Out of the trenches Carlisle Goldfields is the right size for Profitability
Recently we attended a luncheon hosted by Carlisle Goldfields (TSX: CGJ | OTCQX: CGJCF) in the storied Armourer’s Hall in the city of London surrounded by suits of armour hanging from the walls. We did not however have any Damoclean Swords (at least that we could see) hanging over us.
I had met Carlisle a couple of years back in an office in midtown Manhattan so the contrast was poignant. The number of gold companies doing presentations has thinned a lot over the last 18 months and so kudos must go to the hardy souls who stick their head above the parapet and risk taking a bullet from disgruntled investors.
In Carlisle’s case they need not have worried as the crowd was very receptive, which only goes to prove that in mining promotion these days fortune favours the brave and those who get out and see investors have a head start on those hiding in the bunker hoping the “war is over”.
Carlisle Goldfields is focused on development of its Lynn Lake Gold Camp in Lynn Lake, Manitoba. The company has NI 43-101 compliant mineral resource estimates on five deposits within its Lynn Lake Gold Camp, four of which form the basis for the December, 2013 PEA (Farley Lake Mine Deposit, MacLellan Mine Deposit, Burnt Timber Mine Deposit, and Linkwood Deposit).
A Past-Producer – Golden Oldies are our Favorites: The main focus is the past-producing Maclellan Mine which has road access, power line, a head-frame, hoist house and shaft to 448 metres (with five levels), ramp access from surface to 420 metres below, maintenance building, core shack, vent raise, mine water settling ponds, and other mine infrastructure. The Maclellan Mine started production in July 1986 and closed in October 1989. Reported production amounted to 969,680 tonnes grading 5.36 g/t Au. Production was derived from four main zones. During mining, the deposit was accessible from surface by the central shaft and a ramp that passes through the Nisku Zone on the east side of the property. The shaft was used primarily for the hoisting of ore and limited movement of personnel. The ramp system was used for moving personnel, equipment, and supplies throughout the mine. Initially mining was by cut-and-fill methods. Difficulty in attaining production targets led to a change to long-hole mining but the increased production and lower mining costs were offset by lower mill-heads due to increased dilution. All of this has to be taken in the context that the gold price back then was a mere fraction of its current levels.
The Latest PEA – Within the Ballpark of Doable: Despite Maclellan having the entire underground infrastructure, Carlisle is contemplating working this deposit as an open pit. With this as the strategy, the company announced in February its revised PEA, prepared by Tetratech, for Maclellan and the neighbouring Farley mine. The results included a pre-tax Net Present Value at a 5% discount rate of $411 million with a pre-tax Internal Rate of Return of 34%. Initial capital costs came in at $185 million (including $35mn in contingencies). This was based on a conservative US$1100 gold price revenue model. The PEA envisages:
- LOM Au production of 1.74 million oz and 1.59 million oz of silver
- LOM average head grade of 2.2 g/t Au
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There will be a central milling facility with an initial milling capacity of 3,750 tpd in years 1-4 and ramping to full capacity of 7,500 tpd in year 5 of a 12-year mine.
Fortunately the company took the message from the tough financing environment and rejigged the PEA so that it came in with an initial capital cost approximately $90 million lower than that of the original 10,000 tpd PEA. Would that more companies cut their suit to suit their cloth.
The next step will be the expensive one requiring the preparation of the Bankable Feasibility Study, putting all environmental and mining permits in place and getting the First Nations on side.
Paying For It: At the presentation the company hinted that it was looking at several non-equity financing opportunities that would at once remove the overhang perception while leaving adequate project returns to shareholders. Interestingly the company’s new CEO, Abraham Drost, comes in from the royalty and streaming space as former CEO of Premier Royalty Corporation, a TSX company that was acquired by Sandstorm Gold in October, 2013.
Surrounded by Friendly Natives: As for the jurisdiction, Carlisle is pretty well positioned with the Government of Manitoba highly motivated to see the principal development sites, namely the former MacLellan and Farley Lake Mine sites refurbished and restarted. This desire is heightened as Lynn Lake is an economically depressed area without a significant industrial tax base. The government of Manitoba and local First Nation have publicly stated that they are supportive of Carlisle’s development plans. On the infrastructure front the province has hydroelectric power costs that are amongst the lowest in the world, it is policy within the province of Manitoba that this low cost power advantage be used to stimulate regional economic development and job creation.
Conclusion: The Catch-22 with the stock at the moment is the that the low share price principally reflects a financing “overhang”; it results from a perception that Carlisle needs to conduct a highly dilutive financing at low share price to gain sufficient funds to advance the project. Frankly we think the 270 mn shares of issue (and a further 90mn warrants) merit a decision on a stock consolidation to “reset the clock” for an expansive phase for the company.
As for the project itself, it seems to be “right-sized” in an age of gargantuan gold mines that struggle for profitability. I have some misgivings about Maclellan being pursued as open pit (with the commensurate heavy stripping ratio) when all the underground is still in place. It is interesting to consider whether the decision to go with open pit was predicated by using $1100 gold in the calculation. Going for open cut with relatively high-stripping over U/G is usually a trade-off between lower capex/higher OPEX in the former or lower opex and higher capex in the underground scenario.
The mine-life, even with the current resource, is long and with lots of extra territory to explore and expand operations, Carlisle could have a whole mining district under its aegis.
Christopher Ecclestone is a Principal and mining strategist at Hallgarten & Company in London. Prior to founding Hallgarten & Company in New York in 2003 ... <Read more about Christopher Ecclestone>