Troilus Gold: Feasibility Study Release for Quebec Gold-Copper Project with C$2B NPV Potential

• Troilus Gold has released a feasibility study for its large-scale gold and copper mine in central Quebec, showing a 22-year mine life and strong free cash flow profile.
• The study showed a 14% after-tax IRR, and the company believes the mine's long-term free cash flow potential is highly compelling for majors.
• The brownfield site already has significant infrastructure worth $470M, reducing upfront capital costs. Total initial capex is estimated at $1B.
• The mine is projected to produce an average of 300,000 gold-equivalent ounces annually over 22 years, peaking at over 500,000 ounces, with $150-200M in average annual free cash flow.
• Troilus is exploring financing options, including strategic partnerships, off-take agreements, streaming/royalty deals, and debt financing from Quebec institutions to fund construction.

Troilus Gold (TSX:TLG) recently released the results of a feasibility study for its wholly-owned Troilus Gold copper-gold project located in central Quebec, Canada. The study outlines an economically viable, large-scale open pit mining operation with a 22-year mine life and compelling free cash flow generation potential. The Troilus project represents a unique opportunity for investors to gain exposure to a sizable, advanced-stage gold-copper development asset in a top-tier mining jurisdiction.

Multi-Decade Gold-Copper Mine with C$2B NPV Potential

Project Overview

The Troilus project is a past-producing mine operated by Inmet Mining from 1996-2010, producing over 2 million ounces of gold and 70,000 tonnes of copper. Troilus Gold acquired the project in 2017 and has since defined a large resource containing 6.7 million ounces of gold equivalent (AuEq) in proven and probable mineral reserves. The project hosts 13 million AuEq ounces in indicated and inferred resources. The feasibility study contemplates exploiting the reserves as a 50,000-tonne-per-day open-pit mining operation, making it one of the largest gold mines in Canada.

Feasibility Study: Production and Cash Flow Profile

Based on the feasibility study, the Troilus mine is estimated to produce an average of 300,000 ounces of gold equivalent annually over a 22-year mine life, with peak production exceeding 500,000 ounces AuEq. Copper contributes significantly to the output, with the mine expected to produce an average of 20 million pounds annually, reaching up to 50 million pounds in the peak years. This translates to compelling cash flow generation, with annual free cash flow estimated at $150-200 million at gold prices of $1975/oz and over $200 million at spot prices. As CEO Justin Reid stated:

"Free cash flow at sub $2,000 is US$150 million a year. At spot prices, it is over US$200 million. But when you look at our core years; years 3 to 8, it's upwards of US$300 to US$400 million in free cash flow. That is absolutely spectacular."

According to the study, cumulative free cash flow over the mine's life is estimated at $2.2 billion at base case metal prices and over $3.4 billion at spot prices. Clearly, the sheer scale of production and long mine life allow Troilus to generate significant cash over a multi-decade period.

Interview with CEO Justin Reid

Economic Returns and Valuation

The feasibility study showed an after-tax IRR of 14% and NPV5% of $1.2 billion at a gold price of $1,950/oz. While the IRR figure was lower than some retail investors hoped for, causing a sell-off in Troilus' stock, management believes the market reaction failed to appreciate the true long-term value and cash flow generation potential of the Troilus mine. As Justin Reid explained:

"14% after tax IR didn't hit a home run with the retail investor. It wasn't flashy on appreciating gold market. However if we look at all the other low-grade bulk tonnage deposits built in North America, we fall right in the middle of the Fairway for the economics. These are the most profitable mines in the world."

He cited other large-scale, low-grade mines like Canadian Malartic and Detour Lake, which generate substantial profits and free cash flow due to their size and economies of scale. Troilus estimates the asset value of the mine alone, based solely on the first 10 years of cash flow and excluding the large inferred resource, at over $2 billion based on its discounted cash flow model. This represents a significant potential upside for Troilus at its current $150 million market cap.

Bridging the Funding Gap

Of course, the key question is how Troilus will fund the sizeable $1.08 billion initial capital cost to construct the mine. Here, management outlined a multi-pronged approach to financing project construction. First, Troilus believes it can attract a strategic partner to take a stake in the project and share development costs and risks. The CEO cited several recent examples of junior miners partnering with majors to jointly develop large projects, such as Agnico Eagle investing in Maple Gold's Douay project in Quebec and Sumitomo funding the development of IAMGOLD's Côté mine in Ontario.

Additionally, Troilus is looking at other potential funding sources, including copper and silver streaming/royalty deals, strategic investments, and debt financing from Quebec government institutions. Management believes these options could allow them to fund a significant portion of the project capital while limiting shareholder dilution. They are actively engaged in discussions with multiple parties.

Exploration Upside

Finally, investors should not overlook the significant exploration upside at Troilus. The current reserve and mine plan are based on only about 50% of the project's total resource endowment. Additional drilling has the potential to expand the resource and extend the mine life. Troilus is one of the largest exploration projects in Quebec, with 350,000 meters drilled to date.

The Troilus project is a unique large-scale gold-copper development opportunity in a tier-1 jurisdiction with a multi-decade production profile and substantial free cash flow generation potential. While the market appears to have been disappointed with the feasibility study IRR, management makes a compelling argument that the market is overlooking the project's true long-term value. With a multi-pronged financing strategy, opportunities to bring in strategic partners, and further exploration upside, Troilus appears significantly undervalued based on the fundamentals at current levels. For long-term investors bullish on gold and copper, Troilus offers an attractive opportunity for exposure to a large, advanced-stage development asset at a depressed valuation with multiple potential catalysts on the horizon.

The Investment Thesis for Troilus Gold

• Exposure to a large-scale, advanced-stage gold-copper asset in a top-tier jurisdiction
• Robust production profile averaging 300,000 oz AuEq annually over a 22-year mine life
• Compelling free cash flow generation potential ($150-200M annually) with a long mine life
• Significantly undervalued at a $150M market cap relative to the asset's $2B NPV
• Multiple financing options available to fund construction while limiting dilution
• Exploration upside to further expand the resource and mine life

Actionable Advice for Investors

• Take a long-term view on Troilus focused on scale, mine life and FCF rather than short-term IRR
• Monitor progress on financing discussions and potential strategic/finance partners
• Watch for additional exploration results that could expand the resource and mine life
• Consider building a position at currently depressed valuation levels to gain exposure

Macro Thematic Opportunity

Rising metals prices, particularly copper, create substantial opportunities for developers of large, long-life projects that can deliver stable production and cash flow through the commodity cycle. With the global energy transition accelerating demand for copper and the lack of new large-scale development projects in the pipeline, assets like Troilus that can produce meaningful copper volumes as a by-product credit to gold production are becoming increasingly strategic and valuable.

As Troilus Gold's CEO Justin Reid stated:

"Troilus has a bunch of levers available that the standard gold producer doesn't have. We will produce almost 20 million pounds of copper a year, but during peak years, we will produce almost 50 million pounds of copper a year, 75,000 tons of copper concentrate a year. Incredibly rich and precious metals."

This ability to produce substantial quantities of gold and copper gives Troilus optionality and multiple potential demand sources for its production. With the need for copper supply to power the energy transition and electrification, advanced copper-gold assets will likely become takeover targets and command premium valuations. Troilus appears well-positioned to benefit from this macro theme.