TORONTO (miningweekly.com) – A preliminary economic assessment (PEA) on TSX-V-listed True Gold’s North Kao deposit has outlined an extra $118-million in after-tax free cash flow for the project developer’s Karma gold project, in Burkina Faso.

The report, released on Tuesday, also found that – as a result of its high gold grades, low capital costs and synergies to be realised by sharing future infrastructure – the North Kao project yielded an after-tax internal rate of return of 213% and a net present value of $69.6-million when applying a 5% discount.

North Kao added about $70-million to Karma’s after-tax NPV of $178.2-million.

True Gold had advanced the North Kao discovery to an independent PEA in a little over a year, demonstrating the significant prospective upside and potential economic viability of the Karma mining district, and how True Gold could potentially phase new discoveries into a future mine plan.

“North Kao represents just one of the six new discoveries made by our exploration team in 2013 and, moving forward, we see the potential for additional discoveries and resource growth,” True Gold president and CEO Dwayne Melrose said.

The PEA added 310 000 oz of gold to Karma’s production profile towards the end of the mine’s life, with the potential to bring these ounces in earlier as additional drilling was completed.

North Kao now boasted a compliant inferred resource of 9.9-million tonnes at an average grade of 0.98 g/t, hosting 312 000 oz of gold. The PEA assumed output of 118 000 oz/y over a 2.5-year mine life, expected to take place towards the end of the Karma mine life.

This would complement Karma’s probable reserve of about 949 000 oz of gold, grading at 0.89 g/t.

The capital price tag for North Kao was calculated at $17.5-million and, once a development decision had been taken, it could be implemented within six months, owing to mainly prestripping being required.

The project would have a strip ratio of 3.4:1. Unit costs were expected to be largely in line with that of the Karma deposit at $1.81/t for mining, $8.09/t for processing and general and administrative costs at $2.27/t.

The PEA supported a heap leach mine scenario from the defined North Kao openpit deposit, with the remaining centralised heap leach pad, remaining from the Karma operation, having the capacity to process oxide and transition mineralisation from the North Kao deposit, which would be delivered overland by haulage truck, since the deposit was mere kilometres from the main operations site.

“The North Kao PEA provides us with a blueprint on how to expand our mine life and production profile at Karma as we look to the future of our district. We have deployed a modest amount of capital in discovering and delineating these ounces and the return on our investment is exceptional. This PEA, together with the recent long-term cement contract, represents a significant increase in project value since September,” True Gold executive chairperson Mark O’Dea said.

True Gold in August had clinched a $120-million syndicated gold-streaming deal with precious metals streaming firms Sandstorm Gold and Franco-Nevada, as it prepared to start construction of the $131.5-million Karma project. The mine was expected to produce an average of 97 000 oz/y of gold over a mine life of more than 8.5 years.

Analysts from RBC Capital Markets in a note to clients said they expected Franco-Nevada and Sandstorm shares to modestly outperform peers on Tuesday on the back of the positive PEA on the North Kao deposit. "In our view, the PEA highlights the optionality inherent within the recently acquired gold stream, which could enhance the long-term return potential of the transaction," the analysts pointed out.

“Our feasibility study published in December 2013 did not include the leachable ounces from the recently discovered North Kao deposit. The North Kao PEA is our conceptual Phase 2. It demonstrates the potential to build on the 8.5-year mine life outlined in the feasibility study to develop West Africa’s next high-margin gold district,” Melrose said.

The company’s TSX-V-listed stock on Tuesday closed marginally higher at C$0.33 apiece.