and a peak production of 143,000 ounces of gold in year 2. The initial capital expenditures are very low at C$69.2M (however, this includes the assumption that 28,000 ounces of gold will be recovered and sold during the development process) and the sustaining capital expenditures are estimated to be C$66.8M which is included in the all-in sustaining cash cost of C$805/oz which is just $725/oz using the current exchange rate. Also keep in mind the used gold price in the PEA was C$1339/oz compared to the current gold price of C$1500/oz. This means that at the current gold price, the net revenue will be approximately C$80M higher and the after-tax NPV5% of C$88.5M is an understatement.
As the initial capital expenditure is extremely moderate and easily financeable and as the all-in cash cost is one of the lowest in the sector, we believe this is an excellent PEA. The initial mine life of 4.25 years might seem a bit short, but we’d like to emphasize this is just a first step to prove the viability of the project and we are convinced additional ounces will be recovered which will have a huge impact on the Net Present Value of Lamaque. We are very confident in a further resource expansion as in excess of 30,000 meters has been drilled on the property by now since the last resource update. On top of that, the PEA has only considered the recovery of gold till a depth of 620 meters whilst more recent drill holes have proven the mineralization extends to a thousand meters. Every additional 100,000 recovered ounces (at the same all-in sustaining cost per ounce) would increase the after-tax NPV of the project by $30-35M per additional year of production in years 5-8 which means the after-tax NPV5% of the Lamaque project could easily exceed C$200M if Integra Gold would be able to extend the mine life by just another 4 years. Also keep in mind that this PEA was based on the resource estimate as of September 2013 which contained 736,000 ounces of gold and NOT on the most recent resource estimate which shows 828,000 ounces of gold (+12.5%).
This PEA shows how robust the Lamaque project is and we anticipate a very busy trading day in shares of Integra Gold today as it’s one of the very few projects in a safe region with excellent economics. We will release a more extensive report on the PEA when the technical report will have been filed on SEDAR which is expected to happen within 45 days.
> Click here to read the press release
Disclosure: The author holds a long position in Integra Gold. Integra Gold is not a sponsor of the website, but we were compensated by a third party to initiate coverage. Please see our disclaimer for current positions.
