On Monday, gold- and silver-focused exploration company Newstrike Capital (TSXV:NES) reported the results of a preliminary economic assessment (PEA) for its Ana Paula project in Mexico, and the numbers certainly appear to stack up well. With an after-tax net present value of $232.1 million at a 5-percent discount, an internal rate of return of 32.8 percent and a 2.4-year payback period, Newstrike looks to have a project with strong potential under its belt. Those numbers are for a gold price of $1,300, but as others have done recently, Newstrike's PEA also lists a range of scenarios that set the gold price anywhere between $1,000 and $1,500, highlighting the strength of its project. On the low end of the price scale, investors would be looking at an after-tax internal rate of return of 17.6 percent and a payback period of 3.3 years, indicating that Ana Paula "has the potential to provide investors with commodity resilience as well as significant leverage to movements in the gold price." Ana Paula is slated to be developed as an open-pit mine with a 6,000-tonne-per-day processing plant, and is expected to produce an average of 116,000 ounces of gold and 239,000 ounces of silver over its 8.2-year life of mine. The project will require $163.9 million in initial capital costs, and importantly will feature all-in sustaining costs of just $567 per ounce of gold. Newstrike's president and CEO, Richard Whittall, commented on the results, stating "[t]his PEA supports our view Ana Paula is one of the best development-stage gold projects in Mexico." Specifically, he said high gold grades, low capital requirements and low operating costs make Ana Paula "a compelling development project."
To be sure, the project features good life-of-mine average head grades at 2.24 grams per tonne gold and 6.89 grams per tonne silver. However, the deposit's low strip ratio of just 2.6:1 is an important factor in the mine's low production costs.Also worth noting is the fact that Ana Paul benefits from being located in an established mining jurisdiction, with Torex Gold (TSX:TSG) building its El Limon/Guajes mine nearby and Goldcorp's (TSX:G,NYSE:GG) Los Filos mine already operating in the area. Furthermore, being positioned halfway between Mexico City and Acapulco, the project is well positioned next to all required water, transportation and power infrastructure. Expansion opportunities In terms of what's next for the company, proving up a larger resource for the mine is on Newstrike's priority list. As Whittall stated in today's release, "[w]ith a positive PEA in hand, our next step is to evaluate the significant underground potential at Ana Paula and to support high priority exploration targets in this prolific gold belt." The company will definitely have plenty of opportunities to do just that. Newstrike also holds several exploration properties within the Guerrero Gold Belt — notably, its 100-percent-owned Aurea Norte project surrounds the Ana Paula project area, and its early stage Aurea Sur exploration property is also located nearby. Furthermore, Newstrike is hoping to improve the economics of the project through gold recovery optimization and through continued engineering, geotechnical and metallurgical studies. At close of day on Monday, shares of Newstrike were up 6.12 percent, trading at $1.04. Securities Disclosure: I, Teresa Matich, hold no direct investment interest in any company mentioned in this article. Newstrike Capital's Ana Paula Features Low Cash Costs, Opportunities to Expand from Gold Investing News