Seafield shores up Miraflores

With the release of its first preliminary economic assessment on its Miraflores project in Colombia, Seafield Resources (SFF-V) has given the market something to chew on.

While the deposit doesn’t yet rank with the big boys in the emerging gold country, the SRK Consulting study does outline a profitable mine that will boast low cash costs and a reasonable capex.

The key metric out of any such study is the net present value, which SRK estimated at US$188 million using a discount rate of 8% and a gold price of US$ 1,500 per oz. Perhaps more impressive was the internal rate of return (IRR) that the project is expected to generate of 45%.

The IRR metric is meant to be compared to the project’s cost of capital, the greater the spread that the IRR enjoys over the cost of capital (or the hurdle rate) the more profitable the project should be.

While it is still too early to get a read on what the cost of capital may be for a future mine, David MacMillan, who is part of Seafield’s investor relations team, says the company would likely look to finance the project with 60 to 70% debt, while the rest would be made up of equity.

Debt financing is generally lower cost than equity financing but finding a willing lender when you are a junior in the developing world can present some challenges.

MacMillan says that judging by conversations with bankers at the recent PDAC convention in Toronto,  the appetite for doing such deals was healthy, especially in light of the recent volatility being experienced in the equity market.

Seafield should also benefit on the debt financing front from having Antonio Pichardo on its board. Pichardo is a managing director at WestLB Bank’s Metals and Mining Group and has extensive experience in arranging debt financing deals in the materials sector.

Also boding well for the company is the fact that the capex at the project is not overly burdensome.

The study estimates it will cost US$93.7 million to build a mine that would mill 4,000 tonnes of rock per day to turn out 71,007 oz. of gold in the first 8 years of operation. Total life of mine capex is expected to be roughly US$137 million

Average cash operating cost in the first eight years are estimated at US$524 per oz. and over that time period the mine  would turn out 82% of its total gold production.

After those 8 years, production will come form the processing of lower grade stockpile that will have accumulated at the site. Seafield says stockpile production would likely total 114,173 oz. over the last six years of the mine life.

The processing of the lower grade material pulls life-of-mine cash costs up to US$594.50 per oz.

Production is expected to come out of both open pit and underground sources.

Currently the mining model considers mining 6.97 million tonnes grading 1.38 grams gold coming out of the open pit mining at a strip ratio of 2.04:1.

Another 5 million tonnes with an average grade of 2.27 grams gold would be mined via an underground operation.

That would work out to 339,335 oz. of gold production coming from the open pit and 400,359 oz. coming from the underground mine, which is only a portion of the total measured and indicated resources for the deposit.

In January of this year, Seafield release a resource estimate on Miraflores that outlined 77.8 million tonnes grading 0.8 grams for 1.9 million oz. of gold and inferred resources of 5.5 million tonnes grading 0.6 grams for 103,043 oz.

Seafield is in the midst of a 5,000 metre drill program that is focusing on upgrading the quality of resources in the open pit section of the deposit. In the fourth quarter of this year it plans to launch a 4,000 metre program on the underground portion of the deposit.