Q-Gold on the Rise Following PEA Release
Shares have doubled in the past month
Shares in small-cap developer Q-Gold Resources (TSXV: QGR) have doubled in the past month after the company revealed the economics for its Quartz Mountain gold project in Oregon.
The preliminary economic assessment for the project was released on April 8 and Q-Gold vice president corporate development Scott Moore said attendance at the Mining Forum Europe in Zürich the following week really marked the launch of the company.
Q-Gold completed the acquisition of Quartz Mountain from Alamos Gold (TSX/NYSE: AGI) late last year for US$2.85 million in cash and 13.9 million shares, as well as future milestone payments.
Alamos owns 9% of the company and its vice president, exploration Scott Parsons sits on the Q-Gold board.
Alamos had acquired the project in 2012 but had not done any work on it since 2016.
Once an asset under development by Robert Friedland, Quartz Mountain has been around for at least 45 years, but Q-Gold’s PEA marked the first study ever completed.
“No one’s ever done one before, and the numbers are fantastic,” Moore said in an interview.
Initial capital costs for a 14-year operation were forecast at US$290 million, including US$48 million in contingency.
Average production was forecast at 135,000 ounces per annum at all-in sustaining costs of US$1216 an ounce, with peak annual production of 166,300oz.
At a conservative gold price of US$3265/oz, the project has a post-tax net present value (5% discount rate) of US$1.71 billion, an internal rate of return of 55.2% and a payback period of 1.8 years.
At a gold price of US$4820/oz, the NPV increases to US$3.2 billion and the IRR increases to 92%.
“A very robust project on any metric,” Moore said.
The study was based on the project’s indicated resource of 2.01 million ounces of gold at 0.78 grams per tonne gold and inferred resource of 494,000oz at 0.8g/t gold.
The PEA contemplated a phased development with an initial open pit, heap leach operation, followed by the transition to a crushing and milling circuit, followed by flotation to produce a gold concentrate from around year five.
“The strip ratio is 0.6 to one, so one of the lowest in the world,” Moore said.
“We get about 80% recoveries back in the heap leach, so a good, robust project on that basis, and then 80%-plus in the sulphides, and we’ll do some more met test work to see if we can improve the sulphide recoveries.”
Q-Gold recently got approval from the United States Forest Service for an exploration program at the larger Angel’s Camp property, which adjoins Quartz Mountain to the east.
High-grade gold veins have previously been discovered at the 2660 acre property and Q-Gold will kick off a soil sampling program next month to define drill targets.
The company is planning more drilling this year at Quartz Mountain to increase the confidence of the resource and will plans to start a feasibility study around September.
Permitting improving
“You have to have an engineering study to kick off the permitting, so we are now full blown into the permitting process, both on the state and the federal level,” Moore said.
While permitting in Oregon has typically been slow, Q-Gold has been encouraged by the recent progress of Paramount Gold Nevada’s (NYSE American: PZG) Grassy Mountain project in the state.
Grassy Mountain was accepted into the US government’s FAST-41 program.
“They entered that last spring, and nine months later, they got the permits,” Moore said.
Quartz Mountain is east of the Cascade Mountains, an area in which the Oregon government is keen to stimulate economic activity.
“You’ve got a bit of a confluence of state and federal coming through to accelerate permits for important projects,” Moore said.
Q-Gold is planning to apply for the FAST-41 program and is hopeful of receiving permits within 24 months.
In the meantime, the company will be busy marketing.
The stock has risen from C14c before the PEA release to as high as C35c and remains at C28c.
With a market capitalisation of C$46 million, Moore believes Q-Gold is still undervalued, particularly when compared to companies with similar-sized projects in the US.
The stock has strong backing with institutional investors accounting for 52%, including Libra Investments (13%), Franklin Gold Fund (9%), ASA Gold Fund (9%) and Brasil Warrant (6%).