"We are becoming an increasingly interesting piece on the chessboard that is Val-d’Or.”
What were the highlights from the PEA for the Marban project announced in September 2020?
Our PEA included several highlights. Firstly, the all-in sustaining cost was US$822/oz Au produced resulting in a margin of about US$1,000/oz at current gold prices. Secondly, Marban’s CAPEX is relatively low and affordable at C$256 million. Lastly, with production averaging 115,000 oz per year, the project’s leverage provides to the investment. Every C$1 million invested in CAPEX will generate C$1.7 million in free cash flow.
Ausenco led the PEA using a US$1,450/oz gold price, producing a net present value (NPV) of C$423 million and an internal rate of return (IRR) of 25.2%. If we use US$1,900/oz gold, the NPV rises to C$846 million with a 45% IRR. In context of O3 Mining’s (TSXV: OIII) (OTCQX: OIIIF) market cap today, the NPV of the conservative scenario of US$1,450/oz equates to twice our market cap. Out of the 3.9 million ounces O3 Mining has already defined, less than half equates to a potential market cap two to four times our current size.
How have you managed to maintain a low capex for the project, and what potential do you see to expand the resource?
Being situated in Val- d’Or provides us with access to roads, railroads, highways, hydropower and experienced technical skilled labor; all significant costs to put a project into place. Additionally, energy alternatives like hydropower highlight the investment opportunity in Quebec using its environmentally innovative approach to attract investors.
There is the opportunity to extend the mineralization outside of the PEA pit and expand this resource at Marban. This could add ounces and potentially increase the overall production and mine life. In 2021, we will be drilling to find more high-grade gold to improve the economic metrics of the project.
Can you tell us about O3 Mining’s exploration campaign for 2021 and use of AI to define targets?
O3 Mining increased to twelve rigs from January 2021 as part of our aggressive 150,000 metre drilling campaign. Drilling will also highlight the potential at O3’s other properties, including Alpha also in Val-d’Or, Quebec.
In partnership with Mira Geoscience, we have identified targets using artificial intelligence (AI) and machine learning for exploration. We are the first group in Val-d’Or to use AI by putting together historical data to create blocks of geological information, including the location of the faults, sonic alteration, and areas with the most gold and concentration of shear zones.
Recent results, including 10.4 g/mt Au Over 3 metres at the Simkar zone on the Alpha property in December 2020, confirmed the value and utility of AI targeting. With the Alpha property extending over 20 km east west and having many discrete gold deposits, it is possible that potential open pits could be combined into a larger pit.
Considering the appetite for M&A in a gold bull market, how will you balance developing the company sustainably with the potential of being bought out?
We are becoming an increasingly interesting piece on the chessboard that is Val-d’Or. We are only 8 km from Wesdome’s Kiena property and 12 km from the Canadian Malartic mine, which is due to run out of ore by 2027. Malartic has a mill with the capacity to process 55,000 mt/d, and in the best-case scenario, as it transitions to an underground mine, it will be able to extract a maximum of 25,000 mt/d. This excess capacity could be used to toll mill ore from Marban, cutting its C$256 million capex in half. For an asset with 2.5 million oz, a toll mill scenario probably makes more sense than a competitor acquiring O3 Mining. However, if we can increase the project’s reserves to 5 million oz it could elicit interest from other parties. It is important that we remain self-sufficient.
To move through development, first we complete a baseline environmental study and then an environmental impact assessment. Next, we must apply for and obtain production permits before starting construction and entering production. These steps will de-risk the project and make it more valuable, which will happen in parallel with the continuing growth in resources through exploration.