Seafield envisions a smaller mine at Miraflores

VANCOUVER — Seafield Resources (SFF-V) has an updated preliminary economic assessment (PEA) in hand for its multi-million ounce Miraflores gold-silver deposit situated 100 km south of Medellin, Colombia, and the Toronto-based junior has concluded  that bigger may not always be better.

With gold prices down significantly this year, companies with resource-stage gold projects have been revisiting economic studies and outlining lower-risk and more affordable options for development. 

That appears to be the story for Seafield, which has dropped its throughput and adjusted its mine sequence at Miraflores so that it can lower upfront capital costs and focus on higher-grade material.

Miraflores is a hydrothermal breccia pipe with a 280-by-250-metre strike length and a vertical extent of 600 metres. 

The overall deposit contains 72.6 million measured and indicated tonnes grading 0.78 gram gold per tonne and 1.5 grams silver per tonne, but it will be grade and not tonnage that will be the greater influence on operations.

With that in mind, Seafield has modelled a lower-tonnage operation that focuses on higher-grade material in the breccia pipe over Miraflores’ first year of production.

In mid-2012, the company proposed a hybrid open-pit, underground mine that would run at 4,000 tonnes per day and produce 71,000 oz. gold annually over a 14-year life at average cash costs of US$560 per oz. That initial proposal carried a US$93.7-million capital expenditure and life-of-mine costs of around US$137 million.

Since then, Seafield has completed 5,000 metres of drilling and zeroed in on mineralized bodies with a higher grade that can be mined at lower throughputs. Under Seafield’s updated proposal, throughput would be  dropped 56% to 1,750 tonnes per day, though mine life would remain relatively unchanged at 15 years.

The open-pit portion of the mine would see a big drop in tonnage, with the new operation focusing on 3 million tonnes of mineralized rock grading 1.48 grams gold and 2.08 grams silver for 143,675 contained oz. gold and 200,838 contained oz. silver. Seabridge’s original open-pit had earmarked nearly 7 million tonnes for production at 1.38 gram gold.

Meanwhile the underground component at Miraflores would  increase by 1 million tonnes, and sits at 6 million tonnes grading 2.32 grams gold and 2.17 grams silver for 451,216 contained oz. gold and 422,356 contained oz. silver.

The open-pit and underground components would have a 12-year mine life, and Seafield has carried over a plan from its previous PEA to mine lower-grade stockpiles through the mine’s twilight years — which would tack on 62,588 oz. gold and three years to the project’s life.

The new mine plan has delivered mixed economic results for Seafield. Though the company has lowered the upfront risk it has also increased sustaining capital requirements due to a heavier reliance on underground mining. 

Miraflores’ updated development scheme drops the capex by US$10 million to US$83.6 million, while sustaining capital rises by 63% to US$70 million.

As a result, the project’s economic parameters get murkier. The open pit’s stripping ratio has jumped from 2.04 to 1 under original assumptions to 5.8 to 1 under the new plan. Annual production would be cut nearly in half to 42,442 oz. gold, while inflation has also taken hold, with average anticipated cash costs jumping to US$724 per oz.

The net result is a decline in returns across the board. After-tax net present value has dropped US$47 million to US$141 million, while the project’s internal rate of return has declined from 45% under the original proposal to 20% using the updated parameters, which assume a US$1,500 per oz. gold price.

“The updated PEA presents a production scenario with attractive economics achieved through manageable capital expenditures and below-average industry cash costs,” says Seafield Resources president and CEO Cesar Lopez. “We are on track to complete the feasibility study for Miraflores by year-end after completing this critical milestone earlier than originally committed.”

The new PEA could provide a more attractive development option due to the lower capex, but Seafield may be hard-pressed to raise the upfront capital in current markets. The company’s shares closed near a 52-week low of 6.5¢ at press time, and dilution may be another concern, with 191 million shares outstanding. Seafield made an initial $3.3-million drawdown from a $16.5-million credit facility at the end of March.