Meeka Metals (MEK.AX) released the results of the feasibility study on its Murchison Gold project in Western Australia. The mine plan calls for a 9 year mine life producing a total of 400,000 ounces of gold per year translating in a total annual production of approximately 64,000 ounces of gold per year, underpinned by 305,000 ounces of gold in the reserve category (in Australia it is allowed to add resources to the mine plan in a definitive feasibility study).

The AISC is anticipated to come in at A$1804/oz and considering the current gold price is approximately A$3,500/oz, the project will be quite  profitable thanks to the very low initial capex of just A$44M. At a gold price of A$3250/oz (which is approximately US$2160 at the current exchange rate), the after-tax NPV8% (yes, Australians use an 8% discount rate for gold projects which makes more sense in the current interest rate climate compared to the 5% used by North American companies) is A$202M while the after-tax IRR is 84%, thanks to the exceptionally low initial capex.

At A$3500/oz, the after-tax NPV8% increases to A$244M while the after-tax IRR jumps to 100%. The low initial capex (thanks to the plan to recommission the existing CIL plant that is currently on site) plays a key role in determining the economics of the project. Also keep in mind the mine plan includes just 400,000 ounces of gold while the project contains 1.2 million ounces of gold, including 700,000 ounces in the measured and indicated resource categories. The 1.2 million ounces do include the 300,000 reserve ounces, but it still means there’s an additional 300,000 ounces of gold in the indicated resource category and 535,000 ounces of gold in the inferred resource category beyond what’s currently in the mine plan.

Disclosure: The author has no position in Meeka Metals. Please read the disclaimer.

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