With the commodity cycle crisply turning in gold’s favour, abandoned and overlooked projects are getting a second take, with juniors in many cases leading the way. Gold is up over 13% in 2019, and scaled a more than six-year peak of $1,557 in September, with more gains seen in 2020 amid concerns about global economic growth and a low interest rate environment. The silver price has also been spiking in 2019, with solid demand fundamentals seen for 2020. This is putting shelved but high-grade projects back on the radar screen of investors.
One emerging prospect is the Los Reyes gold-silver project in Mexico’s northwest, one of the country’s core mining regions, which is being brought to fruition by Vancouver based and listed Prime Mining Corp. (TSX.V:PRYM)(OTCQB:PRMNF)(Frankfurt: 04V3). Past commodity cycles have left the project overlooked and under-explored. Over the course of 2-1/2 decades, more than $20 million has been devoted to exploration and engineering for the project, with pre-feasibility studies brought to fruition. But previous operators did not pursue development plans in the face of depressed gold prices.
“We are going to announce a new resource in the coming year and that will be updated as we get more and more data,” Andrew Bowering, President of Prime Mining, said in an interview. The Canadian company has paid US$4.5 million of the total US$6 million purchase price, with a final payment of US$1.5 million due by October 23, 2021 or within 30 days of the announcement of a production decision.
Pay Back, Pay Dirt
“We are expecting a 20 to 25% increase in the size of the resource just from adding a bunch of surface information,” Bowering said. “We have done enough engineering work already that we can say this is a project where we can produce between 65,000 and 75,000 oz annually at with a life of mine of seven years. That is based on what is established so far, but it is such a high grade oxide ore that it will pay back very quickly.”
The company has three models for the mine development.
“We will have the mine built for around CAD $20 million and it will pay back in six months time. That is the cheapest model making use of contract miners and running our own leach pad,” he said.
“We have enough money to complete our resource calculation,” Bowering said. “We will require one more round of financing for when we announce of production decision. Presumably next summer we are going to announce plans to go to production.”
The mine will be an open pit operation, which reduces costs while making mining safer. Previous operators had envisaged an underground mine but indications so far show that this will not be necessary.
“Evidence from trenching and sampling at San Miguel and Zapote indicates the structures are open along strike and are wider than indicated in historic mapping. In addition, much of the drilling at San Miguel was at such depths that, due to the lack of surface data, previously modelled resources were not carried to surface. Evidence now suggests that new models will allow for the resource to be projected to surface, increasing minable tonnes, recoverable ounces and reducing the stripping ratios associated with any future development,” Prime Mining said in an update to investors on 12 December.
Mineralized areas are wider than previous surveys and mapping suggested, with good grades over significant depths, according to the company’s surface exploration activities at the site. The surface sampling that has been conducted by Prime Mining has never been done to such an extent at Los Reyes before. In its December update, the company said 808 examples – about 25 % of the ongoing programme – had been sampled so far.
Job Creation, Community Relations
But there are no plans to heavily mechanize the mine, as labour, including experienced miners, is abundant in the region and one of the project’s aims is to create jobs while turning a profit for shareholders, to give all stakeholders a return. Mechanisation also comes at a high cost because of the equipment and high-tech machines and tools that it requires.
“The cost of labour is not a significant factor and it is necessary to have good community relations. So we would prefer not to mechanize,” Bowering said.
This is an important point. In many developing regions, mining operations can become a source of community discontent if they are not seen to be creating employment. The situation is most acute in Africa, notably South Africa’s platinum belt, which is a flashpoint of labour and social unrest which frequently claims lives while impacting on production. But such ructions have also bedeviled mining projects in Latin America, and investors in this day and age are very keen on social and governance issues.
The company has already embarked on infrastructure upgrades including building roads to make the operation more accessible, which has wider economic spin-offs. When it fell off the radar screen during previous commodity slumps, things fell into a state of disrepair.
Bowering also noted that Mexico was a good mining jurisdiction in which to operate, and not just because of its relative proximity to Vancouver.
“Mexico is mining friendly, you can get a permit to build a mine in 12 to 14 months,” he said.
The Los Reyes Gold-Silver Project has not been explored fully or properly – until now. It can be fast-tracked to production at a time when the price cycle is buoyant, and in a region of Mexico with mining in its veins. It is set to come to life, and may yet prove to hold even more riches than currently anticipated.
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