Continental Gold improves Buritica’s economics

A feasibility study on Continental Gold’s (TSX: CNL; US-OTC: CGOOF) Buritica gold-silver project in Antioquia, Colombia, shows a 10% improvement in total costs and stronger economics for a high-grade underground mine.

BMO analyst Brian Quast notes the feasibility study has increased his “level of confidence in the strong economics” of the project. “Investor attention is now focused on receiving the necessary permits to commence construction,” he adds.

The study envisions Buritica as a 14-year operation recovering a total of 3.5 million oz. gold and 6.4 million oz. silver. Life of mine production will total 253,000 oz. gold and 466,000 oz. silver annually.

A 2014 preliminary economic assessment (PEA) had proposed an 18-year operation at Buritica, producing 4.8 million oz. gold and 7.1 million oz. silver. Expected annually production was slightly higher for gold, but lower for silver.

The feasibility study indicates the underground mine will process 2,100 tonnes per day, before ramping up to 3,000 tonnes per day by year three. This varies slightly from the PEA, which envisioned initial production at rate of 2,000 tonnes per day, before ramping up to 3,500 tonnes per day over the same time.

Estimated start-up costs are now US$389 million, which include the ramp up and a US$35 million contingency. The study pegs sustaining capital costs over the life of mine at US$272.5 million. This brings total costs for Buritica at US$661.5 million, a 10% improvement from the earlier estimate of US$737 million.

Estimated total cash costs are now at US$411 per oz. gold, minus silver credits, down US$20 per oz. from the PEA.

Base-case economics remain robust. Buritica boasts an after-tax internal rate of return (IRR) of 31.2% and a net present value (NPV) of US$860 million, using a 5% discount rate and metal prices of US$1,200 per oz. gold and US$15 per oz. silver.

This compares to an earlier IRR of 31.5% and a NPV of US$1.1 billion, using a slightly higher silver price assumption of US$17 per oz.

Payback has decreased to 2.3 years from 2.8 years.

Along with the feasibility study, Continental published a maiden reserve estimate for Buritica’s main deposits Veta Sur and Yaragua. The reserves total 13.7 million tonnes grading 8.4 grams gold and 24.3 grams silver per tonne for 3.71 million oz. gold and 10.72 million oz. silver.

Despite the strong economics, Quast has lowered his target price for the company to $2.75 from $3.50. He explains the “lower share price since the last update increases the dilution from our equity assumption.”

Continental has yet to line up financing and permits for Buritica.

It closed Feb.26 at $1.57 per share, up 9% since releasing the feasibility two days earlier. The stock, however, closed the day of the PEA (Nov. 17, 2014) at $2.27.