Barkerville releases positive gold mine PEA

Barkerville Gold Mines Ltd. [BGM-TSXV; BGMZF-OTC; IWUB-FSE] on Tuesday August 20 released positive results from an independent preliminary economic assessment (PEA) for its 100%-owned Cariboo gold project in east-central British Columbia.

The company said the NI 43-101-compliant PEA provides a base case assessment for developing the project as an underground ramp access mine with a gold preconcentration plant in nearby Wells, B.C., and gold processing in its existing upgraded Quesnel River mill.

“Today’s PEA results for our Cariboo gold project provide a robust after-tax internal rate of return of 28% and after-tax net present value of $402 million with a capital expenditure of $306 million, using only 50% of our present mineral resource estimate,” said Barkerville President and CEO Chris Lodder.

“This is a very strong start to a project that is growing as new resources are being delineated by our ongoing successful exploration at depth and on strike of the present resources and throughout the 2,000 km² prospective land package,” Lodder said.

The PEA envisions mining up to 4,000 tonnes per day, utilizing a long-hole mining approach, focused on extracting large panels with minimum widths of 3.7 metres and minimum height of 30 metres,” he said.

“A key outcome of our extensive mining and processing testwork is the ability to produce a high-quality concentrate averaging 20.5 g/t gold at the mine site and continued use of our upgraded Quesnel River mill for final processing. “This, along with optimization of the mining method, allows us to include lower-grade resources in the mine plan.”

Details of the PEA were announced after the close of trading on August 19, 2019. On Tuesday, Barkerville shares eased 1.37% or $0.005 to 36 cents on volume of 537,581. The shares currently trade in a 52-week range of 30 cents and 48 cents.

The release of the positive PEA is a key step in Barkerville’s plan to plans to become a “significant gold producer in Canada” by developing the Cariboo project with the backing of a shareholder group that includes Osisko Gold Royalties Ltd. [OR-TSX, OR-NYSE] and Osisko Mining Inc. [OSK-TSX].

Barkerville is moving ahead on the expectation that its key asset will be a long life mining operation [20+ years] and potentially the Osisko group’s flagship asset in Western Canada.

Located in a historic mining district where the first gold discoveries were made in 1858, Cariboo currently hosts 1.6 million ounces of gold in measured and indicated resources and a further 2.6 million ounces in the inferred resource category. However, the PEA is based on 14.7 million tonnes of mineralized material, containing 2.1 million ounces of gold.

PEA highlights include average life-of-mine payable production of 185,000 ounces over a projected lifespan of 11 years. All-in sustaining costs net of by-product credits and royalties over the mine’s life span are estimated at US$796 per ounce. Mine construction is expected to commence in 2021.

The company recently said it has produced 12,200 ounces of gold from a test mine at project. But Barkerville management has much bigger goals as the company moves ahead with plans to become a “significant gold producer in Canada” by developing the Cariboo Project. This effort is being led by Barkerville President and CEO Chris Lodder, who was Americas Exploration Manager for AngloGold Ashanti. He has had a long association with the Osisko group through his own exploration services company.

The Cariboo property’s mineral tenures have a strike length of 67 km, which includes several past producing placer and hard rock mines.

Due to the fact that the mining sector is vying with tourism and forestry in the Cariboo area, Barkerville is planning for what will be mostly a small footprint underground operation, with sufficient ore reserves to support the construction of a brand new mill. It is hoped that this scenario will speed up the mine permitting process toward the desired conclusion.

As Lodder sees it, the problem with is existing, 100%-owned, permitted QR mill and tailings facility, which is being used to process ore from the Bonanza Ledge test mine, is that it is located 110 km from the mine site, meaning ore has to be shipped by road.

Financing should not be an issue for Barkerville. The company recently announced a $33 million royalty financing deal with Osisko Gold Royalties. Under the second amended and restated royalty purchase agreement, Osisko pledged to acquire an additional 1.75% NSR royalty on the Cariboo property for $20 million in immediately available funds, raising its total royalty on the project to 4%.

Under the deal, Barkerville has the option to grant Osisko an additional 1% NSR on the property for an additional $13 million at any point between the closing date of the transaction and December 31, 2018.  As part of the deal, Osisko will receive 10 million warrants exchangeable at an exercise price of $0.75 per share for 36 months after closing of the royalty deal.

On November 8, 2018, Barkerville was trading at 38.5 cents, leaving the company with a market cap of $178 million based on 439.8 million shares outstanding. The 52-week range is 78 cents and 35 cents.

The amended royalty agreement will have the effect of increasing Osisko’s existing NSR royalty on the property to 4%, and later 5% if the NSR royalty option is exercised. If the warrants are exercised, Osisko’s equity stake in Barkerville would increase to 34.7% from 32.4%. That is in addition to the 16% equity interest held by Osisko Mining.

Measured, indicated and inferred resources at the site are contained in the Cow and Island Mountain deposits. The underground mineral resource estimate incorporates the Cow and Valley Zones on Cow Mountain and Shaft Zone and Mosquito Creek on Island Mountain at a cut-off grade of 3.0 g/t gold.

Mineral resources in the Bonanza Ledge and BC Vein deposits on Barkerville Mountain are also included in the resource estimate, the company said in a press release on May 2, 2018.

On September 11, 2018, the company announced positive results from its test mine at Bonanza Ledge, allowing the company to assess mining methods, understand what ground conditions to expect in different lithological units, train a local workforce, and generate cash flow to offset some exploration expenses.

All gathered data will add to the robustness of the company’s feasibility study, which will be released in 2019 the company said. Since the start of test mining at Bonanza Ledge, approximately 80,000 tonnes have been extracted using long-hole mining methods on two active levels. The mining blocks mined so far yielded better grades than expected with an average grade of 7.05 g/t, compared to the planned 6.5 g/t and dilution is on track with the predicted 12%.

The company said the tested development methods will have a positive economic impact for the larger project at Cow and Island Mountain by proving the viability of management’s vision for the Cariboo Project and its potential to become a significant gold producer.

Meanwhile, significant reductions in operating costs have been made over the past few months, effectively reducing the initial $300/tonne operating cost to $190/tonne in the recent month.

By the end of 2018, the company will have completed roughly 400,000 metres of drilling on the property

Its brownfields exploration team is currently focused on developing and delineating a mineable resource within 7 km of principle project area near Wells.

If and when commercial production begins, possibly by 2021, Lodder said he envisages initial production of 150,000 ounces of gold annually from an operation that might cost between $300 million and $400 million to develop. However, these are back of the envelope numbers. A clearer picture of what lies ahead should emerge when results of the feasibility study are released next year.