-- Published: Thursday, 26 February 2015 | Print | Disqus
Deep in Chile’s Atacama Desert sits one of the more prolific mineral formations in the world – the Maricunga metallogenic belt. Majors like Barrick, Teck, Kinross, Goldcorp, and Hochschild all have big mines here, and so too does Exeter Resources (NYSE: XRA | TSX: XRC), a $44-million market cap junior sitting on a 40-million-oz. AuEq deposit.
The Caspiche Project is located in the Maricunga Belt of Chile.
Exeter’s Caspiche project, a gold-copper porphyry with an oxide cap, has several advantages. There’s easy road access in the dry, treeless landscape with the mining hub of Copiapo sitting 185 km away; grid power runs just 12 km from the site at Kinross’ Maricunga mine; and Chile as a jurisdiction consistently ranks high for mine policies and predictability.
The catch is that Atacama is not simply a desert, but the driest place on earth outside of Antarctica, leaving little water to operate the many big deposits in the area.
Exeter is well aware of the challenge, and has spent the past two years re-working its Caspiche project to need less water — and less capital — while also scouring the region for a suitable water source. The company says it is closing in on just such a source, which, combined with the completely re-worked mine plan released last year, is creating a new and very promising picture for the company.
A giant is discovered
Exeter took an option on the dormant Caspiche project in 2005 and discovered the true potential of the project less than two years later when it punched through to the underlying porphyry. The company started pulling intercepts like 793 meters grading 0.96 g/t Au and 0.4% Cu and 1,234 meters carrying 0.89 g/t Au and 0.33% Cu.
The deposit, and Exeter, kept growing just as the resource sector was recovering from 2008. By early 2010 the company had moved to the main board of the TSX and was gracing $9 a share. And by early 2012 the company had a prefeasibility study out that had established reserves of 19.3 million oz. gold and 4.6 billion lbs. copper, at grades of 0.58 g/t Au and 0.24% Cu in the sulphides, and lower in the oxides.
But by then the appetite for megaprojects was waning, and Caspiche, with a capex of $4.8 billion, certainly fit into that category. To make the trend especially clear, Exeter would soon see Barrick halt development at it and Kinross Gold’ Cerro Casale project, sitting just 10 km south of Caspiche, after capital costs ballooned from $4.3 billion in early 2010 to $6 billion by mid-2011.
In response Exeter looked to Kinross’ Maricunga mine, a more nimble heap-leach operation 15 km north, for inspiration instead, and went back to the planning stage.
The New Caspiche
Exeter announced its new vision for Caspiche in May 2014, setting out three development options in a new preliminary economic assessment.
Option one is a standalone 30,000-tonne-per-day (tpd) heap leach oxide gold project that could produce about 122,000 AuEq oz. a year for 10 years.
Option two is scaled-up 60,000 tpd heap leach mine, transitioning into a 27,000 tpd open pit to mine the higher-grade gold-copper sulphides. Under this plan the mine would produce about 289,000 AuEq oz. a year for 18 years.
Finally option three outlines a similar 60,000 tpd heap leach mine, but then transitions into underground open stope mining. This plan sees varied production rates, averaging 250,000 oz. gold in the first three years and 425,000 AuEq oz. in years 4-13, while the overall average rate is 344,000 AuEq oz. over 42 years.
The new plans are also based on somewhat revised resources, with an oxide measured and indicated resource of 121.5 million tonnes grading 0.43 g/t Au and 1.58 g/t Ag for 1.7 million AuEq oz. at a 0.18 g/t AuEq cutoff., and a sulphide resource of 1.4 billion tonnes grading 0.51 g/t Au, 0.19% Cu, and 1.2 g/t Ag for 39.6 million AuEq ounces at a 0.30 g/t AuEq cutoff.
All three plans take advantage of the large, flat-lying oxide gold cap of the deposit. All of the copper has leached from this oxide zone, so it’s well-suited to heap leaching, and being so near-surface means the waste to ore ratio is an attractive 0.27:1.
Wendell Zerb, who came on as president and CEO of Exeter in early 2013 and has lead the re-imagining of Caspiche, says the heap leaching will be a great lead-in to any of the project options.
“These new studies confirm the development optionality at Caspiche and the economic strength of the numerous lower capex mining options available. Our standalone surface oxide gold zone with very little waste rock and relatively rapid gold recovery characteristics is a logical first step in each development option.”
The heap leap option could become even more attractive, with detailed metallurgical results released after the study was finished showing better-than-expected recoveries in the early years of production. The results, released in November, show extraction rates of 93% in the first two years of operation, and 87.7% in years three and four, which also correspond to the years that the highest grades would be processed. The higher recoveries could lead to quicker capital payback and improve the overall financials of the project.
Capital costs for the three projects vary quite a bit, but thanks to the heap leach component all allow for manageable initial costs and for cash flow from the oxide zone to finance additional capital requirement as the project expands.
For heap leaching alone, the mine would initially cost an estimated $251 million, while the other two options call for around $380 million in initial costs and then $926 million in sustaining costs for the open pit sulphide mine and $1.58 billion in sustaining costs of the underground option.
As to the potential after-tax (27%) profitability of the plans, option one has an IRR of 28.5% and a NPV of $252 million, option two has an IRR of 21.1% and NPV of $656 million, and option three has an IRR of 16.7% and $1.14 billion, all at a 5% discount rate and based on US$1,300/oz. gold and $3/lb. copper. Payback ranges from 3.4 years to 7.7 years in the plans.
Commenting on the new plan, Exeter co-chairman Yale Simpson stated “Our ability in today’s market to focus on advancing the 1.7 million ounce gold oxide open pit is sensible and achievable. Importantly for shareholders, with future elevated gold and copper markets, we believe the value of the very large Caspiche gold-copper inventory will be a strong value driver for Exeter. Caspiche is unique, representing one of only a few scalable development projects that is not yet controlled by a major company.”
Quenching Caspiche’s thirst
Drafting plans that reduce upfront capex has been important for Exeter, but even more importantly the new plans all significantly reduce water needs for the mine.
The old mine plan needed about 1,000 liters a second (l/s), no small amount deep in the desert. The new heap leach plan, however, requires less than 5% of that at 44 l/s, while the sulphide mine would need between 150 and 185 l/s.
Those are much more manageable numbers, but Exeter has yet to secure any water in the district. The majors who have set up shop in the area have all made sourcing water a priority, leaving few promising tenements left in the area.
But in 2013 Exeter struck a deal with Atacama Pacific Gold to earn 90% of several potential water concessions about 120km northeast of Caspiche, and last year made significant progress on proving up a viable water supply there.
From preliminary results Exeter believes its Peñas Blancas water tenement has the potential to provide sustainable water flows of over 200 l/s, which would be enough to run any of the three new mine plans.
So far the company has drilled five large diameter water bore holes and two smaller monitoring holes at its Peñas Blancas concession, and is currently working on more definitive measurements of flow and recharge rates that could confirm Exeter has secured a water source for Caspiche.
Back on track
With Exeter tackling its capex and water issues, the company is looking to be much more attractive than it did two years ago. The company now appears to have numerous options to advance Caspiche, which still includes attracting a mid-cap or major to take on a large portion of Caspiche or outright buy the Company.
Fortunately Exeter is well-positioned to continue to advance the new vision for the project while it assesses its development options or it attracts a buyer. The company had about C$30 million in cash at the end of 2014 with no loans or bank debts. It also only has about 88.4 million shares out, which at the roughly $0.50 it has been trading, makes for a market cap of a little over $44 million. That makes for a fairly easy acquisition for a major looking to add a potential 40 million AuEq oz. deposit to its reserves.
There’s no telling when project buyouts might pick up, but with Exeter’s low valuation compared with its resource, and the company taking the key steps needed to de-risk the project, it could become an acquisition target for range of mid cap or major mining companies.
- Peter Spina
Exeter Resource Corp.
NYSE: XRA | TSX: XRC
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-- Published: Thursday, 26 February 2015 | E-Mail | Print | Source: GoldSeek.com