Gowest Gold Ltd.
OTC Bulletin Board : GWSAF

Gowest Gold Ltd.

November 14, 2011 07:30 ET

Gowest Gold Releases Preliminary Economic Assessment for Frankfield East Deposit, North Timmins Gold Project

Robust Economics and Growing Resource Potential

TORONTO, ONTARIO--(Marketwire - Nov. 14, 2011) - Gowest Gold Ltd. ("Gowest" or the "Company") (TSX VENTURE:GWA)(OTCBB:GWSAF) is pleased to announce the results from the Preliminary Economic Assessment ("PEA") completed for its 100% owned Frankfield East Gold deposit, part of the North Timmins Gold Project. The PEA confirms a pre-tax net cash flow ("PNCF") of $265 million and a 3.3 year payback period based on the current resources with annual production rate averaging 95,000 ounces of gold over a 10 year mine life. (All figures in US dollars except where noted.)

Highlights of PEA:

Gold Price $1,200/oz (versus 24 month average of $1348/oz)
Initial Capital Cost $167 million (includes buyout of 2% NSR)
Life-of-Mine (LOM) Sustaining Capital $86 million
LOM Pre-tax Net Cash Flow (PNCF) $265 million (23% internal rate of return - IRR)
Average LOM Cash Costs $660/oz (includes G&A)
Overall Gold Recovery 95%
Average Gold Production (10 years) 95,000 oz/year
Mine Production Rate 1,500 tonnes per day (tpd)
Note: The PEA is preliminary in nature. It includes indicated and inferred mineral resources, which are not mineral reserves and do not have demonstrated economic viability; there is no certainty that the preliminary economic assessment will be realized.

Greg Romain, President and CEO, stated, "This PEA is another important milestone in our commitment to transform the Frankfield East Gold deposit into a significant gold producer in one of the best gold mining jurisdictions in the world. These results demonstrate that even at a gold price of $1,200 per ounce, the current resource levels can generate robust returns with operating costs in line with industry averages. Further, we see significant additional economic upside not only with today's higher gold price – at which the project's IRR is nearly 60% – but also with the pending addition of new resources, the very real potential for increasing the mined gold grades as well as other economic opportunities identified in the PEA. Meanwhile we will continue to explore aggressively other similar and promising targets on our growing 60 square kilometre North Timmins Gold Project land package."

Additional Study Highlights (for further detail, see below):

  • Substituting Spot Gold Price on November 1, 2011 of $1,720:
    Pre-tax Net Cash Flow (PNCF): $763 million, IRR: 58%, Payback: 1.7 years
  • +50% Increase in Gold Resources ($1,200 / oz gold price, 2,250 tpd production rate):
    PNCF: $518 million, IRR: 28%, Payback: 2.2 years
  • +15% Increase in Resource Gold Grade ($1,200 / oz gold price, 1,550 tpd production rate):
    PNCF: $437 million, IRR: 36%, Payback: 2.5 years
    (Previous analysis of the Frankfield East resource model – see News Release dated Oct. 6, 2011 – demonstrated that the overall resource grade could be adjusted by changing the mining cut-off grade with only a minor impact on the ounces of contained gold in the resource.)
  • Short Term Contract Processing – Generate Cash Flows while Constructing Long-term Facility
    A cash flow model was developed to examine a short-term development scenario in which existing processing facilities could be used to custom treat the Frankfield East ore before the gold concentrate is shipped to a third party for final processing. Assuming contract terms can be finalized, this would reduce initial capital cost requirements by approximately $100 million to $60 million and could generate cash flows of $28 million annually ($1,200 /oz gold price). Using a more realistic short term gold price target of $1,500 /oz, annual cash flow would rise to approximately $52 million. This option would enable the Company to generate early cash flows and pay off mine development expenditures while the permitting and construction of a long-term processing facility are completed.
  • Ore Sorting Optimization – Potential to Double Mineable Ore Grade
    Preliminary studies have demonstrated the amenability of the Frankfield East mineralization to separation via conventional ore sorting equipment. This added stage early on in the process offers the potential to reject +50% of the waste rock from the crushed material extracted from the mine thereby increasing the overall gold content of the mined rock from approximately 6 g/t to the 12-15 g/t range with only a minor impact on the ounces of contained gold. Further evaluations are underway to quantify the impact that this upgrading could have on the overall operating and capital costs for the project.

Frankfield East Deposit PEA: Base Case

The Frankfield East PEA is based on the current resource estimate announced on June 1, 2011 of 348,000 indicated ounces (1,621,000 tonnes at 6.68 g/t Au) and 838,900 inferred ounces (4,342,000 tonnes at 6.01 g/t Au). The study envisions the construction of a new mine and processing facility with an average annual production of 95,000 ounces of gold at a cash cost of $660 per ounce over a 10-year mine life. Under this scenario and at a gold price of $1,200 /oz, the Frankfield East Gold deposit would be expected to generate $265 million in pre-tax net cash flow, a pre-tax NPV (5% discount) of $159 million and a pre-tax IRR of 23% ($US/$CDN = 1). Additional details of the parameters utilized in the models are described in Table 1.

Table 1: PEA Base Case Economic Parameters
Item Value
Mining / Processing Throughput 1,500 tpd
Mine Life 10 years
Total Mining Costs $69 per tonne
Crushing /Truck Haulage $7 per tonne
Total Processing Costs $39 per tonne
G & A Costs $4.20 per tonne
Gold Price (US$) $1,200 per oz.
Exchange rate US$/CDN$ = 1
Overall Gold Recovery 95%
Initial Capital Costs ($167 million)
Process Plant / Infrastructure / Owner's Costs $130 million
Mine Development $21 million
Mine Site $12 million
Sustaining Capital Costs (LOM - $86 million)
Phase 2 Tailings Expansion $5 million
Mine Shaft Construction $50 million
Sustaining Capital (LOM) $20 million
Mine Closure Costs (less $4 million salvage value) $11 million
Note: See PEA Study Development Methodology at the end of this news release.

The initial capital cost estimate of $167 million includes the construction of a new stand-alone process facility, mine development down to the 200m level, Phase 1 of the tailings storage facilities and all necessary site infrastructure to bring the mine into production. A conservative 30% contingency has been included with the process facility estimate to account for requirements that are not detailed in the current study. The largest single component of the sustaining capital estimate of $86 million is the construction of a mine shaft starting in Year 4 of production. Other items included in this figure are the Phase 2 expansion of the tailings processing facilities and ongoing annual sustaining capital requirements. To conserve capital requirements, a decision was made to utilize contractors for both mining and mine-site crushing activities. Subsequent to the initial mine pre-development activities, all additional mine development is treated as operational development and included in the contractor mining rates, with the exception of the mine shaft installation.

The average LOM unit operating costs for the project are estimated at $119 /tonne of ore resulting in a net cash production cost of $660 /oz of gold (including corporate G&A). It should be noted that the decision to utilize contractors for mining and crushing has added somewhat to this cost. Should the deposit resource continue to grow it may make sense in future evaluations to perform these activities in-house. Of the total $39 /tonne in processing costs, approximately $17 /tonne are related to the additional sulphide oxidation stage, which is required to effectively process the Frankfield East mineralization. This equates to a processing cost of $90-100 /oz of recovered gold beyond that which would be expected from more "conventional" non-refractory gold deposits.

For reference, the Frankfield East deposit operating costs can be compared with the average global gold mining cost of $620 /oz as published in June 2011 by ABN AMRO Bank and VM Haliburton Mineral Services. At current gold prices the operating cost estimated in the PEA for Frankfield East would appear to support the 3 g/t cut-off grade utilized in the current resource estimate.

The results of a sensitivity analysis performed on the Frankfield East Gold deposit base case economic model are shown in Table 2. The sensitivity modeling demonstrates that the project economics are most impacted by variations in gold prices and mined gold grades and least impacted by capital requirements and operating costs.

Table 2: PEA Base Case Sensitivity Analysis
Cash Cost Project NPV: ($millions)
Sensitivity Variances Value US$/oz 0% 5% IRR
Gold Price -15% $1,020 $660 $92 $32 10%
($ / oz gold) Base Case $1,200 $660 $265 $159 23%
+15% $1,380 $660 $437 $285 36%
Gold Grade -15% 5.0 g/t $779 $92 $32 10%
(g/t gold) Base Case 5.9 g/t $660 $265 $159 23%
+15% 6.8 g/t $577 $437 $285 36%
Total LOM Capital -15% $215 $660 $301 $191 30%
($ millions) Base Case $252 $660 $265 $159 23%
+15% $290 $660 $229 $127 18%
Mining Cost -15% $58/tonne $603 $320 $200 27%
(per tonne of ore) Base Case $69/tonne $660 $265 $159 23%
+15% $79/tonne $718 $210 $120 19%
Process Cost -15% $33 tonne $628 $296 $182 26%
(per tonne of ore) Base Case $39/tonne $660 $265 $159 23%
+15% $45/tonne $693 $243 $136 21%

The Company continues to aggressively drill the extents of the Frankfield East Gold Deposit (see Gowest news release dated November 2, 2011) with a view of delivering an updated resource estimate in the first half of 2012. The sensitivity analysis in Table 3 examines the impact of potential increases in gold resources on the base case PEA results. Parameters used to calculate the NPV and IRR remain the same with the following exceptions for the +50% resource case:

  • Mine production and processing rate increased by 50% to 2,250 tpd
  • Capital costs are factored from the base case values based on the increased throughput (initial capital requirement of $258 million)
  • Unit operating costs unchanged with the exception of the labour, which was assumed to be reduced based on the change in throughput (total labour costs unchanged but unit costs reduced)
Table 3: Increase in Gold Resource Results (@ $1,200 per oz gold price.)
Cash Operating Cost Project NPV ($millions)
Sensitivity Total LOM Capital Mine Life US$/oz 0% 5% IRR
Gold Resources +20% $257 12 $660 $367 $214 25%
1500 tpd
Gold Resources +50% $307 10 $626 $518 $327 28%
2250 tpd

Frankfield East Deposit PEA: Contract Processing Option

The Company continues to investigate development alternatives aimed at reducing capital requirements and the time required to get the project into production. One of these scenarios which utilizes existing facilities for metallurgical processing was evaluated conceptually in the PEA. The basic framework of this alternate development scenario is as follows:

  • Mine development would be as per the base case development.
  • Ore from the mine would be transported to a nearby existing processing facility where a high grade (80-90 g/t) gold bearing sulphide concentrate would be produced.
  • The sulphide concentrate would then be transported to rail cars and shipped for final processing at a third-party location.

Discussions are ongoing between Gowest and a number of existing processing facilities that would be suitable for this development scenario. Although no contract terms have been finalized, some reasonable values were incorporated into a financial model for the Frankfield East deposit. Details of these model assumptions are presented in Table 4. A conservative allowance of $12 Million in capital upgrades at the existing processing facilities has been included at this time in order to handle the receiving and processing of the Frankfield East materials. Should this option be pursued further, this amount can be reevaluated based on the final site selections.

Highlights from this alternative development opportunity include:

  • Initial capital requirement of $60 million
  • Total cash costs (including G&A) estimated at $891 per ounce at $1,200 / oz gold price
  • Pre-tax positive cash flows of $28 million annually at $1,200 /oz gold price, which rises to approximately $52 million annually at a short term gold price of $1,500 / oz
  • Payback of mine development costs in 1-2 years, depending on gold price.

The Company believes that the results from the contract processing scenario are sufficiently positive that this opportunity should be investigated further. If successful, the Company would be able to fast-track mine development activities at Frankfield East thereby enabling positive cash flows to be generated in a period of less than 2 years from start of construction. Concurrently with this development work, the Company would continue the design and permitting of a long-term processing facility. Should discussions indicate that favourable terms can be negotiated with contract treatment facilities, the Company will provide an updated economic assessments on the combination of the short term contract and long term standalone scenarios after the update of the current resource expected in the first half of 2012.

Table 4. Contract Processing Model Economic Parameters
Item Value
Mining / Processing Throughput 1,500 tpd
Mine Life 10 years
Total Mining Costs $70 per tonne
Crushing /Truck Haulage $12 per tonne
Custom Processing Costs (concentrate production only) $30 per tonne
Custom Concentrate Treatment Charges (including transportation) $42 per tonne
G & A Costs $3.00 per tonne
Exchange rate 1 US$/CDN$
Overall Gold Recovery 93 %
Initial Capital Costs
Process Plant Upgrades / Infrastructure / Owner's Costs $21 million
Mine Development $21 million
Mine Site $14 million
Royalty Purchase (2% NSR) $4 million

Frankfield East Deposit PEA: Ore-Sorting Research

The Company has completed a series of preliminary tests to evaluate the amenability of the Frankfield East mineralization to a variety of conventional ore sorting techniques. Ore sorting equipment is utilized in the mining industry to separate crushed rock according to one or more physical characteristics (i.e. colour, density, IR/UV adsorption). Typically, crushed material is transferred at high speeds along a conveyor belt or vibrating chute in front of a sensor that analyzes the signatures of individual rocks. Following the sensor, a series of individually controlled air jets is used to separate the rocks according to physical characteristics.

Due to the correlation between the presence of metal sulphides and gold, DEXRT (x-ray) sorting techniques have proved especially effective at separating the gold-bearing material in the Frankfield East deposit from the waste rock. A recent campaign was completed utilizing a mineralized composite sample crushed to less than three-quarters of an inch and sorted according to DEXRT signatures. The composite consisted of a wide range of Frankfield East drill core intersections ranging in gold content from 0 g/t (waste rock) to over 10 g/t (high grade main zone) and averaged approximately 4 g/t. Despite the relatively low gold content of the composite, results from the testwork confirmed the potential for an extremely efficient separation. Greater than 50% of the rock mass was rejected resulting in a final crushed rock product containing 12-15 g/t gold with only 2-3% gold losses.

The potential impact of incorporating an ore sorting stage into the currently envisioned process for the Frankfield East deposit could be quite significant and will be evaluated in more detail in the coming months.

  • Mine cut-off grades could be lowered thereby increasing overall resource ounces and also allowing for the use of cheaper bulk mining techniques.
  • Reductions in hauling and transportation costs between the mine and processing facilities;
  • Reductions in overall capital and production costs.

Frankfield East Gold Deposit Update

Since the release of the updated resource on June 1, 2011, exploration drilling activities at the Frankfield East deposit have been organized according to two general priorities – shallower in-fill drilling and deeper resource expansion drilling.

In-fill drilling is being performed to depths of approximately 350m in order to convert additional Inferred gold ounces in this zone into the Indicated category status (currently 348,000 ounces / 1,621,000 tonnes at a grade of 6.68 g/t Au) as well as to provide better definition to the upper regions of the deposit, aiding in:

  • Continuing to test the limits of the deposit strike length.
  • Providing additional detail for mine planning activities that are currently underway.
  • Retesting areas where the Company believes "historic" drill holes were not adequately sampled for gold mineralisation and where the potential exists to add more gold resource ounces.

At greater depths, drilling is intended to confirm the continuity of mineralisation in areas that currently are devoid of drill data. The aim of this work is to expand the overall gold resource for the deposit, primarily in the Inferred category (currently 838,900 ounces / 4,342,000 tonnes at a grade of 6.01 g/t Au).

The Company is currently completing its baseline environmental studies and will be in a position to make final applications for the necessary mining permits in 2012.

The Company has also entered into an Exploration Agreement with the Mattagami and Matachewan First Nations whereby a framework for ongoing discussion between the parties has been established. The parties have also agreed to negotiate an Impact Benefits Agreement should the project proceed as planned.

PEA Study Development Methodology

The general methodology utilized for the development of the PEA study was:

  • A complete metallurgical processing model was completed using the Metsim® software package and utilizing the testwork data completed primarily at SGS Lakefield Research.
  • Mass and energy flows were taken directly from the process model and then utilized to identify and size all major process equipment items.
  • Capital costs were estimated for individual equipment then applied to account for additional requirements such as foundations, piping, electrical, buildings and engineering.
  • A conservative 30% contingency was added to all process plant capital cost estimates to account for items that were not specifically identified at this stage of the study.
  • Conceptual capital costs were prepared in conjunction with Golder Associates for tailings containment facilities.
  • Infrastructure and owner's costs were developed based on a conceptual plant site location within 15-20 km of the mine site. Infrastructure requirements included road upgrades, power lines, site preparations and facilities such as a truck shop, drying area, laboratory and administration building. Owner's costs include permitting requirements, insurance, first fill of consumables, temporary construction requirements, land acquisition and a pre-production drilling program. Excluded from owner's costs are corporate overheads and working capital requirements.
  • Operating costs were developed based on estimated staffing levels, consumables (from testwork and modeling) and expenditures required to support the mine and its associated processing, maintenance and administrative activities. Power requirements were estimated based on equipment motor sizings and assuming a conservative delivered charge of $0.07 /kWh.
  • Additional operating cost allowances were included for outside contractors, laboratory consumables, vehicle fuel requirements, etc.
  • Included in the mine operating costs were the estimated average contractor rates, costs for the Company mine services group and an allowance for backfilling and annual ongoing development drilling. Contractor rates were assumed to include ongoing production development.
  • Utilizing 3D models of the interpreted parallel mineralized zones, a conceptual mine plan was prepared. The mining plan envisions a combination of long-hole bulk mining techniques for wider zones of mineralization and shrinkage mining for narrower zones. Initial estimates for the ratio of bulk mined material to shrinkage material range from 1/1 to 2/1. A pre-development schedule and cost estimate was created down to the 200m level using ramp access. Ramp access would be utilized exclusively down to approximately the 400m level after which a small shaft would be developed to allow for the maintaining of LOM production levels as the mine development continued to greater depths. The construction of this shaft is assumed to take place starting in year four of production and would consist of a combination of raise boring to surface and slashing down to depth.

PEA Preparation / Qualified Person

The PEA has been prepared by the Gowest technical group in conjunction with Peimeng Ling & Associates Limited ("PL&A") in accordance with Canadian Securities Administration National Instrument 43-101 ("NI 43-101") requirements and CIM Standards. Technical information related to the PEA has been reviewed and approved by Peimeng Ling, M.Sc., P. Eng. (President of PL&A), an independent Qualified Person as defined by NI 43-101, with the ability and authority to verify the authenticity and validity of this data. The NI 43-101 Technical Report on the PEA for the Frankfield East Gold Deposit will be filed on SEDAR within 45 days of this news release.

Mr. Darren Koningen, P. Eng., Vice President of Technical Services for Gowest, a Qualified Person under NI 43-101, has prepared or supervised the scientific or technical information for the property and verified the data disclosed in this news release.

About Gowest

Gowest is a Canadian gold exploration and development company focused on the delineation and development of its 100% owned Frankfield East gold deposit, as well as on the exploration of additional gold targets on North Timmins Gold Project area, part of the prolific Timmins, Ontario gold camp. The Frankfield East deposit has been estimated to contain 348,000 ounces of gold in the Indicated category (1,621,000 tonnes at a grade of 6.68 g/t Au) plus 838,900 ounces of gold in the Inferred category (4,342,000 tonnes at a grade of 6.01 g/t Au. The Company also continues to evaluate acquisition targets in the vicinity of the North Timmins Gold Project area.

Forward-Looking Statements

This news release contains certain "forward looking statements". Such forward-looking statements involve risks and uncertainties. The results or events depicted in these forward-looking statements may differ materially from actual results or events. Any forward-looking statement speaks only as of the date of this news release and, except as may be required by applicable securities laws, the Company disclaims any intent or obligation to update any forward-looking statement, whether as a result of new information, future events or results or otherwise.


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