The $80-million Kutyn gold project, about 100 km from the Albazino mine in Far East Russia, has received board approval and will proceed to construction, London- and Moscow-listed Polymetal announced on Tuesday.

Incremental production from the 90 000 oz/y Kutyn mine will compensate for an expected decline in output at Albazino, which is facing challenging geotechnical conditions.

Polymetal said that management had decided not to proceed with a project to double underground mining capacity at Albazino to 1.2-million tonnes a year.

"After thorough evaluation the board has concluded that Kutyn belongs in Polymetal's asset portfolio. The key factors behind this decision are quick and capital-light path to significant free cash flows, as well as potential for a long mine life as a part of the Albazino hub,” said CEO Vitaly Nesis.

Polymetal acquired the asset for $65.5-million in shares in 2011 – at a time when the gold price was $1 400/oz. The company subsequently spent $55-million on exploration and site infrastructure.

The project internal rate of return, net of sunk costs, is 29% at $1 200/oz rising to 42% at $1 500/oz. The net present value is estimated at $79-million and $157-million at a $1 200/oz and a $1 500/oz gold price, respectively.

Kutyn has ore reserves of 8.4-million tonnes of oxide ore with an average grade of 3 g/t containing 0.812-million ounces. Mineral resources amount to 6.6-million tonnes of oxide and refractory ore for openpit and underground mining, with an average grade of 3.7 g.t, representing 0.785-million ounces of gold contained.

Polymetal said that detailed in-house metallurgical studies confirmed viability of processing refractory ore from Kutyn at the Albazino concentrator with subsequent pressure oxidation at Amursk.

An estimate of refractory reserves is planned for the first quarter of 2023 following completion of a drilling campaign of 50 km and preparation of the feasibility study.

Conventional openpit mining will start with prestripping in the third quarter of 2021, with first ore mined a year later. Ore will be processed through the 1.3-million-tonne-a-year heap leach facility followed by the Merrill-Crowe process. Average life-of -mine gold recovery is 71%.

The Kutyn site can be accessed using a winter road from Albazino or by sea through the seasonal Port of Ulban on the Sea of Okhotsk.