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 Mazatlan 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 financial performance.
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, $25 silver/oz and $1 zinc/lb, the pre-tax NPV is $6.7 billion at a 5% discount rate with a 21.1% IRR and payback of 4.1 years. On an after-tax basis at a 5% discount rate, the NPV is $4.5 billion with a 16.6% IRR and a payback of 4.9 years. Over the mine life, the project is expected to generate $20 billion of pre-tax net operating income.
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. An updated PFS by M3 indicates an initial 30,000 tpd throughput rate can mostly fund expansion 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 with average annual production of 445,000 ounces of gold, 9 million ounces of silver and 88 million pounds of zinc.
At $1,250 gold/oz, $20 silver/oz, and $1 zinc/lb the pre-tax NPV is $1.8 billion at a 5% discount rate with an IRR of 11%. 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 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 lower supply and stakeholder risks.
Chesapeake is focused on developing an organic pipeline near Metates and El Paso. Regional exploration has identified three prospects with district scale potential that are being systematically advanced to the drill stage.
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.