Earlier this year Vista Gold (TSX: VGZ; NYSE-AM: VGZ) signed five confidentiality agreements over the space of six weeks on its Mt Todd open-pit gold project in Australia’s Northern Territory.
Now the company expects even more interest in the project after slashing initial capital spending by 59% from $1.03 billion (C$1.42 billion) to $425 million in a smaller scale development prioritizing grade over tonnes.
An updated feasibility study in July evaluated the economics of cutting throughput to 15,000 tonnes per day from the 50,000 tonnes per day envisioned in a 2024 feasibility study.
“We decided to evaluate ways to significantly reduce the capex, make the project easier to build – something more attractive in the Australian mining landscape – and settled on 15,000 tonnes per day,” says Frederick Earnest, Vista’s president and CEO. “The smaller operation represents a paradigm shift in the way the company looks at the project.”
45% return
Mt Todd would generate a post-tax net present value (NPV) at a 5% discount rate of $1.1 billion and internal rate of return (IRR) of nearly 28% at a base case gold price of $2,500 per ounce. At spot gold of $3,300 per oz. the NPV jumps to $2.2 billion and the IRR to almost 45%. The payback period in the base case is 2.7 years, falling to 1.7 years at spot prices.
“It’s a 10.6-million oz. deposit and is exciting because it has the potential to be the most financially rewarding project I’ve ever worked on,” Earnest says. “There is an opportunity to create wealth for shareholders in a magnitude I have never participated in as a manager in this industry.”
Average annual production in the mine’s first 15 years is estimated at 153,000 oz. grading 1.04 grams gold per tonne and 146,000 oz. grading 0.97 gram gold per tonne over its 30-year mine life. All-in sustaining costs in the first 15 years are pegged at $1,449 per oz. and average $1,499 per oz. over the life-of-mine.
“The all-in-sustaining costs are quite middle of the road for Australia operations as is the capex,” he says. “One of the things that pleases me the most is that it is a very credible study and the numbers are achievable.”
‘Right-sizing’
In addition to “right-sizing” the project, Earnest says, Vista “right-scoped” it by raising the reserve cut-off grade to 0.5 gram gold. That increased the average reserve gold grade from 0.77 gram gold to 0.97 gram gold at the Batman deposit.
“With Mt Todd being such a large deposit, we have the luxury of raising the reserve cut-off grade,” he explains. “We felt that a smaller, high-grade reserve would be more appreciated in the market and that there would be greater value placed on the project.”
Mt Todd currently hosts proven and probable reserves of 171.9 million tonnes grading 0.94 gram gold for 5.2 million contained ounces. The reserves include ore that was left on the historic heap leach pad, which will be re-processed at the end of the mine’s lifespan.
Importantly, Mt Todd has all major permits it requires for a larger 50,000 tonnes per day mine. While these permits will need to be amended for the smaller throughput, Vista doesn’t see that as a risk.
“It would stand to reason if you have permits for 50,000 tonnes per day and you’re proposing 15,000 tonnes per day in a new footprint there shouldn’t be a lot that needs to be done,” he says.
Larger option
Vista, with a market capitalization of about $128 million, notes that the option to build it bigger is still there.
“We’ve not sterilized or walked away from the potential to build it larger,” Earnest says. “We’ve preserved the space and layout in the plant to make sure there is room for additional crushers and mills, so the project can be expanded in the future.”
Management hopes to have greater clarity over Mt Todd’s future development path over the next six months. Options the board is considering are to joint-venture the project, sell it, or build it themselves with contract miners.
Measured and indicated resources stand at 340.4 million tonnes grading 0.83 gram gold for 9.1 million oz. contained gold and another 57.1 million inferred tonnes grading 0.78 gram gold per tonne for 1.43 million ounces.
Decade’s work
Vista acquired Mt Todd, 250 km southeast of Darwin, out of receivership in 2006. It then spent a decade engineering and designing a large project that it thought would be attractive to senior producers.
“But with the rising gold price senior producers have higher tolerance for operating risk than development risk, which is why they are acquiring other producers,” he says. “
Record high gold prices and a smaller initial investment make Mt Todd even more attractive now, says Earnest, who recalls struggling to operate mines in the Andes when gold was trading at US$250 per ounce.
“If you told us then that we’d live to see a gold price ten times that, we would have said, no that’s impossible,” he says. “Now many of the lending banks have mid-term gold prices of US$4,000 per oz. in the next two or three years. So, there’s even more incentive to build Mt Todd.”
The preceding Joint Venture Article is PROMOTED CONTENT sponsored by Vista Gold and produced in co-operation with The Northern Miner. Visit: www.vistagold.com for more information.
