Canadian junior gold miner and explorer, Sacre Coeur Minerals, with its principal operations in Guyana in South America reckons that it offers a very low risk route to expansion through organically generated cashflow. The company’s President and CEO, Greg Sparks, outlined the company’s policy and plans to a group of prospective investors, and to Mineweb, at a presentation in London yesterday.
The Company has been exploring for gold in Guyana since 2005. It has narrowed its exploration focus to two major holdings, together comprising 859 sq km of the most highly prospective elements of its original portfolio. These two large blocks of properties known as the Lower Puruni Block, which includes the Million Mountain properties, and the Northwest District Block are both prime targets for hard-rock gold resources, and contain large volumes of alluvial and elluvial material. Both areas have long histories of gold production dating back to the 1800’s.
At the moment Sacre Coeur’s main focus is on the Million Mountain concessions where it is already producing gold from elluvial and alluvial mining operations generating significant cashflow in an extremely simple, and low cost, process. This involves primarily liberating the gold bearing material through high pressure water jets (monitors) and using a low cost gravity system to recover the mostly coarse gold, while drilling areas of soft gold bearing saprolite material, which it describes as its ‘hard rock’ ore – actually a misnomer as the saprolite material can be dug out only using excavators. The cashflow from the existing operations goes part way to cover the majority of costs associated with developing the saprolite ‘hard rock’ sections meaning that when this is brought into production – planned for 2014 – the capital payback would be in months, rather than in years and the IRR an extremely impressive 115% on its current calculations!
Current production is quite small, but overall very cash accretive, at around 300 oz/month, but with total costs at only $510/oz. It is achieving a healthy margin of over $1,000/oz plus at current gold prices. It is currently looking to double the output from its elluvial and alluvial operations at a capital cost of only around $435,000 – which can easily be financed out of cashflow – while setting out its larger open pit ‘hard rock’ operation at Million Mountain Zone 1 where it has defined an NI 43-101 resource of 12.12 million tonnes of 1.og/tonne material (Measured) and a further 2.18 million tonnes at 0.9 g/tonne Indicated for a gold content of around 500,000 ounces. Admittedly this is low grade – but very easily mineable and simple to process material. Drilling is continuing to extend this.
An internal preliminary economic analysis shows this to be a robust proposition and more detailed mining and metallurgical studies are under way with the plan to bring it to a construction-ready stage and go-ahead decision by mid 2013, and on stream by mid 2014 at a gold output rate of around 35,000 to 50,000 ounces a year. In addition to its own cashflow generation, Sacre Coeur is entering into an innovative $5 million gold bond financing, convertible into gold (or rather a ZKB gold ETF) at a discount to the 20 day average spot price for gold which Sparks describes at a technically very simple and low-cost financing option which is proving very popular. Total capital cost of the ‘hard rock’ mine is put at $29.5 million.
The saprolite development would only have a life of around 5 years and produce gold at around $405/ounce operating cost, but the alluvial and elluvial operations even at the planned doubling of the current mining rate considerably longer at around 13 years with the prospect of opening up new areas and extending the life here as well.
Once the saprolite cap is mined, Sacre Coeur could look at mining the true hard rock material below it, but given this would involve crushing and grinding of the ore, as well as processing, the added costs – particularly for power which is diesel generated – would make it become a very different economic proposition and might not be worthwhile depending on the prevailing gold price at the time. But there is huge additional exploration potential for finding new low cost projects, not only in the Mineral Mountain area but also in its Northwest Block. It owns and operates three of its own drill rigs which keeps its drilling costs right down and the company curreently has two of its rigs undertaking lucrative contract drilling work for other explorers. It is also not ruling out accretive acquisitions and farm-ins in Guyana which could be achieved at low cost in the current economic environment.
Its current burn rate is around $200,000 a month as against a cashflow of close to $600,000/month (including contract drilling revenues) according to Sparks’ figures, and with the proposed doubling of its alluvial and elluvial ops this should rise to nearer $1 million a month assuming current costs and recoveries can be fully duplicated and the contract drilling continued at its current level. Sacre Coeur is small, but well controlled under its current development plans with what looks like good potential ahead provided its capital and operating costs can be kept within the currently planned parameters – Not always easy though in mining operations in remote areas.