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TABLE OF CONTENTS Feb 11 - 17, 2013 Volume 98 Number 52 - 0 comments

Atacama is hopeful at Cerro Maricunga

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Atacama Pacific Gold (ATM-V) has bright prospects for its Cerro Maricunga gold project in Chile following the release of a positive preliminary economic assessment (PEA), which was welcomed by analysts. The project is in Region III, 140 km by road northeast of the city of Copiapo.

The study envisions Cerro Maricunga as an 80,000-tonne-per-day operation producing 270,000 oz. gold a year over a 10-year life. Output for the first five years should average 298,000 oz. gold a year. Capital costs to build the open-pit heap-leach operation are pegged at US$514.6 million, with another US$249 million in sustaining costs, including a 5% contingency.

“We view the news as positive, as ATM has surpassed a significant milestone and continues to develop Cerro Maricunga,” Raymond James analyst Gary Baschuk says. But he has lowered his target to $6.25 from $6.75 to reflect the higher-than-expected sustaining costs, noting his model remains conservative.

That said, Baschuk maintains an “outperform” rating and believes Cerro Maricunga is “relatively simple to process,” with “good resource-expansion potential.”

The PEA indicates that Cerro Maricunga could deliver a total of 2.7 million oz. gold at life-of-mine operating costs of US$652 per oz., using conventional open-pit mining methods and leaching processes.

Atacama notes that the ore will be crushed in three stages to 19 millimetres in size before being conveyed to the heap leach pads. About 261 million tonnes grading 0.4 gram gold per tonne would be leached throughout the mine’s life. The company anticipates gold recoveries of 79.5% and a 1.6-to-1 strip ratio.

Canaccord Genuity analyst Steven Butler writes that some advantages of the large-scale project include “the relatively low strip ratio, high recoveries due to the oxide natures of the mineralization hosted in porous volcanic breccia, conventional crush requirements and low to moderate cyanide and lime consumption levels.”

Atacama says its flagship asset has strong economics and a quick payback of roughly three years. Cerro Maricunga has an after-tax net present value of US$531 million and an internal rate of return of 26.6%, at a 5% discount rate and a US$1,450 per oz. gold price.

Atacama intends to go straight to a feasibility study, considering ways to optimize the project’s returns.

Some opportunities that Atacama has identified include expanding the overall resource through further drilling and leaching coarser crushed ore in a valley-fill, heap-leach scenario, as well as possibly contracting the crushing and conveying operations.

Butler at Canaccord Genuity notes that the junior could materially bring down its initial costs if it finds a closer water source. The PEA assumes Atacama will spend US$85 million to build a pipeline to transport water to the project from its water-exploration concessions, located 100 km away.

On the exploration front, Atacama is completing a 20,000-metre program to upgrade inferred resources and test undrilled areas in the pit shell. An updated resource estimate for Cerro Maricunga is expected by September.

The pit contains 3.3 million oz. gold, or 75% of measured and indicated and 33% of its inferred, unconstrained resources.

Bulter rates the stock as a “speculative buy,” and believes Atacama is an appealing merger target, given Cerro Maricunga is a “relatively straightforward, high rate of return heap-leach project.” But he has lowered his target to $6.75 from $8 to reflect the constrained resource, instead of the potential global resource of 5.1 million oz. gold.

On the PEA news, Atacama moved down a percent at $2.97, within a 52-week range of $2.26 to $4.40.

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A drill site in the Lynx zone - with the Phoenix zone in the background - at Atacama Pacific Gold's Cerro Maricunga gold project in Chile. Source: Atacama Pacific Gold
A drill site in the Lynx zone - with the Phoenix zone i...

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