by Stockwatch Business Reporter
New York spot gold fell $6.90 to $1,621.10 on Monday. North American markets gained ground today, but the TSX Venture Exchange ended the day down 2.03 points to 386.55. The TSX gold index also lost ground, dipping 0.35 point to 241.93, although Agnico Eagle Mines Ltd. (AEM) went the other way, adding $2.57 to $56.63 on 1.87 million shares.
Jason Neal's TMAC Resources Inc. (TMR) slid 10 cents to 45 cents on 1.25 million shares on receipt of a prefeasibility study of its Hope Bay project in Nunavut. The study is based on a reserve of 16.88 million tonnes averaging 6.5 grams of gold per tonne, about 3.55 million ounces in all, spread across the Madrid North, Boston, Suluk, Doris and Madrid South areas. There is considerably more gold present, as the measured and indicated resource lists 21.8 million tonnes at 7.4 grams per tonne, with another 10.9 million tonnes at 6.1 grams per tonne inferred, for a grand tally of 7.3 million ounces.
The new prefeasibility study contemplates a $683-million expansion to the current mine, a plan that includes a 4,000-tonne-per-day processing facility and enough infrastructure and equipment to supply ore at that rate. The current plan calls for production at 2,000 tonnes per day until the expansion is complete in 2024. The bottom line of the new study, says Mr. Neal, president and chief executive officer, is a discounted net present value of $486-million after taxes, a value that he points out is "significantly in excess of the current market value" of TMAC.
Even so, Mr. Neal and his crew are not yet content to press ahead with a full feasibility study. He says that the valuation of Hope Bay "would grow quickly with exploration success as infrastructure is leveraged," pointing to the potential of the high-grade Doris North BTD Extension zone. Further, while the study has shown the value of building better infrastructure, TMAC has also started to study the benefit of better using the existing infrastructure initially. More study is needed, Mr. Neal says, to decide if the loss of revenue over several quarters is worth the benefit of the resulting capital savings and a faster time to expansion.
This has been the Hope Bay saga since BHP Billiton Ltd. began exploring the area 30 years ago. Since then, the project has seen more than its share of exploration and development -- not to mention more than a healthy dose of promotion -- at the hands of several other companies. Those would-be miners included Miramar Mining Corp., which acquired the project from BHP in 1999, and Newmont Corp. (NGT: $65.31), which paid $1.5-billion for the right to give it a try in 2007.
Along the way there have been plenty of studies, including a feasibility report by Miramar in 2003, but Newmont was the only company to accomplish more development than promotion. Indeed, it had Hope Bay almost ready for a ribbon-cutting ceremony, when it suddenly put the nearly-a-mine project on care and maintenance in 2011.
Enter TMAC, through a 2013 stock deal that gave the company Hope Bay for a fraction of what Newmont had put into it. After its own cash injections, TMAC declared Hope Bay to be in production in 2017. The mine averaged just under 40,000 ounces per quarter last year, but Mr. Neal -- and his backers -- have been unhappy with its performance. Early this year, he said that TMAC was looking for "strategic alternatives." Perhaps the new study is one such alternative, but investors who paid over $20 for a share in 2016 are probably looking for others; ones that will not require big cash expenditures.
Peter Dougherty's Argonaut Gold Inc. (AR) lost one cent to $1.05 on 1.49 million shares on word that it has agreed to a "friendly, at-market merger" with Mark Backens's Alio Gold Inc. (ALO). (Alio Gold added two cents to 71 cents on 139,000 shares following the news.) Alio's shareholders will get 0.67 of an Argonaut share for each of their Alio shares, an arrangement that does not include any premium -- or discount.
Once complete, Mr. Backens and his fellow Alio shareholders will own just under 25 per cent of the expanded company, with Mr. Dougherty and his Argonaut backers holding just over three-quarters of the expanded Argonaut's stock. Mr. Dougherty and his crew will carry on with running Argonaut, aided by two new directors appointed by Alio: Paula Rogers and Stephen Lang.
A pleased Mr. Dougherty says that the merger makes sense for both sets of shareholders, as it creates a "larger, more relevant company" that offers significant synergies -- not the least of which will be a 235,000-ounce annual production base. Mr. Backens also cheered the merger, noting that it removes the substantial risk that is inherent in a one-mine company. (His one mine, Florida Canyon, had been projected to yield about 65,000 ounces this year. Argonaut's two were projected at 180,000 ounces this year, but one, El Castillo and its 115,000 ounces, is slated to close in a few years.)