Small Durango Mine Could Grow to Be World-Class

Q: What strategies is Chesapeake implementing to ensure the success of its Metates project in Durango?

A: We constantly evaluate the critical path forward and the capital needed to achieve these objectives. As we start 2015, Chesapeake has approximately US$30 million in cash with no debt. We are well-funded to complete an updated pre-feasibility study on Metates and undertake a systematic exploration program that could lead to an interesting new discovery in 2015.

Q: What were the reasons why Chesapeake opted to acquire Metates?

A: Chesapeake’s management has been operating in Mexico since 1993. Along with Francisco Gold, the discovery of the El Sauzal gold project in the state of Chihuahua was a tremendous success story for us. After selling Francisco Gold in 2002, we wanted to remain focused on Mexico. We were aware of Metates as its exploration and development occurred at the same time Francisco Gold was advancing El Sauzal to the feasibility stage. There are few world-class gold and silver deposits hosting over 15 million ounces of gold and 500 million ounces of silver out there. The opportunity to acquire one such as Metates in Mexico was compelling to Chesapeake’s management. Metates is also attractive due to the fact that it hosts three world-class metals, gold, silver and zinc. To be precise, Metates has over 18 million ounces of gold, 526 million ounces of silver, and 4.2 billion pounds of zinc in reserves. Another important feature is the fact the deposit outcrops over 300m vertically leading to lower potential mining costs with a life-of-mine strip ratio of 1:1.

Q: What other key factors are proving crucial to the development of the project?

A: World-class projects are scarce, and the challenges these projects face are often related to country risk, development headwinds and infrastructure support. Metates is located in Durango while the mine’s proposed processing facilities are in Sinaloa. At the mine, the natural topography provides a cost-effective and environmentally friendly site plan together with a water source. The processing site in Sinaloa is close to key infrastructure such as a paved highway, the power grid, a natural gas pipeline, and a labor pool. The advantages of having such critical infrastructure available to help construct and support a mine like Metates is significant. Another factor is that Metates will benefit from one of the lowest energy costs in the industry generated by natural gas. After all, for large-scale mines like this, power can represent over 35% of the project’s operating costs.

Q: Does Chesapeake see any hindrances coming from Mexico’s social and political situation?

A: Chesapeake is a Canadian exploration company but we are fully cognizant and respectful of the fact we are conducting business in another country’s jurisdiction. We believe Mexico is one of the most mining-friendly countries in the world. With over 20 years working in Mexico, we have developed a strong network and good relationships with both private and government parties. Given the increasing challenge facing explorers and miners in other countries, there are several advantages to advancing Metates in Mexico.

Q: What are Chesapeake’s main goals for 2015?

A: Chesapeake’s main focus in 2015 is to complete an updated pre-feasibility study on Metates. This study should indicate that Metates will initially operate at 30,000 t/d, but with the ability to scale up to over 90,000 t/d with positive economics at current gold prices. Metates benefits from having its highest ore grade upfront in its mine life. Together with the existing infrastructure located near the processing facilities, Metates is unique in that it can begin as a small mine before growing to be world class mine funded largely by the company’s cashflow. Besides Metates, the company is focusing on exploration properties near the proposed processing plant that will provide a strategic organic pipeline. Recent exploration efforts have returned interesting results that we believe could develop into a district scale opportunity. We are quite excited about our 2015 exploration program.

Q: Where do Chesapeake’s other project interests lie?

A: Chesapeake also owns a 75% interest in Gunpoint Exploration Ltd. (TSX:GUN). Gunpoint owns the Talapoosa gold project in Nevada which has mineral resources of nearly 1 million ounces of gold. Talapoosa can be initially mined as a heap leach operation with excellent grade.