Stage 1 PFS shows Musgrave’s Cue gold project will be very high margin, low cost mine

Musgrave has delivered very compelling metrics for stage one of its Cue gold project, with the prefeasibility study determining it will be in the lowest cost quartile of Australian gold producers.

Musgrave Minerals’ (ASX:MGV) has released the highly anticipated results of the stage-one prefeasibility study (PFS) for its Cue gold project that confirm its potential to be a high-margin, low-cost operation.

The headline numbers show the initial 5-year project will have a pre-tax net present value of $235m and pre-tax internal rate of return of 95%, with a quick nine-month payback for the modest $121m start-up cost, which includes a 500,000-tonne-per-annum processing plant.

NPV and IRR are measures of a project’s profitability. The higher they are, the more desirable the investment.

The PFS has also confirmed the first stage will be a very low-cost operation with a C1 cost of just $934/oz and an average life of mine all-in sustaining cost of $1,315/oz.

At an estimated Aussie dollar gold price of $2,600/oz, this places pre-tax cash flow over the five-year period at $314m, which increases to $427m at a spot gold price of around $2,950/oz. The current gold price is circa A$3,000/oz.

“With this cost profile (based on Q1 2023 capital and operating cost assumptions), the project is expected to be in the lowest quartile of gold producers in Australia,” managing director Rob Waugh said.

The stage one PFS is based on the recovery of 337,000oz from the Southern area resource, with yearly production averaging 80,000oz for the first three years.

This would deliver earnings before interest, taxes, depreciation, and amortisation of $528m at a sale price of A$2,600/oz.

“The excellent stage one PFS outcomes demonstrate that Musgrave’s Cue Gold Project is one of the highest margin, undeveloped gold projects in Australia,” Waugh said.

“This potential new standalone development has a rapid payback period of nine months from first processing, due to the extraordinary near-surface, high-grade nature of the Break of Day and White Heat deposits.”

The Break of Day Trend deposits (includes Break of Day and White Heat) is one of Australia’s highest grade undeveloped gold resources with a current resource of 982,000 tonnes at 10.4 grams per tonne (g/t) for 327,000oz of contained gold.

Seventy per cent of this resource is in the higher confidence indicated category.

In February, Musgrave identified a possible new high-grade lode along the Break of Day corridor.

Waugh explained that the stage one PFS focused predominantly on the current Indicated Resources at Cue, which constituted just 47% of the total resource base.

“The stage one PFS includes the mining of six open pit deposits – Break of Day, White Heat, Lena, Big Sky, Numbers and Leviticus – and an initial two years of gold production from the upper levels of the Break of Day underground mine,” he said.

Musgrave has already commenced work on a stage-two PFS, which is set to extend the mine life through the extension and conversion of existing Inferred Resources to the higher confidence Indicated category, along with the discovery of new deposits and total project resource growth.

“The Musgrave team has been very successful in defining new targets, making new discoveries, and growing the resource base,” Waugh said.

“The project has significant upside growth potential with recent discoveries like Amarillo and Waratah expected to add to the resource base in 2023 to align with delivery of the stage-two PFS in early 2024.”

The stage-two PFS will further investigate reduced capital processing scenarios, Waugh noted.

This article was developed in collaboration with Musgrave Minerals, a Stockhead advertiser at the time of publishing.

This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.