International Tower Hill Mines (TSE:ITH) (NYSE-A:THM) reported Tuesday the results of an updated preliminary economic assessment (PEA) for its Livengood gold project near Fairbanks, Alaska, with a base case net present value (NYSE:NPV) of a whopping $1.2 billion, alongside a significantly expanded surface mine resource.
At a processing rate of 91,000 tonnes per day, the mine was estimated to have average annual production of 664,000 ounces of gold over the first five years, and 562,000 ounces over the 23-year life of the operation, making it potentially one of the largest single gold mines in North America.
This compares with the last PEA in August 2010, which estimated average annual production of 504,000 recovered ounces of gold over 21 years.
Cash flows from the updated mine model, on a pre-tax basis, were calculated at $3.1 billion, lending to a net present value of $1.2 billion, at a 5% discount rate, and a 14.1% internal rate of return, with a payback period of 4.9 years. The base case scenario, which also yielded a life-of-mine cash cost of $703 per ounce of gold, assumed a gold price of $1,100 per ounce.
“The release of these positive PEA numbers confirms our long-standing belief that Livengood is truly a world-class deposit representing one of the largest new gold discoveries made in recent times," said CEO, James Komadina.
"With sound project economics and tremendous leverage to current commodity prices, the timely development of the Livengood deposit will create significant value for our shareholders.”
Indeed, using the recent sky-high spot price of gold at $1,700 per ounce, cash flows jump to more than $10.6 billion, while net present value, at the same 5% discount rate, climbs to $5.1 billion.
The company said that initial capital costs for the mine were estimated at $1.61 billion, including $323 million in contigency and owner's costs. Cash costs for the first five years came in at $557 per ounce.
In addition to all these positive economic results, the company has also significantly boosted surface mine mineralization to 16.5 million ounces of contained gold in the measured and indicated category, and 4.1 million ounces of gold in the inferred category, at a cut-off grade of 0.22 grams per tonne (g/t).
The company defined its resources based on a large surface mining operation, using a gravity/flotation/CIL processing method, and a long-term gold price of $1,400 per ounce, "considering the current, strong gold price environment", it said.
The latest resource estimate included drill results from its winter program through May, and will be used as part of the preparation for the project's pre-feasibility study. International Tower Hill said that it believes the study can result in the conversion of a substantial portion of the measured and indicated resources into proven and probable reserves.
The company also said that the new resource data was derived using a rigorous model, which constrained the estimate to add confidence to higher grade areas of the deposit (as there were un-estimated blocks due to lack of data), indicating expansion potential as ongoing exploration continues to extend the drill grid.
The latest global resource estimate for the project is 17.6 million measured and indicated contained ounces of gold, at a 0.2 g/t cut-off, and 6.1 million contained inferred ounces of gold.
The production profile for the economic report estimaed surface mine gold production of 15.8 million contained ounces, and an average annual recovery rate of 81.6%.
Ongoing metallurgical studies will be focused on optimizing various unit operations, which is expected to have a positive impact on project economics. Currently, International Tower Hill is also carrying out a 28,000 metre resource program, focused on infill and step out drilling of the deposit to test expansion potential, both laterally and at depth.
The pre-feasibility study for the Livengood property is expected by mid-November this year.
International Tower Hill controls 100% of its approximately 145 square kilometre Livengood land package, which is made up of fee land leased from the Alaska Mental Health Trust, a number of smaller private mineral leases and 115 Alaska state mining claims. The terminus of the Alaska State power grid lies approximately 80 kilometres to the south.