New Found Gold CEO: “At $3,300, We Ran the Numbers and Got to 197% IRR”

Key Concepts

• Preliminary Economic Assessment (PEA): An early-stage study that outlines the potential economic viability of a mining project.
• Internal Rate of Return (IRR): A metric used to estimate the profitability of potential investments.
• Net Present Value (NPV): The difference between the present value of cash inflows and the present value of cash outflows over a period of time.
• Capex (Capital Expenditure): Funds used by a company to acquire, upgrade, and maintain physical assets such as property, buildings, technology, or equipment.
• Stage Discipline: A strategic approach to project development that emphasizes starting small and managing risk.
• High-Grade Core: The portion of a mineral deposit with the highest concentration of valuable minerals.
• Takeout: The acquisition of a company or project by a larger entity.
• Jurisdiction: The geographical area where a mining project is located, often implying regulatory and political stability.
• Milling Facilities: Plants where ore is processed to extract valuable minerals.
• Narrow Vein Mining: A mining technique focused on extracting mineral deposits found in thin, concentrated seams.
• Starter Pit: A small open pit designed to extract high-grade material early in a mine's life.
• Institutional Conviction: The confidence and investment from large financial institutions in a company.
• M&A (Mergers and Acquisitions): The consolidation of companies or assets through various financial transactions.
• Permitting: The process of obtaining official approval to proceed with a mining operation.
• Environmental Assessment (EA): A process to evaluate the potential environmental impacts of a proposed project.
• Mining District: A geographical area known for its mineral wealth and potential for multiple mining operations.

New Found Gold: Queensway Project and Strategic Growth

This discussion focuses on New Found Gold and its Queensway project, highlighting its potential in the current market environment characterized by persistent inflation and slowing economic growth, which has driven gold prices to historic highs. The company's CEO, Keith Bole, shares insights into their economic blueprint and strategic approach.

Queensway Project: Economic Potential and Gold Price Sensitivity

• PEA at $2,500 Gold: The Preliminary Economic Assessment (PEA) for the Queensway project, based on a gold price of $2,500 per ounce, projected an Internal Rate of Return (IRR) of 56% and a Net Present Value (NPV) exceeding $700 million.
• Impact of Higher Gold Prices: With current gold prices near $3,900 per ounce, the project's economics are significantly enhanced. At $3,300 per ounce, the projected IRR jumped to 197%, and the NPV reached $1.44 billion.
• Gold Price Torque: The NPV is highly sensitive to gold price fluctuations, with an estimated increase of $80 million in NPV for every $100 per ounce rise in the US gold price. This demonstrates the project's strong leverage to gold market dynamics.

Stage Discipline and Capital Efficiency

• Smaller Capex for Starter Mine: Unlike many large projects requiring massive upfront capital, New Found Gold's plan emphasizes a phased approach, starting with a much smaller initial capital expenditure of $155 million for a "starter mine."
• Benefits of Starting Small: This strategy offers several advantages:
  • Reduced Risk: Smaller overruns have a less significant impact, making the project more manageable.
  • Enhanced Shareholder Returns: Less dilution is required for financing, leading to higher returns for shareholders.
  • Focus on High-Grade Core: The project's high-grade core (75% of ounces in 25% of tons) allows for high cash flow generation from a smaller initial operation, which can then fund further expansion.

Strategic Acquisition and Accelerated Production

• Acquisition of Maritime Resources: New Found Gold has strategically acquired Maritime Resources, which is expected to send its first ore to the mill in the fourth quarter.
• Immediate Production: Upon the transaction's expected closure in mid-November, New Found Gold will become a producing gold company by the end of the year, with ramp-up expected in the following year.
• De-risking Queensway: This acquisition significantly de-risks the Queensway development path in two key ways:
  • Financing: The cash flow from Maritime Resources will enable New Found Gold to finance the Queensway build at a lower cost of capital and secure better deals.
  • Processing Access: It provides secured access to existing, permitted milling facilities, eliminating the need to build a mill on-site for Phase One of Queensway, thus fast-tracking its development.

Geological Strength and Surface Mineralization

• High-Grade Discoveries: The Queensway project boasts high-grade mineralization, with recent sampling returning exceptional grades, such as 64.8 grams per ton of gold.
• Importance of Surface Exposure: Keith Bole, with over 40 years of experience, emphasizes the critical importance of physically seeing high-grade mineralization at surface. This allows for direct mapping, sampling, and interpretation, which de-risks the geological model and resource estimation. This contrasts with projects where underground access is required to confirm geology, potentially leading to misinterpretations.
• Mine Plan Integration: The high-grade mineralization directly translates into the mine plan through the concept of a "starter pit." This involves mining out the high-grade veins at surface first. Subsequently, a larger plant will be built to process lower-grade stockpiles accumulated during the initial high-grade mining phase, alongside expanded open pits.

Institutional Support and M&A Landscape

• Growing Institutional Ownership: New Found Gold has attracted significant institutional investor interest. Following a $63 million raise in June, institutional ownership increased from virtually 0% to over 14%, with notable investors like Eric Sprott.
• M&A Potential: The company views the current M&A landscape as favorable for high-quality assets. With its demonstrated ability to execute and finance its own projects, New Found Gold is well-positioned. Any potential acquirer would need to offer an appropriate price for the project.
• Jurisdictional Premium: Operating in a safe jurisdiction like Newfoundland is seen as a premium, particularly for majors looking to de-risk their production profiles and replace reserves.

Permitting and Vision for a Mining District

• Proactive Permitting Strategy: New Found Gold is employing a proactive approach to permitting, working closely with the Newfoundland government and local communities. This involves engaging early to understand requirements and ensure transparency, aiming to avoid surprises.
• Government Support: The Newfoundland government is supportive of mining development, with a stated goal of establishing five new mines by 2030. The company's proactive engagement has led to examples of expedited environmental assessments, such as Firefly receiving its EA certificate in 45 days.
• Vision for a New Mining District: The ultimate vision for New Found Gold extends beyond a single asset. The company holds a substantial land package in Newfoundland (110 km long by 20 km wide) with numerous exploration targets, including the "Dropkick target" and another emerging target 60 km to the south. The ambition is to develop a new mining district, potentially hosting multiple mines.

Investor Takeaway and Market Outlook

• Key Investor Appeal: For investors, the single most important reason to consider New Found Gold is its strong leverage to the gold price, driven by high grades and efficient operations. The company's ability to generate significant cash flow from its Queensway project, especially with the added production from Maritime Resources, is a key differentiator.
• Exploration Horizon: The project's economics also bring lower-grade material into the mine plan, opening up the exploration horizon and increasing the possibility of discovering additional deposits on their extensive land package.
• Market Conditions: The current market, with gold prices around $3,900 per ounce, is seen as stable and highly favorable for gold producers. Keith Bole reflects on the unprecedented nature of these prices, recalling his experience in 2008 when gold at $1,000 was considered a significant achievement.

Conclusion

New Found Gold is strategically positioned to capitalize on the current high gold price environment. The Queensway project, with its high-grade core and efficient development plan, is poised to become a significant cash flow generator. The recent acquisition of Maritime Resources accelerates production and de-risks the overall development strategy. With a strong geological foundation, experienced management, supportive government policies, and a vast land package, New Found Gold aims to establish a new mining district in Newfoundland, offering compelling value to investors.