One of the projects I toured this summer when I was in the Yukon was Western Copper and Gold Corp.'s (WRN:TSX; WRN:NYSE.MKT) massive Casino deposit. The resource is estimated to total an eye-popping 18 million ounces gold and 11 billion pounds copper. The feasibility study outlines annual production of 171 million pounds of copper and 266,000 ounces of gold. This is a project with serious scale.
Building the mine of this size is estimated to cost US$2.4 billion, of which about US$1 billion is for the mill. A power plant, an access road and heap-leach and tailings facilities will also need to be constructed. The capital costs are big but so are the returns, as it should result in a 19% post-tax IRR at US$1,335 gold and US$2.15 copper.
Permitting for the project is about 50% completed; it should take about another 2.5 years to reach shovel-ready state, a timeframe that could work out well with the copper cycle.
Given the excesses of the last bull market, such large projects have fallen out of favor. However, at some point it will attract the attention of a gold or copper miner. Majors need to build a very large project once every cycle or two to maintain their overall production numbers. And Casino would make sense for a gold or copper major, as its value is divided almost evenly and mining one metal will help offset the costs of the other.
Rumor has it that Western is in talks with several majors. The Casino project has several aspects that make it especially attractive. The first is location; after Goldcorp bought out Kaminak for its Coffee project, the Yukon is on the radar of lots of the majors. Casino is located only 30km from Goldcorp's Coffee project and Goldcorp has made clear that it intends Coffee to be only its first project in the area leaving Casino and Victoria Golds Eagle project as solid candidates.
But majors other than Goldcorp could still be interested. Casino is one of the few projects in the Yukon that is large enough and has been advanced far enough for the majors to pay attention. Majors need large-scale projects to replace dwindling resources. Casino's capital expenditure is large, but could be managed by one of the majors or by two or more miners in partnership. Containing both gold and copper, a partnership of a gold miner with a copper miner could make sense. Or it could be picked up by a copper miner that is willing to wait for the copper cycle to come around. Western Copper and Gold has engaged the banking community which is a good sign that there may be something brewing.
And if no major bites at this point, Western Copper and Gold will continue to concentrate on obtaining the permits for Casino, which would make it an even more attractive takeout target down the road.
Speaking of majors, Kinross recently invested $10 million into Nighthawk Gold Corp. (NHK:TSX.V). The investment will give Kinross a 9.5% stake in NHK, a nice foot in the door for the major should the Indin Lake project turn out to host the kind of gold that Dr. Michael Byron and his team think it could.
The placement consists of 6.17 million shares at $0.50 apiece and 10.8 million flow-through shares at $0.65 apiece. The flow through money will be put directly into exploration, as required, while the funds from the straight shares will be used for general working capital.
Post financing, Nighthawk will have $15 million in the bank, of which $9 million will be flow through. A winter drill program is definitely in the works, to be followed by further summer drilling and a regional mapping and prospecting program. The flow-through funding is sufficient to cover all this.
Its great news for Nighthawk: enough money to fund its plans for the foreseeable future, buy-in from a major, and a good price by taking advantage of flow through funding (which I usually hate because buyers sell as soon as the flow-through share become free trading, but it works in this case because Kinross will in all likelihood hold).
Another potential M&A candidate is Roxgold Inc. (ROG:TSX.V), which has achieved commercial production at Yaramoko in Burkina Faso. Roxgold was able to achieve much lower dilution than expected in its first few stopes, the mined grade has been higher than forecast, and there have been no surprises in terms of mining rates or conditions. The mine produced 32,987 oz gold in the third quarter, in line with expectations. Of equal significance Roxgold says the second stope extraction went well, with the double-height stope remaining stable and dilution coming in at 17.9%, below the assumed 20.5%.
With the mine up and running, Roxgold is now also shifting attention to growth opportunities. The company has already proven up a second deposit on the property, Bagassi South, and is figuring out how that might fit into the mine plan. The deposit being mined, Zone 55, is wide open at depth. And the process plant was built so it could be upsized 50% with an investment of just US$6 million.
There are very few new mines in the world today, let alone successful and high-grade mines with significant expansion potential. Roxgold could continue on its own, using cash flow from Yaramoko to expand the operation and bank cash, or it could get taken out.
With almost a decade of junior resource-focused journalism under her belt, Gwen Preston launched Resource Maven. Preston watches the wires, talks to her network and analyzes economics to identify resource news that matters and figure out how to profit. She focuses on early-stage exploration and development stories. Preston has been interviewed on CBC and in the Financial Post.
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