Horizon Gold Ltd (ASX:HRN, OTC:HZGLF, FRA:HO0) earlier this week confirmed a financially robust development pathway for its 100%-owned Gum Creek Gold Project in Western Australia, following the completion of a definitive feasibility study targeting first production in the second half of 2028.
The open-pit study outlined average production of 98,000 ounces of gold per annum during the first five years and total recovered production of 880,000 ounces across an initial 10-year mine life.
Using a gold price of A$5,500 per ounce, the study forecast A$1.85 billion in pre-tax free cash flow, a pre-tax net present value of A$1.31 billion and an internal rate of return of 53.1%.
Managing director Scott Williamson said the company had deliberately pursued a straightforward development plan based on open-pit mining and conventional free-milling processing.
“We’ve tried to keep this one as simple as possible,” Williamson said.
Pre-production capital was estimated at A$350 million, including mine development, a new processing plant, infrastructure and contingency. The project also carried an estimated all-in sustaining cost of A$2,995 per ounce and a payback period of 23 months from first production.
Williamson said the company expected project funding to comprise a combination of debt and equity. Horizon Gold planned to engage with banks and independent technical experts over the following six months, with the simplicity of the mining and processing plan expected to support those discussions.
Several potential catalysts could extend or improve the base-case development plan. Williamson pointed to a possible mill expansion to three million tonnes per annum, which could increase production by about 25% for relatively low incremental capital expenditure.
The company could also introduce underground mining to increase the project’s head grade. More than 400,000 ounces of free-milling underground resources were excluded from the DFS, while the Wilsons deposit contained a further refractory opportunity of about 400,000 ounces grading more than four grams per tonne.
Horizon Gold reported a maiden probable ore reserve of 728,000 ounces, supporting the initial open-pit plan. Williamson said further technical and heritage work could allow the company to convert additional parts of its 2.3-million-ounce resource into reserves.
Near-term catalysts included drilling results from the high-grade Kingfisher and Swan ore bodies, permitting progress, financing activity, early works and commitments to long-lead equipment.
Williamson said the company’s progress towards physical development could be particularly important for investors, adding that the market’s recognition of how close Horizon Gold was to “producing gold bars” could help drive a re-rating.
Interview highlights
- Horizon Gold’s Gum Creek definitive feasibility study outlined a pre-tax NPV of A$1.31 billion and an IRR of 53.1%.
- The project is targeting first gold production in the second half of 2028.
- The initial open-pit plan forecasts average production of 98,000 ounces per annum during the first five years.
- Total recovered production is estimated at 880,000 ounces across an initial 10-year mine life.
- Pre-production capital is estimated at A$350 million, with funding expected to comprise a combination of debt and equity.
- Williamson said Horizon Gold had deliberately selected a simple development model based on open-pit mining and free-milling CIL processing.
- A potential mill expansion to three million tonnes per annum could increase production by about 25% for relatively low incremental capital expenditure.
- More than 400,000 ounces of free-milling underground resources are excluded from the current study.
- A further refractory opportunity at Wilsons contains about 400,000 ounces grading more than four grams per tonne.
- The maiden probable ore reserve stands at 728,000 ounces, while the wider Gum Creek resource totals 2.3 million ounces.
- Near-term activity is expected to include financing discussions, permitting, early works and commitments to long-lead items.
- Drilling at the high-grade Kingfisher and Swan ore bodies could support future increases in head grade and underground production.
- Williamson said progress towards producing gold bars and continued project de-risking could help drive a market re-rating.
Proactive: Horizon Gold’s definitive feasibility study maps a pathway to first gold at Gum Creek in 2028. Here to discuss the numbers behind this major milestone is managing director Scott Williamson. Scott, good to see you.
Scott Williamson: Thanks for having me, Jonathan.
Proactive: It is a pleasure to have you. The DFS confirms Gum Creek as a financially robust project, with a pre-tax NPV of A$1.31 billion and an IRR of 53.1%. Those are very strong numbers. What do these results mean for Horizon Gold and its transition from explorer to developer?
Scott Williamson: They are amazing numbers. I have been in the industry for a while now, and I have analysed a lot of mining stocks and projects. I do not think I have seen a better time in the capital markets to be building a Western Australian gold project.
We have tried to keep this project as simple as possible. We are initially focusing on open-pit mining and simple metallurgy through a free-milling CIL circuit. It is about as robust and straightforward as a project can be.
The study outlines a mine life of 10 years, producing just under 100,000 ounces per annum. That is a conventional Western Australian gold mine.
We are excited to move the project into its next phase. We are progressing the project, completing the permitting process and then moving into the build phase.
The economics are very robust and among the best you will see in the industry. This is a great moment for Western Australian gold, and many of our peers have similar metrics. We are proud to be part of the group now moving towards production.
Proactive: The study forecasts average production of 98,000 ounces annually during the first five years. What gives you confidence in the production plan and the project’s ability to achieve first gold in the second half of 2028?
Scott Williamson: We think there is some conservatism in that timeline. We are confident we will be able to achieve the 2028 production milestone.
Producing around 100,000 ounces per annum is important, and we were keen to achieve that level for at least the first five years. I think we could potentially do better than that. There are some years when production is well above 100,000 ounces per annum.
We also have the opportunity to expand the mill to three million tonnes per annum, which could provide another 25% of production for relatively low incremental capital expenditure.
There is also an opportunity to introduce underground mining, which would increase the head grade. The current open-pit head grade is about 1.2 grams per tonne of gold.
We have more than 400,000 ounces of free-milling underground resources that are not included in this study. We also have refractory opportunities, including another 400,000 ounces at Wilsons grading more than four grams per tonne underground.
There is a lot of upside beyond the study. It is our base case and a great platform to build on, but it is really just the foundation. We think the project could perform significantly better than the base case.
Proactive: Let us talk about the funding. Pre-production capital is estimated at A$350 million. How do you intend to fund the development, and what will potential financiers be looking for as you work towards a final investment decision?
Scott Williamson: Funding will involve a combination of debt and equity, with the final split depending on how the process develops.
We will run that process over the next six months. We believe we will be able to secure attractive debt terms, and we think it is a good time to be seeking both debt and equity.
We are confident the project will be financed and funded. It is now a matter of progressing through the process.
With the study complete, we can approach the banks and allow independent technical experts to review the data. They will see a technically robust project based on simple metallurgy and open-pit mining. That is why we have deliberately kept the development plan as straightforward as possible.
We believe the next phase should progress without major issues.
Proactive: The project also has a maiden probable ore reserve of 728,000 ounces, giving it a strong foundation.
Scott Williamson: Yes, and we expect to bring more material into the reserve over the coming months through further studies on the underground resources.
Converting resources into reserves is largely about completing more work in areas such as heritage approvals for some of the ore bodies.
At present, we have a clear 10-year runway based on the open pits. With the underground resources, the mine life could extend well beyond 10 years.
It is a strong starting point. We ultimately have a resource of 2.3 million ounces, and at the current gold price, most of those ounces are economic. It is now a matter of completing the study work required to convert more of the resource into reserves over time.
Proactive: With the DFS now completed, what can investors expect over the next two or three months?
Scott Williamson: The drill rigs are still spinning, so there is plenty of excitement around drilling.
We are drilling at Kingfisher and Swan, which are some of our highest-grade ore bodies. We expect some strong drill results from the exploration program.
It is not that we need more gold, because we already have a substantial resource. However, we think the exploration results could improve the project’s head grade going forward. These areas represent some of the underground opportunities.
We expect plenty of exploration activity over the next six months. However, what could really re-rate the company is the market recognising how close we are to producing gold bars.
Each announcement that takes us closer to production could help put the company on the market’s radar. These announcements could include early works, commitments to long-lead items and the construction of accommodation camps.
There will be a substantial amount of de-risking as we move closer to production. I think that progress is what could ultimately drive a market re-rating.
Proactive: There is certainly plenty to look forward to. I know you are in Noosa, so anyone attending the conference should go and see Scott. Thanks for your time today, and we will speak again as the project unfolds.
Scott Williamson: Thanks a lot. Thanks for your time, Jonathan.