Cerro Resources NL (TSX VENTURE:CJO)(ASX:CJO) ("Cerro Resources" or the
"Company") is pleased to announce the findings of the independent definitive
Feasibility Study ("FS") for the 4.5Mtpa open pit, First Stage Heap Leach
component of the Cerro del Gallo gold/silver project, located in Guanajuato
State, Mexico.
The project is currently owned 67% by Cerro Resources and 33% by Goldcorp Inc.
The FS outlines an initial 7.2 year mine life. As indicated in a Preliminary
Assessment announced by the Company in April 2011, mine life could potentially
be extended to approximately 14 years through a Second Stage Carbon-in-Leach
("CIL")/Heap Leach mill expansion. The Second Stage expansion will be the
subject of a separate DFS, expected in Year 3 of mining(1).
Highlights - CERRO DEL GALLO FIRST STAGE HEAP LEACH FS
(At metal pricing of US$1,341/oz Au, US$25.58/oz Ag and US$7,582/t Cu)
Operating Results
Maximum annual gold equivalent production(2) 99.1 k oz
Average annual gold equivalent production(2) 94.6 k oz
Cash operating cost(2, 3) US$516 per oz (Au
eq)
Pre-production capital costs:
Plant & Infrastructure Costs and Owners Costs US$136M
Mining fleet cost(4) US$18.8M
Life of Mine (LOM) 7.2 years
Financial Results
(Assumes owner operated mining fleet and includes
sustaining capital) (4)
Undiscounted Net Cash Flow(5) (after capex, pre-tax) US$280M
Net Present Value @ 6%(5) (after capex, pre-tax) US$181M
Pre-tax IRR(5) 30.5%
Pre-production Capital Payback Period(4, 5) 2.7 years
- Subject to financing, the Company with its joint venture partner
(Goldcorp Inc.) is now able to make a decision to proceed to permit and
develop and seek Goldcorp's election of its participation.
- The Company has been in advanced discussions regarding funding
alternatives; some alternatives provide construction capital without
recourse to issuing additional equity. The Board will consider all
funding options but has a preference to minimise issuing equity at
current market pricing.
- The Company intends to advance the requisite joint venture partner and
financing discussions within the current quarter. A finalised funding and
construction commencement pathway will be determined as soon as is
achievable in 2012.
- While the First Stage Heap Leach project economics are primarily driven
by gold and silver recoveries, the incorporation of a Sulphidation -
Acidification - Recycling - Thickening (SART) process to reduce process
risks and cyanide costs has also enabled the recovery of some low grade
copper into a precipitate.
- Capital costs in this FS have been updated from those outlined in the
internal Feasibility Study released in April 2011, to reflect in
particular
- an updated EPCM-basis mine construction contract,
- High Pressure Grinding Rolls (HPGR),
- SART, and
- Updated mining capital costs.
These changes to FS parameters reduce the risk to project delivery,
operational performance and costs. A decision on whether to own-operate
the mining fleet or contract mine is yet to be made.
- A Canadian National Instrument 43-101 report summarising the FS will be
filed on SEDAR within the next 45 days, in compliance with the
requirements of Canadian securities laws and Cerro Resource's TSX Venture
Exchange listing.
Cerro del Gallo First Stage Heap Leach - Feasibility Study detailed findings
The FS for the First Stage Heap Leach was prepared under the direction of
Sedgman Limited ("Sedgman"), Perth, Australia, with inputs from other
independent international consultants, builds upon the feasibility study in
April 2011 (the "2011 Study") (see news release of the Company dated April 12,
2011) and confirms the financial and technical viability of constructing and
operating a 4.5 Mtpa open-pit, heap leach gold/silver mine at Cerro del Gallo.
The FS primarily addressed changes to processing and relied on the Proven and
Probable reserves determined in the 2011 Study, which were updated in the FS to
include copper values. These are now referred to as the 2012 Proven and Probable
Reserves in the FS. Mining costs in the FS were adjusted to account for higher
fuel costs and capital and operating costs were factored with appropriate values
to bring the costs up to date. The production schedule from the previously
defined pit designs was updated to include copper values.
The development of the Cerro del Gallo project for gold and silver production
requires the processing of three different material types: weathered, oxidized,
and sulphide (fresh).
The 2011 Study determined that to fully develop the project for gold and silver
recovery, heap leaching should be used for the weathered and oxidized material
and CIL for the sulphide (fresh) material. The 7.2 year approximate First Stage
Heap Leach mine life will see the heap leach processing of the weathered and
oxidized material - which forms the relatively higher-grade gold/silver part of
the much larger gold/silver/copper resource at Cerro del Gallo.
Mineral Reserves
The 2011 Study Proven and Probable reserves have been updated to include copper.
The 2012 Proven and Probable reserves of 32.2Mt for the First Stage Heap Leach
project are shown in the table below, and this forms the basis for the DFS.
First Stage Heap Leach FS - Proven and Probable Reserves
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Total
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Cu Kt
Category K Tonnes g Au/t K Ozs Au g Ag/t K Ozs Ag % Cu
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FS Proven 28,248 0.71 643 15.05 13,664 0.08 22.8
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FS Probable 3,971 0.54 69 13.20 1,685 0.07 2.8
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FS Proven
and
Probable(6) 32,219 0.69 712 14.82 15,349 0.08 25.6
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Key Data
The following tables set out aggregated summaries of key FS data - presented on
an average life-of-mine or total life-of-mine basis for the First Stage Heap
Leach.
First Stage Heap Leach FS - Operational Data
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Mining
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Ore Mined 32.2Mt
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Waste Mined 29.4Mt
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Gold Grade 0.69 g/t
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Silver Grade 14.8 g/t
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Copper Grade 0.08%
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Strip Ratio 0.91(7)
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The waste mined includes 9Mt of mineralized fresh rock material which is
potential feed for the Second Stage CIL/Heap Leach development. This would have
an economic benefit for the Second Stage CIL/Heap Leach and will be evaluated in
the second stage FS.
First Stage Heap Leach FS - Additional Operational Data
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Milling
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Annual Throughput 4.5Mt
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Overall Gold Recovery 68.5%
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Overall Silver Recovery 50.1%
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Overall Copper Recovery 31.8%
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Maximum gold equivalent production, k oz per annum (8) 99.1 (Yr 3)
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Average gold equivalent production, k oz per annum (8) 94.6
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Average gold production, k oz per annum 67.9
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Average silver production, k oz per annum 1,072
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Average copper production, t per annum 1,113
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Base Life of Mine Stage 1 7.2 years
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The average metal recoveries are based on column leach test work on diamond
drill core composite samples, crushed by high pressure grinding rolls (HPGR) and
leached for 115 days.
First Stage Heap Leach FS - Annual total metal production
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Gold Silver Copper Gold
Year (k oz) (k oz) (t) (k oz Eq)(8)
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1 47.7 525 267 59.2
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2 76.5 970 682 98.9
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3 74.0 1,016 1,018 99.1
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4 60.2 1,080 1,128 87.2
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5 58.7 1,096 1,223 86.5
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6 64.6 1,189 1,349 94.9
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7 69.5 1,144 1,380 99.1
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8 36.3 677 943 54.6
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Total 487.5 7,697 7,990 679.5
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The annual metal production is based on the mining study for the First Stage
Heap Leach completed by Mine Development Associates (MDA) in May 2011 and
updated for this current FS. The above metal production is the total metal
production prior to shipment to a refinery for gold and a smelter for copper and
silver concentrate treatment. Payable metal percentages are included in the
financial analysis. For gold and silver as dore, it is 99.75% and 99%,
respectively. For copper and silver as SART concentrate shipped, 73% of the
metal value is payable. Transport, treatment and refining costs have also been
included.
First Stage Heap Leach FS - Cash Operating Costs
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US$/t Average US$/oz Au Eq
Cash Operating Cost (ore tonne) Average(8)
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Mining 3.2 152
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Processing 6.63 314
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Metal Transport & Refining 0.30 14
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G & A 0.76 36
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TOTAL 10.89 516
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Capital costs for the First Stage Heap Leach have been classified as
Pre-production Capital Costs, which includes Plant and Infrastructure Costs,
Owners Costs and Mining Fleet, and Sustaining Capital as outlined in the
following three tables.
First Stage Heap Leach FS - Pre-production Capital Costs
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Cost
Capital Costs (000's US$)
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Plant and Infrastructure Costs
Crushing 25,609
Agglomeration 4,970
Heap Leach Pad & Ponds 21,413
SART Circuit 12,524
Adsorption 2,620
Elution & Gold Room 2,275
Reagents 3,991
Services & Infrastructure 27,035
Subtotal 100,437
Contingency 9,242
Total Plant Costs (Inclusive of EPCM) 109,679
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Owners Costs
High Voltage Power Supply 4,725
Mobile Equipment 962
Pre-Production Labour 2,187
Regulatory, Land, Insurance etc 4,013
Insurance & Operating Spares 1,742
Working Capital (3 months) 11,447
Subtotal 25,076
Contingency 1,254
Total Owners Costs 26,330
----------------
Project Cost First Stage 4.5Mtpa Heap Leach 136,009
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No final decision has been taken as to whether to mine by an owner operated
fleet or to contract mine. The capital requirements of providing a fleet will
reduce and operating expenses are likely to increase if contract mining is
adopted. Tender documents to invite mining contractors working in Mexico to bid
on mining at Cerro del Gallo have been drafted and will be issued in the coming
months. Following that and based upon financing, a decision will be made. An
estimate of the additional capital costs for the required mining equipment to
commence mining for the First Stage Heap Leach component has been completed by
MDA.
First Stage Heap Leach FS - Pre-production Mining Fleet Costs
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Cost
US$,000
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Primary Mining Equipment 9,898
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Support Equipment 4,729
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Blasting 236
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Mine Maintenance 542
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Other Mine Capital 3,385
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Total Year 1 Mining Capital 18,790
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First Stage Heap Leach FS - Sustaining Capital
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Cost
US$,000
----------------------------------------------------------------------------
Mining Capital 12,533
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Leach Pad Expansion 10,000
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Stacking Equipment etc 4,900
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Other 1,500
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Total 28,933
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Sustaining capital is reflective of amounts in addition to the pre-production
capital and mining fleet costs, which are incurred over the life of mine and
have been allowed for in economic modelling.
First Stage Heap Leach FS - Key Economic Indicators
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Financial
----------------------------------------------------------------------------
Net Smelter Return Royalty 4%
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Undiscounted Net Cash Flow ($USm) (9) 280
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Net Present Value @ 6% ($USm) (9) 181
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Pre-production Capital Payback Period
(includes mining fleet) (9) 2.7 Yrs
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Pre-tax IRR(9) 30.5%
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Economic modelling provides for mining by an owner-operated mining fleet and
metal pricing of US$1,341 Au/oz, US$25.58 Ag/oz and US$7,582 Cu/tonne.
----------------------------------------------------------------------------
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(1) A preliminary assessment in respect of the Second Stage CIL/Heap Leach
component was announced in April 2011 (see announcement of the Company
dated April 12, 2011)
(2) The gold equivalent ounces are calculated using the 3 year historic
gold, silver and copper prices US$1,341/oz, US$25.58/oz and US$7,582/t
respectively for gold:silver price ratio of 52.4 and a gold:copper
price ratio of 0.177. That is, 52.4 oz of silver is equal in value to
1 ounce of gold and 0.177 tonnes of copper is equal in value to 1
ounce of gold.
(3) Cash operating costs represent the costs for mining, processing, metal
transport and refining and administration and do not include capital
costs or royalties (4%) which are deducted from revenues for economic
modelling purposes.
(4) The decision to mine by owner-operated fleet or to contract mine has
not been finalised. Potential to reduce capital costs and improve the
capital payback period and IRR could exist in this regard.
(5) Using 3 year average metal prices of US$1,341 Au/oz, US$25.58 Ag/oz
and US$7,582 Cu/tonne and based on net payable ounces of silver and
gold and payable tonnes of copper.
(6) Proven and Probable reserves are reported using gold equivalent cut-
off grades of 0.21 and 0.29 g/t for weathered and partially oxidized
material respectively. Cut-off grades were applied to gold equivalent
grades which include both gold:silver price and recovery ratios.
(7) The strip ratio includes 9Mt of fresh rock material that will be
stockpiled for later CIL treatment in the Second Stage CIL/Heap Leach
expansion. In the First Stage Heap Leach DFS, this fresh material has
been treated as waste rock.
(8) The gold equivalent ounces are calculated using the 3 year historic
gold, silver and copper prices US$1,341/oz, US$25.58/oz and US$7,582/t
respectively for gold:silver price ratio of 52.4 and a gold:copper
price ration of 0.177. That is, 52.4 oz of silver is equal in value to
1 ounce of gold and 0.177 tonnes of copper is equal in value to 1
ounce of gold.
(9) Using 3 year average metal prices of US$1,341 Au/oz, US$25.58 Ag/oz
and US$7,582 Cu/tonne and based on net payable ounces of silver and
gold and payable tonnes of copper.
Environment and Community
Environmental baseline studies commenced in 2005 and form the basis of an
application for environmental permitting. Site surveys have been completed. The
Environmental Authority application is prepared for lodgement, which will occur
post completion of the FS and acquisition of the land.
Community involvement and consultation commenced in 2005 and the Company has
maintained a presence in the community since that time. Independent survey and
planning forms the basis of meeting community expectations which are ongoing.
Land, Water, Permitting
A significant proportion of the land required for construction of the plant and
facilities has been acquired and negotiations for the balance of the land are
advancing.
Water supply will be principally ground water from a new borefield, supplemented
by storm water harvested from the environmental control dam. A current licence
to draw 400,000m3 per annum is being extended to exceed the required estimate of
657,000m3 per annum.
The right to exploit minerals is included in the mining concessions held. The
mining permit requires a separate application which has been substantially
completed and will be lodged with a copy of the FS once the land ownership is
further advanced.
Second Stage CIL/Heap Leach
The Second Stage CIL/Heap Leach project relates to the addition of a CIL
processing facility to run in parallel with heap leach processing on the
additional resource of the higher grade gold/silver rich part of the Cerro del
Gallo project, expected to commence in Year 5 and extending mine life to
approximately 14 years. The Second Stage CIL/Heap Leach project will be the
subject of a separate definitive feasibility study, which will require detailed
engineering and cost estimation for the CIL processing plant and site
investigation work for the tailings storage facility plus design for the
expanded open pit mine. This work is to be completed during Year 3 of the heap
leach operations. A preliminary assessment in respect of the Second Stage
CIL/Heap Leach component was announced in April 2011 with the 2011 Study (see
news release of the Company dated April 12, 2011).
Comments from the Managing Director
Tony McDonald, Managing Director and CEO, said: "We are very pleased with the
outcome of the FS for the 7+ year heap leach project. It is independent
confirmation of the technical and financial viability of the project - better
yet, it illustrates a low cash cost project that we estimate would sit in the
2nd cost quartile for new gold projects currently being developed or under
construction globally."
"The low per ounce production costs of the first stage will lead us into the
next stage where, subject to completion of other studies, a carbon-in-leach
plant would be added with the objectives of almost doubling the life of the mine
to 14 years."
"We are now in a position to advance joint venture discussions with Goldcorp and
to secure funding to enable a start to construction as soon as permitting and
land acquisitions are completed."
About Cerro Resources
Cerro Resources is a precious and base metals exploration and development
company. The Company is currently focused on Mexico where it is developing the
Cerro del Gallo gold/silver project in the central state of Guanajuato, Mexico,
actively exploring the Namiquipa silver project in northern Mexico, and
commencing exploration on the Espiritu Santo gold/silver project in Jalisco. It
also maintains an active working focus on the Mt. Isa, Queensland, region where
it is exploring the Mt. Philp haematite project and it holds an interest in the
Kalman molybdenum, rhenium, and copper project.
Additional information Cerro Resources is available on the Company's website at
www.cerroresources.com and under the Company's profile on SEDAR at
www.sedar.com.
Competent / Qualified Person
The FS was prepared under the direction of Sedgman and has been reviewed by
Peter Hayward, FAusIMM. Mr Hayward is a qualified metallurgist who has 38 years
of relevant mineral industry experience and qualifies as a Competent Person as
defined in the 2004 edition of the "Australasian Code for Reporting of
Exploration Results, Mineral Resources and Ore Reserves" and is a Qualified
Person as defined in Canadian National Instrument 43-101. Mr Hayward consents to
the inclusion in the release of the matters based on his information in the form
and context in which it appears.
This press release has also been reviewed by John Skeet, MAusIMM, the Chief
Operations Officer of Cerro Resources. Mr. Skeet has sufficient experience,
which is relevant to the style of mineralisation and type of deposit under
consideration and to the activity which he is undertaking to qualify as a
Competent Person as defined in the 2004 edition of the "Australasian Code for
Reporting of Exploration Results, Mineral Resources and Ore Reserves" and is a
Qualified Person as defined in Canadian National Instrument 43-101. Mr. Skeet
consents to the inclusion in the release of the matters based on his information
in the form and context in which it appears.
Readers should refer to the Canadian National Instrument 43-101 technical report
summarising the DFS for further details of the project development. The report
will be filed on SEDAR (www.sedar.com) within the next 45 days, in compliance
with the requirements of Canadian securities laws and Cerro Resource's TSX-V
listing.
Cautionary Language and Forward-Looking Statements
This news release contains "forward-looking information" under Canadian
securities law. Any information that express or involve discussions with respect
to predictions, expectations, beliefs, plans, projections, objectives,
assumptions or future events or performance (often, but not always, using words
such as "expect", "anticipate", "believe", "plans", "estimate", "scheduling",
"projected" or variations thereof or stating that certain actions, events or
results "may", "could", "would", "might" or "will" be taken, occur or be
achieved, or the negative of any of these terms and similar expressions) are not
statements of historical fact and may be forward-looking information. In this
news release, forward-looking information relates to, among other things: the
Company's decision to proceed to the permitting and development stage; obtaining
all required permits; the accuracy of mineral resource and mineral reserve
estimates; the sufficiency of the Company's capital to finance the Company's
operations; estimates of the Company's revenues and capital expenditures;
estimated production; the completion of a FS for the Second Stage
Carbon-in-Leach mill expansion and the extension of the mine life; and the price
of silver, gold and copper.
Forward-looking information are subject to a variety of known and unknown risks,
uncertainties and other factors that could cause actual events or results to
differ from those reflected in the forward-looking information, including,
without limitation, risks relating to: fluctuating commodity prices; calculation
of resources, reserves and mineralization and precious and base metal recovery;
interpretations and assumptions of mineral resource and mineral reserve
estimates; exploration and development programs; feasibility and engineering
reports; permits and licences; title to properties; recent market events and
conditions; economic factors affecting the Company; timing, estimated amount,
capital and operating expenditures and economic returns of future production;
operations and political conditions; and risks and hazards of mining operations.
This list is not exhaustive of the factors that may affect any of the Company's
forward-looking information. Forward-looking information about the future are
inherently uncertain, and actual achievements of the Company or other future
events or conditions may differ materially from those reflected in the
forward-looking information due to a variety of risks, uncertainties and other
factors. Although the Company has attempted to identify important factors that
could cause actual results to differ materially, there may be other factors that
cause results not to be as anticipated, estimated, described or intended.
Accordingly, readers should not place undue reliance on forward-looking
statements or information. The Company's forward-looking information are based
on the assumptions, beliefs, expectations and opinions of management as of the
date of this press release, and other than as required by applicable securities
laws, the Company does not assume any obligation to update forward-looking
statements and information if circumstances or management's assumptions,
beliefs, expectations or opinions should change, or changes in any other events
affecting such statements or information. For the reasons set forth above,
investors should not place undue reliance on forward-looking information.
ABN: 72 006 381 684
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