Troilus Gold – Taking A Deep Dive Into The Feasibility Study On The Gold-Copper Troilus Project
Justin Reid, CEO of Troilus Gold Corp. (TSX: TLG) (OTCQX: CHXMF), joins me to take a deep dive into the key metrics and takeaways on the Feasibility Study released to the market on May 14th on the gold-copper Troilus Project located in northcentral Quebec, Canada. The Study incorporates an initial mineral reserve estimate that supports a long life, large scale, 50,000 tonnes per day open-pit mining operation; a project in a tier-one mining jurisdiction that stands out in the Quebec and Canadian mining landscapes.
This is a wide-ranging discussion where Justin addresses head on some of the questions or potential concerns that have been raised by the market about the lower IRR number, drop in grade from the PEA to the FS, and large capex to build the project, and puts these numbers in context with several other large open-pit bulk tonnage projects built in Canada like Detour Lake, Malartic, Cote’, Magino, and Greenstone. These are the kinds of mines that actually get built and become key contributors in the gold space, and having the copper and silver exposure, as well as the 70% institutional partners and stakeholders, gives the company a number of levers to pull for raising the capital stack needed in a non-dilutive manner.
Justin encourages listeners to think beyond the typical flashier headline numbers from higher-grade underground mine economic studies that regularly hit the markets from other companies, and take a closer look at the details and look under the hood of this study. For example, he notes how the grade and economics ramp up in years 3-8, and then are stead for more than another decade. The value extends far beyond the typical 10 years a company gets in a discounted cash-flow scenario, as this is a 22 year mine life at present and growing. Justin points out that with only half of the 13 million gold equivalent resources included in the reserves at this point, that the mine life will eventually extend well beyond 30 years, with more definition and infill drilling to upgrade categories of the resources into the reserves. We also discuss the dichotomy between how retail investors reacted and commented, versus how the Company’s institutional investors responded to this study.
Strong Economic Results
- Base Case after-tax NPV5% of USD$884.5 million and IRR of 14%, reflecting long-term forecast prices of US$1,975/oz Au, $4.05/lb Cu, $23/oz Ag and $0.74 USD/CAD exchange rate.
- After-tax NPV5% of USD$1.55 billion and IRR of 19.5% at April 2024 average metal prices (Au: $2,332/oz; Cu: $4.30/lb; Ag: $27.50/oz).
- Cumulative after-tax cashflow of $2.2 billion on base case assumptions; increasing to $3.4 billion using average metal prices for April 2024.
- Open pit mine life of 22 years with the potential for future underground development.
- Life-of-mine average payable gold production of 244,600 ounces annually, 17.3 million pounds of copper and 446,700 ounces of silver annually.
- Peak annual payable gold production of 456,100 ounces, 31.8 million pounds of copper and 613,600 ounces of silver in year 7.
- Open pit mine, processing 50,000 tonnes-per-day (“tpd”); a 43% larger scale operation than the 35,000 tpd processing rate contemplated in the Preliminary Economic Assessment (“PEA”) from 2020.
- An economical and energy-efficient process to produce a desirable gold-rich copper concentrate for sale to smelters, with a cyanide-free gravity concentration circuit to produce doré after Year 1.
- Supported by an initial Mineral Reserve estimate of 380Mt grading 0.59 g/t gold equivalent (“AuEq”) (0.49 g/t Au, 0.058% Cu and 1.0 g/t Ag) for a contained 7.26Moz AuEq (6.02 Moz Au, 484 Mlbs Cu and 12.2 Moz Ag).1
- LOM total payable gold of 5.4 million ounces, 382 million lbs of copper and 9.9 million ounces of silver.
- Average LOM strip ratio of 3.1:1.
Low-Cost Production
- All-in sustaining cash operating costs (“AISC”) of $1,109/oz.
- Average operating costs of $19.06/t milled ore.
Attractive Capital Intensity Given Inflationary Environment and Scale of Operation
- Initial development capital of (“CAPEX”) of $1,074 million, including all mine pre-production costs, net of existing infrastructure.
- Existing and upgraded infrastructure, including powerlines and 50MW substation, all-weather access roads and tailings facility among other infrastructure, reduce capital requirements for the project and overall capital intensity.
Exploration Upside:
- Numerous targets ranging from grass roots geochemical anomalies to early-stage drill targets are actively being explored and advanced, both near mine and regionally, representing significant future upside potential.
If you have any questions for Justin regarding Troilus Gold, then please email them over to me at Shad@kereport.com.
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It was the major hit to the grade that really shocked the market because it so clear ran counter to the guidance that Justin was communicating in his presentations as recent as a few months ago, all during the FS compilation period. Was near .9g/t and dropped to less than .6g/t in the FS. Specifically, he was touting how X22 will raise the overall grade over 1 g/t for the first several years and how that dramatically improves the economics. X22 was no higher, in fact lower than most other deposits. Alot of people sold on feeling mislead.
Yeah, I think a lot of retail investors misunderstood the points on the grade, and when they would come into the mine plan. That is why I asked Justin to address this topic in this interview.
Like Justin communicated in the interview, the grades for that part of the mining sequence do, in fact, get up to .8-1.0 g/t but the grades don’t start ramping up until after year 3, and grades that high don’t start until years 5-8 in the mining sequence, and so it does raise the average grades and beef up the economics at that part of the timeline, which is an improvement, but some people incorrectly came to expect to see those at the front end of the mine plan, which was an incorrect expectation for those folks to held.
As to the overall grades coming down from the PEA to the FS, he also addressed that in the interview, where there was less inclusion from the underground contribution, because more is being shifted to the open pit where they will be able to raise the throughput, and 250,000 meters of additional drilling has been completed as well, compared to where things were in Sept of 2020.
So when people take a swipe at just the grades coming down from study to study, they need to put that in context with all the additional drilling, the changes to the mine development plan, and pair it with a backdrop of higher throughput on the open pit side of the equation, which is what powers these large mines forward and improves the economics as result. Like he stated, both Malartic and Detour Lake are fantastic mines and processing even lower grade material than what is projected here with the Troilus Project.
Hopefully, now with this economic study out and with those kinds of misplaced expectations addressed, retail investors will be better informed.
I’ve been following Troilus because I like Justin and believed him, but he led me to believe that grade would drive the value….. far from it. The IRR is simply not high enough. Also, the value of the existing infrastructure really lead me to think the price tag would be much lower. Anyway, we’ll wait to see if his costs and grade change for the better with revision. M
Like Justin stated in the interview a few times, what their 70% institutional investor base cared about, and what will drive the value is the revenue generation and cashflow generation from the project for 2-3 decades.
As for the IRR being “not high enough”, we kicked off this interview with that very topic, since that seems to be the mindset and feedback from so many retail investors. Justin pointed out that the largest and most successful large bulk tonnage mines of scale and significance in Canada that have been built this cycle (like Malartic, Detour Lake, and more recently Magino, Cote’, and Greenstone) all had IRR percentages in the mid-teens, and saw the exact same criticisms. That didn’t stop them from raising the funds or building the mines and plowing forward into production.
So for people to suggest the IRR isn’t high enough, is a fallacy, especially in consideration of the longer mine life (22 years in the case of Troilus, but as mentioned, with all the other resources to still upgrade into to reserves, this mine will be running longer than 30+ years). Most quick and dirty discounted cash flow models only give value to the first 10 years, and the companies are not getting any value for years 11-22 or 11-30+. It’s the exact same thing we see in large-scale copper projects that also typically have an IRR percentage in the mid-teens, as well as the larger capex, so people shrug those off to their own detriment.
Again, the point was made in the interview that this is not an 8-10 year high-grade underground mine that will have a lower capex and an IRR percentage in the 20s or low 30s. That is a totally different model and one needs to parse those economic reports differently than a large-scale bulk tonnage gold or copper or base metals project. This is a large multi-decade generational mine that has a lower IRR but also extends over 3 times the time period. Yes it has a larger capex because it is a project of significant scale and size, but Justin outlined the options with getting forward sales contracts on the copper concentrate, the ability to stream the silver, and the various institutions and pension funds that may contribute some of the funds based on initiatives around critical minerals like copper. Also they will likely bring in a financing partner, similar to how Greenstone brought in Orion Mine Finance.
The market just hasn’t seen a feasibility study of this size come to market in a while (not since Greenstone and Cote were proposed), and this one came out in an inflation-adjusted post-pandemic pricing backdrop.
(Off topic)
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