There could be as much as two million ounces of gold in the ground at the old Nalunaq mine in Greenland, according to Eldur Olafsson, the man tasked with getting operations there back up and running.
The official resource currently stands at 250,000 ounces of gold grading 18.5 grams per tonne, but Olafsson is confident that there’s much more to be found.
“There’s exploration potential of two million ounces,” he says.
“There’s a one metre thick quartz vein that goes right through the mountain. Historically the project was mined by lateral tunnels that followed the veins. All the tunnels stopped in ore, and we know the vein extends for another two kilometres.”
How does he know? Simple: while the company may be new to Aim, it was not idle during its time on the Venture Exchange, and completed around 10,000 metres of drilling in the valley around Nalunaq. The company has been on the ground for several years now, and it knows its way around.
And that in turn means that Olafsson is not shy about talking about further upside over and above that two million ounce aspiration.
“On top of this we also have other veins in the mountain,” he says.
“We have two hanging wall veins and two footwall veins.”
Drillers, he says, will be in Nalunaq in mid-August, which is to say round about now.
The plan is to drill both from surface and from underground and to come up with a new resource when significant data is available, which will be within the next 18 months.
In the meantime, plenty of work will also have been done to get the mine itself back up and running and into production.
If the recent fundraise seems a bit sparse in terms of funding the construction of a fully-fledged mine, consider that around US$200mn has already been invested in Nalunaq over the years. As a consequence, it has a working processing plant, in addition to roads, a pier and a harbour attached to it, as well as being fully permitted and ready to access. There’s also a wealth of information regarding mining method and metallurgy, and a historical memory that back in the early part of the previous decade Crew Gold made a nice turn operating Nalunaq, producing around 350,000 ounces of gold at an approximate grade of 16 grams per tonne. Indeed, the reasons Crew ceased production were largely extraneous to the project itself and more to do with wider corporate problems at the company.
The plan is to bring Nalunaq back into production by December of next year, with an initial nameplate capacity of 50,000 ounces. Whether that output rate is then expanded further depends largely on the success the company has in proving up the additional ounces that Olafsson is convinced are there.
Because as things stand, it doesn’t look like money will be an issue at all. The £42mn raised at the end of July should see it through to first production, and thereafter the cash generated should provide a significant portion of any capital needed for further expansion.
Grade is key here, and because the grade is high at 18.5 grams per tonne, the all-in sustaining costs can be kept down at around the US$500 level, meaning that margins – with gold currently bouncing around at the US$2,000 mark – are likely to be extremely healthy.
“It’s a modular plant we’re putting in,” says Olafsson.
“It gives us that scalability. And we’re also thinking of installing a larger crusher from the outset. But we’re not mining for tonnage, we’re mining for ounces. The cut-off for our resource is six grams per tonne.”
And therein lies a further comfort for would-be investors, and another reason why generalists as well as mining specialists came into the AEX raise. Setting a cut-off at six grams is highly conservative and shows that there’s not much about AEX that’s flash and dash. Rather, this is a company that’s been built up over time, slowly and methodically, by an experienced entrepreneur who has a clear idea of where he wants to go.
Thus, although Nalunaq is the flagship project for now, the company’s extensive 3360 square kilometres of licence area could hold several more potential projects. And Olafsson wants to make a success of Nalunaq so that he can go out and build more mines.
“It’s like building McDonalds,” he says. “You can do this again and again in the same region.”
On one prospect, Vagar, where drilling will commence shortly, a sample has returned a gold grade of 2,533 grams per tonne.
“That could be the next mine,” he says.
But one thing at a time. First the company has to re-establish production at Nalunaq and build out the resource there. And it’s also got to build its social licence and its credibility with the markets.
That will require a firm hand on the tiller and a skilful bit of navigating. But Olafsson has run successful companies before. Here, he’s got the vision, he’s got the ounces and he’s got the potential.
He’s also got a rising gold market and a wave of favourable sentiment. So, there’s everything to play for, and it’s hardly surprising investors have been getting on board in their droves.