Thank you for standing by. This is the conference operator. Welcome to the Equinox Gold conference call to announce the results of the Castle Mountain pre-feasibility study. As a reminder, all participants are in listen-only mode, and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. To join the question queue, you may press star then one on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star and zero. If you are participating online, you can submit a question using the Ask a Question tab on your screen. I would now like to turn the conference over to Rhylin Bailie, Equinox Gold's Vice President of Investor Relations. Please go ahead.
Thank you very much for joining us today. I just wanted to remind you that, of course, we will be making a number of forward-looking statements, so please refer to our continuous disclosure documents on SEDAR and our website. I'm now going to turn the conference over to our CEO, Christian Milau.
Thanks, Rhylin, and welcome everyone today. It's a very exciting day for us here at Equinox. We've been working hard on this for the last six months to get the Castle Mountain pre-feasibility study out. I do want to say thanks to Marc Leduc and David Laing, who've led it and done a fantastic job, along with the rest of the team, of getting a really good study out here in a short period of time. Turning to page three, I just really want to summarize it and pull it all together here. It's a very large increase for us in terms of reserves. We had a million ounces of reserves at the end of last year when this merger was completed to create Equinox Gold. Now we have 4.5 million. That's a 350% increase. It's a very big number.
Excited to have that on our books now, and we can officially talk about that. Castle will be a long-life, low-cost mine with a net present value of over $400 million at $1,250 gold. It'll be a producer for us at over 200,000 ounces for almost the whole period of that 16-year mine life that we're defining at the moment. Really, it's a game changer for Equinox. As you can see on here, the graphs really do change things for us. We've now defined two great cornerstone mines and projects here within Equinox, and I think it's quite unique, and we'll show you why as we go through this. The other piece that's really pleasing to us as well is that both of these have a nice defined project.
Castle Mountain now has a 16-year mine life, but there's lots of upside to come from Castle Mountain as well. We won't focus on the exploration here, but certainly we want to spend some time on exploration over the next few years and showing where the upside can come from. The 16-year mine life for us is just the starting point. We now have a foundation around which we can build a mid-tier gold producer, and we think we've really defined it nicely here. Turning on to page four, I do want to start looking at actually the Castle Mountain project. On the history here, this is our second brownfield project in Equinox. It's a past producer. Viceroy produced 1 million ounces of gold here in the 1990s and shut it down in the early 2000s when the gold price was low.
It wasn't due to lack of ore or lack of gold. It was the gold price environment at the time. In a sense, to our benefit here. When you look at the map on the right here, for those not as familiar with it's in San Bernardino County in California. It's right on the Las Vegas border, so close to suppliers, an hour and a half, hour and a quarter from Las Vegas on the road. Very accessible, great for labor and for supplies, in a great jurisdiction. San Bernardino County has been very amenable to mining. The BLM office has also been very supportive to us in both Needles, Sacramento, and also nationally. We think we're in a great mining jurisdiction here, great location.
As well, in the last six months, maybe eight months, certainly the U.S. investment climate has been very positive as well. The corporate tax rate's gone from the mid-30s down to the low 20s, which obviously makes the project more profitable. It's also improved in terms of regulatory environment. I think the efficiency and the reception and responsiveness of the regulators has been very good, and we've been very pleased with that so far, having been involved with the project for the last six to eight months. Now I just really want to dive into the actual project here, and I'm going to turn it over to David Laing, our COO here on page five to run through the project, and I'll bring it back home and bring it all together towards the end.
Great. Thank you, Christian. This is David Laing. Let's talk about how we're going to get Castle Mountain into production. We have a defined restart strategy, which puts us into a position where we should start commercial production in early 2020. It's got 2 phases. We've got a phase 1 in which we'll be producing run of mine heap leach material, lower grade material from a stockpile from previous operations. It was material that was stockpiled in one of the old pits. If you have a look on the diagram on the right, you'll see that there are 3 pits named there, the Oro Belle Forest, the Oro Belle, Jumbo, and JSLA, the South Domes. The material that we're mining for phase 1 will be material that was stockpiled in the JSLA pit, and we'll put that on the heap. Our key permits are in place for phase 1.
I will talk about those a bit more later. We are looking at 25,000 tons a year during the average for the first three years. We are planning on starting ore stacking and commissioning of the plant and so on in late 2019. That is late next year. Phase 2 is the full restart of the Castle Mountain project, and that includes ROM heap leaching, run of mine heap leaching, and milling of higher grade ore, which is something that is well known to this project. It was done by Viceroy back in the day. They had a heap leach and a milling of higher grade ores because we know that we have a higher grade ore component. Data collection for permitting is in process, it is underway. We are well advanced with that.
The expansion will give us 203,000 ounces a year for 13 years during Phase 2. That is a nice bump in production. Turning to slide six is a site plan, again, to orient everybody. If you look in the top right, you see the main trend pits, which is actually a combination of the Oro Belle, Jumbo, and JSLA pits. To the south of that, we get a South Domes pit, and these are their final configuration. You get the waste dumps on either side of the pits. The crushing area in between the waste dump, the northwest waste dump, and the South Domes pit, leading to the mill area. Then the ultimate heap perm is on the bottom left on that southwest corner. The ADR plant is obviously the very southern boundary of the plant.
I draw your attention to two things that we will touch on later on on this diagram. One is the heap configuration includes a mill fines area, which is the top of the ultimate heap, at the northern end, which is where we will deposit the, we will dry stack the fines from the mill. The other is the dashed gray line around the facilities, which we have labeled as the mine site boundary. That is important from a permitting point of view. That is an area that we can operate in. We need to do some work in there, but it is certainly a part of our permit at this point. Approved mining boundary. Next, we move on to slide seven. Just to take a look at the overall economics of the project.
At $1,250 gold, we are talking about a reserve of 3.6 million ounces, which Christian has already alluded to, 203,000 ounces a year during Phase 2. An after-tax NPV 5% of $406 million. A life of mine after-tax cash flow of $865 million. Actually, the pre-tax cash flow is over $1 billion. I mean, it is generating a lot of cash. Our all-in sustaining cost, a very nice $763 an ounce. I think other interesting stats are that the strip ratio is 3.6. It is not perhaps the lowest, but we have got a nice grade for heap leach to accompany that, a grade of 0.56 grams per ton. We have got average recoveries of 78.5%. Initial CapEx, $52 million. That is for Phase 1. For Phase 2, we are looking at CapEx of $295.
For the sustaining CapEx, we're looking at $142 million. That obviously includes expanding the leach pads and includes closure costs. What else have we got on this one? We haven't talked about the IRR. The IRR is just over 20% at 20.1%. A robust project. We're very happy with the outcome. I think it's a happy situation for us. Moving on to the next slide, we can talk about the capital cost a bit, which we've touched on, you can see here that we have for the phases, phase 1, phase 2, infrastructure sustaining. We'll see how we've broken it down. In phase 1, we have very little mining equipment because we'll be using contractor mining for phase 1, we'll talk about that a bit later as well.
We've basically got the leach pads and the ADR plant and the infrastructure, which are the main components of our phase 1 CapEx. For phase 2, we transfer to owner mining, obviously that brings in a whole lot more mining equipment and therefore mining capital. We also have a strip program that we need to carry out to open up the pits and get the ore. We've got the significant cost in the mill CIL plant, which is $42 million. We need to expand the leach pads and the adsorption, desorption, and recovery plant. There you see the breakdown of the costs for phase 2. Sustaining capital, you can see we've got replacement mining equipment to acquire and expand the leach pads. That's another $50 million as we go through and stack almost 200 million tons of ore for leaching.
Closure costs at the bottom there of $20 million. We've gone through, I haven't mentioned, perhaps that Kappes, Cassiday & Associates did the feasibility study for us with a whole host of consultants assisting them. We're very happy with the outcome of their work. We move on to slide nine, where we've got a simplified circuit flow sheet for you. There's two streams in this one, as we've talked about before. We've got the milling circuit, which is the bright red arrow. That's a very standard 3-stage crushing circuit into a mill, gravity gold circuit. It's carbon in leach. We take the carbon down to the elution circuit down the bottom, on the bottom right. The mill fines get filtered and stacked at the northern end of the heap leach facility.
The pink stream, the run of mine ore from the mine, that goes directly to the run of mine and leached and ends up in the carbon columns, which also then reports to the ADR plant to produce Doré. Moving on to slide 10. You'll see here from the production profile. There's a nice chart of the production profile. The yellow line, as you'd expect, is gold production. It's a little bit up and down, but it's still running around 203,000 ounces a year during phase 2. You can see the mill tonnes in the orange and the ROM tonnes. You can see what proportion of the mill tonnes are, which vary from year to year. On the data on the right, you can see our throughputs.
We're talking about in phase 1, throughput of, or stacking rate of 12,700 tonnes per day, and phase 2 at 41,000 tonnes a day, and the mill plus ROM, in that case, for phase 2. The average recovery for everything is 79 or 78.5. You can see the rest of the stats there, including the interesting one, which is the average mill grade is 3.23, which I think therefore illustrates why it's been so interesting for us to carry on with putting the mill in place, because the incremental recovery from 72 to 94 on 3.23 grams is substantial. We're happy to spend the money on that plant. Production profile, we've talked about that. Obviously we've got potential for mine life extension with exploration potential to the north, east, and west of the known resource, and we'll see a map on that a little bit later.
Moving on to slide 11. We're talking about a low-cost, high-margin operation here. You'll see the doughnut for the all-in sustaining costs. As you'd expect, being a run-of-mine operation, the bulk of the cost is in the mining. Processing is the next biggest item, and the rest obviously declining in importance. Importantly, we can see from data that we've been analyzing, that we're in the bottom 10% on the cost curve, which is an absolutely fantastic place to be. When you've got a long-life mine, you can weather many cycles. You can go with the ups and downs in gold price when you've got a nice low-cost base. Average mining cost per tonne, which I'm always very keen on. We're talking about $1.39 per tonne mined, $2.11 processed, that's combined mill and ROM, and G&A is $0.80 a tonne.
Moving on to the next slide, which is slide 12. Obviously, we've got some really strong cash flow coming out of the operation once we get particularly into phase 2, and you'll see that by year 5, we're really producing a lot of cash. That's all good. We're very excited by looking at that cash flow and looking at an average of $99 million a year during phase 2. Obviously the green line shows our cumulative cash flow. Moving on to the next slide. What are our next steps? Permitting and water and feasibility are always the ones that come up. In terms of our status with phase 1, the run of mine heap leach, we've got a Record of Decision from the BLM to mine up to 46,600 tonnes per day of ore and waste.
We've got a Conditional Use Permit from San Bernardino County, and we've got enough water to do phase 1. The next steps are really to get some ancillary ministerial permits, which are more administrative permits, if you like, because we have the Record of Decision which allows us to mine. We want to advance the engineering to support the 2019 construction program and get the first ore stacked in the end of 2019 and commissioning underway and early production in early 2020. Phase 2. Phase 2, it's important to note that we're going to stay within the existing mining boundary. In the earlier diagram that we showed you, there was a gray dot-dashed line around the facilities. Here you can see it in bright green.
That's our mining boundary, and we can do things within that, though we do need to change our EIS, EIR to accommodate the expansion. What's changing? We're increasing throughput to 41,000 tonnes a day. We're increasing the area of disturbance, and we need increased water extraction. We need to make some changes to modify our Record of Decision and Conditional Use Permit based on those things, but all within the area that was originally included in the EIS and EIR. To support our application, we've already started flora and fauna studies to see what's changed. What we've detected is that there are no material changes in the mine area compared to previous operations. We're in good standing there. Okay.
We need to permit and drill additional water sources or acquire water from other sources in order to supply the additional water that phase 2 will require. Obviously the last step in there is to advance the feasibility study and permitting to support phase 2 construction and production. Moving on to slide 14. Yeah, I didn't miss one. We're talking about the exploration upside. There's really two big areas of real great interest in terms of upside. If you look at the center of the diagram, there's an area labeled East Ridge, and there's a light blue oval. There's very interesting intercepts that we've had along there, both in road cuts and some drilling. We've had 65 grams over 35 meters, 1.1 grams over 32, 1.3 grams over 62, 1.6 over 32 meters.
Those are really interesting intercepts, and they're close enough to the pit boundary that we can see that it could easily expand and provide more ore in that area. The other one that's really exciting is Northwest Rim, where there's some really interesting intercepts that we need to go and follow up on. We don't have a lot of detail on that at the moment, but there are very interesting intercepts on the Northwest Rim which lead us to have very interesting things exploring there. Moving on to the next slide, which is 15, and I will turn it over to Christian.
Thanks, David. Nice update on the project there. Just going back to looking at Equinox and how the project fits into our strategy and our way forward here. As you can see from the study, really we've done a PFS and completed that to come up with a project to build, not to sell. This is definitely a project that we plan to put into production the next 18 months here as we move past the completion of Aurizona. We're really excited to have that in the pipeline now. As this slide shows here on 15, this fits in perfectly for what we were trying to build. This is a low CapEx intensity project. The total initial capital divided by the average annual production is sub $1,500.
It's a little bit higher than Aurizona, but Aurizona basically was half built, because we do have to put the full plant back in place here at Castle Mountain. Nice attractive IRRs and returns on these projects, and we think with mine life extensions, you just continue to move these bubbles or balls to the right-hand side of this graph. Two cornerstone brownfield projects that fit nicely into our profile and into our strategy of building a mid-tier gold mining company in the next couple of years here. Really, the clear identified upside potential will enhance that.
I think a really interesting takeaway from this graph is when you look at the other comparables and the other bubbles or balls here, a number of them tend to be bigger than Aurizona and Castle, which is our market cap, and those bubbles represent the market caps of others. We have two projects that are now well-defined. The values have been defined. Aurizona will be in production by the end of this year. Castle Mountain will be in production by the end of next year. Our market cap is still less than these peers. From a value perspective, I think that's a really exciting point to be at now that we can talk about the overall valuation of this company and look at the two projects that support the core value of it.
Turning on to 16, just on this theme a little bit further here, the two unique and sort of rare assets that we think we have of scale are near production. When we look at the pipeline of the single asset developers at this stage, we've got two of these assets in the pipeline in the next couple of years here. The scarcity of quality gold projects in pipelines, I think, these days is becoming quite acute, and I think we've got two. We're really happy with the assets we have, and we're certainly looking to add more as we move forward with the strategy. Turning on to 17, bringing together the valuation a little bit more.
Now that we have this PFS, it gives us a good starting point to look at the value and the net present value of our assets combined, which we couldn't do up until this point in a very demonstrable manner here. $406 million for Castle Mountain at $1,250 gold and $200 million for Aurizona at $1,250 gold give us the $600 million of value in that left-hand side of that graph, as you can see. There's lots of upside that hasn't been factored in. At the moment, our enterprise value is, give or take, $350 million. At quite a discount to our current value of our two core projects. When you look at the box just above that graph, we think most of those items are not factored into our valuation currently.
Aurizona's got the Piaba West additional resources, which we plan to come out with this summer. It's got additional underground resources, which we plan to come out with when our resource update is brought to market. We're drilling at Tatajuba currently. We hope to have some news on that later this summer as well. There's lots of upside coming from Aurizona. Castle Mountain, as David alluded to, there's the East Ridge, Northwest Rim. There's some higher grade shoots below the pits that we're also going to follow up on. Again, there's a bit of upside there. As well, as we announced not too long ago, we are spinning out our copper assets into Solaris Copper. We've also got Elk Gold and Coricancha. Those values, we believe, are really not factored into our overall valuation.
It's quite a compelling valuation story, I think, at this stage, and I think the market can now actually define that better. Turning on to slide 18. Just want to conclude with this slide here. It's been a really busy year since we created Equinox, and the team around here has been working very hard, and kudos and thanks to everyone for that. We've got Aurizona in construction at the moment. We've continued exploration there. We plan to have that pouring gold by the end of this year. Solaris Copper, as we said, is being spun out in August. The Castle Mountain PFS has now defined that project and a timeline and a plan to get that back into production at the end of 2019. Really, we expect to have a pretty catalyst-heavy year from now onwards here.
Resource updates for Aurizona should be coming out in the near term here in the next couple of months. There should be drill results on Tatajuba coming out, then first gold pour at the end of 2018. On Castle Mountain, we've just run through the pre-feasibility is done. We plan to advance the permitting and the phase 1 engineering and as well the phase 2 feasibility study. Exploration we'll get back to in due course here as well. Something to highlight on the actual project that really we didn't cover in this presentation was just the overall resource here. At the beginning of the year, we had 4 million ounces in measured and indicated category. We now have 4.3 million ounces. We had 1.6 million ounces in inferred. We now have 2.2 million ounces. A nice increase as well as adding some definition to the project.
There's a nice resource that's coming together there and still some upside. Ultimately, in terms of long-term growth, the plan here is to build that mid-tier gold producer in the shortest time possible here. I think with these two core projects, we really have the base and the foundations for that. Please keep an eye on all the catalysts coming over the summer and certainly into the fall as we get back into production here at Aurizona. In the next week or so, we should be having our AGM on July 26th, and we'll be having another webcast then. Ross will be joining myself to give an update on the growth strategy, the market, and also the business at that point in time. Hope you can join us at that point in time.
Right now, I think I'll turn it back to the operator for questions here.
Thank you.
Sure. Just a reminder, if you wanted to submit a question and you're online, you can just click the Submit a Question button that's at the top of your screen. Please go ahead, operator. We've got a few questions from the phones.
We will now begin the question and answer session. To join the question queue, you may press star then one on your telephone keypad. You will hear a tone acknowledging your request. If you are using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star then two. If you are participating online, you can submit a question using the Ask a Question tab on your screen. We will pause for a moment as callers join the queue. Our first question comes from David Medilek from Macquarie. Please go ahead.
Good morning, and thank you for taking my questions. I have three questions. First question, on the metallurgical test work for the ROM heap leaching, could you provide some more color on the scope of the tests were completed, the variability of the recoveries documented, reagent consumption, the leach curve profile, and any other key factors?
Sure. It's David. In terms of reagent consumptions, I think you'll see it's been very consistent, and it confirms what was being achieved historically. I think it's in the deck in the appendix, and I will dig it out for [you, I think], tell you what page it's on. In terms of the test work, there was six columns done, big diameter, 4-foot columns, to confirm the ROM leaching. In our view, we've done the test work to confirm that. There's a huge mass of metallurgical data and test work from the project that's been accumulated over the years. We basically have a 40 million ton test heap leach out there. We are very happy, and more importantly, our consultants, KCA, are very happy that we have a huge body of knowledge which supports the metallurgical performance that we are predicting.
Okay. Just on the leach curve, in terms of the kinetics, what are you expecting?
We are budgeting or the cash flow is looking at extraction over six months, but I think the curve is actually showing something more like 60 days.
Okay. You said six tests, four-foot columns in diameter. What was the height and the rock size of those columns?
I don't have those at hand. Sorry.
Okay. Thanks. My second question, for the expansion beyond phase one, could you provide some more color on the selection of 41,000 ton per day for phase two, potential optimization opportunities, and if sequentially scaling the ROM heap leach via more phases was considered?
Right. In terms of the overall capacity, we just figured it was a reasonable size. We did actually a whole bunch of trade-offs looking at different sizes and different throughputs and different configurations of the circuit, and this one gave us a good return and with a reasonable amount of capital. Okay? In terms of upside beyond this, there are a number of things that could be done to increase the throughput through the ROM circuit, particularly, because that's not particularly constrained. If you go back to the map on page, I think it's page six, you will see Can we turn to page six on the presentation?
Sure.
You will see that on the left where the ultimate heap leach pad is laid out. There's actually still quite a lot of space to the left, to the southwest. There's plenty of space to expand the heap leach facility. It's a question of scaling things either in throughput or in life-
Great
with additional reserves.
My final question on the mining costs for phase 1, is this supported by contractor quotes? For phase 2, owner mining costs, how are they derived, and what oil price are you assuming?
The phase 1 is indeed supported by contracted quotes. Phase 2 is from a zero base. The diesel fuel price was $2.38 a gallon, U.S. gallon. We benchmarked that with other operations in the area and feel pretty comfortable that that's a good cost.
All right. Great. Thank you very much for answering my questions.
You're welcome.
Thanks, David.
Our next question comes from Rahul Paul from Canaccord Genuity. Please go ahead.
Hi, everyone. David, I think you touched on this a little bit when you spoke about the optimization, but specifically wondering, for the phase 2 plan, looks like you'll be placing anything below 1.3 grams on the ROM leach pad. Higher grade material than that goes to the CIL. It looks like a relatively high cutoff for the CIL. Did you look at the option of lowering the cutoff grade for the CIL maybe looking at a bigger CIL than 2,400 tons a day?
Yeah. Look, it's an interesting question because it's a classic trade-off, and it's something that certainly we can revisit and probably will revisit for the feasibility study. We looked at it with an engineering economics approach, and we said, okay, what is it going to take to have a break-even grade, the crossover grade, factoring in not just the operating costs for the CIL, but also the capital cost. Obviously if you build a bigger CIL, your capital cost and therefore your capital charge, if you like, goes up. We had to balance the two, and Marc did some very good work to analyze what would be the most appropriate crossover point for the CIL and ROM. We're pretty comfortable that that's a good point. It's something that can be rejigged and so on, but I think that it's as good as any.
The analysis is there. It's been done in an appropriate manner. I'm happy with it.
Okay. Thanks. Just on the other hand, what about maybe adding 1 or 2 stages of crushing versus ROM, at least for phase 2? Do you see any benefits to that?
Not really. We've looked at it, and it was certainly one of our options when we were doing the study. We finally came to the conclusion that in terms of ultimate extraction, it doesn't make any difference at all whether it's ROM or you give it a one or two-stage crush. What does change is a little bit is the lag in getting the production. We would rather have a little bit more lag and a whole lot less CapEx and a whole lot less operational complication.
Okay. Thanks, David. Then last question, just again, clarification on the mining cost of maybe $1.37 for phase II. It looks like it's mostly your own equipment, but it's still quite low compared to what I've seen for other large low-grade operations. You did mention this as zero-base, but could you maybe discuss some of the factors that help keep mining costs low?
Well, let's start with we benchmark against two particularly relevant operations, which are Marigold and Mesquite, and looked at their public data and so on. We're pretty, I think we're right between the two of them in terms of mining costs. Okay, the other side of it is that fuel costs are pretty competitive. We got that from quotes. The other is that we're at a nexus in certainly continental U.S. in terms of mining and mining suppliers and equipment suppliers and spare parts suppliers and so on, and skills and having component rebuilds and so on. We are surrounded by the most fantastic infrastructure you could hope for in terms of a mining project, all of which contribute to driving down costs. I think we're pretty comfortable actually.
We talked to a lot of consultants, we talked to a lot of other people, we're pretty happy that we're on the money with the mining costs, and it's location-driven to a very interesting degree.
Fair enough
We have got very long holes, bench top.
Fair enough. Is this mostly softer oxide material then, Dave? Does it also include a component of drill and blast as well?
No, it's all drill and blast. It all has to be drill and blast, but I think it's not a particularly difficult drill and blast. There's no free dip.
Okay.
Except in the phase one material, the back, the fill material, the stockpile material in the JSLA. Well, we might blast it a little bit just to shake it up, but the rest of it is all drill and blast.
Okay. Thanks, Dave. That's all that I had.
You're welcome.
Our next question comes from Andrew Mikichuk from BMO Capital Markets. Please go ahead.
Good morning. I had a couple of quick questions. The mine plan excludes a reasonable still chunk of measured and indicated, there's a very large inferred that's also obviously not included in this PFS. Can you comment at all on whether any substantial quantities of that excluded material are already in the pit? Or easily accessible, specifically not deep and difficult to add to a mine plan with more drilling?
Some of it is certainly, Andrew, One that I can point to immediately is the inferred in the JSLA fill. That is absolutely, totally accessible. We just hadn't got to fully drilling that to bring it up to an indicated or a measured category. I think there will be areas, there's not sort of a big chunk that is available. You'll see that we ran, I talk about inferred, not the shells. No, I wouldn't say that there's a very particularly big chunk that is inferred and that it's an obvious target for a quick drill campaign. I think it's more distributed around the place.
Okay. Just in terms of the schedule for, I think it's year three in your appendix. There's a very large capitalized waste program, even a large waste outright non-capitalized, which would be above your 46.4 thousand tons per day cap, I think, or very close to it. Just to be clear, you would have to have that permit in hand by year three. Is that correctly interpreted?
Yes, a sometime during year three in order to achieve that. Yes, that's correct.
Okay.
That's a daily rate. Effectively, the cap is an annual rate.
Right.
Annual rate.
Just last question on the CapEx. That fleet that you're buying in year three or four for the expansion, that is an outright purchase. That's not assuming some sort of lease-to-own plan?
No, that's an outright purchase. It's based on quotes from the suppliers. We've included in that CapEx the mining equipment for year three and year four, because we'll be needing it in year four. We said, "Okay, we'll probably be paying for a good chunk of it in year three." Obviously, in our plans in terms of financing, ultimately, we will certainly look at leasing, but the costs that you see there are for outright purchase. If you like, the whole study is a 100% equity basis. There is no debt, there's no financing, there's no leasing in the model as you see it right now.
Well, between that and the previous questions, that takes care of the ones I had on my list. Thank you very much, and congratulations.
Great. You're welcome, Andrew.
Thanks, Andrew.
Once again, if you have a question, please press star then one. If you are participating online, you can submit a question using the Submit a Question tab on your screen. Our next question comes from Kerry Smith from Haywood. Please go ahead.
Thanks, operator. David, have you done all the condemnation drilling to make sure that the location of the waste pads isn't going to impact maybe some future resource growth opportunities? You kind of have the waste wrapping around the bottom south end of the pit, and I'm just wondering about what's been done for condemnation.
I wouldn't say that all the drilling has been done, but it's something that we can do over time because we're not going to go and put the material there until later on. We've got some time to go and do that. It's not something that particularly stresses us out.
Okay. The high-grade zones that you plan to mine out of the pit, I'm not sure what the average width would be, but are you considering some kind of smaller fleet to mine those high-grade zones for the mill more selectively? Will you mine them with the fleet that you intend to use for the ROM?
We'll mine it with the same fleet, but you'll notice that we have relatively small benches. We've got 20-foot benches in the pit, 6.1 meters, which gives us the selectivity we're looking for. We're looking at the opportunity to manage costs in the waste areas by doubling that, making them 40-foot benches. We feel that the 20-foot benches is adequate to get the selectivity we need for that high grade. It's been shown by the previous operation that was adequate.
That's what they did as well?
Yeah. Right.
Okay. David, in the slide deck on slide 24, you show the mine plan. In year three, you show 8 million tons of ore. Is that incremental tonnage from year two to year three, is that coming from your fleet that you bring in and you start using it to move ore tons out onto the leach pad? Is that why that number's higher?
Yes. If you look at the next chart on page 25.
Right
you'll see that years one and two is contract miner only, then years three and four is a mix of contract and owner, then we go to 100% owner.
Okay. I got you. Okay. Just so I'm clear, what is a Conditional Use Permit, the one that you have from the county? What does that actually cover?
It's the permit that you have to get from the county that allows us to operate in the area. It's the same as the BLM Record of Decision, but it's from the county.
Is it conditional on achieving certain milestones? I'm just confused by the word conditional. I know I've heard it before.
There are conditions associated with using it, which is dust emissions and that sort of thing. It is not on certain milestones. Do not be confused by the terminology.
Okay.
We have a [audio distortion] .
Yeah. Just on the water, as of today, what is your conceptual thinking in terms of where you think you would access the incremental water needed to go from phase one to phase two? I know you need permits, just where it would come from. Is it from the basin to the south that we looked at when we were there? Just where do you think you will get this water from?
The basin from the south is certainly the most prospective area that we have in our sites, we think that is a fair place to go. I will also say that we have hired on some California-based water consultants and water experts, both in terms of water, in terms of geo-hydrology and in terms of water rights and access to water. We are busy on multiple fronts, we do not really want to discuss it in too much depth, I would say that we are very encouraged with what we are seeing and what we are finding. We are pretty happy that we will get the water we need ultimately. We are still pursuing it on multiple fronts.
Okay. I think, Kerry, the way to think of it is there's multiple locations on our permitted area that we'll be looking at, there's also some on some private lands, there's also some that are obviously within the monument preserve that are interesting, and there's other sources. We'll go through a list of priorities with the consultants there and attack them in sequence or parallel.
Okay. You had talked at one point about the possibility that you could swap land with the government to get land out of the monument, let's say, or the preserve, to be able to use it to expand your footprint. Now you're not planning that at this point for phase II. Is that because you feel that that might be a bit more challenging to do than what you originally thought, or is it just you can fit it all into the footprint, and you don't need it?
We don't need to. We've shoehorned it all into the footprint, which is actually great. That's really the motivator there, because if you start introducing land swaps, it introduces more risk into transactions and delays. We don't need it.
Okay. Just my last question, if I can, just the contingency seems a bit low for a PFS. What was the rationale for the percentage contingency that you used?
It's three components, really. One is the plant. All the plant stuff is 12%.
Okay.
The mining equipment is 5%, and the pre-strip is normal with operating costs, doesn't have a contingency. It's at zero.
Okay. Then the mining contingency is lower because it's based on actual quotes. Is that why?
Absolutely correct.
Okay.
Two quotes.
Two quotes. Okay. Okay, that's great. Thanks very much.
You're very welcome, Kerry.
At the moment, we only have one question from an investor in Europe just asking, how does Castle Mountain fit into your strategy of becoming a mid-tier producer?
I think the way to think about it is, our goal is to put together good, scalable mines in good jurisdictions that can produce 100,000 to 300,000 ounces of gold per year. Of some scale. The first one being Aurizona will be almost 150,000 ounces of annual production and lots of upside and potential longevity to that mine once we get into exploring further. Then Castle Mountain probably fits in even better in a sense that ultimately it'll be a 200,000-ounce producer for, give or take, 15, 16 years there. It fits really nicely into it. Our profile ultimately is a good 300,000 to 400,000 ounces of production without any expansion, which is potentially possible. I think that does fit us into that mid-tier space really nicely.
Okay, it looks like Kerry's back with more questions. Operator, please go ahead.
Yes. Our next question comes from Kerry Smith from Haywood. Please go ahead.
Thank you. Just one more, David. These minor permits that you need for phase one, can you characterize what they are, just so I understand? Are they just normal course permits that you need as you move ahead with the project, or is there anything in there that might be problematic?
We see them as normal course, one of them, Kerry, is doing a dust emissions study to make sure that we're not outside of the limits of our permit, okay? It's not something that we, I guess, absolutely have to do, but we're doing it to make sure that everybody's clear that our new plan does not produce more emissions than what we're allowed in the permit. We've almost finished with that study, and it's fine. Which is not surprising, because our production rate is a little lower than what was being produced before, and there is no crushing plant, which is a big source of dust. It's that sort of thing. It's more belts and braces to make sure that we're not overstepping any of the conditions in our existing permits.
Okay. One last question. Can you maybe talk about the contingency plan that you might have if the phase two permits got delayed by a year or two? What would you do? Would you just keep running phase one or what would be the contingency?
I think plan A in that context is to keep running phase one, we can keep going for quite some time while we sort out any permitting issues. It's obviously not our preferred scenario. We are pushing to make sure that we get things on the schedule that we're putting forward. It's not something that's going to kill us if we don't meet that schedule exactly.
Yeah,
Go ahead.
I was going to say, Kerry, we can go for certainly seven or eight years and potentially longer. There's certainly a plan in the background if need be to go on for a period of time.
That would be at that 45,000-ounce a year rate is what it would be for those extra years?
I think the overall rate is slightly lower. I think it's in that sort of 35,000 to 40,000 for the full eight-year period. It's slightly lower at the end of the life.
Okay. Okay, that's great. Thank you very much.
You're welcome.
Our next question comes from David Medilek from Macquarie. Please go ahead.
Yep. Thank you, Operator. One more question from me. Just touch on the exploration. What are the plans to follow up on East Ridge? Has a program been developed, or are the results still being reviewed?
We have a plan. We have a budget. We just need to get it approved and have at it. It's up to the board in which way they want to go in that sense. In terms of the projects, do we actually need that ore right now? No. We've got 16 years' worth of ore. I think we're okay. It's always better to have some more.
Right. One more, if I may. Just on the variability of the recoveries, is there much geometallurgical zonation, or do you expect it to be pretty consistent throughout the life of mine for the run of mine?
We expect it to be pretty consistent. I've been asking and getting the feedback from our geological group, throwing in the metallurgists in the mix there to see if there are any zones or domains, it all behaves very similarly. They've really had a good go at it.
All right. Great. Thank you very much, David, for answering my questions.
You're welcome.
Thanks, Dave.
All right, that's all the questions we've got today. Just a reminder that the webcast will be archived on our website, that will include the slide deck and the audio. Give me about 30 minutes and I'll get that up there. If you have any other questions, please don't hesitate to get in touch. For now, I'll hand it back over to Christian for closing remarks.
Yeah. Thanks very much, Rhylin. Thank you very much for joining us today. As you can tell, we're really excited about the plan and the way forward here with Castle Mountain now being our second cornerstone asset. We have a really busy year that's already gone by to mid-year already. Going forward for the next six months, we expect a lot more news and a lot more excitement here. Now we have a very defined project that fits into our profile of becoming a mid-tier gold producer in the near term. Watch this space and please join us at our AGM, either in person or on the call or webcasts on the 26th of July. Thank you very much for joining today.
Okay, that's the end of our conference call. Thank you very much for joining us today. You can now disconnect your line.