Question of jurisdiction
Kaminak’s key asset is its 100% owned Coffee Gold Project, which is a structurally hosted hydrothermal gold deposit located in Yukon, Canada. Gold miners (GDX) (GDXJ) are rushing for projects in safer and attractive jurisdictions. In terms of mining, Canada ranks as one of the best jurisdictions in the world. While Goldcorp (GG) and Agnico-Eagle (AEM) primarily have exposure in safe jurisdictions, companies such as Kinross Gold (KGC) suffered due to exposure to risky jurisdictions such as Russia (RSX). Goldcorp tries to concentrate its exposure to safer jurisdictions like the Americas. The project’s geographical profile could have attracted Goldcorp towards this asset.
The Coffee mining project
Coffee is a high-grade, open pit, heap leach mining project. The feasibility study results for Coffee from January 2016 describe it as a “robust, rapid pay‐back, high margin, ten year open pit mining and heap leach project that works in the current gold price environment.” The study suggests resources of 3 million ounces, including reserves of 2.2 million ounces. Coffee’s reserves formed ~5.4% of Goldcorp’s reserves at the end of 2015.
Attractive project economics
Kanimak has already initiated the permitting and licensing process in 1Q16. It’s expecting the construction to start in 2Q18. At the gold price of $1,150 per ounce and the exchange rate of 1 Canadian dollar to $0.78, the Coffee project’s after-tax net present value (or NPV) was calculated to be ~455 Canadian dollars with an internal rate of return of 37%.
The mine life was initially estimated to be ten years with average annual production of ~200,000 ounces of gold for the first five years and average annual life of gold production of 184,000 ounces.
One of the major considerations for a miner in acquiring a mine is the all-in sustaining costs (or AISC) per ounce estimate for producing metal. Goldcorp’s AISC for 1Q16 was $836 per ounce. In comparison, Kaminak estimated Coffee to have AISC of $550 per ounce, which could have been one of the motivating factors for Goldcorp in its bid for Kaminak.
In the next part, we’ll discuss potential upsides and concerns from the Coffee project and what it could mean for Goldcorp.