Newstrike touts low costs in Ana Paula PEA

VANCOUVER — Four years ago junior Newstrike Capital (TSXV: NES; US-OTC: NWSKF) scored a strategic slice of Mexico’s emerging Guerrero gold belt (GGB) in the form of its wholly owned Ana Paula gold asset, and now the company is hoping the project could be the prolific district’s next production story. With 110,000 metres of drilling and a maiden resource in its pocket, Newstrike has tabled an encouraging inaugural preliminary economic assessment (PEA) for Ana Paula.

GGB deposits are related to  gold-bearing iron skarn mineralization, where gold is associated with contact replacement, stockwork and disseminated mineralization hosted in limestone and shale, intruded by dykes, sills and stocks of Tertiary age.

The game changer for Newstrike could be the discovery of Ana Paula’s Breccia zone, which represents a new kind of depositional setting in the region, with drilling outlining a core zone of high-grade mineralization hosted in breccia that is surrounded by an alteration halo of lower-grade mineralization hosted in intrusion, hornfels, skarn and sedimentary rocks.

The lower-grade bulk tonnage gold-and-silver target is “primarily intrusion hosted” and compares to the style of near-surface mineralization discovered by Goldcorp (TSX: G; NYSE: GG) at its nearby Los Filos operation.

Newstrike’s PEA models a US$164-million conventional open-pit operation, which would include a gravity-flotation and carbon-in-leach processing circuit that would hum along at 6,000 tonnes per day.

The study focuses on resources of 41 million measured and indicated tonnes grading 1.4 grams gold per tonne and 5.37 grams silver per tonne for a total of 1.9 million contained oz. gold and 7.1 million contained oz. silver. As well, there are 1.9 million inferred tonnes at 1.11 grams gold and 10.85 grams silver. All resources assume a 0.46 gram gold cut-off grade.

The PEA forecasts an 8.2-year mine life and a life-of-mine strip ratio of 2.60 to 1. Newstrike reports that a total of 17.8 million tonnes of resource would be mined, with some of the waste rock stockpiled since an “undetermined portion” could be reclassified as a resource, depending on metallurgical test work.

Over the life-of-mine, 957,000 payable oz. gold and 2 million payable oz. silver would be produced at a head grade of 2.24 grams gold and 6.89 grams silver.

Average annual production at Ana Paula would be 116,000 oz. gold and 239,000 oz. silver at cash costs of US$486 per oz., net of by-product credits.

Recoveries are pegged at 75% for gold and 50% for silver.

Newstrike has been looking at in-pit heap leach gold recoveries to improve economics, though the results did not make it into the PEA release. In June the company reported that results from recent cycle-column testing showed up to 84.1% of the gold was extracted in the first 10 days.

“This specific column-leach result adds an extremely encouraging new dimension to the project. Heap leaching has the potential to lower processing costs and provide an additional source of revenue through the recovery of gold from our mineralized waste,” CEO Richard Whittall noted after the test results. “We plan to investigate the size and scope of this opportunity within Ana Paula’s floating cone pit and the potential for a reduction in the strip ratio, and expansion of the conceptual pit.”

Assuming a US$1,300 per oz. gold price Ana Paula features a US$232-million after-tax net present value (NPV) at a 5% discount rate, along with a 32.8% internal rate of return (IRR) and 2.4 year payback period. Whittall stated in the release that “a low capital requirement with low operating costs makes [Ana Paula] a compelling project,” before adding that it is “one of the best development-stage gold projects in Mexico.”

Newstrike shares have traded within a 52-week price range of 53¢ to $1.16, and jumped up 7% in two days of trading followin the Ana Paula PEA announcement, en route to a $1.08 close at press time. The company reported US$8 million in cash and equivalents at the end of April, and has 114 million shares outstanding for a $124-million market capitalization.