In mining one of the most important predictors of success is a company's ability to churn cash, in what is typically a very cost-intensive process. Between water and power requirements to run the processing plant and tailings storage, to earthmoving and haulage expenses, to salaries and camp costs, a mine can just as often turn into a money pit as a means for generating profits and investor returns.
One company that has had no problem attracting money, including from institutional investors, to its project in Arizona is Northern Vertex (TSXV:NEE). Headquartered in Vancouver, the $68-million market cap junior has made good progress on its 100% owned Moss Mine near Bullhead City.
Since signing an option agreement in 2011, Northern Vertex has moved the Moss Mine from a preliminary economic assessment (PEA) in 2012 to an 18-month test-mining phase, followed by a feasibility study in 2015 showing robust economics for a small yet low-cost gold operation. Development expenditures to date total roughly $52 million.
The company has received financial backing of around US$49 million, enough to advance the Moss Mine right through to production, via agreements with Sprott Lending ($20 million), Greenstone Resources ($20 million) and a $9 million equipment finance facility from Cat Financial. The Sprott and Greenstone loans are being advanced in phases, with the first $10.8 million tranche from Greenstone, and the second $5 million tranche of the Sprott credit facility, both drawn in early June. As of the end of March, Northern Vertex had $8 million in its treasury.
Indeed the minesite is a beehive of activity, with progress being made every day.
Under the guidance of project manager David Stone, Joseph Bardswich, the president of Golden Vertex, M3 Engineering, Golder and Associates and N.A. Degerstorm, key contracts have been awarded. These include the contracts for concrete, heap leach civil works, and pond liner installations. Diesel generators from Empire Cat have been ordered, and conveyors and a radial stacker have been purchased. Crushers and conveyors will be moved into place in July and August.
The site has about a dozen engineers on a regular basis that are working on the various design and procurement aspects. All the civil works are complete, including roads, scrubbing has begun on the heap leach pad, and the Merrill-Crow gold processing facility is done. The mine has all the permits in place needed for commercial production.
Berry points to the 18-month test mining facility in 2013-14 as a key phase in the mine's development, because it showed institutional investors the confidence they needed in the project in order to open their wallets to some significant funding commitments. It also laid the groundwork for a 2015 feasibility study that showed some very attractive economics.
Most feasibility studies are predicated on lab work from metallurgical samples, but Northern Vertex went a step further and built an actual test mine. Mining and leaching activites over a year and a half, they produced 4,000 gold ounces and 20,000 ounces of silver, with recovery rates of 82% - which is quite high for heap leaching. It's those early heap leach recoveries that can often make an otherwise promising gold mine fail.
“The test mine specifically was very important for us to prove out the various aspects and take away the risk in the future financing.” notes Berry.
The numbers got even better when Northern Vertex completed its feasibility study in 2015, the same year that it announced a $20 million term sheet with Macquarie Bank. Northern Vertex ended up paying a break fee to switch from Macquarie to Sprott because the lending rates were more attractive.
Highlights of the study include a low strip ratio of 1:62:1, with an average gold equivalent grade of 0.93 grams per tonne. Mining an average 5,000 tonnes per day, the Moss Mine is slated to produced 42,000 gold ounces a year, for a minelife of five years. But the really important numbers in the study are the costs to mine and the internal rate of return (IRR). Northern Vertex says it can produce gold at an all-in-sustaining cost (AISC) of US$662/oz. When calculated at a gold price of $1,250 an ounce, the IRR is an astounding 48%. That leaves a margin of US$588 per gold-equivalent ounce. Boost the gold price to $1,500 an ounce, and the IRR shoots up to 68%. Even if gold were to fall to 1,000, the post-tax IRR is still 24%, a respectable return. Moreover, the capital costs to build the mine are just $33 million, which in construction terms, is dirt cheap.
“The feasibility study really established that this project, although it's not a big project, it will be very profitable,” says Berry, who predicts the mine will net between $23 and $25 million a year once in full production. That cash could be put towards more exploration to grow the resource, which currently stands at 435,000 ounces (gold equivalent, measures and indicated), or give Northern Vertex a war chest to acquire other projects.
“It's going to throw off a lot of cash and it'll put us in a position to look to deploy that cash to additional exploration, in or around our minesite. As well we'll look for other projects that might complement the Moss property and deploy the cash that way,” says Berry. “And, of course, with the strong financial backing of Greenstone and Sprott, that also puts us in a position that we can reach out and look for other assets to add to our portfolio.”
While power to the mine will initially be provided through portable generators, Northern Vertex has a plan to install an electric power line, once permitting is approved. Berry estimates that will save between $12 and 15 million in diesel fuel costs over the first five years, and bump up the IRR by 4 or 5%. Not to mention stopping million of tonnes of diesel fuel emissions from entering the atmosphere. “We think there is a big win in it for everybody, including the environment.”
Historical mine workings show the Moss Mine produced around 12,000 ounces in the 1800's, briefly went into production in the 1920s, and has been reactivated through various exploration programs in the 1980s. The gold-silver stockwork, which is a brecciated, low sulphidation, epithermal vein system, outcrops at surface for 1,500 metres, making it amenable to open-pit heap leaching with a low strip ratio.
The mineralization continues on strike so there is a high probability that the pit could be expanded with additional exploration; the company has set a goal of delineating a million ounces through drilling. While the main objective is to put the mine into production, the resource could keep growing, depending on the results of a 3,000-meter drill campaign announced in December. The campaign focuses on four target areas: The West Oatman Vein System, the high-grade Old Timer East and West targets, and the Western Extension target on the Moss Mine's patented claims, where extensive silification and quartz veining has been mapped.
“The deposit is open to the east, open to the west. And it's open at depth. And there's many other targets on the property,” says Berry. “Once we're up and producing, we'll start to begin to accelerate our exploration.”
Conclusion
Northern Vertex is definitely on my screen. Is it on yours?
If not, it should be.
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This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment.
Richard does not own shares of Northern Vertex (TSXV:NEE). NEE is an advertiser on his site.
