Durango Giant Gold and Silver Deposit Exudes Potential

Q: Metates is one of the largest undeveloped gold, silver and zinc deposits in the world. What is the state of the project?

A: Since the 2016 pre-feasibility study, gold until recently, has traded in the US$1,200-US$1,400 per ounce range. Large capital cost (CAPEX) projects like Metates probably require US$1,600-US$1,700 gold to meet the hurdle IRR and economic metrics the industry suggests to build a world-class mine. As such, Metates, for the most part, has been on hold other than ongoing environmental baseline studies and maintaining community and stakeholder relationships.

Since 2016, there has been considerable research developing alternative oxidation processes for sulfide ores. Depending on the metallurgical process, the technology could limit or avoid autoclaves as the conventional means for oxidation. Chesapeake plans to test Metates ore this year with these different oxidation processes to determine if they are amenable and viable. If so, the next step, of course, is to determine if the technology is scalable for a large open-pit mine. Successful overall results would simplify the current flowsheet and significantly lower capital costs with similar or even reduced operating costs. For a world-class mine like Metates, the positive impact on project economics could potentially result in a very attractive return on investment at much lower metal prices.

Q: What are the main challenges and advantages with Metates?

A: Well I have commented on the bear market of metal prices and the CAPEX of Metates. That said, the project is unique in that it is scalable to be initially built as a smaller mine and can be ramped up to full nameplate capacity largely funded by cashflow. Even so, the initial capital cost is US$2 billion but few mines today host 30-40 years of production.

Not surprisingly, world-class open-pit projects are generally remotely located void of existing key infrastructure. Metates is fortunate in that the proposed process site is 45 kilometers from a paved highway, power grid, natural gas pipeline and nearby labor pool. The project will benefit from low-cost clean energy and desalination if needed, as a long-term, cost-effective water source.

Most peer scale projects are porphyry gold-copper deposits. Metates is a gold-silver-zinc deposit. For comparison, the benchmark would be the Pueblo Viejo mine in the Dominican Republic. Pueblo Viejo is primarily gold-silver with similar geology, metallurgy, flowsheet and capital cost. Pueblo Viejo is a Tier 1 mine with an all-in-sustaining-costs (AISC) around US$600 per ounce. No question Pueblo Viejo is a higher grade and feeds whole ore to the autoclaves. Per our feasibility studies, Metates initially produces a concentrate ore that feeds the autoclaves with comparatively higher grades and similar AISC.

With proven and probable reserves of 18 million ounces of gold, 500 million ounces of silver and over 4 billion pounds of zinc, Metates at full-scale production would rank as one of the Top 10 gold, Top 5 silver and Top 15 zinc mines in the world.

Q: What is your strategy going forward with Metates?

A: At this stage, Chesapeake is not looking to develop Metates given the CAPEX and technical expertise required. As discussed, we will pursue technological advancements that could improve the project economics. We will focus on metallurgical options that could simplify the flowsheet and lower the CAPEX and operating costs.

As well, during the past three years, we have undertaken regional reconnaissance to generate and develop an organic pipeline of exploration projects that could capitalize and strategically leverage from the future development of Metates.

Q: Could you give an overview of the regional projects?

A: In 1996, Chesapeake’s exploration team (formerly Francisco Gold Corp) discovered the El Sauzal gold project in Chihuahua State. I believe, that El Sauzal prompted the stampede of companies exploring for major gold projects in Mexico. Nonetheless, El Sauzal was advanced to feasibility similar to the stage Metates exists today. Francisco Gold conducted a regional sweep around El Sauzal seeking prospects that might benefit from its future development and extend the mine life. Despite an extensive systematic effort, we did not identify any meaningful prospects.

Fast-forwarding to today, the regional exploration undertaken over the past three years has discovered ten promising prospects that satellite Metates. The exploration pipeline is diverse with gold-silver and polymetallic deposit types including porphyries (Nicole and Loreto), skarns (Lucy), breccia-stockworks (Crisy) and high-grade veins (San Javier and Spaniard). The prospects are hosted within different lithologies as intrusive, volcanic, carbonate and sedimentary rocks. Chesapeake is advancing some of these projects to the drilling stage. We are quite optimistic that future ore bodies could emerge that will benefit and complement the world-class mine that Metates will become one day.

Chesapeake Gold Corp. focuses on the exploration and development of precious metals. Chesapeake’s flagship project is the world class Metates gold-silver deposit in Durango. The Company is also generating a strategic pipeline of exploration projects surrounding Metates.