Perpetua Gold Corp has been rising this year because it looks like the perpetual permitting cycle will finally be done at the end of 2024 and the rising gold price is reducing anxiety that cost inflation will render the Stibnite Mine not worth developing when a mining permit is finally issued. To understand this problem I have created a DCF model based on the feasibility study's cost assumptions and created a graphic showing how the NPV and IRR of the project varies at prices ranging from $1,200 to $4,000. In late 2020 when the FS was published it used $1,600 gold as a base case price where the NPV ranged from $914 million at 10% discount rate to #1.2 billion at 5%. But with a CapEx of $1.3 billion the NPV even at 5% did not clear the development hurdle of matching or exceeding CapEx. However, gold at the time was above $1,600 where the NPV would clear the hurdle. At the current price of #2,485 the NPV ranges from $2.4 billion to $3.4 billion and the project is clearly worth developing. At $4,000 gold the NPV range soars to $5.0-$6.8 billion.
Unfortunately, since 2020 there has been considerable inflation and the big question on the minds of investors would be what is the CapEx and operating cost of Stibnite today? Earlier this year the Export-Import Bank gave Perpetua a letter of intent to provide up to $1.8 billion in loans to develop Stibnite if the Final Record of Decision is positive. That figure is 40% higher than the 2020 CapEx so I have escalated the CapEx and operating costs in my DCF model by 40% to see what happens. At the $1,600 base case price the project is, not surprisingly, dead in the water. However, at the current $2,485 gold price the IRR is 34%, well above the 15% hurdle, and the NPV ranges $1.6-$2.4 billion compared to $1.8 billion CapEx which clears the minimum NPV development hurdle. Based on a 100% net interest and 67.9 million fully diluted that translates into a CAD $32-$48 NPV per share price range, well above Friday's close of CAD $11.41. At $4,000 gold the range jumps into the $84-$117 range. Clearly the market is still worried a mining permit will be denied.
So where are we in the perpetual permitting cycle? On January 1, 2024 the United States Forest Service released an updated schedule for the Stibnite project that the USFS expected to publish a FEIS and a Draft Record of Decision in the second quarter of 2024 and a Final Record of Decision in the fourth quarter of 2024. The USFS has recently confirmed that the review of the FEIS is complete and both documents are now being reviewed in Washington DC, but the publication of a FEIS and Draft Record of Decision is now expected in Q3 of 2024 though they still expect a Final Record of Decision in Q4 of 2024. Given how slowly Washington moves, the final ROD will likely arrive at the end of the year. The USFS is under the jurisdiction of the US Department of Agriculture, which is separate from the US Department of Interior whose jurisdictions include the BLM and the US Fish & Wildlife Service. The latter means Secretary of Interior, Deb Haaland, will have a say in approving the Stibnite Mine. The decision to ban a private road to Trilogy's Ambler copper project in Alaska says a lot about what Haaland thinks about mining in America.
The recent Perpetua stock spike is not due to the rising gold price, but rather to a decision by China to add antimony to the graphite, germanium and gallium export bans it introduced last year. Antimony because of its use as a flame retardant and as part of an alloy for bullet casings is also known as a war metal. According to the USGS the United States in 2023 consumed 22,000 tonnes of antimony out of 83,000 tonnes produced globally. That is 27% of global supply of which Global West nations supply 4%. Current US consumption does not include a potential new usage for antimony in the form of innovative energy storage systems. Perpetua's Stibnite project became a pollution disaster during World War II because it was America's primary source of antimony. I always liked the Stitbnite story because not only would its redevelopment as a modern gold mine clean up the legacy mess, but it would provide secure domestic supply of antimony, on average about 35% of current US consumption as a by-product from gold mining at Stibnite. That is not enough to solve America's antimony Global East import vulnerability, but when I visited the project in 2018 when Stephen Quin was still in charge the team talked about a high grade antimony zone outside the pit shell to which in an "emergency" an adit could be driven to underground mine it.
The United States has been aware of its "critical mineral" import vulnerability for some time and through bureaus such as the USGS has been sounding the alarm. It is very obvious in my graphic which shows the percentage of supply for each of about 50 raw materials that need to be extracted which the United States supplies compared to the combined percentage supply by China and Russia. But America has an insane NIMBY mentality and a bizarre myopia about its metal supply import dependency. The thing I object to most about the Biden administration is making Deb Haaland Secretary of the Interior. She is the one behind the message from Washington to its bureaus to slow-peddle all permitting related to mineral extraction. Oddly, Gillian Tett in a recent Financial Times article notes that the United States handed out 758 oil drilling licenses in 2023, double the rate during the Trump administration. The United States is the world's biggest oil producer but seriously lags in the supply of most metals. The Stibnite Mine should have been approved two years ago but has been trapped in a perpetual permitting cycle thanks to American myopia.
I have digitized all the annual supply data for key metals published by the USGS since 1930 which is the basis for my antimony supply evolution chart whose country listing order represents cumulative supply. Until 1985 antimony supply was well diversified but then China came along and ultimately ended up with 85% of global supply thanks to a region where some good deposits were developed. But around 2013 Chinese supply began to decline so that last year it was only 48% of supply. The problem is depletion and China is worried about its own security of supply, and cannot be blamed for creating an export ban, especially given its ambition of displacing the United States from its role of top super-power. Since the start of 2024 the price of antimony has risen to an all-time record just above $9/lb. And guess which nation is in second place with 25% of global supply? Tajikistan, member of the Global East which when the Global West and East conflict turns hot is unlikely to supply the Global West. Russia is currently only 5% of global supply but its share was higher until 2022 when a gold mine with an antimony by-product, similar to the Stibnite situation, prioritized its mining schedule for gold recovery.
Perpetua's 2020 FS is now very stale given cost escalations from adapting to ever more stringent permitting requirements and inflation, but, assuming the ore schedule has not changed, escalating costs 40% still allows the project to clear development hurdles at $2,400 plus gold. The stock is up this past week because the Chinese decision to ban antimony exports should light a fire in Washington DC. The decision by the Export-Import Bank to offer to fund as much as $1.8 billion is all about the antimony by-product, so we know Washington is aware of the antimony supply problem. America's myopic NIMBYism could still lead to a thumbs down decision for Stibnite, but I think that will not be allowed to happen, especially since it will take two years to build the Stibnite Mine while stockpiles are run down. China's antimony export ban has turned Perpetual Permitting Corp and its Stibnite Mine into a poster child for American Myopia. |
