Amarillo Gold Corp. (TSX VENTURE:AGC) ("Amarillo" or the "Company")
is pleased to release the summary economic results derived from a
43-101 compliant, pre-feasibility Study ("PFS") of Amarillo's 100%
owned Posse gold deposit in the state of Goias, Brazil. The PFS is
being completed by Coffey Mining International, the lead consultant
on the project, and will be posted in full on SEDAR within 45
days.
Highlights of the economic model, and a summary description of
the project, follow. (all currency in $US unless otherwise
stated):
-- Proven and Probable reserves of 17.1MT @ 1.72 g/t and 945,200 ounces of
contained gold. After processing 869,600 ounce of gold will be
recovered.
-- Initial 7 year mine life with 2.5MT per year throughout, comprising a
12hour pre-oxidation stage feeding a conventional CIL gold recovery
circuit.
-- Average gold production of 124,000 ounces per year.
-- Average total cash operating cost of $524/ounce (on-mine costs
$464/ounce with the balance comprising refining, royalties, insurance,
transport, security costs, etc).
-- Total gross revenue of $1.044 billion assuming a gold price of
$1200/ounce.
-- Pre-Tax Net Present Value at a 5% discount rate ("NPV5") of $283M and an
IRR of 37.9% based on a gold price of $1200/ounce.
-- After Tax NPV5 of $178M and an IRR of 26.6% based on a gold price of
$1200/ounce
-- Estimated start-up capital of $184M which includes $5.4M working
capital.
-- Recommendation to proceed to Feasibility Study ("FS").
Buddy Doyle, CEO and President of the Company, stated, "Amarillo
is pleased to have reached this milestone through the efforts of
Frank Baker, our project manager, our staff and the consortium led
by Coffey Mining International. We are also pleased with the very
positive outcome of the PFS. The project economics have improved
over those presented in our 2008 Preliminary Economic Assessment
("PEA") (See news release March 13th 2008). The improved results
were achieved even after a sizable increase in the capital
expenditure ("CAPEX") (PEA CAPEX = $80M, PFS = $184M). The superior
economic results arise from better metallurgical recoveries, higher
gold prices and increased annual through-put as compared to the
PEA. The PFS CAPEX now includes Pre-Strip costs, owner operated
equipment, and power line construction. The CAPEX estimate is
supported by an extensive review of mining project costs in Brazil
and the magnitude is comparable to other projects of our size and
scope. This level of detailed engineering work conducted in the PFS
has covered much of the work usually incorporated in a FS, and a
number of key FS level components are already underway, including,
environmental, hydrological, metallurgical and geotechnical
studies. We expect the FS to be completed during 2012. The next
step after completion of the FS would be the decision to become the
next Brazilian-based producer of greater than 100,000 ounces per
year, a task that is projected to be achievable by 2014."
The PFS study consortium was lead by Coffey Mining
International. Members and their roles are listed in Table 1.
Table 1. Pre-Feasibility Study Consortium
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Member Expertise
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AEFS/HCS(i) Mineral Resources
Coffey Mining Geotechnical Engineering
Coffey Mining Mine Design
Coffey Mining Mine Cost Estimation
Hidrovia Hydrology and Hydrogeology
Coffey Mining Metallurgical Testwork
Coffey Mining/Amarillo/Onix Process Design
Amarillo/Onix Process Plant Design & Cost Estimate
Coffey Mining/Onix Infrastructure Design & Cost Estimate
Coffey Mining Tailings Storage Facility
Neotropica Environmental
Neotropica Social
Coffey Mining Marketing
Coffey Mining Financial Modelling
William Ferreira Legal Title Opinion
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(i) Australian Exploration Field services and Hoogliviet Consulting Services
A Mineral Resource cut-off grade of 0.5 g/t Au was used for this
PFS. This was based on:
-- The work completed for the 43-101 compliant Independent Mineral Resource
Estimate and Preliminary Economic Assessment (2010), (News Release dated
September 1st 2010)
-- The Report on Independent Site Visit and Resource Estimate (2011), (News
Release dated September 13th 2011)
-- And a Whittle(i) pit design using a gold price of US$1,100/oz, (3 year
rolling average at the time the pit shape was calculated). '(i)Whittle
is an industry standard pit design software package.
The financial analysis of the Project was completed using a
discounted cash flow model ("DCF") and was constructed based on
this mineral resource. Key criteria used in this model are listed
in Table 2. Note the DCF assumes a gold price of $1200/ounce, the 3
year rolling average at the time of the DCF was calculated.
Table 2. Key Criteria used in the DCF Model and Reserve Determinations
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Description Units Value
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Gold price for DCF US$/oz 1,200
Gold price for Pit model and reserve
statement US$/oz 1,100
Resource Au cut-off g/t 0.5
Mining Method Open Pit
Annual production Rate Mtpa 2.5
Mining Operating Cost US$/t of ore 12.59
Processing Operating Cost US/t of ore 9.73
G & A operating Cost US$/t of ore 1.83
Total operating cost US$/t of ore 24.63
Total Operating Costs US$/oz 464
Refining Transport and Insurance US$/oz 18
Royalties US$/oz 42
Cash cost per Ounce US$/oz 524
Average annual gold production oz/year 124,000
Mining Dilution % 3
Mining Recovery or loss % 97
Plant Recovery % 92
Project Capital Cost (includes working Cap). US$M 184
Sustaining capital cost US$M 11
Royalty % 2
End of mine salvage sales US$M 23
Reclamation costs US$M 8.5
55 degrees HW 40
Pit Slope Degrees degrees FW
Total Strip ratio (incl. pre-strip) Ratio 8:1
Operating Strip ratio (excl. pre-strip) Ratio 7.4:1
Gross Revenue US$ Billions 1.044
Nominal Tax Rate % 34
Pay Back Period post tax Years 3
Project life Years 7
Contingency $USM $16
Project start Year 2014
Total gold recovered Oz 869,600
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The positive economic results of the economic assessment allows
for part of the mineralization at the Posse deposit to be
classified as ore. Parameters for reserves and the DCF model are
listed in Tables 3 and 4. The Mineral Reserve estimate has been
prepared and reported in accordance with the CIM Definition
Standards (2010) and compiled under the supervision of Joao Augusto
Hilario, BSc, MAIG, an employee of Coffey Consultoria e Servicos
Ltda. (Belo Horizonte office) and is 43-101 compliant. The
effective date for the reserve calculation is October 24th,
2011.
Table 3. Mineral Reserve estimate for the Mara Rosa Project(i)
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Classification Tonnes (t) Au grade (g/t) Contained Gold (oz)
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Proven Mineral Reserve 5,361,500 1.97 339,600
Probable Mineral Reserve 11,739,800 1.60 606,600
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Total Mineral Reserve 17,116,800 1.72 945,200
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(i) Run of mine plant feed
Table 3 illustrates the Mineral Reserve estimate based on the
following Mineral Resource using a cut-off grade of 0.5 g/t Au. The
Posse Deposit contains 1,174,900 ounces of gold resource, measured
and indicated, from 20.85 MT at 1.75 g/t Au, and 156,400 ounces of
gold inferred resource from 3.63 MT at 1.38 g/t Au (0.5 g/t cut-off
grade) (NI 43-101 compliant resource as independently determined by
Australian Exploration Field Services Pty. AEFS) and Hoogvliet
Consulting Services, 13th September 2011. The measured and
indicated resource categories where used to calculate the reserve
where this ore occurs within the $1100/oz optimized pit.
It should be noted this is a diluted mineable reserve
incorporating 0.5 Mt of dilution at an average grade of less than
0.2 g/t and recovering 97% of the ore after incorporating losses
due to ore handling. The main input factors for calculating the
reserve are shown in Table 2. Mineral Reserve Estimates were
constrained by mining, metallurgical and infrastructure factors.
The reserves are not expected to be affected by permitting or any
other factors.
For tax calculation purposes, the economic model uses a
straight-line depreciation method based on the mine life, and does
not take into account other tax benefits that may be applicable
under Brazilian tax rules. These issues will be addressed in the
FS. At a gold price of US$1,200 per ounce, the average yearly
EBITDA is approximately US$83.7 million.
Table 4 summarizes key after-tax financial results for the Base
Case assumptions of $1200/oz gold price and a 5 percent discount
rate. The table also shows the sensitivity of results to a range of
gold price and discount rate assumptions.
Table 4. Summary of Financial Results for Gold Price and Discount Rate
Assumptions
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Gold Price Base Case
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$1000 $1100 $1200 $1300 $1400 $1500
/oz /oz /oz /oz /oz /oz
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IRR (internal rate of
return) 16.8% 21.8% 26.6% 31.3% 35.9% 40.3%
NPV0$M 165 219 274 328 383 437
NPV5$M (Base Case) 93 136 178 221 264 307
NPV7 $M 71 110 149 188 227 266
NPV10 $M 44 78 112 146 181 215
Pay Back period 5.1 4.1 3.5 3.0 2.7 2.5
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PIT GEOMETRY
The final pit measures 1.4 kilometres long in the north-south
direction and 0.6 kilometres wide in the east-west direction. The
highest wall will be about 260 metres. The total area impacted by
the pit is approximately 87 hectares. The hanging wall will be
carried at a slope of approximately 55 degrees and the footwall at
a slope of 40 degrees.
MINING
The mine requires 11M tones of waste pre-stripping during the
pre-production period at a total cost of $14.2M.
The project will employ owner operated conventional open-pit
mining using drill and blast, hydraulic excavators, haul trucks,
and auxiliary mobile equipment to support a mining operation of a
nominal 2.5 million tonnes per year of ore and a maximum of 24.6
million tonnes per year of waste. An operational strip ratio of 7.4
to 1 is achieved after excluding the waste removed by the
pre-stripping.
The run-of-mine ("ROM") ore will be hauled from the open-pit
with 45 tonne haul trucks and dumped directly into a hopper that
feeds the primary crusher. A small stockpile will be established at
the primary crusher area. A low grade ore stockpile is envisaged
for material grading between 0.3 g/t and 0.5g/t. (which the model
treats as waste). Waste material will be moved by 100 tonne
trucks.
A life of mine production schedule was prepared by pit phases
and years to determine the requirements for the mine infrastructure
development, the tonnes and grade of the ore, tonnes of waste rock
and tonnes extracted by year. The distribution of ore and waste
contained in each of the mining phases was used to develop the
schedule, assuring criteria such as continuous ore exposure, mining
accessibility, and consistent material movements were met.
PROCESSING
The PFS incorporates a conventional Carbon in Leach ("CIL")
circuit preceded by a pre-oxidation stage ("Pre-Ox").
The plant consists of a conventional crushing circuit (including
tertiary crushing) followed by primary and secondary milling in
closed circuit with cyclones. After adding lime to lift the Ph to
12 (using 2kg/t of lime), the final pulp (P80 @ 45microns) is sent
to the Pre-Ox tanks (3 tanks), where it is agitated for 12 hours
using oxygen enhanced air produced from a PSA (Pressure Swing
Absorption) unit. This oxidizes tellurides to enable subsequent
successful cyanidation of the gold. The pulp is then moved to the
CIL tanks where it is contacted with cyanide (0.2kg of cyanide per
tonne of pulp) and activated carbon in a typical CIL circuit of six
agitated tanks for a total of 24 hours.
Loaded carbon is extracted daily from the CIL circuit and
processed in a typical Zadra-style elution circuit with a 4 tonne
capacity. The eluted solution is passed continuously through the
electrowinning cells until efficient desorption has been achieved.
At intervals the gold is removed from the cells and smelted into
dore bars for sale. The activated carbon is regenerated in a gas
fired rotating kiln before being sent back to the CIL circuit.
Tails form the CIL circuit are thickened to recover some of the
solution before the thickened pulp is subjected to detoxification
using SO2/air and a copper sulphate catalyst to destroy free
cyanide before being pumped to a tailings storage facility (TSF").
The water from TSF is re-circulated to the plant under conditions
of zero discharge.
INFRASTRUCTURE
The Project benefits from good infrastructure development with
the planned mine-site layout facilitating a compact design with
pit-proximal process plant, TSF, and waste dump. There is a railway
within 1.5 kilometres of the pit, a main highway 11 kilometres away
and a small town of 12000 people, 5 kilometres away. A four
kilometre gravel road connects the deposit to a good asphalted
local highway. Although there is an electric power line nearby the
proposed pit, the grid does not contain enough capacity for the
project's needs. Electrical power for the project operations will
be provided by installing a 63km long, 138 kV power line. The
present 69kV power line does contain enough capacity to be used
during construction period. Peak demand of the process plant is
calculated at 12.7MW and continuous running demand is calculated at
11.3MW. Power will be distributed throughout the site at 13.8kv,
reducing to 460 volts for all smaller motors. The line is expected
to cost, US$7.9M and power will be provided at $R 0.07 kWh. ($US
0.04 kWh at current exchange rates).
ENVIRONMENTAL SOCIAL STUDIES AND PERMITING
Amarillo's consultants will submit the base line environmental
study in January. This is the basic component of the permitting
process, the EIA/RIMA statement. The PFS has delivered an
appropriately accurate description of the process planned at the
mine allowing the second stage of the environmental permitting
process to begin after the EIA/RIMA statement is submitted. Other
mines in Goias are currently being permitted using similar
procedures to that planned for Posse.
Frank Baker, the project manager, advises with respect to
project upside that, "There is material scope for improvement on
this PFS in the subsequent DFS.
"There is scope to increase the footwall slope: The current
model uses a 40 degree footwall slope. The optimal pit slope would
follow the dip of the ore-body at 45-47 degrees. However this is
also is the dip of cleavage in the footwall. Accordingly the
geotechnical experts at Coffey have chosen a more conservative 40
degree footwall slope to mitigate concern over increased footwall
failure risk if the pit wall is carried parallel to cleavage. This
has the effect of increasing the strip ratio from approximately 6:1
to 8:1. It should be noted that the previous mining operation at
the deposit by Western Mining Inc. followed the dip of the ore-body
and that pit had no geotechnical issues. Furthermore Western Mining
also had plans to expand the pit using a 70 degree angle for the
hanging wall and a footwall slope parallel to the ore body slope of
45-47 degrees. The country rock at Posse has few joints, is
competent, not fissile, and there is a second stress direction that
folds the cleavage plane that would help reduce the risk of
slippage along this plane. Amarillo has already completed 70% of
the Coffey designed geotech drilling program designed to generate
the rock quality data and tri-axial stress test data needed to
determine the definitive optimal slope angles for the Posse Pit.
Amarillo's geologists are optimistic on the prospects for
increasing the footwall slope once the analysis of the geotech
drilling program has been completed by the relevant independent
entity.
"There is scope to increase the inferred resource in the pit.
There is an area of low drill density between the southern and
northern portions of the ore-body that consequently is classified
as inferred resource material that can't be included in the reserve
calculation. A drill program with a drill hole density necessary to
convert this material from inferred to measured is planned. There
is potential to add in the order of 50,000 ounces to the reserve
which would further reduce the waste to be mined in this area. This
drilling will commence as soon as the geo-tech program is
completed."
In Frank Baker's opinion, "Other optimizations may be possible
and the team at Amarillo looks forward to investigating them as we
progress through the DFS."
The supervising Qualified Person for Coffey Mining international
is Norman Lock, C.Geol FGS, PrSciNat. The Qualified Person for
Amarillo is Frank Baker, M. IOM3 and MAusIMM.
The reader is advised to read the forward looking statements
portion of this news release, as although this study indicates the
Mara Rosa project will be economic, there are many factors that may
alter this. This news release is not intended to be a statement of
future production.
About Amarillo Gold Corp.
Amarillo Gold Corp. is focused on acquisition, discovery, and
definition of gold resources in Brazil. The Company's principal
projects are the Mara Rosa Project in the state of Goias, and the
Lavras do Sul Project in the state of Rio Grande do Sul. The Posse
Deposit at Mara Rosa contains 1,174,900 ounces of gold measured and
indicated from 20.85 MT at 1.75 g/t Au, and 156,400 ounces of gold
inferred from 3.63 MT at 1.38 g/t Au (0.5 g/t cut-off grade) (NI
43-101 compliant resource as independently determined by Australian
Exploration Field Services Pty. AEFS). The Mara Rosa Gold Project
has received a positive economic assessment from a Pre-feasibility
study and is preparing to proceed to a definitive feasibility
study. Should this continue to be positive it would be possible to
commence mining by 2014.
The Posse Deposit was successfully mined by Western Mining
Company (WMC) during the 1990s (mined areas are excluded from the
above-stated resource figures), and is located in an area of
excellent infrastructure: approximately 35 km NE of Yamana's
Chapada open pit Cu-Au operation, some 60 km NE of Yamana's Pilar
Au project (in Feasibility), 95 km NW of Votarintim's Niquelandia
Ni laterite mine, 105 km from NE of Serra Grande's underground Au
mine, and 105 km NNW of Anglo American's Ni laterite project at
Barro Alto. Grid power to the site was established during WMC's
open pit mining operation. The Serra da Mesa (450 MW)
hydro-electric dam lies 35 km to the east.
The Lavras do Sul Project is an advanced exploration stage
property (190 sq. km.) comprising more than 19 prospects centered
on historic gold workings, with encouraging gold mineralization
discovered and defined by more than 16,000 metres of drilling. The
initial resource estimate at the Butia prospect reported 215,000
ounces of gold indicated from 6.4 MT at 1.05 g/t Au, and 308,000
ounces of gold inferred from 12.9 MT at 0.74 g/t Au using a0.3 g/t
cut-off grade in a NI 43-101 compliant resource as independently
determined by Atticus Consulting 2010. Lavras do Sul is also
located near excellent infrastructure. The Company also has a
portfolio of earlier stage projects and all properties under
Amarillo's management are located in areas of good infrastructure
and mining-friendly communities.
ON BEHALF OF THE BOARD OF DIRECTORS
AMARILLO GOLD CORP.
Buddy Doyle, President
FORWARD LOOKING STATEMENTS:
This news release contains Forward Looking Statements regarding
our intentions and plans. The PFS described in this news release is
not a production forecast by the Company. There remains at present
insufficient certainty in the PFS to reliably estimate future
production and economics; further engineering and geology studies
are required. The scope of the PFS is to deliver a project with
plus or minus 20% accuracy in its estimates. Various factors may
prevent or delay our plans, including but not limited to,
contractor availability and performance, weather, access, mineral
prices, market conditions, government policies and success or
failure, as the case may be, of the exploration and development
carried out at various stages of the program. The proposed FS will
be designed to achieve a higher level of accuracy in our
engineering and economic estimates. Permission from various
authorities will be required to proceed with future mining
production. Although the state of Goias has to date been supportive
of mining activity, there can be no assurance that the necessary
permits will be received timely or at all. Readers should review
risk factors applicable to junior mining exploration companies
generally to understand the variety of risks that can affect the
Company.
Neither TSX Venture Exchange nor its Regulation Services
Provider (as that term is defined in the policies of the TSX
Venture Exchange) accepts responsibility for the adequacy or
accuracy of this release.
Contacts: Amarillo Gold Corp. Buddy Doyle President + 1-604-689
1799 (Canada) or +55-31-3261 5974 (Brazil) 1-604-689-8199
(FAX)info@amarillogold.comwww.amarillogold.com
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