Philip Pyle
Vice President Exploration Mexico
Sunshine Silver Mining & Refining
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View from the Top

Japanese Investor Looking to Mexico for Zinc Supply

Mon, 10/22/2018 - 13:19

Q: What is the schedule for commencing production at the Los Gatos project?
A: Production will begin in the latter part of 2018. We will begin mining the ore at the end of 2018 and will begin processing that ore around 2Q19. We should be in full commercial production by July 2019. We have arranged all the financing and we are in the process of constructing the office buildings, the mine support itself and the workers’ camp. We are also in the process of commencing the earthworks for the processing plant.
The overall pre-production capital costs for the project, according to the feasibility study, is US$316 million. We believe the actual capital cost will be slightly less than that. Seventy percent of the financing is coming from debt issuance to a consortium of Japanese banks, one of the lead banks being the Japanese Bank of International Commerce. The remaining 30 percent of the financing is shared between the two operating partners. Since Sunshine Silver owns 70 percent of the project and DOWA owns 30 percent, both parties are supplying a proportional amount of the remaining financing.
Q: How did the company obtain the trust of these Japanese investors?
A: The most important factor was the feasibility study. We were exploring at Cerro Los Gatos in 2008 and made the discovery in 2009. We carried out a great deal of drilling between 2009 and 2012, and then we stopped for a period because Sunshine was focused on other projects as well as Los Gatos. The companies realized it would need a significant extra investment to take Los Gatos to the next stage. We decided we would take the time to look for the right association of investors to take the mine forward. The mine is very rich in zinc, producing almost as much value from the metal as it does from silver. We identified zinc-producing companies to evaluate their interest in participation. The one that materialized quickest was DOWA.
The company is already a 30 percent participant in Peñoles’ Tizapa mine in the State of Mexico, and since this project was reaching the end of its lifespan, it was looking for more resources for its Akita zinc refinery in Japan. The refinery is one of the most up-to-date and efficient in the world but DOWA does not operate any mines and must import its ore. The company likes Mexico and sees it as a promising location. Prior to participation, it studied Los Gatos because it needed to evaluate whether or not the zinc produced at Los Gatos would be appropriate for its refinery as it requires very clean zinc concentrates. Luckily, the zinc at the mine has very few impurities.
This was still in the early stages, with only inferred resources, so DOWA decided to fund a technical economic study, which is essentially a PEA. This involves two drill holes to test metallurgy in more detail and the hiring of engineering firms to look at the feasibility of underground mining in the area. The study was completed in 2014 with a positive outcome and DOWA committed to spending US$50 million to complete a feasibility study and earn its 30 percent interest in the project. Normally, a feasibility study does not cost this much but we decided to also carry out a significant drilling program to improve confidence in the resource, moving them from inferred to measured and indicated. We also had to buy one of the ranches that was there as the project was located on private land. Additionally, we decided to construct a ramp at this stage for greater efficiency to access the mineralization. We took samples and ran several tons of material through a pilot plant to demonstrate the viability of the crushing and flotation process. When we took this bulk sample, we actually saw higher grades than were predicted for the main mine.