First Mining set for huge uplift in value as pre-feasibility work accelerates at Springpole

“No equity financing till 2023 is the idea,” says Dan Wilton, chief executive of First Mining Gold Corp (TSE:FF). It’s not a bad statement to be making in regard to a company with upwards of seven million ounces of gold in its resource base and ambitious plans to move those ounces rapidly towards a pre-feasibility study, permitting and then onto full feasibility work. But how can it be done? Well, two deals have just been finalised and announced, after many long months of work, and these will likely make it happen. The first rolls the company’s Goliath project in Ontario into the adjacent Goldlund project of Treasury Metals (TSE:TML) to create a single project with a resource base amounting to two million ounce of gold in the indicated category, with a further million ounces inferred. At a stroke, two small-to-medium sized projects will be consolidated into one larger district-scale proposition, with all the economies of scale that entails, and all the implication for margin and return. The second deal secures US$22.5mln of financing for the five million ounce Springpole gold project, also in Ontario, via  a silver streaming agreement with the well-known silver producer First Majestic Silver Corp (TSE:FR). This looks like a win for both parties given that although the silver is not a key value-driver at Springpole, there’s also upwards of 25mln ounces of it. All told though, the silver on its own is low grade, so whether or not there’s a streaming deal in place for half of it - as there now is - is unlikely to end up affecting First Mining’s ability to get the project financed, nor in the end make a huge difference to the financial modelling. “All-in costs, including the costs relating to the silver streaming transaction, are likely to come in at under US$600 on a by-product basis,” says Wilton. With baseline modelling done at a US$1,300 gold price, margins would be looking healthy enough. But with gold now at US$1,700 the model suddenly starts to look very attractive indeed. That’s in the future though. For the present, there’s the extremely useful addition of US$22mln in cash, some of which has already arrived, which will allow First Mining to move forward with de-risking the project on all levels. On a broader scale, it’s also a signal point in the transformation of First Mining generally, as Wilton explains. “First Mining was created as a mineral bank to hold several projects,” he says. “Last year we came to the view that we were getting no value for our projects outside of Springpole, but a couple of deals later and there’s now US$100mln of value you can point to from the portfolio of assets.” Springpole is moving unequivocally to the centre of the stage, as value begins to be realised elsewhere. The Goliath transaction is a case in point. First Mining will initially take a 40% stake in Treasury Metals. Part of this will be disbursed directly on to shareholders, while the smaller holding that remains will allow Wilton and his team to continue to be directly involved in the value creation process there. If that model can be replicated on the company’s other assets across Canada and the USA, then there ought to be much for shareholders to be optimistic about. In the meantime, the funding from First Majestic will allow for the consolidation of Springpole as the company’s central asset, and for the accretion of value. Wilton has no doubts it will continue to make a splash. “It’s a five million ounce project,” he says. “There aren’t a lot of projects in the word waiting to be built that can match it for size.” So ticks in boxes for size and margin. But what about the regulators? The expectation is that the environmental impact statement for the project will be completed in the middle of next year, and that it will take two years to secure the requisite federal and provincial approvals. The mineralisation is partially covered by a lake so there are some unusual engineering challenges associated with development, but on the flip side there’s also the long-term benefit that final rehabilitation after the deposit is mined out will simply involve re-flooding the mined out area. If that sounds like a clarion call for environmentalists to swing into action, consider that this project is just 100 kilometres east of Red Lake and sits in a well-established mining area. Consider too that eight years of environmental base line work has already been completed, and that actually mining a lakebed isn’t as complex an engineering challenge as it might at first sound. Wilton points to the preliminary economic assessment of Springpole that was updated at the end of last year. In this the overall capital cost of development was estimated at around US$800mln, with just US$30mln allocated to the dam and associated engineering that will allow access to the lake bed. So a tick in the box there too. In fact, most of the cost – just under US$520mln – was associated with the requisite processing facility, with a further US$149mln required for the mining equipment. Big numbers yes, but there are bigger ones to consider too. On the model of the PEA Springpole’s pre-tax present value rings in at a healthy US$1.23bn using US$1,300 gold, and US$1.75bn using US$1,500 gold. After tax the numbers are US$841mln and US$1.22bn respectively. Given that the gold price is likely to stay higher for the foreseeable future, it will be interesting to see what assumptions are used in the upcoming pre-feasibility study. But suffice it to say that in the current gold price environment and based on the size of the resource, this is going to be a huge project both in terms of scale and return. As it stands, the internal rate of return runs at 22% after tax at US$1,300 gold, and 28% at US$1,500. With potential refinements possible through the pre-feasibility and feasibility stages, there’s every chance the returns could go higher significantly. “There’s lots of value,” says Wilton, straightforwardly enough. And it’s tough to argue with that.