Good Numbers in Soho’s Tahuehueto PEA, Can be Improved Even Further Going Forward
by Karl Loomes
A strong preliminary economic assessment (PEA) can go a long way to proving the financial viability of a project, and in doing so boosts the potential value gains a junior exploration and development company can hope to achieve. In their recent announcement of PEA results on their flagship Tahuehueto Gold-Silver project, Soho Resources (TSX-V:SOH) does exactly this, and furthermore, the report already has the potential to be expanded and improved upon going forward, due to additional potential mineralisation and possible improved economics that the company is not yet able to include in the report.
Soho is a Canadian based junior exploration and development firm, focused on gold, silver and base metal assets in the Sierra Madre Belt of Mexico. Soho controls 100% of the project, through its 99.4% owned Mexican subsidiary Sacramento de la Plata S.A. de C.V.
The Tahuehueto project is a 9,000 hectare property that lies within the Sierra Madre Mineral Belt, located in Durango State, Mexico. Mineralisation and geology on the project are consistent with the gold-silver metallogenic province of the Sierra Madre Occidental, which account for much of the historic gold and silver production from the province.
Specifically, Soho has identified at least 12 polymetallic zones hosted within a structurally controlled epithermal system, which they have traced for more than six kilometres. Mineralisation at the project consists of epithermal, low-sulfidation, polymetallic gold-silver veins and breccias with associated copper, lead and zinc.
This latest economic assessment of the project, which used the past three year rolling average gold, silver and base metals prices, and considered a combination of open pit and underground mining operations, returned some very strong results and demonstrates the economic viability of the project. The report showed an expected mine life of 11 years from the current est. resource, estimated a net present value (NPV) of US$109.6 million discounted at 5%,, and an internal rate of return (IRR) of 31%.
Considering an expected capital and startup cost of US$89.1 million, the report suggested a payback period of 27 months, with a maximum processing rate of one million tonnes per annum (about 2,750 per day).
Snowden Mining Industry Consultants, who compiled the report, also completed a preliminary life of mine (LOM) schedule, which suggested there is potential for a life beyond ten years, with the mill operating at full capacity between years 2 and 8. It showed the underground aspect of the operation, at the Cinco de Mayo zone, will run throughout the current resources entire 11 year mine life, while underground operations at El Rey and Creston would be expected to commence in year six. The open pit aspect of the operation also in the Creston zone is expected to be mined between years 1 and 6.
As highlighted above however, this does not tell the full story, and indeed there are numerous aspects to the property that may allow improved economics all around in the not-too distant future. Firstly, and as is often the case in these times of ever increasing metals prices, the three-year rolling average metal prices considered in the PEA still fall short of current spot prices.
If current spot prices are sustained or even increase as the mine moves into production, the economics could improve significantly from the current figures published within the PEA. It is also worth considering that, naturally, the PEA only includes information on the current resource discovered to date. However, the mineralised zones are still open along strike and at depth, with a lot of potential to add resources going forward.
In addition, Soho suggests that so far, only two structures have “really been explored with drilling”, comprising the main portion of the resource mineralisation considered in the PEA. However there are at least 7 more structures on the property that Soho already knows have good mineralisation, but so far have been unable to be explored by drilling due to a lack of time and funding.
The company is quite expectant that some of these zones may indeed prove to be high grade, which if that does turn out to be the case, could significantly add to the mine life and improve the economics in the early years of an operating line. Soho suggest that future discoveries could possibly even double or triple the 11 years currently assessed, as well as bring about a faster payback period and improving the overall economic numbers of the project.
There is another aspect that could improve the economics of the project even further, which is, that a portion of the Cinco de Mayo zone may in fact, be amenable to open pit mining. The southern portion of the Cinco de Mayo zone is overshadowed by a large cliff face, which must first be proven to be stable in order to allow surface open pit mining methods to be conducted there. In order to prove this the company must conduct geotechnical drilling to prove the cliffs stability.
Speaking with Ralph Shearing, President and CEO of Soho, he is very confident that the cliffs above Cinco de Mayo will indeed prove to be stable. Having worked in the region for many years, and with an extensive knowledge of the geology and topography of the project, he suggests that the cliff face is made of a very hard welded rhyolite ignimbrite rock, very common in the Sierra Madres, and forming extensive sheer cliff faces throughout the Sierra Madre Mountains. If geotechnical drilling proves the cliffs above Cinco de Mayo to be safe and stable it will certainly reduce mining costs and add value to this zone, and therefore improve the projects economic viability in and above the good economic numbers already achieved for the project.
Soho expects to launch a prefeasibility exploration program to investigate the geotechnical stability of the Cinco de Mayo cliff face, conduct a diamond drill hole program to increase the confidence of the resource from inferred to the NI 43-101 compliant measured and indicated categories, conduct new drilling in and along the resource structures to increase the overall resource tonnages and continue to collect baseline environmental and the geotechnical data necessary for mine planning. They estimate that conservatively, all relevant data should be collected to go forward with the pre-feasibility study (PFS) in the next 6 to 9 months, following which they expect to produce a full feasibility study and then build a mine.
There is one important aspect to note at this stage however, and that is the company’s need for financing. It is fair to say that during the global economic crisis, Soho in many ways ‘hunkered down’ and rode out the storm so to speak on a care and maintenance basis. With market conditions improving as they currently are, Soho is now confident in their ability to finance their planned exploration and technical works, and intend to secure an initial funding over the next few weeks.
This strong PEA has significantly reduced the risk factors associated with the junior explorer and puts Soho into the initial Development phase having strong indications of the economic viability of Tahuehueto.
Furthermore this property is still relatively unexplored leaving a lot of potential for further resources and improved numbers to be added as exploration continues on the project well into the future. The potential to find more high grade mineralised zones on the current existing resource structures as well as the other unexplored mineralized structures, could dramatically buoy the initial mine life and payback period, improving the overall value of the property.
If the geotechnical drilling work on the cliff face at Cinco de Mayo proves the area to be stable, as expected, this zone could be brought into open pit mining plans, further reducing mining costs and thereby improving the projects preliminary economics in and above the current studies robust numbers.
The value then is clear; Soho’s strong PEA results have the potential to be improved above and beyond the PEA’s current numbers released by the company on 4 October, 2010.
Soho Resources Corp. currently trades on the TSX-Venture exchange under the symbol SOH and presents investors a potential undervalued situation within the precious metals and base metals exploration and development sector.