Randy Reifel
Chesapeake Gold

Giant Gold Deposit Primed for Development

Sat, 10/28/2017 - 12:23

Hidden away in the heart of the state of Durango lies Metates, the world’s largest undeveloped gold deposit and the flagship project for its owner, Chesapeake Gold. Randy Reifel, the company’s President and CEO, is in no doubt as to the mineral potential of the deposit. “One day, Metates will be the largest gold and silver mine in Mexico,” he says.

According to a 2016 Pre-Feasibility Study (PFS), the Metates deposit in Durango holds 18.5 million ounces of gold, 526 million ounces of silver and 4.2 billion pounds of zinc in proven and probable reserves. The study lays out a plan for a scalable, viable development option at the site that would start small and grow into something much bigger. “The PFS demonstrated that a smaller mine at an initial throughput rate of 30,000t/d can ramp up to 90,000t/d largely funded by cash flow,” says Reifel. “The capital cost would be about US$2 billion as opposed to a US$3-4 billion investment. The CAPEX for undeveloped world class deposits of a similar scale are typically over US$5 billion.”

Chesapeake, the 100 percent owner of the property, started drilling at Metates in 2007 and has been patient in developing the deposit. The updated PFS de-risked the property for a potential suitor in terms of metallurgy, flow sheet, recoveries, tailings management, water and power. Local communities have been kept in the loop regarding the project’s development and are now largely supportive of the operation, which could produce over 600,000oz/y gold and 12 million oz/y silver for some 30 years.

With all the critical boxes checked, Chesapeake is now focusing on exploration work around the site while it waits for a suitable offer from a major mine operator. From its regional reconnaissance work, the company has identified four highly prospective projects that have district-scale potential, and follow-up systematic exploration has advanced several targets to the drill stage, including the 70,000ha Yarely concession package. Handily located just 15km off a main paved highway and just 25km from the proposed Metates process site, Yarely will become Chesapeake’s first grassroots drill program in over a decade. “Yarely is an area of extensive alteration hosting several mineralized hydrothermal systems,” says Reifel. “A grassroots discovery would significantly change the dynamics and long-term opportunity at Metates.”

According to Reifel, institutional interest has returned to the mining sector following the downturn and junior explorers no longer need to focus on weathering the bear cycle with little liquidity or access to capital markets. Drilling and exploration funding is now available to juniors, providing a significant boost to Chesapeake’s greenfield efforts.

“We are not a producer and normally we do not see the volatility in our trade from rising metal prices on a daily basis but we do benefit from the market viewing gold as an attractive, long-term investment,” he says. “Higher metal prices increase the project economics of Metates and investors know this.”

With new funding avenues opening up, Chesapeake will have greater flexibility to start looking at concessions in other jurisdictions. But the company has been associated with Mexico since 1992 – making the groundbreaking El Sauzal discovery four years later – and is familiar with the regulatory framework in the country. Reifel admits he sees no reason to turn his back on a country that has brought him so much success over the years.

“I have worked in several Latin American countries and enjoyed similar exploration success,” he says. “I prefer Mexico as a mining jurisdiction. The overall permitting process is more streamlined, and all the key civil inputs, infrastructure and skilled labor is there. For seeking the next discovery, the country is vast and still largely unexplored.”