Marathon finds Valentine’s sweet spot

The Valentine camp, in September. Credit: Marathon Gold

In April, Marathon Gold released a prefeasibility study for its Valentine gold project in central Newfoundland that forecast it could produce 175,000 oz. gold a year for the first nine years of its 12-year mine life.

While that would make the project the biggest gold mine in Atlantic Canada, the scope of the project was somewhat reduced in comparison to a 2018 preliminary economic assessment (PEA) that projected annual production of 225,100 oz. gold over 12 years.

“We had a number of scope changes between the PEA and prefeasibility – the PEA in 2018 was a bigger project,” said Marathon president and CEO Matt Manson in an interview with CMJ in September.

Why did the company decide to go smaller? For one, it chose to focus on reducing the project’s capex, which in the PEA was estimated at US$355 million.

“Whenever you start any study, there are certain parameters that you’re trying to maximize and that’s sometimes at the expense of other parameters,” Manson said. “The PEA, quite reasonably, was going for maximum NAV (net asset value) and maximum gold production profile. But it was at the expense of capex and rate of return.”

To get the higher gold production and a NAV of US$493 million, the 2018 study included both a mill and a heap-leach operation to treat lower-grade ore.

The prefeasibility scraps the heap-leach component and includes only one central mill fed by two slightly smaller open pits. Under the simplified plan, the project achieves an after-tax IRR of 36% (up from 30% in the PEA) and a NAV of $472 million (at a 5% discount rate), at an initial capex of only $272 million (US$205 million).

“The heap leach was around $110 million in capital, but it was only about 7-8% of the gold production profile,” Manson says.

“(With the prefeasibility) the NAV came down somewhat, but we ended up with a project that has a 36% rate of return using US$1,350 per oz. gold. If you took the spot price – US$2,000 it’s a 77% rate of return and $1.1 billion NAV.”

Life-of-mine all-in sustaining costs were pegged at US$739 per oz.

A feasibility study based on the same parameters is under way and due to be completed in the first quarter of 2021. Meanwhile, the company is expected to submit its evironmental impact statement for Valentine to provincial and federal regulators in September, with that work led by Stantec as the principal consultant.

Plant expansion

A key part of the prefeasiblity is a plant expansion in the third year of mining.

While the processing of ore was simplified in the prefeasibility by doing away with the heap-leach component, getting the most out of the lower-grade ore will require a plant expansion in the third year of mining. At that point, a flotation circuit will be added to the conventional mill (gravity concentration and cyanidation), at a cost of $42 million in incremental capital. The expansion will take the capacity of the mill to 11,000 t/d from an initial 6,800 t/d, and will be paid for with cash flow.

The plan, driven by the mandate to keep capital costs low, takes advantage of the fact that the highest-grade material will be processed at the beginning of the mine life, with low-grade material stockpiled for processing in later years.

A very fine grind of about 75 microns will be required for the higher grade ore at the beginning of the mine life, with a head grade of over 3 g/t gold, for a recovery of 93% through gravity and CIL alone.

Once the flotation circuit is added, a coarser grind of 150 microns will do the trick and allow for a higher throughput and reduced operating costs.

“Having that smaller initial production (of 2.5 million tonnes per year) with the high grade and then expanding it keeps your gold production profile pretty level at about 175,000 oz. a year for first 9 years,” Manson says, as opposed to the PEA plan, which would have seen a declining gold production over the first six years.

Exploration upside

As a low-cost, simple and advanced project, Valentine is getting noticed – especially with strong and rising gold prices juicing M&A deals. (A National Bank Financial mining analyst identified the junior as a potential takeover candidate in May.)

And while Marathon is pushing forward to advance the project to production and through permitting – with a construction decision targeted for the second half of 2021, if federal and provincial approvals are granted – the company’s also focused on delivering new discoveries this year.

“That’s somewhat in reaction to what shareholders were telling me when I first joined the company,” says Manson, who was appointed president and CEO of Marathon in August 2019 after the previous CEO, Phillip Walford decided to retire.

Marathon acquired the Valentine project, located about 80 km southwest of Buchans, in 2010, and since then has focused exploration on the Marathon and Leprechaun deposits. The shear zone-hosted deposits, which lie 6 km apart on the Sprite trend at the project, currently host proven and probable reserves of 1.9 million oz. gold in 41.1 million tonnes averaging 1.41 g/t gold.

The two deposits, along with the Sprite and Victory deposits, lie along a longer 20-km mineralized trend on the Valentine Lake shear zone.

“Marathon had been talking about the upside potential of the deposit, the 20 km (trend) for years, but all the drilling had really been focused on Marathon and Leprechaun to build up the mineable resource there,” Manson says, adding that with reserves established it was time to return to exploration.

The company’s 56,000-metre 2020 drill program at Valentine has already started to yield results, with the discovery of the Berry zone in March. Located in the middle of the Sprite trend, between Marathon and Leprechaun, initial highlights from Berry included 55 metres of 2.24 g/t gold and 8 metres of 3.02 g/t gold. (More recent drilling in September returned 9 metres of 14.39 g/t gold, including 2 metres of 60.13 g/t gold; and 15 metres of 4.25 g/t gold, including 4 metres of 13.34 g/t gold in hole 839.)

The zone has already been drilled along 650 metres of strike, and so far the mineralization looks very much like that at Marathon and Leprechaun, with a combination of long and short, and high-grade and low-grade gold intervals. At all three locations, the gold is found in more densely stacked quartz-tourmaline-pyrite veins than elsewhere along the trend.

In addition to exploration drilling throughout the Valentine trend, about 8,000 metres of infill drilling is planned at Berry to establish an initial resource early next year.

While the Valentine camp was shut down for three months starting in March due to COVID-19 restrictions, the pandemic hasn’t slowed the project down significantly, as rates of the virus are very low in the region.

“All our exploration staff onsite are Newfoundland-based so we were able to restart again in the middle of July and we’ve actually got five rigs turning right now – the most we’ve ever had on the site – so that’s a testament to how much we have been able to do during COVID.”

Fully funded

With $54 million in cash at the end of June, the company is fully funded through the feasibility and permitting stages.

Consultations with local communities, including two Mi’kmaq communities, is ongoing – albeit virtually due to COVID-19.

And as the area is located close to the famous Buchans mine and Teck Resources’ former Duck Pond mine, which closed in 2015, there has been a lot of interest in the job opportunities a new mine would bring. That’s especially so in light of the hit the Newfoundland economy has taken from the decline in oil and gas prices as well as the pandemic generally.

“By March, we had 600 resumes in our resume bank – and that’s a year and a half away from breaking ground. That tells you the level of interest in Newfoundland in the project,” Manson says.

He adds: “In community consultations, there’s a lot of experienced people, and a lot of people working elsewhere in Canada who want a reason to come home.”

Manson has spent most of his career in diamonds, first with Aber Resources, which owned 40% of the Diavik mine in the Northwest Territories, and more recently with Stornoway Diamond, where he shepherded the project through financing and construction. Stornoway has since been taken over by its creditors and delisted, after running out of cash in 2019 amidst a difficult diamond market. Manson decided in May 2018 to step away from diamonds for an opportunity in the gold space, which offered a much bigger playing field, with more opportunities, assets, potential for exploration and M&A.

“At that stage, we had Renard wrapped up, we had it debugged, we were making money selling diamonds at around $110 per carat,” he said. “In hindsight, that was the top of the diamond market because it was straight down from there for the next year and a half, two years.”

With a supportive gold price, and success adding resources and advancing Valentine over the past year, it’s been a different experience at Marathon.

“We’ve had a rising gold market, we’ve had a growing resource as well, we’ve brought out a prefeasibility that works really well, we’ve added a lot of key people, and we’re halfway through our environmental assessment process now – so we’ve accomplished a lot in the last 12 months,” he says.

“For me, personally, Marathon was a great opportunity to do something special. This is the makings of a successful gold project.”