Champion Iron Limited press release
Salazar Announces Results of Preliminary Economic Assessment for the El Domo VMS Deposit
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Canada NewsWire
VANCOUVER, May 2, 2019
VANCOUVER, May 2, 2019/CNW/ - SALAZAR RESOURCES LIMITED (TSX‑V: SRL) (Frankfurt: CCG.F) ("Salazar" or the "Company")Mr. Fredy Salazar, President and CEO, is pleased to announce a new Mineral Resource estimate and results of a Preliminary Economic Assessment ("PEA") for the El Domo volcanogenic massive sulphide deposit ("El Domo"), located within the Curipamba Project, Bolivar State, Ecuadorwhich will be summarized in an independent National Instrument ("NI") 43-101 Technical Report within 45 days. The Company has an option agreement with Adventus Zinc Corporation ("Adventus") whereby Adventus is earning a 75% interest in the property and the Company retains a 25% interest.
Highlights Table 1: PEA Results Summary
_ _
| | PEA Base
Case | -10% Pricing | +10% Pricing | Long-term
Consensus
Forecast(3) | Spot Prices
as of April
30, 2019 | | After-Tax NPV ($M, 8% discount rate)(2) | $288 | $225 | $342 | $330 | $271 | | After-Tax IRR (%)(2) | 40% | 35% | 45% | 44% | 39% | | First 6 Years of After-Tax Cashflow ($M) | $449 | $392 | $500 | $488 | $434 | | Initial Capital Cost ($M, includes refundable VAT)(4) | $185 | | | | | | Life of Mine ("LOM") Sustaining Capital Cost ($M) | $105 | | | | | | Total Capital Cost ($M) | $289 | | | | | | C1 Cost ($/lb CuEq, see below production)(5) | $0.96 | $0.94 | $0.98 | $0.98 | $0.91 | | Payback Period (years) | Approximately 2 years | | | | | | Nominal processing capacity (tpd) | 1,750 | | | | | | LOM CuEq Head Grade over 15 years | 4.9% | | | | | | Average annual payable production (Years 1 -14) | Cu = 8,495 t Au =24,433 oz Zn = 10,831 t Ag = 558,160 oz Pb = 564 t CuEq = ~19,000 t | | | | | | Metal prices assumed | $3.15/lb Cu
$1,350/oz Au
$1.15/lb Zn
$18.00/oz Ag
$1.00/lb Pb | $2.84/lb Cu
$1,215/oz Au
$1.04/lb Zn
$16.20/oz Ag
$0.90/lb Pb | $3.47/lb Cu
$1,485/oz Au
$1.27/lb Zn
$19.80/oz Ag
$1.10/lb Pb | $3.38/lb Cu
$1,436/oz Au
$1.22/lb Zn
$19.80/oz Ag
$1.00/lb Pb | $2.91/lb Cu
$1,285/oz Au
$1.33/lb Zn
$14.91/oz Ag
$0.88/lb Pb |
| Notes: | | | | | 1) | Unless otherwise noted, all currencies are reported in US dollars on a 100% basis | | | 2) | Assumes an 18-month construction period as the basis for the internal rate of return ("IRR") and net present value ("NPV") calculations | | | 3) | Long-term, consensus metal forecasting has been provided by RPA | | | 4) | Capital cost estimates used for the PEA are based off benchmarking and not engineering design | | | 5) | C1 Cash Cost is net of direct operating costs and royalties |
The economic analysis contained in this news release is based, in part, on Inferred Mineral Resources, and is preliminary in nature. Inferred Mineral Resources are considered too geologically speculative to have the economic considerations applied to them that would enable them to be categorized as Mineral Reserves. There is no certainty that economic forecasts on which this PEA is based will be realized. Mineral Resources that are not Mineral Reserves do not have demonstrated economic viability.
President and CEO of Salazar, Mr. Fredy Salazar, stated "The PEA announced today represents the most significant milestone in the Company's development to date. From initial discovery by Salazar Resources geologists to the recent agreements with Adventus Zinc Corporation, this is the culmination of a long journey. The El Domo resource at 4.9% copper equivalent is almost an order of magnitude higher than average global copper grades, which is reflected in the compelling set of economics as defined in today's PEA, and the project is located in an increasingly pro-mining jurisdiction, with good infrastructure.
The PEA shows that El Domo can be a low-cost supplier of copper gold and zinc, generates cash flows after taxation of US$449 millionover the initial six years of production, and delivers an IRR of 40% with a payback of less than two years. I would like to thank the entire El Domo team, Salazar Resources employees, independent consultants and our partner Adventus Zinc Corporation, who have worked extremely hard to deliver this high-quality study. Salazar Resources is entering a new and exciting phase of its journey as a funded explorer, with a 25% stake in a great project advancing towards production."
PEA Contributors The following companies have undertaken focused work programs since July 2018that have been referenced in preparation of the PEA for El Domo:
RPA – Lead author and Independent Qualified Person ("IQP"), Mineral Resource estimation, open pit and underground mine design, mine plan, and mine layout Klohn Crippen Berger – Tailings storage and waste rock facilities Knight Piésold Ltd. – Social and environmental matters, access roads and power transmission line Base Metallurgical Laboratory Ltd. – Metallurgical laboratory work Independent Mining Consultants, Inc. – Open pit production throughput analysis
Geology and Updated Mineral Resource Estimate El Domo, located within the Curipamba project, Bolivar and Los Rios Provinces, Ecuadoris hosted in a juvenile volcanic-magmatic arc of the Paleocene-Eocene Macuchi Terrane that is known to host at least two other volcanogenic massive sulphide deposits. Sulphide mineralization at El Domo is principally located at the contact between a felsic volcanic dome and overlying volcaniclastic strata and is generally flat lying. It has been traced for approximately 800 min a north-south direction and between 350 mand 500 meast-west.
An update to the Mineral Resource estimate for El Domo has been completed as part of the PEA to include all recent infill drilling completed in 2018. The updated, open pit constrained, Mineral Resource estimate for El Domo has an effective date of May 2, 2019and is supported on information provided from 309 core boreholes, totaling 60,449 metres, completed between 2007 and 2018. As seen in Tables 2a to 2c, Measured Mineral Resources for El Domo total 1.4 million tonnes grading 1.92% copper, 0.37% lead, 3.52% zinc, 3.75 g/t gold and 58 g/t silver. The Indicated Mineral Resources for El Domo total 7.5 million tonnes grading 2.02% copper, 0.26% lead, 2.81% zinc, 2.33g/t gold and 49 g/t silver. The Inferred Mineral Resources for El Domo total 1.3 million tonnes grading 1.52% copper, 0.20% lead, 2.25% zinc, 1.83 g/t gold and 42 g/t silver.
Table 2a. Total Mineral Resource for El Domo
| Resource
Category | Tonnes
(Mt) | Grade | Contained Metal | | | | | | | | | | Cu (%) | Pb (%) | Zn (%) | Au (g/t) | Ag (g/t) | Cu
(kt) | Pb (kt) | Zn
(kt) | Au
(koz) | Ag
(koz) | | | | Measured | 1.4 | 1.92 | 0.37 | 3.52 | 3.75 | 58 | 27.8 | 5.3 | 50.9 | 174 | 2,704 | | Indicated | 7.5 | 2.02 | 0.26 | 2.81 | 2.33 | 49 | 150.9 | 19.7 | 210.3 | 559 | 11,884 | | M+I | 8.9 | 2.00 | 0.28 | 2.93 | 2.56 | 51 | 178.7 | 25.0 | 261.3 | 733 | 14,588 | | Inferred | 1.3 | 1.52 | 0.20 | 2.25 | 1.83 | 42 | 20.1 | 2.7 | 29.7 | 78 | 1,783 |
Table 2b. Pit Constrained Mineral Resource for El Domo
| Resource
Category | Tonnes
(Mt) | Grade | Contained Metal | | | | | | | | | | Cu (%) | Pb (%) | Zn (%) | Au (g/t) | Ag (g/t) | Cu
(kt) | Pb (kt) | Zn
(kt) | Au
(koz) | Ag
(koz) | | | | Measured | 1.4 | 1.92 | 0.37 | 3.52 | 3.75 | 58 | 27.8 | 5.3 | 50.9 | 174 | 2,704 | | Indicated | 5.7 | 1.74 | 0.28 | 2.60 | 2.47 | 51 | 99.0 | 16.1 | 147.8 | 452 | 9,417 | | M+I | 7.1 | 1.78 | 0.30 | 2.78 | 2.73 | 53 | 126.8 | 21.4 | 198.7 | 627 | 12,121 | | Inferred | 0.7 | 0.67 | 0.21 | 1.72 | 1.60 | 46 | 4.6 | 1.5 | 11.9 | 36 | 1,032 |
Table 2c. Underground Mineral Resource for El Domo
| Resource
Category | Tonnes
(Mt) | Grade | Contained Metal | | | | | | | | | | Cu (%) | Pb (%) | Zn (%) | Au (g/t) | Ag (g/t) | Cu
(kt) | Pb
(kt) | Zn
(kt) | Au
(koz) | Ag
(koz) | | | | Indicated | 1.8 | 2.91 | 0.20 | 3.51 | 1.85 | 43 | 51.9 | 3.6 | 62.5 | 106 | 2,467 | | Inferred | 0.6 | 2.46 | 0.19 | 2.82 | 2.09 | 37 | 15.5 | 1.2 | 17.8 | 42 | 751 |
| Notes for Table 2a, 2b, and 2c: | | | | | | 1. | Mineral Resources in these tables are effective as of as of May 2, 2019 | | | | 2. | CIM (2014) definitions were followed for Mineral Resources | | | | 3. | A nominal minimum thickness of two metres was applied to the Mineral Resource wireframes | | | | 4. | Bulk density assigned on a block per block basis using the correlation between measured density values and base metal grade | | | | 5. | Mineral Resources are reported above a cut-off net smelter return ("NSR") value of US$25 per tonne for potential open-pit Mineral Resources and US$100 per tonne for potential underground Mineral Resources | | | | 6. | The NSR value is based on estimated metallurgical recoveries, assumed metal prices and smelter terms; which include payable factors treatment charges, penalties, and refining charges | | | | 7. | Metal price assumptions were: US$3.15/lb Cu, US$1.00/lb Pb, US$1.15/lb Zn, US$1,350/oz Au and US$18/oz Ag | | | | 8. | Metallurgical recoveries assumptions were based on three mineral types defined by the metal ratio Cu/(Pb+Zn): | | | | | • | Zinc Mineral (Cu/(Pb+Zn)3.0): 88% Cu, 69% Pb, 73% Zn, 27% Au and 50% Ag | | | 9. | NSR factors were also based on the metal ratio Cu/(Zn+Pb): | | | | | • | Zinc Mineral (Cu/(Pb+Zn)3.0): 46.27 US$/% Cu, 6.86 US$/g Au and 0.19 US$/g Ag | | | 10. | Numbers may not add due to rounding | |
The updated Mineral Resource estimate possesses a similar footprint to the previous Mineral Resource estimate announced by Adventus Zinc Corporation (see January 31, 2018news release), but infill drilling in 2018 resulted in the upgrading of portions of the Mineral Resource from previously classified Indicated to Measured and Inferred to Indicated categories. The new Mineral Resource estimate has a total tonnage distribution of approximately 14%, 73%, and 13% classified in the Measured, Indicated and Inferred categories, respectively, which includes the Measured category for the first time. The increases in average grades in the Measured and Indicated Mineral Resource categories of approximately 24% for copper, 10% for gold, and 21% for zinc are the result of higher NSR cut-off values, the improved geological model and related grade estimation domains, and changes to capping levels.
Mining and Processing The principal mining method proposed in the PEA is open-pit mining at 1,750 tpd throughput at the mill that can be conventionally extracted using trucks, loaders and backhoes. The open pit mine design consists of a single pit with a mining sequence optimized through four main phases to maximize grade, reduce stripping ratios, and maintain the mill at optimum capacity for production of saleable concentrates of copper, zinc and possibly lead.
Mining is expected to begin with eighteen months of pre-production waste mining on steep terrain. Mining operations consist of four open pit phases and underground operation. Mining equipment in the open pit is expected to include 40-tonne haul trucks, 3.8 m3backhoe loaders and 114 mm blasthole production drills. Additional support heavy equipment is expected to include dozers, graders, and water trucks.
Underground mining operations would start in year 10 of the production schedule proposed in the PEA at a target rate of 1,000 tpd, using variations of room and pillar methods. Access to the mine would be from a single decline that will transport run of mine ("ROM") to the surface facilities. In conjunction with the owner's development team, it is conceived that a contractor would be engaged for the initial development of the mine. Mining equipment selection is based on production requirements and stope dimensions. Under the PEA mine plan, ventilation is expected to be established in phases as mine development progresses to facilitate mining through the various zones of mineralization.
Metallurgical test-work had previously been conducted between 2009 and 2014 on composite samples taken from both drill core and assay sample reject material. In 2018, Adventus funded a new metallurgical test-work program designed to provide indicative metallurgical performance that could be expected during the production of saleable concentrates.
Conventional rougher and cleaner flotation testing was completed on the composites and the selected optimum metallurgical settings for the composites were taken to locked cycle tests, which simulates the metal recovery process. Locked cycle testing indicates the expected metallurgical performance from the test materials that could result in the production of commercial concentrate material. Details of the most recent metallurgical test results can be reviewed in the April 15, 2019news release.
Net recoveries to copper, zinc, and lead concentrates total 80.7% for copper, 38.3% for lead, 78.5% for zinc, 57.5% for gold, and 69.0% for silver. The net recoveries only include metals that are payable in their respective concentrates.
The process plant is expected to ramp-up operations over a six-month period after completion of construction to a steady state throughput rate of 612,500 tonnes/year (1,750 tpd).The processing plant design includes a comminution circuit consisting of a crushing circuit followed by ball milling, and a sequential flotation circuit producing copper, zinc, and lead concentrates.
The tailings storage and waste rock facilities proposed for construction and development at El Domo are conventional in nature for the base case scenario and both facilities are located on owned concessions close to mine infrastructure. Klohn Crippen Berger completed an analysis of nine different tailings storage locations, with various designs and technologies in order to arrive at the preferred location. The tailings storage facility is designed for a 1 in 10,000-year earthquake event, with similar international design standards for storms and floods.
The PEA proposed open pit production totals 7.5 Mtonnes, which has been estimated through the application of a $25/t NSR cut-off value to the open pit constrained Mineral Resource estimate and then allowing for a dilution factor, mining recovery and design losses. The open pit mine life, including pre-stripping, is estimated at approximately 16-years, with a total strip ratio of 6.3.
Potential underground production totals 1.2 Mtonnes, which has been estimated through the application of a $100.00/t NSR cut-off value to the underground constrained Mineral Resource estimate and then allowing for a dilution factor, and mining recovery design losses. The underground mine life is estimated at approximately 6‑years, with additional time required for underground access development and infrastructure construction.
Initial Capital Costs The initial capital expenditures for the project as estimated by RPA is summarized in Table 4. Capital expenditures to be incurred after the start-up of operations are assigned to sustaining capital and are projected to be covered by operating cash-flows.
Project contingencies have been added where applicable, excluding capitalized operating costs, which results in an overall contingency of $33.0 Mor 25% for the PEA (excluding VAT). Adventus believes that El Domo will benefit from established infrastructure in Ecuador, noting that El Domo is only 150 km by road to the major port city of Guayaquil.
Table 4: Initial Capital Cost Estimates
| Item | Pre-Production (Initial Capital, $M) | | Contractor Mining | $17 | | Processing | $52 | | Infrastructure | $24 | | Tailings | $7 | | EPCM / Owners Cost / Indirect Costs | $32 | | Contingency (25%) | $33 | | VAT (12%, which is a credit against taxes once exporting) | $20 | | Total (100% basis) | $185 |
| Notes: | | | (1) | Totals do not necessarily equal the sum of the components due to rounding adjustments | | (2) | Direct process plant capital costs are based on benchmarking and not from engineering design |
Sustaining Capital Costs: RPA estimates the LOM sustaining capital for El Domo to be $105 M, which is expected to be funded by operating cash flows. The sustaining capital estimate is primarily for the expansion of the tailings storage facility, development of the underground mine, and reclamation and closure. Adventus has assumed $10 Mat the end of LOM, and that has been credited against $34 Min closure and reclamation costs.
On Site Direct Operating Costs ("Opex") The estimated Opex for El Domo is $54.80/t of mill feed – see Table 5. RPA has estimated the Opex based on industry benchmarking, proprietary information and its professional experience.
Table 5: On Site Operating Cost for Base Case
| Area | Cost ($/t) | | Mining | $3.15/tonne moved for the open pit and $71.50/tonne processed underground mining | | Processing | $21.80/tonne processed | | G & A | $4.74/tonne processed | | Total: | $54.80/tonne processed for the life of mine (blended open pit and underground mining cost) |
| Notes: | | | (1) | Totals do not necessarily equal the sum of the components due to rounding adjustments. |
Off-Site Costs (Concentrate Transport, Treatment, and Refining Charges) Projected Treatment Charges ("TCs") and transport charges for the copper, zinc and lead concentrates were developed by RPA based on their extensive experience on engineering projects in Latin America.
Adventus anticipates that the copper, zinc, and lead concentrates are likely to be sold primarily to smelters in Asia. Off-site costs are comprised of freight charges (highway and ocean), port handling fees, and smelter treatment and refining charges – see Table 6.
Table 6: Off Site Costs – Copper, Zinc and Lead concentrates
| Item | Treatment Charges | | Silver refining | $0.50/oz | | Gold refining | $5.00/oz | | Copper TCs | $80/t | | Copper RCs | $0.08/lb | | Lead TCs | $200/t | | Zinc TCs | $230/t | | Transportation | $98/t conc |
The concentrates are of good quality, with strong precious metals credits. A minor penalty for the zinc grade over 4% in the copper concentrate was assumed, at a rate of US$2for every 1% over 4% zinc. Life-of-mine penalties for the copper concentrates are assumed at approximately US$3.3M, which could be decreased with future blending strategies.
Taxes Income and other taxes, and royalties that are presented in the PEA were based on Ecuadorian legislated tax rates and do not reflect any identified tax planning opportunities. LOM royalties to the government are estimated to be $63M, value add added taxes ("VAT") are estimated to be $34M, while additional profit sharing of $73Mand income taxes of $83Mproject an estimated total of greater than $253Min government royalties and taxes over the 15 year mine life. A 2% NSR royalty is payable to Altius Minerals Corporation. The VAT is assumed as refundable if the concentrates are exported internationally.
Infrastructure The major infrastructure items considered and costed in the PEA support a mining and milling operation that is expected to operate 24-hours per day, seven-days per week. The design of project infrastructure has prioritized environmental protection, workforce safety, and operating efficiency while minimizing community impacts. Major infrastructure items include, but are not limited to the following:
Power Supply: It is assumed that El Domo will connect to the Ecuadorian power grid along existing road access and a new mine access road based on work completed by Knight Piésold in early 2019. RPA has benchmarked and estimated the cost for power at $0.11/kWh. Road Access: Access to the project site is planned to use both new and existing road networks based off work completed by Knight Piésold in 2019. A new 12.5 km access road is expected to connect the project site to the existing road network. Secondary access roads to El Domo will also be maintained; Mine haul road access for waste and feed to the mill that can accommodate 40-tonne trucks; Mine facilities including but not limited to buildings for maintenance, warehousing, administration, laboratories, security, first aid, explosive storage, and fuel storage; Mill and process plant including crushing, grinding, and flotation based on detailed metallurgical work done by Base Metallurgical Laboratories Ltd. under the direction of RPA; Water supply and management systems, and; Lined tailings storage facility and waste rock storage pads leveraging off studies completed by Klohn Crippen Berger in early 2019.