The Metates project is one of the largest, undeveloped disseminated gold and silver deposits in the world. In 2010 a NI 43-101 compliant resource estimate prepared by Independent Mining Consultants of Tucson, Arizona ("IMC") reported a Measured and Indicated resource 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. Metates is 100% owned by Chesapeake and is 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, which is wholly within sediments including sandstone, shale and conglomerate. The gold-silver mineralization occurs as sulphide (pyrite and sphalerite) veinlets and disseminations in both the intrusive and sedimentary host rocks.
M3 Engineering & Technology of Tucson, Arizona ("M3") completed an updated Preliminary Economic Assessment ("PEA") of Metates in April 2011. The PEA indicates a large tonnage open pit mining operation using conventional mining and milling methods to produce a bulk sulphide concentrate. The concentrate is transported downhill to the processing site via a slurry pipeline where the sulfides are oxidized in an autoclave circuit prior to cyanidation to recover the gold and silver. At a processing rate of 120,000 tonnes per day, the PEA forecasts a 19 year mine life ("LOM").
Highlights of the PEA using base case prices of $900 per ounce gold, $18 per ounce silver and $1.00 per pound zinc are as follows. "Gold equivalent" refers to gold plus the gold equivalent of silver using a ratio of 1:50.
Annual gold equivalent production during the first four years of full operation averages 873,000 ounces gold, 33 million ounces silver (1,533,000 ounces gold equivalent) and 122 million pounds zinc with an average by-product cash cost of $308 per ounce
LOM annual production averages 759,000 ounces gold, 20 million ounces silver (1,158,000 ounces gold equivalent) and 113 million pounds zinc making it one of the largest gold and silver mines in the world, with LOM cash costs of $43 per ounce including zinc credits
Unleveraged pre-tax internal rate of return of 16.8%, a payback period of 4.1 years, and a net present value of $2.81 billion at a 5% discount rate
IMC prepared the mine schedule in the PEA using a variable gold equivalent cut-off grade ranging from 0.68 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 PEA schedule 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. As defined in the PEA the open pit extends 2,500 meters in a north-south direction, is 1,700 meters wide and up to 600 meters deep. The life of the mine strip ratio is 1.85 to 1.
The estimated capital costs including working capital, the zinc recovery plant and 19% contingency allowance are US$3.16 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$13.09 including zinc recovery. The capital and operating costs are current to first quarter 2011.
During the summer 2011 Chesapeake announced the results of a feasibility level, pilot plant scale metallurgical test program. A composite feed sample of 3.292 kilograms of drill core was processed by Hazen Research of Golden, Colorado to provide 555 kilograms of sulphide concentrate. Sherritt Technologies of Fort Saskatchewan, Alberta processed 442 kilograms of the concentrate in a continuous pilot autoclave operation. The flotation concentrate responded well to pressure oxidation under typical parameters in existing commercial autoclave plants. Overall metal recoveries reported from the flotation and pressure oxidation circuits averaged 90% for gold, 77% for silver and 81% for zinc.
In 2011 Chesapeake drilled 53 core holes totaling 24,255 meters. The Company drilled 30 infill holes totaling 14,960 meters to convert Inferred class material to Measured class, and 11 step-out holes totaling 5,307 meters. IMC is incorporating the 2011 drill data into a new resource estimate. The new resource will be the basis for the mine schedule and reserve estimate in the pre-feasibility study ("PFS").
Chesapeake and M3 plan to complete the PFS for Metates in early 2012. Since the completion of the PEA significant progress has been realized towards further improving the project's economics. Key developments recently reported include the proposed construction of a gas pipeline by the Mexican national power commission which will lead to lower capital and operating costs associated with a gas fired power plant versus using coal as a fuel source. Detailed engineering and design work indicate that a common containment facility will be employed to store and integrate the mine waste rock and flotation tailings. In addition, geotechnical investigations support the proposed siting of the production and processing facilities as currently shown in the PEA.
Environmental baseline data collection and reporting has been completed for the mine site, processing area and connecting infrastructure corridor with no significant environmental issues being identified. The environmental baseline work included a survey of biological, cultural and socio-economic resources.
Chesapeake Vice President Development and 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.
