Following the completion of the Company’s preliminary economic assessment (“PEA”) on the Filo del Sol Project in 2017, the Company proceeded with next phase engineering studies during the year ended December 31, 2018, with the support and undertaking of a PFS on the project by Ausenco Engineering Canada Inc.
During the latter half of the year, the Company focused on completion of metallurgical analyses and other PFS testwork disciplines, and their incorporation into the study. The PFS was substantially completed during the fourth quarter of 2018, and its results were announced by the Company on January 13, 2019. The completed PFS continues to support the Company’s assertions that the Filo del Sol Project exhibits strong economics and remarkable potential, which are highlighted by:
- a US$ 1.28 billion after-tax NPV using a discount rate of 8% and an IRR of 23%, at US$ 3.00/lb copper, US$ 1,300/oz gold, and US$ 20/oz silver;
- average annual production of approximately 67,000 tonnes of copper (including copper as copper precipitate), 159,000 ounces of gold, and 8,653,000 ounces of silver at a C1 cost of US$ 1.23/lb copper equivalent;
- pre-production capital costs totaling US$ 1.27 billion (excluding costs prior to a construction decision);
- a 14 year mine life (including pre-stripping), producing almost 1.75 million pounds of copper as cathode, and 1.92 million ounces of gold and 104 million ounces of silver as doré, over the 13 year leach feed schedule, with additional copper recovered as high-grade copper precipitate; and
- a low strip ratio of 1.5:1.
The PFS also introduced an initial Mineral Reserve estimate for the Filo del Sol project, which, at a 0.01 US$/tonne Net Value per Tonne (“NVPT”) cut-off, is as follows:
Notes to accompany Filo del Sol Mineral Reserves table:
- Mineral Reserves have an effective date of 13 January 2019. The Qualified Person for the estimate is Mr. Jay Melnyk, P.Eng. of AGP Mining Consultants, Inc.
- The Mineral Reserves were estimated in accordance with the CIM Definition Standards for Mineral Resources and Reserves;
- The Mineral Reserves are supported by a mine plan, based on a pit design, guided by a Lerchs Grossmann (LG) pit shell. Inputs to that process are:
- Metal prices of Cu $3.00/lb, Ag $20/oz, Au $1300/oz;
- Mining cost of $2.00/t;
- An average processing cost of $9.73/t;
- General and administration cost of $2.02/t processed;
- Pit slope angles varying from 29 to 45 degrees, inclusive of geotechnical berms and ramp allowances;
- Process recoveries were based on rocktype. The average recoveries applied were 83% for Cu, 73% for Au and 80% for Ag, which exclude the adjustments for operational efficiency and copper recovered as precipitate which were included in the financial evaluation;
- Dilution and Mining Loss adjustments were applied at ore/waste contacts using a mixing zone approach. The volumes of dilution gain and ore loss were equal, resulting reductions in grades of 1.0%, 1.3% and 1.0% for Cu, Au and Ag respectively;
- Ore/Waste delineation was based on a Net Value Per Tonne (NVPT) breakeven cut-off considering metal prices, recoveries, royalties, process and G&A costs as per LG shell parameters stated above;
- The life-of-mine (LOM) stripping ratio in tonnes is 1.52:1;
- All figures are rounded to reflect the relative accuracy of the estimate. Totals may not sum due to rounding as required by reporting guidelines.
The PFS contemplates mining through conventional open pit methods, using a fully autonomous haul truck fleet, and sequential heap leaching, with only the deposit’s oxide material incorporated into the study. The underlying copper-gold sulphide structure has not been fully tested nor included in any study or project economics to date, and represents potentially significant upside for the Filo del Sol Project, along with:
- improving metallurgical recoveries with additional test work and optimization of process parameters; and
- delineating more or higher-grade material through continued exploration of the Company's extensive land package, of which only approximately 20% has been explored to date.
Due to the timing of completion of the PFS, the Company did not have adequate information to plan for the undertaking of a feasibility study at the Filo del Sol Project during the 2018/2019 field season, which began in October 2018. Nonetheless, the Company did incorporate into the 2018/2019 field program certain then known and anticipated informational requirements for the next phase of engineering study, such as the undertaking of hydrogeological testwork and ongoing environmental assessments, which should provide a head start and facilitate the eventual undertaking of a feasibility study in the future.
Therefore, to continue enhancing the project and to maximize utilization of the field camp and personnel during this gap between engineering studies, the Company has been testing the Filo del Sol Project’s extensive exploration potential, with a focus on drilling below the current resource to test the potential for a copper porphyry system. Diamond core drilling for the 2018/2019 field season began in November 2018, and the assay results for the first two completed holes have now been received, as disclosed on March 18, 2019.
The encouraging results confirm the Company’s speculations that the current Mineral Resource is underlain by significant porphyry copper-gold mineralization, which extends to depths of over 1,000 metres below surface. Hole FSDH025, located completely outside of the current Mineral Resource, was drilled to a depth of 1,025 metres and returned grades of 0.30% copper, 0.22 g/t gold, and 1.6 g/t silver, including 132.0 metres at 0.48% copper, 0.30 g/t gold, and 1.2 g/t silver. Hole FSDH026 was drilled 500 metres to the south to a total depth of 613.9 metres, with the first 200 metres passing through the current Mineral Resource. Assays for FDSH026 yielded grades of 0.39% copper, 0.34 g/t gold, and 1.6 g/t silver, including 460.0 metres at 0.45% copper, 0.34 g/t gold, and 1.6 g/t silver. Both holes ended in mineralization and remain open to depth and laterally.
Assays are in progress for the third completed hole, and four additional diamond core holes are still in progress at the Filo del Sol Project, which are scheduled to be completed by the end of March 2019.
On January 12, 2018, the Company obtained an unsecured US$ 2.0 million short-term credit facility (the “Initial Facility”) from Zebra Holdings and Investments S.à.r.l (“Zebra”), an insider of the Company, to provide additional financial flexibility to fund ongoing exploration at the Filo del Sol Project and general corporate purposes. Zebra reports its security holdings in the Company as a joint actor with Lorito Holdings S.à.r.l., and at the time of entering into the Initial Facility, they collectively held more than 20% of the Company’s issued and outstanding common shares. Zebra received 6,000 common shares of the Company upon execution of the Initial Facility, and an additional 300 common shares each month, for every US$ 50,000 in principal outstanding on the Initial Facility, prorated accordingly for the number of days outstanding. The Initial Facility matured on January 12, 2019, and a total of 24,222 common shares have been issued to Zebra pursuant thereto, with no interest paid in cash.
On January 12, 2019, simultaneously with the maturing of the Initial Facility, the Company obtained an unsecured US$ 5.0 million credit facility (the “Replacement Facility”) from Zebra, which replaced the Initial Facility, and into which any outstanding balance owed by the Company under the Initial Facility was transferred. In addition, on February 28, 2019, the Company obtained an additional unsecured US$ 5.0 million short-term credit facility (the “Additional Facility”) from Zebra. Through the Replacement Facility and Additional Facility, the Company now has access to US$ 10.0 million, which will be used, as necessary, to fund ongoing exploration at the Filo del Sol Project and for general corporate purposes. The maturity dates of the Replacement Facility and the Additional Facility are July 12, 2020, and February 28, 2020, respectively, with no interest payable in cash during their respective terms.
As consideration, the Replacement Facility and Additional Facility each grant Zebra the right to receive 300 common shares each month, for every US$ 50,000 in principal outstanding under the respective facilities, prorated accordingly for the number of days outstanding. In addition, upon execution of the Additional Facility, Zebra received 6,000 common shares of the Company. As of the date of this MD&A, a total of 43,313 common shares have been issued to Zebra pursuant to the terms of the Replacement Facility and the Additional Facility.
All common shares issued in conjunction with the aforementioned credit facilities are subject to a four-month hold period under applicable securities laws.
The completion of a PFS at the Filo del Sol Project in January 2019 marked another significant project milestone. The study, which is highlighted by an after-tax NPV of US$ 1.28 billion at an 8% discount rate and an IRR of 23%, continues to confirm the Company’s views that its flagship asset bolsters significant size, scope, and economic potential. The Company is now analyzing the results and recommendations arising from the PFS to assess its next steps with respect to advancing the project, which may include the undertaking of a feasibility-level study, as appropriate. That being said, even during this evaluation and assessment period, the Company is still progressing with certain feasibility-level testwork during the 2018/2019 field season, which should facilitate to the eventual undertaking of a feasibility study in the future, such as conducting hydrogeological testwork to confirm an industrial source of water for the project, as well as ongoing environmental baseline studies.
Nonetheless, the Company also remains cognisant of the fact that all studies and economic analyses completed to date on the Filo del Sol Project incorporate only the oxide portion of the current resource. With a largely undefined sulphide structure underlying the oxide material, as well as the Company’s considerable land package, of which less than 20% has been explored to date, the Company elected to simultaneously dedicate some resources to test the exploration potential at the Filo del Sol Project during the 2018/2019 field season.
Accordingly, diamond core drilling began at the Filo del Sol Project in November 2018, with a focus on evaluating the sulphide mineralization, which sits below the oxide layers of the current deposit. The first batch of assay results, related to the first two completed holes of this drill campaign, were released on March 18, 2019, and confirm the existence of a much larger copper-gold porphyry system underlying the current Mineral Resource as incorporated into the PFS. The first two holes, which end in mineralization, are highlighted respectively by 1,025 metres at 0.30% copper, 0.22 g/t gold, and 1.6 g/t silver, and 613.9 metres 0.39% copper, 0.34 g/t gold, and 1.6 g/t silver.
Assays are in progress for a third completed hole, and diamond drilling continues at the Filo del Sol Project with four additional diamond holes as part of the 2018/2019 field campaign, scheduled for completion by the end of March 2019. Additional assays will be released as they become available.