How Challenger Gold’s Hualilan Toll Milling PFS Unlocks Rapid Payback and Strong Returns
Challenger Gold has completed a Pre-Feasibility Study for toll milling at its Hualilan Gold Project, revealing strong economics, low capital requirements, and a swift payback period. The study underscores the project's potential to generate significant cash flow over three years through a toll milling arrangement with Austral Gold.
- Pre-Feasibility Study confirms robust economics with EBITDA up to US$142.8M at spot prices
- Low upfront capital expenditure of US$8.9M and payback within three months of mining start
- Mining focused on three shallow open pits with 465,000 wet metric tonnes at 6.2 g/t Au and 35 g/t Ag
- Ore to be processed at Austral Gold’s fully permitted Casposo plant under toll milling agreement
- Project fully funded following A$33.9M equity raise, removing financing risk
Overview of the Toll Milling Pre-Feasibility Study
Challenger Gold Limited (ASX, CEL) has announced the completion of a Pre-Feasibility Study (PFS) for toll milling at its 100% owned Hualilan Gold Project in San Juan, Argentina. The study evaluates a three-year toll milling operation in partnership with Austral Gold, leveraging the fully permitted Casposo processing plant located 165 kilometres from the mine site.
The PFS highlights compelling financial metrics, including an EBITDA forecast of US$88 million based on conservative gold and silver prices of US$2,500/oz and US$27.50/oz respectively. At current spot prices of approximately US$3,300/oz gold and US$33/oz silver, EBITDA rises to US$142.8 million, underscoring significant leverage to metal prices.
Mining and Processing Strategy
The mining plan focuses on three shallow open pits; Sanchez, Norte, and Magnata; targeting 465,000 wet metric tonnes of mineralized material at an average grade of 6.2 grams per tonne gold and 35 grams per tonne silver. The ore will be hauled via sealed highway to the Casposo plant for toll milling, with expected recoveries of 84.4% for gold and 65.7% for silver.
This toll milling approach allows Challenger to avoid the capital-intensive construction of an on-site processing facility, resulting in a low upfront capital expenditure of US$8.9 million (including working capital). The project anticipates a payback period within three months of mining commencement, reflecting a rapid return on investment.
Financial and Operational Highlights
The PFS projects a post-tax net present value (NPV) at a 5% discount rate of US$50.5 million under conservative metal prices, increasing to US$82.2 million at spot prices. The all-in sustaining cost (AISC) is forecast at US$1,454 per ounce gold equivalent, comfortably below current market prices, supported by a competitive cost structure enabled by toll milling and short haulage distances.
Operating costs have been meticulously estimated, including open pit mining, ore transport, toll processing, and general and administrative expenses. The study also incorporates detailed mine design, scheduling, and metallurgical testwork, ensuring a comprehensive technical foundation.
Funding and Risk Mitigation
Challenger has effectively de-risked the project’s financing through a recent A$33.9 million equity raise, fully funding development through to first cash flow. Additionally, the company has secured a US$20 million project finance facility, with an initial US$2 million drawdown, providing further financial flexibility.
The toll milling agreement with Austral Gold removes the need for upfront processing capital and shifts operational risk. However, the project remains dependent on Austral Gold’s successful restart and operation of the Casposo plant. Environmental approvals are in place, with an addendum to the existing Environmental Impact Assessment anticipated to cover the mining plan.
Outlook and Potential Upside
The PFS covers only about 3% of the total 2.8 million ounce Hualilan Mineral Resource Estimate, indicating significant upside potential beyond the toll milling phase. Challenger plans to advance the project towards production while exploring options for a larger stand-alone processing operation in the future.
With robust economics, low capital intensity, and secured funding, the Hualilan Toll Milling Project positions Challenger Gold for near-term cash flow generation and value creation for shareholders.
Bottom Line?
Challenger Gold’s Hualilan toll milling PFS sets the stage for rapid project advancement, but execution risks and commodity price volatility remain key factors to watch.
Questions in the middle?
- How will Austral Gold’s restart and operational performance of the Casposo plant impact project timelines and costs?
- What are the prospects and timelines for expanding beyond the toll milling phase to a standalone processing facility?
- How sensitive are the project economics to fluctuations in gold and silver prices over the three-year toll milling period?
