Sunridge Gold Corp. (CVE:SGC)(OTCQX:SGCNF) has done exactly what it set out to do last year in releasing a feasibility study for its Asmara project in Eritrea that minimizes the capital exposure in a challenging time for Canadian juniors, with the company now having a plan to start initial production almost one year earlier than the preliminary report.
The Canadian junior company told investors Thursday that the latest study, which shows the mining of all four advanced deposits that make up the project and the processing of the ore near the large Emba Derho deposit, shows "much greater value" than the prefeasibility study released last year.
Indeed, as a result of the earlier than expected production and cash flow, combined with capital cost reductions, initial capex requirements to be financed have been lowered by over $130 million. Capex has been cut to $354 million from $489 million, CEO Michael Hopley said on a conference call this morning.
When the mining license is granted for the project, the Government of Eritrea will have a 10 per cent carried interest, and ENAMCO, the Eritrean National Mining Corporation, will be purchasing an additional 30 per cent of the project, thereby responsible for one third of all capital and operating costs at the mine going forward.
"We've eased concerns about junior companies with large capital cost projects with a three phase start-up plan, which both increases the value and minimizes the capital exposure, with the results exceeding our expectations."
Hopley said on the call that Sunridge produced the feasibility study, with the goals outlined last year, both on time and on budget.
The NI 43-101 compliant report outlines a net present value of US$837 million, at a 10 per cent discount rate pre-tax, or US$443 million after tax. This compares with a pre-tax net present value of $555 million in the prefeasibility study released last May.
The internal rate of return (NYSE:IRR) for the project was pegged at 34 per cent pre tax, or 27 per cent after tax, with a payback period of 4.6 years post tax.
The study, which outlines a three-phase staged mining plan, was based on base case metal prices of $3.25 per pound of copper - slightly lower than the price used in the preliminary report - $1.00 per pound of zinc, $1,400 per ounce of gold and $25.00 per ounce of silver. Using current metal prices, the post-tax IRR for Asmara was still seen at 26 per cent.
In a research note by London-based Ocean Equities today, the brokerage firm said the results of the bankable study were positive. "The post-tax IRR of 26% using today's commodity prices which have softened considerably is a great result for Sunridge."
The mine, which has a mine life of more than 15 years, is pegged to produce a total of more than 841 million pounds of copper and 1.87 billion pounds of zinc, as well as gold and silver.
"In a little over two years, the Asmara Mine can start production and become a very important producer of copper, zinc, gold and silver for the benefit of Sunridge shareholders and the Eritrean people," said Hopley in the statement released Thursday with the figures.
The construction period for the project - which is made up of the Emba Derho, Debarwa and Adi Nefas copper-zinc-gold and silver deposits and the Gupo gold deposit - is projected at one year. On site operating costs are seen at $29.42 per tonne through the life of the mine.
The company said that the Emba Derho, Debarwa and Gupo deposits will be mined by open pit methods, while Adi Nefas will be mined underground.
In the first phase of the three-stage mine plan, the high grade copper, or direct shipping ore, will be mined, and then transported 120 km to the port facility at Massawa for shipping to a smelter. Near surface gold and silver ore will also be mined from the Debarwa, Emba Derho and Gupo deposits and trucked to the same crushing facility near Emba Derho.
Full production will not be reached until the third phase, when primary copper and zinc ores from Debarwa, Adi Nefas and Emba Derho will be processed at a flotation plant at a rate of 4 million tonnes per year. Initial output is estimated for mid-2015.
All four deposits included in the study, which was done by SENET, are located within a 30 minute drive on paved roads from the capital city of Asmara, nearby power, water and an international airport. The Red Sea port city of Massawa is also just 120 km east of Asmara.
Sunridge said Thursday it will continue to work towards bringing the project into production as soon as possible by wrapping up the required environmental work, as well as applying for the mining license, after which it will be in a position to arrange for debt financing.
Opportunities to further bolster the economics will also be looked into during detailed engineering, including the possibility to improve process rates with existing equipment.
"With the results of the bankable feasibility study now in the public domain we would expect Sunridge to be exposed to a lot more interest from potential investors/off-takers as the company moves forward over the next twelve months," said Ocean Equities in its research report.
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