Andreas Rompel
Corporate Business Development and Exploration Manager
Hochschild Mining
Antonio Melchor
Antonio Melchor
Mining Prospector
Hochschild Mining
View from the Top

Challenges Facing Discovery of New Deposits in Mexico

Wed, 10/21/2015 - 13:36

Q: How much potential does Mexico still hold for foreign mining companies?

AM: Mexico still presents a great exploration potential, because most of the old mining districts that were mined in the past are not yet completely developed. There are many opportunities to make brownfield and greenfield discoveries, but the government has not helped with the extra royalty. At a time when the mining industry is reeling from low gold and silver prices, the government should be helping the industry rather than penalizing it further. Some companies are going to defer, delay, or move their investments elsewhere as a consequence.

AR: Mining companies will now have to work the fallout from the Fiscal Reform into their economic models by adding it to the costs, meaning they will either have to reduce their margins or find higher grade deposits. These grades are now more critical than ever to exploration as something has to help compensate for the 7.5% royalty. Whenever Hochschild conducts exploration projects, we do not only look for mineralization, we always have to run an economic model to decide if the deposit could be economically viable. On top of that, certain considerations that the government set with the new tax and royalty in 2014 are making us wonder whether more taxes will be piled on.

Q: Which are the vital elements that Hochschild feels are needed to take successful exploration programs to the next stage?

AR: Hochschild conducts exploration on various levels. We do grassroots exploration ourselves, but we also look for exploration partners with interesting projects. Furthermore, while we look for good areas to explore, we also look for projects which we can buy into. We currently have an exploration joint venture in Sonora, with a company called Riverside Resources from Vancouver. We are looking for open pit gold targets that are similar to El Chanate, la Herradura, or Noche Buena. Traditionally though, we have a background in the Andes and Peru, where we developed a legacy of mining expertise surrounding underground mining of epithermal veins. Our decision to take on a new project is based on its potential and whether or not we can afford it. In terms of gold ounces terms, we would target a ballpark of between 1.5 million-5 million ounces. Before we commit to a partnership, we also do a risk assessment to ensure we can manage the risks, and we certainly class some countries as no-go countries. These are countries that give us problems with legislation or restrictions in terms of the transfer of funds. Right now, Mexico is not fully a safe country to invest in, but the situation depends more on the state or province than on the entire country. Some states are almost a no-go for mining while others are much more favorable.

Q: Which are some of the key pathfinder elements that help indicate where a deposit is likely to be contained?

AR: The best indicator for gold is gold. Arsenic is usually good too, but if a company finds gold, it should keep digging. Initially, companies should perform some light geochemistry over a big area, and if any anomalies are encountered, they should zoom in and intensify their search there. It is important for a company to choose the right method for the deposit or region it is exploring. Portable XRF analyzers are acceptable for exploration and production control, but the detection level they provide is not yet good enough for gold. They can be, however, used in exploration for silver and copper. A high resolution magnetic survey will provide a good idea on the extent of the structures. If companies understand which structures control mineralization, the MAG survey can be a tremendous help. Money is the other important element since exploration techniques are often limited by company budgets. Usually, junior mining companies have all the right ideas, but they do not have the funding to use every method.

Q: What can exploration geologists do to reduce the cost of the drilling operations?

AR: Companies must choose drill sites wisely so that the optimal information is provided for the fewest drilling meters possible. The indications for choosing the right drill site come down to surface mapping, and the fundamentals of geology. Geologists will first try to build a 3D model of their target, whether it is a vein, a shear zone, or a much more irregular ore body. Once those 3D models are obtained, drill holes are aimed to get the best possible intersection. While budget is the ultimate constraint, the geologists’ experience and knowledge leads companies to deposits.

Q: What is your approach to building a financial model and building risk assessments for ongoing and future projects?

AR: After a visit to the field, we return with an idea of the deposit style and the potential of the metal in the ground. Back in the office, we estimate the volumetric size of an ore body. We then multiply that by the specific weight to get an educated guess of the grade. We work out the contained metal and the total tonnage before making a decision on going open-pit or underground before we estimate our mining costs. If it is open-pit, the strip ratio will be crucial since it dictates the amount of dirt we will have to move to get to the metal. Moving that dirt to a waste dump costs money as it has to be blasted, transported, and dumped somewhere. We then get to the extraction method. Companies could liberate the gold via heap leach, or use a floatation process if they have sulfides. All these have differing costs, which all enter into the calculation process. The whole process is pretty intense.

Q: What do you think the future of mining exploration will look like?

AM: The future of exploration lies in the increased use of geophysics, because we have to look deeper below the surface. In the past, I believe we found most big deposits close to the surface as they are the easiest to find. We will still find some smaller deposits at that depth but for really big finds, we will need geophysics to go deeper. At the moment, geophysics remains expensive, making it a difficult sale to management. Mining executives do not always see the benefit of such large investments, leaving geophysics to not be fully utilized. In the future, when using geophysics, instead of flying an individual specialized MAG survey or EM survey, companies will fly one survey which will provide all the information for MAG, EM, IP, gravity, and radiometrics. Another aspect is that drilling will change as environmental awareness increases. Rather than drilling 100 holes spaced every 50m, a company will be able to drill one mother hole directly into the ore body, before deflecting out of this mother borehole to access all further intersections. Flexible coiled tubes are also being tested in Australia for a technique known as coiled tubing drilling. It does not provide a core, but it carries all the necessary sensors to acquire the relevant information. It reduces the cost of drilling and is much more environmentally friendly as companies only need to bulldoze one drill site, as opposed to 50.