You could practically hear Falco Resources’ (V.FPC) Vincent Metcalfe beaming down the phone. He was apologizing for being a bit tough to reach. “We just closed a $300 million private placement for Osisko Gold Royalties, the group’s mothership. It’s been busy.”
The group’s week became busier because shortly after our interview Falco released a 43-101 compliant feasibility study for its Horne 5 Gold Project located in Rouyn-Noranda, Québec.
From the press release accompanying the study there are the following numbers: “At a gold price of $1,300/oz and using an exchange rate of C$1.00 = US$0.78, the Feasibility Study shows that the Horne 5 Project would generate an after-tax net present value, at a 5% discount rate, of $602 million and an internal rate of return of 15.3% after-tax. In this scenario, the mine could become the next significant gold producer in Québec, with a production profile averaging 219,000 payable ounces annually over the life of mine, with an all-in sustaining cash cost of $399 per ounce net of by-product credits and all-in cost, CAPEX plus OPEX, estimated at $643 per ounce.”
Also from this release: Mr. Luc Lessard, Falco’s President and Chief Executive Officer commented: “We are very pleased with the results of the Feasibility Study on the Horne 5 Project, which demonstrates the robust economics of bringing this world-class deposit back into production. The Feasibility Study firmly establishes the Horne 5 Project as one of the best undeveloped gold projects by value and margin in today’s gold-price environment.”
In our interview, Lessard and Metcalfe pointed out the real merits of the Horne 5 project. “This project is in the top quartile of gold projects worldwide. We see an all in sustaining cost of production less than $400 an ounce.”
“We are looking at a mine life of around 15 years but it could easily go to 25-30 years. It’s a big deposit, a big footprint,” said Lessard. “We see a lot of upside on the exploration front.”
For all the upside potential, the fact is that a company planning on building a mine has to have the right management in place. “We have the technical and financial expertise,” said Metcalfe. They are pretty confident about that element because the management of Falco is pretty much identical to the management which built the Osisko Canadian Malartic Mine.
“In fact, we have access to the whole Osisko world,” explains Lessard. “We’ve actually built several mines before. We have access to capital – institutions, pension funds. We have the people who permitted Canadian Malartic.”
As importantly, Falco has been working on building community support for its plans. “We have been in touch with the mayors, the regional government,” said Lessard. “We have Claude Léveillée who was with Agnico-Eagle Mines working with us on community relations. He lives in the community. Right now, everyone is in favour of the project.” As part of the Horne 5 project and related relocation efforts, Falco has already begun building a trade school in the middle of town, it sees that build completed for September 2018.
Every great opportunity has its challenges, Metcalfe acknowledges that Falco faces some big challenges ahead.
“On the CAPEX side it is a big ask,” said Metcalfe. “800 million US dollars. We have to be creative, but we have done it before, let’s not forget the group raised close to $1 billion at the bottom of the financial crisis to build Canadian Malartic. And this time, we want to have the government as involved possible. We saw them very involved with the recent Renard diamond mine development.”
“With the permitting, you never know, however the Quebec mining law is very clear,” said Lessard. That law provides for community involvement and requires public hearings. But Falco is not worried. “When we built Canadian Malartic we didn’t have as much community support as we have for the Horne 5 project. Right now, people want jobs, they saw how we operate and we are mindful of our environment and stakeholders.
Lessard estimates that the permitting will take approximately 18 months. “During the permitting period, we’ll be dewatering the existing mine and refurbishing it. We’re planning on spending about 100 million dollars.”
Another challenge is that the Horne 5 mine will be directly under an operating smelter and a portion of the industrial park. “We have to make sure the infrastructure is adequate and that mitigation processes are in place,” said Lessard. “But let’s not forget that both smelter and mine operated jointly for over 50 years, Rouyn-Noranda was born through the discovery of the Horne mine.”
With an all in cost of $400 an ounce, Falco has a huge incentive to get the permits, raise the capital and start up the mine. It also has the huge advantage of being part of the Osisko world which ensures it will have access to government and private financing sources as well as world-class geological, mining and technical expertise.
Most of all, Falco is able to point to its management team and say, “We’ve built a successful mine before. A solid track record combined with a significant resource should ensure that Falco brings the Horne 5 project home