RE:RE:Types of Pre-Production Capital CostsHey Blizzy,
I am sure Pan American will figure out which method is most optimal. They generate significant silver production in Mexico. They have all the necessary expertise - an advantage to going with a big mining company.
Moving the plant to La Negra is a good idea also. Added benefit: They would be able to use it to treat the Promontorio deposit also, after the La Negra deposit is depleted years down the road. Instead of working with, say, a 7 year mine life for La Negra, moving a conventional milling plant onto the property would allow them to factor in the Promontorio deposit (in later years), and thus (eventually) work with a 15 - 20 year mine life plan (for the plant).
Typically, the Promontorio deposit would not be associated with the La Negra deposit. If Pan American`s Alamo Dorado plant wasn`t available, La Negra deposit would be processed using a heap leach operation (both the oxide and sulphide La Negra ore tested well for heap leach processing). The Promontorio deposit likely needs a conventional milling plant (like Alamo Dorado`s plant). The Promontorio ore is too low grade to handle the trucking journey to the Alamo Dorado site. Only the La Negra ore has a chance.
Moving the plant would reduce the up front capex savings, as we would incur significant moving costs and we would also have to build new facilities (i.e. buildings). It would mean our 25% dividend kicks in later (as we would have more up front capex to pay back), but it would also mean lower operating costs when the operation is up and running. I`m sure all of that will go into the decision making process.
With regards to leaving the Alamo Dorado plant where it is, we should consider that La Negra silver grade could come in perhaps double the grade of Alamo Dorado`s ore grade of 65 g/t silver. That difference in grade might be sufficient to compensate for the extra trucking costs. I believe Alamo Dorado was profitable at 65 g/t silver. It had a bit of gold for byproduct credits, but La Negra will also have a bit of gold, and lead, for byproduct credits.
In addition, La Negra`s open pit will likely be very efficient. The deposit is nicely positioned in the pit - the strip ratio should be decent to very good. Apparently, Pan American has a deposit that is (the same type of deposit, and) positioned similar to La Negra (maybe Alamo Dorado - not sure) and know exactly how to mine it.
La Negra will be bulk tonnage (open pit) mining, which will provide significant economies of scale savings.
The combination of little or no overburden (minimal pre-stripping of the pit), decent to very good strip ratio once in production, significant economies of scale from (wide) bulk tonnage mining, open pit mining method and a silver grade that could be double the Alamo Dorado grade, should provide for great flexibility and efficiency.
With regards to the trucks, they could size down the trucks to see which size works most optimally - and add more trucks to the fleet.
If the Alamo Dorado options do not work out, it is not the end of the world either. As mentioned above, La Negra gives them the flexibility to put in a heap leach operation. Typically, a heap leach operation requires significantly less up front capex than conventional processing.