Significant zinc reserves are just one of the advantages of Chesapeake’s Metates gold project
Chesapeake Gold Corp. (‘Chesapeake’, TSXV: CKG), an emerging gold company with considerable pedigree given its connection to Goldcorp (CEO Randy Reifel, has been director of Goldcorp and Goldcorp holds a 9% stake in Chesapeake’s shares) has announced that an updated pre-feasibility study (PFS) for its Metates Gold-Silver-Zinc Project (‘Metates’) located in Durango State, Mexico is imminent; it is expected to be released in the first quarter of 2015. Metates holds one of the largest gold, silver and zinc reserves in the world and the original NI: 43-101 PFS was issued in March 2013. The updated PFS assumes a lower initial ore throughput rate of 30,000 tons per day (tpd) (original said 60,000 tpd) and expects a gradual increase up to 90,000 tpd in stages in order to reduce initial capital expenditures and maintain operating efficiency, delivering the higher ore grades during the first decade of mine life in order to improve project economics. The logic behind the revised PFS is aimed at lowering initial capital requirements while fully benefiting from being able to mine at as prolific a property as Metates.
The new PFS will also evaluate alternative locations for the processing plant, all of which are deemed closer to the Metates mine itself in order to reduce infrastructure spending. Similarly, Chesapeake wants to reduce its environmental risk – and further reduce costs – by choosing to dispose the autoclave neutralization waste and cyanide leach tailings using a ‘dry-stack’ method, which uses far less water than the originally considered wet disposal option. All the changes will help lower initial capital costs, which are now expected to be in the order of USD$ 1 to 1.5 billion, representing a remarkable discount, given that the original PFS suggested initial capital costs at being USD$ 3.2 billion. Finally, the new PFS expects a “production rate of 60,000 tpd including an average of 140,000 ounces gold, 16 million ounces silver, and 58 million pounds of zinc, with early production from Phase 2 (years 5 through 10) anticipated to average averaging 675,000 ounces gold, 14 million ounces silver, and 150 million pounds of zinc”. Chesapeake currently has C$30 million in cash and marketable securities with no debt.
Chesapeake’s 100% owned Metates gold deposit is one of the largest undeveloped gold and silver projects in the world with NI 43-101 compliant proven and probable reserves of 18.5 million ounces of gold, 526 million ounces of silver; in other words it is a very large project with the potential to become one of the world’s largest gold and silver mines. More significantly, view of the rather volatile gold market, Metates boasts the presence of some 4.2 billion pounds of zinc. Global demand for zinc is increasing and market fundamentals suggest that zinc prices will go up; 2015 could already see a bullish zinc market. Indeed, one of the world’s largest zinc producers, the Peruvian company Volcan Compania Minera SA, announced in early December that it would be increasing production capacity as zinc prices expected to continue to rise as demand is outpacing the global supply, given its use in batteries and stainless products. Zinc prices already gained 9.8% this year reaching USD$ 2,256/ton on the London Metal Exchange. The International Study Group for Lead and Zinc expects demand for zinc production will exceed 403,000 tons in 2014, mainly driven by the increased use of metal in China for producing steel sheets. In addition, it is estimated that two major mines in Australia and Ireland will be closing next year.
Chesapeake should be ready to start operations in 2018 and its annual 845,000 ounce gold production potential represents more than twice what was extracted by Goldcorp at Los Filos (336,500 ounces), which in 2011 was the largest gold mine in Mexico. Chesapeake also expects revenues from the exploitation of minerals during the first six years will be sufficient to cover the investment costs. Moreover, the Metates Project is located in the State of Durango, one of the top four silver and gold producing states in Mexico. Production is slated to increase as new infrastructure is being built. One of the most significant such projects is the Durango-Mazatlán Superhighway, which opened in late 2013, launching new opportunities for mineral exploration and not just tourism. Such are the projected benefits for the mining sector that the Project was to have been originally named “Mazatlán Durango Geological Exploration”, which highlighted the road infrastructure as part of the mining investment opportunities in Durango.
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