Ocampo study comes back positive

An independent scoping study has given a hearty thumbs-up to the Ocampo gold-silver project, bolstering the determination of Gammon Lake Resources (GAM-T) and its Australian partner to develop a mine.

Situated in the Sierra Madre Occidental region of Mexico’s Chihuahua state, Ocampo hosts 27.5 million tonnes averaging 1.49 grams gold and 63.12 grams silver per tonne. Most of the resource is classified as measured and indicated.

In March, Gammon Lake granted Bolnisi Gold the right to earn 60% interests in five concessions by advancing them to production at a rate of not less than 1.25 million tonnes annually. The Australian company also must cover 60% of pre-existing obligations to an underlying vendor and pay penalties to Gammon Lake if pre-determined scheduling and production rates are not achieved.

The study, conducted by Pincock Allen & Holt, considered two models: one focusing on measured and indicated resources, and another incorporating a considerable volume of inferred material. The second model places a greater emphasis on underground mining.

In both cases, 4,600 tonnes of material would be mined daily by open-pit and underground methods. Only 300 tonnes would be mined from underground. The stripping ratio in both models is 4.3-to-1.

According to the base-case scenario, a total of 5.5 million tonnes of near-surface material and 655,000 tonnes of underground material can be mined over 5.5 years to produce 468,800 oz. gold and 19.92 million oz. silver. Overall production jumps to 1.02 million oz. gold and 44.86 million oz. silver with a prolonged operation, which evisages 10.6 million tonnes being mined by open-pit methods and 2.3 million tonnes being stoped over 11.5 years.

Recovery rates

The projected outputs assume metal recovery rates of 88% for gold and 73% for silver, which is expected to remain relatively unchanged as mining progresses within and between deposits. The estimates are based on metallurgical tests carried out by Kappes, Cassiday & Associates of Reno, Nev.

Life-of-mine cash costs average US$127 per equivalent-ounce gold, or US$118 per oz. when mining is extended to 11.5 years. On a per-tonne basis, underground mining accounts for the bulk of operating expenses; on a cash cost basis, it is the less-expensive method of the two, owing to the much higher grades found underground.

Capital costs are low in both models, being US$27 million for the base case and US$39.3 million for the prolonged case. Gammon Lake’s share amounts to US$2.3 million and US$9.3 million, respectively, with the increase reflecting the greater emphasis on underground mining.

Payback would occur in 1.6 years, regardless of which option is chosen.

Based on metal prices of US$300 for gold and US$4.60 for silver, the shorter operation generates a net present value (NPV) of US$76.3 million when a 5% discount rate is applied. The rate of return (ROR) rings in at 88%.

Prolonging production increases the NPV to US$176.2 million and the ROR to 91%. Both estimates are based on the same metal prices and discount rate as is noted above.

An analysis of metal prices demonstrates significant but tolerable fluctuations in the economics. For instance, a 17% depreciation of both metals reduces the NPV to US$45.5 million and the ROR to 54% in the base case, while increasing the payback period by five months.

Bolnisi Gold’s feasibility study is scheduled for completion later in the year.