VANCOUVER — Exeter Resource’s (TSX: XRC; NYSE-MKT: XRA) Caspiche project in northern Chile hosts proven and probable reserves exceeding 19 million oz. gold and 4.6 billion lb. copper. Such a large deposit had Exeter envisioning a big mining operation: the company’s first plan involved a massive open-pit mine feeding a 150,000-tonne-per-day flotation facility and a 72,000-tonne-per-day heap-leach operation.
But a big mine bears a big price tag — US$4.8 billion in the case of Caspiche — which is a lofty sum in today’s tight capital markets. The plan also required as much as 1,000 litres of water per second, another major stumbling block for a project in one of the world’s driest regions.
Rather than keep struggling against these barriers, Exeter took a fresh look at Caspiche. The result is a new preliminary economic assessment (PEA) that outlines three options for mine development, so that Exeter can start with a small mine and grow it into a major one.
Option one — the smallest starting point for Caspiche in the new PEA — is an open-pit oxide gold operation churning through 30,000 tonnes per day to produce 122,000 equivalent oz. gold annually over a 10-year mine life. The mine would be small, but it offers some good numbers.
For one, the topography of the oxide zone means this stage of operations would bear a life-of-mine strip ratio of just 0.27 to 1. Also, the gold in Caspiche’s oxide zone responds well to leaching, with 80% recovering to the leach solution. Silver recoveries average 40%.
It would cost US$210 million to build the small oxide operation. For this investment, Exeter could produce a gold-equivalent ounce for US$626, and generate a 30.2% after-tax internal rate of return, enabling capital payback in 3.5 years. The PEA uses prices of US$1,300 per oz. gold, US$3 per lb. copper and US$20 per oz. silver, and a 5% discount rate.
The PEA’s two larger mine-development options are based on tapping into the oxide blanket and the large sulphide mineralization body below it.
Option two is also an open-pit concept, but a much larger one. The plan starts with an accelerated heap-leach operation that exhausts Caspiche’s oxide zone in six years by mining 60,000 tonnes of ore a day. At that throughput the heap-leach operation would produce 240,000 oz. gold annually.
Once the oxide blanket is gone, the open-pit mining of the sulphide mineralization would put 27,000 tonnes of primary ore through a flotation concentrator each day for another 12 years.
It would cost US$371 million to build the heap-leach part. Expanding the open pit and adding the flotation plant for start-up in year six would cost another US$926 million. On average, the heap-leach and flotation portions of the mine could produce an ounce of gold equivalent for US$752, and the mine would produce 289,000 equivalent oz. gold per year for 18 years.
Option two would generate a 22.7% after-tax internal rate of return, enabling capital payback in 6.6 years.
The third option at Caspiche mixes open-pit and underground mining. The open-pit part is similar to that in option two — a 60,000-tonne-per-day oxide operation producing 250,000 oz. gold annually for five years.
But option three’s underground mining supplements the open-pit starting in year three, targeting the high-grade core of Caspiche’s sulphide zone. With one ramp, the underground mine would be limited to 15,000 tonnes per day until year seven, when a second ramp would push capacity to 27,000 tonnes per day.
Over a 42-year mine life this version of Caspiche would produce an average of 344,000 equivalent oz. gold annually. It would cost US$387 million to build the heap-leach aspect of option three. Another US$1.6 billion would be needed to develop the underground mine and sulphide-processing facility.
For that investment Exeter could produce each gold-equivalent ounce for US$828. Option three should generate a 17.6% after-tax internal rate of return, which would let Exeter recoup its investment in eight years.
“These new studies confirm the development optionality at Caspiche,” Exeter president and CEO Wendell Zerb said in an interview. “Analysts and many others are especially interested in the oxide stand-alone. In addition, our staged approach to advancing in the gold–copper sulphides is critical to our new direction — this has also been positively viewed.”
Exeter already knows which path it will pursue. After explaining the three PEA scenarios in a statement ,the company says the “compelling preliminary economics and modest capital requirements” of option one make it the “logical path forward for Exeter.”
“Our ability in today’s market to focus on advancing the 1.5 million oz. gold oxide open pit is sensible and achievable,” Exeter co-chairman Yale Simpson said.
Today’s markets are likely driving Exeter towards a smaller Caspiche concept, because the resource is very large. The project’s sulphide resources total 1.3 billion measured and indicated tonnes grading 0.52 gram gold per tonne, 0.2% copper and 1.17 grams silver per tonne, plus 195.6 million inferred tonnes averaging 0.29 gram gold, 0.12% copper and 0.91 gram silver.
Oxide resources add 121.5 million measured and indicated tonnes grading 0.43 gram gold and 1.58 grams silver, plus a small inferred count.
Caspiche is in the Atacama region, 120 km southeast of Copiapo. The project is accessible from the roads that service the Maricunga gold mine 15 km north and the undeveloped Cerro Casale gold–copper project 12 km south.
The Atacama is famously arid, with an average 2.5 cm of rain a year. As such, water requirements are a common barrier to mine developments. Would-be miners have to buy up water rights from neighbouring landowners until they can drill enough wells to satisfy their operational requirements. Some mines instead rely on desalinated seawater, often piped in dozens or hundreds of kilometres from the coast.
Caspiche is still many years from operation, but its potential water requirements have already led to strife. Exeter is negotiating a legal battle over its right to drill for water on an adjacent land package owned by a private Chilean company.
All three of the Caspiche development options require less water than the huge mine originally planned. That operation would have needed as much as 1,000 litres per second. By contrast, water requirements for the small heap-leach operation would peak at 44 litres per second, the expanded open pit might use as much as 185 litres per second and the combined open-pit and underground operation could need 151 litres per second.
“Our water program is critical: Exeter, like all companies advancing mining projects in the area, needs to secure water,” Zerb said. “We are drilling production-sized holes at our Laguna Verde concession, and we believe this area could contain all the water we would need for any of the three options.”
Exeter is drilling up to three water-production holes on its Laguna Verde water-exploration tenement, which is east of Caspiche and is not subject to legal disputes.
“We expect to release the results of this drilling in the second quarter,” Zerb said. “When water is secured we will be in a position to push forward new feasibility studies.”
On news of the new PEA, Exeter’s share price dropped 4¢ to close at 61¢. The company has a 52-week share price range of 53¢ to $1.15, and 88.4 million shares outstanding.
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