Liberty Gold Corp. (LGD:TSX; LGDTF:OTCQX) released the results of the first study, a prefeasibility study (PFS), of its flagship Black Pine project in Idaho, reported Canaccord Genuity analyst Peter Bell in an Oct. 10 research note.
"The completion of the prefeasibility study is a key step in advancing the project through permitting, bringing a Black Pine mine much closer to reality," Bell wrote. "This is positive."
885% gain possible
Canaccord Genuity has a CA$3.25 per share price target on the Canadian Idaho-based exploration and development company, trading now at about CA$0.33 per share, noted Bell. These figures imply a potential return on investment of 885%.
Liberty is rated Speculative Buy.
Specifics of the PFS
Bell presented the details of the Black Pine operation as outlined in the PFS, based on reserves of 3,110,000 ounces (3.11 Moz) of 0.32 grams per ton (0.32 g/t) gold.
Average production is 183,000 ounces per year (183 Koz/year) gold for the first five years, peaking at about 231 Koz. The average annual production, based on a 50,000 ton per day throughput, over a 17-year life of mine (LOM) is 135 Koz.
The PFS has the head grade during years one through five at 0.45 g/t gold. Over the LOM, the head grade is 0.32 g/t gold and gold recoveries, 70.4%.
As for costs, operating costs are low at US$9.10 per ton processed. The all-in sustaining cost (AISC) is US$1,205 per ounce (US$1,205/oz) of gold for years one through five and US$3,180/oz of gold for the LOM.
"We believe the study highlights a simple, lower-risk and long-lived operation with an attractive cost profile," Bell wrote. "We model Liberty achieving initial production at Black Pine in 2029, based on company disclosure around the permitting process."
Attractive economics
Bell reported the economics outlined in the PFS, for the base case using a US$2,000/oz gold price. The after-tax net present value discounted at 5% (NPV5%) is US$552 million, the internal rate of return (IRR) is 32% and the payback period is 3.3 years. The strip ratio is low at 1.3.
"Of note is the study's leverage to higher gold prices with an NPV5% of US$1,296M (62% IRR at US$2,600/oz)," Bell wrote. At the same gold price, Canaccord Genuity's estimated NPV5% is higher, at US$1,569.
Bell noted that Liberty could enhance the value of Black Pine in any of four ways, by optimizing the resource and mine planning; delineating additional ounces or feed sources; using electric, maybe even autonomous, mining equipment; and defining options for using renewable energy like solar to potentially lower operating costs more.
How results stack up
The analysts pointed out the similarities and differences between Liberty Gold's PFS and Canaccord Genuity's estimates, on Black Pine. Between the two, the capex, AISC, mined throughput and NPV are consistent, "which we view as positive," Bell wrote.
Among the parameters that differ are unit costs per ton processed, strip ratio, head grade, recovery and total recovered ounces, all lower in the PFS. Mine life, though, is longer.
"The longer mine life and lower total ounce total equate to a lower number of ounces of annual production," Bell explained.
Process and general and administrative costs are lower in the PFS, which decreases the cutoff and the overall grade when compared to Canaccord Genuity's version. Bell indicated that the lower operating cost per ton, however, is positive.
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