Sandspring strengthens economics of Toroparu mine

VANCOUVER — Sandspring Resources’ (SSP-V) Toroparu gold project in Guyana is sporting strengthened economics after a prefeasibility study lowered anticipated capital costs and increased gold recoveries, compared to the previous plan.

For company president and chief operating officer Yani Roditis, reducing the project’s initial and life-of-mine capital costs is a major achievement.

“We live in such an inflationary environment,” Roditis said in an interview. “Costs usually go up . . . our operating costs did go higher, but the overall capital costs went lower, and for us that is exciting. Also we have much greater confidence in these numbers — these are numbers we can really stand behind, and in fact, we think they are conservative.”

Sandspring completed an initial preliminary economic assessment for Toroparu in 2011, and updated the study in early 2012.

Since then the company has come to better understand Toroparu’s mineralization, finding that the deposit contains three types of gold-bearing “ore” in distinct bodies that can be mined separately.

This knowledge inspired a three-stage development plan that should provide for earlier cash flow and increased overall gold recoveries relative to previous plans. The three types of mineralization in question are saprolite-hosted gold; fresh material containing gold and copper; and fresh material hsoting only gold.

At the main Toroparu deposit the fresh rock underneath the saprolite exists in two coherent bodies: a pod containing gold and copper lies in the centre of the planned pit, while the pod bearing only gold lies just below. The smaller SE deposit contains a small body of gold-copper mineralization. Most of the fresh rock within the SE pit will be the gold-only fresh variety.

Three types of mineralization calls for three stages of mine development. In the first stage, 5 million tonnes of saprolite carrying 0.91 gram gold per tonne would be scraped from the tops of the two planned pits at Toroparu and processed through a 3,250-tonne-per-day cyanide-leach facility.

In its first two years the facility would churn through 1.2 million tonnes of saprolite ore. However, these years are considered part of the pre-production time frame, during which time the ounces produced would help fund a second processing facility at Toroparu that can handle fresh rock containing gold and copper.

The facility would take the form of a 15,000-tonne-per-day mill and flotation facility, withToroparu operational once the flotation facility is up and running. For its first three years the flotation operation would process fresh ore bearing 1.17 grams gold and 0.18% copper. The tailings from the flotation facility would be sent through the cyanide-leach system for reprocessing at a daily rate of 2,500 tonnes. Stockpiled saprolite ore would also be sent through the cyanide-leach facility, at a rate of 1,500 tonnes per day.

In year four things would shift again. The flotation facility would keep operating, but throughput would fall to a daily 7,500 tonnes because miners would have reached the second type of fresh-rock mineralization at Toroparu. This second layer carries much less copper — only 0.05%. Gold grades still average 0.89 gram gold, which means the lower segment of fresh rock is best processed with cyanide leach.

To accommodate the new flood of fresh gold ore, the cyanide-leach facility would be expanded to 15,000 tonnes per day. It would run at this level from its commissioning in year four to the end of the mine’s life in year 16.

Capital costs to get the mine to commercial operation total US$501 million, comprising US$152 million for the initial 3,250-tonne-per-day cyanide-leach facility and $349 million for the flotation facility.

However, the gold produced from the leach facility during those two pre-production years is expected to generate an operating margin of $37 million, which would reduce total net capital costs to US$464 million.

Expanding the leach facility during year three is expected to cost another $50 million. Operating cash flow should be sufficient to fund the expansion.

The investment should create a mine able to produce an ounce of gold for an average of US$700 over Toroparu’s 16-year planned mine life, net of copper credits. The mine is expected to produce 228,000 oz. gold annually during these 16 years.

As for copper, output during the first three years of operation would average 25.7 million lb. per year, contained in concentrates shipped to an offshore smelter for refining. Once flotation throughput falls to 7,500 tonnes per day in year four, copper production would drop to 8.8 million lb. annually.

Using a gold price of US$1,400 per oz., a copper price of US$3.25 per lb. and a 5% discount rate, Toroparu bears an after-tax net present value US$691 million and an internal rate of return of US$23.1%. Those numbers mean that Sandspring could repay the mine’s capital costs in 2.6 years.

Toroparu is in the Guiana Shield, which hosts a gold-bearing volcano-sedimentary belt that runs east to west through Venezuela and Guyana.

A more-vigorous history of gold exploration in Venezuela means the western half of the belt is home to several large, well-defined gold-copper deposits. The Guyanese half, however, did not see systematic, regional gold exploration until recently.

Sandspring’s team has been exploring in Guyana for almost 15 years, though the company has only existed in its current form since late 2009.

The company’s work at Toroparu has outlined a deposit bearing gold-and-copper mineralization in discrete quartz-carbonate veins and fractures hosted in contact zones between intermediate volcanics and tonalite plutons.

The Toroparu resource is considerably larger than the reserve-category material considered in the prefeasibility study. The prefeasibility study included the first attempt to estimate Toroparu’s reserves, which came back at 127.1 million proven and probable tonnes averaging 1 gram gold and 0.11% copper. Fresh, gold-only ore represents the majority of the reserves count, at 70.3 million proven and probable tonnes grading 0.89 gram gold.

Toroparu’s resources, by contrast, stand at 240.2 million measured and indicated tonnes averaging 0.89 gram gold and 0.084% copper, plus 129.5 million inferred tonnes averaging 0.74 gram gold and 0.042% copper. Economic and engineering considerations left 5 million oz. gold outside of the reserve pit shell. Sandspring hopes more drilling can shift some of these ounces into the pit. Sandspring’s regional prospecting work has also identified 10 gold anomalies with an alteration footprint that extends 20 km from Toroparu in every direction.

Roditis says that there are multi-million ounce deposits across the border in Venezuela, and that “Guyana was closed in the past, but it’s totally open for business right now, and it is elephant country — there is so much to explore and so much to be found.”

The Guyana government is supportive of Sandspring, having already agreed to grant a large-scale mining licence for Toroparu that would authorize construction and production once Sandspring demonstrates the project is feasible.

But getting the feasibility study done will be a challenge.

“We live in a different world these days,” Roditis says. “Six or seven years ago it would be a no-brainer to build this project. It’s very robust — at higher metal prices, it generates killer returns — but investors don’t seem to be interested in gold today, so the gold industry at large is suffering from this general trend,” he says.

“Still, we will move forward because it’s worth moving forward: it’s a great project with huge upside. We will move ahead with the bankable feasibility, but we have to be cautious in how we spend our shareholders’ capital. I wish I had all the cash in the world to go ahead with exploration, beca
use this is elephant country. But the times are difficult at the moment, so we have to be prudent.”

Sandspring’s share price remained unchanged at 26¢ on news of the Toroparu prefeasibility study. The company last traded at 21¢ in a 52-week trading range of 21¢ to 93¢, with 132 million shares outstanding.