Galena Mining has tabled a lovely set of numbers for its lucrative looking Abra lead-zinc deposit in Western Australia with the project expected to spit out an average of $100m a year in free cash from year three onwards.
In a scoping study announced to the ASX yesterday, Galena said the project is now showing a serious, pre-tax net present value of $615m at current spot lead prices of US$1.14 per pound.
Even taking a conservative view of the forward lead price at US$.95c per pound, which is below the ten year historical average of US$.97c per pound, Abra is still showing a pre-tax net present value of $394m according to the company.
Importantly, the scoping study free cash prediction of $100m a year from year three, was based on the lower, more conservative lead price of US$.95c a pound. If the current spot price of US$1.14 per pound holds up long term, the project economics will grow wings.
After recently completing a share split, Galena has a relatively modest 336m shares on issue currently.
Unlike some other base metals projects around the world that require eye watering amounts of capital to build, Galena’s $153m capex estimation appears to be comparatively modest and perhaps not impossible to achieve.
Using the more conservative lead price of US$.95c a pound the company is estimating an internal rate of return of 61 per cent for Abra, with that figure hiking to 82 percent on the back of the current spot price.
Abra looks to be a high margin play too, offering it a buffer against a radical drop in the lead price.
Galena says its average life of mine cash costs are likely to be just US0.46c a pound with all in sustaining costs only jumping to US0.56c a pound.
A sensitivity analysis completed by Galena shows that even with a normally catastrophic one third drop in the current spot price to $US0.76c a pound, Abra still offers up a net present value of $174m.
Galena’s Abra project is likely to be the 5th or 6th largest lead producing mine globally and appears to be exquisitely timed with the lead price recently reaching 7 year highs, whilst international lead stockpiles have sunk to 7 year lows.
Abra is currently showing an initial mine life of 11 years, however Galena is very focused on extending that timeline by steadily upgrading the resource at the project in order to rack and stack further mining inventories. With $10m in the bank, there don’t appear to be any financial hurdles that might get in the way either.
The recent scoping study was based on an annual throughput of 1 million tonnes at a very respectably average lead grade of 9.7 per cent and 15 grams per tonne silver, producing 91,000 tonnes of lead and 450,000 ounces of silver a year
Concentrates will be delivered by road in sealed sea containers to the port of Geraldton for export, a facility that already handles base metal concentrates from several operations in the region, including lead concentrate from MMG’s Golden Grove mine.
Galena CEO, Ed Turner said: “This is an exciting long life, high-margin and low-capital project in a Tier-1 jurisdiction. Abra’s latest representative metallurgical test work demonstrates that it can produce a very high grade (74.5 per cent lead and 140 grams per tonne silver), high-quality clean concentrate that is in high demand.”
Galena is moving full steam ahead, progressing to the next phase of work at Abra, with a pre-feasibility study due for completion in September 2018.
Pending favourable results from the PFS, the company will move into a bankable feasibility study and financing phase, with the proposed timeline for development showing underground mine development, surface infrastructure and process plant construction all under way in the second half of 2019.
First ore production and subsequent processing is projected in the first half of 2021.
Galena effectively re-wrote the play book at Abra by looking at the deposit in a different way. Previous Chinese backed owners thought it was a massive tonnage, low grade project and it just sat there idle for years.
Galena management however set out to prove that it was in fact a large tonnage, high grade play that could be very profitable if mined the right way.
The latest scoping study appears to support that hunch – don’t you just love it when a plan comes together.
By Matt Birney
