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GoGold Resources released the initial preliminary economic assessment for its Santa Gertrudis project in Mexico on Wednesday, and the numbers look good — even in the face of a potentially lower gold price.
Highlights from the report include a net present value of US$150 million and a post-tax internal rate of return (IRR) of 58 percent with a payback period of just 1.7 years. Initial capital expenditures are set at $32 million for the project, including a 20-percent contingency, while after-tax net cash flow will come to $232 million.
Contributing to that low capex is the substantial amount of existing infrastructure at Santa Gertrudis. The past-producing mine stopped operating in 2000, but features “numerous pits already stripped with haul roads,” making it almost “ready to start mining.” GoGold intends to develop the project as a 7,500-tonne-per-day heap leaching facility fed by several open pits, with the mine expected to produce an average of 56,000 ounces of gold per year over a projected 12-year mine life.
Additionally, the mine is anticipated to have a low, all-in sustaining cash cost of just $699 per ounce of gold.
GoGold’s president and CEO, Terry Coughlan, commented on the results in today’s release, stating “[w]e are extremely pleased with the results of the initial PEA study for Santa Gertrudis. The large increase in gold ounces along with the robust economic opportunity to develop our second low cost producing mine in Mexico, substantiates the reasons why the company was so eager to secure this gold project for our shareholders.”
How low can you go?
Even more interesting for investors to note is the base-case gold price that the company used to get such impressive numbers for its PEA. GoGold took it down to $1,250 per ounce, giving investors plenty of confidence in terms of the project’s ability to weather varying market conditions.
Furthermore, should gold continue to fare poorly, investors should still see a substantial return on their investment in GoGold, with the company stating in its announcement that Santa Gertrudis will have “low gold price resilience.” Essentially, even if gold drops to $1,000, the project will still have a hefty IRR of 34 percent.
Opportunity to expand
Although GoGold released a fairly recent updated mineral resource estimate for Santa Gertrudis in June, the company announced a substantial resource increase again on Wednesday. The indicated resource increased by over 33 percent, while the inferred resource went up by 80 percent. That rise was mostly due to revised economic and optimization paramaters for the PEA.
However, Coughlan also said that the project could be expanded further, stating that Santa Gertrudis, “has the potential for exploration upside and additional gold ounces through targeted exploration.” Certainly, investors will want to watch GoGold to see what the company gets up to in terms of advancing its Mexican project.
What’s next?
Speaking to what investors can expect next from GoGold, Coughlan stated, “[o]ur strategy, as it was with our initial low cost producing Parral Mine that went from grass roots to production in under twenty four months, is to fast track this second project, the Santa Gertrudis gold mine into production.”
In addition to Santa Gertrudis, GoGold has various holdings in Mexico, including its San Diego exploration property and the Parral tailings project, which is currently in the commissioning phase of production.
At close of day on Wednesday, GoGold shares were up almost 10 cents, or 6.38 percent, trading at $1.50.
Securities Disclosure: I, Teresa Matich, hold no direct investment interest in any company mentioned in this article.