Friday, 17 May 2013

Sacre-Coeur Minerals' constant work to refine procedures pays off with low cash costs

Amid declining gold prices, several miners are struggling to keep costs down, but Sacre-Coeur Minerals (CVE:SCM) (OTC:SCRMF) is not one of them. The company boasts all-in cash production costs of less than $500 an ounce at its alluvial/elluvial operations in Guyana. 
President and CEO Gregory Sparks attributes the reason behind the company's low-cost success mainly to the planned retrofitting of its first production unit, and the addition of a second unit, equipped with a fine gold recovery circuit. 
The second unit is expected to be operational in late June or early July this year at the latest. 
The net effect from these changes led the miner to boost its production forecast for the year, to between 6,000 to 8,000 ounces of gold, up from its prior estimate in the range of 5,000 to 7,000 ounces. 
"These efforts will have a significant effect on our cash operating costs as well," says Sparks. "We are constantly engaged in trying to refine procedures to cut costs."
Indeed, in the mid-case, average annual cash operating costs for the year are projected at US$364 an ounce, with a "risk opportunity range" of between US$318 to US$424 an ounce. Including royalty and taxes, the mid-case all-in cash production costs are expected at US$497 an ounce, based on a gold price of US$1,500 an ounce. 
Sacre-Coeur's focus on keeping costs low comes at a time when gold miners everywhere are reviewing operations after a recent steep fall in the gold price, with companies looking to ensure they maintain an operating margin. According  to the Thomson Reuters GFMS Gold Survey 2012, the average cash cost across the gold mining industry for mining an ounce of gold is a record $727 per ounce, putting Sacre-Coeur in a comfortable range. 
The average cash margin for the industry dropped to $872 an ounce in the second quarter from as much as $1,032 an ounce in the previous year’s third quarter.
Sacre-Coeur forecasts its mid-case cash margin for the year will be US$1,003 an ounce of gold, using a $1,500 an ounce gold price. 
The Canadian junior company, which is looking to build out its cash position over the next year from net cash flow as a means to initiate the distribution of dividends by 2015, also has a half million ounce surface mineable gold resource at its Million Mountain Zone 1 property in Guyana, with another eight targets situated along the 20-km structural trend. 
The company's foothold in Guyana spans 860 square kilometres of both producing and development-stage properties. The Zone 1 property hosts an NI 43-101 compliant hard-rock resource of 12.1 million tonnes grading 1.0 g/t gold measured, and 2.18 million tonnes grading 0.9 g/t gold indicated for a total 451,000 troy gold ounces combined.  
Because the results from its internal evaluation of Million Mountain Zone 1 were “very robust”, Sparks explains that the company skipped a formal  third party preliminary economic assessment and jumped straight into commissioning a bankable feasibility study – which it is aiming to have finished by August or September this year. 
The chief says the third party feasibility work is ongoing. "It may be possible to substitute the cyanide leaching back end of the plant with a multi-stage intensive gravity recovery system, which would lead to a significant reduction in capital and operating costs, and would improve economics substantially," Sparks says, adding that this is subject to ongoing testing, which has delayed the release of the report by about six weeks. 
"The opportunity we're investigating would have a profound effect on operating costs."
Based on an internal analysis, using a base case gold price of $1,500 an ounce, Sacre-Coeur is looking at a net present value of $145.5 million from the project at a discount rate of 5 per cent, and an IRR of 123%. 
"The economics are quite robust all the way down to $1,000 an ounce of gold," says Sparks. 
Following the feasibility study, a final development decision is expected, as well as the completion of development financing and the start of construction. Commissioning of the mine and plant for production is targeted for the third quarter of this year. 
The company has also budgeted 10,000 metres of core drilling this year aimed at expanding the Million Mountain Zone 1 resource, and to begin to develop a resource on its Million Mountain Zone 9 deposit - a "high grade, surface mineable body that fits our business model".
And it has the cash to do this. The company recently completed a $6.15 million financing through the issuance of gold-denominated bonds, with another similar offering this year possible dependant on gold prices, and/or "a streaming financing". 
Shares of Sacre-Coeur, which has a market cap of more than $9 million, have risen more than 52 per cent in the last 12 months. 

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