Tepal project

On acquiring the project in 2009, the company drilled an additional 63,078meters for resource delineation, exploration, metallurgical, pilot plant and geotechnical purposes. Today, Tepal is an advanced stage exploration project with an extensive database of geochemical, geophysical and other technical surveys as well as a combined total of 82,895 meters of core and RC drilling completed in 443 holes.

Since acquisition in 2009, the project has demonstrated a growth potential by expanding existing resources and through new discovery. The delineation of the North, South and Tizate zones significantly increased the 2009 historic resources for the project. Drilling by the company also succeeded in placing a high percentage of mineral resources from all three zones into the Measured and Indicated categories.

A Pre-Feasibility Study (“PFS”) was prepared for the company by JDS Energy & Mining Inc. in 2013 and used optimization parameters of: ore and waste mining costs of US$1.50/t; processing costs of US$5.60/t milled and overall pit slope angles of 45°. Average metallurgical recoveries of 83% and 78% were applied for gold in sulphide and oxide respectively and recoveries of 87% were applied for copper in sulphide material. Recoveries were estimated from extensive metallurgical tests that identified no fatal flaws nor deleterious elements, with a very clean and saleable concentrate. Appropriate dilution and offsite costs and royalties were also considered and applied where appropriate. A gold price of US$1,390/oz., a copper price of US$3.44/lb and a silver price of $26.03/oz. were used representing a 4-year trailing average at the time of the study. Highlights of the study were:

  • The Project’s estimated post-tax NPV, at a 5% discount, is $421 million with an IRR of 28%.
  • The Project’s estimated pre-tax NPV, at a 0% discount, is $925 million with an IRR of 36%
  • The Project’s estimated payback period is 2.7 years pre-tax and 3.2 years post-tax.
  • Pre-production capital costs for the Project are estimated to be $354 million.
  • The Project is expected to produce an average of 117,000 ounces of gold and 49 million pounds of copper annually over its initial seven years of operation.
  • The Project has an estimated mine life of 11.5 years, and an average milling rate of 38,700 tonnes per day.
  • Life of mine all-in sustaining cash costs of production, net of by-product credits, as per World Gold Council Standards are estimated to be $290/oz. for gold or $0.89/lb. for copper.

The results for the PFS were positive and subsequent to its completion, an Environmental Impact Assessment (MIA-P) based on the 2013 PFS study was completed and submitted on September 10, 2013 and the permit to proceed was received March 24, 2014. A concurrent global downturn within the industry prompted a decision to place the project on care and maintenance until market conditions improved.

Due to lower metal prices experienced during 2014 to 2017, the company revised the project to a smaller more efficient 22,000 tonne per day operation (PFS – 38,000 tpd) using metal prices of US$1,250/oz. for gold US$2.50/lb. for copper and US$18.00/oz. for silver in a Preliminary Economic Study. JDS Energy & Mining Inc. was commissioned to engineer a 22,000 tonne per day sulphide processing plant and an independent 5,500 tonne per day oxide plant. The mining plan was changed to reflect the lower mill feed rate changes which resulted in a reduced strip ratio of 0.6:1 (PFS 1.8:1). Mining was changed from an owner fleet to contractor mining using an average cost of $2.16/ tonne. Metallurgical recoveries were derived from the extensive test work completed in the PFS.

The 2017 PEA estimate was positive, resulting in a US$169M After-Tax NPV (5%) and 24% IRR. Due to the smaller plant and contractor mining, the initial capex was reduced 40% to US$214M.Below are key highlights that improved the economics of the project:

  • Pre-tax: NPV5% of $299 million and 36% IRR with a 1.6-year payback period
  • After-tax: NPV5% of $169 million and 24% IRR with a 2.3-year payback period
  • Production averages 79,000 oz. of gold and 32 Mlbs of copper over a 10-year mine life
  • Life of mine (“LOM”) average cash cost of $313/oz. gold and LOM average cash cost plus sustaining cost of $396/oz. gold (net of copper and silver by-product credits)
  • Initial capital costs estimated at $214 million with a 2-year pre-production period
  • LOM sustaining and closure capital costs estimated at $87 million

Assumptions used to Estimate the 2017 PEA, JDS

Measured and Indicated Mineral Resources at US$5/t Equivalent Value Cut-Off – March 29, 2012

Deposit Resource Category Tonnage(000 ) In Situ Average Grade Contained Metal
Au (g/t) Cu (%) Ag (g/t) Mo (%) Au (koz) Cu (Mlb)
Total Measured 34, 000 0.48 0.25 0.95 0.002 528 185
Indicated 153, 000 0.26 0.19 1.67 0.004 1,276 628
M + I 187, 000 0.30 0.20 1.54 0.004 1,804 813

Source: JDS (2017)

Inferred Mineral Resources at US$5/t Equivalent Value Cut-Off – March 29, 2012

Deposit Resource Category Tonnage(kt) In Situ Average Grade Contained Metal
Au (g/t) Cu (%) Ag (g/t) Mo (%) Au (koz) Cu (Mlb)
Total Inferred 36,000 0.16 0.15 1.68 0.006 181.7 120.4

Source: JDS (2017)

Metal Prices used in the Economic Analysis

Assumptions Unit Value
Cu Price US$/lb 2.50
Au Price US$/oz 1,250
Ag Price US$/oz 18.00
FX Rate MX$:US$ 18

Source: JDS (2017)

Breakdown of Estimated Operating Costs

Operating Costs Avg Annual (M$) $/t processed** LOM (M$)
Mining* 31 3.30 299
Processing – Sulphide Flotation/Cyanidation 44 4.75 430
Processing – Oxide CIL 8 0.85 77
G&A 7 0.75 67
Total 90 9.65 873

*Average LOM Mining cost amounts to $2.16/t mined at a 0.6:1 strip ratio (excluding pre-production tonnes mined).

**includes all tonnes processed (both sulphide and oxide)

Source: JDS (2017)

Summary of Results

Summary of Results Unit Value
Cash Cost (Net of Byproduct) US$/oz 313
Cash Cost (incl. Sustaining and Closure CAPEX) US$/oz 396
Capital Costs
Pre-Production Capital M$ 192
Pre-Production Contingency M$ 22
Total Pre-Production Capital M$ 214
Sustaining & Closure Capital M$ 80
Sustaining & Closure Contingency M$ 7
Total Sustaining & Closure Capital M$ 87
Total Capital Costs Incl. Contingency M$ 301
Working Capital M$ 23
Pre-Tax Cash Flow LOM M$ 417
M$/a 43
Taxes LOM M$ 160
After-Tax Cash Flow LOM M$ 257
M$/a 26
Pre-Tax NPV5% M$ 299
Pre-Tax IRR % 36
Pre-Tax Payback Years 1.6
After-Tax NPV5% M$ 169
After-Tax IRR % 24
After-Tax Payback Years 2.3

Source: JDS (2017)





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