The Gold Play that Should be the “Talk of the Town”
Chesapeake Gold Corp: an experienced team waiting in gold purgatory to develop another world-class opportunity
Chesapeake Gold Corp (TSXV:CKG | OTCQX:CHPGF) like most miners of its size, has been neglected by investors, but with $25 million cash in the till, and an anticipated $20.1 billion of pre-tax net operating income from its flagship project the company is an enviable position to weather the current gold uncertainty.
At other times when the market was ebullient, Chesapeake would have been the talk of the town but is now floating in gold purgatory.
Gold prices fell to five-year low in July on expectations that the Federal Reserve would soon raise interest rates, but prices have bounced back as doubts about the path of U.S. monetary policy pushed traders to slash bets on weaker gold prices. But gold doesn’t pay interest and costs money to hold, which makes it less attractive than Treasury bonds to investors when interest rates are expected to climb and inflation is stable (click here).
Metates is the company’s flagship project located in Durango, Mexico. In Metates’ NI 43-101 proven and probable reserves are estimated at 18.5 million ounces gold, 526 million ounces silver and 4.2 billion pounds of zinc.
The company’s Pre-Feasibility Study of Metates shows 120,000 tpd open pit mine with a 25-year mine life. The first six years production are expected to yield 845,000 oz gold, 25 million oz silver and 190 million lbs of zinc. This video link describes the Metates project (click here).
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Perhaps even more significant in the current gold market, Chesapeake’s management team has the experience to make it from purgatory to miner’s heaven as the team has been operating together as an exploration organization in Mexico and Central America since 1994.
Their strength is their ability to recognize prospective geologic settings, generate quality projects and successfully finance their exploration development. They rewarded Francisco Gold Corp.’s shareholders with the grassroots discoveries of El Sauzal and Marlin – two world-class gold deposits with robust production economics. In 2008 Goldcorp (TSX:G | NYSE:GG) acquired Francisco Gold.
Chesapeake’s management asserts that the same discipline and focused commitment that they used in Francisco Gold will lead to another corporate success in Chesapeake. When given the opportunity, the Metates project should be a repeat of Francisco Gold.
The PFS demonstrates strong project economics and high leverage to gold and silver prices. At $1,350 gold/oz, $25 silver/oz and $1 zinc/lb, the project’s pre-tax NPV is $6.7 billion at a 5% discount rate with a 21.1% IRR and payback of 4.1 years. On an after-tax basis at a 5% discount rate, the NPV is $4.5 billion with a 16.6% IRR and a payback of 4.9 years. Over the mine life the project is expected to generate $20.1 billion of pre-tax net operating income.
Chesapeake is preparing an updated PFS at an initial ore throughput of 30,000 tpd versus the Phase I 60,000 tpd case in the 2013 PFS. The higher grade, near surface ore at Metates facilities a scalable expansion that can be largely funded by internally generated cashflow. Preliminary work suggests the initial capital cost for the staged development scenario may be in the range of $1.5 billion.
Dr. Luc C. Duchesne is a Speaker and Author with a PhD in Biochemistry. With three decades of scientific and business experience, he has published ... <Read more about Dr. Luc Duchesne>