Information on Black Fox
Attractive Purchase Price
The purchase price of US$35 million is attractive given the high-grade gold production expected from Black Fox and the significant exploration potential of the properties. Additionally, replacement value of only the fully permitted 2,400 tpd mill and tailings facility is well above the purchase price. Since 2014 capital investment and exploration at Black Fox totalled over US$120 million(1). As part of the acquisition, we will also gain access to US$150 million of development and exploration pools that can be applied to reduce taxable income generated from within Ontario.
Declining Production Cost per Ounce
Production costs at Black Fox have declined over the past twelve (12) months as a result of higher grades mined underground, cost cutting measures, and operational improvements (see table below). Our goal is to maintain a profitable cost structure at the mine with the expectation that capital investments will be required in the short to medium term.
The combined production from the purchased properties totals over 950,000 ounces of gold. The Black Fox mine was initially operated from 1997 to 2001. It was re-commissioned in 2009 and has operated continuously since then, producing a total of 821,000 ounces(1) of gold from an open pit and underground mine.
The property surrounding the Black Fox-Stock mill is also the site of the former Stock Mine (“Stock”), which produced 137,000 ounces of gold from an underground operation between 1989-2005.
The Black Fox property is located along a prime 4.5 mile (7 km) section of the Destor-Porcupine Fault, which is host to many world-class gold deposits. The property is already well-endowed with gold mineralization and has very attractive geological potential.
The objective of the current underground exploration and definition drilling programs is to upgrade and expand resources in the Deep Central, High Quartz Vein, Far West and Far East Zones, at depths ranging from approximately 500 to 850 meters (m). Exploration drilling will also focus on expanding the gold resources to depth at the Black Fox mine and the Froome deposit, which is located 800 m West of the mine. The Froome deposit is currently drilled to a depth of 350 m and remains open at depth.
Multiple other exploration targets exist on the Black Fox and Stock properties. These targets will be ranked during Q4 2017 for drilling in 2018.
Future Development Opportunities
Our project pipeline in the Timmins region has six potential development projects, those acquired with Black Fox: Froome and Grey Fox; and those acquired with Lexam VG Gold: Fuller, Davidson Tisdale, Buffalo Ankerite, and Paymaster. Having access to the Black Fox-Stock mill definitely enhances the value of these assets and significantly shortens the time required to reach production.
Existing Gold Stream
There is a pre-existing gold streaming agreement with Sandstorm Gold Ltd. (“Sandstorm”) on the Black Fox and Froome deposits. As a result of this agreement we will sell 8% of the gold produced on these specific properties to Sandstorm for US$531/ounce. The current cost of the stream assuming a $1,300/oz gold price is a reduction in realized revenue from Black Fox of approximately 4.7% compared to if no stream existed. The Grey Fox deposit and the Stock property are not subject to any streaming agreements.
Footnotes: (1) Source: Primero public filings