Corvus Gold - North Bullfrog

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(translated to Spanish: Jajajajajajajajajajajajajajajajajajajajaja - I get some readers from Peru).

Summary
Small, low grade deposit that is getting pushed as a development project.
Costs casually ignore lots of costs to make the project appear good
Comparison with actual mines just shows that the the PEA report was a simple exercise in BS

Sorry, I couldn't couldn't help myself. So, the North Bullfrog deposit. Where to begin.

Lets start with the resources - here is the table from the June 2015 technical report.

can we call these eBay resources - one mine's waste is another mine's ore?

WTF? I've been spend ages browsing the internet to find any mine (in the US) that operates at those grades. Here is what I have so far (feel free to send me other suggestions)

Mesquite Mine* (New Gold) - 0.34 g/t Au
Marigold Mine* (Silver Standard) - 0.45 g/t Au
Rochester Mine (Coeur) - 0.34 g/t AuEq (0.0933 g/t Au and 16.5 g/t Ag)
Round Mountain Mine (Kinross) - 0.79 g/t Au
Florida Canyon (Rye Patch) - 0.4 g/t Au
Phoenix (Newmont) - 0.62 g/t Au
Lone Tree Leachpad and stockpiles (Newmont) - 0.24 g/t Au (a bit unfair as this has already been mined)
Mineral Ridge Mine (Scorpio) - 1.9 g/t Au (but a small resource)


So I can't find any active mine (reprocessing leach pads and stockpiles doesn't count - sorry Lone Tree) that is mining ore with grades as low as the East Bullfrog resources (ignoring the Yellowjacket ore which will be crushed and milled so has different economics and is a small portion of the deposit).

We're all adults here, we all know that for a mine to be profitable - I'm so sorry, I'll use the nicer, more nebulous and safer terms - "generating revenue" or "cash flow positive", from now on (I don't want to scare people away by using one of the "unmentionable" words on this blog), we need to understand:


So for starters North Bullfrog has low value dirt - approx US$10.8/tonne (assuming 100% recovery and $1350/oz), but fortunately for me Corvus has done all the hard work for me in their seminal June 2015 PEA (like all popular documents a second edition (actually an Amended and restated version) was released in May 2016 (link)).

So why don't we have a close look at those numbers:

There is some obvious BS in this table

Here is the summary from the same PR:
The base case PEA assumed a conceptual Whittle^TM pit shell and would be scheduled for processing as defined at a US $900 gold price.  Highlights of the PEA (in constant 2015 USD) include:

• Pre-Tax Total Cash Flow: $479M at $1,200 gold, IRR of 53%
• NPV^{(5% post-tax)}: $246M at $1,200 gold, IRR of 38%
• NPV^{(5% post-tax)}: $103M at $1,000 gold, IRR of 20.5%  
• Projected average annual production: 149 k ounces gold per year for first 6 years dropping to 68.5 k ounces gold per year for the remaining 4 years
• Projected silver production of 2.49 M ounces Life of Mine (LOM)
• Cash Cost per gold ounce: $635
• Project Total  Capital Cost per gold ounce: $206
• Initial Capex: $175M (LOM sustaining Capital $83M)
• Strip ratio of 0.6-1 (waste to ore)
• Gold recoveries of 87% mill and 74% heap leach
• Mill resource grade increase of +100% to 2.1g/t gold
• YellowJacket/mill resource confidence increased significantly with 91% in Measured & Indicated category up from <20% in 2014 resource

In summary:

But we all know that cash costs are BS, so why don't we go down the rabbit hole.

Look closely at table 22-3 (which is an expanded version of table 4)

What other costs are passed over in the press release?

• CAPEX and LOM Capital - we can ignore this costs of $1.5/tonne for the press release
• Moving the waste - $1.52/tonne (from the technical report - page 232)
• Royalties - at least they tell us they are ignoring these costs

So if we add the costs to move the waste rock, the cost per tonne increases from:

• $4.62/tonne - the press release figure
• $6.12/tonne - the technical report figure
• $7.64/tonne - technical report figure + costs associated with moving the waste rock.

So the 'all inclusive' cost/tonne is only $3.02 more that the PR figure (65% more - so nothing substantial), and that increases the cost/ounce from $635/oz to $963/ounce.

That is a bit different, we've only added an additional $330 onto the costs/ounce and that was the obvious stuff.

When I look at table 22-4 - the annual production and cash flow chart for North Bullfrog I get confused (easily done as I'm a geologist).


Why is the Capex in year -1 $162.1M not $175.4?
They also moved 6.8 million tonnes of waste for free (operating cost cell is blank).
When I check the operating costs values they average $4.38/tonne so again there appears to be no costs associated with moving the waste rock, so I decided to update this table with:

• Overburden mining costs = $1.52/tonne
• Operating costs = $4.62/tonne

Our operating costs have increased by $183M and Pre-tax cash flow has decreased by nearly $200M (or by 41%). I need to recalculate the Federal income tax (I've left these values the same). So there has been a significant change in the economics of the project.

How do these number compare with other operations.

Round Mountain - 2015 costs

• cash costs = $750/oz
• Op earning = -$8.9M
• grade 0.94 g/t Au
• Real operating costs = $1210/oz

Mesquite Mine

• cash costs = $743/oz
• Op earning = $54.88.9M
• grade 0.34 g/t Au
• Real operating costs = $1156/oz

So these mines are bigger and higher grade, and have a long history of producing significant number of ounces and according to the 2015 financial reports at $1200/oz they are moderately profitable. Corvus say that they can build and operate a mine with lower grades (averaging 0.21 g/t Au) and be more profitable that several long lived mines.

The other issue you have with very low grade operations is that they are very unforgiving, a minor change in CAPEX (there are hundreds of projects that have done over budget), schedule, recovery (a few percent change in recovery would be disastrous), dilution and average grade could lead to massive issues.

There are better projects out there that are bigger and higher grade that are waiting to be developed, I can't see North Bullfrog competing with these. I'll spend some time working with the exploration data to see if there is any potential to define/expand more high grade resources, but it is simple too low grade to be viable unless gold prices increase significantly.