Welcome, ladies and gentlemen, to Commodity TV in a new edition of our online interview series. Today we want to talk to the CEO of Meridian Mining, and Gilbert Clark, who is the CEO, obviously is here with us because the company just brought out a fantastic prefeasibility study for their Cabacal project. Hey, good day, Gilbert. How are you doing? You must be very happy.
Yes, Jochen. We're very happy with the outcome of the prefeasibility study. It was the accumulation of two and a half years of additional drilling, lots of studies, metallurgical, mining, and a real optimization of where the project is.
Yeah, absolutely. No, I mean, it was not only hard work, of course, everything came really together. You have a superb project, and I must say, if I look at the numbers, it's almost a billion US NPV at 5% discount and an IRR of 61%. Gee, those are fantastic numbers, aren't they?
Oh yeah, well, these are the type of numbers that you expect from production assets, and very much the Cabacal deposit is what we see as a very, very profitable future mine in Brazil. We generated that billion dollars in NPV value at 5%, and again we used pretty conservative inputs, used the same ones as before, which was CIBC long-term analyst consensus. So we used, I think, $2,119 for gold, $4.16 a pound for copper, and $26.89 for silver, so that, you know, these are far underneath where the commodities are today. So that really shows the exposure that this project and the increased value of the equities that come with the commodity cycle, I think that we're now entering.
Yeah, absolutely. And I think you also had a spot case after-tax NPV then of 1.4 billion, that was then 79.5% IRR, and that was then at $2,917 gold and $4.50 copper and $32 silver. I mean, we are today again higher. Of course, this is just a momentum thing, but I must say it shows the quality of the project, doesn't it?
No, absolutely. Look, most projects, any project can work at higher commodity prices, and ours actually works at very low commodity prices. So the ability for Cabacal to generate future net free cash flow is exceptional, and it is such a simple operation. It's open pit mining, standard conventional crushing, gravity, flotation to recover the payable metals. But most importantly, what we've done with this prefeasibility study is to generate a life-of-mine mid-tier production profile of 141,000 ounces of gold equivalent average each year. And this is very important to show that it's not a small promotional asset. This is a long-term, long-life production asset.
Yeah, it's a real asset, I would call it. Right. Absolutely. So, in the first five years, you want to produce around 178,000 ounces gold equivalent. Does that mean you are a little bit, let's say, high-grading, or from where does that come? Do you have a good starter pit and then you go further deep, or how does that come? From where does that come?
The deposit, what we've done is we've increased the pre-strip to expose a lot more of the ore body at the start, and this has allowed us to access shallow high-grade mineralization very early on in the production profile. And that's very important because then that means we can rapidly pay back the capex, which is at 1.4 years. So that's very important to show that not only can we access this high-grade material and have a very, very low all-in sustaining cost in the first few years, but also we pay back the capex. And this is very important when you're going down the road of funding a mine. You know, your lenders are going to say, 'How quick are we going to get our money back?' Well, we can pay back that in under 18 months easily.
Yeah. Would that mean that you can load a little bit more debt than equity, or that you maybe can do most of it debt for the capex?
Look, as a new build for a company, you've got to be a project that you're going to get a conservative debt-to-equity ratio. So I think a very conservative debt-to-equity ratio for project finance would be somewhere between 65% debt, 35% equity. I think that's, if I spoke to any banker, they would say that is a very responsible figure, and that's something we want to look for. Most importantly, in the months and years to come, we want to see the value of our shares dramatically replicate what we see. So we're trading today at 0.16 to NAV, 0.165 to NAV, and I think when we look at our peers, we should be trading upwards of about 0.45 to 0.5 to NAV. So there's a tremendous multiple in our equities, and that strength of our equities will go towards the future of project finance.
Mhm. Okay. What is the reason for that low initial capex, because you have $248 million US? I guess there's also a contingency calculated in, but it also includes the pre-investment for the expansion to 4.5 million tons per year from year four onwards. To my understanding, an open pit, or let's say a mine of that size, normally is, let's say, closer to 300 to 400 million US. So do you have any advantages, or what is the reason why that is so low?
Well, the advantage that we've got is firstly we're operating in Brazil, and Brazil is a very low capex, low opex environment. And when we look at the capital intensity per ton of mill, we are right in the middle of the fairway of recent builds in Brazil. So that's indicative of what you expect to get from Brazil. The Cabacal deposit, we benefit from having a topography that's very advantageous. It's on a hill. We have the geometry of the ore body, which is flat-lying, so we don't have a lot of pre-strip. In that capex figure, we've also expected that after year four we'll increase the annual production. The initial production was 2.4 million tons. We'll increase that up to 4.5 million tons, but we're going to put in all the crushing up front will be rated at 4.5 million tons. So then all the other footwork, the civil engineering, the cableization, everything that you'll need for the expansion will be pre-installed. So basically, when we come to year four, instead of having to mobilize hundreds of people to rebuild or extend, we're going to go with the smaller team and just add on. So there's an upfront figure in that capex, which is why compared to the PEA, I think it was circa 180 million including contingency, we've gone up to 248 million including contingency. But within that capex, there's also additional funding for the larger pre-strip. So overall, it's a very good investment for the future.
Look, we looked at the economics. It was probably much better economics if we just built a 4.5 million ton plant right from the start. But before you start a 4.5 million ton mill, that's a big old mill. But you want, in this new location with Cabacal, you want to make sure that all of your logistics, not only logistics of reagents in and product out, the logistics of moving people, moving dirt, all of that, you want to understand that before you take it up to a larger throughput.
Okay, cool. Yes, we were just talking about the throughput already. So we saw that from year four onwards it really goes massively up. Also, we see in that chart you have in your presentation that the grades are then further going down, especially at gold. Is there a chance that through, let's say, exploration, or call it aggressive exploration, that you maybe can get higher gold grades, or do you have more exploration potential that maybe the grades over the years restart to be higher?
We're actually doing several of those things. So within the Cabacal deposit, we're targeting areas within the model where we have used geological information that's indicating high-grade mineralization. But we don't have the data there. We've used it for the interpretations. And recently we announced, I think it was 20 meters at over six grams gold equivalent. So we're actually targeting some of these areas which are lower grade to actually increase the overall grade of the deposit. We're very positive what we're seeing in there. At the same time, we have the Santa Helena deposit, which is again two, three times the grade of Cabacal's, that's yet to come into the equation on value. We can anticipate that value, but I think there's a lot of value to unlock there. And at the same time, we're expanding our exploration activity. So when we look at Cabacal or any VMS belt, it's not something that sort of starts and stops. It's something that goes for decades, and this is what we expect to occur at Cabacal, to have decades and decades of future discoveries, pardon me, and ongoing production.
Mhm. Okay. Super. What would be the relations regarding gold, copper, silver later in the, let's say, in the payout?
So that's a very good question. Depending on the commodity price, which is the dominant mineral at the moment within the PFS, it's gold. It's about 50, 55% gold, maybe 56% gold, and sort of 49% copper in the balance, and silver. But when we look to commercialize, what product do we sell? Well, we sell about a projected 20% of our revenue comes from the sale of gold doré, and 80% of our revenue comes from the sale of, I think it's going to be one of the best copper concentrates coming into the market. It's incredibly clean. It has high gold content, high silver content, and a life-of-mine average of 29% copper. But that is a tremendous grade to have in a copper con. 29%, no deleterious material, and very much sought after by the smelters and by the trading houses because they can take our 60, 70, 80,000 tons of concentrate per annum and mix that with three or 400,000 tons of lower-grade dirty concentrate and make it optimal for smelter performance. So this is a very... when we published that information on the quality of the concentrate, we had a lot of incoming calls on offtake and relationships.
Mhm. Okay. Could you use the silver for, let's say, a stream or something like that to finance the project, or is it too small?
It could be used as a stream. It's not a lot of money. Streams have certain values. On non-core commodities, I guess we could consider that. But at the moment, we're not envisaging that. We do discuss this with the top three streaming companies. They're all good people. But at the end of the day, the priority for financing has to be the one which is in the best interest of the shareholders, and that's always been the case with Meridian.
Mhm. Okay. I see also the process flow sheet that looks really, really simple. So I mean, this is something which is really manageable and not rocket science, right?
