Newstrike Capital Inc NWSKF

Mining Weekly Article on NES PEA

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Newstrike Capital reports robust PEA for Ana Paula, Mexico

By: Creamer Media Reporter
Published: 15th September 2014

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JOHANNESBURG (miningweekly.com) – Precious metals company Newstrike Capital on Monday reported that the results of an independent technical report for a National Instrument 43-101 preliminary economic assessment (PEA) supported its view that Ana Paula was one of the best development-stage gold projects in Mexico.

The company explained that the study, conducted in accordance with CIM guidelines, indicated that Ana Paula, in the Guerrero Gold Belt, was a robust, high-margin, rapid-payback, 8.2-year openpit mining project that benefitted from high gold grades with a low strip ratio. Further, the Ana Paula project had “excellent” access to infrastructure and was located in an established mining jurisdiction.

"It is a straightforward openpit mine, using conventional milling and flotation concentration with robust economics. The combination of high gold grades, low capital requirements and low operating costs makes this a compelling development project," commented Newstrike president and CEO Richard Whittall.

"With a positive PEA in hand, our next step is to evaluate the significant underground potential at Ana Paula and to support high-priority exploration targets in this prolific gold belt."

Newstrike’s management viewed the economics concluded by the PEA as a strong incentive for continued geotechnical, metallurgical and engineering studies. The company believed there were excellent opportunities to refine various project elements and improve the economics through gold recovery optimisation.

Newstrike expected an average production of 116 000 oz/y gold and 239 000 oz/y silver over a 8.2-year mine life.

Life-of-mine (LoM) average head grades were forecast to be 2.24 g/t gold and 6.89 g/t silver, with LoM gold and silver recoveries of 75% and 50%, respectively. The LoM strip ratio was calculated at 2.6:1 of waste to mineralised material.

According to the PEA, the openpit mine, which would produce 6 000 t/d using a gravity/flotation/carbon-in-leach process plant and have cash costs of $527/oz of gold, $486/oz of gold net of by-product credits, with all-in sustaining costs of $567/oz of gold, $526/oz of gold net of by-product credits.

Using a base case of $1 300/oz of gold and $20/oz of silver, the Ana Paula project would have a pretax net present value (NPV) at a 5% discount rate of $405.3-million and an internal rate of return (IRR) of 47.5% with a two-year payback. After-tax NPV at a 5% discount rate was $232.1-million, while the IRR would be 32.8% with a 2.4-year payback.

Initial preproduction capital costs were $163.9-million over the total LoM and increased to $219.7-million when including sustaining/closure costs of $55.8-million.

The Ana Paula project is roughly half way between the cities of Mexico City and Acapulco. Mexico is a favourable jurisdiction for mining investment with clearly established mining law and regulatory due process as demonstrated by the existence of operating gold mines such as Goldcorp's Los Filos, in close proximity to Ana Paula. Further, Torex Gold's El Limon/Guajes mine is currently under construction in close proximity to the project.

Conventional openpit mining methods would be employed. Mining would be contracted, so no capital was included for mining equipment, instead contractor mining rates were used as the basis for mining costs. Openpit mining costs were calculated from first principles based on equipment required and included pit and dump operations, road maintenance, mine supervision and technical services cost.

The resource is based on 223 diamond core drill holes, aggregating 108 832 m and containing 77 183 assay intervals, of which effectively all were assayed for gold and silver. The mineral resource estimate had an effective date of August 8.

The PEA study was prepared by JDS Energy & Mining under the direction of Newstrike project development VP Thomas Bagan.

Newstrike highlighted that the PEA mine plan and economic model included the use of inferred mineral resources that were considered too speculative geologically to have the economic considerations applied to them that would enable them to be categorised as mineral reserves and there was no certainty that the PEA would be realised.