Chesapeake halts work at US$3.5bn Metates project

Chesapeake Gold does not plan to further advance its Metates project in Mexico, following completion of a revised prefeasibility study (PFS).

The company significantly cut initial capex in the study, compared to the 2013 original, but its economics are challenged at current metal prices.

The Durango state project is one of the world's largest undeveloped gold and silver deposits, with proven and probable reserves containing 18.3Moz gold, 502Moz silver and 4.0Blb (1.81Mt) zinc.

REDUCED SCALE

The revised PFS envisages an initial four-year 30,000t/d throughput operation, following an expansion to 90,000t/d in year five, funded by internal cash flow.

This compares to an initial two-year 60,000t/d operation in the original study, before an expansion to 120,000t/d.

Initial phase one capex falls to US$1.91bn from US$2.94bn, with total capex at US$3.50bn, down from US$4.22bn.

Under the revised PFS, Metates will produce 445,000oz/y gold, 8.86Moz/y silver and 88.3Mlb zinc over a 37-year mine life, compared to 659,000oz/y, 15.9Moz/y and 143Mlb/y respectively in the original study, over a 25-year mine life.

Life-of-mine cash costs are US$628/oz gold, net of by-product credits, up from US$417/oz.

ECONOMICS

The revised PFS promises slim returns for a still substantial initial investment at current prices.

Post-tax IRR is 7.7% at US$1,250/oz gold, US$20/oz silver and US$1/lb zinc. The price assumptions for silver and zinc are substantially higher than current spot prices of US$15-16/oz and US$0.83/lb respectively.

The figure falls to 3.3% at US$1,100/oz, US$17.60/oz and US$0.88/lb prices.

The original PFS indicated a post-tax IRR of 16.2% at US$1,350/oz gold, US$25/oz silver and US$1/lb zinc.

NEXT STEPS

Chesapeake does not plan to undertake further detailed engineering and development at Metates at current metals prices, which it said has been significantly advanced and de-risked.

Opportunities which could reduce the project's risk profile include further optimization of production rates and phased development, additional metallurgical work, water conservation measures and environmental baseline investigations.

The company said it is evaluating other opportunities to add value to shareholders, including advancing early-stage mining prospects in north-west Mexico.

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