Gramalote US$1.2bn cost "could come down"

The US$1bn-plus price tag is the main stumbling block for developing the Gramalote gold project in Colombia, B2Gold(TSX: BTO, OTCQX: BGLPF) CEO Clive Johnson told its Q1 earnings call.

A feasibility study for Gramalote, a 49:51 JV with South Africa's AngloGold Ashanti(NYSE: AU), was postponed in March following completion of a preliminary economic assessment (PEA).

While the PEA showed a "positive" after-tax internal rate of return of 11.5% at US$1,351/oz gold and payback of 4.8 years, Johnson said the companies do not feel the returns "merit" the US$1.18bn capital costs.

However, the partners will consider ways of reducing the costs of the project, in Antioquia department, he added.

Work will continue on an environmental impact study this year, including upgrading water management and social programs, with further infill drilling planned.

According to the PEA, Gramalote has an initial mine life of 14 years, with average annual gold production of 317,500oz at US$664/oz direct cash costs. Average total operating costs (including sustaining capital) are US$736/oz of gold.

B2Gold also has the Limón and Libertad gold mines in Nicaragua and mines and projects in Africa and the Philippines, while AngloGold has operations in Africa, Australia, Argentina, Brazil and the US.