Initial capex up 25% in 1.5 years: Canadian miners

The inflationary environment has resulted in about a 20-30% increase in initial project capital expenditure estimates over the past 12-18 months, according to a panel of three of Canada’s big gold developers hosted by Canaccord Genuity Capital Markets.

 Marathon Gold Valentine Lake

Marathon Gold Valentine Lake

While it's unlikely that any project will be completely immune to the industry-wide issue, there are mitigating measures that can result in a lower net impact.

These include having fixed price engineering, procurement, and construction agreements and/or having previously commenced project development and procurement, the panelists noted.

CG said the panelists highlighted the increasing procurement and fabrication timelines as key areas of focus.

"We suspect that this may ultimately result in extended build schedules for those who have not already begun to source mills, equipment, and associated infrastructure," CG said.

In order to avoid many of the ramp-up related issues recently seen in the industry, the panelists cited key areas that companies should focus on including, not "bootstrapping" a build, being operationally ready, and knowing their deposit, CG said.  

Included amongst the panelists were Artemis Gold's vice president for capital markets Nicholas Campbell, Marathon Gold's president and CEO Matthew Manson, and Osisko Mining's chairman and CEO John Burzynski.

Marathon Gold's Valentine project, for example, saw its initial capex rise 12% from an April 2020 pre-feasibility study to C$305 million in an April 2021 feasibility study—and has risen further since.

In an update made last month, Marathon said that cost inflation and construction market volatility will mean that previous estimates for total life-of-mine capital costs of C$662 million, cash operating costs of US$704 per ounce, and all-in sustaining costs of US$833/oz will now likely be between 15-20% higher.

While Marathon did not provide a detailed update on increased initial capital costs, it said: "Marathon also intends to re-characterize certain capital costs that were previously captured as early sustaining capital items to initial capital costs".

"This will increase the initial capital cost but reduce AISC and de-risk the project's ramp-up to positive cash flow," the company said.

Marathon's Valentine is expected to see project permit approval this quarter or next, a resource update mid-year, and an updated technical report in Q4.

"Marathon has done an admirable job attracting top-tier talent and now has a strong, development-focused management team in place," CG analyst Michael Fairbairn said earlier in the month.

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