TIDMHOC
RNS Number : 1444J
Hochschild Mining PLC
14 August 2023
_____________________________________________________________________________________
14 August 2023
Hochschild Provides Update on Volcan Gold Project
Hochschild Mining PLC (the "Company" or "Hochschild") (LSE: HOC)
(OTCQX: HCHDF) today provides an update on its 100%-owned Volcan
Gold Project ("Volcan" or the "Project") located in the Maricunga
Region of Chile. Hochschild acquired the Volcan Project through its
acquisition of Andina Minerals in 2012. The Project was dormant for
many years until early 2022 when work was initiated to re-evaluate
the Project scope and economics in the current gold price
environment.
Note: All currency figures are in US Dollars unless otherwise
noted.
During the last 18 months, a number of key milestones have been
achieved:
Project highlights
-- Created a new Canadian Company, Tiernan Gold Corp ("Tiernan"), as a subsidiary of Hochschild
Mine Holdings UK
-- Restructured the Project to be owned by Tiernan
-- Completed an updated Mineral Resource Estimate [1] to Canadian NI 43-101 standards, which
outlined:
o 463.3 Mt of Measured and Indicated Resources at 0.66 g/t gold for 9.8 million ounces of
gold contained
o 75.0 Mt of Inferred Resources at 0.516 g/t gold for and additional 1.2 million ounces of
gold contained.
-- Completed a positive Preliminary Economic Assessment [2] to Canadian NI 43-101 standards,
which highlighted:
o 22mtpa open-pit, heap leach operation with a 14 year mine life
o Average of 332,000 ounces per year of gold production for first 10 years of operations with
3.8 million ounces produced over the estimated mine life
o Initial capital cost of $900 million, with life of mine sustaining capital an additional
$276 million
o Cash costs [3] of $921/oz and All-in-Sustaining- Costs [4] of $1,002/oz, life-of-mine
o NPV (5%) = $826 million and IRR = 21% at $1,800/oz gold price, after-tax
-- Executed an agreement for a $15 million financing with the sale of a new 1.5% NSR royalty
on the Project to Franco-Nevada
-- Engaged Canaccord Genuity to evaluate strategic alternatives for Tiernan
Ignacio Bustamante, Chief Executive Officer, said:
"There has been a significant amount of work completed over the
past eighteen months on the Volcan Project. The updated Mineral
Resource Estimate and PEA confirm that Volcan is a large resource
capable of generating significant annual gold production with
substantial margins at today's gold prices. Furthermore, Tiernan is
now fully funded independently to carry out the next phases of
project de-risking and, with gold prices remaining strong, we
believe there is significant value in this project.
By engaging a financial advisor, we are looking at a number of
options to unlock this value for the Company while we focus our
resources on the development of high-grade reserves and resources
close to Immaculada, Mara Rosa construction in Brazil and the
recent Royropata discovery near Pallancata."
Mineral Resource Estimate ("MRE")
The updated MRE for Volcan was prepared by Micon International
Limited ("Micon") of Toronto, Canada in accordance with the CIM
definitions and standards for Mineral Resource Estimation. The
tabulated mineral resources for the Volcan Project are set out in
Table 1 .
The mineral resources are considered as all potentially
profitable blocks using the base case input parameters that are
contained within the US$1,800/oz Au optimized open pit shell and
below the topographic surface. The mineral resources are stated
using the gold grades estimated by the Ordinary Kriging
interpolation method and using capped metal grades.
The MRE is effective as of 22 July 2022. Mineral resources which
are not mineral reserves do not have demonstrated economic
viability.
Micon has considered the mineral resource estimates in light of
known environmental, permitting, legal, title, taxation,
socio-economic, marketing, political and other relevant issues and
has no reason to believe at this time that the mineral resources
will be materially affected by these items.
Table 1: Mineral Resource Estimate for the Volcan Project,
Effective Date July 22, 2022
Category Tonnage Au Grade Au Content
(kt) (g/t) (k. oz)
-------- ---------
Measured 123,979 0.700 2,792
Indicated 339,274 0.643 7,013
M+I 463,253 0.658 9,804
Inferred 75,018 0.516 1,246
----------- -------- --------- -----------
Notes on the MRE:
1. The updated mineral resources are reported at a cut-off grade
of 0.29 g/t gold for the Dorado Oeste (DO) and Dorado Este (DE) and
are reported at a cut-off of 0.75 g/t for Dorado Central.
2. The effective date of the updated mineral resource estimate
is July 22, 2022. Tonnages and metal content in the table are
rounded to the nearest thousand, thus, numbers may not total
precisely due to rounding.
3. The mineral resources are reported according to the latest
edition of the CIM definitions and standards which was adopted by
the CIM council on May 10, 2014.
4. Mineral resources which are not mineral reserves do not have
demonstrated economic viability. The estimate of mineral resources
may be materially affected by environmental, permitting, legal
title, market conditions and other modifying factors. At the time
of this report, Micon's QPs have not been able to determine any
factors that would adversely impact the current mineral resource
estimate.
The updated MRE was used as a basis for a Preliminary Economic
Assessment of the Project.
Preliminary Economic Assessment ("PEA")
Tiernan commissioned Ausenco Chile ("Ausenco") to compile a PEA
of the Volcan Project with an overall effective date of 15 March
2023. The PEA was prepared in accordance with the Canadian
disclosure requirements of National Instrument 43-101 (NI 43-101)
and in accordance with the requirements of Form 43-101 F1.
The responsibilities of the engineering companies who were
contracted by Tiernan to prepare this report are as follows:
-- Ausenco managed and coordinated the work related to the
report, reviewed the metallurgical test results and developed
PEA-level design and cost estimate for the process plant, general
site infrastructure, environmental and economic analysis
-- Deswik Brazil ("Deswik") designed the mine pit, mine
production schedule, and mine capital and operating costs
-- Micon International Limited ("Micon") completed the work
related to geological setting, deposit type, exploration work,
drilling, exploration works, sample preparation and analysis, data
verification and developed the mineral resource estimate for the
Project
-- Gestión Ambiental Consultores ("GAC") conducted a review of
the environmental studies of the Project
Readers are cautioned that the PEA is preliminary in nature. It
includes inferred mineral resources that are considered too
speculative geologically to have the economic considerations
applied to them that would enable them to be categorized as mineral
reserves, and there is no certainty that the PEA will be realized.
Commodity prices can be volatile, and there is the potential for
deviation from the forecast.
The Volcan property is located approximately 700km north of
Santiago, the capital of Chile, approximately 170km by road east of
the mining and agricultural city of Copiapo and approximately 40km
west of the border with Argentina. The property is located in
Region III of northern Chile in the Province of Copiapo and
political subdivision of Comuna Tierra Amarilla.
The total area controlled comprising the Volcan Project is
45,289ha, corresponding to the actual property boundaries. However,
a title and claim search indicates that Tiernan, through its
subsidiary Andina Chile, holds 55,172ha because several areas have
duplicate (overlapping) registered concessions under the various
Chilean categories of mineral rights holdings. The 55,172ha are
made up of 55 mining properties, 139 exploration concessions and
one exploration application owned by Andina.
Andina Chile owns water rights which have been developed in two
wells located approximately 21km from the resource area and 5km
east of the northern end corner of the Volcan concessions.
Mining Methods
The mine layout and operation are based on the following
criteria:
-- Two independent open-pit areas named Dorado Oeste/Central and
Dorado Este, each one with a dedicated Non-Economic Rock Storage
Facility
-- Independent access from both pits to the mine run of mine
(ROM)/crushing pad
-- Low-grade stockpiling near the ROM/crushing pad
-- 20m height benches
The life of mine (LOM) runs for 14 years. The basis for the
scheduling includes:
-- Plant feed of 60 ktpd.
-- Maximum 85 Mt of material movement per year.
-- Low-grade stockpiling to increase head grade for initial
years.
Metallurgical Testwork
Three major phases of test work were conducted. The first
consisted of initial leach, flotation tests, and comminution tests
to assess the potential of the Volcan Project. This early phase of
work culminated in the last published NI 43-101 Technical Report
entitled "Technical Report on the Results of the Pre-Feasibility
Study on the Dorado Deposits, Volcan Gold Project, Region III,
Chile" dated January 31, 2011 (the "PFS") and published on SEDAR by
Andina Minerals Inc.
This was followed by more detailed work to optimize process
conditions and considerations., Andina carried out a further phase
of test work in 2010, 2011 and 2012 to support a potential
feasibility study for the Project.
Recovery Methods
The plant is designed to process material at a rate of 60,000
t/d with an average head grade of 0.63 g/t of Au. The plant is
designed to be operated 24 hours per day, 365 days per year.
The process plant includes the following units, processes, and
facilities:
-- primary crushing of ROM
-- overland conveyor system to transport coarse material
-- coarse material stockpile
-- secondary crushing and screening in closed circuit
-- tertiary crushing (HPGR)
-- agglomeration and heap stacking
-- heap leach pad and ponds
-- sulphidisation, acidification, recycling, and thickening
(SART) plant
-- Adsorption, Desorption, and Recovery (ADR) - carbon-in-column
(CIC), Desorption and Regeneration, and Refinery.
Environmental, Permitting and Social Considerations
The Project is in the Andean highlands area of the Atacama
Region, which is characterised by extreme environmental conditions
for biotic development. In this area, hyper-arid conditions,
intense solar radiation, high wind speeds and daily surface
freezing of watercourses constitute adverse conditions for
ecosystems. Human settlements are also scarce, due to the lack of
available water resources and the hostile climatic conditions
during the winter, with the exception of lands used by Indigenous
communities, some tourism and conservation activities.
Capital Cost Estimates
The cost estimates were developed according to the requirements
for a AACE Class 5 Estimate, with an expected accuracy range of
-30% to +50%.
The total initial capital cost estimate for the Volcan Project
is $900.1 million; sustaining capital cost is $276.4 million; and
the total project cost is $1,176.5 million. Table 2 provides the
Project cost summary for initial and sustaining capital cost.
Table 2: Summary of Capital Costs
Description Initial Capital Sustaining Capital Total Capital
Mining 71.0 16.0 87.0
Process 331.7 146.2 477.9
Infrastructure - On site 58.1 - 58.1
Infrastructure - Off site 75.9 - 75.9
Total Direct ($m) 536.8 162.2 699.0
Project Indirect Cost 143.4 52.4 195.7
Owner Cost 38.8 13.2 52.0
Contingency 181.1 48.7 229.8
---------------- ------------------- --------------
Total Capex Class 5 ($m) 900.1 276.4 1,176.5
---------------- ------------------- --------------
Operating Cost Estimates
A summary of the individual components that make up the LOM
operating costs is presented in Table 3. Mine operating cost
weighted averages are indicated separately for the Years 1-10 which
correspond to the active mining period and Years 11-14 which
corresponds to low grade stockpile rehandle only.
Table 3: Summary of Operating Cost Estimate
Area Units Avg. Y 1 - Y10 Avg. Y11 - Y14 Avg. LOM
Mining Stockpile Rehandle Only
Mining $/t moved 1. 88 0.66 1.76
Mining $/t processed 6.48 0.66 4. 94
Processing $/t processed 6.61 6.60 6.61
G&A $/t processed 0. 99 0.59 0.88
--------------- --------------- ------------------------- ---------
Total Operating Cost $/t processed 14.08 7.86 12.44
--------------- --------------- ------------------------- ---------
Economic Analysis
The economic analysis was performed assuming an 5% discount
rate. Cash flows have been discounted to the beginning of
construction on 1 January 2028, assuming that the Project execution
decision will be made and major project financing will be carried
out at this time.
The pre-tax net present value (NPV) discounted at 5% (NPV5%) is
US$1,254 M, the internal rate of return (IRR) is 25.0%, and payback
is 3.4 years. On an after-tax basis, the NPV5% is US$826 million,
the IRR is 20.5%, and the payback period is 3.6 years. A summary of
the Project economics is included in Table 4.
Table 4: Economic Analysis Summary
General LOM Total / Avg
Gold Price ($/oz) 1,800
Mine Life (years) 13.6
----------------
Production LOM Total / Avg
----------------
Total Plant Feed Tonnes (kt) 293,165
Plant Feed Head Grade Au (g/t) 0.63
Leach Recovery Rate Au (%) 64.2%
Total Gold Ounces Recovered (koz) 3,820
Total Average Annual Gold Production
(koz) 281
Average Year 1 to 10 Annual Gold
Production (koz) 332
Operating Costs LOM Total / Avg
Total Operating Costs ($/t Processed) 12.44
Cash Costs* ($/oz Au) 921
AISC** ($/oz Au) 1,002
----------------
Capital Costs LOM Total / Avg
----------------
Initial Capital ($m) 900
Sustaining Capital ($m) 276
Closure Costs ($m) 30
----------------
Financials - Pre-Tax LOM Total / Avg
----------------
NPV (5%) ($m) 1,254
IRR (%) 25.0%
----------------
Payback (years) 3.4
----------------
Financials - Post-Tax LOM Total Avg
----------------
NPV (5%) (US$M) $826
IRR (%) 20.5%
Payback (years) 3.6
----------------
* Cash costs consist of mining costs, processing costs,
mine-level G&A, copper revenue credit, refining charges and
royalties over payable gold ounces
** AISC includes cash costs plus sustaining capital and closure
cost over payable gold ounces
Sensitivity Analysis
A sensitivity analysis was conducted on the base case pre-tax
and after-tax NPV, IRR, and Payback of the Project, using the
following variables: metal price, discount rate, leach recovery,
initial capital costs, and operating costs. Analysis revealed that
the Project is most sensitive to changes in metal price, leach
recovery, then, to a lesser extent, to operating costs and initial
capital costs.
Table 5 and Table 6 presents a summary of the Sensitivity
Analysis.
Table 5: Sensitivity Analysis Pre-Tax Summary
Base Case Total Capex Total Opex
Gold
Price NPV (5%) IRR -30% 30% -30% 30%
--------- ------ ------- ------- ------- -------
$1,400 $202 8.8% $521 ($118) $947 ($543)
$1,600 $728 17.4% $1,047 $408 $1,473 ($18)
$1,800 $1,254 25.0% $1,573 $934 $1,999 $508
$2,000 $1,780 31.9% $2,099 $1,460 $2,525 $1,034
$2,200 $2,305 38.4% $2,625 $1,986 $3,051 $1,560
--------- ------ ------- ------- ------- -------
Table 6: Sensitivity Analysis Post-Tax Summary
Base Case Total Capex Total Opex
Gold
Price NPV(5%) IRR -30% 30% -30% 30%
-------- ------ ------- ------- ------- -------
$1,400 $82 6.7% $330 ($175) $609 ($551)
-------- ------ ------- ------- ------- -------
$1,600 $459 14.1% $697 $213 $972 ($81)
-------- ------ ------- ------- ------- -------
$1,800 $826 20.5% $1,058 $587 $1,328 $305
-------- ------ ------- ------- ------- -------
$2,000 $1,188 26.3% $1,415 $954 $1,678 $676
-------- ------ ------- ------- ------- -------
$2,200 $1,544 31.5% $1,767 $1,316 $2,023 $1,041
-------- ------ ------- ------- ------- -------
PEA Interpretations and Conclusions
Based on the assumptions and parameters presented, the PEA shows
positive economics (i.e. $826 million post-tax NPV (5%) and 20.5%
post-tax IRR). The PEA supports a decision to carry out additional
detailed studies.
Royalty Financing
In July 2023, Tiernan entered into a Royalty Agreement (the
"Agreement") with a subsidiary of Franco-Nevada Corporation
("Franco-Nevada"). The key terms of the Agreement are, as
follows:
-- $15 million cash payment by Franco-Nevada to a subsidiary of
Tiernan
-- Creation of a new 1.5% net smelter return royalty on gold and
copper production from Volcan in favour of Franco-Nevada
-- Franco-Nevada retains a right of first refusal for any future
royalty or stream financings for the Project
-- Franco-Nevada holds an option to acquire a further 1% royalty
on the Project at the time of a board-approved construction
decision based on a feasibility study and consensus metal prices at
the time
-- Funds can be utilised for advancing the Project and business
expenses for Tiernan
The $15 million payment was funded into escrow, subject to
customary closing conditions, with the execution of the Agreement
and upon funding (anticipated to occur in August 2023), Tiernan
will be fully funded for the next phases of work on the
Project.
Engagement of Canaccord Genuity Corp.
Tiernan has engaged Canaccord Genuity Corp. ("Canaccord
Genuity") as exclusive financial advisor to evaluate a range of
alternatives to maximize the value of Tiernan and the Project for
Hochschild, which could include a sale of the Company or its
assets, merger or business combination with another party or other
strategic alternatives.
________________________________________________________________________________________
Enquiries:
Tiernan Gold Corp
Greg McCunn
+1 778 991 3798
Chief Executive Officer
greg.mccunn@tiernangold.com
tiernangold.com
Hochschild Mining PLC
Charles Gordon
+44 (0)20 3709 3264
Head of Investor Relations
Hudson Sandler
Charlie Jack
+44 (0)207 796 4133
Public Relations
________________________________________________________________________________________
About Hochschild Mining PLC
Hochschild Mining PLC is a leading precious metals company
listed on the London Stock Exchange (HOCM.L / HOC LN) with a
primary focus on the exploration, mining, processing and sale of
silver and gold. Hochschild has over fifty years' experience in the
mining of precious metal epithermal vein deposits and currently
operates three underground epithermal vein mines, two located in
southern Peru and one in southern Argentina. Hochschild also owns
the Mara Rosa Advanced Project in Brazil as well as numerous
long-term projects throughout the Americas.
________________________________________________________________________________________
Forward looking statements
This announcement may contain forward looking statements. By
their nature, forward looking statements involve risks and
uncertainties because they relate to events and depend on
circumstances that will or may occur in the future. Actual results,
performance or achievements of Hochschild Mining PLC may, for
various reasons, be materially different from any future results,
performance or achievements expressed or implied by such forward
looking statements.
The forward looking statements reflect knowledge and information
available at the date of preparation of this announcement. Except
as required by the Listing Rules and applicable law, the Board of
Hochschild Mining PLC does not undertake any obligation to update
or change any forward looking statements to reflect events
occurring after the date of this announcement. Nothing in this
announcement should be construed as a profit forecast.
-
[1] For further information refer to Hochschild's Ore Reserves
and Mineral Resource Estimates as at 31 December 2022 on page 207
of the Hochschild Mining PLC Annual Report & Accounts 2022.
[2] For further information refer to the report entitled "Volcan
Project - NI 43-101 Technical Report on Preliminary Economic
Assessment" with an effective date of March 15, 2023. The report
can be found on the website of Tiernan Gold at
www.tiernangold.com
[3] Cash Costs are defined as mining costs, processing costs,
mine-level G&A, copper revenue credit, refining charges and
royalties over payable gold ounces
[4] All-in-Sustaining Costs are defined as Cash Costs plus
sustaining capital and closure costs over payable gold ounces
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