In a May 24 research note, analyst Ryan Walker with Echelon Wealth Partners reported that Eastmain Resources Inc. (ER:TSX) announced "positive summary results" of the preliminary economic assessment (PEA) of its Eau Claire project in Quebec. "Our main takeaway from the PEA is that it employs realistic numbers (something of a rarity among PEAs) and errs on the side of conservativism," he added.
Walker reviewed the PEA that had been prepared by P&E Mining Consultants. It outlines for Eau Claire an after-tax NPV5% of CA$260 million (CA$260M) and an internal rate of return of 27%, with return on investment coming after three years and one month. Capex is CA$175M in initial outlay plus an ongoing life-of-mine total of CA$108M. Cash costs for life of mine are CA$632 per ounce, and all-in sustaining cost is CA$746 per ounce.
The project scenario is both an open-pit and underground mine and mill operation that produces 1,500 tons per day for 10 years, ultimately yielding 86,100 ounces (86.1 Koz) a year. Recovery of gold is estimated at 95%, through "standard crushing, grinding, cyanidation and carbon-in-pulp processes, with gravity concentration within the grinding circuit, followed by direct gravity tail cyanidation," noted Walker.
The PEA is based on an updated resource that incorporated 19 new drill holes adding approximately 62 Koz gold at 6.9 grams per ton (6.9 g/t). The study "suggests that about 71% of the updated resources are potentially mineable, with a 70/30 split between Indicated and Inferred resources," Walker explained. Specifically, it assumes a mineable 1.64 million tons (1.64 Mt) at grade 3.78 g/ton for 199 Koz via two open pits plus a mineable 6.4 Mt at grade 5.24 g/t for 802 Koz via an underground mine.
About the PEA, Walker concluded that it "represents a more realistic view of a potential development scenario of the deposit and a solid base from which to pursue enhancement and advancement of the project."
The next steps to advance Eastman Resources' Eau Claire, Walker wrote, include open-pit and underground ramp design engineering, additional geotechnical investigation, advanced underground exploration and bulk sampling, baseline environmental studies and ongoing dialogue with the local First Nations.
In its revised model, Echelon increased its NAV5% for Eau Claire to CA$287M from CA$262M. It lowered its target price on Eastman Resources to CA$0.90 from CA$1 per share but maintained its Speculative Buy rating. With the mining firm's shares trading today at around CA$0.25 apiece, the price target reflects a 260% potential return.
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Disclosures from Echelon Wealth Partners, Eastmain Resources Inc., May 24, 2018
Echelon Wealth Partners compensates its Research Analysts from a variety of sources. The Research Department is a cost centre and is funded by the business activities of Echelon Wealth Partners including, Institutional Equity Sales and Trading, Retail Sales and Corporate and Investment Banking.
I, Ryan Walker, hereby certify that the views expressed in this report accurately reflect my personal views about the subject securities or issuers. I also certify that I have not, am not, and will not receive, directly or indirectly, compensation in exchange for expressing the specific recommendations or views in this report.
Important Disclosures:
During the last 12 months, has Echelon Wealth Partners Inc. provided financial advice to and/or, either on its own or as a syndicate member, participated in a public offering, or private placement of securities of this issuer? Yes
During the last 12 months, has Echelon Wealth Partners Inc. received compensation for having provided investment banking or related services to this Issuer? Yes
Has the Analyst had an onsite visit with the Issuer within the last 12 months? Yes [12/8/17: Eau Claire (Quebec) Project, Site, Camp, Core Storage Tour. Local incidentals paid by issuer.]
