To Blend or Not to Blend--That is the question. all,
Orvana's 2018 guidance for Don Mario states that the transition to the Cerro Felix deposit will take place mid-2018. Production guidance for copper at Don Mario is 2.0 to 2.3 million pounds, which says copper is going away as part of the production mix with the last of the copper concentrate produced in Fiscal Q2 2018. Once the shift to Cerro Felix has occurred there is no copper in the Cerro Felix ore to blend in, and so the likely outcome is the no blend scenario.
Don Mario Mine
During fiscal 2018, the Company will be transitioning its mining activities from the lower mineralized zone ("LMZ") to the Cerro Felix open pit deposit, located approximately 500 meters from LMZ. Development of Cerro Felix is expected to begin immediately in the first quarter with pre-stripping activities, with production expected by the third quarter. The costs of the planned higher strip ratio, in addition to the anticipated lack of recoverable copper from the Cerro Felix deposit are expected to increase unit costs.
The Company is currently investigating the possibility of processing existing stockpiles at Don Mario to produce copper concentrates. Successful results of the metallurgical and economic evaluations currently being undertaken may allow the Company to blend the resulting material with Cerro Felix feed, which would allow a continuation of concentrate production and copper revenues.
In the event that no blending of copper-bearing stockpile material is possible, concurrent with the commencement of production from Cerro Felix, the Company intends to discontinue the production of copper concentrate and will continue to produce gold dor using its carbon-in-leach circuit. Planned capital expenditures include the tailings storage facility expansion project, which is currently underway, and procurement of additional mining equipment.
So let's assume throughput of 2000 tpd with Don Mario's MRP processing a mix of 15 percent oxide ore and 85 percent LMZ ore. The resultant production is 13,350 ounces of gold, 2.08 million pounds of copper netting by product revenue of $5.726 million USD at $3.20 copper. But the down side of copper production is the $1 million dollar cost of shipping copper concentrate over the Andes, and then there is $3.1 million USD in operating cost for the flotation circuit plus a 5 percent mining royalty tax. Bottom line profit in this scenario is $4.44 million USD.
Now discontinue the copper flotation circuit, ditch the 5 percent mining royalty tax on copper, get rid of the copper treatment charges and penalties, shift the same 2000 tpd throughput to copper free Cerro Felix ore and the bottom line profit for the gold dore only option is $4.20 million USD, a difference of only $24,000 USD. Plus the resultant gold production is 15,250 ounces. What's interesting is that in order for Don Mario to meet its 2018 gold production guidance, it only needs a throughput of 1600 tpd. So the real question is what happens with the surplus milling capacity?
So with copper going away, expect very little change in Don Mario's profitability at current metal prices.