Chesapeake Announces Positive Pre-Feasibility Study for Metates Project
VANCOUVER, BRITISH COLUMBIA -- (Marketwire) -- 02/01/13 -- Chesapeake Gold Corp. (TSX VENTURE: CKG) ("Chesapeake") is pleased to release the positive results of a Pre-Feasibility Study ("PFS") on its 100% owned Metates gold silver project located in Durango State, Mexico. The NI 43-101 compliant PFS incorporates significant scope changes and updated engineering work as well as updated capital and operating cost estimates since the Preliminary Economic Assessment ("PEA") dated April 25, 2011. Both the PEA and the PFS were prepared by M3 Engineering & Technology of Tucson, Arizona ("M3") and other prominent consultants who have recent project development experience in Mexico. All costs are in US Dollars.
Highlights of the Preliminary Feasibility Study
-- Proven and probable mineral reserves of 18.5 million ounces gold, 526
million ounces silver and 4.2 billion pounds of zinc
-- Average annual production for years 2 through 7 of 845,000 ounces gold,
25.1 million ounces silver (1,309,000 ounces gold equivalent(i)) and 190
million pounds zinc, at an average gold equivalent cash cost of $410 per
ounce, net of zinc credits
-- 25 year mine life with average annual production of 659,000 ounces gold,
15.9 million ounces silver (954,000 ounces gold equivalent(i)) and 143
million pounds zinc, making it one of the largest gold and silver mines
in the world, with an average life of mine ("LOM") gold equivalent cash
cost of $489 per ounce, net of zinc credits
-- Average annual net operating income of $976 million in operating years 2
through 7 with cumulative LOM pre-tax net operating income of $10.7
billion
-- Initial capital cost of $4.36 billion including $631 million in
contingency costs and excluding sustaining capital costs of $584 million
-- At base case metal prices, pre-tax capital payback of 4.2 years and 5.1
years after-tax
-- Net present value ("NPV") pre-tax of $3.90 billion at an 8% discount
rate generating an IRR of 20.5%, and after-tax NPV of $2.36 billion and
16.2% IRR
(i)Gold equivalent ounces are defined as gold ounces plus silver ounces/54.0 based on base case metal prices
"The completion of the PFS is a major milestone in Chesapeake's development," said P. Randy Reifel, President of Chesapeake. "We are very pleased that the PFS confirms the Metates project hosts one of the world's largest undeveloped gold and silver reserves in a mining friendly jurisdiction. The PFS demonstrates the project has excellent economics while meeting the industry's highest environmental standards."
Mineral Reserves and Mining Schedule
The PFS uses as a basis an updated mineral resource estimate prepared by Independent Mining Consultants of Tucson, Arizona ("IMC") dated February 16, 2012. The IMC resource estimate assumed a gold price of $1,200/oz and $24/oz silver and a cut-off grade of .35 g/t gold equivalent ("AuEq"). The open pit mineral reserves were estimated within a detailed engineered pit design by using the measured and indicated resources only. As designed, the pit has overall slope angles from 37 to 46 degrees and a LOM waste/ore strip ratio of 1:1.
IMC developed an ore mining schedule which employed an elevated cut-off strategy in the early years (years 2- 7) which shortened the capital payback period and improved overall project economics. The above cut-off but lower than mill feed grade ore mined in the earlier years is placed in a low grade ore stockpile which is processed during the last six years of the mine life (years 20-25). The production schedule optimized mining both the intrusive and sediment hosted ore rock types based on crusher throughput so that the annualized feed rates to be processed ranged from 109,000 tpd to 138,000 tpd after a two year mine ramp up to full production. Table 1 below presents the mineral reserve for the Metates Project based on the mine and plant production schedules. Measured and indicated mineral resources in the production schedule are converted to proven and probable mineral reserves, respectively. The low grade stockpile is classified as probable mineral reserve regardless of the original classification of the in-situ resource. The mineral reserve amounts to 1.15 billion ore tonnes at 0.50 g/t gold, 14.2 g/t silver, and 0.17% zinc (including the low grade stockpile). Contained metal amounts to 18.5 million ounces of gold, 526 million ounces of silver and 4.2 billion pounds of zinc.
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Metates Mineral Reserve
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AuEq(i) Gold Gold Silver Silver Zinc Zinc
Reserve Class Ktonnes (g/t) (g/t) (Koz) (g/t) (Koz) (%) (M lbs)
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Proven Mineral Reserve
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Mill Ore 270,291 0.99 0.68 5,883 18.0 156,423 0.17 1,037
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Probable Mineral Reserve
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Mill Ore 574,242 0.78 0.54 9,878 14.3 264,015 0.15 1,886
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Low Grade
Stockpile 304,328 0.46 0.28 2,691 10.8 105,673 0.19 1,261
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Total Probable
Reserve 878,570 0.67 0.45 12,568 13.1 369,688 0.16 3,148
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Proven/Probable Reserve
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Mill Ore 844,533 0.85 0.58 15,761 15.5 420,438 0.16 2,923
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Low Grade
Stockpile 304,328 0.46 0.28 2,691 10.8 105,673 0.19 1,261
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Total Proven/
Probable 1,148,861 0.74 0.50 18,452 14.2 526,111 0.17 4,185
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(i)Gold equivalent grade is defined as gold (g/t) plus silver (g/t)/58.4.
Overall metal recoveries are 89% gold, 76% silver and 85% zinc. Contained
resources may not add due to rounding.
Development Overview
The PFS contemplates a conventional truck and shovel open pit mining operation with a nominal 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 sulfide concentrate. The comminution and flotation circuits are built as two separate lines each rated at a nominal 60,000 tpd rate to allow for ramp up (Phase 1) and to decrease operational risks. Tailings from the flotation concentration plant are dry filtered to remove water and then co-disposed with the waste rock in a dedicated storage facility. The sulphide concentrate is transported downhill via a 126 kilometer long slurry pipeline to the Ranchito site located 800 meters lower in elevation and southwest of Metates. The pipeline will follow an all-weather access road that will be constructed between the Metates and Ranchito sites. Ranchito is situated beside a major limestone resource and proximate to key mine infrastructure including power, water, transportation and labour.
At Ranchito, the sulphide concentrate is treated in a pressure oxidation plant with subsequent cyandiation and Merrill-Crowe recovery of gold and silver dore. High purity oxygen to feed the pressure oxidation plant will be manufactured on site in a dedicated plant owned and operated by a third party and provided under an "across the fence" arrangement. Acidic solutions from the pressure oxidation process will be neutralized with ground limestone and lime produced from an on-site quarry and then co-disposed with the cyanide leach tailings in an adjacent storage facility. Zinc will be recovered from the pressure oxidation solutions via solvent extraction/electrowinning (SX/EW) methods to produce SHG grade zinc ingots. Overall gold and silver recoveries from ore through dore production are estimated at 89% and 76%, respectively. Overall zinc recovery to high grade ingots is estimated at 85%. Table 2 below presents a summary of the operating metrics of processed grades, tonnes mined and metal production.
Payable gold and silver production in the first six years of full production (years 2-7) averages 845,000 ounces gold and 25.1 million ounces silver per year. The project will produce an average of 659,000 ounces of gold, 15.9 million ounces of silver and 143 million pounds of zinc annually over a 25 year life. Total cash cost per gold equivalent ounce for years 2-7 is $421 with LOM cash cost of $489, net of by-product credits.
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Operating Metrics
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Years 1-19 Years 20-25 Years 1-25
Operating Period Years 2-7 Active Mining Stockpile Life of Mine
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Material Mined
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Total Ore Mined From
Pit (Mtonnes) 454 1,149 0 1,149
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Ore To Process
(Mtonnes) 259 845 304 1,149
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Low Grade Ore To
Stockpile (Mtonnes) 195 304 0 304
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Waste Rock (Mtonnes) 371 1,158 0 1,158
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Strip Ratio (1) 0.82 1.00 0.00 1.00
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Average Milling Rate
(Mtonnes/year) 43,204 45,181 48,404 45,954
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Average Milled Grades
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Gold (g/t) 0.68 0.58 0.28 0.50
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Silver (g/t) 28.8 15.5 10.8 14.2
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Gold Equivalent (g/t) 1.21 0.87 0.48 0.74
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Zinc % 0.25 0.16 0.19 0.17
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Cumulative Metal Production (2)
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Gold (oz.) (000) 5,068 14,080 2,395 16,475
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Silver (oz.) (000) 150,539 317,212 80,319 397,531
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Gold Equivalent (oz.)
(000) 7,856 19,954 3,882 23,836
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Zinc (million lbs.) 1,141 2,507 1,075 3,582
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Average Annual Production
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Gold (oz.) (000) 845 741 399 659
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Silver (oz.) (000) 25,090 16,695 13,387 15,908
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Gold Equivalent (oz.)
(000) 1,309 1,050 645 954
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Zinc (million lbs.) 190.2 131.9 179.2 143.3
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Cash Cost ($/AuEq Oz.)
Net of Zn/Cu 421 482 524 489
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(1) Strip Ratio based on total ore tonnes mined to waste tonnes mined
(2) Overall metal recoveries are 89% gold, 76% silver and 85% zinc
Power Supply, Water and Closure
A positive development in the PFS is a change to a dedicated natural gas fired 520 MW capacity power plant owned and operated by an independent power provider. Trade-off studies indicate the power plant will be located northwest of the Ranchito site and adjacent to a newly constructed gas pipeline funded by the Mexican government. Power will be delivered to the project via existing power lines to a substation located 40 kilometers from the Ranchito site. Based on an average Q4 2012 natural gas price the delivered cost of electric power to the project is $0.0612 per kilowatt hour. About 40% of the delivered power cost is tied to the natural gas price. While the Mexican government has committed to the construction of the gas pipeline and the Company is confident an independent power provider will be willing to build the power plant, these developments are outside of the Company's control and there can be no assurance that either or both will be built, the failure of which could have a significant impact on the Metates project.
The natural topography of the Metates mine site facilitates an integrated waste management plan which will significantly reduce long term environmental risks, final reclamation and closure costs. The proposed waste rock and dewatered tailings storage design allows for concurrent LOM reclamation and reduces water demand by over 60% compared to conventional tailings facilities. The water conservation practices employed at both the Metates and Ranchito locations allow for the project to be generally self-sufficient using site surface water storage and locally sourced groundwater. After the pit has been mined, the tailings from the processed low grade ore stockpile will be backfilled and contribute to a sustainable, long term pit lake.
Capital Costs
The initial capital costs (including contingency) are estimated at $4.36 billion. The capital investment reflects outsourcing the dedicated oxygen plant and natural gas fired electric power plant. Scoping changes associated with the filtered integrated tailings storage, SX/EW plant and improved engineered modifications to the processing circuit account for about $600 million of the capital increase since the PEA. Initial production will commence at the nominal rate of 60,000 tpd during operating year 1 (Phase 1 initial capital) with additional capital being spent to increase production to the nominal 120,000 tpd rate in operating year 2 (Phase 2 initial capital). Table 3 below presents a summary of the capital costs.
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Summary of Initial Capital Costs
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Phase 1 Phase 2 Total
($000) ($000) ($000)
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Metates Site
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Mining Equipment & Mine Development $ 144,348 $ 276,653 $ 421,001
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Crushing, Grinding, Flotation $ 264,103 $ 113,187 $ 377,290
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Concentrate Pipeline (1) $ 222,564 $ 222,564
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Tailings Dewatering & Stacking (1) $ 187,634 $ 45,832 $ 233,465
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Other $ 58,337 $ 25,002 $ 83,339
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Subtotal $ 876,986 $ 460,673 $ 1,337,659
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Ranchito Site
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Pressure Oxidation & Oxygen Supply $ 406,501 $ 174,215 $ 580,715
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Limestone Mining $ 750 $ 23,454 $ 24,204
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Limestone Crushing & Lime Production $ 115,787 $ 49,623 $ 165,410
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Precious Metals Recovery $ 31,187 $ 13,366 $ 44,552
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Zinc Recovery $ 167,564 $ 71,813 $ 239,378
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Tailings & Residue Disposal (1) $ 111,696 $ 12,337 $ 124,034
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Other $ 44,210 $ 18,947 $ 63,157
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Subtotal $ 877,695 $ 363,755 $ 1,241,450
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Infrastructure
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Access Roads & Civil Works $ 130,882 $ 56,092 $ 186,974
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Electric Power $ 65,868 $ 28,229 $ 94,097
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Water Supply (1) $ 128,549 $ 4,164 $ 132,713
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Other $ 114,901 $ 46,466 $ 161,368
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Subtotal $ 440,201 $ 134,952 $ 575,152
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Total Direct Field Cost $ 2,194,881 $ 959,380 $ 3,154,261
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Total Indirect Field Cost $ 39,418 $ 16,893 $ 56,311
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Total Constructed Cost $ 2,234,299 $ 976,273 $ 3,210,572
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EPCM Fee, Commissioning & Spare Parts $ 279,848 $ 119,935 $ 399,782
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On Site Constructed Cost $ 2,514,147 $ 1,096,208 $ 3,610,355
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Contingency (2) $ 344,368 $ 147,586 $ 491,955
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Owner's Cost $ 81,155 $ 34,781 $ 115,935
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Working Capital $ 140,000 $ 140,000
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Total Capital Cost $ 3,079,670 $ 1,278,575 $ 4,358,244
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(1) Include Contingency and EPCM costs
(2) 20% Contingency Applied to an Adjusted On-Site Constructed Cost of
$2,459,773,000
All capital spent after year 1 (except for year 2 for mining equipment) is deemed to be sustaining capital and is estimated at $584 million. The capital costs include $631 million in overall contingency and $116 million in owner's cost. Working capital is estimated at 4 months of average operating expenses during year 1. The capital pricing for the PFS is current to Q4 2012.
Operating Costs
Mining costs were prepared on a year by year basis by IMC. The LOM mining costs per tonne moved average $1.33 per tonne at Metates, and $1.56 per tonne at the Ranchito limestone operation. The process costs are estimated to be $3.49 per tonne for the Metates operations and $6.34 per tonne for the Ranchito operations, with overall G&A and support costs estimated at $0.63 per tonne. The pressure oxidation circuit, including the oxygen plant, limestone and lime production, are the single largest area of operating costs for the project. Close proximity to a high quality limestone resource and relatively low cost electric power contribute significantly to the project's financial performance. Average LOM gold equivalent cash costs are estimated at $10.11 per tonne or $489 per ounce net of by-product revenue from zinc and copper production. A summary of the operating costs is shown in Table 4 below.
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Summary of Operating Costs
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LOM Average LOM $/AuEq Oz.
Cost/Ore Tonne Production
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Metates Site
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Mining (per Tonne Material = $1.33 including
re-handle) $ 3.02 $ 145.67
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Crushing, Grinding, Flotation $ 2.78 $ 134.09
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Concentrate Thickening & Transportation $ 0.25 $ 11.88
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Tailings Dewatering & Stacking $ 0.45 $ 21.79
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Other $ 0.03 $ 1.27
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Subtotal $ 6.51 $ 314.70
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Ranchito Site
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Pressure Oxidation & Acid Neutralization $ 0.74 $ 35.69
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Oxygen Supply $ 3.13 $ 151.01
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Limestone Mining, Crushing & Lime Production $ 1.20 $ 58.07
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Precious Metal Recovery & Refining $ 0.63 $ 30.67
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Zinc & Copper Recovery $ 0.47 $ 22.77
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Tailings & Residue Disposal $ 0.17 $ 8.32
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Subtotal $ 6.34 $ 306.53
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Support
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General & Administrative $ 0.27 $ 13.17
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Water Supply $ 0.31 $ 15.15
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Other $ 0.05 $ 2.19
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Subtotal $ 0.63 $ 30.51
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Total Operating Cost $ 13.49 $ 651.74
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Net Zinc and Copper Credit $ 3.38 $ 163.18
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Cash Cost ($/AuEq Oz.) Net of Zn/Cu Credit
(1) $ 10.11 $ 488.55
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(1) Based on mine site costs excluding transport, refining, etc.
Financial Results
The PFS demonstrates strong project economics and high leverage to gold and silver prices. The financial results were developed for three different metal price assumptions including the base case, the United States Securities and Exchange Commission ("SEC") metal pricing guidance (LME three year historical rolling average prices) and spot prices. The SEC and spot prices are from December 31, 2012.
The financial analysis for the base case indicates a pre-tax NPV of $3.90 billion at a 8% discount rate, a 20.5% IRR and payback of 4.2 years. On an after-tax basis at 8% discount rate, the NPV is $2.36 billion with an 16.2% IRR and a payback of 5.1 years. The project is expected to generate $10.7 billion of LOM pre-tax net operating income. The financial results are presented in Table 5 below.
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Financial Results Summary
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Metal Price Assumptions Base Case SEC Spot
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Gold ($/oz.) $ 1,350.00 $ 1,487.85 $ 1,657.50
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Silver ($/oz.) $ 25.00 $ 28.80 $ 29.95
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Zinc ($/lb.) $ 1.00 $ 0.95 $ 0.92
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Copper ($/lb.) $ 3.00 $ 3.67 $ 3.57
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Pre-Tax Economic Indicators
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NPV @ 5% ($000) $ 6,433,559 $ 8,378,689 $ 9,983,471
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NPV @ 8% ($000) $ 3,897,737 $ 5,293,106 $ 6,427,731
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IRR % 20.5 24.3 26.9
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Payback (yrs) 4.2 3.6 3.3
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After-Tax Economic Indicators
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NPV @ 5% ($000) $ 4,269,995 $ 5,732,271 $ 6,884,176
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NPV @ 8% ($000) $ 2,364,310 $ 3,422,033 $ 4,235,054
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IRR % 16.2 19.4 21.5
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Payback (yrs) 5.1 4.4 4.0
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Cumulative Net Operating Income
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Total All Metals Years 2-7 ($000) $ 5,857,431 $ 6,798,422 $ 7,493,169
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Total All Metals Life of Mine ($000) $10,662,623 $13,438,549 $15,697,861
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Opportunities and Next Steps
The PFS has incorporated a number of improvements and scoping changes that have materially improved the project's economics over the PEA. Going forward a number of additional opportunities have been identified that could further enhance the viability of the Metates project including:
-- Further evaluation of electric power supply options including
discussions with the CFE and independent power providers to secure long
term natural gas supplies and electric power
-- Evaluation of a staged development option where the capital to fund the
expansion from the 60,000 tpd (Phase 1) to 120,000 tpd (Phase 2) ore
processing rate is funded out of cash flow
-- Assessment of alternative technologies for the production of high purity
oxygen with potential savings in both capital and operating costs
-- Optimization of the layout of site facilities at both the Metates and
Ranchito sites to minimize capital costs and enhance operating
efficiencies
-- Appraise the opportunities for liquidfied natural gas to fuel the mine
haulage and rolling fleet
-- Continued improvements to water utilization and conservation and their
full integration into a site wide water balance model stressing water
supply options, water storage and transport
Chesapeake is sufficiently financed to advance the Metates project towards completion of a full feasibility study. Chesapeake plans to undertake additional engineering design and metallurgical studies to further de-risk the project. In addition, Chesapeake will move forward with early stage engagement of various stakeholders to secure development related agreements and permits with particular emphasis on infrastructure advancement.
Technical Report
A NI 43-101 Technical Report will be prepared by M3 and filed on SEDAR within 45 days following the date of this release. The Report will consist of a summary of the PFS. Mr. Doug Austin, P.E., Senior Vice President of M3 and Dr. Art Ibrado, QP Member, MMSA, Project Manager with M3 are qualified persons responsible for the scientific and technical information in this news release in accordance with NI43-101. Mr. Michael Hester, FAusIMM, Vice President of IMC, is the qualified person responsible for the reserve estimate and mine planning in this news release in accordance with NI43-101. Mr. Gary Parkison, CPG, Vice President Development of Chesapeake, is the qualified person who supervised the preparation of the technical information in this release. All of the above qualified persons have reviewed and approved the data contained in this release.
The PFS was prepared by several leading independent industry consultants including contribution by the following:
- Resource Development, Inc., Hazen Metallurgical testwork and
Research, Inc. Sherritt interpretation, processing design,
Technologies, Hydromet Ltd., ALS and costing for gold and silver
Metallurgy Pty Ltd. recovery
- Zincobre Ingenieria S.L.U. Engineering design and costing for
zinc and copper recovery
- Paterson & Cooke Concentrate and water pipelines,
tailings filtration and placement
- Ausenco Vector Engineering, Inc. Site investigations and design of
waste management storage facilities
- Schlumberger Water Services USA Inc. Surface and groundwater
investigations, water balance
- Call & Nicholas, Inc. Pit slope stability investigations
and design
- InterraLogic Waste rock storage and mine closure
planning
- Siemens Industry, Inc. (Pace Global) Electrical power supply, planning
and costing
- Air Products and Chemicals Inc. Oxygen plant support and costing
For more information on Chesapeake and its Metates Project, please visit our website at www.chesapeakegold.com.
CHESAPEAKE GOLD CORP
P. Randy Reifel, President
FORWARD LOOKING STATEMENTS
This news release contains "forward-looking statements" within the meaning of applicable Canadian securities legislation. Such forward-looking statements concern the Company's anticipated results and developments in the Company's operations in future periods, planned exploration and development of the Metates Project and related matters that may occur in the future. These statements relate to analyses and other information contained in the PEA that are based on expectations of future performance, including silver and gold production and the economic viability of the Metates Project.
Statements concerning reserves and resource estimates may also constitute forward-looking statements to the extent that they involve estimates of the mineralization that will be encountered if the property is developed and, in the case of mineral reserves, such statements reflect the conclusion based on certain assumptions that the mineral deposit can be economically exploited.
Forward-looking statements are subject to a variety of known and unknown risks, uncertainties and other factors which could cause actual events or results to differ from those expressed or implied by the forward-looking statements, including, without limitation, the following with respect to the results of the Metates Project PEA:
-- the technical and financial viability of mining, flotation, pipeline
operations, oxidation facilities, acid neutralization processing, and
processing operations at Metates;
-- the economic potential of the Metates mineral deposit including the
existence and size of the mineral deposit at Metates;
-- the productive mine life of the Metates project including timing and
amount of estimated future production;
-- access to surface land and water rights;
-- environmental approvals, permit applications for road and mine
construction and the development schedule for the project;
-- ability to secure financing for mine construction and development on
acceptable terms;
-- potential increases in costs, timing and complexities of permitting,
mine construction and development and ability to secure necessary
infrastructure as a result of the remote location of the Metates Project
and local landholder Ejido consultation requirements;
-- planned mining operations and ore processing; assumptions regarding the
anticipated construction of access roads, third party power supply and
distribution network, gas pipeline and access to natural gas supplies,
oxygen plant outsourcing;
-- communications infrastructure and tailing dewatering and stacking
facilities;
-- annual mine production of ore and waste and waste/ore stripping ratios;
-- estimated initial and ongoing mill throughput; the process and
expectations for metal recovery over the life of the mine;
-- estimated capital and operating costs;
-- projected future metal prices and precious and base metal price
fluctuations;
-- risks related to fluctuations in the currency markets (particularly the
Mexican peso, Canadian dollar and United States dollar);
-- risks related to the inherently dangerous activity of mining, including
conditions or events beyond our control, and operating or technical
difficulties in mineral exploration, development and mining activities;
-- risks related to reserves and mineral resource figures being estimates
based on interpretations and assumptions which may result in less
mineral production under actual conditions than is currently estimated
and to diminishing quantities or grades of mineral reserves as
properties are mined; and
-- risks related to all of the Company's properties being located in
Mexico, including political, economic, social and regulatory risks.
This list is not exhaustive of the factors that may affect our forward-looking statements. Should one or more of these risks and uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described in the forward-looking statements. The Company's forward-looking statements are based on beliefs, expectations and opinions of management on the date the statements are made. For the reasons set forth above, investors should not place undue reliance on forward-looking statements.
The TSX Venture Exchange does not accept responsibility for the adequacy or accuracy of this news release.
Contacts:
Chesapeake Gold Corp.
Investor Relations
604-731-1094
www.chesapeakegold.com
