A photo of Sabina's Goose Camp, located at its Back River gold project. A new feasibility study estimated 350,000 ounces of gold at the site, but also massive capital expenses of close to $700 million. - photo courtesy of Sabina Gold and Silver

KINNGUAK/BATHURST INLET
Back River could be the location of a 10-year mine in the territory with hundreds of millions of dollars in gold, but the cost to develop it may be hard for investors to swallow.

Recently, Vancouver-based gold exploration company Sabina Gold and Silver (TSX: SBB) announced the results of its feasibility study on the project.

While the company noted there is potential to produce approximately 350,000 ounces of gold, vice-president of communications Nicole Hoeller quickly noted the project's high initial capital expenditures.

"$700 million is a lot for a company with an $80 million market cap to go out and raise without really diluting our shareholders - even if it was available to us," she told Nunavut News/North.

Back River is located in the West Kitikmeot Region of the territory, situated approximately 75 km from tide water at Bathurst Inlet and made up of a series of five claim blocks. However, only two (Goose and George) have been the primary focus of Sabina's exploration and resource development to date.

According to the news release, Back River could generate a post-tax internal rate of return of 21.7 per cent and net present value of $539 million (at 5% discount rate).

The company also highlighted a post-tax net cash flow of $914 million on gross revenues of $4.5 billion with a payback period of 2.2 years from the start of operations over the life of the mine; a processing rate of 6,000 tonnes per day that could produce an average of 346,000 ounces of gold per year, with an average production of 413,000 ounces of gold in the first four years; the majority of the site's production from open pit; and a total of 19.8 million tonnes of ore that could be milled over the site's 10 years.

What the company did as part of its feasibility study is estimate what would happen if it raised the mining cutoff grade - the minimum level of mineral contents that makes mining the ore economically feasible - in some of the site's deposits and started the project off smaller, making it more affordable.

Hoeller said when the technical report for the larger version of the Back River project comes out, it will have more details about how they could approach the site on a smaller scale. There will be an additional, separate feasibility study done on the small-scale operation, which Sabina estimated will be released in the fall.

"If markets recover and there is access to capital markets to finance a $700-million project then that's the ultimate way to build Back River," Hoeller said.

"But if this market is prolonged and continued for another few years, we will want to adjust our approach to starting production on the belt in a much more affordable manner for a company of our size."

For the feasibility study, Sabina estimated the price of gold at USD $1,200 per ounce and a USD-CDN exchange rate of 87 cents, both of which Hoeller called very conservative. The report also noted that Back River would need an estimated $529 million of sustaining capital, including closure.

Sabina is still currently in the permit and environmental assessment phase. Hoeller said the company hopes to be in its final hearings in the first fiscal quarter of next year.

"At that point, when you're going to market for financing you really need to have your ducks in a row," she said. "Getting through the (environmental assessment) process is a big de-risking event for the project."