The Metates project is one of the largest, undeveloped disseminated gold and silver deposits in the world. Independent Mining Consultants of Tucson, Arizona ("IMC") recently prepared an updated NI 43-101 compliant measured and indicated resource estimate of 17.2 million ounces of gold, 467 million ounces of silver and 3.4 billion lbs of zinc. Inferred mineral resources total an additional 2.6 million ounces of gold, 62 million ounces of silver and 358 million lbs of zinc (see Resource Estimate Table). Metates is 100 % owned by Chesapeake and located in Durango state about 175 kilometers northeast of Mazatlan.
The Metates deposit is hosted by Mesozoic sedimentary rocks that have been intruded by a quartz latite body up to 300 meters thick and 1,500 meters long. Mineralization occurs in two zones: the Main Zone which is centered around the intrusive and the North Zone, within the sediments including conglomerate, sandstone and shale. The gold-silver mineralization occurs as sulphide veinlets and disseminations in both the intrusive and sedimentary host rocks.
M3 Engineering & Technology of Tucson, Arizona ("M3") has completed a NI 43-101 Preliminary Economic Assessment ("PEA") of Metates. The PEA indicates a large tonnage open pit mining operation using conventional mining and milling methods to produce a sulphide concentrate followed by pressure oxidation is feasible using current and projected future economic conditions. The PEA forecasts a 27 year mine life ("LOM").
Highlights of the PEA using base case prices of $900 per ounce gold, $14 per ounce silver and $1.00 per pound zinc are as follows. "Gold equivalent" refers to gold plus the gold equivalent of silver only at a ratio of 1:64.3.
Annual gold equivalent production during the first seven years of full operation averages 963,200 ounces at a direct cash cost of US$326 per ounce excluding zinc credits, US$267 per ounce including zinc credits
LOM annual gold equivalent production averages 772,700 ounces at a direct cash cost of US$419 per ounce excluding zinc credits, US$366 per ounce including zinc credits
Estimated initial capital cost of US$3.19 billion including US$493 million in contingency costs and working capital
Unleveraged pre-tax internal rate of return ("IRR") of 13.0% and a net present value ("NPV") of US$1.2 billion at an 8% discount rate, including zinc recovery
IMC prepared the mine schedule in the PEA from the new resource at a variable gold equivalent cut-off grade ranging from 0.55 g/t to 0.43 g/t to optimize the grades and waste:ore ratio in the early years of production. Mineral resources were based on 171 drill holes totaling 63,127 meters. The new resource includes inferred mineral resources which are considered to be too speculative geologically to have economic considerations applied that would enable them to be categorized as mineral reserves. The open pit associated with the reported resource extends 2,500 meters in a north-south direction 1,700 meters wide and up to 600 meters deep. The life of the mine strip ratio is 1.75 to 1.
The PEA is based on a mine production rate of 90,000 tonnes per day processed by a crushing and grinding system utilizing high pressure grinding to feed a sulphide flotation plant. The bulk sulphide rougher flotation concentrate representing about 11% of the original weight of the ore, will be transported by slurry pipeline 140 kilometers downhill to an area of relatively flat terrain proximate to a large limestone resource as well as existing power, water and supporting infrastructure. The concentrate will be treated via pressure oxidation with subsequent cyanidation and Merrill-Crowe recovery of gold-silver dore. Acidic solutions from pressure oxidation will be treated with limestone and lime produced on-site. High quality zinc metal sulphide produced from the pressure oxidation solutions will be shipped to a smelter for final processing. Electrical power is to be supplied from a dedicated coal fired power plant. Overall gold and silver recoveries from ore through dore production are estimated at 84.7%. Overall zinc recovery is estimated at 85%.
The initial capital costs including contingency, working capital, zinc recovery plant and a dedicated power facility are estimated at US$3.19 billion or approximately US$153 per recovered ounce of LOM gold equivalent production. Average operating cost per tonne of ore mined LOM including mining, processing and G&A is estimated at US$11.58 including zinc recovery. One a pre-tax basis, capital payback is 5.7 years. The capital and operating costs are current to second quarter 2010.
Chesapeake plans to rapidly advance Metates towards pre-feasibility which is estimated to cost about $3.0 million and take approximately 12-15 months to complete. Chesapeake believes the project economics can be improved by further work and trade-off studies investigating alternative zinc recovery methods, access road alignments and independent power sources. Excellent potential exists to expand the current gold resource at Metates as the deposit remains open along trend in both strike directions. As such, a significant tonnage of material within the existing pit design that has not been drill-tested is presently classed as waste rock.
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 with M3 and Mike Hester F AUS IMM, Vice President of IMC, are responsible for the NI 43-101 PEA and Resource Estimate.
