Sabina Gold & Silver (TSX: SBB) has released an updated feasibility study on a combined open pit and underground development at the Goose property within its Back River gold project in Nunavut, 520 km northeast of Yellowknife. The engineering study proposes a 15-year operation, starting up at an initial processing rate of 3,000 tonnes per day and expanding to 4,000 tonnes per day by the end of year two.
Average production in the first five years is estimated at 287,000 gold oz. annually, with life-of-mine all-in sustaining costs estimated at US$775 per oz. Based on an initial capital outlay of $610 million, the after-tax net present value estimate for the project stands at $1.1 billion, based on a 5% discount rate and US$1,600 per oz. gold, with a 2.3-year payback and 27.7% internal rate of return. The construction schedule covers a period of 24 month. Gold dore would be produced on-site.
"Ongoing work over the last five years has enabled us to significantly advance the project through many critical de-risking phases," Bruce McLeod, Sabina's president and CEO, said in a release, adding that the latest study "is rigorous and provides a high level of confidence in our project economics..."
Since the release of the 2015 feasibility, the majority of key earthworks has been completed at the site, such as roads and preparations for an underground exploration ramp, with additional project logistics infrastructure construction. A 172-km winter ice road is in place from the marine laydown area to the Goose property and site infrastructure - including fuel tanks, and construction equipment - has been mobilized.
Basic engineering is now complete and detailed engineering is also mostly complete for the process plant. Sabina has engaged an original equipment manufacturer (OEM) to complete the process plant design and is working towards a fixed price contract with a performance guarantee.
Goose includes an all-weather airstrip, an exploration camp, heavy civil equipment and 4 km of all-weather roads within the project.
During mine construction and operations, equipment and materials would be transported to the port by sea during the summer and then hauled to Goose via a winter ice road. People and smaller items could be transported directly to site by air.
With environmental authorizations for constructions and operations in place, the company also has in place a comprehensive framework agreement on land tenure and an Inuit Impact and Benefits Agreement (IIBA).
With the feasibility, Sabina has also reported reserves for the Umwelt, Llama, Goose and Echo deposits at Goose. Open pit reserves total 9.9 million tonnes at 5.27 grams gold per tonne with underground reserves of 8.8 million tonnes at 6.76 grams gold per tonne. Cut-off grades range between 1.6 grams gold per tonne and 4.1 grams gold per tonne.
McLeod added that Sabina has "already started to focus on refreshing the project debt process with a view to obtaining financing to make a production decision this year."
Andrew Mikitchook of BMO Capital Markets raised his target price target on the stock from $3.50 per share to $3.75 after the updated feasibility study was released.
He noted the study "reconfirmed an economic, financeable, construction-ready mine."
"While production was slightly below our expectations, we see room to add back production by upgrading high-grade inferred underground ounces not included in the feasibility mine plan," he wrote in a research note to clients. "The next key catalysts for investors will be financing allowing a construction decision to be made."
The analyst also noted that "management is advancing work on a financing plan."
Commentary on the company's conference call, he said, "indicated that the debt process is being refreshed with consideration of commercial and P/E [private equity] debt providers. The company is also contemplating fixed-price contracts and performance guarantees for some portions of the development and expect to deliver further updates in mid 2021."
Matthew O'Keefe of Cantor Fitzgerald increased his one-year target price from $3.80 per share to $4.00 per share after the results were released and has a buy rating on the stock. O'Keefe pointed out that the updated feasibility "shows a greater capital efficiency, a higher production profile and longer mine life at Back River."
He also noted that the updated study "includes only 3.6 million oz. of the 5.1 million oz. gold resource (M&I) at Goose and of the district total gold resource of 9.2 million oz. (M&I + Inferred) providing significant long-term upside potential."
"The Back River project has all major permits for construction and operation and stands out for its high gold grade (~6.0 g/t), large production (~223 koz. gold/year), low all-in sustaining costs of US$775/oz. and modest upfront capex ($610 million), he wrote in a research note to clients.
He also noted the major changes from the 2015 study. "The major change over the earlier study is the addition of greater tonnage from the expanded resource allowing increased throughput and longer mine life, the addition of the Echo open pit and underground, Goose Main underground and Llama underground," he wrote.
"Also, cleverly, there is now no requirement for a separate, purpose-built tailings storage facility (the most complicated and highest civil capital risk to the project) as the exhausted pits will [be] used for tailings storage."