SSP Article
Sandspring strengthens the economics of a Toroparu gold mine
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2013-04-10
VANCOUVER – Sandspring Resources' (SSP-V) Toroparu project in Guyana is sporting a new set of strengthened economics after a prefeasibility study for the gold asset lowered capital costs and increased gold recoveries compared to the previous plan.
For company president and COO Yani Roditis, reducing the project's initial and life-of-mine capital costs was a major achievement.
"We life in such an inflationary environment today," Roditis said in an interview. "Costs usually go up and in fact our operating costs did go higher but the overall capital costs went lower, and for us that is exciting. Also we have much greater confidence in these numbers – these are numbers we can really stand behind, and in fact we think they are conservative."
Sandspring completed an initial preliminary economic assessment (PEA) for Toroparu in 2011 and updated that study in early 2012. Since then the company has come to better understand Toroparu's mineralization, including the realization that the deposit contains three different types of gold-bearing ore in distinct bodies that can be mined separately.
That knowledge inspired a three-staged development plan that should provide for earlier cash flow and increased overall gold recoveries relative to previous plans. The three types of mineralization in question are saprolite ore, which contains gold; fresh ore containing gold and copper; and fresh ore containing only gold.
Saprolite is weathered or oxidized rock, so it exists as a layer on top of the fresh ore. At the main Toroparu deposit the fresh ore underneath the saprolite exists in two coherent bodies: a pod of fresh rock containing gold and copper lies in the center of the planned pit, while the pod bearing only gold lies just below. The smaller SE deposit contains only a small body of gold-copper mineralization; most of the fresh rock within the SE pit will be gold-only fresh ore.
Three types of mineralization called for three stages of mine development. In the first stage, 5 million tonnes of saprolite carrying an average grade of 0.91 gram gold per tonne will be scraped from the tops of the two planned pits at Toroparu and processed through a 3,250-tonne-per-day (tpd) cyanide leach facility.
In its first two years that facility would churn through 1.2 million tonnes of saprolite ore. However, those years are considered part of the pre-production timeframe, during which time the ounces produced will help to fund construction of a second processing facility at Toroparu, one that can handle fresh ore containing gold and copper.
The facility will take the form of a 15,000-tpd mill and flotation facility and Toroparu will be considered operational once the flotation facility is up and running. For its first three years the flotation operation will process fresh ore bearing 1.17 grams gold and 0.18% copper. The tailings from the flotation facility will be sent through the cyanide leach system for reprocessing, at a rate of 2,500 tpd. Stockpiled saprolite ore will also continue to be sent through the cyanide leach facility, at a rate of 1,500 tonnes per day.
In year four things shift again. The flotation facility will keep operating, but throughput will fall to 7,500 tpd because miners will have reached the second type of fresh rock mineralization at Toroparu. The second layer of fresh rock carries much less copper – only 0.05%. Gold grades still average 0.89 gram gold, which means the lower segment of fresh rock is best processed simply using cyanide leach.
To accommodate the new flood of fresh gold ore, the cyanide leach facility will be expanded to 15,000 tpd. It will run at that level from its commissioning in year four through to the end of the current mine lifespan in year 16.
Capital costs to get the mine to commercial operation total US$501 million, comprising US$152 million for the initial 3,250-tpd cyanide leach facility and $349 million for the flotation facilty. However, the gold produced from the leach facility during those two pre-production years is expected to generate an operating margin of $37 million, which will reduce total net capital costs to US$464 million.
Expanding the leach facility during year three is expected to cost an additional $50 million. Operating cash flow should be sufficient to fund the expansion.
That investment should create a mine able to produce an ounce of gold for an average of $700 over Toroparu's 16-year planned mine life, net of copper credits. The mine is expected to produce 228,000 oz. of gold annually during those 16 years.
As for copper, output during the first three years of operation will average 25.7 million lbs. per year, contained in concentrates that will be shipped to an offshore smelter for refining. Once flotation throughput falls to 7,500 tpd in year four copper production will drop to 8.8 million lbs. annually.
Using a gold price of US$1,400 per oz., a copper price of US$3.25 per lb., and a 5% discount rate, Toroparu bears a pretax net present value (NPV) of US$992 million and should generate a 27.2% pretax internal rate of return (IRR). After taxes are incorporated, the NPV drops to US$691 and the IRR to US$23.1%. Even so, those numbers would enable Sandspring to repay the mine's capital costs in 2.6 years.
Toroparu owes its gold to the Guiana Shield, a volcano-sedimentary belt that runs east-west through Venezuela and Guyana. A history of gold exploration in Venezuela means the western half of the belt is home to several large gold-copper deposits. The Guyanese half, however, did not see regional systemic exploration until recently.
Sandspring's team has been exploring in Guyana for almost 15 years, though the company has only existed in its current form since late 2009. The company's work at Toroparu has outlined a deposit bearing gold and copper mineralization in discrete quartz-carbonate veins and fractures hosted in contact zones between intermediate volcanics and tonalite plutons.
The Toroparu resource is considerably larger than the reserve count considered in the prefeasibility study. The prefeasibility study included the first attempt to estimate Toroparu's reserves, an estimate that came back at 127.1 million proven and probable tonnes averaging 1.0 gram gold and 0.11% copper. Gold-only fresh ore represents the majority of that reserves count, at 70.3 million proven and probable tonnes grading 0.89 gram gold.
Toroparu's resources, by contrast, stand at 240.2 million measured and indicated tonnes averaging 0.89 gram gold and 0.084% copper plus 129.5 million inferred tonnes averaging 0.74 gram gold and 0.042% copper. Economic and engineering considerations left 5 million oz. of gold outside of the reserve pit shell. Sandspring hopes additional drilling can shift some of those ounces into the pit. In addition, Sandspring's regional prospecting work has identified ten gold anomalies with an alteration footprint that extends out from Toroparu for 20 km in every direction.
"There are multimillion-ounce deposits across the border in Venezuela," said Roditis. "Guyana was closed in the past but it's totally open for business right now and it is elephant country – there is so much to explore and so much to be found."
The government of Guyana is certainly supportive of Sandspring, having already agreed to grant a large-scale mining license for Toroparu that would authorize construction and production once Sandspring demonstrates the project is feasible.
Getting that feasibility study done will, however, be a challenge.
"We live in a different world these days," Roditis said. "Six or seven years ago it would be a no brainer to build this project. It's very robust – at higher metal prices it generates killer returns – but investors don't seem to be interested in gold today, so the gold industry at large is suffering from this general trend.
"Still, we will move forward because it's worth moving forward: it's a great project with huge upside. We will move ahead with the bankable feasibility, but we have to be very cautious in how we spend our shareholders' capital. I wish I had all the cash in the world to go ahead with exploration, because this is elephant country. But the times are difficult at the moment so we have to be prudent."
Sandspring's share price remained unchanged at 26¢ on news of the Toroparu prefeasibility study. The company has a 52-week trading range of 23¢ to 93¢ and has 132 million shares outstanding.