Phil Walford, CEO of Marathon Gold (T.MOZ), has been working on mining projects for four decades. When he looks at a flow sheet he can spot the potential bottlenecks.
“If you are mining underground and your hoist breaks, you’re down,” said Walford. “And you stop processing material if your crusher is out of commission.”
Which is why Walford is pleased to point out that in the company’s recently released PEA there is a crusher for the mill and another crusher for the heap leach. “If one goes down we can use the other as a back-up and we have 3-day storage in the covered mill crushed stockpile.”
It is details like this which make Preliminary Economic Assessments (PEA) critical in the evaluation of a company’s strategy as it moves towards mining.
There is no question Marathon has a solid gold resource with a measured and indicated 2,137,400 ounces of gold running at 1.993 gpt. Add to that 1.104 million inferred ounces and the Valentine Lake Gold Camp is a very attractive gold deposit.
“We’ll be working to get rid of the inferred,” said Walford. Using the drill to move inferred resources into the measured and indicated category is one means of expanding the deposit. “We need to keep the inferred low because it cannot be included in a pre-feasibility study.”
Walford also wants to continue exploring the property. “In the next six months we’ll be doing soil sampling where we plan to build the mill,” said Walford. The objective there is to avoid putting the mill on ground which contains significant gold. “We’ll also be drilling. Our exploration cost is $10.00 an ounce discovered.”
The main target of the drilling is the underground resource which, as Walford put it in the May 17, 2018 release, “There is also a large underground resource at the Marathon Deposit that is not at present drilled off in sufficient detail to develop into a mine plan. Additional drilling in 2018 is planned to further define this underground resource in time for the next economic study.”
The PEA is all about dollars and cents. For Walford, the objective in the PEA was to be conservative. “We wanted no corner cutting. Every piece of equipment was costed as brand new,” said Walford. “We used a high cutoff grade.”
Walford sees his role as derisking and then building a mine which maximizes shareholder value. He is very clear what that actually means. “Look, it is not a whole lot of fun when your costs go up and the price of the mineral goes down,” said Walford reflecting on his decades in the mining business. “We have to be diligent about being bulletproof. Margin is very important.”
The PEA discloses production costs less than half of the current price of gold. But that is not the whole story. “We don’t want a long payback period,” said Walford. “We want everything paid off in three years.”
Which means that the mining plan’s production, disclosed in the PEA, is heavily front-end loaded looking to produce over 200,000 ounces in each of the first three years of operations.
In the May 17 release, Walford states, “The results demonstrate that a very robust, low-cost operation is possible. The study has also identified several opportunities to enhance the mine plan and economics of the project as well as to extend mine life.”
As it stands, the PEA uses a mine life of 11 years but actual production occurs over 10. With a CAPEX of $379 million USD, Marathon is far from being an expensive mine to put into production. Which has a lot to do with the nature of the deposit.
“You are in ore right away at the Marathon pit,” said Walford. “And the same is true at Leprechaun.”
All of which makes the Valentine Lake operation potentially a very attractive investment. “We have a catalogue of Non-Disclosure agreements,” said Walford. “No one questions our numbers and there is not a lot of risk. We’re not courting take over offers but my job is to maximize shareholder value.”
From Walford’s perspective, Marathon’s current share price is much too low. Over the last year the stock has traded about even.
Walford can’t do much about the current condition of the junior resources market or the metals markets – although he is optimistic that the price of gold will firm in the next few months. What he can do is push forward to a Pre-Feasibility Study expected in about a year.
“There will be a lot of detail in the Pre-Feasibility. We’ll have moved inferred to the M&I column and we’ll have the metallurgy needed to optimize both the floatation and the heap leach circuits,” said Walford.
“I’m a mining guy not an exploration guy,” said Walford. “Mining is all about business. You need margin.”
Based on the PEA, Marathon Gold has that margin and a plan to bring its ounces into production efficiently. The company has the cash it needs. When the junior market swings back, Marathon will be at the head of the pack with a mine ready to go.