A new wave of gold production in Ontario
Since Doug Ford’s Progressive Conservative government was elected in June 2018, Ontario has seen a new wave of gold production come online, starting with Harte Gold’s Sugar Zone in October 2018, Newmont’s Borden mine in October 2019, and most recently, Pure Gold Mining’s Red Lake operation (the former Madsen mine), which poured its first gold on December 29, 2020. “The opening of new mines in Ontario is not a coincidence,” stated Greg Rickford, Ontario’s Minister of Energy, Mines, Northern Development and Indigenous Affairs. “We moved quickly as a government to signal to mining companies we would cut red tape, not just in a macro sense, but by sending swat teams into projects that are ready to move to a major milestone,” he continued.
This trend is set to continue in the coming years, with a number of projects given the green light to start construction in 2020, and others progressing through development on the path to near-term production.
The most significant project in Ontario’s development pipeline is IAMGOLD’s (TSX: IMG) Côté Gold project located between Sudbury and Timmins, which received approval in July 2020 to commence construction in Q4, with production expected to start in the second half of 2023, according to president and CEO, Gordon Stothart.
“If you run this project at US$1,900/oz gold, the after-tax IRR is around 83%, the NPV is well in excess of C$500 million, and there is close to C$700 million FCF. Considering there will be seven years of commercial production, that equates to C$100 million FCF per year on a company with a valuation of C$230 million.”
George Ogilvie, President & CEO, Battle North Gold Corp.
Côte will produce nearly 500,000 oz/y for the first five or six years, at an AISC of US$600/oz, with the average production guideline across the full 18-year LOM closer to 300,000 oz/year. “The resource measures about 10.2 million oz (Moz), of which 4 Moz are inferred resource defined at much lower gold prices than what we are currently witnessing,” detailed Stothart, who went on to reveal plans to announce resources at two adjacent targets, Gosselin at 1.5 km east of the main property, and Young-Shannon, in 2021. “Our target is for another 3 to 4 million oz, to take the existing 18 LOM to 25 years. We contemplated a future expansion plan that could see us adding 20% to the current plant, which has a total capacity of 36,000 tons per day without any major modifications.”
Another gold producer to receive the green light in 2020 is Argonaut Gold (TSX: AR), which received approval from its board of directors in October for the construction of the Magino mine in Ontario. Magino is a past producer of 100,000 oz as an underground operation, and sits next door to Alamos Gold’s (TSX: AGI) Island Gold mine, one of Ontario’s standout performers in recent years. “Magino will be an open-pit milling operation with about 20% to 40% of the gold coming through gravity, requiring low cyanide consumption as the ore body is clean,” explained Peter Dougherty, Argonaut’s president and CEO, noting that the feasibility study (FS) done at the end of 2017 showed that during the first five years of the project around 150,000 oz/y can be produced at an AISC of US$711. “Back then, in a US$1,250 gold environment, this would have equated to a pay back of around three to four years. In today’s market, the pay back drops to under two years, and the previous NPV with a 5% discount of US$290 million rises to almost US$900 million,” he revealed.
Dougherty went on to describe Magino, which has a financing package in place and should move into production in Q1 2023, as the cornerstone asset in the company’s portfolio. He concluded: “We are at a turning point, moving from relatively high-cost and short mine life operations into a company with foundational assets that can produce over the long-term.”
Before Côté and Magino, the next gold mine in Ontario’s development pipeline is Battle North Gold Corporation’s (TSX: BNAU) Bateman project, which could have ore at the mill by November 2021, according to president and CEO, George Ogilvie.
Ogilvie joined the company in December 2016, picking up the pieces of Rubicon Minerals’ failed Phoenix Gold mine, which had been fast-tracked into production in 2015 by the previous management team to disastrous effect. As former president and CEO of Kirkland Lake Gold, Ogilvie has been credited with improving operations at the Macassa mine, and believes he is on the verge of another transformation, this time in the Red Lake district.
When questioned about why Battle North waited until 2020 to rebrand, Ogilvie explained: “Because there had been a lot of reputational damage done at that point in time, we felt that if we rebranded, people might perceive that we were trying to put lipstick on a pig. Instead, we decided the focus should be on technically de-risking the project and working towards the feasibility study.”
The FS used a base case gold price of US$1,525, resulting in an after-tax IRR of over 50%, an after-tax NPV close to C$310 million using a 5% discount factor, and approximately C$420 million free cash flow (FCF) after tax, for an average of 80,000 oz/y over 8 years with an AISC of US$875. Ogilvie went on to describe the project at US$1,900/oz gold, which would result in an after-tax IRR of around 83%, an NPV in excess of C$500 million, and close to C$700 million FCF. “Considering there will be seven years of commercial production, that equates to C$100 million FCF per year on a company with a valuation of C$230 million,” he illustrated.
On February 9th, 2021, Battle North announced construction on critical path items had commenced at the Bateman Gold mine. The project is fully funded via a senior secured term loan facility of US$40 million from Macquarie Bank, together with cash currently on the company's balance sheet.