-- Published: Thursday, 7 January 2016 | Print | Disqus
In the jungles of Guyana, Goldsource Mines Inc. (TSX-V: GXS) is nearing completion of constructing a gold mine that will give it near-term cashflow and put it on course for significant production growth. 
Once the Eagle Mountain saprolite gold mine is operational in what could be as little as a matter of weeks, targeting the end of January, Goldsource expects to quickly ramp up to the 1,000 tonne per day capacity in the initial production phase and start churning out gold with a straightforward gravity operation.
From there, the company has numerous options to increase production, expand its land package, and look at other assets as it makes the jump from an exploration company in transition, to an active, profitable mining company.
Taking Shape
2015 has been a year of trials for Goldsource as it navigates the risky period after promises are made and construction starts, and before it actually starts to gain any rewards from trying to build a mine.
So far the company seems to be passing the test, with construction well on schedule, milestones achieved, and the whole project coming in under budget.
The simple design of the mine has helped in the execution, relying on bulldozers and excavators to move the mineralized saprolite to a downhill gravity separator, eliminating the need for blasting, truck hauling, or chemicals.
The biggest undertakings have included arranging the construction of a 100-tonne-per-hour processing plant in Vancouver and having it shipped down to Guyana, as well as the rehabilitation of a 10-km road between the mine site and Mahdia Township where there’s a commercial airport – and the start of an existing ~325 km road to the country’s capital of Georgetown.
Cat D8R Dozer leveling ground
Both of those are now effectively complete, with the company now working on assembling the modular processing plant, finishing up camp facilities, and other loose ends as it works towards production.
Based on its updates the company looks set to start production by the end of January, having barely started construction in March!
Generating Profits
The Eagle Mountain mine is designed to be a very low-cost start-up, with many options for expansion, which is outlined in a four-phase gold production plan. That quick and cheap start-up makes for some compelling numbers in the mine’s financials.
Using a $1,250 gold price, which is about where the metal was trading when the preliminary economic assessment came out in mid-2014, the mine is estimated to have an after-tax net present value (NPV) of $45.6 million using a 5% discount rate and an after-tax internal rate of return (IRR) of 63%.
Even at today’s lower gold prices, and using a higher discount, the mine still shows encouraging numbers. At $1,100 gold and a 7% discount rate the mine has an NPV of $28.5 million and an IRR of 49%, as per the PEA calculation at $1,100 gold price.
The 8-year mine plan has the company processing a total of 7.3 million tonnes of indicated and inferred resources at an average grade of 1.2 g/t gold to produce 168,700 oz. gold from gravity processing at 60% recoveries.
First Conveyor Belts on Site
Production would actually ramp up from 5,600 oz. gold in the first year to 28,800 oz. gold by the fourth year according to the mine schedule, as the company ramps up to 4,000 tonnes a day of processing capacity.
The full capital costs are estimated at $24.2 million, while cash operating costs, exclusive of sustaining capital, runs at $480 per oz. including a 15% contingency. All-in sustaining cash operating costs, including royalties and corporate overhead, should run at about $630 per oz. gold.
Going along with its minimal cost mantra the company only went so far as to complete a preliminary economic assessment (PEA) on the project, so some of these figures aren’t as firmed up as in a full feasibility study, but the company decided at these capital costs, it didn’t make sense to complete a full study.
But while the PEA is a less robust study, it did also leave out some significant potential benefits for the project.
Because of the simple processing method, the mine plan leaves an inventory of 161,900 oz. gold stockpiled from the 1.3 million tonnes of rock the company estimates will be bigger than the 2 mm threshold for its machines. The material will be stockpiled to be potentially processed at a later date.
Saprolite Mineralized rock
The mine plan financials also doesn’t take into account a fresh rock resource of 2.3 million indicated tonnes grading 1.52 g/t gold for 114,000 oz. gold and 13.4 million inferred tonnes grading 1.13 g/t gold for 486,000. The company could theoretically later extract this gold, but it would require drilling and blasting as well as more processing.
Paying the Bills
With no apparent cost overruns so far Goldsource is looking relatively stable financially, but having to raise money in this market means the company has never been flush.
As of early November the company had US$1.3 million in cash and roughly $600,000 left to spend to get the mine into production.
To add more of a buffer the company has secured a US$1 million one-year loan facility at 12% interest to its books to give it more flexibility in the commissioning phase of the mine.
On the equity side the company is already a little stretched out with 126.5 million shares outstanding and 177.2 million fully diluted thanks to 50 million warrants.
Many of those shares were issued when the company raised $7.1 million in December 2014 to fund mine construction, resulting in the issuing of just over 47 million units at $0.15 each.
Leading the Charge
Up to this point Goldsource’s management skills speak somewhat for themselves, with the mine construction apparently on time and below budget, but there are still many tests ahead. Fortunately the upstart company does have depth of experience both in the region and with mine construction and operations.
Steering the ship as CEO is Scott Drever, who as President and CEO of SilverCrest Mines, led the company into production in Mexico and then arranged the sale of the company to First Majestic in a C$154 million deal earlier this year. In his 45 years of geological experience Drever has also served as an executive officer and director of Placer Dome and Blackdome Mining.
He’s joined by Ioannis (Yannis) Tsitos as President, who has extensive mining experience in Guyana and across South America, as well as working in South Africa, Ecuador, Greece, and Canada for BHP Billiton as a manager in mineral exploration. Tsitos also led the full acquisition of the Eagle Mountain project from IAMGOLD through a bidding process in early 2010 into Eagle Mountain Gold Corp. before that company merged with Goldsource in February 2014.
Eric Fier, who came with Drever from SilverCrest Mines, is in the role of chief operating officer. He oversaw construction of the Santa Elena mine while at SilverCrest, and was involved in construction and operations of three mines before that.
Rounding out the former SilverCrest players is Nicholas Campbell, CFO who brings to Goldsource over 12 years of finance and corporate valuation experience in the mining industry. This includes 10 years working in capital markets as a Mining Research Analyst. Prior to joining Goldsource, Mr. Campbell was a Financial Advisor to SilverCrest Mines Inc., He also was Head of Planning and Business Development for Torenco Energy, a private oil and gas company focused on Mexico. With strengths in the due diligence process, financial modelling and analysis, marketing and corporate development, he brings a unique set of skills to the Company.
Going Big
Together the management and company personnel look to be moving well to production and initial cash flow at Eagle Mountain, but the trade-off in a quick start-up is a somewhat modest mine plan. But the management team thinks they have room for quick expansion.
First on the Eagle Mountain mine itself, the company can increase production by adding a night shift to what is currently planned as a 10-hour-a-day operation, and add chemical treatment to improve gold recoveries at a later stage.
The company also sees significant exploration potential in the area with the Eagle Mountain resource open in three lateral directions as well as at depth.
Property Location
There is also regional expansion potential, with the project only 45 km from the historic Omai gold mine where an estimated 4 million oz. gold was produced between 1993 and 2005. The company has talked about regional consolidation or even potentially acquiring projects elsewhere in Guyana.
The Task at Hand
For now Goldsource is, however, concentrating on finishing construction on time and for as little money as possible. Thanks to its prudently modest early production plans the company seems well on its way to achieving its targets, and could be producing gold in a matter of weeks!
From there the company will have cash flow and options to expand and develop production as well as start to consider bigger expansion plans.
Having gone from just another junior explorer with a development project to nearing production in barely a year, 2016 is looking like another aggressive year of growth for Goldsource.
With one of the lowest all in sustaining costs for a gold miner at about $630 per oz. gold, there is a large margin even at these depressed gold prices to make significant returns on investment. This relatively low-risk and very near-term gold miner is my top pick for 2016. I have made Goldsource Mines my top junior gold investments.
- Peter Spina, President of GoldSeek.com
Goldsourcemines.com
TSX-v: GXS
Shares Outstanding | 126.9 million |
Fully Diluted | 177.6 million |
Market Capitalization | US$18.12/C$25.4 million |
Peter Spina's experience with the precious metal markets started back in the mid-1990s, which led to the creation of GoldSeek.com back in 1995. Today GoldSeek.com ranks in the top three most popular global gold websites and its sister site, SilverSeek.com ranks as the most visited silver website in the world. Back at the start of the new secular precious metals bull market, Peter established the technically-focused subscription newsletter, which at the start of 2005 was merged into the more comprehensive Gold Forecaster (goldforecaster.com) service. In addition to the newsletter and websites, Peter frequently appears in the media including MarketWatch, Reuters, and Investors Business Daily.
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-- Published: Thursday, 7 January 2016 | E-Mail | Print | Source: GoldSeek.com
Goldsource Mines takes the Fast Lane to Low Cost Gold Production
