In a groundbreaking move that has caught the attention of the mining industry, SolGold (LSE, TSX: SOLG) has announced a significant reduction in the upfront costs for its flagship Cascabel project in Ecuador. This adjustment comes as the company evaluates the potential sale of this copper-gold property, marking a pivotal moment in its development strategy.
Strategic Cost Reductions Usher in New Phase
The latest pre-feasibility study (PFS) unveiled a dramatic decrease in initial capital expenditure, showcasing over $1 billion in savings. The cost for pre-production, encompassing initial mine development, the first process plant module, and infrastructure, is now pegged at $1.55 billion, a stark reduction from the previously estimated $2.75 billion.
Enhanced Project Economics
The revised economics paint a brighter picture for Cascabel, with an after-tax net present value (NPV) of $3.2 billion and an internal rate of return (IRR) of 24%. These figures suggest a payback period of approximately four years from the onset of processing, marking a significant improvement over the 2022 projections.
Phased Development Strategy
The 2024 PFS introduces a phased block cave development approach, allowing for a substantial cut in initial capital outlays and a scalable operation. This strategy implies higher post-production costs, estimated at $2.57 billion, yet offers a manageable ramp-up to full production.
A Gradual Scale-Up to Maximize Yield
The initial phase targets a production rate of 12 million tonnes per annum, focusing on high-grade ore with an average copper-equivalent of 1.45% for the first decade. Subsequent operations will double the output to 24 million tonnes per annum by year six, with Phase 2 expansions funded entirely by the project's cash flow.
Long-Term Vision for Cascabel
The current mine plan leverages just 18% of the measured and indicated mineral resources at the Alpala deposit, suggesting Cascabel's potential as a long-lasting mining asset. SolGold's strategy underscores the project's viability as one of South America's top copper-gold mines, with construction slated for 2025.
Challenges and Market Response
Despite these advancements, investor confidence in SolGold's management has waned, reflected in a declining share price. The company has streamlined its operations and sought strategic partnerships, including a $36 million equity investment from Jiangxi Copper and a $50 million royalty agreement with Osisko Gold Royalties.
A Glimmer of Hope
On the heels of these announcements, SolGold's shares experienced a modest uptick, trading 4.3% higher at C$0.12 in Toronto. This response, albeit cautious, indicates a potential turnaround for the company's financial health and project feasibility.
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