Feasibility Study
In “Technical Report on the Cerro del Gallo deposit within the San Antón Property Mexico” (2008) Golder Associates reported the resource using a 0.2 g/t Au cut-off grade in the gold domain and a 0.07 % Cu cut-off grade in the intrusive and copper domains Table 1.
Table 1 Cerro del Gallo Mineral Resource
| Class | Mt | Au g/t | Ag g/t | Cu % |
|---|---|---|---|---|
| Measured | 225 | 0.35 | 13 | 0.11 |
| Indicated | 236 | 0.19 | 10 | 0.11 |
| Measured + Indicated | 461 | 0.27 | 11 | 0.11 |
| Inferred | 166 | 0.11 | 7 | 0.10 |
The Technical Report (2008) also reported resources by domain, copper, intrusive and the gold domain. The reported resource within the gold domain is shown in Table 2.
Table 2 Gold Domain at 0.2/gt Au Cut-Off
| Class | Mt | Au g/t | Ag g/t | Cu % |
|---|---|---|---|---|
| Measured | 129 | 0.54 | 12 | 0.09 |
| Indicated | 80 | 0.38 | 8 | 0.08 |
| Measured + Indicated | 209 | 0.48 | 11 | 0.08 |
| Inferred | 20 | 0.30 | 7 | 0.09 |
At the completion of drilling in 2008, a re-logging and reinterpretation program concentrated on capitalizing on the significantly more weathered and oxidised material within the higher grade gold zone. The estimated potentially suitable material for heap leaching is reported in Table 3.
Table 3 Material potentially suitable for leaching within the re-modelled Gold Domain
| Class | Mt | Au g/t | Ag g/t |
|---|---|---|---|
| Measured | 88.5 | 0.63 | 8 |
| Indicated | 40.2 | 0.47 | 12 |
| Measured + Indicated | 128.8 | 0.59 | 12 |
| Inferred | 3.2 | 0.46 | 10 |
Tim Carew, P.Geo. of Reserva International reviewed the block model and parameters utilised to calculate this latest resource estimate and found the methods and results conforms to the definitions as stated by NI43-101 and defined by the CIM Standards on Mineral Resources and Reserves Definitions and Guidelines adopted by the CIM Council on 11 December 2005.
Gold block model showing section through Cerro del Gallo
Feasibility Study & Preliminary Assessment
In April 2011, Cerro Resources announced the results of its study work for gold and silver production at Cerro del Gallo. This work consisted of a Feasibility Study on the first stage (years 1 - 8) development of the Cerro del Gallo Gold / Silver heap leach project and a Preliminary Assessment (PA) study on the second stage of the Cerro del Gallo heap leach & carbon-in-leach (CIL) processing facility (years 5 – 15).
For more details, please see the updated NI 43-101 technical report lodged on SEDAR on 26 May 2011.
The highlights of this work are:
First Stage Feasibility Study on Proven and Probable Reserves – Heap Leach
- Total proven & probable reserves: 32.2Mt
(initial 8 years of heap leaching recovering 0.446 Moz gold and 5.32 Moz silver)
- Operation consisting of 4.5Mtpa heap leach with 3-stage crushing
Second Stage PA on Measured and Indicated Resources - Heap Leach / CIL Processing
- Additional in-pit measured & indicated resources: 45.0Mt
(inside the optimised pit recovering 0.682 Moz gold and 4.73 Moz silver from heap leaching and carbon-in-leach processing - pit optimised using US$1,020/oz gold and US$16.40/oz silver)
- Expanded facilities for additional 3.0 Mtpa CIL processing, increasing annual processing rate to up to 7.5Mtpa
Other
- Projected mine life of 14.3 years and average annual production over mine life 90,800 AuEq (at Gold price of US$1,157/oz and silver price of US$19.81/oz with gold:silver price ratio of 58.4 and on assumption mineral resources will convert to mineral reserves)
- Project 66% owned by Cerro Resources (Goldcorp 34%)
The table below shows the proven and probable reserves for the first stage (8 years of heap leaching) plus the preliminary assessment (PA) additional in-pit measured and indicated resources (constrained using a US$1,020 gold and US$16.40 silver price pit optimization).
Table 4
Summary of Proven & Probable Reserves
and In-pit Measured & Indicated Resources
|
|
Total |
||||
|
Category |
K Tonnes |
g Au/t |
K Ozs Au |
g Ag/t |
K Ozs Ag |
|
Feasibility Proven |
28,246 |
0.71 |
643 |
15.05 |
13,664 |
|
Feasibility Probable |
3,971 |
0.54 |
69 |
13.20 |
1,685 |
|
Feasibility Proven and Probable |
32,217 |
0.69 |
712 |
14.82 |
15,349 |
|
PA Measured |
39,888 |
0.66 |
850 |
14.32 |
18,358 |
|
PA Indicated |
5,125 |
0.61 |
100 |
10.07 |
1,659 |
|
PA M&I |
45,013 |
0.66 |
951 |
13.83 |
20,017 |
|
Total Resource and Reserve |
77,231 |
0.67 |
1,663 |
14.24 |
35,366 |
Proven & Probable reserves and PA measured and indicated resources are reported using gold equivalent cutoff grades of 0.21 and 0.29 g/t for weathered and partially oxidized material respectively. The gold equivalent cut-off grade for the measured and indicated resources fresh rock material is 0.35 g/t.
Cash Flow Model Analysis
Table 5 shows the potential financial model outputs for the heap leaching of the proven and probable reserves plus model outputs for other metal selling prices.
Table 5
Feasibility Study Potential Cash Flow Model Outputs for Different Metal Selling Prices
For Proven & Probable Reserves (only)
|
3 Year Average Metal Prices! |
2 Year Average Metal Prices2 |
1 Year Average Metal Prices3 |
March 2011 Average Metal Prices4 |
|
| Net Cash Flow undiscounted and before tax (US$M) | 162 | 214 | 292 | 409 |
| Net Present Value (6% discount rate) (US$M) | 103 | 142 | 200 | 287 |
| Internal Rate of Return (%) | 34.8 | 44.1 | 57.5 | 75.8 |
| First Stage Capital Payback (years) | 2.2 | 1.9 | 1.7 | 1.4 |
| Gold Selling Price (US$/oz) | 1,060 | 1,157 | 1,293 | 1,424 |
| Silver Selling Price (US$/oz) | 17.77 | 19.81 | 23.87 | 35.81 |
| Gold Sold (koz) | 444.6 | |||
| Silver sold (koz) | 5,317 | |||
13 year historic average prices as at 31 March, 2011
22 year historic average prices as at 25 March, 2011
31 year historic average prices as at 25 March, 2011
4Average spot prices for March, 2011
The following Table 6 shows the potential financial analysis results for different gold and silver selling prices for the PA case. Note that mineral resources included in this study that are not mineral reserves do not have demonstrated economic viability.
Table 6
PA Potential Cash Flow Model Outputs for Different Metal Selling Prices
For Measured and Indicated In-Pit Resources (only)
|
3 Year Average Metal Prices1 |
2 Year Average Metal Prices2 |
1 Year Average Metal Prices3 |
March 2011 Average Metal Prices4 |
|
| Net Cash Flow undiscounted and before tax (US$M) | 229 | 302 | 410 | 549 |
| Net Present Value (6% discount rate) (US$M) | 104 | 142 | 199 | 321 |
| Gold Selling Price (US$/oz) | 1,060 | 1,157 | 1,293 | 1,424 |
| Silver Selling Price (US$/oz) | 17.77 | 19.81 | 23.87 | 35.81 |
| Gold Sold (koz) | 1,126 | |||
| Silver sold (koz) | 10,048 | |||
13 year historic average prices as at 31 March, 2011
22 year historic average prices as at 25 March, 2011
31 year historic average prices as at 25 March, 2011
4Average spot prices for March, 2011
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