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Resource World - Oct-Nov 2016 - Vol 14 Iss 6

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46 www.resourceworld.com o c t o b e r / n o v e m b e r 2 0 1 6 miNiNg Ecuadorean deposit: one of the largest undeveloped gold projects in the world by Ellsworth Dickson Sometimes it can take years before an outstanding mining project is finally developed. Such is the case for the huge Fruta del Norte gold deposit in Zamora- Chinchipe province, southeast Ecuador. Originally discovered in 2006 by Aurelian Resources, whose share price soared from 60 cents to about $40, it was producer Kinross Gold that paid $1.2 bil- lion to acquire the junior. Unfortunately for Kinross, the Ecuadorian government wanted a 70% windfall profits tax which Kinross tried to re-negotiate without suc- cess. In fact, all mineral exploration in Ecuador was halted by presidential decree. The project lay dormant until the Lundin Group's Lundin Gold Inc. [LUG- TSX, OMX] acquired a 100% interest in the project in 2014 for US $240 million in cash and shares. Since that time, under the guidance of Ron Hochstein, President and CEO, Lundin Gold has been busy advancing the project to production with ongoing drill- ing programs, metallurgical studies and the completion of an independent Feasibility Study prepared by Amec Foster Wheeler. Mineral resources total 7.4 million ounces of gold indicated and 2.1 million ounces inferred. Probable reserves, upon which the Feasibility Study is based, are estimated to be 4.82 million ounces of gold and 6.34 million ounces of sil- ver (15.5 million tonnes of 9.67 g/t gold and 12.7 g/t silver). The orebody, which is characterized by quartz sulphide and carbonate stockwork veining and breccia- tion, is 1,670 metres along strike, 150-300 metres wide and 700 metres down dip. Mineralization is open to the south. Highlights of the Feasibility Study include: • Average annual gold production of 340,000 ounces at an average life-of-mine (LOM) total cash cost of $553/oz and a LOM all-in sustaining cash cost (AISC) of $623/oz, placing FDN in the lowest cash cost quartile globally; • LOM production of approximately 4.4 million ounces of gold and 5.2 million ounces of silver over an initial 13-year mine life using an average gold recovery of 91.7% and average silver recovery of 81.5%; • Estimated project capital cost, including contingency, of $669 million, net of taxes; • Targeted start of construction in mid-2017; • Expected first gold production in first quarter 2020 with first year of full produc- tion in 2021; • Project economics at a gold price of US $1,250/oz and a silver price of US $20/oz • Net Present Value (5% discount): Pre-Tax $1,283 million; After-Tax $676 million • Internal Rate of Return: Pre-Tax 23.8%; After-Tax 15.7% • Capital payback: Pre-Tax 3.7 years; After- tax 4.5 years On July 14, 2016, the company reported that the Phase Change Application has been approved by the government which means that the project can advance from the exploration stage to the exploitation (mining) phase. The mine Environmental Impact Assessment license was received in Q1. Social license is crucial and the public participation process has been completed and approved. There is still considerable exploration potential on the 75,000-hectare property. The company has recently completed a 26-hole, 10,500-metre program to test high-priority targets. Based on results, more drilling is planned. In addition to the technical work, the

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