TVI study says Canatuan gossan feasible (June 07, 2004)

A feasibility study commissioned by TVI Pacific (TVI-T) has determined that the oxide resource at the Canatuan massive sulphide deposit on Mindanao in the Philippines can be mined economically as an open pit.

The study, by Calgary-based consulting firm Norwest, is part of a larger study on the economics of developing both the oxide resource in a surface gossan and the underlying copper-zinc massive sulphide deposit. The second part of the study, expected by the end of June, examines the economics of developing the sulphide deposit after the surface resource is in production.

The proposed mine is an open pit containing a reserve of 1 million tonnes grading 3.1 grams gold and 120 grams silver per tonne (base metals have been largely leached from the oxide zone). The study is based on contract mining at daily rates starting at 125 tonnes and rising to 800 tonnes by the 18th month of production; the peak mining rate (which implies 3,000 tonnes per day of combined ore and waste) would mean a 4.5-year mine life for the gossan resource.

Processing of the gossan ore is built around an existing mill on-site, which is currently being used to process material from small-scale mining in the laterite. The proposed modification for the mill would create a “hybrid” plant recovering the precious metals using both carbon-in-leach and Merrill-Crowe circuits. Small-scale metallurgical testing for the 1996 feasibility studies suggests recoveries would be about 95% for gold and 79% for silver; more testing is under way.

Gold in the oxide material is quick to dissolve in cyanide solution, allowing the pregnant solution to be transferred to thickener. The thickener overflow would feed a Merrill-Crowe circuit to recover about 80% of the gold. The rest of the recoverable gold would be pulled out in a carbon-in-leach circuit that processes the thickener underflow.

The mine would produce about 25,000 oz. gold annually between 2006 and 2008. Annual silver production averages 837,000 oz. but variable grade through the ore deposit means it would range from 440,000 oz. to 1.2 million oz. over the life of the mine.

At the end of production in 2008, TVI would hope to be able to bring in production from the main sulphide body. The sulphide resource was most recently estimated at 1.5 million tonnes grading 2.87% copper, 2.13% zinc, 1.3 grams gold and 58 grams silver per tonne. The Canatuan deposit is an arc-shaped massive sulphide body dipping gently to the west, with an oxide cap at surface (the gossan resource).

The gossan project would have an initial capital cost of US$7.4 million, and cash production costs would average US$206 per oz. Discounted cash flow analysis, based on a gold price of US$375 per oz. and a silver price of US$5.50 per oz., indicates a net present value of US$7.9 million after discounting at 10%, and an internal rate of return of 116%.

A tailings impoundment already exists for the present operation, but an open-pit mine would require a new impoundment that has already been approved by Philippine environmental authorities. The design allows the embankment to be raised to accommodate tailings from the sulphide operation if that goes ahead. The operation will still need to submit a reclamation plan for government approval.

TVI, which announced earlier in May that processing of the gossan should start in June, has arranged a financing to raise $2.5 million. Up to 16.7 million shares, priced at 15 each, will be issued, with attached warrants exercisable at 17.5 in the year following closing and at 21 for one year thereafter. TVI can force the warrants to expire if TVI shares trade at 26.5 or above for 20 consecutive days.

Security is an issue in Mindanao, where the terrorist Moro Islamic Liberation Front is active. TVI currently maintains a contract with the Philippine Armed Forces to maintain a local auxiliary army unit for security at the site. An attack on a truck in December 2002 killed three auxiliary soldiers, two employees, and eight dependents. Twelve other people were injured.

TVI has a 100% interest in the project, 120 km north of Zamboanga on the western peninsula of Mindanao. The original vendor retains a 1% net smelter return, and Philippine mining company Benguet has a right to back-in for 12.5% by paying a 12.5% share of TVI’s expenses, plus interest.