Mr. Carl Hansen reports
ATACAMA PACIFIC DELIVERS PREFEASIBILITY STUDY FOR THE CERRO MARICUNGA OXIDE GOLD PROJECT
Atacama Pacific Gold Corp.'s recently completed prefeasibility study on its flagship Cerro Maricunga oxide gold project has demonstrated the technical and economic viability of an 80,000-tonne-per-day heap leach operation, generating attractive financial returns. The Cerro Maricunga property is located 140 kilometres by road northeast the Copiapo, Chile, within the Maricunga mineral belt. (All dollar amounts are in U.S. dollars.)
Highlights from the PFS include:
- A total of 2.96 million recoverable gold ounces over life of mine;
- Average annual production over the first eight years of 281,000 gold ounces;
- A 13-year mine life;
- Average LOM cash costs of $683 per ounce;
- Initial capital costs, including contingencies, of $398.9-million;
- Sustaining costs, including contingencies, of $187.6-million;
- Strong total operating cash flows of $1.27-billion at $1,350 per ounce
gold.
The PFS calculates an after-tax net present value at a 5-per-cent discount rate of $409.3-million and internal rate of return of 25.0 per cent. The attached summary of project economics table summarizes the financial projections for the planned operation on both a pretax and after-tax basis at a base-case gold price of $1,350 per ounce.
SUMMARY OF PROJECT ECONOMICS
$1,350/oz Au Units Pretax case After-tax case
IRR % 28.6% 25.0%
NPV 5% $M $521.2 $409.3
Average annual revenues $M 307.7 307.7
Average annual cash flow (i) --
first $M
Five years 117.4 108.7
Average annual cash flow (i) $M 96.3 83.4
Payback period years 2.8 3.0
(i) After sustaining capital costs
Santiago-based consultancies, Alquimia Conceptos S.A. and NCL Ingenieria y Construccion SpA, prepared the PFS in accordance with Canadian National Instrument 43-101 (standards of disclosure for minerals projects). The PFS has an effective date of Aug. 20, 2014.
"The completion of the Cerro Maricunga PFS clearly demonstrates the technical and commercial viability of a large-scale, conventional open-pit mining and oxide heap leach processing facility, which will be one of the largest new gold operations in South America," stated Carl Hansen, president and chief executive officer of Atacama Pacific. "The scale of the planned Cerro Maricunga gold production will vault Atacama Pacific into to the realm of mid-tier gold producers with the capacity to operate with significant positive cash margins. With the PFS completed, we will commence work on a feasibility study in preparation for permitting and the goal of starting construction in late 2016."
Projected total gold production over the 13-year LOM is 2.96 million ounces at an average operating cash cost of $683 per ounce gold. An all-in sustaining cost of $941 per ounce Au, including total cash costs of $864 per ounce Au, has been projected.
Prefeasibility study limits
The PFS was completed using guiding limits.
PREFEASIBILITY STUDY LIMITS
LOM 13 years
LOM recoverable gold ounces 2.96 million ounces
Average annual production first eight years 281,000 ounces gold
Average annual LOM production 228,000 ounces gold
Average LOM strip ratio 1.76 to 1 (waste to ore)
Designed processing capacity 29.2 million tonnes per annum
Mining cut-off grade 0.15 gram per tonne gold
Metallurgical recovery 79.2%
Average mining cost $1.40 per tonne mined
Processing costs $2.52 per tonne processed
General and administration $0.54 per tonne processed
Gold price $1,350/oz Au
Mining
Gold will be produced from heap leaching 294.4 million tonnes of ore with an average grade of 0.40 gram per tonne gold. Ore will be mined at a rate of 80,000 tonnes per day, and an average LOM strip ratio of 1.76 to 1 (517.4 million tonnes of waste to 294.4 million tonnes of ore) has been calculated. The attached mining and production schedule presents the planned mining and production schedule. Gold production begins to decline in year nine as the mining activities increase in depth in the pit; however, the reduction in mined ore is partially offset by increasing gold grades at depth.
Conventional open-pit mining methods have been considered in mining the Cerro Maricunga deposit. The PFS considers utilizing a maximum fleet of 17 290-tonne haul trucks (Komatsu 9300E-4SE), four 42-cubic-metre hydraulic shovels (Komatsu PC8000) and five production drills (Atlas PV 275), along with various ancillary equipment, to achieve the maximum annual total ore and waste movement of 94 million tonnes. No additional production fleet equipment is considered during the LOM. The PFS takes into account that the mining fleet will be leased, and Atacama Pacific has received a proposed lease agreement.
The preliminary open-pit design incorporates 10-metre-high benches with 38-metre-wide main haul roads at a maximum grade of 10 per cent and overall pit wall angles varying from 45 to 48 degrees. The final pit will be 2,500 metres long and 1,000 metres wide. The waste dump is situated immediately adjacent to the pit and is sufficient to handle all planned waste material.
MINING AND PRODUCTION SCHEDULE
Year Ore Waste Strip ratio Grade Production
(000 tonnes) (000 tonnes) (waste:ore) (g/t Au) (000 oz Au)
Less than 1 5,652 5,348 0.95 0.44 --
1 23,548 26,131 1.11 0.46 285
2 29,200 47,163 1.62 0.42 314
3 29,200 54,038 1.85 0.41 303
4 29,200 54,475 1.87 0.37 275
5 29,200 64,949 2.22 0.38 278
6 29,200 60,669 2.08 0.36 270
7 29,200 55,310 1.89 0.35 257
8 29,200 46,328 1.59 0.36 263
9 20,025 45,579 2.28 0.35 220
10 15,480 31,820 2.06 0.42 165
11 12,778 18,614 1.46 0.47 155
12 8,374 5,626 0.67 0.55 119
13 4,174 1,370 0.33 0.54 58
Totals 294,431 517,419 1.76 0.40 2,963
Rounding may result in apparent summation errors.
Processing
Oxide mineralization will be trucked to a primary gyratory crusher facility, located immediately west of the pit boundary, where it will be crushed to 165 millimetres. The primary crushed material will then be conveyed approximately 2.9 kilometres to feed two secondary cone crushers and three tertiary cone crushers. The final crushed product, measuring (P80) 19 millimetres, will be conveyed 2.4 kilometres to the heap leach pads.
Crushed material will be stacked on the heap leach pad by a radial stacker in 50-by-50-metre modules in layers 10 metres thick. The final leach pad height will be approximately 100 metres. A pad irrigation rate of 10 litres per hour per square metre has been considered. Sodium cyanide and lime consumption are expected to be 0.23 kilogram per tonne and 2.7 kg per tonne, respectively. The cost of consumables was established from recent quotes provided by Chilean-based suppliers. The pregnant leaching solution containing gold will be pumped to a conventional carbon adsorption facility, where gold from process solutions is recovered to a final gold dore product.
Average gold recoveries of 79.2 per cent have been used in the PFS based on 34 column tests and over 100 bottle roll tests completed on ore from the Cerro Maricunga deposit. The majority of the column tests have been completed on ore crushed to 19 millimetres; however, 78-per-cent to 80-per-cent gold recoveries have been achieved on material crushed to 50 mm (two inches), and 77-per-cent recoveries were achieved on 100-millimetre crushed material.
Ball mill work indices varying from 9.77 to 11.26 kilowatt hours per tonne have been obtained from ore from Cerro Maricunga, classifying the material as relatively soft. Bond abrasion indices averaging 0.095 suggest the ore has low abrasive characteristics.
Further metallurgical testing will focus on ore crushed to 50 millimetres, which represents the projected product size from a secondary crusher.
Capital requirements
The PFS projects initial capital expenditures for the development of an open-pit mining and conventional heap leach processing operation at Cerro Maricunga of $398.9-million, which includes contingencies of $46.5-million and engineering, procurement and construction management (owner) costs of $12.7-million. A breakdown of these costs is provided in the attached summary of initial capital expenditures table.
SUMMARY OF INITIAL CAPITAL EXPENDITURES (1)
Item $ millions
Mine
Prestripping $15.3
First fleet lease payment 7.5
Mining support 19.6
Process plant
Crushing and stockpiles $143.4
Leach pads 83.7
ADR and EW/smelting 23.3
First fill 2.0
Infrastructure
Support facilities $34.9
Roads 10.1
Owner 12.7
Capital costs (without contingencies) 352.5
Contingencies (2) 46.5
Total initial capital (3) 398.9
(1) The PFS has been completed to a level of accuracy of plus 20
per cent to minus 5 per cent.
(2) Contingencies are 15 per cent of capital costs excluding
mine costs.
(3) Rounding may result in apparent summation errors.
Sustaining capital requirements during the life of mine, including mine, annual heap leach pad expansions and closure costs, total $187.6-million including $23.0-million in contingencies.
The costs for the major mining equipment are based on recent quotes obtained by NCL and are priced at constant second quarter 2014 prices. Equipment costs include delivery to the site and assembly.
Leasing
Quotes have been received for the lease of the mining fleet, truck maintenance shop, the construction and operation of a water pipeline, and the electrical supply infrastructure.
Komatsu has provided a letter of intent for a $234.4-million lease-to-own arrangement for the major mining fleet equipment. The quote is for a lease period of five years for the drilling/loading/hauling fleet with a final payment in the following year for the purchase of the fleet. The auxiliary equipment lease is for a period of three years with a payment in the fourth year for final purchase.
The construction of a truck maintenance shop will be undertaken by Arrigoni under a $28.4-million leaseback over a period of 13 years.
Atacama Pacific has been provided a letter of intent from Elecnor, a multinational engineering and construction firm, for the construction and operation of the water supply infrastructure from Copiapo to Cerro Maricunga. The annual cost of the lease is $17.5-million for the first eight years and declines to $10-million in year 13, reflecting lower ore throughput. The same firm has offered to construct and operate the electrical distribution system at a price of $5-million per year.
Unitary leasing costs are as follows:
- Mining fleet and truck maintenance shop: 32 cents per tonne mined;
- Water and power infrastructure: 91 cents per tonne processed.
Taxes
The Chilean tax rate used in the PFS is 20 per cent. In addition, included in the economic analysis is the variable Chilean specific mining tax levied on operational income.
Mineral resources and reserves
The Cerro Maricunga global resource estimate is presented in the attached global resource estimate table. The global resource estimate was used for the estimation of the pit-constrained oxide-associated gold resource reported in Atacama Pacific's Jan. 29, 2014, press release and was used to establish the mineral reserves used in the PFS.
The Cerro Maricunga proven and probable mineral reserve estimate, summarized in the attached mineral reserve estimate table, lies within an optimized open-pit shell generated using economic and technical input limits established in the PFS.
The mineral reserve represents a diluted ore tonnage. No inferred category mineral resources were used in the preparation of the mineral reserves.
The Cerro Maricunga resource estimate and reserve calculation were prepared under guidelines established by the Canadian Institute of Mining, Metallurgy and Petroleum's CIM standards on mineral resources and reserves -- definitions and guidelines (2014).
GLOBAL RESOURCE ESTIMATE
Measured Indicated
Zone Tonnes Grade Tonnes Grade
(millions) (g/t Au) (millions) (g/t Au)
Lynx 20.1 0.46 82.8 0.40
Crux 92.0 0.35 119.1 0.32
Phoenix 40.7 0.46 79.1 0.42
Totals 152.8 0.39 281.0 0.37
Measured and indicated Inferred
Gold Gold
Zone Tonnes Grade ounces Tonnes Grade ounces
(millions) (g/t Au) (000s) (millions) (g/t Au) (000s)
Lynx 102.9 0.41 1,344 7.0 0.37 84
Crux 211.1 0.33 2,227 28.1 0.30 266
Phoenix 119.8 0.44 1,678 22.8 0.34 253
Totals 433.8 0.38 5,249 57.9 0.32 603
MINERAL RESERVE ESTIMATE
0.15 g/t Au cut-off grade Tonnes Grade Gold ounces
(millions) (g/t Au) (000s)
Proven 126.9 0.39 1,603
Probable 167.6 0.40 2,140
Total proven and probable 294.4 0.40 3,743
Water
Water for the Cerro Maricunga operation will be supplied from a water treatment facility located in Copiapo city and owned by the Chilean water utility Aguas Chanar S.A. Atacama Pacific entered into an agreement with Aguas Chanar, reported on July 10, 2013, for the purchase of 2.5 million cubic metres of water annually, representing a flow rate of 80 litres per second. Water requirements for the 80,000-tonne-per-day Cerro Maricunga operation are projected to be in the range of 85 litres per second and 90 litres per second.
The PFS takes into account that water supply infrastructure from Copiapo to Cerro Maricunga will be constructed and operated under a lease arrangement as previously described. The electrical supply line will follow the same right-of-way as the water pipeline allowing grid electricity to be used for the operation of the pump stations resulting in significant savings over generator supplied energy.
Sensitivities
The attached sensitivity of economic indicators table provides a summary of the impact of changes in the gold price on key economic indicators.
SENSITIVITY OF ECONOMIC INDICATORS
Base case
Item Unit $1,250/oz Au $1,350/oz Au $1,450/oz Au
before tax
NPV 0% $M $556.2 $852.4 $1,149.7
NPV 5% $M 306.4 521.2 736.0
IRR % 19.4 28.6 37.5
Payback period years 3.9 2.8 2.2
Average annual cash
flow (i) $M 73.5 96.3 119.0
After tax
NPV 0% $M 453.4 685.5 912.0
NPV 5% $M 241.5 409.3 574.3
IRR % 17.3 25.0 32.4
Payback period years 4.1 3.0 2.5
Average annual cash
flow (i) $M 65.6 83.4 100.8
(i) After sustaining capital costs
Project opportunities and risks
The PFS has largely defined the operating scope of mining and processing operation at Cerro Maricunga. However, Atacama Pacific has identified increasing the ore crush size as a potential opportunity that will be examined during the feasibility study. Increasing the crush size to 50 mm from 19 mm would result in a reduction in the capital costs as a result of the elimination of the tertiary crushers. A reduction in operating costs could also be realized as lower rates of NaCN and lime consumption are expected based upon test results.
The key risks typical of all large-scale mining projects, including, but not limited to, confidence in mineral resource estimates, metallurgical performance, capital and operating cost increases, commodity price decreases, securing reasonably priced project financing, and ability to attract and retain experienced professionals, apply to Cerro Maricunga. With the acquisition of the majority of the necessary water resources for the development of Cerro Maricunga, one of the main development risks has been significantly reduced.
Permitting
Chile has an established and clearly defined and regulated permitting process for development projects. To develop a mining and processing operation at the Cerro Maricunga project, an environmental impact study, "Estudio de Impacto Ambiental" must be obtained from the Chilean environmental authority, Servicio de Evaluacion Ambiental. The EIA process takes up to 18 months to complete and takes into consideration all aspects of a proposed development. Once permits of this nature are granted, Atacama Pacific would have a five-year period to complete construction of the project.
Atacama Pacific has completed the acquisition of required baseline environmental data necessary for the submittal of an EIA. During or upon completion of the feasibility study, it is the intention of Atacama Pacific to prepare and submit an EIA application.
Prefeasibility study basis and assumptions
This study constitutes a PFS for NI 43-101 purposes with an effective date of Aug. 20, 2014. The PFS has been completed to a level of accuracy of plus 20 per cent to minus 5 per cent. No inferred resources have been taken into account in demonstrating the economic viability of the project.
Key assumptions used in the economic analysis in the PFS include the following:
-
Exchange rate (Chilean peso per U.S. dollar): 600;
- Fuel price ($ per litre) 90
cents;
- Energy ($ per megawatt hour): $100;
- Lime ($ per kilogram): $178;
- NaCN ($ per kilogram): $2,650;
- Water ($ per cubic metre): 75 cents.
About NCL Ingenieria y Construccion
NCL is a consulting company, formed in Santiago, Chile, in 1985. Its main objective is to provide focused advice and solutions for mining companies requiring specialized services mainly in the fields of resource estimation, mine design and planning (for open-pit and underground methods), mine equipment selection, optimization of mine unit operations, and mining cost estimation.
NCL has completed a wide range of studies and projects within its field of expertise through the different stages in mining project development and has completed conceptual studies to bankable feasibility studies for clients on a global basis. It has also a relevant experience in the area of project assessments and valuations, due diligence, and technical audits. The company's office in Santiago employs 36 full-time mining engineers and a total permanent staff of 45.
About Alquimia Conceptos
Alquimia was formed in 2002, in response to a growing industry demand for specialized consultancy in mining-metallurgical processes, which allow optimizing the operations of existing plants, as well as designing and evaluating the feasibility of new projects.
Since inception, Alquimia has carried out over 250 projects in both consulting and engineering studies, with nearly 500,000 man-hours dedicated to major mining projects in Chile, with clients, including Anglo American, Codelco, Xstrata Copper and Minera Esperanza, amongst others.
National Instrument 43-101
Maria Leticia Conca Benito, mining engineer, Universidad de Chile, registered member of Chilean Mining Commission, chief executive officer and project director, Alquimia, is an independent qualified person as defined by NI 43-101, is responsible for the compilation of the information and preparation of the overall PFS, and is responsible for the information provided for the metallurgy and process plant design. Ms. Conca has reviewed and approved the information provided in this press release.
Carlos Guzman, a mining engineer, fellow of the Australasian Institute of Mining and Metallurgy, a registered member of the Chilean Mining Commission, is an independent qualified person as defined by NI 43-101. Mr. Guzman is a principal and project director with NCL, Santiago, Chile, and is responsible for the mining-related sections of the PFS, including the generation of the pit shell for constrained resources and the mineral reserve estimate.
Dr. Eduardo Magri, a mining engineer (University of Witwatersrand), a fellow of the Southern African Institute of Mining and Metallurgy, is an independent qualified person as defined by NI 43-101 and is responsible for the mineral resource estimate.
The Cerro Maricunga resource estimate was prepared under CIM standards on mineral resources and reserves -- definitions and guidelines (2014).
Atacama Pacific will file an NI 43-101-compliant technical report on the Cerro Maricunga PFS with the applicable Canadian securities regulatory authorities within 45 days of this press release.
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