Freeman Gold shares rise on initial PEA for Lemhi project in Idaho

Shares in Idaho-focused junior explorer Freeman Gold (TSXV: FMAN; US-OTC: FMANF) rose as high as 11.5% Monday following the release of an initial preliminary economic assessment (PEA) on its Lemhi project.

Oct 16, 2023

Freeman Gold shares rise on initial PEA for Lemhi project in Idaho

Drilling at the Lemhi gold project in Idaho.

The PEA outlines an open-pit operation with estimated annual production of 75,900 oz. of gold over a 11.2-year mine life. Gold output over the first eight years is expected to average over 80,000 oz.

Using a base case gold price of US$1,750 per oz., the project’s after-tax net present value (at 5% discount) is calculated at US$212.4 million with an internal rate of return of 22.8%. At a spot gold price of US$1,932.50 per oz., the NPV increases to US$295.6 million, with the IRR rising to 28.6%.

The Lemhi mine would have an initial capital expenditure of US$190 million, with life-of-mine cash costs estimated at US$809 per oz., while all-in sustaining cash costs (AISC) are pegged at US$957 per ounce.

“Lemhi represents a unique opportunity for the investment community to participate in a deeply discounted gold project that remains open on strike and trades at 6% of after tax NPV at US$1,750 gold and less than 5% at spot price,” said executive chairman Paul Matysek.

“This will certainly be attractive to gold mining developers and producers who see value in having an operation almost entirely on patented ground, a sub US$1,000/oz. AISC, a life of mine production over 850,000 oz., that is highly leveraged to gold price in a leading mining jurisdiction.”

The production strategy outlined in the PEA, says Freeman, consists of a phased development with an increase in throughput during the fifth year of operation, with a flowsheet utilizing a carbon-in-leach processing facility.

The Lemhi property comprises 30 sq. km of highly prospective land in south-central Idaho, hosting a near-surface oxide gold resource of 30 million tonnes grading 1 gram gold per tonne in the measured and indicated categories, plus 7.6 million inferred tonnes at 1 gram gold.

Commenting on the PEA in a note on Monday, Echelon Capital Partners analyst

Gabriel Gonzalez said the study reveals an attractive project whose production and mine life presents low operational and jurisdictional risks and should appeal to junior producers or potentially private equity.

“In our view, the only downside to the PEA was capex cost inflation, +50% of what was otherwise expected, but in-line in terms of the capex inflation that we see throughout the industry.”

Gonzalez noted that with Freeman shares trading at 14¢ each, it would also trade at US$8.81 per oz. compared to its peer group average of $27.58 per oz. and at a market cap of just US$14M.

“Raising capital for the project may be restrictive,” he said. “However, given a relatively low-risk jurisdictional and permitting outlook, we believe that Freeman is well placed for a potential re-rating.”

Echelon maintains its speculative buy rating and 90¢ per share target price, pending a modeling of the full PEA report, giving effect to the higher capex in its valuation.

According to Freeman Gold, its Lemhi deposit is already one of the highest-grade oxide, near-surface gold resources in the U.S. The company is currently focused on growing and advancing the project, which it has been drilling since 2020, towards a production decision.

Freeman shares traded at 14¢ on Monday afternoon in Toronto, giving the company a market capitalization of $18.4 million. Its shares traded in a 52-week range of 11¢ and 30¢.