Mr. Joseph Grosso reports
GOLDEN ARROW ANNOUNCES UPDATED PRELIMINARY ECONOMIC ASSESSMENT FOR THE CHINCHILLAS SILVER PROJECT, WITH $226M AFTER-TAX NPV AND 24.3% IRR
Golden Arrow Resources Corp. has released the results of an updated preliminary economic assessment for the Chinchillas silver-lead-zinc project in Jujuy province, Argentina (all amounts are in U.S. dollars). The new PEA has more than doubled the aftertax net present value of the project to $226-million. The update is based on the expanded resource estimate announced Aug. 29, 2014.
Highlights (using base-case metal prices of $22 per ounce of silver, $1.00 per pound of lead, $1.00 per pound of zinc):
- A processing rate of 2.9 million tonnes per year (8,000 tonnes per day) and open-pit mining scenario, at a 2.4-to-1 strip ratio, and 12-year mine life;
- Aftertax net present value of $226-million at an 8-per-cent discount rate;
- Internal rate of return of 24.3 per cent;
- Payback period of 3.4 years;
- Preproduction capital costs of $237-million, including a 20-per-cent contingency;
- Cash operating costs of $9.22 per ounce of silver, without lead and zinc credits;
- Average annual silver production of eight million ounces.
"We are very pleased with this economic assessment as it provides an even stronger demonstration of the potential of Chinchillas as a viable mining project," stated Brian McEwen, vice-president of exploration and development. "We are now looking forward to moving into a feasibility assessment in 2015, while continuing to explore the property and expand resources."
The project demonstrates positive economics at a range of silver price scenarios as shown in the table.
PROJECT ECONOMICS
Silver price per ounce Aftertax Aftertax Aftertax
NPV8% IRR payback period
(M) (years)
$17.00 $ 90.2 14.9% 5.2
$22.00 $ 225.5 24.3% 3.4
$25.00 $ 305.0 29.2% 2.6
Management plans to advance the Chinchillas project to a feasibility stage in 2015, with a goal to commence mining within three years. The Chinchillas deposit remains open to expansion in all directions and approximately 70 per cent of the property remains untested.
Mineral resources
The PEA is based on the mineral resource estimate reported on Aug. 29, 2014, and subsequently filed on SEDAR in a National Instrument 43-101 technical report authored by Bruce Davis, FAusIMM, Kyle Howie, MAIG, and Bruce Smith, MAusIMM, dated Oct. 10, 2014. The company wishes to note a typo correction in the previous resource tables, namely the total of the inferred resources for zinc should read 330.9 million pounds.
MINERAL RESOURCE STATEMENT FOR THE CHINCHILLAS PROJECT
Resource class/zone Tonnage Ag Pb Zn AgEq Ag Pb Zn AgEq
(Mt) (g/t) (%) (%) (g/t) (Moz) (Mlb) (Mlb) (Moz)
Indicated resources
Silver Mantos 12.6 84.7 0.48 0.45 113.4 34.2 131.7 123.4 45.8
Mantos Basement 12.1 98.2 0.83 0.16 129.0 38.2 219.8 43.2 50.1
Total indicated resources 24.6 91.3 0.65 0.31 121.1 72.3 351.5 166.6 95.9
Inferred resources
Silver Nantos 6.2 60.1 0.59 0.62 97.8 11.9 80.3 83.7 19.4
Mantos Basement 5.3 98.8 0.85 0.11 128.8 16.7 98.9 13.1 21.8
Socavon del Diablo 7.3 27.3 0.44 1.13 76.2 6.4 70.3 182.8 17.9
Socavon Basement 3.2 49.9 0.62 0.72 91.6 5.2 44.6 51.3 9.6
Total inferred resources 22.0 56.9 0.61 0.68 97.1 40.2 294.1 330.9 68.7
1. The silver-equivalent formula used is (Pb times 31.172) plus (Zn times 31.172) plus
(Ag times 1).
2. Totals may not add correctly due to rounding.
3. A resource-constraining shell was developed based on metal prices of $35.00/ounce
silver, $2.00/pound zinc and $2.00/pound lead. Within that shell, the resource has been
reported using a cut-off grade of 40 g/t AgEq. The cut-off was determined using operating
costs of $16.00/tonne for processing, $9.00/tonne for general and administrative ($25.00/t
total) with metal prices of $22.00/ounce silver, $1.00/pound zinc and $1.00/pound lead, and
a process recovery of 90 per cent, based on the 2014 preliminary economic assessment (see
report filed on SEDAR dated Jan. 20, 2014, for details). The pit slope used for the resource
shell is 45 degrees.The PEA is considered preliminary in nature. All mineralized material, whether classified as indicated and inferred mineral resources, is considered in the pit optimization and mine plan. Mineral resources, which are not mineral reserves, do not have demonstrated economic viability. The estimate of mineral resources may be materially affected by environmental, permitting, legal, title, taxation, socio-political, marketing, or other relevant issues. The quantity and grade of reported inferred resources are uncertain in nature and there has been insufficient exploration to classify these inferred resources as indicated or measured, and it is uncertain if further exploration will result in upgrading them to an indicated or measured category.
Project development plan
The project concept is to develop an owner-operated open-pit silver-lead-zinc mine with an on-site concentrator using conventional flotation concentration methods to produce two concentrates: a silver-bearing lead concentrate and a zinc concentrate.
A series of pit optimizations were run using the resource block model, applying a range of metal prices and recoveries, and estimated costs for mining, processing, and general and administrative. The operational pits were designed based on the optimized shells, and the potentially minable portion of the resource was estimated within those pits. The ultimate pit contains a total of 114.4 million tonnes of combined mill feed and waste material including 33.8 million tonnes of mill feed, for a strip ratio of 2.4 to 1. The mill feed tonnage incorporates a mining ore loss factor of 3 per cent and mining dilution at 5 per cent.
A mill production rate of 2.9 million tonnes per year (8,000 t/day) is assumed. The production schedule includes one year of preproduction prestripping, mainly to acquire material to build the tailings starter dam, followed by 12 years of operating mine life.
It is assumed that lead and zinc concentrates will be shipped to a smelter/refiner via Antofagasta, Chile. An estimated 90 million ounces of silver are to be produced through the life of the mine, at an average head grade of 86 grams per tonne silver. In addition, 248 million pounds of zinc and 464 million pounds of lead will be produced with average head grades of 0.41 per cent zinc and 0.66 per cent lead, respectively.
Project economics
The PEA project economics are based on long-term metal prices of $22.00/ounce silver, $1.00 U.S./pound lead and $1.00/pound zinc. The company has assumed a base-case long-term price scenario of $22 per ounce of silver and an 8-per-cent discount rate. The commodity price assumptions were developed using a review of recent comparable peer reports and projected price information. The revenue is mainly derived from silver with lead and zinc as byproducts. The silver metal generates 78 per cent of the total revenue. The table summarizes the parameters of the cash flow model.
CASH FLOW ANALYSIS SUMMARY
Parameter Unit
Average annual silver production Moz 8
Total Ag produced Moz 90.4
Average Ag grade g/t 85.5
Average Ag recovery (Pb con) % 94
Life of mine years 12
Total unit operating cost $/t feed $23.19
Total unit cash cost without credits $/oz Ag $9.22
The cash flow model includes a provincial mining royalty of 3 per cent on the mine head value and an Argentine federal income tax at 35 per cent. The export tax rate has been assumed at 7.5 per cent, which is based on a 10-per-cent tax rate less a 2.5-per-cent credit for projects located in the Puna region, as outlined in resolution No. 762/93 of the Ministry of Economy of Argentina. The table summarizes the financial analysis from the cash flow model.
FINANCIAL ANALYSIS
Before tax After tax
NPV 0% (millions) $ 883.2 $ 569.6
NPV 5% (millions) $ 515.2 $ 321.8
NPV 8% (millions) $ 372.8 $ 225.5
IRR 30.0% 24.3%
Payback period (years) 3.2 3.4
Capital and operating costs were estimated at plus or minus 35 per cent by the qualified persons based on their experience with similar operations. The capital and operating costs are summarized in the tables.
SUMMARY OF CAPITAL COSTS
(Including 20-per-cent contingency)
Preproduction capital (includes prestripping,
mining capital costs, process plant,
infrastructure) $237 M
Sustaining capital over life of mine $ 84 M
Total capital $321 M
SUMMARY OF UNIT OPERATING COST ASSUMPTIONS
Unit cost $/t feed
Mining feed $/t material 2.33 7.90
Processing $/t feed 12.25 12.25
Tailings $/t feed 0.09 0.09
G&A $/t feed 2.95 2.95
Total 23.19
Metallurgy and processing
Metallurgical testwork was undertaken at Bureau Veritas Commodities Canada Ltd. Inspectorate metallurgical division and the PEA incorporates test results to July, 2014. Samples representing the Mantos Basement (BAS), Silver Mantos (MAN) and Socavon del Diablo (SOC) zones of mineralization have been tested through a locked cycle process and therefore three corresponding ore types were considered in the PEA. The Socavon Basement zone is newly identified and has not yet been subject to metallurgical testing; however, the mineralization of that zone is similar to that of Mantos Basement and therefore for the purposes of the PEA it was considered to behave in a similar fashion and be part of ore type BAS. The samples have demonstrated amenability to selective flotation and yielded commercial concentrates by conventional methods, and there are no significant penalty elements in the concentrates. The metallurgical testwork completed to date is preliminary, and continuing work will look at more detailed sampling and testing of all mineralization types.
The planned processing plant for Chinchillas is designed to process polymetallic mineralization at a rate of 8,000 tonnes per day. The proposed processing flow sheet consists of primary crushing, grinding in SAG/ball mills and differential flotation to sequentially float ore from the pulp, producing first a silver-bearing lead concentrate and then a zinc concentrate. The rougher concentrates will subsequently be cleaned to enhance concentrate grades.
The Chinchillas project's recovery assumptions for the ore types are summarized in the table. The silver concentrate grades are variable since they are dependent on the head grades mined in each year and the average annual grades are shown. Lead and zinc concentrate grades are fixed.
RECOVERY ASSUMPTIONS FOR PAYABLE METALS
Lead concentrate (Silver grades are annual averages)
Ore 1 (BAS) Ore 2 (MAN) Ore 3 (SOC)
Lead Silver Lead Silver Lead Silver
Recovery 93.5% 95.0% 95.0% 94.5% 94.5% 93.0%
Grade 70.0% 8.3 kg/t 62.2% 10.3 kg/t 66.0% 3.8 kg/t
Zinc concentrate (silver grades are annual averages)
Ore 1 (BAS) Ore 2 (MAN) Ore 3 (SOC)
Zinc Silver Zinc Silver Zinc Silver
Recovery 75.0% 3.0% 80.0% 2.3% 85.0% 4.0%
Grade 52% 1.3 kg/t 53.0% 271 g/t 60.0% 70 g/t
Infrastructure
With Silver Standard's Pirquitas operation 30 kilometres away, good infrastructure to support mining is in place and the project has two all-season access routes. Power is available at the nearby village of Santo Domingo; however, it is not sufficient for the mining operation and project development would require additional power supplies to be sourced. It is assumed that a new high-voltage (69 kilovolts) power line would be constructed from Abra Pampa to the project site, a distance of 66 km. Water for future processing operations will be sourced from local and regional wells. Site water management facilities will include diversion channels for non-contact water and collection channels for contact water. Water will be conserved and recycled to the maximum extent possible. Chinchillas will produce thickened tailings that will be stored within a lined tailings impoundment that will be constructed and expanded in stages using mine waste rock to distribute expenditures over the life of the mine.
Economic sensitivity
A sensitivity analysis was conducted based on several metal price cases, as summarized in the table. The economic results for the variable metal prices do not incorporate modifications to the production plan tonnages and grades that may be driven by the variable prices. The same production profile is maintained for all price scenarios.
SENSITIVITY ANALYSIS TO SILVER PRICE
(8-per-cent discount rate)
Silver price per ounce Aftertax Aftertax Aftertax
NPV8% IRR payback period
(M) (years)
17 $ 90.2 14.9% 5.2
22 $ 225.5 24.3% 3.4
25 $ 305.0 29.2% 2.6
The sensitivity analysis indicates that the project demonstrates positive economics at all three silver price scenarios.
Qualified persons
The updated National Instrument 43-101 technical report for the PEA will be filed on SEDAR within 45 days of this news release. The report is being co-ordinated by independent consultant Ken Kuchling, PEng, a mining engineer specializing in economic reviews and an independent qualified person as defined in NI 43-101. Additional contributing qualified persons on the report will include:
- Ken Embree, PEng, of Knight Piesold Ltd. (tailings and infrastructure);
- John Fox, PEng, of Laurion Consulting Inc. (metallurgy);
- Dr. Bruce Davis, PhD, FAusIMM, of BD Consulting Inc. (resource estimate);
- Kyle Howie, MAIG (resource estimate);
- Bruce Smith, MSc (CP), MAusIMM (geological interpretation).
All qualified persons have reviewed and approved the content of this news release.
We seek Safe Harbor.
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