In the nearly half-century he has worked in the mining industry, Ralph Fitch has pretty much seen it all.
The geologist was part of the exploration team at Chevron Mining that discovered the Ujina deposit at the Collahuasi copper porphyry project in Chile and, earlier in his career, the Henkries uranium deposit in South Africa, the Coppin Gap copper deposit in Australia and the Pah-My-Yah diamond field in Liberia.
Along the way he co-founded several companies — among them General Minerals Corp. in 1995 and South American Silver Corp. in 2007 — and played an integral role in discovering the Vizcachitas and Escalones copper deposits in Chile and the Malku Khota project in Bolivia, one of the world’s largest undeveloped silver and indium deposits.
It wasn’t until Bolivia, however, that things started to unravel.
In August 2012 the Bolivian government expropriated Malku Khota — South American Silver’s flagship asset.
“It would have been a huge benefit to Bolivia, but they messed it up,” Fitch said during a luncheon presentation in Toronto hosted by the Amex Club, a group of investment professionals.
After a six-month cooling-off period, South American Silver started the international arbitration process and now, one year on, Fitch says he is confident that eventually the company’s shareholders will be compensated.
“It’s possible there will be a large reward,” he told members of the Amex Club. “They’ve paid all of the [arbitration] judgments so far. Bolivia is a wealthy country — they have more deposits than debt, and they want to look good. There’s little doubt they wouldn’t pay.”
The question is, how much.
In the meantime, Fitch has been busy repositioning the company by diversifying its assets and the jurisdictions in which it operates.
In late 2013, South American Silver acquired the Gold Springs gold–silver project in mining friendly Nevada and Utah (the project straddles the border between the two states), and in March 2014 the company was renamed TriMetals Mining (TSX: TMI.B; US-OTC: TMIAF), with Fitch as its chairman, president and CEO.
Since adding Gold Springs to its portfolio, TriMetals has increased the resource by 50% at the project’s Grey Eagle and Jumbo targets. The two now have a combined indicated resource of 13.7 million tonnes grading 0.63 gram gold per tonne and 11.7 grams silver at a cut-off grade of 0.30 gram gold per tonne, in addition to 8.8 million tonnes grading 0.53 gram gold and 11.8 grams silver in the inferred category.
The targets remain open in all directions, and Gold Springs will be the focus of TriMetals’ exploration program this year. The company is well funded, with $10 million in its treasury.
Fitch believes Gold Springs, which lies in a collapsed caldera, has potential for a larger resource, noting that resource drilling so far has targeted only two of 18 similar outcropping gold targets over 1.5 km. Moreover, the company has yet to drill any of its buried geophysical targets, which Fitch says exceed the size of the 18 surface targets.
“We’ve drilled less than 10% of the area where we think we’ll find gold,” Fitch noted in his presentation. “We think we’ve got a good shot at 5 million to 10 million oz.”
What’s more, much of it outcrops, which is one of the reasons a preliminary economic assessment of the project completed in April 2014 shows a 57.5% pre-tax internal rate of return (IRR) and a US$162-million net present value (NPV) at a 5% discount rate, Fitch explains.
A base case using a US$1,300 per oz. gold price and US$21 per oz. silver price outlines a 10,000-tonne-per-day heap-leach operation over a nine-year mine life, with a US$614 per equivalent oz. gold cash cost, or total operating costs of US$749 per equivalent oz. gold. Initial capex using contract mining is estimated at US$58 million, which would rise to US$80 million if the company mined the deposit itself.
“It’s a well thought-of PEA,” he says. “A number of companies are starting to sniff around.”
Fitch concedes that the resource at Gold Springs is still “a modest size,” but describes the project as “solid,” with “significant potential.”
And while it is modest grade, he added, “it works because it starts at surface, has good metallurgy and it isn’t constrained by royalties.”
In addition, TriMetals’ geologists have found high-grade float and have got some high-grade intercepts of 6 grams gold per tonne, which leads Fitch to believe that there is potential to move underground once an open pit is exhausted.
He also believes that permitting won’t pose too much of a problem, noting that Midway Gold (TSX: MDW; NYSE-MKT: MDW) secured its notice-of-intent permit and record of decision on its environmental impact study for its Pan gold project in Nevada in 20 months.
In addition to Gold Springs, TriMetals holds 100% of the Escalones copper–gold porphyry skarn in Chile, 35 km east of the El Teniente copper mine; a 26.8% interest in Highvista Gold (TSXV: HVV); and a 100% stake in the San Antonio gold project in Sonora, Mexico.
Escalones has an indicated resource measuring 232.6 million tonnes grading 0.31% copper, 0.067 gram gold per tonne, 0.661 gram silver and 0.006% molybdenum, and an inferred resource of 527.7 million tonnes grading 0.34% copper, 0.036 gram gold, 0.849 gram silver and 0.007% moly in the inferred category.
So far 25,000 metres have been drilled in 53 drill holes and skarn has been traced by drilling 1.7 km horizontally and 1.1 km vertically. The magnetic anomaly associated with the skarn mineralization extends 2,500 metres north–south and 500 metres east–west to depths of several kilometres.
Early metallurgical test work shows concentrate grades that are between 25% and 34%. “We think the concentrates will be sought-after when the time comes,” Fitch says.
Fitch and fellow geologist Felipe Malbran discovered Escalones in 1996 after setting up General Minerals Corp. in 1995.
The project is 97 km south of Santiago and 9 km from Chile’s border with Argentina, and is accessible by road.
Looking ahead, Fitch said he thinks investors are going to see “more good things” in the coming months from TriMetals, particularly at Gold Springs.
“It’s worthwhile following this project,” he said. “I think it will be a mine, and a big mine.”
If Bolivia eventually pays a cash award or settlement for Malku Khota, 15% of the net proceeds will go to TriMetals, represented by the company’s common shares. The remaining 85% of proceeds will be retained by shareholders of the company’s listed Class B shares.
A 2011 preliminary economic assessment of Malku Khota reported a US$704-million pre-tax NPV at a 5% discount rate and a 37.7% pre-tax IRR at base-case metal prices of US$18 per oz. silver and US$500 per kilogram indium. At US$25 per oz. silver, the NPV rises to US$1.54 million and the IRR to 64.3%.
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