International Tower Hill receives upgraded price target from Macquarie

International Tower Hill Mines (TSE:ITH) (NYSE-A:THM) received bullish outlooks from analysts at the end of last week, on the back of an updated preliminary economic assessment (PEA) for its Livengood gold project near Fairbanks, Alaska - released last Tuesday.

The latest economic report for the project estimated a base case net present value of a whopping $1.2 billion, alongside a significantly expanded surface mine resource, increasing the mining company's potential to become a solid gold producer in North America.

Indeed, Macquarie Equities Research maintained its sector "outperform" rating for International Tower Hill and upgraded its price target to $13.5, up from the company's last $7.74 trading price on TSX Venture Exchange. 

Meanwhile, research peer Dahlman Rose & Co. issued a report noting the positive development of the PEA and said it is currently in the process of updating its figures to incorporate the new guidance.

The latest study evaluated a large, mill-only scenario operating at 91,000 tonnes per day, eliminating the heap leach option and requiring initial capital of US$1.6 billion, including contingency costs.
The elimination of the heap leach option is seen as "de-risking" the project for Macquarie, as there were potential recovery issues for such large operations in climates similar to Alaska, the firm noted.

Average gold production from Livengood was forecast at 664,000 ounces per year, at a cash operating cost of US$557 per ounce in the first five years of production.

Over the 23-year life of the operation, gold production per year was estimated at 562,000 ounces, making it potentially one of the largest single gold mines in North America. This compares with the last PEA in August 2010, which estimated average annual production of 504,000 recovered ounces of gold over 21 years.

Cash flows from the updated mine model, on a pre-tax basis, were calculated at $3.1 billion, lending to a net present value of $1.2 billion, at a 5% discount rate, and a 14.1% internal rate of return, with a payback period of 4.9 years. The base case scenario, which also yielded a life-of-mine cash cost of $703 per ounce of gold, assumed a gold price of $1,100 per ounce.

Using the recent sky-high prices of gold at $1,700 per ounce, cash flows jump to more than $10.6 billion, while net present value, at the same 5% discount rate, climbs to $5.1 billion.

Aside from the robust economics, Macquarie noted that International Tower Hill also expanded its resource to over 20 million ounces of gold, converting 18% of the previous indicated resource to the measured category, with only a minor impact on grades and overall tonnage, said the research firm. At a 0.3 grams per tonne (g/t) cut-off, measured, indicated and inferred resources total 20.2 million ounces.

The latest estimate is limited by existing drilling, the company said, indicating longer-term expansion potential as ongoing drilling extends the grid.

"The PEA has provided improved visibility into the economic assumptions related to the milling only scenario and the development path ITH is clearly focused on," explained Macquarie.

"Costs and capital expenditures were generally in line with our assumptions, which is a critical factor considering the low grade nature of the deposit."

Ongoing metallurgical studies will be focused on optimizing various unit operations, which is expected to have a further positive impact on project economics.

The production profile for the economic report estimated surface mine gold production of 15.8 million contained ounces, and an average annual recovery rate of 81.6%.

Currently, International Tower Hill is carrying out a 28,000 metre resource program, focused on infill and step out drilling of the deposit to test expansion potential, both laterally and at depth.

The pre-feasibility study (PFS) for the Livengood property is expected by mid-November this year, a further catalyst for the company's share price. The PFS will be the first step toward the permitting process for the property, which is expected to be submitted after sufficient data is collected.