Underground operations resumed at Omineca Mining and Metals Ltd.'s (OMM:TSX.V; OMMSF:OTCQB) Wingdam placer gold project in British Columbia, reported Research Capital Corp. Analyst Bill Newman in a Feb. 26 research note. With two recent financings now complete, Research Capital lowered its target price on Omineca to account for resulting dilution.
"With equipment, supplies and personnel now fully mobilized, the company expects gold-bearing gravel recovery to commence in the near term," Newman wrote.
833% Projected Return
Research Capital's new target price on Omineca is CA$0.42 per share, down from CA$0.55, reported Newman. In comparison, the company is trading now at about CA$0.04 per share.
The new target implies a return for investors of 833%.
Omineca remains a Speculative Buy.
Preparations Underway
Newman reported that Omineca's joint venture partner, D&L Mining, now is preparing the underground workings so the gold-bearing paleochannel may be re-entered. This includes rehabilitating the haulage/access drift, upgrading the dewatering sumps, improving ventilation, reinforcing existing bulkheads if needed and installing new bulkheads.
Mining Approach and Plan
At Wingdam, mining will start at the established crosscut heading #3 because there is dry gravel at the breakthrough into gold-bearing deposits, making the conditions favorable. As operations progress, the plan is to first tunnel across the channel's full width then excavate upstream and downstream in the middle of the paleo-riverbed. In this central portion is where concentrations of the highest-grade placer gold are expected.
For additional structural support and ground stabilization, either shotcrete will be applied after excavation or tunnel liner plates used, depending on the conditions.
Newman noted that along with ground instability, other potential challenges of mining in unconsolidated paleochannel gravels include water ingress and variable gold distribution. Each has the potential to negatively affect project timelines and recovery rates.
Potential Value of Project
Newman discussed the potential resource, production and value of the Wingdam project, highlighting its attractive economics.
Omineca could define a resource of 175,000 ounces of gold (175 Koz Au) if it can "reproduce the results of its 2012 bulk sample test across the 2.4 kilometers of the paleochannel studied," the analyst wrote. With this resource, estimated gross production could be 35 Koz Au per year.
The project potentially could generate about CA$32 million (CA$32M) of cash flow per year, Newman pointed out. This calculation assumes a US$2,000 per ounce (US$2,000/oz) gold price (previously US$1,850), a fixed operating cost of CA$1,000/oz (previously CA$850) and net gold production of 17.5 Koz per year.
Using these figures, Wingdam's net present value discounted at 10% would be CA$121M, or CA$0.46 per share. The project's value would be even more compelling were today's gold price, about US$2,925/oz (or CA$4,120/oz), used instead.
Further, noted Newman, Omineca "benefits from a low-risk structure while securing its 50% share of gold production at a fixed price of CA$1,000/oz. This is because Omineca's partner D&L Mining is to cover all operational costs in exchange for a 50% interest in the Wingdam placer claims.
Regular Updates to Come
Once mining at Wingdam starts, Omineca will provide regular updates throughout the process, from efforts at crosscut heading #3 and beyond into the paleochannel.
"Continued updates on gold recovery rates and production efficiency will be key catalysts," Newman wrote.
Latest Corporate Data
Omineca Mining has 261 million shares outstanding.
Its market cap is CA$11.8M. Its 52-week trading range CA$0.04−0.14 per share.
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