Marathon Gold Corporation (TSX: MOZ) is pleased to report the results of the Pre-Feasibility Study for the Valentine Gold Project in Central Newfoundland. The PFS supports an open pit mining operation with low initial capital cost and high rate of return over a 12-year mine life. Highlights of the PFS are as follows (all figures are in Canadian dollars unless otherwise noted):
Matt Manson, President & CEO commented: “The Valentine Pre-Feasibility Study released today presents a high value, low capex project with a strong gold production profile and high operating margins. We have taken the approach of identifying the optimum starting point for mining at Valentine, emphasising highest rate of return and lowest risk, while recognising that the large resource inventory and extensive exploration potential along strike and at depth offers plenty of opportunity for mine life extension. Our mill expansion strategy is supported by internal cash flow using a conservative gold price assumption, and the project carries strong project financing attributes, including a fast payback.” Mr. Manson continued: “The Valentine Project is expected to be Atlantic Canada’s largest gold producer. Notwithstanding the current COVID-19 challenges, it represents the future of responsible resource development in Central Newfoundland. With a strong treasury in hand ($28M as of Dec 31, 2019) our attention now turns to the submission of our Environmental Impact Statement, expected later this year, and the commencement of Feasibility-level studies.”
Valentine Gold Project Pre-Feasibility
The PFS was completed by Ausenco Engineering Canada Inc. as Lead Consultant. Moose Mountain Technical Services acted as Mining Consultant, APEX Geoscience Ltd. as Geological Consultant, Golder Associates Ltd. as Tailings Consultant, Stantec Consulting Ltd. as Environmental Consultant and Terrane Geoscience Inc. as Geotechnical Consultant. The Valentine Gold Project Mineral Resource Estimate (see Marathon Gold news release dated January 20, 2020) was prepared by John T. Boyd Company. The Mineral Reserve Estimate was prepared by Moose Mountain Technical Services. Key results and assumptions used in the Valentine Gold Project PFS are summarized in Table (1) below.
Table 1: Summary of Key Results and Assumptions in the Pre-Feasibility Study
|Production Datanote 1||Values||Units|
|Life of Mine||12||Years|
|Processing Years 1-3 (Phase 1)||6,800 (2.5)||tpd (Mtpa)|
|Processing Years 4-12 (Phase 2)||11,000 (4.0)||tpd (Mtpa)|
|Average Gold Recovery||93%|
|Total Mined Tonnes (including prestrip)||353||Mt|
|Total Milled Tonnes||41||Mt|
|Overall Strip Ratio||7.6||waste:ore|
|Years 1-5: Payback & Expansion Phase||Average Annual Gold Production||170||koz|
|Average Mill Feed Grade||2.01||g/t|
|Annual Average After-Tax Free Cash Flow||$86||C$M|
|Years 1-9: Main Phase||Average Annual Gold Production||175||koz|
|Average Mill Feed Grade||1.74||g/t|
|Annual Average After-Tax Free Cash Flow||$102||C$M|
|Years 1-12: Including Low Grade Stockpile||Average Annual Gold Production||145||koz|
|Average Mill Feed Grade||1.41||g/t|
|Annual Average After-Tax Free Cash Flow||$84||C$M|
|Capital Costsnote 1||Values||Units|
|LOM Sustaining Capital (excluding salvage)||$231||C$M|
|LOM Total Capital||$545||C$M|
|Contingency (included in all capital items)||15%|
|Operating Costsnote 1||Values||Units|
|Mining (/t mined)note 2||$2.51||C$/t|
|Mining (/t milled)||$20.88||C$/t|
|Processing (/t milled)||$11.26||C$/t|
|G&A (/t milled)||$2.27||C$/t|
|Total Operating Cost (/t milled)||$34.40||C$/t|
|Refining & Transport||$2.57||C$/oz|
|LOM Average Cash Cost||$633||US$/oz|
|LOM Average All-In Sustaining Costnote 3||$739||US$/oz|
|Capital Intensity (Initial Capital/oz)||$118||US$/oz|
|Financial Analysisnote 1||Values||Units|
|Gold Price Assumption for Financial Analysis||$1,350||US$|
|Pre-Tax Unlevered Free Cash Flow||$1,115||C$M|
|After-Tax Unlevered Free Cash Flow||$710||C$M|
|Effective Cash Tax Rate||29%|
|1. See note on “Non-IFRS Financial Measures”.|
|2. Based on total material moved, excluding pre-strip.|
|3. AISC includes Total Cash Costs and Sustaining Capital, including expansion and closure costs. Excludes salvage and Corporate G&A.|
The PFS contemplates open pit mining from the Marathon and Leprechaun deposits only. Ore with a cut-off grade of 0.70 g/t Au will be prioritized for mill processing, initially at 6,800 tonnes per day or 2.5 Million tonnes per annum, and then at 11,000 tpd, or 4.0 Mtpa, following mill expansion. Ore between 0.70 g/t and 0.33 g/t Au will be stockpiled for processing at the end of the mine life.
The open pits have been designed and scheduled to maximise project rate of return. Each deposit will be developed in three phases, with the Marathon pit achieving a maximum dimension of 1,250 m x 700 m by 294 m deep, and the Leprechaun pit achieving 1,050 m x 650 m by 306 m deep. LOM strip ratios will be 6.7 at Marathon, 9.1 at Leprechaun, and 7.6 overall. Benches will be mined by conventional drill/blast/load/haul methods on 6 m bench heights with 8 m wide berms every third bench. Dual-lane haul road allowances will support a diesel-powered mining fleet that will include thirty two 90-tonne payload trucks operating between the two open pits.
Mineral Reserve Estimate, Effective April 6, 2020
Proven and Probable Mineral Reserves are derived from the Measured and Indicated Mineral Resources utilizing Canadian Institute of Mining, Metallurgy and Petroleum (CIM) Definition Standards on Mineral Resources and Reserves (2014).
Total Proven and Probable Mineral Reserves (Table 2) are estimated at 1.87 Moz (41.05 Mt at 1.41 g/t Au) utilizing a cut-off of 0.33 g/t Au. Mineral Reserves with a 0.70 g/t Au cut-off, at 1.61 Moz (25.29 Mt at 1.98 g/t Au), are scheduled for priority processing in the mine plan.
Table 2: Proven and Probable Mineral Reserves
|Category||Tonnes (Mt)||Diluted Grade (g/t Au)||In Situ Gold (Moz Au)||Category||Tonnes (Mt)||Diluted Grade (g/t Au)||In Situ Gold (Moz Au)|
|Marathon Deposit||Proven||17.86||1.41||0.81||High Grade
|Leprechaun Deposit||Proven||8.40||1.75||0.47||Low Grade
Notes to the Mineral Reserves:
|1. The Mineral Reserve estimate has been prepared by an independent Qualified Person, Marc Schulte, P.Eng., of Moose Mountain Technical Services, with an effective date of April 6, 2020.|
|2. The Mineral Reserves are based on the Mineral Resource Estimate effective January 10, 2020 (see news release dated January 20, 2020).|
|3. The Mineral Reserves are based on engineering and technical information developed at a Pre-Feasibility level for the Marathon and Leprechaun deposits.|
|4. Mineral Reserves are mined tonnes and grade, referenced to the mill feed at the crusher. This mill feed includes estimates of mining dilution and recovery factor.|
|5. Mineral Reserves are reported at a cut-off grade of 0.33 g/t Au, based on a US$1,300/oz gold price, 0.75 US$:C$ exchange rate, 99.9% payable gold, C$2.57/oz refining and transport costs, 85% process recovery at cutoff, $12.40/t process costs, $1.90/t G&A costs, and $1.50/t stockpile re-handle costs.|
|6. The estimate of mineral reserves may be materially affected by environmental, permitting, legal, title, socio-political, marketing, or other relevant issues including risks set forth in in Marathon’s Annual Information Form for the year ended December 31, 2019 and other filings made with Canadian securities regulatory authorities and available at www.sedar.com.|
|7. Columns may not sum exactly due to rounding.|
Mine planning and Mineral Reserves use block dimensions of 6 m x 6 m x 6 m with whole block dilution after re-blocking the Mineral Resource model, which has been sub-blocked at a 2 m x 2 m x 2 m minimum block size. Mining dilution of 22% and loss of 3% is introduced. Ore blocks surrounded by waste on all sides, and blocks surrounded by waste on three sides with a grade of less than 0.5 g/t Au are also treated as waste. This yields an additional mining recovery loss of 5% by tonnage and 2% by gold content. Inferred Mineral Resources of 0.27 Moz (8.07 Mt at 1.05 g/t Au) that are within the open pits are treated as waste and excluded from the economic analysis.
Processing and Recovery
The PFS contemplates an initial milling strategy based on grinding to 75 µm followed by gravity concentration and cyanidation of gravity concentrates and tails (“Gravity-Leaching”). Grinding will be by way of a SAG and a ball mill. Processing capacity in Phase 1 will be 6,800 tpd (2.5 Mtpa).
The mill will be expanded in Year 4 by coarsening the initial grind to 150 µm and adding flotation and regrinding of the flotation concentrates, followed by cyanidation (“Gravity-Flotation-Leaching”). No additional grinding equipment will be required for this expansion phase. Processing capacity in Phase 2 will be 11,000 tpd (4 Mtpa). The PFS incorporates scheduled ramp-ups to 1.9 Mtpa in Year 1 and 3.3 Mtpa in Year 4.
Process design has been supported by a metallurgical testwork program conducted by the Company under the supervision of Mr. John Goode, including studies in mineralogy, comminution, gravity concentration, flotation, leaching and cyanide destruction. This work has been performed by a variety of third-party laboratories starting in 2010 and with a focus on the specific PFS scope since 2018.
Overall gold recovery is estimated at 93% at an average grade of 1.41 g/t Au (85% at cut-off grade and capped at 97%). Phase 1 Gravity-Leaching has the advantage of a lower initial capital cost but at an average $3/t higher operating cost and an estimated 0.6% lower recoveries. Phase 2 Gravity-Flotation-Leaching allows for higher throughput, with an estimated $42M of expansion capital, at a lower average operating cost and higher recovery.
Capital and Operating Costs
Capital costs (Table 3) have a basis of estimate at Class 4 (FEL2) with a stated +/-25% accuracy (after the Association for the Advancement of Cost Engineering International) and are stated in Q1 2020 Canadian dollars. All capital items are estimated with a uniform 15% contingency. More than 80% of equipment costs and bulk materials are estimated with budget quotes from vendors, with smaller items priced from precedent projects. Certain commodity estimates are derived from material take-offs. Growth factors of up to 10% have been applied on an item by item basis. Mobile equipment is assumed to be lease financed with associated costs contained within sustaining capital estimates.
Capital costs of $42M for the Phase 2 (Gravity-Flotation-Leaching) expansion of the mill are expected to be financed internally out of cash flow at the base case gold price assumption of US$1,350/oz.
Mine operating costs (Table 4) are estimated at $2.51/t mined or $20.88/t milled (LOM) based on an annual average mining rate of 38.0 Mt. Mining costs reflect the relatively high strip ratios of 6.7 and 9.1 in the Marathon and Leprechaun pits respectively, and short haul distances for waste. Process-related costs are estimated at $11.26/t milled, G&A at $2.27/t milled, for total site costs of $34.40/t milled. Bullion transport and refinery charges are estimated at $2.57/oz. Overall, the unit costs are consistent with similar scale projects elsewhere in Canada. Diesel costs are estimated at $1.09/litre and power at $0.059/kWh.
Table 3: Capital Costs
|Pre-strip Mining Capex||$||25|
|Mill Process Facility||$||61|
|Reagents & Plant Services||$||12|
|Management and Owners Costs||$||36|
|Total Initial Capital||$||272|
|Mill Expansion Capital||$||42|
|Sustaining Capital, Mining||$||142|
|Sustaining Capital, Infrastructure||$||37|
|Total Sustaining Capital||$||231|
|1. Columns may not sum exactly due to rounding.|
Table 4: Operating Costs
|Tonnes Mined, Years 1-12||342||Mt|
|Tonnes Milled, Years 1-12||41||Mt|
|Processing & Water Treatment||$||462||C$M|
|Off-Site Costs, Refining and Transport||$||4||C$M|
|Total Cash Costs||$||633||US$/oz|
|Sustaining Capital (excluding salvage)||$||244||C$M|
|Total AISCnote 2||$||739||US$/oz|
|1. Columns may not sum exactly due to rounding.|
|2. AISC includes Cash Costs and Sustaining Capital, including expansion and closure costs. Excludes salvage and Corporate G&A.|
At a US$1,350 gold price and a US$:C$ exchange of 0.75 the Project generates an after-tax Net Present Value (NPV) of $472M, at a 5% discount rate, and an Internal Rate of Return (“IRR”) of 36.2% based on an effective cash tax rate of 29%. Payback on initial capital is 1.8 years. Before taxes, NPV5% is $752M, IRR is 45.1%, and payback is 1.6 years. The Project’s valuation is discounted to December 31, 2021.
A 1.5% Net Smelter Royalty (“NSR”) is applied to all gold production. In February 2019 the Company sold a 2% net smelter returns royalty on the Valentine Gold Project to Franco-Nevada Corp. The PFS assumes the exercise of a right in favour of the Company to repurchase 0.5% of the NSR for US$7M prior to December 31, 2022, the cost of which is excluded from the Project-level economic analysis.
The Project is most sensitive to revenue attributes such as gold price, head grade and exchange rate, followed by operating cost and capital cost (Table 5). At US$1,550/oz gold the Project generates an after-tax IRR of 49% (Table 6). Importantly, in a downside scenario, the Project generates a 15% after-tax IRR at a gold price of US$1,075/oz, more than US$500/oz below the current spot price.
Table 5: After-Tax Valuation Sensitivity to Certain Operating Parameters (NPV5%, C$M)
|Mining Cost (C$/t Mined)||IRR||41.8||%||39.0||%||36.2||%||33.1||%||30.1||%|
Table 6: After-Tax Valuation Sensitivities to the Gold Price at a US$:C$ exchange of 0.75
|Gold Price (US$/oz)||$1,050||$1,150||$1,250||$1,350||$1,450||$1,550||$1,650|
|1. Payback is defined as achieving cumulative positive free cashlow after all cash costs and capital costs, including sustaining and expansion.|
Infrastructure and Facilities
In addition to the mill and Tailings Management Facility (“TMF”), on-site infrastructure includes maintenance and office facilities, a 300-person accommodation camp, a wastewater treatment plant, ditching and sedimentation ponds for water management, and site roads. Cost provision has been made for the upgrading and widening of the current 80 km long access road from Millertown via Red Indian Lake. Electrical power to site is to be supplied by NL Hydro with a 30 km long 66 kV transmission line from the Star Lake Hydroelectric Generating Station with back-up on-site diesel generators. Peak power demand for Phase 1 mill processing at the Project (Gravity-Leach) is estimated at 18 MW, increasing to 22 MW following the Phase 2 mill expansion (Gravity-Flotation-Leaching).
Environment, Permitting and Social Acceptability
The Valentine Gold Project is subject to regulation under the environmental protection regimes of the Canadian Environmental Assessment Act and the Newfoundland and Labrador Environmental Protection Act. Marathon filed a project description with both the Impact Assessment Agency and the NL Department of Municipal Affairs and Environment on April 5, 2019, which was accepted into the formal Environmental Assessment process on April 16, 2019. Both the IAA and the NLDMAE issued a determination requiring a project Environmental Impact Statement and EIS guidelines have now been published by both parties.
The EIS is expected to be filed with the regulators in the 3rd quarter of 2020, and will describe the environmental, social and economic impacts of the scope of project outlined in the PFS. The site layout allows for waste rock storage facilities adjacent to the Marathon and Leprechaun open pits, and a TMF that avoid areas of known fish habitat. The TMF will employ a thickened tailings deposition strategy with a water treatment plant and polishing pond, following a trade-off study of alternate deposition techniques. The TMF has also been successfully located in an area downstream of the Victoria Reservoir and the associated Victoria Dam. Waste rock and tailings geochemical characterization studies indicate very low likelihood for acid rock drainage or metal leaching from either the waste rock storage facilities or tailings. The TMF will receive thickened tailings from the mill between Years 1 and 9, with the mined-out Leprechaun open pit scheduled to receive tailings starting in Year 10. Effluent and contact water from the TMF, waste rock piles and open pits will be collected and, if necessary, treated prior to release. A mitigation strategy will be developed for seasonal Caribou migration which occurs in the spring and fall within the eastern area of the property.
In support of the EA process and the future development and operation of the Project, Marathon has also initiated formal stakeholder engagement with the communities of Buchans, Buchans Junction, Millertown, Badger, Bishop’s Falls and Grand Falls-Windsor, the Qalipu and Miawpukek (Conne River) First Nations and other interested parties. The PFS estimates maximum employment of 404 persons during construction and 426 persons during operations, and over $100 million of annual average purchasing of goods and services.
The Valentine Gold Project PFS contemplates completion of a Feasibility Study in the first half of 2021, completion of the EA and Ministerial Approval by mid-2021, and the commencement of site-specific permitting thereafter. Ground-breaking for site construction is scheduled for January 1, 2022, with a total 18-month construction period and first gold production by mid-2023. The reader is cautioned that the timeframes contained within the PFS have been estimated without consideration of potential impacts from the ongoing COVID-19 challenges, such as disruption to supply chains, labour markets, work practices and permitting, amongst other factors.
Mineral Resource Estimate, Effective January 10, 2020
The updated Mineral Resource Estimate was authored by John T. Boyd Company utilizing Canadian Institute of Mining, Metallurgy and Petroleum (CIM) Definition Standards on Mineral Resources and Reserves (2014). Peer review and risk analysis was completed by RPA Inc., who determined that the Mineral Resource models as presented for both the Leprechaun and Marathon Deposits were reasonable overall.
Total Project Measured and Indicated Mineral Resources, which are inclusive of the Mineral Reserves, are 3.09 Moz (54.9 Mt at 1.75 g/t Au). Additional Inferred Mineral Resources are 0.96 Moz (16.77 Mt at 1.78 g/t Au).
Table 7: Measured and Indicated Mineral Resources by Deposit
|Category||Tonnes (Mt)||Grade (g/t Au)||Gold (Moz Au)|
Table 8: Inferred Mineral Resources by Deposit
|Category||Tonnes (Mt)||Grade (g/t Au)||Gold (Moz Au)|
|All Deposits||Total Inferred||16.77||1.78||0.96|
Notes to the Mineral Resources (Tables 7 and 8):
|1. The Mineral Resource has an effective date of January 10, 2020.|
|2. Mineral Resources are based on $1,300/oz gold with a US$:C$ exchange rate of 0.75.|
|3. In-pit Mineral Resources have been determined by the Whittle method based on an estimate of their reasonable prospects for economic extraction, using certain assumptions for gold recovery, costs for mining, processing and sale.|
|4. The Mineral Resources were estimated using a block model with a block size of 6 m by 6 m by 6 m sub-blocked to a minimum block size of 2 m by 2 m by 2 m using ID3 methods for grade estimation. All Mineral Resources are reported using an open pit gold cut-off of 0.300 g/t Au and an underground gold cut-off of 1.663 g/t Au.|
|5. The reader is reminded that mineral resources which are not mineral reserves do not have demonstrated economic viability. The estimate of mineral resources may be materially affected by environmental, permitting, legal, title, socio-political, marketing, or other relevant issues including risks set forth in in Marathon’s Annual Information Form for the year ended December 31, 2019 and other filings made with Canadian securities regulatory authorities and available at www.sedar.com.|
|6. Mineral Resources are inclusive of the Mineral Reserves.|
|7. Columns may not sum exactly due to rounding.|
NI 43-101 Technical Report
Marathon will file an updated Technical Report prepared in accordance with the requirements of National Instrument 43-101 – Standards of Disclosure for Mineral Projects (“NI 43-101”) for the Valentine Gold Project PFS including a description of the updated Mineral Resource Estimate.
Marathon has prepared a presentation with further technical information regarding the Pre-Feasibility Study results which is available on the company’s website at www.marathon-gold.com.
Disclosure of a scientific or technical nature in this news release has been approved by Robbert Borst, C.Eng, Chief Operating Officer of Marathon Gold Corporation. Mr. Borst has verified the data disclosed including sampling, analytical and test data underlying the information contained in this news release. This included a site inspection, drill database verification, and independent analytical testwork.
The Qualified Person responsible for the preparation of the January 2020 Valentine Gold Project Mineral Resource Estimate is Robert Farmer, P.Eng. of John T Boyd Company. The Qualified Person responsible for the preparation of the Mineral Reserves and mine planning is Marc Schulte, P.Eng., of Moose Mountain Technical Services. Roy Eccles, P.Geol., of APEX Geoscience Ltd. is the Qualified Person responsible for geological technical information including a QA/QC review of drilling and sampling data used in the Mineral Resource Estimate. Paul Staples P.Eng., of Ausenco Engineering Canada Inc. is the Qualified Person responsible for the design of the process plant and infrastructure, and financial modelling. Peter Merry, P.Eng., of Golder Associates Ltd. is the Qualified Person responsible for design of the TMF and water management infrastructure. Sheldon Smith, P.Geo., of Stantec Consulting Ltd. is the Qualified Person responsible for site water balance and surface water management. Each of Mr. Farmer, Mr. Eccles, Mr. Staples, Mr. Schulte, Mr. Merry and Mr. Smith are considered to be “independent” of Marathon and the Valentine Gold Project for purposes of NI 43-101.
Non-IFRS Financial Measures
The Company has included certain non-IFRS financial measures in this news release, such as Initial Capital Cost, Total Cash Cost, All-In Sustaining Cost, Expansion Capital, Capital Intensity, and Effective Cash Tax Rate which are not measures recognized under IFRS and do not have a standardized meaning prescribed by IFRS. As a result, these measures may not be comparable to similar measures reported by other corporations. Each of these measures used are intended to provide additional information to the user and should not be considered in isolation or as a substitute for measures prepared in accordance with IFRS.
Non-IFRS financial measures used in this news release and common to the gold mining industry are defined below.
Total Cash Costs and Total Cash Costs per Ounce
Total Cash Costs are reflective of the cost of production. Total Cash Costs reported in the PFS include mining costs, processing & water treatment costs, general and administrative costs of the mine, off-site costs, refining costs, transportation costs and royalties. Total Cash Costs per Ounce is calculated as Total Cash Costs divided by payable gold ounces.
All-in Sustaining Costs and AISC per Ounce
AISC is reflective of all of the expenditures that are required to produce an ounce of gold from operations. AISC reported in the PFS includes total cash costs, sustaining capital, expansion capital and closure costs, but excludes corporate general and administrative costs and salvage. AISC per Ounce is calculated as AISC divided by payable gold ounces.
Marathon acknowledges the financial support of the Junior Exploration Assistance Program, Department of Natural Resources, Government of Newfoundland and Labrador.
Marathon is a Toronto based gold company advancing its 100%-owned Valentine Gold Project located in central Newfoundland, one of the top mining jurisdictions in the world. The Project comprises a series of four mineralized deposits along a 20-kilometre system. The Pre-Feasibility Study announced in this news release outlines an open pit mining and conventional milling operation over a twelve-year mine life with a 36% after-tax rate of return. The Project has estimated Proven and Probable Mineral Reserves of 1.87 Moz (41.05 Mt at 1.41 g/t Au) and Total Measured and Indicated Mineral Resources (inclusive of the Mineral Reserves) of 3.09 Moz (54.9 Mt at 1.75 g/t Au). Additional Inferred Mineral Resources are 0.96 Moz (16.77 Mt at 1.78 g/t Au). An updated Technical Report prepared in accordance with the requirements of NI 43-101 will be filed on SEDAR shortly including further details and assumptions relating to the Valentine Gold Project.
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We acknowledge the [financial] support of the Government of Canada.