The Metates project is one of the largest, undeveloped disseminated gold and silver deposits in the world. A NI 43-101 report by Independent Mining Consultants of Tucson, Arizona outlines proven and probable reserves of 18.5 million ounces of gold, 526 million ounces of silver and 4.2 billion pounds of zinc. The metal prices assumed for the reserves are $1,200 per ounce gold and $25 for silver per ounce at a cut off grade of 0.35 g/t gold equivalent. Metates is 100% owned by Chesapeake and is located 175 kilometers northeast of Mazatlán in Durango state.
In 2013, M3 Engineering & Technology of Tucson, Arizona ("M3") completed a pre-feasibility study ("PFS") of Metates. The PFS envisions a conventional truck and shovel open pit mining operation at a 120,000 tpd throughput. Crushed ore will be fed to a conventional SAG and ball mill circuit followed by a single stage flotation plant to produce a bulk sulphide concentrate. The concentrate is transported downhill to the processing site via a slurry pipeline where the sulfides are oxidized in an autoclave circuit prior to cyanidation to recover the gold and silver.
Payable gold and silver production in the first six years of full production (years 2-7) averages 845,000 ounces gold and 25 million ounces silver per year. Total cash cost per gold equivalent ounce for production years 2-7 is $355, net of by-product credits. Close proximity to a high quality limestone resource and low cost power contribute significantly to the project's economics.
Zinc will be recovered from the pressure oxidation solutions via solvent extraction/electrowinning (SX/EW) methods to produce high grade zinc ingots. Over the 25 year mine life, zinc production will average 135 million pounds per year.
The PFS demonstrates strong project economics and high leverage to gold and silver prices. At $1,350 gold/oz, $20 silver/oz and $1 zinc/lb, the pre-tax NPV is $4.2 billion at a 5% discount rate with a 16.3% IRR and payback of 5.1 years. On an after-tax basis at a 5% discount rate, the NPV is $2.5 billion with a 12.2% IRR and a payback of 6.3 years.
Strategically, Metates is unique in that a smaller mine can first be placed into production and scalable expansion can largely be funded by cash flow. In 2016, an updated PFS by M3 indicates an initial 30,000 tpd throughput rate can internally fund a ramp up to a 90,000 tpd operation within 4-5 years. The initial capital cost is estimated at $1.91 billion including a $244 million contingency.
The updated PFS mine life is 37 years including stockpile production. During the 25 years of active pit mining, the average annual production is 519,000 ounces of gold, over 9 million ounces of silver and 83 million pounds of zinc. At $1,350 gold/oz, $20 silver/oz, and $1 zinc/lb the pre-tax NPV is $2.4 billion at a 5% discount rate with an IRR of 12.6%. The life of mine operating cost is $628 per ounce with an All-In-Sustaining-Cost of $662 per ounce.
The updated PFS further derisked Metates in respect to site and infrastructure development, water and tailings management, power, reclamation and stakeholder interests. Key changes since the 2013 PFS include re-locating the process site (El Paso) closer to existing infrastructure, labour pool and support services. Desalination was also determined to be a cost effective alternative water source with long term supply and less stakeholder risk.
Chesapeake is developing an organic pipeline near Metates and the El Paso plant site. Regional exploration has identified four prospects with district scale potential. The four projects are located along a prolifically mineralized corridor that parallels the Pacific coast and lies along the western margin of the Sierra Madre Occidental. To date, Chesapeake has assembled a regional land package totaling over 85,000 hectares.
Two projects, Yarely and El Paso, are situated in Sinaloa state and strategically located within 25 kilometers of the El Paso process site. At Yarely, geological fieldwork and geophysical surveys have defined high grade and disseminated mineralized zones. Chesapeake has traced 12 veins in the Yarely North area that range up to 11 meters in width each with an average strike length of 650 meters. Surface and underground channel samples returned values of 2 meters of 19.5 g/t gold and 505 g/t silver, 8 meters of 1.6 g/t gold and 33 g/t silver and 11 meters of 1.1 g/t gold and 42 g/t silver.
Yarely Central contains several wide zones of quartz stockworth and disseminated polymetallic mineralization hosted in highly altered sedimentary rocks. Mechanized trenching returned 14 meters of 1.5g/t gold and 143 g/t silver, 93 meters of 17 g/t silver and 36 meters of 0.7 g/t gold and 26 g/t silver.
The El Paso project covers 150 square kilometers near the El Paso processing site. The district hosts extensive polymetallic exoskarn and intrusive hosted quartz stockwork zones. Channel sampling return 69 meters of 2.2 g/t gold, 8 g/t silver and 1.1% zinc and 50 meters of 0.6 g/t gold and 12 g/t silver within the quartz stockwork.
In Durango state, Chesapeake's two regional projects are Nicole and San Javier. Nicole is located 45 kilometers northwest of the Metates deposit within a regional hydrothermal alteration zone spanning over 12 square kilometers. Over a vertical extent of one kilometer, quartz breccia veins transition to disseminated and stockwork mineralization at depth. Channel samples from the upper levels returned values of 7 meters of 3.1 g/t gold, 238 g/t silver and 0.3% zinc and 3 meters of 12 g/t gold and 450 g/t silver. Lower in the system, channel sampling of disseminated and stockwork mineralization returned 135 meters of 0.8 g/t gold, 16 g/t silver, and 0.7% zinc and 35 meters of 0.7 g/t gold, 20 g/t silver and 0.5% zinc. Limited historic core drilling targeting the disseminated and stockwork mineralization returned intercepts of 30 meters of 1.2 g/t gold, 29 g/t silver and 1.5% zinc and 30 meters grading 0.7 g/t gold, 19 g/t silver and 0.7% zinc. A 45 line-kilometer IP/Resistivity survey has defined a large 1.0 by 1.5 kilometer coincident low resistivity/ high chargeability anomaly which underlies the area of drilling.
San Javier is located 10 kilometers south of the Metates deposit. Reconnaissance stream sediment geochemistry followed by detailed geologic mapping and rock chip sampling led to the discovery of the San Javier project. Two different mineralized zones have been defined within a 15 square kilometer alteration zone. Sampling of the 4 kilometer long northeast trending quartz-silver stockwork zone has returned values of 60 meters of 71 g/t silver and 0.6% lead and 28 meters of 158 g/t silver and 0.3% lead. A 3 kilometer long northwest trending zone of structurally associated breccia has returned a channel sample of 48 meters of 1.0 g/t gold.
An 80 line - kilometer IP/Resistivity geophysical survey is underway at both Yarely North and Central. The geophysics program is expected to be completed late April. Final interpretation will be integrated with the geology and geochemistry to prioritize drill targets. Chesapeake plans to initiate a 5,000 meter drill program in Q3.
Chesapeake Vice President Development and Metates Project Manager, Gary Parkison, is the Qualified Person under the terms of NI 43-101 responsible for the verification of the technical work and data acquisition. Doug Austin PE, Senior Vice President and Dr. Art Ibarra, QP member, MMSA, Project Manager with M3 and Mike Hester F AUS IMM, Vice President of IMC are responsible for the NI 43-101 PFS, updated PFS and resource estimate.