Kinross Gold has entered into agreements to acquire a 70% interest in the high-quality Peak Gold project in Alaska from Royal Gold and Contango ORE for a total cash consideration of $93.7 million. Kinross will have broad authority to construct and operate the Peak Gold project, with Contango retaining a 30% non-operating minority interest.
The Peak Gold project is a relatively high-grade deposit with a large estimated resource base that is expected to commence production in 2024 as a low-cost, open-pit mine. The project, which is located approximately 400 kilometers (km) southeast of the company’s Fort Knox mine, is a low-risk “tuck-in” to supplement Kinross’ existing Alaska operation. Kinross plans to process Peak Gold ore at Fort Knox and use the existing mill and infrastructure to benefit both the project and the mine.
“In today’s gold price environment, Peak Gold is an attractive, high-margin project that is expected to generate robust returns,” Kinross Gold President and CEO J. Paul Rollinson said. “The project is also expected to add to our strong record of socioeconomic contributions to our host communities in Alaska, one of the top mining jurisdictions in the world.”
The Peak Gold project was 40% owned by Royal Alaska, a subsidiary of Royal Gold, and 60% owned by CORE Alaska, a subsidiary of Contango. Kinross has agreed to purchase 40% of Peak Gold by acquiring Royal Alaska from Royal Gold for total cash consideration of $49.2 million.
The company has also agreed to purchase 30% of Peak Gold from CORE Alaska for total consideration of $44.5 million, which includes $32.4 million in cash and shares of Contango purchased from Royal Gold. The cash received by Contango includes a $1.2 million prepayment reimbursement for a new royalty on Peak Gold silver revenues. All conditions precedent to closing have been satisfied and the transactions was expected to close by October 1.
Located near Tok, Alaska, the Peak Gold project is accessible by road and is near the Alaska Highway. The project is situated within the 675,000-acre (2,732 km2) mineral lease near the village of Tetlin and is a high-grade skarn deposit that extends to surface.
Based on Peak Gold’s 2018 preliminary economic assessment, the project has estimated measured and indicated mineral resources of approximately 1.2 million ounces (oz) of gold with a grade of 4.1 grams per metric ton (g/mt), and an estimated inferred resource of 116,000 oz gold with a grade of 2.7 g/mt.
The company has completed an internal analysis of the project, including building a preliminary block model and mine plan. Kinross’ preliminary mine plan includes crushing ore at the open-pit project and trucking the material to Fort Knox’s mill for processing. Kinross expects to receive a management fee and toll mill Contango’s 30% of ore mined.
The company expects to blend the project’s higher grade ore with Fort Knox’s lower grade ore to reduce Fort Knox’s average life of mine all-in sustaining costs by approximately $70 per equivalent gold oz (eq Au oz) and extend the mill’s operating life. Extending mill operation is expected to increase recoveries at Fort Knox, as displaced ore that was projected to be placed on the heap leach pads will instead be processed at the mill.
Based on a $1,200/oz gold price, Kinross envisions an open-pit mine with a life of 4.5 years, commencing in 2024. Total life of mine production is estimated to be 1 million recovered eq Au oz at average mining grades of approximately 6 g/mt. All-in sustaining costs will be in the range of $750 per eq Au oz. The initial project capital expenditures are estimated to be $110 million.
The company plans to commence an infill, geotechnical and metallurgical drilling program to further develop the existing resource base. Initial permitting activities are expected to commence in parallel with the drilling program. Kinross expects to complete permitting and a feasibility study by the end of 2022. Project construction is expected to take approximately one year, with production planned to commence in 2024.
Kinross has completed substantial due diligence at the project, conducting site visits in 2019.
The company has also held productive meetings with leaders of the village of Tetlin, who have indicated their support for the project development plan. Kinross said it also plans to rename the project in consultation with the village of Tetlin.
“We look forward to the safe and responsible development of the project and the positive benefits it is expected to generate for our community,” Village of Tetlin Chief Michael Sam said. “We also look forward to further building a relationship with Kinross, a company with a strong track record in Alaska, and are pleased to see further investment plans for the project.”