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Friday, August 26, 2016

Ana Paula - Cuida su salud... y belleza

Ana Paula, Wow. This is what an exploration geologists is looking for.

This is what a junior exploration company IR representative looks like in the wild
Not the girl, you perverts, the rocks she is sitting on, some nice alteration in the background.....

Great grades and cheap to build, surely the perfect deposit?

I'm going to do 2 posts on Ana Paula, one on the geology and a second on the numbers in the PEA.

We'll gloss over the security issues (you can read them here, here and here - just some friendly kidnapping, robberies and disappearances from the area, nothing to worry about), and just focus on the geology.

Summary:
  • Ana Paula is small - only 2.25 Moz gold, but:
    • In the PEA, they say they will only mine 0.96 Moz, just 43% of the deposit via an open pit
    • So the remaining 57% will not be mined - unless gold prices go way higher
  • Short mine life - just 8 years - major companies want 15+ year mine lives. 
  • Metallurgical complexities - Gold is associated with arsenopyrite (contains arsenic) and pyrite
    • Great recovery with flotation (94% for Au and 87% for Ag) but produces a crap concentrate with >10% As.
    • However, if you do a leach on the concentrates you can get recoveries of 80% Au and ~50% Ag.
  • Blue sky potential - good property with lots of potential to find more deposits, but there are major security issues in Guerrero at the moment.
The most interesting things about Ana Paula is her enormous grade and IRR (link). It has everything, including underground potential. Here is a section showing the grade blocks in the deposit. 
The dashed lines are proposed pits
Wow, it looks great, but why don't the pits go deeper? There is gold everywhere, with a bigger pit you'll mine more gold and have a nice long mine life? This confused me (which isn't too hard).

So I compiled the data, brought it into 3D tand had a look. You see is that most of the gold is found in a vertical pipe in the middle of the deposit. The rocks surround it look relatively unmineralized.

TAG's official "badly drawn pit" in grey.
At Ana Paula, accoridng to the PEA Timmins will be mining 2.6 tonnes of waste for every tonne of ore (this is the strip ratio). Waste costs money to mine (unless you are Corvus with you magical self-mining ore), and you want to keep this ratio as low as possible.

I've created a few sections below, one long section (basically a N-S slice through the deposit) and 3 cross sections (E-W slices) that are 100m apart to show you how small the Ana Paula deposit is. You'll also see that a common theme is for companies to pick the 'best' section to show off their deposit.

Long section (basically my version of the fancy one above)

We can see this narrow high-grade pipe continuing to depth
Cross section 1 - 8000N - through the core of the deposit - what a stunna - this will stay in the investor presentations forever.
lots of lovely gold - do you like the promo hole going down the guts of the high grade zone.
Cross section 2: 8100N - this is 100m south of the section above - what do you notice?

Not much gold here!
Not very obvious? Where is the pink stuff? All the high grade has gone!

Cross section 3: 7900N - this is 100m to the south of Croiss Section 1 - what do you see?

Some high grade at depth, but not much close to surface.
We have more gold, but the good stuff is deep, and you only have a narrow sliver of low grade near surface.

These 3 cross sections are just 100m apart (1 football field, or 1.5 hockey rinks), and we can see that we go from lots of gold to not much over a very short distance. How many of the 'crap' sections can you find in the IR material? This is the only image that shows the size and shape of the mineralization.

AP circled in red - check out page 9-4 in the 2016 PEA for the original version

Did you notice the black "U" shaped line on the sections? This is the outline of my badly drawn pit (TM), which is a simplified version of Timmins' $1400/oz Au pit limits.

  • Above the line - what Timmins says they will mine in the open pit (if gold prices are $1400/oz)
  • Below the line - what they won't mine - this is the "underground potential"

You can see that there is a lot of gold below this line. How much are the leaving in the ground?

It's a tiddler!
So AP contains 2.25 Moz Au, but if we look at life of Mine (LOM) summary, we see this:
circled in red
So they are only going to mine 957,000 oz Au, but they have 2.25 million ounces, so that is only 43% of the gold in the deposit, the remaining 57% is just going to sit in the ground.

OK, I understand, the property hasn't been fully explored, they focused on the high grade zone to fully understand it blah blah blah.
There must be lots of potential to find more and make the deposit much bigger?

nope...
Just a quick guide to help you understand the map above.
The colored blobs are my gold grade shells, and the big blob in the middle is the Ana Paula deposit
The black lines are the drill-hole traces.

You can see that there is 230 holes that have basically drilled everything around the main deposit,and they haven't much more, just some bits and bobs. This has been a well drilled deposit. There probably isn't much more to be found here.

OK, we've established that it is small, there is little potential to expand the known resources, but everything else if fine?

Sorry guys, when you look at the metallurgical results, and read the text, Timmins repeatably state that the gold is found in/with pyrite and arsenopyrite (an iron arsenic sulfide). Here is a photo.
Au = gold; ap = arsenopyrite (an iron-arsenic sulfide)



With flotation you basically recover the sulfide minerals as well as the gold and silver. At AP with flotation they get recoveries of 94% for gold and 87% for silver. This is good. Unfortunately, the concentrates contain >10% arsenic, this is bad. I'm not sure how many smelters would process this, but if they did the penalty charges would be huge. Fortunately, Timmins' have done leaching work on the concentrates - doing flotation followed by leaching on the concentrates they can recover 80% of the gold and 50% of the silver.

So, double processing, and you loose 50% of the silver and 20% of the gold, but you produce dore, which is nice and cheap to refine.

phew...

Look at the leapfrog model (here) and spin it around and make your own opinion.











22 comments:

  1. Thank you. By the sound of it, you are not impressed. I was worried about the arsenic in the ore but did not realize it would hurt them so much.
    So, just to be sure:
    1. Is the PEA good and can AP get that high IRR or is the management not being honest with numbers?
    2. The mineable resource is small (8yrs), does that mean this deposit does not add much value to company? or you just mean the deposit is too small for major to buy it?
    3. I imagined with resource >2moz, and recoverable ozs being less than 50% meant that the double processing of the ore has been taken into account?
    4. I thought strip ratio of less than 3 was good (though not great).
    5. Also do you think the other location beside ANA Paula does not have hold much promise like Aurea Norte and Aurea Sur?

    Thank you

    ReplyDelete
  2. Yeah wowsers the doodle. Time for an exploratory drill program for damn sure. (Couldn't help myself ... shame on you AG)

    ReplyDelete
  3. beside those questions, I was wandering why you used $1400 gold pit design? The pea that was done at end of 2015, was based on $1200 gold. It also says that PEA is using only subset of M&I resources and the head grade for PEA is 2.24g/t. if we consider 70% recovery after taking into considerations that ore is processed twice, the grade would still be 1.56/t. So, I am thinking even though major won't buy it, the project would still provide good cash flow and profit. What do you think?

    ReplyDelete
    Replies
    1. in the PEA they re-did the pit using a $1200/price but said it wasn't much different from the $1400/pit - the section also didn't have the outline of the $1200 pit for me to use.

      Delete
  4. Hello AG/Tag,

    Do you mind doing an analysis of AXR and their results at Berminham?


    http://www.stockwatch.com/News/Item.aspx?bid=Z-C:AXR-2311690&symbol=AXR&region=C

    They have a large 14,000 meter drill program almost finished as I write. -- As of August 10, 2016, Alexco completed 25 holes for a total of
    7,708 meters. The drilling program is expected to be completed by early October with results for
    the complete program expected to be available by the end of October 2016 with interim drill
    results expected to be available mid-September--

    ReplyDelete
    Replies
    1. Not a problem, I know the deposit and I worked on a similar project - a high grade silver deposit that had produced a lot of silver, but never explored systematically. Alexco seem to be getting some excellent results from applying a modern exploration methodology to an old mine.

      Delete
  5. AG/TAG,
    TIA for the blog and for maybe looking at AXR.
    tom

    ReplyDelete
  6. Just wanted to clear up a few things you mentioned in your post. I know the TMM story pretty well.

    You stated "In the PEA, they say they will only mine 0.96 Moz..."

    Wrong. 960koz is PRODUCED, mot mined. They will mine 1.3Moz and recover 960koz.


    You stated "Short mine life - just 8 years - major companies want 15+ year mine lives."

    Average mine life of gold mines (up to 2015 data) is 9.5 yrs. That is from the Intierra database. Mine life is irrelevant. It’s ounces produced at what cost. Period. Also, who said the mine is ending in 8 years? From your own sections there looks like there's a high-grade underground mine under the pit.

    You stated: "You see that most of the gold is found in a vertical pipe in the middle of the deposit. The rocks surround it look relatively unmineralized."

    The Company has never said the deposit is huge. The fact that it is has a small footprint can be an advantage -- higher margin per ounce, less capex, less reclamation at close, etc., etc. None of your size comments matter. It’s about IRR and NPV. Period. And that’s all the company talks about. Ana Paula has the best capex to NPV ratio around out of any gold project in the Americas. The Company tells everyone that the deposit has a small footprint and amazing grades and that’s what you proved. There’s nothing to hide here my friend. And why would a company put “crap” sections in its IR material? To waste people’s time? The PEA has everything in it, that’s how you got it.


    You stated: "I understand, the property hasn't been fully explored, they focused on the high grade zone to fully understand it blah blah blah. There must be lots of potential to find more and make the deposit much bigger?"

    They focused on the high grade zone because it makes money (& a shit ton of it)… not to “understand it blah blah blah”. Who said that the deposit can be much bigger?? The company didn’t. Right now, it’s 1 million ounces of very high margin production at fantastic capital costs. That’s all the company is talking about. Period. They have never said there’s 5 million ounces there my friend. There doesn’t need to be. You make about $70-100M of free cash flow per year at spot prices for over 8 years. It will be one of the lowest cost gold mines in the world.

    Underground potential -- yes there is. Very easy to see multiple years of higher grade mineralization below the pit. That’s all upside, the company doesn’t ascribe any value to it right now.


    You stated: "Timmins state that the gold is found in/with pyrite and arsenopyrite (an iron arsenic sulfide)."

    Timmins isn’t selling a concentrate. They produce dore. There’s no arsenic penalties whatsoever. Not sure why even brought up.


    You stated: “..double processing”...?

    I’ve never heard of the word “double processing” in mining and it’s incorrect. Flotation is used at close to half of the gold operations in the world. It’s used to get the crap (90% gangue) out of the way so you have a much smaller mass to deal with, to recover gold cheaper. Companies wish their ore would have good flotation response so their costs would be lower. Ana Paula has great flotation response (as well as great gravity response, which can be hugely beneficial).

    ReplyDelete
    Replies
    1. Excellent post but it would be even better without the "Edge On" towards the blog writer, JMO. He is a GEO not an IR person. Anyhow thank you for the write up on TMM. I like the stock but my knowledge level is way below yours and the blog Geo.

      Best Regards,
      tom

      Delete
    2. Hello Rick,

      Thanks for the feedback, I over-simplified my summary.
      You are correct (I’ll correct my post accordingly) - they will be producing just under 1moz Au, not mining that amount. However, it still means that there is a large portion of the gold (35%) that will not be mined at current metal prices.
      The mine life – the major companies that I have worked for were only interested in long life projects (>100Koz/year for 15+ years) or projects that offered the upside to discover and develop a significant resource. Maybe this opinion has changes due to decreased metal prices but companies like Rio and BHP are still looking to reduce costs by economies of scale.
      I feel that the exploration potential that Timmins has is good, but are they able to explore the property and find more deposits? You could argue that AP’s grade would be interesting, but when you compare it to the other Guerrero gold projects, you can see that (at the moment) it is a lot smaller than Los Filos and lower grade than Limon and Media Luna (it will be interesting to see the financial performance of this mine over the coming quarters).
      The plan in the PEA is for an 8 year open pit operation, and I agree that there is potential to develop some of the underground resources, but it would be nice to see a separate table of UG resources using a ~2 g/t cut-off to highlight this? I’ve based the cut-off by using a $60/tonne operating cost (similar to 6000 tpd operations in Mexico), an 80% recovery and $1250/oz price for Au.

      Delete
    3. I know that AP has ~2Moz Au, and that a portion is planned to be mined, I wanted to highlight this as many people see the 2Moz resource figure and assume that they majority of it will be mined, which isn’t helped by the fact that the ‘standard’ section that appears in the 43-101, the presentation etc. appears to show the majority of the rock at AP containing significant amounts of gold.
      You get a lot of mathematical resources for gold projects (i.e. using a very low cut-off to include as much very low grade material into the resources – e.g. Corvus). Here it was a bit different, it was the form of the mineralisation, a pipe, isn’t means that not all of the contained resources would be amenable to open pit mining.
      IRR and NPV – It doesn’t matter how great the IRR and NPV is, if you can't get anyone to build the mine (Nyrstar used security as one of the reasons they closed the Campo Morado mine - link, and led to delays in the construction of the El Limon mine as Torex couldn’t find companies that wanted to work in the area) or work there due to the current (and hopefully temporary) security issues, then these values are just numbers in a spreadsheet. If the security issues continue in the state, you have the potential for AP not to be developed in time for the next boom. It also doesn’t help that some of the communities feel that the mining companies are not doing enough to protect them. This could be a major issue for permitting as maybe some of the communities around AP many not want the security problems (murders, kidnappings and payment of “cooperation taxes” to the local gangs) that has occurred at the other Guerrero mines recently.
      Timmins have a good project that they should be able to build on their own – from what I can see the CAPEX seems reasonable - a similar sized mine was built for US$206m in 2013 - and they are using contractors to minimize the amount spent on mining equipment.

      Delete
    4. Regarding the sections - I was a reference to the fact that many companies like to use a preferred section through the deposit – i.e. the one that shows the best/highest grade mineralization – this is the case with Timmins and you could logically ask the question on the section used – where most of it seems to contain gold, why doesn’t the pit go deeper as everything looks mineralised. Many companies often include multipole cross and long sections in their press releases, presentations and 43-101 reports that allow you to better understand a deposit and the distribution of the metals of interest within.
      I also found that there was only 1 figure (the geophysical image) that tried to (poorly) display the gold distribution at AP in a way that could be appreciated, as it is very hard to appreciate the size, and dimensions of mineralisation from the figures provided in the PEA – you have an advantage as you are familiar with the project, I don’t. I haven’t been there and I haven’t looked at the rocks, I am in a similar situation as most shareholders and potential investors – we only get to see the publically released information. For most people this is hard to understand, and all companies will always present their data in the best way possible, hence the reason why I create a free 3D model as a LF viewer file so that everyone can have a look at the data and form their own opinion.
      However, and it was a bad term to use “double processing”, I’ll change that to double treating (once by flotation and a second leach on the concentrate). You state that AP has great flotation response, but produces an unsellable product (I don’t know of any smelter that would treat concentrates containing >10% arsenic – do you? This has meant that a leach, using cyanide, needs to be done on the concentrate to produce doré. This leads to:
      1) Decreased metal recoveries – 94% to 80% for Gold; 87% to 50% for silver.
      2) The need for additional permits (we don’t just have a simple flotation will but a cyanide leach as well)
      3) A (probably minor) increase in Capital expenditures and operating expenditures.
      4) Will the bars of Doré (an alloy of gold and silver) be a target for the various Narco gangs in the area? Concentrate would be a harder target as it requires additional treatment to recover the gold and silver
      However, it boils down to this question: If the project is so great, why isn't it in operation?
      And that was the idea of the post – to stimulate thought.

      Delete
    5. Sorry Rick - I had to split my reply into 3 separate sections

      Delete
  7. Mr. TAG,
    great post and even better exchange of ideas. Thank you, I know you said you will do 2 post on Ana Paula and after reading your first post, I emailed management some questions that you raised in your post. Following are the answers that might help you during your another article. I know Mr.Walter made some points (would have been better if he had been more polite) but just in case you need it..here

    Arsenic, Pyrite

    As part of the feasibility study, testing will be done to determine if ARD (acid rock drainage) is a design consideration with the waste rock or the ore. A few items to note: (i) there is quite a bit of naturally occurring limestone in the area (neutralizes ARD); (ii) our neighbours Torex don’t have a problem with ARD, either with the waste rock or the tailings, i.e. both are unlined; (iii) sulphide content is higher in ore and if we use a flotation flowsheet, the high sulphide content may be “isolated” into the concentrate and can be managed even more effectively (e.g. lined, pond, covered, neutralized), since the relative tonnage of this material is much lower.

    Arsenic is problem if you are selling a concentrate, as you get penalized by the treater if the arsenic content is too high. We produce dore on site. As with the ARD mentioned above, testing will be done to determine in the feasibility study if arsenic content needs to be a design consideration. Arsenic appears to follow the gold through processing and thus can be isolated and treated, if required (e.g. small lined area, precipitation with ferric salts). If arsenic levels are high, it would be isolated into the concentrate tailings which have much lower tonnage.

    Ore processing
    The ore is not “processed twice”. Flotation is an extremely common and simple mineral processing technique. The fact that Ana Paula ore exhibits very good flotation response can be used to our advantage as the tonnage of material required to be leached downstream drops substantially (by ~80-90%) and thus capital and operating costs of the remainder of the processing drop substantially.

    Gold recovery
    In our PEA, based on initial met work, we estimated 75% gold recovery using a flotation-based flowsheet. In the feasibility work, detailed testing will be carried out to optimize grind size, reagent usage, oxidant additions, temperature / pressure adjustments, regrinding, etc. to potentially improve upon this. The ore displays very good gravity recovery & very good flotation recovery and we will look to use this characteristic to our advantage.

    Processing costs
    All of the costs for the milling / flotation / leaching / recovery (& tails management, etc.) have obviously been factored into the costs shown in the PEA. We believe the PEA estimates are conservative and we will look to decrease unit processing costs further through the feasibility and engineering stages.

    ReplyDelete
  8. Mr.Tag,

    Great discussion on Ana Paula, only wish that Mr. walters answers were as polite and to point as yours were. After reading your article I emailed management some questions that you raised in your post. I know your said you will do a second post too, so thought the answers they emailed me might help you as well. The answers are as following:

    Arsenic, Pyrite
    As part of the feasibility study, testing will be done to determine if ARD (acid rock drainage) is a design consideration with the waste rock or the ore. A few items to note: (i) there is quite a bit of naturally occurring limestone in the area (neutralizes ARD); (ii) our neighbours Torex don’t have a problem with ARD, either with the waste rock or the tailings, i.e. both are unlined; (iii) sulphide content is higher in ore and if we use a flotation flowsheet, the high sulphide content may be “isolated” into the concentrate and can be managed even more effectively (e.g. lined, pond, covered, neutralized), since the relative tonnage of this material is much lower.

    Arsenic is problem if you are selling a concentrate, as you get penalized by the treater if the arsenic content is too high. We produce dore on site. As with the ARD mentioned above, testing will be done to determine in the feasibility study if arsenic content needs to be a design consideration. Arsenic appears to follow the gold through processing and thus can be isolated and treated, if required (e.g. small lined area, precipitation with ferric salts). If arsenic levels are high, it would be isolated into the concentrate tailings which have much lower tonnage.

    Ore processing
    The ore is not “processed twice”. Flotation is an extremely common and simple mineral processing technique. The fact that Ana Paula ore exhibits very good flotation response can be used to our advantage as the tonnage of material required to be leached downstream drops substantially (by ~80-90%) and thus capital and operating costs of the remainder of the processing drop substantially.

    Gold recovery
    In our PEA, based on initial met work, we estimated 75% gold recovery using a flotation-based flowsheet. In the feasibility work, detailed testing will be carried out to optimize grind size, reagent usage, oxidant additions, temperature / pressure adjustments, regrinding, etc. to potentially improve upon this. The ore displays very good gravity recovery & very good flotation recovery and we will look to use this characteristic to our advantage.


    Processing costs
    All of the costs for the milling / flotation / leaching / recovery (& tails management, etc.) have obviously been factored into the costs shown in the PEA. We believe the PEA estimates are conservative and we will look to decrease unit processing costs further through the feasibility and engineering stages.

    Looking forward to your second post on Ana Paula . Thank you

    ReplyDelete
    Replies
    1. Thanks PoGo,
      I shouldn't have said double processed (it was one of those time when I couldn't remember the correct word!), i really should have said a 2 step processing and treatment process (flotation - that gets excellent recoveries, and leaching that produces dore).
      Regarding the Arsenic - I'll re-jig this part - I wanted to highlight that there would have been an issue iof they were selling concentrate, but this issue is resolved (albeit with reduced recoveries for gold and silver) by doing a leach on the concentrate - therefore their Arsenic issue has been resolved.
      Flotation is a very common process. However the use of a leach will potentially complicate permitting (maybe it will be simple if Torex are using a similar process at El Limon - being the first is always more problematic).
      A simple solution to the ARD issue is just to look at the Calcium assays and as they are in limestones, essentially this point is mute (which is why i didn't raise it).
      CAPEX - looks reasonable, I'm still going through the numbers to see any fatal flaws (and comparing it to El Limon that is undergoing commissioning as we speak).
      I like comments from people like Rick - they force me to go back and check my work - constructive criticism is very valuable.

      Delete
  9. Mr TAG.
    All is well. Looking forward to your second post.thanks

    ReplyDelete
  10. Hi AG - sorry my last response came off a bit strong, apologies. I am just passionate about the companies I follow and invest in, and I know this story pretty well.

    Rio and BHP are not potential suitors for Ana Paula; they are multibillion dollar diversifieds and don’t deal with gold.

    AP is not being hailed as a huge mine by the company in any way. The mine is supposed to spin cash off for 10 -12 years (open pit with underground kicker), and that’s it. Even though it’s grade is slightly lower than Limon, it’s strip ratio is 1/3rd of Limon. Strip ratio is just as important as grade. And Filos has 1.5 years of reserves left. Different story.

    You mention “it would be nice to see a separate table of UG resources using a ~2 g/t cut-off”. The underground has not been drilled off at all. It is “potential”. The breccia pipe keeps going but you can’t access particularly well from surface. You have to drill a drift to get to it or wait till the pit starts before you start drilling. Why would the company do that right now? Their only intention is to start cashflowing as soon as possible.

    You mention “many people see the 2Moz resource figure and assume that they majority of it will be mined” … What investor in their right mind makes a decision off a resource table when there is an annual mine plan and cashflow model available to everyone. Tip to all investors, please look at the cashflow model, not the resource.

    At gold prices above $1400-1450, the Ana Paula pit dives much deeper and you would pick up a lot of additional reserve ounces, obviously head grades comes down a bit. But, again, the company doesn’t represent this. They are using a $1200 pit. If gold runs through $1400, the rest is gravy.

    (More on next post)....

    ReplyDelete
    Replies
    1. Hello Rick,

      You're response was fine, I'm a geo and constructive criticism is good.
      Are Rio and BHP interested in Gold mines? I was more looking towards the Agnico, Yamanas and IAM golds of the world.

      I've been going through the El Limon and AP PEA reports, I can't understand the massive CAPEX at El Limon (you've touched on it for me) and that their operating costs look to be higher (5 times the power consumption etc etc).

      The main problem I see with the mine construction is the proposed build time - 1 year looks short (Los Filos and El limon took 3), and the security issues have been reported in a number of local, national and international news.

      It appears that most people look at the resources - primarily the amount of gold/metal of interest and then its grade. You appear to be the exception, and sometimes it is hard to follow the PEA to the untrained eye.

      The PEA states that there isn't much change in pit limits (Timmins show on their section the $1350 and $1400 pit limit), I haven;t been able to find the $1200 limit.

      Delete
    2. I do believe seniors / intermediate gold and silver co's are interested in the project / company. A lot of people believe a take-out would occur after feasibility and permitting are complete.

      El Limon has a footprint 10x bigger than Ana Paula's. Even the plant has been oversized in case of an expansion (even up to 24ktpd+), which is likely. The fleet costed $100M (?). Timmins would rely on contractor mining so they don't have any fleet capex. Limon's topography is much more aggressive than AP's. Torex uses a rope conveying system (ropecon) that transports ore down several hundred meters from several pits = much higher capex ($75M) and opex.

      Limon and Filos are much, much bigger than AP, both in terms of footprint and throughput. That's why their build times were much longer. As well, much of the time was needed for land acquisition by TXG and GGG, dealing with ejidos. AP is 100% private land, with no ejidos. Also Timmins has the entire plant and infrastructure for AP which I believe shaves off 0.5-1 yr of build time. 12-18 month build time for AP is definitely reasonable from several people I have asked who are EPCMs.

      The $1000-$1300 pits of AP are very similar because of the low cost nature of AP. The pit does dive much deeper at $1450. You're right, they should show this in their presentation.

      Delete
  11. (continued from above)...

    Mexico is one of the best countries in the world to build a mine. Nyrstar closed their mine because their deposit has huge technical issues and has been mined out. They may mention security as a reason but they weren’t making any money with their deposit. Torex had zero problems with permitting and putting in a work force. Not sure where you obtained that information. Guerrero is one of the most pro-mining states in the country. It is the easiest state to get a mining permit. Security is an issue anywhere in Mexico, let’s be honest. Guerrero can be violent but it is not directed at the businesses in the state whatsoever, it’s between local gangs. Torex has done a formidable job in steering clear of this. Their stock is up 35% since starting commercial production this year vs. the GDX up 7% in the same time. Clearly Guerrero is open for business.

    AP will begin construction in 2018. It will be pouring in early 2019. Ana Paula will not miss the next “boom”.

    Capex will be $120-125M (from recently updated PEA with detailed area and equipment estimates) & this even includes contingencies and EPCM costs that will probably come in lower than estimated. Timmins already has the entire plant and infrastructure needed for Ana Paula, as acquired from Goldcorp’s El Sauzal mine. Ana Paula topography is much, much less challenging than Limon. Ana Paula operating footprint will be 1/10th the size of Limon. Not to mention Limon could have been easily built for half the price of its total build if they wanted. However TXG wanted to build a Cadillac because it’ll probably last for +20 years and have numerous expansions. Timmins is openly telling people they are building a very low capex mine because of the shorter mine life (hence the used equipment). This makes Ana Paula one of the most capital efficient +100kozpa gold projects out there and it will be relatively easy to deliver in my opinion.

    You state AP “produces an unsellable product (with too much arsenic)” .… The Ana Paula flotation concentrate is not meant to be sold in any way -- not sure why we keep calling it an “unsellable product”. Making gold on site is much, much more preferable over selling a conc for any mining company. Making dore on site has numerous advantages. What do you think the cost would be to ship thousands of tonnes of concentrate out of your mine every day? Millions a day. If you make dore on site, you don’t have to bear this enormous cost. The only reason companies sell conc is because they can’t afford the massive capex for a smelter on site. Ana Paula doesn’t need a smelting step, it leaches.

    Also, there is absolutely no difference in the permits for flotation only versus flotation and leach in Mexico. It’s the same permit.

    The capex and opex provided in the PEA already consider both the flotation & leaching steps so I’m not sure why you think there would be any increase related to leaching.

    You state “If the project is so great, why isn't it in operation? Let’s consider the earliest Ana Paula could have gone into production. Drilling was finished on Ana Paula in late 2014. Timmins acquired it in mid 2015. Then Timmins would have needed to finish a Feas, get permits (1 yr), and construction (1 yr). The earliest it could have started production was 2018. Instead the project will be delayed 1 yr (2019) because Timmins had to slow down on proceeding with the Feas because they frankly didn’t have any money to spend on development because they were focusing on their operating mine, San Francisco, and get their balance sheet cleaned up as gold went below $1000/oz. Now gold’s back to $1300/oz+ & it truly looks like a bull market is set to begin. They have strengthened their financial position extremely well and can now proceed.

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  12. Hello AG,

    RE: M&A -- I believe many intermediate / senior gold companies would be interested in Ana Paula, including AEM, YRI, IMG + some gold / silvers like AG, FVI, maybe EDR. Many people I know believe the mine / company will be acquired once the Feasibility and permitting are complete.

    RE: Capex vs. Limon -- El Limon has a massive strip and massive pre-strip (capex $100M?). They have a rope con system that conveys ore up & down various pits (many videos of it on youtube) several hundred meters. The capex and opex for this rope can system are HUGE. Torex has much more copper (cyanocide, preg-robbing) than Ana Paula which requires one to use 3-5x times the normal amount of cyanide. Still, grade is king and Limon is one of the most profitable mines in the world. Torex has done a great job in finding ounces and building the mine. If anything, a Timmins shareholder would hope Timmins could find an ELG / Media Luna type deposit somewhere on its land package.

    Also Torex bought its own mine fleet (I believe $150M just for the fleet?) and Timmins is using contractor mining so they wouldn't have pay for a fleet at all. Per tonne mining costs would be slightly higher though.

    Re: AP construction time-frame -- short time for building is because Timmins already has the entire plant, infrastructure and engineering drawings, etc. for the mine. Like I said the footprint is less than 10% the size of Torex's footprint. Filos was built many years ago and was a huge mine also. I think 12-18 months to build Ana Paula is more than enough (worked in EPCM industry as a mining eng / process eng for 12 years).

    Re: pit limits -- my understanding is that because Ana Paula is a low cost mine, the $1200 pit is almost the exact same as the $1300 pit (& not too different from a $1000 pit). You are right, they should show it. I believe at $1450 pit the pit dives much deeper though, that's where the big difference is.


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