How many big new gold projects in safe jurisdictions can you name?
One? Two? Three?
The reality is that there are only a handful of meaningful new gold projects coming on stream worldwide, and not all of them are in places where investment capital feels comfortable.
That’s one reason why shares in First Mining Gold Corp (TSE:FF) have just about doubled over the past 12 months.
The company has just put out pre-feasibility numbers for its Springpole gold project in Ontario, Canada, and they look compelling.
Over a mine life of 11.3 years the project looks set to generate US$2.3bn in pre-tax cash flow, with average annual gold production ringing in at 335,000 ounces for the first nine years.
All-in sustaining costs run to US$645 per ounce over the life of mine, allowing for significant margin on the current US$1800-plus gold price, with a sensitivity analysis also provided for US$2,000 gold.
On that latter scenario, not now the pie-in-the-sky dream it once was, Springpole has an after-tax net present value of US$1.6bn, using a 5% discount, and offers an internal rate of return, post tax, of just over 40%.
For now, First Mining is favouring a US$1,600 gold price assumption, just to be on the safe side. And even that shows a project delivering a net present value on the same terms of US$995mln, and an internal rate of return of 29.4%.
“Not many projects are capable of producing more than 300,000 ounces a year in a good jurisdiction, in the lowest cost quartile, and can be built for less than US$1bn,” says First Mining’s chief executive Dan Wilton.
“I think the project demonstrates significant leverage to an improving gold price.”
It all represents a significant and rapid transformation for a company that was project-rich, but cash poor just two short years ago. Back then, First Mining was viewed more as a project holding company than a real developer, and the share price reflected that sentiment.
When Wilton was appointed in January of 2019 he was given a clear mandate by First Mining’s backers, which include some significant mining names like First Majestic (TSE:FR), to start making things happen.
Accordingly, the portfolio was rationalised, deals were done, and the day-to-day focus was narrowed in on Springpole.
The result was an intriguing combination of a company with a highly investable and sizeable gold project, supported by an investment portfolio that has significant value of its own. Thus, the 15-strong royalty portfolio created by Wilton’s deals could hold its own against any of Canada’s up-and-comers in the royalty space.
Likewise, there are interesting joint ventures with Auteco Minerals (ASX:AUT) on the Pickle Crow gold project in Ontario, and also with Treasury Metals (TSE:TM) at the Goldlund-Goliath project.
Add those assets to the nearly C$30mln brought in by fundraising activities in the second half of last year, and you’re beginning to reckon with a company with a serious asset-base.
“We now have between C$50mln and C$60mln in cash and liquid assets,” says Wilton. And that’s before the valuations of the stakes in Pickle Crow and Treasury are taken into consideration. These, according to back-of-the-envelope estimates, add a further C$60mln and C$70mln respectively.
To be sure, First Mining Gold is looking at raising just under US$720mln to get Springpole built, but as it stands, this is a company that already wields considerable financial heft, and which is supported by a standout project and powerful backers.
So what’s next?
Much of this year will be taken up with securing the environmental and social licence for First Mining to get on and build Springpole. Here, the company has secured a significant advantage in the hiring of Steve Lines as VP Environmental and Community Relations.
Lines previously worked in a similar capacity at the Hardrock mine, also in Ontario, which is now going into construction. What’s more, prior to that, he helped get the Gacho Kue mine permitted for De Beers, a project that involved the partial de-watering of a lake in a manner similar to what’s proposed at Springpole.
“Steve’s in a unique position to understand what’s required,” says Wilton. “He’s done it twice before.”
While that work’s getting underway in earnest, First Mining also plans a serious exploration effort across a greenstone belt that’s had a fraction of the attention that’s been paid to Red Lake over the years. What will the results be like? It’s an intriguing prospect. Springpole itself boasts a reserve of almost four million ounces, and if the company can uncover anything that’s remotely comparable the programme will have been judged a success.
“Our tangible aspiration is that we’re going to define far more resources on this ground than people understand is there today,” says Wilton.
All of which goes towards explaining the recent strength in First Mining’s shares. And yet there could be a whole lot more to come. After all, if you factor all the favourable recent and upcoming newsflow in, and then conduct a peer group comparison, it quickly becomes clear that First Mining remains undervalued.
Comparable projects held by the likes of Artemis Gold (CVE:ARTG), Midas Gold (TSE:MAX) IAMGOLD (TSE:IMG) tend to be valued at around US$80 per ounce in the ground. First Mining’s valuation works out at around US$14.00. In a market that continues to be bullish for gold, it’s only a matter of time before investors wake up to this disparity and start moving the price.