Positive PEA pumps Prodigy (April 11, 2011)

Junior explorer Prodigy Gold (PDG-V) got a warm reception on the market after releasing a positive preliminary economic assessment (PEA) for its Magino gold project in northern Ontario.

With a US$1,000 per oz. base price the PEA pegs the project’s pretax net present value (NPV) at $351 million, at a 5% discount rate, with a 49% internal rate of return (IRR) and a 1.8 year payback period.

At US$1300 per oz. Magino’s pre-tax NPV jumps to $691 million with an 80% IRR.

Prodigy’s shares closed at 53¢ up 9.5¢ or 22% when the news was released on Apr. 4. By the week’s end the company’s shares rose another 25% to close at 66¢.

The PEA outlines an open-pit mine producing an average of 166,500 oz. gold per year over nine years, totaling 1.5 million oz. gold, with an average cash cost of $521 per oz.

Startup costs are estimated at $242 million, plus $34 million in sustaining capital.

The PEA envisions 15,000 tonnes of material processed daily through a carbon-in-leach facility, extracting 95% of the contained gold. Total minable resources are gauged at 41.8 million tonnes grading 1.18 grams per tonne (gpt), with an average grade of 1.6gpt for the first two years of production.

“Magino is developing into one of the leading undeveloped gold projects in eastern Canada,” said Brian Maher, Prodigy’s president and CEO, in a statement.

The company expects to enhance the project’s economics with ongoing infill drilling, which should be completed in mid June. Once the drilling is done a new NI 43-101 compliant resource estimate will be put out in midsummer.

The company views the PEA as a “first-pass analysis” and plans to update the PEA when the new resource is calculated and further tune the project to lower costs and increase resources, before releasing a full feasibility study in the first quarter of 2012.

The Magino property is 40 km northeast of Wawa, Ont. and 14 km southeast of the town of Dubreuilville.

The property hosts a past-producing underground gold mine which operated from 1988-1992, producing 105,000 oz. gold, with an average grade of 5gpt. The underground mine was operated by Muscocho Explorations, which merged with McNellen Resources and Flanagan McAdam Resources in 1996 to become Golden Goose Resources, which merged with Kodiak Exploration in 2010 to form Prodigy.

Prodigy also plans to recommence drilling at its Milestone gold project by midsummer. Milestone is 340 km northeast of Thunder Bay in northwestern Ontario and consists of eleven free-hold patented mining claims totaling 205 hectares. 80 holes have been drilled at Milestone and Prodigy says an NI 43-101 report should be released sometime in 2012.