Beacon Minerals (ASX:BCN) is currently commissioning its Jaurdi gold project where it expects to reach the full production phase in the fourth quarter of this year. The nameplate capacity of the mine and processing plant calls for an annual throughput of 500,000 tonnes, which should result in the production of around 25,000 ounces of gold per year.
According to a pre-feasibility study, the all-in sustaining cost is anticipated to be just A$870/oz while the pre-tax Internal Rate of Return is expected to be 75% thanks to the low initial capex (A$21.4M) and the short 11 month payback period. Roughly 126,000 ounces of gold are expected to be recovered but Beacon Minerals will very likely be successful in extending the mine life by adding some of the satellite zones into the mine plan.
We are however surprised by the A$70.4M Net Present Value. When digging deeper into the details of the calculation, it appears Beacon Minerals used a ridiculously low discount rate of 2.2% which is completely unheard of. If we would apply a 5% discount rate on the expected cash flows, we end up with a pre-tax NPV5% of A$63.5M. Considering the difference is so marginal (just A$7M), one could wonder why Beacon Minerals tried to ‘over-optimize’ its NPV calculations.
Keep in mind these numbers are based on a gold price of around A$1650 per ounce, while the current gold price in Australia is trading just over A$2,000/oz. This means the operating margins (on an AISC basis) will very likely be 40-45% higher than assumed in the feasibility study.
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The author has no position in Beacon Minerals. Please read the disclaimer
