Bluestone Resources - $2.35B Free Cash Flow over Life of Mine

Bluestone Resources In. is a junior exploration and development company focused on the advancement of its flagship Cerro Blanco gold project. The company holds two key projects namely the Cerro Blanco gold project and the Mita geothermal energy project.

Matthew Gordon spoke to Jack Lundin, CEO of Bluestone Resources (TSX-V:BSR), to discuss the company’s recently released feasibility study and its plans moving forward. 

Company Overview

The Cerro Blanco gold project is a 100% owned open pit gold project located in Jutiapa, Guatemala. The project was acquired by the company in 2017 and boasts more than 3 million ounces of combined gold resources.

Bluestone Resources Inc. recently released a feasibility study of the Cerro Blanco gold project, which includes highlights such as the production of 2.6 million ounces of gold and 10.6 million ounces of silver over its initial 14-year life of mine (LOM). The project is estimated to produce 241,000 ounces of gold per annum, for the first 10 years of operation, with the peak of its gold production being 347,000 ounces of gold per annum. The average all-in sustaining cost (AISC) per ounce of gold is estimated to be USD$ 629, with an after-tax internal rate of return (IRR) of 30%.

The average annual free cash flow of the project is estimated to be USD$ 228 million with the total cash flow of the project over its life of mine estimated to be USD$ 2.35 billion. The initial capital cost (CAPEX) of the project is estimated to be USD$ 572 million with an after-tax payback period of approximately 2.2 years.

Bluestone Resources Inc. plans to raise funds soon in parallel with the development of the Cerro Blanco gold project. The company plans to pursue various avenues of funding, including equity and debt, to reach its goal of USD$ 750 million by the end of 2022.

Projects

The company’s flagship project, the 100% owned Cerro Blanco gold project is located approximately 160 km away from Guatemala City, the Capital of Guatemala and 9 km west of the country’s border with El Salvador.

Bluestone Resources Inc. acquired the Cerro Blanco Gold Project in 2017 and through this established the company. The project has in the past seen investments of approximately USD$ 230 million which has led to the project having existing infrastructure including portals, declines, and multiple Alimak vent raises. The project also has historical development of 3 km of underground development with a trial mining run also completed in the past.

Bluestone Resources Inc. has updated the geology as well as reinterpreted the deposit of the Cerro Blanco gold project since its acquisition. The geological reinterpretation was completed through an extensive structural mapping and re-logging exercise as well as a 35,000 m exploration drilling program. The completed works demonstrated that the high-grade gold veins are surrounded by a mineralized envelope that comes to the surface.

The geology of the Cerro Blanco gold project is a classic hot-springs related, low sulphidation gold-silver deposit. The mineralisation occurs primarily within composite veins of chalcedony, quartz, adularia and calcite.

Bluestone Resources Inc. published a preliminary economic assessment (PEA) of the Cerro Blanco gold project in February 2021, which was based on open-pit mining methods. The project was initially envisioned to be an underground mine, but after the completion of advanced engineering and optimisation work, the opportunity to capitalise on the deposit’s near-surface nature presented itself. The change in mining methods led to a delay in initial production from 2022 to 2024, but the company believes the stakeholder value creation the open-pit methodology possesses, justifies the delaying of production at the project by two years. Jack Lundin the  President and CEO of Bluestone Resources states:

” Yes, we're delaying production, because we thought we could have a pathway to production with an underground concept in 2022, so this year. Now it's pushed out to the end of 2024. But when you look at the numbers, and you look at what this project was capable of generating, open-pit is the way to go”

The highlights of the 2021 PEA showed peak gold production of 334,000 ounces with the average annual production estimated to be 231,000 ounces of gold per year over the Cerro Blanco gold project’s life of mine (LOM). The average all-in sustain cost of the 2021 PEA was USD$ 642 per ounce of gold with a NPV5% of USD$ 907 million after-tax.

Bluestone resources published an update to the mineral resource of the Cerro Blanco gold project in July 2021, which was achieved through the completion of additional in-fill drilling and an improved understanding of the project’s mineralisation. The updated mineral resource estimate showed gold mineralisation in measured and indicated resources totalling 3.1 million ounces of gold grading 1.5 g/t which was an increase of 142 koz of gold from its predecessor. The mineral resource update also showed silver mineralisation totalling 13.4 million ounces of silver at a grade of 6.6 g/t.

The updated mineral resource was implemented by the company to create a feasibility study (FS) of the Cerro Blanco gold project.

Feasibility study

Bluestone Resources Inc. published a feasibility study (FS) of the Cerro Blanco Gold project in February 2022, which showed a robust, high-grade project with rapid payback. Jack Lundin states:

“We released the results of this Feasibility Study showing a project that's capable of producing over 300,000 oz of Gold a year and 1 Moz of Silver a year during its peak years of production. And because it's a near-surface, high-grade deposit, we're going to be generating significant returns.”

The feasibility study of the Cerro Blanco gold project was prepared following NI 43-101 standards and used a base case gold price of USD$ 1,600 per ounce of gold and a silver price of USD$ 20 per ounce of silver. The highlights of the study include a total production of 2.6 million ounces of gold and 10.6 million ounces of silver over the life of mine (LOM) of the project, which is 14 years.

The Cerro Blanco gold project will have a peak production of 347,000 ounces with an annual production of 241,000 ounces of gold over the project's first 10 years of operation. The average LOM all-in sustaining cost (AISC) of the project is USD$ 629 per ounce of gold with an average free cash flow of USD$ 228 million per year during the first 10 years of production. The life of mine total free cash flow of the project is estimated to be USD$ 2.35 billion.

The NPV5% of the project is USD$ 1.047 billion with an after-tax internal rate of return (IRR) of 30%. The Cerro Blanco Gold project will have an initial Capital cost (CAPEX) of USD$ 572 million with an after-tax payback period of 2.2 years.

Bluestone Resources Inc. was able to implement various savings initiatives into the feasibility study through the completion of detailed engineering studies. The company has been able to optimise the project's mining plan and access high-grade ore earlier which has justified the reduction in the processing capacity of the project’s processing facility from 5 Mt to 4 Mt per annum.

The company will also be implementing local engineering companies for the project, one such being G Mining Services.

Future

Bluestone Resources Inc. will continue with the advancement of the Cerro Blanco Gold project in the coming year, with its focus not only on the project but on the upliftment of the communities around the project. The company is focused on uplifting the surrounding community, with Lundin stating:

“The mine itself, development of the mine is a technically challenging thing to do. But for us, the social context and understanding what the challenges are in the communities in which we operate are more important, to be honest.”

The social upliftment initiatives of the company include adult education programs, which entail the education and certification of adults with lower levels of education. The certified individuals will then be given the opportunity to join the company’s training programs, and after completion join the company as employees.

Bluestone Resources Inc. is also aiming to get the Cerro Blanco gold project permitted before the 2023 Guatemalan general election. The permitting also involves the amendment of the project’s environmental impact assessment which was submitted in November 2021. The company believes that it has a good relationship with the Guatemalan government with Jack Lundin stating :

“We've spent several years building a strong relationship with the central government and we really want to continue building that reputation so that it can transfer into the next presidency and cabinet”

The company has been able to secure a USD$ 30 million bridge loan for the project’s advancement with Zebra Holdings and Investments S.à.r.l, and Lorito Holdings S.à.r.l. The bridge loan will be implemented primarily for general corporate purposes and to advance the Cerro Blanco gold project through engineering and permitting approval.

The company aims to secure a total of USD$ 750 million in financing to advance the Cerro Blanco Gold Project. The company is investigating various forms of financing, with Lundin stating :

“Focusing on our project financing package, we are looking at various opportunities or options to finance. Of course, there's an equity component, we have a lot of Silver, so we're looking at Silver Streams. And then the largest form of project financing that we're going after is a debt facility.”

Bluestone Resources Inc. will also investigate opportunities to grow the Cerro Blanco gold projects mineral resource, which will also extend the life of the mine. The company has secured an exploration team, geologists and an exploration drilling program for nearby satellite mineralisation deposits, with the exploration to be initiated as soon as financing is secured. The company believes that its exploration initiatives can occur in parallel with the construction of the Cerro Blanco Gold project. 

To find out more, go to the Bluestone Resources website