Thursday, September 29, 2016

The lowest grade mines in the world - Copper

I've received a lot of requests from people to look at different projects and verify their quality. Some projects are easy (North Bullfrog, San Diego, Cerro Las Minas), they are very low grade, but carefully created equivalents grades calculated from basically any metal content in the rock and assuming 100% recovery.

While I was working on these projects I started to build up a database from actual operations is to try and find the lowest grade mines by:
  1. Commodity
  2. Mine type (open pit vs underground)
This will allow you to quickly check the grade from drill-holes and 43-101 resource calculations from your favorite projects to see how they stack up. However, many of these mines have been in operation for a very long time and originally the operations commenced by mining high grade or leachable ores before transitioning to lower grade ores that they are mining now.

This list will be dynamic and send me some info on other project that you feel should be on this list, please send me some information and I'll update it.

I've also compiled a small list of 'development projects' that include mines currently under construction or being presented a project that could go into production in the not to distant future (i.e. we have a PEA or feasibility study).

Open Pit

  1. Mount Milligan, Canada - Thompson Creek Mining (porphyry deposit operated at 54,000 tpd)
    • Grade* - total mineral reserves from Dec 2015 (link)
      • Cu = 0.196% (note - grade mined in 2015 was 0.38% Cu)
      • Au = 0.349 g/t
      • * - reserves were calculated at $2.95/lb Cu and $1250/oz Au.
    • Basically this is a gold mine with copper credits.
  2. Aitik, Sweden  - Boliden (Porphyry, operating at 36,500 tpd)
    • Grade - 2015 production grades from 2015 annual report (link)
      • Cu = 0.23%; 
      • Au = 0.15 g/t
      • Ag = 0.13 g/t
      • Mo = 0.002%
    • Easily accessible ore (low strip ratio), highly automated and uses large mining equipment that makes the mine most productive open pit copper mine in the world (tonnes of ore produced per employee).  Low treatment charges - concentrate sent to Boliden smelter in Ronnskar (link). Gold an important by-product
  3. Sierrita, AZ, USA - Freeport (porphyry, operated at 102,000 tpd)
    • Grade - reserves (Freeport 2015 10K (link).
      • Cu = 0.24%
      • Ag = 1.42 g/t
      • Mo = 0.03%
    • Operating at reduced capacity (link)
  4. Mount Polley, Canada - Imperial Metals (porphyry deposit operated at 20,000 tpd)
    • Grade* - total mineral reserves from Jan 2014 (link)
      • Cu = 0.295%
      • Au = 0.302 g/t
      • Ag = 0.615 g/t
    • Mine restarted in Aug 2015 after tailings dam failure in Aug 2014.
  5. Constancia, Peru - HudBay (porphyry operated at 81900 tpd)
    • Grade - Jan 2015 reserves (link)
      • Cu = 0.30%
      • Au = 0.054 g/t
      • Ag* = 2.97 g/t
      • Mo = 0.009%
    • *Silver Wheaton acquired life of mine silver production from Constancia in April 2012 (link)
  6. Pinto Valley, AZ, USA - Capstone (porphyry deposit operated at 54,000 tpd)
    • Grade - total mineral reserves from Jan 2016 (link)
      • Cu = 0.31% (note - grade mined in 2015 was 0.38% Cu)
      • Mo = 0.009%
    • Capstone purchased this as an operating mine from BHP for US$650M (link)


  1. Bolivar, Mexico - Sierra Metals (Cu-Zn skarn operated at 2500 tpd)
    • Grade - April 2013 reserves (link)
      • Cu = 0.76%
      • Zn = 0.33%
      • Au = 0.23 g/t
      • Ag = 19.52 g/t
    • Polymetallic mine, with a CuEq grade of 1.04%
  2. Pyhasalmi, Finland - First Quantum (VMS deposit mined at 1000 tpd)
    • Grade - data from FQM website (link)
      • Cu = 0.9%
      • Zn = 1.9%
    • Note: the Pyrite they produce is also sold as a fertiliser.
  3. Surda, India - India Resources (shear hosted copper deposit operating at 2200 tpd)
    • Grade - June 2013 resources (link)
      • Cu = 1.1%
    • I couldn't find much information on this deposit, but this PR (link) suggests that they will be putting the mine on care and maintenance in the near future. No byproduct production, only copper.
  4. Cozamin, Mexico - Capstone (mesothermal Cu-Zn vein operating at 3300 tpd)
    • Grade - Jan 2016 reserves (link)
      • Cu = 1.5%
      • Zn = 0.71%
      • Pb = 0.17%
      • Ag* = 42 g/t
    • *Silver Wheaton purchased the 100% of silver production from Cozamin, but the project is located in one of Mexico's largest and richest silver districts (Zacatecas Mining district with estimated historical production since 1546 of  >1Boz Au and ~10Moz Au) from high grade veins. It will be interesting to see if Capstone start mining high grade silver ores once the royalty agreement expires?

Development projects

  1. Tepal Project, Mexico, Geologix (porphyry copper-gold, 38,700 tpd open pit mine)
    • Grade - Jan 2016 reserves (link)
      • Cu = 0.2%
      • Au* = 0.3 g/t
      • Ag* = 1.54g/t
      • Mo = 0.004%
    • Relatively low strip ratio, good byproduct Au values.A very poor location to have a project as the area is controlled by the Nights Templar Drug gang.
  2. Santo Domingo, Chile - Capstone Resources (porphyry copper, 65000 tpd open pit mine)
    • Grade - Jan 2016 reserves (link)
      • Cu = 0.3%
      • Au = 0.04 g/t
      • Fe = 28.2%
    • Capex = $1.7B
    • How much will the iron contribute to revenues?
  3. Calingiri, Australia - Caravel Minerals (Copper porphyry, 43,000 tpd open pit operation)
    • Grade - April 2016 reserves (link)
      • Cu = 0.34%
      • Au* = 0.02 g/t
      • Ag* = 1.8%
      • Mo = 0.008%
    • Capex = AU$440M
  4. Cobre Panama, Panama - First Quantum Minerals - 80% ownership (porphyry copper, 200-250,000 tpd open pit mine)
    • Grade - Jan 2016 reserves (link)
      • Cu = 0.38%
      • Au* = 0.07 g/t
      • Ag* = 1.3g/t
      • Mo = 0.006%
    • Capex = $5.95B
    • Note: Mining will focus on higher grade core. Precious metal stream sold to Franco Nevada. This project is currently in development.

One of these days i'll calculate the CuEq grades for these projects


Monday, September 12, 2016

A challenge for you.

We've recently read that about several resource calculations that have gone astray, so I decided to give you a little test.

Here is a leapfrog viewer file (link) of the gold assays and veins for Dalradian's Curraghinalt deposit.

Your challenge is to pick which intercept is related to each vein specific vein.

It is an impossible task, but the idea is to show that in many deposits the mineralisation isn't typically in a single vein/manto/disseminated zone but is much more complicated.

We, the public, only get a simplified snapshot of the data. This is, for obvious reasons, presented in the most positive way possible.

I'll show you my interpretation if you show me yours!

Friday, September 9, 2016

Ana Paula - the figures

In my last post on AP I looked at the geology (with some great feedback from Rick Walters (I'm guessing that you aren't the legendary tattoo artist from California).

For the discerning investor it is hard to push beyond the huff and puff in the PRs as every gold project seems to be brilliant. they all have very low costs (cash, AISC), great returns (IRR and NPV), Ana Paula looks to be different, Timmins tell us, AP is:
  • Cheap to Build - $121.7M
  • Great Grades - 2.24 g/t Au over the life of the mine
  • Short payback period
I worked through the figures to see if I could understand a bit better why the figures for AP are so good, after seeing some nice 'tricks' in the Corvus PEA, I wanted to see if anything untoward was happening with AP.

The short answer - No, but the economic model is probably a little over optimistic. AP is a good project, and IF Timmins don't mess it up, they could have a nice long line of suitors looking to acquire them (e.g. Torex, McEwan, maybe even Tahoe?).

I found some minor issues with the economic model:
  • Milling rates - they assume that they will be operating at full capacity for the entire year 
  • No commissioning period - they are operating at 100% from year one.
  • 5% discount rate is fashionable, but 7-8% would be more realistic
  • $0 working capital
One question you have to think about is how will Timmins fund the development of AP? 

It looks like they can do it just from the revenue from San Francisco, which is generating ~$12M/quarter (at current metal prices), and they have ~$82M in equity (only ~$12 as cash), so if they are careful and don;t have any issues at SF, then they won't need to raise money by either  diluting the crap out of their shareholders or borrowing money at crippling interest rates.

Let's run through the AP Economic model.


Timmins have worked hard on reducing the Capex for AP by:

  • Buying the El Sauzal mill from Goldcorp for $8M (cash and shares)
  • Using contract miners so they don't need to spend capital on buying a mining equipment
    • this will lead to slightly higher operating costs
I went through and checked the numbers, and compared them against a couple of other operations and CAPEX values for open pit gold mines in Mexico, and they are inline with other operations.
  • Penoles built Velardena, a 6000 tpd underground mine for US$203M
  • Torex built El Limon, 8000 tpd for $790M
  • In comparison - Ixtaca (Almaden) CAPEX of $100M for a 8000 tpd operation looks to be unrealistic.

Working Capital

The only minor issue I found was the way working capital is handled. They have a small amount ($6.9M in year -1), but that is all returned in year 9 (when the mine closes), so it balances out. However it should mean that AP capex should be $6.9M higher at $128.6M.

I also feel that the working capital should cover 2-3 months operating expenses, around $15M especially to cover that tricky start-up period.

Mining Costs

Lets check the costs that Timmins are using - how do they compare to operating mines?

And visually
Ana Paula - PEA values, other = actual values from MD&As
They look OK, there are some differences because:
  • El Limon has a higher mining cost due to its higher strip ratio
  • Los Filos is an open pit mine and they recover the gold via heap leach (no milling)
  • El Sauzal costs are from 2013 and don't have values for G&A.
Nothing major, these costs are good and inline with current (and recently operating) mines.

Possible Issues

I've worked in some possible issues into an updated Economic Model to see how they could impact the NPV and IRR for AP.

1. Mill throughput

They bought a second-hand mill from El Sauzal, I know that it will be nicely rehabilitated and probably painted a beautiful shade of yellow and blue (or red or utilitarian grey), and they are expecting to:
  • process 2,160,000 tonnes/year at 6000 tpd plant
  • 2,160,000/6000 = 360 days/per the plant is operating at full capacity
  • or the pant will be operating at 5918 tonnes per day, every day.
So they are expecting to use the plant at full capacity for 360 days a year (I'm assuming it will get days off for Christmas, New Year, Easter, Independence day, and either Revolution Day or Benitio Juarez's birthday. That sounds a bit to perfect, was the plant that good when it was at El Sauzal?
not quite, but close
It wasn't bad, it average 350 days of operation per year at peak capacity, so if they maintina the same standard at AP, you would expect them to 2.1 Mt/year.

2. Commissioning

Mines and mills take time to start operating at peak capacity. At El Limon, they still haven't quite reached full capacity (they are up to 83% of design - link), so will you get a similar 6 month commissioning period at AP?

3. Discount rate.
5% is cute, I like to check the discount value against the interest rates that various loan/financing are being arranged at.

  • Premier Gold - loan from Orion mine finance at 6%
  • Lydian - Libor + 6.5%
  • Red Eagle - Libor + 7.5%
So if you are borrowing money at libor (currently at 1.5% for USD) + 6.5%, then a 5% discount rate seems low, a rate of 7-8% looks a bit more realistic.

4. Working Capital
In a nice stroke of excel, AP has no working capital in its advertised CAPEX.

who needs working capital? 
So how are they going to pay for the operating expenses for that tricky start-up period while they are waiting to receive revenue from their first shipment of dore? A study done of gold Australian mines shows that it took on average 47 days to receive payment (link), maybe in Mexico it will be quicker, but it would be nice to see Timmins include ~$10-15M to cover this.

My mistake, they do, they have $6.9M in year -1, but like the deposit you give to the bottle shop/off-license/liquor store, when you buy a beer (or IRN BRU) in a glass bottle. When you return the bottle (or in this case - close the mine), you get that money back, errr, 9 years later. 

So, the real CAPEX is actually $128.6M.

All this data when into an updated Economic Model with the following assumptions:

  • Mill operating at 6000 tpd for 350 day/year or annual throughput if 2,100,000 tonnes
  • 7.5% discount rate
  • 6 month commission period (using El Limon as a guide)
    • mill operating at 75% capacity, increasing to 100% afterwards
  • Working capital of $15M (to cover 3 months operating expenses)
The results are:
  • CAPEX increases to $136.7M
  • Pre-tax
    • NPV decreases to $296.6M
    • IRR decreases to 45.13%
  • After Tax
    • NPV decreases to $180.3M
    • IRR decreases to 21.98%

This isn't my area of strength, but it still shows that Ana Paula is a good project, just not quite a spectacular as advertised, but robust enough to pass the stress test and I do like the fact that Timmins have been conservative with the metal recoveries.

I think this is a good project for Timmins

Wednesday, September 7, 2016

Sandra Escobar - an quick update

You almost want to tell Orex to stop drilling as with each new press release the mineralization is smaller and lower grade!

We got some more news from Sandra Escobar (Orex Minerals), again with some nice juicy intercepts from their 3rd phase of drilling at Sandra Escobar.


  • Results below expectations
    • High grade zones appear to be smaller than expected
    • Silver mineralisation less extensive
      • updated crap resource calculation (TM) is now 37.7 Moz Ag
  • Why would they commit an additional $0.75M to drilling before the met studies have been completed?
    • Consultants needed more data to confidently model the silver distribution?
I was interested to see why Orex committed to drill an additional 3,600m at Sandra before they got the results from the metallurgical studies, that will cost ~$750K and what happens if you get poor recoveries? You've wasted a chunk of money for nothing. Fortunately, there is an answer in the PR
Holes SA-16-041, 042 and 043 are in-fill drill holes in the Main Zone to tighten section spacing to 50 metres. The in-fill drilling was performed at the request of the mining consultants who are preparing the initial resource estimate.

Does this mean that Orex were told to drill more holes as there were some critical questions to answer before a 43-101 complaint resource could be calculated? Maybe it was:
  • With a few more holes the consultants could fiendishly work on their geostats machines and calculate not just inferred, but measured and indicated resources.
  • Couldn't confidently model silver grades between holes
  • Don't quite understand the controls/distribution of the high grade mineralization.
  • More holes = more data = higher confidence.
I actually admire this, how many companies would take the opposite approach and find a consultant to calculate the biggest resource mathematically possible and be done with it (hello First Mexican Gold).

I don't know if these 5 holes are the only in-fill holes planned for the 3rd phase of drilling, and the rest will focus on expanding and exploring areas? A nice summary map would help!
only hole 39 is drilled to extend the silver zone.
Let's look at the results, at first glance they look impressive, but it is important to see how they compare against the results from the adjacent phase 1 and 2 drill holes:

Here is the plan map from the may 31st post

Here is the updated map

They look very similar, but there are some subtle changes (circled in red)
  1. The narrow high grade zones are now smaller and discontinuous
  2. The 50-100 g/t zone has been expanded by ~ 50m to the East
Nothing special, but what were you expecting from 5 holes?

Let's run through them

Drill-hole 039 - drilled ~100m to the west of holes 16,17 and 27.
A very forgettable hole
8m at ~65 g/t Ag, nothing special here, silver grades drop off steeply and the main zone doesn't link up with the mineralization hit by holes 038 and 037.

  • Positive spin - We've got potential for loads of silver zones
  • Negative spin - We have lots of little silver zones

Drill-hole 040, 41 and 42

newly released data with red collars
These hoels were ok, they were inline with the earlier drilling, but look at Hole 41

  • Hole 41 - 45m long (core length) high grade zone
  • Hole 42 - 42m to the SW of hole 41 - just 14m of high grade rock
  • Hole 40 -  110m to the SW of hole 41 - 4m of high grade
Ok, we go from lots of high grade to SFA over 100m. I hope that doesn't mean the high grade zones are localized to a few small areas. It looks like understanding the controls on the high grade mineralization will be key to creating an accurate resource for Sandra.

The other bad news is the mineralization is going deeper as you move to the SW.

Hole 43

Ciao silver 
Oh dear, a poor hole, I was expecting to get similar results to the holes drilled around it, we got SFA, a 12m silver skid mark and not much else.

We can be fancy, lets look in 3D!

The holes around (they are 50m away) are good, and you would expect that a hole in the middle would give you similar results, but hole 43 contained a lot less silver. This could mean that the majority of Sandra is 30-50 g/t Ag with a few discrete zones of high grade. I'm hoping that this hole is an anomaly and that there is a fault nearby and fluids have removed some of the silver.

It will be interesting to see if any of the phase 3 holes are planned to drill around holes 01 and 02, the 'best' holes, or will they be left alone, undisturbed so that you won't risk reducing the big high grade zone into a series of smaller lenses?

My TAG official crap resource calculation (TM) has been updated and we now have:
  • 37.7 Moz Ag (8.2MT @ ~140 g/t Ag
I'm using a 30 g/t Ag cut-off, OREX may use 20 g/t in the official (and hopefully not crap) calculation.

You can get the updated Leapfrog viewer file here (link) and look at the data.