Join our daily newsletter At The Bell to receive exclusive market insights
- Matador Mining (MZZ) has released a scoping study on the Cape Ray project in Canada, confirming the potential viability of the greenfields development
- While any projections must be taken with a grain of salt, there appear to be positive indications of a productive and profitable future operation
- As it stands, the company estimates a seven-year life-of-mine with an internal rate of return (IRR) of 51 per cent
- 57 per cent of the life-of-mine production is in the indicated category, putting the feasibility of production and cost estimates on somewhat solid ground
- Matador will embark on further drilling and exploration programs to extend the life-of-mine and resource estimates
- As more information and analysis comes to light, Matador can progress further studies and map out a pathway to first gold
- Matador Mining closed 17.4 per cent lower on Wednesday, with shares priced at 19 cents each
Matador Mining (MZZ) has released a scoping study on the Cape Ray project in Canada, confirming the potential viability of the greenfields development.
While any estimations and projections must be taken with a grain of salt, there appear to be positive indications of a productive and profitable operation at Cape Ray.
Exciting prospects
Much of the resource estimate for the Cape Ray prospects lie in the inferred category, and the reliability of the estimate is fairly questionable given the largely underexplored and poorly understood geology of the area.
That said, 57 per cent of the life-of-mine production is in the indicated category, putting the feasibility of the scoping study’s production and cost estimates on slightly more solid ground.
Matador is also planning substantial infill and extension drilling to upgrade inferred resources to measured and indicated – hopefully lending further weight to the reliability of the projections, and further heft to the eventual bottom line.
As it stands, the company estimates a seven-year life-of-mine with an internal rate of return (IRR) of 51 per cent — a very handy return on the estimated $170 million investment to get things up and running.
At current gold prices and projected production rates, this means the investment could be paid back in just 18 months — and the next five-and-a-half years after that are just gravy.
Given the current pit designs are quite shallow and the high-grade gold and silver mineralisation is mostly near-surface, the posited production costs seem relatively realistic rather than optimistic.
If the company’s projections prove accurate, the average total cash costs of US$709 per ounce and all-in sustaining costs of US$776 per ounce could make Cape Ray a very handy little money-spinner … if the gold spot price can stay in the vicinity of the recent pandemic highs.
If not, the IRR falls from 65 per cent back to the aforementioned 51 per cent – so the project seems viable either way the cookie might crumble, given these figures render a projected net present value in the region of $194 million to $259 million.
Executive Director Keith Bowes says it’s an exciting time for Matador.
“The results of the Scoping Study were an excellent achievement for the company and exceeded our expectations in many regards,” Keith remarked.
“The most important outputs we believe for any resource project is a strong IRR (post tax — 51 per cent), rapid payback (1.75 years) as well as low operating costs (US$776/oz).”
Matador Executive Director Keith Bowes
“With excellent outcomes in each of these areas, which strengthen further when the current spot gold price is applied, we believe the Cape Ray project is well on track to become a gold operation in the future,” he stated.
Scope for error
While it must be stressed all these projections are from a scoping study and come with error margins of plus-or-minus 35 per cent, Matador is doing more than trying to pin a tail on a golden donkey.
The study has been completed with the assistance of an experienced and reputable
group of independent consultants, based in Australia and Canada, with individual areas of expertise.
All in all, it’s fairly unlikely costs would blow out by 35 per cent, with a concurrent production shortfall of the same margin.
Buyer beware?
Possibly the only thing shareholders would want to be wary of is future dilution due to the large amount of capital to be raised.
While Matador has had positive experiences raising capital of late, the three capital raises over the last two years have only asked for around $5 million each. The $170 million in funding required to first gold at Cape Ray asks a much bigger question of the company.
If the mine does indeed prove to be as profitable as current projections, and if further greenfields resources are located, it’s likely worth seeing this one through and watching the faith pay off.
Next steps
Matador will be embarking on further drilling and exploration programs when the weather permits.
Expansion of resource estimates and life-of-mine extensions are the primary goals of further work.
As more information and analysis comes to light, Matador can progress further studies and map out a pathway to first gold. Ole!
Matador Mining closed 17.4 per cent lower on Wednesday, with shares priced at 19 cents each.
