In formulating its valuation, Edison has made certain costs and scheduling assumptions relating to Auriant’s current and future mining activities. These are set out in the following tables. In general, costs are presumed to be denominated in Russian roubles (RUB) and are then converted into US dollars at the prevailing forex rate (RUB64.0188/US$ at the time of writing). Our gold price forecasts are those set out in our report, Gold: Doves in the ascendant, published in August 2019, and are reproduced here in real (as opposed to nominal) terms:
Exhibit 11: Edison gold price forecasts, 2020–23 onwards (US$/oz, real)
Year |
2020 |
2021 |
2022 |
2023 onwards |
Gold price (US$/oz) |
1,572 |
1,395 |
1,387 |
1,350 |
Source: Edison Investment Research
Note that, as such, Edison’s average (real) gold price forecast over the course of Auriant’s mines’ anticipated operations, from 2020 to 2033 inclusive, is US$1,372/oz (simple average) cf US$1,377/oz previously – albeit, it is generally higher in earlier years and lower in later years, reflecting, in particular, the volte face by the US Federal Reserve in moving from a tightening monetary stance in November 2018 to a loosening one in March 2019, with its attendant re-inflation of the total US monetary base which had otherwise been contracting.
Forecasts for Auriant for FY19 are based on production guidance for the year of 550kg from the Tardan heap leach operation and 150kg from the CIL operation plus c 64.2kg from Solcocon and the assumption that costs are consistent with those experienced in recent winter quarters (note that Auriant experiences notable seasonality in production, with relatively elevated production rates in Q2, Q3 and part Q4 and relatively depressed production rates in Q1 and part Q4). In the meantime, as discussed previously, production at the Tardan complex has been shifted from a gravity and heap leach process flow route to CIL only, with the subsequent opportunity to re-process ‘exhausted’ heaps. As such, FY19 will be the last year in which Auriant actively stacks its heaps at Tardan, although production from the heaps will inevitably spill over into FY20 as a result of the heaps’ leach kinetics and the time-lag between stacking, irrigation and production. Thereafter, we forecast production at Tardan for the remainder of the life of the operation – being increasingly sourced from the Pravoberezhny deposit (see Exhibit 7) – to be as follows (note that these forecasts are substantially unchanged from those used in our report, Auriant Mining: All aboard the Auriant express, published on 6 March 2018, other than to reflect the delay in commissioning the CIL plant from H119 to H219):
Exhibit 12: Tardan mining, processing and cost schedule and estimates, 2019–29
|
2019 |
2020 |
2021 |
2022 |
2023 |
2024 |
2025 |
2026 |
2027 |
2028 |
2029 |
Mining |
|
|
|
|
|
|
|
|
|
|
|
Tonnes mined (kt) |
333 |
332 |
396 |
611 |
177 |
175 |
141 |
141 |
|
|
|
Grade (g/t) |
2.38 |
3.24 |
3.26 |
3.11 |
3.08 |
1.82 |
1.51 |
1.51 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Heap leach processing |
|
|
|
|
|
|
|
|
|
|
|
Ore stacked (kt) |
390 |
0 |
|
|
|
|
|
|
|
|
|
Grade (g/t) |
2.13 |
0.00 |
|
|
|
|
|
|
|
|
|
Recovery (%) |
66.1 |
52.7 |
|
|
|
|
|
|
|
|
|
Gold produced (kg) |
550 |
96 |
|
|
|
|
|
|
|
|
|
Gold produced (oz) |
17,683 |
3,101 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CIL processing |
|
|
|
|
|
|
Heap re-mining |
Throughput (kt) |
50 |
320 |
320 |
330 |
320 |
330 |
510 |
445 |
450 |
450 |
300 |
Grade (g/t) |
3.27 |
3.24 |
3.26 |
3.13 |
3.11 |
2.55 |
1.36 |
1.17 |
1.00 |
1.00 |
1.00 |
Recovery (%) |
92 |
92 |
92 |
92 |
92 |
92 |
82 |
79 |
70 |
70 |
70 |
Gold produced (kg) |
150 |
953 |
959 |
950 |
916 |
774 |
570 |
413 |
315 |
315 |
210 |
Gold produced (oz) |
4,823 |
30,640 |
30,819 |
30,553 |
29,460 |
24,886 |
18,323 |
13,265 |
10,128 |
10,128 |
6,752 |
|
|
|
|
|
|
|
|
|
|
|
|
Total gold produced (kg) |
700 |
1,034 |
946 |
996 |
992 |
1,021 |
1,004 |
315 |
315 |
315 |
315 |
Total gold produced (oz) |
22,506 |
33,741 |
30,415 |
32,022 |
31,894 |
32,826 |
32,280 |
10,128 |
10,128 |
10,128 |
10,128 |
|
|
|
|
|
|
|
|
|
|
|
|
Unit cash cost (US$/t processed)* |
43.65 |
61.80 |
64.90 |
60.20 |
56.76 |
48.30 |
23.92 |
25.20 |
20.02 |
20.39 |
22.00 |
Unit cash cost (US$/oz)* |
962 |
645 |
674 |
650 |
617 |
641 |
666 |
845 |
890 |
906 |
978 |
|
|
|
|
|
|
|
|
|
|
|
|
Initial capex (US$000s) |
8,344 |
|
|
|
|
|
|
|
|
|
|
Source: Auriant Mining, Edison Investment Research. Note: *Head leach only FY19 (excluding capex), CIL only FY20 onwards.
Readers should note the 2.81g/t average life-of-mine grade of material mined compares with the 3.23g/t in-situ grade of resources at Pravoberezhny (see Exhibit 6). Note also the improvement in metallurgical recovery and the consequent decline in unit cash costs as operations move from heap leach to CIL.
At the same time, Auriant will commence construction of its Kara-Beldyr mine. Unlike Tardan (from which it is c 110km, or 73 miles, distant), Kara-Beldyr has been designed using a CIL process flow route from the outset with correspondingly higher expected future metallurgical recoveries. Our expectations for mine scheduling, production, output and costs at Kara-Beldyr are similarly set out below:
Exhibit 13: Kara-Beldyr mining, processing and cost schedule and estimates, 2021–33
|
2023 |
2024 |
2025 |
2026 |
2027 |
2028 |
2029 |
2030 |
2031 |
2032 |
2033 |
|
Mining |
|
|
|
|
|
|
|
|
|
|
|
|
Stripping ratio |
22.3 |
6.5 |
5.5 |
5.5 |
5.4 |
4.5 |
3.5 |
2.7 |
2.5 |
2.2 |
1.5 |
0.6 |
Waste (m3 000's) |
2,642 |
6,217 |
5,681 |
6,160 |
5,992 |
4,919 |
3,811 |
2,836 |
2,577 |
2,239 |
1,154 |
55 |
Ore production for processing (kt) |
120 |
1,006 |
1,107 |
1,200 |
1,200 |
1,200 |
1,200 |
1,200 |
1,200 |
1,200 |
1,063 |
246 |
Ore production for processing (m3 000's) |
44 |
364 |
401 |
436 |
437 |
437 |
437 |
437 |
437 |
437 |
387 |
89 |
Grade (g/t) |
1.46 |
1.70 |
2.23 |
1.96 |
2.27 |
2.07 |
2.24 |
1.87 |
1.88 |
2.03 |
1.96 |
2.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
CIL processing |
|
|
|
|
|
|
|
|
|
|
|
|
Throughput (kt) |
120 |
1,006 |
1,107 |
1,200 |
1,200 |
1,200 |
1,200 |
1,200 |
1,200 |
1,200 |
1,063 |
246 |
Grade (g/t) |
1.46 |
1.70 |
2.23 |
1.96 |
2.27 |
2.07 |
2.24 |
1.87 |
1.88 |
2.03 |
1.96 |
2.00 |
Recovery (%) |
85.0 |
85.0 |
85.0 |
85.0 |
85.0 |
85.0 |
85.0 |
85.0 |
85.0 |
85.0 |
85.0 |
85.0 |
Gold produced (kg) |
149 |
1,452 |
2,095 |
2,002 |
2,319 |
2,106 |
2,283 |
1,907 |
1,913 |
2,072 |
1,770 |
417 |
Gold produced (oz) |
4,790 |
46,680 |
67,362 |
64,376 |
74,552 |
67,725 |
73,394 |
61,299 |
61,492 |
66,620 |
56,913 |
13,400 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Unit cash cost (US$/t) |
118.61 |
39.37 |
35.14 |
35.80 |
35.35 |
32.58 |
29.07 |
26.24 |
25.33 |
25.22 |
21.98 |
21.20 |
Total cash cost (US$/oz Au) |
2,978 |
849 |
577 |
667 |
569 |
577 |
475 |
514 |
494 |
454 |
410 |
389 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Initial capex (US$000’s) |
*94,905 |
|
|
|
|
|
|
|
|
|
|
|
Source: Auriant Mining, Edison Investment Research. Note: *Years 2020–23 (inclusive).
Note the 2.02g/t average life-of-mine grade of material mined compares with the 2.68g/t in-situ grade of resources at Kara-Beldyr (see Exhibit 6). Initial capital expenditure of US$94.9m equates to US$79.09 per (maximum) annual tonne of throughput or US$1,273 per (maximum) annual ounce of gold produced.
The main underlying assumptions from which the above cost estimates for the above two operations have been derived include (but are not limited to) the following:
Exhibit 14: Tardan, Kara-Beldyr and Auriant underlying cost assumptions
|
Tardan |
Kara-Beldyr |
Central |
Mining |
RUB240/m3 |
RUB200/t |
|
CIL processing |
RUB1,300/t |
RUB750/t |
|
Refining costs |
RUB7.37/g |
RUB12.00/g |
|
Management |
|
RUB50/t |
|
Selling, general & administrative expenses |
RUB152.1m pa |
|
|
|
|
|
|
Tax |
|
|
|
Income tax |
20% on PBT |
0-20% on PBT over 11yrs |
|
VAT |
*20% |
*20% |
|
Mineral extraction tax (MET) |
0-6% on revenue from gold over 11yrs |
0-6% on revenue from gold over 11yrs |
|
Property tax |
RUB28m pa (fixed) |
2.2% on fixed assets |
|
|
|
|
|
Central costs |
|
|
|
Moscow office |
|
|
US$1.5m pa |
Stockholm office |
|
|
US$1.0m pa |
Source: Edison Investment Research. Note: *Excluding precious metals, which are zero-rated for VAT purposes.
Kara-Beldyr capex and project scope changes
The capex estimate for the Kara-Beldyr project has increased by c US$20m since our note, Auriant Mining: All aboard the Auriant express, published on 6 March 2018. Almost all of the increase may be attributed to Kara-Beldyr’s power supply arrangements. Where before we had assumed electrical power would be supplied to the plant and mine by diesel-fuelled mine-site generating capacity, we now assume it will be grid-based.
Built between 1956 and 1972, the 6,000MW Krasnoyarsk hydroelectric power plant, in Divnogorsk, is Russia’s second biggest power station. The plant is situated on the Yenisey river, which is the sixth largest in the world in terms of discharge, the seventh longest (depending on how you define its source) and the largest that flows into the Arctic Ocean. The electricity generating facility comprises a 124m-high, 1,065m-long concrete gravity dam and 12 Francis generating units of 500MW capacity each. It is operated by JSC Krasnoyarsk HPS and produces 18.4TWh annually, most of which is delivered to RUSAL’s Krasnoyarsk smelter. However, it is also the supplier for Kyzyl (the capital of Tyva/Tuva) that lies at the confluence of the Great Yenisey and Little Yenisey rivers. From Kyzyl, a 220kV state line runs 100km to the east and to within 110km of the Kara-Beldyr site.
Because a mine at Kara-Beldyr will help provide infrastructure for a remote and undeveloped area, it should be eligible for state support in the form of access to grid-supplied electricity at a preferential rate. In this instance, for an initial outlay of US$13m to build a line and substation, Kara-Beldyr would be eligible to buy electricity from the grid at the wholesale rate of RUBL2/kWh (cf a regional rate of RUBL5/kWh and a diesel-generated cost of RUBL24–28/kWh), which would give the initial investment a payback period of approximately one and a half years (cf approximately 20 years for diesel-generated power).
Auriant is targeting the conclusion of a technical connection agreement, which fixes the point of connection between its line and the state line, in the spring of 2020, after which it will take approximately four years to construct the power line and substation, such that grid power could be delivered to Kara-Beldyr by Q423.