Revamped Virgin Metals improving Los Verdes

VANCOUVER — Back in 2008 Virgin Metals (VGM-V) was banking big on the high molybdenum price, marketing its advanced Los Verdes deposit in Mexico’s Sonora State as an exciting moly play and trying to rush it towards production.

When the moly price collapsed so did the company, with Virgin’s share price plunging from a high of $4.15 in late 2007 to as low as 5¢ in late 2008. Nearly bankrupt, project stalled, and with the markets a mess, the company coasted listlessly with three different CEOs in 2009.

In mid-2010, however, the company started to right itself. An entirely new management team came on board, which then instituted a one for five share consolidation, raised cash, settled debts and started moving Los Verdes forward again.

The new team includes Chris Frostad as president and CEO, who is also head of Purepoint Uranium (PTU-V) and has 30 years experience in executive roles. He is joined on management by the mine-building team that brought Castle Gold from exploration stage to running two mines in Mexico before it was bought by Argonaut Gold (AR-T) in 2009. That team includes Darren Koningen, P. Eng., who is now VP technical services and director at Virgin; Frederico Alvarez, M. Eng., who is VP of project development at Virgin; Miguel Cardona, senior geologist at Virgin; and Janet O’Donnell as CFO.

Together they’ve identified flaws in the previous plans for Los Verdes and are now trying to implement the improved schematics. Issues with the original approach included the over-emphasis on moly when close to half the deposit’s value is copper, the lack of metallurgical work that was both unreliable and did not take into account the silver component, the inflated capital costs, and the lack of resource scale.

Los Verdes is now looked at as a moly-copper deposit, hosting a mineable resource of 7 million tonnes grading 0.67% copper, 0.13% moly, 4.85 grams silver per tonne, and 0.08% tungsten for 103 million lbs. copper, 20 million lbs. moly, 1.1 million oz. silver and 8 million lbs. tungsten.

To add to the resource the company has secured the historical Potreritos deposit, sitting some 5 km northeast with a historic resource and potential to add a few crucial years to the mine life. Virgin plans to drill the deposit 2,000 metres on later this year to bring resources into compliance and then into the mine study.

To improve on the capital costs, the company has moved to a contract model for the mining and crushing rather than a fully-owned fleet, moved living quarters to a town about 50 km away rather than building a full camp, and a few other measures that lopped 35% or about $40-million from capital costs. On the metallurgical front the team completed a thorough optimization and ensured high-grade copper and moly recoveries that produce a marketable concentrate. The company also made advances in figuring if a tungsten circuit could be integrated later in the process, since part of the deposit has the metal.

The adjustments were bundled into a new preliminary economic assessment released in January that, using US$2.50 per lb. copper and US$15 per lb. moly, established a net present value of $113 million with a 5% discount rate and an internal rate of return of 34% and pre-tax net cash flows of $163 million. The 3,000-tonne-per-day open-pit mine would support a 7 year mine life, and with $110 million in initial and sustaining capital costs take about 2.7 years to pay off.

The open-pit mine would have a 1:1 strip ratio, roughly 85% recoveries, $35 per tonne operating costs, and cash costs of -73¢ per lb. copper after by-product credits.

With the updated study now complete Virgin is targeting a feasibility study for the end of the year, while it also negotiates final land deals, tailings placement, and works on permitting.

And while the company is concentrating its efforts on the near-term Los Verdes, Virgin also has full control of the Cuatro Hermanos project, also in Sonora State. Virgin drilled the project in 2008 and established an initial resource of 206.3 million indicated tonnes grading 0.197% copper, 0.021% moly, and 1.5 grams silver, plus 557.5 million inferred tonnes grading 0.174% copper, 0.022% moly and 1.1 gram silver.

The current and potential scale of the Cuatro Hermanos project has Virgin thinking it might sell off part of the project for a quick cash injection to advance Los Verdes, and then advancing Cuatro later when it has more cash flow.

As it stands, Virgin has about $500,000 cash on hand, plus close to $2-million in 25¢ warrants expiring at the end of the year. The company’s share price recently closed at 20¢ with 40.7 million shares outstanding.