Gowest Gold posts PEA for Frankfield deposit with 1,500 tpd operation and 23% IRR

Ontario-focused Gowest Gold (CVE:GWA)(OTCBB:GWSAF) Monday announced positive results of its recently-completed preliminary economic assessment (PEA) for its 100%-owned flagship Frankfield East Gold deposit, part of the North Timmins gold project in Ontario.

The preliminary assessment gives a 10-year mine life for Frankfield East, producing 1,500 tonnes per day (tpd) at an average life-of-mine cash cost of $660 per ounce. The annual average gold production rate is pegged at 95,000 ounces per year, with an overall gold recovery rate of 95 percent.

Gowest said the PEA confirms a pre-tax net cash flow of $265 million, giving an internal rate of return (IRR) of 23 percent and a 3.3 year payback period.

Initial capital costs were seen at $167 million, with life-of-mine sustaining capital projected at $86 million. The PEA is based on a gold price of $1,200 per ounce, compared to a 24-month average of $1,348 per ounce, the company said, suggesting a potential boost in project economics.

Gowest Gold president and CEO, Greg Romain, commented: "These results demonstrate that even at a gold price of $1,200 per ounce, the current resource levels can generate robust returns with operating costs in line with industry averages.

"Further, we see significant additional economic upside not only with today’s higher gold price – at which the project’s IRR is nearly 60% – but also with the pending addition of new resources, the very real potential for increasing the mined gold grades as well as other economic opportunities identified in the PEA.

"Meanwhile we will continue to explore aggressively other similar and promising targets on our growing 60 square kilometre North Timmins Gold Project land package."

Speaking to Proactive Investors, Greg Taylor, VP of investor relations for Gowest, said the PEA was a "robust and economically very positive report" and there were several ways it could be improved further.

Taylor said Gowest was in the midst of co-ordinating more technical studies and then a pre-feasability study followed by a bankable pre-feasability study.

He added that the company was conducting studies related to ore sorting and planned to do more drilling to expand the resource in the main part of Frankfield East Deposit as well as in other parts of the Timmins North Gold Project property that has not yet been drilled.

Taylor also said that the Gowest was looking at the possibility that while a mill will need to be built, it would make "economic sense" to contract-out processing over about a three-year period.

This would enable cash flow to begin within two years of a production decision. This would increase cash costs up front but would generate cash flows earlier and reduce initial capex.

Indeed, Gowest said it is also looking into ways to cut capital requirements and the time required to move the Frankfield East project into production by transporting ore to a nearby existing processing facility, where a high grade (80-90 grams per tonne) gold-bearing sulphide concentrate would be produced. This would then be transported to rail cars and shipped for final processing at a third-party location.

This alternative development scenario would have an initial capital requirement of $60 million and total cash costs estimated at $891 per ounce, with positive pre-tax cash flows of $28 million annually at a gold price of $1,200 per ounce, rising to around $52 million annually at a short term gold price of $1,500 per ounce.

Payback of mine development costs would come in at between 1-2 years, depending on the gold price, Gowest said.

The company believes that the results from the contract processing scenario are sufficiently positive that the opportunity should be investigated further. If successful, Gowest would be able to fast-track mine development activities at Frankfield East, thereby enabling positive cash flows to be generated in a period of less than 2 years from start of construction.

The Frankfield East PEA is based on Gowest's resource estimate announced in June of 348,000 indicated ounces (1,621,000 tonnes at 6.68 grams per tonne gold) and 838,900 inferred ounces (4,342,000 tonnes at 6.01 grams per tonne gold).

Gowest's 100 percent-owned Frankfield East gold deposit comprises 42 claims on 2,444 hectares, and is located about 42 kilometres north-east of Timmins, accessed by a 15 kilometre all-weather road.

Gowest also said it continues to aggressively drill the extents of the Frankfield East gold deposit, with a view of delivering an updated resource estimate in the first half of 2012.

Since its resource update in June, exploration drilling activities at the Frankfield East deposit have been organized according to two general priorities – shallower in-fill drilling and deeper resource expansion drilling.

The company said that in-fill drilling is being performed to depths of approximately 350 metres in order to convert additional inferred gold ounces in this zone into the indicated category status, as well as to provide better definition to the upper regions of the deposit.

At greater depths, drilling is intended to confirm the continuity of mineralization in areas that currently are devoid of drill data, with the aim to expand the overall gold resource for the deposit, primarily in the inferred category.

Gowest is currently completing its baseline environmental studies for the property, and will be in a position to make final applications for the necessary mining permits in 2012.

The company also entered into an agreement with the Mattagami and Matachewan First Nations, establishing a framework for ongoing discussion. The parties have also agreed to negotiate an Impact Benefits Agreement, should the project proceed.