Quinchia Gold Portfolio

1 History

The Company completed the purchase of Minera Seafiled SAS from RMB Australia Holdings Limited (RMB) on 20 June 2016. Minera Seafield, now Miraflores Compania Minera SAS (MCM) owns 100% of the Quinchia Gold Project (“Quinchia Portfolio”) in Colombia where a NI 43-101 mineral resource of 2.8 million ounces of gold had been estimated. The Quinchia Portfolio covers 6,043Ha of granted concessions and an additional 3,792Ha of pending applications, and contains several deposits and exploration targets including Miraflores, Dosquebradas and Tesorito.

2 The Quinchia Portfolio

The Quinchia Portfolio is in central west Colombia, 100km south of Medellin and 6km south of Marmato (Figure 1), in a district known for its high grade epithermal and breccia hosted gold/silver, and porphyry hosted gold/silver/copper systems. The Quinchia Portfolio is located within the same structural trend (Mid-Cauca porphyry gold belt) as the Marmato Gold Mine and the La Colosa gold project which hosts gold resources of 14 million and 29 million ounces respectively.

Figure 1: Locality Map:  Key Targets – Quinchia Gold Project

Quinchia Gold Project

At the time of acquiring MCM, the Quinchia Portfolio had a NI 43-101 Mineral Resource (Measured, Indicated and Inferred Mineral Resource categories) of 134Mt at 0.65g/t gold for 2.8 million ounces gold comprising the following:

  • Miraflores deposit (0.27g/t Au cut-off)
    Measured and Indicated Mineral Resource of 72.6Mt @ 0.78g/t gold and 1.52g/t silver; and
    Inferred Mineral Resource of 3.76Mt @ 0.51g/t gold and 2.28g/t silver (0.27g/t gold cut-off).
  • Dosquebradas deposit(0.30g/t Au cut-off)
    Inferred Mineral Resource of 57.8Mt @ 0.50g/t gold, 0.60g/t silver and 0.04% copper (0.30g/t gold cut-off)

The potential exists to substantially increase these resources at the Tesorito target located some 800m south east of the Miraflores deposit, where soil and rock chip sampling, geophysics and drilling results have identified a gold/copper porphyry system. In addition, the Dosquebradas deposit to the northwest of Miraflores could provide additional feed for a processing facility at the Miraflores deposit or enhance any future development scenario at Tesorito.

3 Summary of the transaction

The transaction, is summarised as follows:

  1. On settlement Metminco issued RMB with 400 million fully paid Metminco ordinary shares at a deemed price of 0.5 cents per share and reimbursed RMB for costs incurred by MCM for the period from execution of the Offer Letter to Settlement
  2. Metminco will make cash payments to RMB as follows:
    (i) Initial payment of A$1.0 million on 20 June 2017;
    (ii) Second payment of A$1.0 million on 20 June 2018;
    (iii) Third payment of A$3.0 million on the earlier of (a) a decision to mine at the Quinchia Portfolio; and (b) 20 June 2019; (iv) Fourth payment of A$2.0 million on the earlier of (a) a decision to mine at the Quinchia Portfolio; and (b) 20 June 2020; and
  3. Metminco will pay a maximum of A$7 million in royalty payments to RMB from operating cash flows.

4 Miraflores Project

4.1 Introduction

SRK Consulting Inc (USA) (SRK) was retained by Metminco to complete an update to a previous scoping level study of the Miraflores Project (Miraflores or the Project) located in Colombia. The purpose of the study was to summarize and publicly document previous work, and to refresh past work to present an underground mining only scenario utilizing filtered tailings as backfill material, with a dry stack tailings facility. The study was completed by SRK with contributions from Metal Mining Consultants (MMC), GR Engineering Services Limited (GRES), and Dynami Geoconsulting (DG).

The Project has had two Preliminary Economic Assessments (PEA’s) completed which were publicly filed on 27 April2012 (SRK, 2012), and 02 August 2013 (SRK, 2013a) by Seafield Resources Ltd (Seafield). A Feasibility Study was undertaken, but not completed, in 2013. The Feasibility Study was suspended in September 2013 as further optimization was required, specifically with relation to tailings handling. A study was then requested by RMB, to provide an alternative higher grade scenario with an alternative tailings location to that used in the August 2013 PEA, as well as to include the feasibility level work previously completed, but not made public or fully documented. The RMB study was an internal document and was not released publicly. The goal of the RMB work was to improve open pit and underground mill feed gold grade while reducing the impact of tailings on Project operating and capital costs by relocating the tailings to the Tesorito site. The RMB work was completed and a technical report was issued to RMB on 24 February 2015 (RMB 2015 Report).

The main changes from the August 2013 PEA (SRK, 2013a) to the RMB scenario were as follows:

  • Modified tailings location, design, and cost estimate;
  • Modified underground mine design, production schedule, productivities and cost estimate;
  • Modified open pit production schedule and cost estimate;
  • Metallurgical recoveries updated to most current testwork information;
  • Costs updated to Q4 2014 dollars; and
  • Updated prices of gold, silver, labor, diesel, power and consumables for all costing areas.

Work directed by Metminco resulted in additional optimization from the RMB 2015 Report work. The Metminco scenario presented in this Announcement includes the following changes/optimizations:

  • Updated metals pricing;
  • Reduced plant throughput to 1,300 tonnes per day (t/d) as compared to 1,750 t/d;
  • Updated mine plan to an underground-only scenario which includes the material previously planned to be mined as an open pit, into the underground mine plan;
  • Updated the mine backfill scenario volumes and costing based on the use of rock backfill/filtered tailings (non-structural) and filtered tailings with cement (structural) that are placed underground in open stopes;
  • Included using a filtered dry-stack tailings system for tailings management. The design and capital/operating costs for the tailings systems were provided by DG (tailings management facility) (TMF) and GRES (tailings filters);
  • Updated the mine equipment fleet numbers and labor associated with underground mine equipment fleet to be consistent with the updated mine plan;
  • Adjusted General and Administrative costs consistent with the Project throughput;
  • Added a mining equipment sustaining capital line item to the model;
  • Provided for underground mining equipment lease costs in operating costs and removed mining equipment from the capital cost items.
  • Modified portions of the operating costs (labor, fuel, reagent cost, and electricity) and capital costs for underground mobile equipment, tailings management facility, and tailings filters;
  • Added land purchase costs previously not included;
  • Adjusted the royalty rate for consistency with current Colombian regulations;
  • Adjusted the depreciation schedule consistent with current practice in Colombia;
  • Adjusted the NSR estimate to include a gold and silver payability factor consistent with current market contracts; and
  • Added contingency to the capital estimates (RMB requested no contingency in their study).

Whereas the two PEA’s and incomplete Feasibility Study conducted previously by SRK all evaluated Miraflores as a combined open pit and underground mining operation, the focus of the Metminco work was on an underground mining operation similar to several other mining projects in Colombia which have resorted to underground mining to facilitate greater community acceptance and permitting.

The Company advised the market in November 2016 that it had commenced with a Bankable Feasibility Study at the Miraflores Gold Project and anticipated completion of the Study during the first half of 2017.

GR Engineering Services Limited (GRES) a Perth, Australian based engineering, consulting and contracting company specialising in fixed price engineering design and construction services to the resources sector was appointed to manage the Feasibility Study. GMI, an arm of the Peruvian based Grana y Montero Group engineering and construction company, has been engaged to provide engineering design services to GRES. Dynami Geoconsulting (Dynami), which is based in Medellin, Colombia will provide environmental and geotechnical engineering and design, including the completion of the baseline environmental monitoring and geotechnical design for the plant and infrastructure.

The Scoping Study announced in September 2016, indicated that development of a standalone underground operation with a filtered tailings system would significantly reduce the surface footprint by up to 80% compared to the previously proposed operation, as the latter provided waste dumps, low grade stockpile dumps, a slurry tailings facility and a large open pit. It is expected that the changes to the proposed surface infrastructure will facilitate the completion of the EIA process. Since the completion of the Scoping Study additional work in relation to infrastructure has identified significant potential savings in the area of water management and power access. SRK considers the Metminco work to have been conducted at a Scoping (PEA) Level with an accuracy of +/- 30%.

4.1.1 Engineering Design and Confidence

Table 1 outlines the level of study work completed on the Miraflores Project by discipline, noting that additional work is required in several instances to move the Project to a higher levelof accuracy.

Table 1: Level of Study by Discipline

Discipline Item Level Comments
Geology All FS MMC scope of work. Appears all work completed to FS with exception of final rock type characterization.
UndergroundMining   Mine Design PEA Re-optimization of stope design based on tailings backfill testing/costing work.
Additional detail/optimization of development such as ramps, ventilation, etc.
Developing stope detail to ensure mineability
Infrastructure PEA Ventilation models should be completed simulating the underground production schedule to ensure adequate airflows to all parts of the mine.
Electrical loads need to be further evaluated and an adequate system should be designed.
Additional dewatering confirmation work.
Production Schedule PEA More complete productivity estimates which are used in the schedule. More detailed stope and backfill sequencing.
Underground Operating Cost PFS Further refinement of first principle costing and tie back to production schedule.
Updated cost quotes to 2016.
Underground Capital Cost PFS Could refine auxiliary equipment and utility costs.
Geo-mechanical Characterization FS Unless additional resources are identified outside the current volume then the conducted characterization programs to date should be at a Feasibility Study level.
Underground Stability FS Unless the cut-off grade significantly changes mineable vein widths or infill drilling identifies additional high grade areas that could be mined early in the sequence then the stability analyses conducted to date should be at a Feasibility Study level. The crown pillar should be redefined with the latest Metminco mine plan.
Backfill PEA Quantity of cement in the cemented backfill requires testing. Further develop characterization of backfill using filtered tailings.
Environmental Permitting (incl. Environmental Impact Study - EIS) PFS PFS requires a comprehensive overview and listing of required permits, as well as the initiation of the impact analysis for the EIS, but not necessarily submission of the EIS to the regulatory authorities.
Baseline Data PFS PFS requires the collection and review of available environmental data from existing databases for environmental studies, assessments or audits; regulatory inspections, waste handling practices; management plans.
Geochemistry FS Unless there are significant changes in the beneficiation process, or the cut-off grade has changed, then the geochemical evaluations conducted to date should be at a Feasibility Study level. Characterization of the filtered tailings and specifically the leach filtered tailings proposed to be used in backfill will need to be developed.
Hydrogeology PFS Hydrogeology baseline is very close to Feasibility Study level, but would need some additional analysis given the new location of the tailings impoundment and potential impacts associated with co-disposal of reactive tailings in the underground workings as backfill.
Management Plans PFS PFS requires preparation of generalized environmental plans and monitoring programs; preliminary sediment and erosion control plan; conceptual reclamation plan; evaluation of acid rock drainage; geotechnical stability review of waste dumps and tailings dam; preliminary impact mitigation plan; preliminary spill and emergency response plan.
Socioeconomics PFS PFS generally requires the initiation of social baseline data collection, preliminary stakeholder engagement activities; some community outreach and training, and general definition of health/safety programs.
Process Design Design PEA Lyntek scope of work. Substantial drawings exist. Would need additional design work for the smaller capacity plant now being considered.
Capital Cost PEA Lyntek scope of work. Capital equipment was updated with quotes however installation and other costs were not updated. A complete capital cost estimate was not compiled by Lyntek. SRK confirms the process capital cost with contingencies included at PEA level.
Operating Cost PEA Lyntek scope of work. An operating cost was not provided by Lyntek. The PEA cost was used with adjustments by SRK to account for labor, power, and inflation.
Tailings Facility Design PEA The majority of previous work will need to be updated as the type and location for the tailings impoundment presented herein is at a PEA level. Field characterization and more detailed design is required to advance all areas of tailings design.
Capital/OperatingCost PEA All costs area at PEA level. Previous work is not applicable.
Metallurgy All FS A Feasibility Study level metallurgical report was completed. A review of the impact of the higher grade underground mine only mill feed and reconfirmation of the rock type and consistency with the previous metallurgical test program will need to take place.

Source: SRK
(Where PEA = Preliminary Economic Assessment; PFS = Pre-Feasibility Study and FS = Feasibility Study)

SRK notes that this document does not provide for Ore Reserves due to the preliminary nature of the work.

4.1.2 Planned Feasibility Study

GRES has been engaged to complete the Feasibility Study on the Miraflores Project which will utilise the relevant information from previous studies, including the latest Scoping Study completed by SRK in 2016, with a focus on innovative treatment options to be considered on the basis of:

  • Revenue generated from schedule and predicted process recovery for each modified flowsheet;
  • Capital cost reduction (compared to previous process studied);
  • Operating cost reduction (compared to previous process studied); and,
  • Project risk, constructability and operability.

The Feasibility Study work will encompass a processing facility and supporting infrastructure for the Miraflores Project at a treatment capacity of approximately 500,000 tonnes of underground ore per annum, to produce approximately 50,000oz/Au per annum.

The battery limits for the Feasibility Study will be from the Run of Mine pad to the cake discharge of the tailings filters and water treatment plant discharge point. Infrastructure associated with water supply and return process water from the tailings filter and treatment plant will be within the scope. Products generated from the Project will be gold and silver concentrates and/or dore. Product security while in the confines of the plant will form part of the scope, however, the transport, security and refining of the Products is outside the battery limits.

Power supply will be from a nominated point but power supply options may be explored within the scope.

4.1.3 Tailing storage facility

Metminco has appointed GMI to undertake the preliminary design for the Tailings Storage Facility. This work will be undertaken by GMI under the supervision of GRES. GMI specializes in the geotechnical design, construction and operation of such facilities. Dynami will complete the requisite permitting and EIA for the Tailings Storage Facility.

4.1.4 EIS and Geotechnical Engineering

Dynami has been awarded the contract to provide Feasibility Study level geotechnical and Environment Impact Assessment work for the Miraflores Gold Project.

The Scope of Work includes all tasks required for an Environmental Impact Assessment and the update of the Environmental Baseline such that an Environmental Licence can be obtained for the Project. Additionally, geotechnical feasibility-level designs for mine facilities (plant foundations, cuts and fills, roads) and tailings management on the Tesorito site will be developed.

4.2 Property Description and Location

The Miraflores property consists of a 124 hectare mineral exploitation contract granted by the Colombian Ministry of Mines to the Asociación de Mineros de Miraflores ("Miraflores Miners Association", AMM). Geographically, the mineral contract is located within the Municipality of Quinchía, Department of Risaralda, Republic of Colombia, some 190 km WNW of the Colombian capital of Bogota and 55 km to the north of Pereira, the capital of the Department of Risaralda.

4.3 Geology and Mineral Resource

4.3.1 Geology

The Miraflores breccia is a typical breccia-pipe, sub-vertical cylindrical with surface dimensions of 250 x 280 m with a known vertical extent of 500 to 600 m, but open to depth, with clear contacts with the basalts of the Barroso formation. The NNW – SSE fracturing system appears to control the formation of the breccia.

The steeply dipping high-grade veins are the latest mineralizing event at Miraflores. The main mineralization trends of high-grade veins vary in strike from N10 to 35W and from N60 to 80W, and dip between 70E and vertical. The veins are defined by a narrow mineralized core (10 to 60 cm) and a wider mineralized halo (1 to 5 m). The narrow core consists of increased amounts of sphalerite, galena, pyrite, chalcopyrite, and fine clay. The wider mineralized halo is defined by weak to moderate mineralization along the margins of breccia fragments. The intensity and width of the mineralized halo is controlled by the porosity and permeability of the wall rock. Assay values as high as 429 g/t Au were reported by Rodriguez et al. (2000), while numerous Sociedad Kedahda S.A. sample values ranged from 10 g/t Au grades which included several samples exceeding 100 g/t Au.

Near the surface, a minimum of nine veins have been identified and exploited by at least 30 artisanal small tunnels. In addition to the artisanal tunnels, Asociación de Mineros de Miraflores (AMM), had been exploiting several veins through the La Cruzada tunnel. The tunnel is a 270 m long crosscut oriented at about 256° azimuth, which intercepts many NNW and NW -striking high-grade veins. The exploitation by AMM has confirmed continuity of vein mineralization. One of the veins has been exploited for over 20 years with consistent gold production and demonstrates continuity of 150 m along strike and more than 60 m vertical.

Mineralization at Miraflores is contained within the Miraflores magmatic-hydrothermal breccia body and in the basalts close to the contact. At surface, the breccia is exposed on a 30° slope, which has been worked by informal miners using artisanal methods in small excavations and irregular tunnels. Free gold is sluiced from oxidized exposures and from dump material. AMM has exploited the high-grade veins in the tunnel La Cruzada with more than 500 m in cross cuttings and guides. Some isolated workings apparently connect with the main AMM adit.

The prospect is well known for free native gold and silver occurring in vugs and cavities in the carbonate and quartz cement of the breccia. Drilling has shown that gold mineralization occurs in all types of breccias in the cement and matrix.

At least two mineralizing events before formation of the epithermal breccia have been observed in the fragments of the breccia. Locally, Basalt clasts with veinlets of ‘B’ style (comb quartz without alteration halo) cut by pyrite-epidote cracks are evidence of a possible porphyry style mineralization preceding the breccia formation. In the case of the white breccia, the polymictic breccia was moved, broken and invaded by the quartz-calcite infill, which in the porphyry veinlet classifications belong to the ‘E’ stage (Tobey, 2012).

In the White Breccias sulfide minerals occur throughout the quartz and calcite stages, and are often concentrated on epidote at the start of the quartz phase, and are also commonly euhedral in quartz vugs. The sulfides are euhedral and coarse grained (2 to 4 mm). The percentage of sulfides is low. The sulfides seen are pyrite, chalcopyrite, molybdenite, galena and sphalerite (honey-colored, Zn-rich). Rare visible gold can occur in vugs.

Low grade gold mineralization is found in a halo around the breccia pipe in the basalts, and is characterized by quartz-calcite veinlets with low content of sulfides (pyrite, galena, sphalerite) controlled by the density of fracturing created by the formation of the breccia.

The mineralization in breccias and in the basalt is characterized by low contents of chalcopyrite, sphalerite and galena, occurring as fine grains (<100 µm).

The younger sub-vertical veins SSE - NNW and NW - SE, dipping from 75° to 90° that cross cut the breccia, are characterized by argillized material that contain important quantities of sulfides pyrite, chalcopyrite, sphalerite and galena. Some visible gold has been observed. The sulfides are present as coarse particles ranging from 100 to 200 µm and greater than 200 µm. The persistence of the SSE-NNW structures is important and is clearly recognized in the exploitation workings of the AMM where high gold grade mineralization can be followed by more than 150 m in horizontal and more than 80 m in vertical, with almost no displacement of the structures. Crossing of structures (veins) are forming high gold grade shoots of variable dimensions that can be observed in the AMM workings.

4.3.2 Mineral Resource

As of 02 April, 2013, MMC estimated a Measured and Indicated Mineral Resource of 72.6 Mt at a gold and silver grade of 0.78 g/t and 1.52 g/t respectively using a cut-off grade of 0.27 g/t gold in accordance with NI 43-101. The mineral resource was based on 25,884 m of drilling in 73 diamond drill holes and 236 meters of underground channel samples. The mineral resource estimate provided for both an open pit and an underground mining operation.

More recently, MMC was retained by Metminco to produce a mineral resource that is estimated in accordance with the guidelines of the JORC Code (2012 Edition), but which only provided for the exploitation of the Miraflores deposit via an underground mining operation, and hence a higher cut-off grade of 1.2 g/t gold. The revised mineral resource estimate is summarized in Table 2 and Table 3.

Table 2: Mineral Resource Estimate – Miraflores Gold Project (MMC July 2016)

Classification Tonnes(000's) Au(g/t) Ag(g/t) Oz Au(000's) Oz Ag(000's)
Measured 2,948 2.98 2.50 282 237
Indicated 6,245 2.74 2.89 549 580
Measured & Indicated 9,193 2.81 2.76 832 817
Inferred 180 1.44 5.49 8 32

Based on a gold cut-off grade of 1.2 g/t.
Rounding-off of numbers may result in minor computational errors, which are not deemed to be significant.

Table 3: Sensitivity of Mineral Resource to Varying Gold Cut-off Grades

Measured and Indicated Mineral Resource (Breccia and Veins)
Cut-off(Au g/t) K Tonnes Au(g/t) Au(Koz) Ag(g/t) Ag(Koz)
0.60 23,455  1.61  1,211 2.13 1,606
0.70 18,983  1.83 1,114 2.27 1,383
0.80 15,868  2.04 1,041 2.39 1,222
0.90 13,571   2.24  978 2.52 1,098
1.00 11,761  2.44 923  2.62 991
1.10 10,361   2.63  875 2.71 903
1.20  9,193 2.81 832 2.76 817
 1.30  8,342 2.97 797 2.83 759
1.40 7,614 3.14 767 2.89 708
1.50 6,966 3.29 737 2.96 663
Inferred Mineral Resource (Breccia only)
Cut-off(Au g/t) K Tonnes Au(g/t) Au(Koz) Ag(g/t) Ag(Koz)
0.60 1,461 0.77 36  3.45 162
0.70 342 1.14 13 3.79 42
0.80 260 1.27 11  4.25 36
0.90 212 1.37 9 4.97 34
1.00 182 1.43 8 5.45 32
1.10 181 1.44 8 5.47 32
1.20 180 1.44 8 5.49 32
1.30 178 1.44 8 5.53 32
1.40 77 1.54 4 2.59 6
1.50 35 1.67 2 0.93 1

Source: MMC, 2016

5 Metallurgy and Process Design

5.1 Metallurgy

SRK designed and supervised a feasibilitylevel metallurgical development program for the Miraflores Project located in the Quinchía District, Colombia. Metallurgical studies were conducted on master composites, variability composites and confirmatory composites representing different rock types in both the open pit and underground mine designs (SRK, 2013b). The Feasibility Study metallurgical work was completed and a report was prepared for Seafield; however, it was not made public. The information presented here summarizes the Feasibility Study metallurgical work performed.

The Feasibility Study metallurgical program was conducted by Inspectorate Exploration and Mining Services (Inspectorate), Vancouver, Canada, a subsidiary of Bureau Veritas, and was designed to evaluate a process flowsheet that included:

  • Three-stage crushing;
  • Ball mill grinding;
  • Gravity concentration of the coarse gold;
  • Gold flotation from the gravity tailing;
  • Cyanide leaching of the gold flotation concentrate;
  • Cyanide detoxification of the cyanidation residue; and
  • Tailing thickening.

The average overall gold recovery is estimated at 91% and is based on the weighted contribution of each of the mineralized rock types in both the underground and open pit designs. The gold recovery estimate includes a 2% gold recovery reduction to allow for gold losses due to plant inefficiencies. The average overall silver recovery is estimated at 54% and is based on the weighted contribution of each of the mineralized rock types in both the underground and open pit designs. The silver recovery estimate includes a 2% silver recovery reduction to allow for silver losses due to plant inefficiencies.

The current Metminco scenario presented in this press release uses underground mining only resulting in a higher average grade (3 to 4g/t Au) to the process facility than the previous PEA’s. It can reasonably be expected that processing of material from the higher grade underground scenario would result in similar, if not somewhat better, overall metallurgical performance, however, recovery estimates, based on rock types and underground mining grades, should be checked during the next phase of study.

5.2 Process

The design of the process facility for the updated PEA (2013a) and the Feasibility Study effort were undertaken by Lyntek. The Feasibility Study work was not completed. The process design presented in this section represents process designs completed as part of the updated PEA (SRK 2013a). Although operating costs have been updated from the PEA, the process plant capital cost estimate for a 1,750 t/d process plant is unchanged from the updated 2013 PEA. SRK notes that the mining scenario presented here is based on a 1,300 t/d facility. The Lyntek work and previous PEA’s were based on process facilities with through puts of 1,750 t/d. Process facility and mine production should be optimized in future studies.

Metallurgical studies have demonstrated that the Miraflores material can be effectively processed by a flowsheet that includes gravity concentration followed by cyanidation of the gravity tailing or by a flowsheet that includes gravity concentration followed by flotation and cyanidation of the flotation concentrate. SRK has selected the latter flowsheet concept as this has the advantages of slightly better overall gold recovery and a much smaller footprint for the cyanidation circuit, which offers significant advantages with respect to capital cost and disposal of cyanide leach residues. A conceptual flowsheet for the Miraflores process plant is shown in Figure 2.

Figure 2: Process Flow Diagram

Process Flow Diagram
Source: SRK

Run of Mine (RoM) material would be hauled to the crushing plant and either dumped directly into the crushing plant feed hopper, or stockpiled and fed to the crusher with a front-end loader. The crushing circuit would consist of a primary jaw crusher followed by secondary and tertiary cone crushers, with the tertiary crushers operated in closed circuit with a vibrating screen to produce a P80 -9 mm final crushed product, which would be conveyed to the fine mill feed bin ahead of the grinding circuit.

Crushed mill feed would be fed from the fine mill feed bin to feed the grinding circuit, which would consist of a ball mill operated in closed circuit with hydrocyclones. The cyclone overflow would advance to the flotation circuit at a grind size of P80 -106 microns. Coarse free gold would be recovered from a portion of the cyclone underflow in a gravity concentration circuit that would include two centrifugal gravity concentrators. The resulting rougher gravity concentrate would then be upgraded on a series of shaking tables to produce a gravity concentrate of sufficient grade that it could be mixed with the necessary fluxes and smelted to produce a final doré product or subjected to intensive cyanide leaching. Shaking table tailings would be combined with the cyclone overflow and be advanced to the flotation circuit.

The combined cyclone overflow and gravity cleaner tailings would be conditioned with the collectors PAX (potassium amyl xanthate) and Aerofloat 208 (dialkyldithiophosphate) at the natural pH of 8-9, and then advanced to the rougher/scavenger flotation circuit. The resulting rougher flotation concentrate would be then upgraded with one stage of cleaner flotation. The upgraded gold-bearing cleaner flotation concentrate would then be thickened to about 45% solids prior to being advanced to the carbon-in-leach (CIL) cyanidation circuit.

The CIL circuit would consist of agitated leach tanks operated in series to provide approximately 48 hours of leach retention time. The thickened cleaner concentrate would be pumped to the first CIL leach tank and flow by gravity to each succeeding leach tank in the train. Each tank will be provided with a carbon screen to retain carbon within each CIL leach tank. Activated carbon, which serves to adsorb dissolved gold from the leach slurry, would be added to the last tank in the CIL circuit. Carbon would be pumped counter-currently up the leach train to each preceding tank and would gradually increase in gold tenor by the time it reaches the first CIL tank. Loaded carbon, which is anticipated to grade at about 4,000 g of gold per tonne of carbon (a typical gold loading value), will be pumped from the first CIL leach tank, screened and washed and then pumped to the gold recovery circuit.

In the gold recovery circuit, the carbon would first be acid washed to remove scale and other materials that could potentially foul the carbon. The acid washed carbon would then be loaded into a carbon strip vessel in which a hot caustic/cyanide solution is circulated to desorb (elute) the gold that had been adsorbed on the carbon. The eluted gold would be circulated through a series of electrolytic cells where the gold-cyanide complexes are reduced to metallic gold, which precipitates onto stainless steel cathodes. The precipitated gold would be washed from the cathodes, filtered and then mixed with the necessary fluxing agents and then melted in a furnace to produce a final doré product.

Tailings discharging from the final CIL tank would be screened to recover residual carbon fines and then thickened prior to being pumped to the tailings detoxification circuit. The detoxification circuit would consist of two agitated tanks in which sodium metabisulfite, lime, air and copper sulfate are added to destroy the residual cyanide prior to being discharged to the tailing storage facility.

GRES and the Company have designed and will complete a confirmatory metallurgical testwork program which will test a higher grade mill feed to replicate the expected mill feed grade from underground.

The testwork will be undertaken by Bureau Veritas Commodities Canada Ltd, based in Vancouver. Bureau Veritas completed the earlier testwork conducted on Miraflores ore samples in 2012 and 2013. The test program will be carried out in two phases. The objectives of this metallurgical testing program are:

  • Phase I: To conduct confirmatory testwork to confirm previous results following conditions established from the FS test program, and to obtain additional design parameters;
  • Phase II: To generate sufficient concentrate and tailings for additional testing by vendors.

The test program will be centered on confirmatory testing of two Miraflores composite samples representing mill feed ore for the first and second 4-yearly mining periods, following the process flowsheet developed in the Feasibility Study test program. In addition, a separate whole HQ sample will be provided for further comminution testing including Unconfined Compressive Strength (UCS) Tests, Bond Impact Crushing Work Index and Bond Rod Mill Work Index tests.

The scope of this test program consists of sample preparation, head sample analysis, gravity concentration followed by flotation of gravity scalped tailings as well as cyanidation of flotation concentration. In addition, thickening studies on flotation concentrate and tailings as well as leach tailing are also required.

Miraflores water samples have also been provided to Bureau veritas for testing in the flotation process to determine whether site water may have any detrimental effect on flotation.

The scope of work was provided to Bureau Veritas by GRES.

6 Tailings Storage Facility

Tailings material from the concentrator mill will be filtered to generate two distinct tailings streams consisting of flotation and leached residue tailings. The larger fraction of flotation tailings will be stored in a dry stack Tailings Management Facility (TMF) and used for mine backfill. All of the smaller fraction of leach residue tailings is assumed to be completely used as mine backfill and will immediately be placed underground.

The location and type of tailings (now dry stack tailings) has been modified from previous reports to accommodate a smaller required storage capacity, reduce environmental impact, and minimize costs. Field characterization, testwork, and more detailed design are required to advance the design from the current scoping level. The TMF will be located near to the processing facility in the Tesorito basin. The Tesorito catchment (Figure 6 1 red outline) is a 319,650 m2 basin located south-west of the plant area and south of the portal site. It is bounded to the north and east by an existing unpaved road which sets the maximum elevation as the existing road will serve as a hauling road and base for construction of runoff management during mine operations. The design provides two options in the basin shown in Figure 3. Option 1 considers an approximately 40 m high compacted tailings deposit just south of the plant area. The capacity of Option 1 is sufficient for the full expected tailings production. Option 2 considers another sub-basin within the Tesorito catchment which could be used as a future expansion and/or topsoil deposit, waste rock pile or sub-grade stockpile area.

Figure 3: Primary TMF Options – Tesorito Basin

Primary TMF Options – Tesorito Basin
Source: DN, 2016

Table 4: Tailings Management Facilities Design Criteria and Capacity

Phase Item Units Option 1 Option 2 Option 1+2
Starter Embankment Crest width m 10 10 10
Crest elevation masl 1,210 1,210 1,210
Minimum toe elevation masl 1,190 1,186 NA
Upstream slope ratio 2.5:1 2.5:1 2.5:1
Downstream slope ratio 2.5:1 2.5:1 2.5:1
Embankment volume k(m3) 22 36 58
Ultimate TMF Face Slope ratio 3.0:1 3.0:1 3.0:1
Maximum elevation masl 1,270 1,270 1,270
Elevation between berms m 10 10 10
Berm width m 10 10 10
Volume M(m3) 1.4 1.8 3.2

Source: SRK (modified DN), 2016

Operating costs were developed based on the use of a contracted rental fleet of trucks operating on day shift only and hauling from the concentrator approximately 1km to the TMF. The tailings material is spread by dozer and compacted with small compactors. The compacted density of the filtered tailings for the design is 1.6 t/m3.

The TMF designs include an area just downstream of the embankment for management of contact and non-contact water management structures which include a seepage collection pond for catchment of all contacted water from the TMF and a sediment control pond to assure all non-contacted water complies with minimum parameters for discharge to the environment. The design includes allowances for road construction and upgrades associated with the TMF.
The tailings quantities are summarized in Table 5.

Table 5: Tailings Quantities

Description Quantity Units
Total Mill Feed Tailings 4.0 Mt
2.5 M (m3)
Tailings Required for Non-Structural Backfill 0.7 M (m3)
Tailings Required for Structural Backfill 0.4 M (m3)
Total Tailings Volume to Backfill 1.1 M (m3)
Tailings to TMF 1.4 M (m3)
Tailings to TMF 2.3 Mt

Source: SRK, 2016

The waste rock available for embankment construction is limited to a small portion of the development rock and the majority of the material for the embankment is expected to come from an alternative borrow site or excess material, if available, from the processing site construction. This study prices borrow from an off-site location.

For the scoping level study, the Option 1 TMF was selected and included in the economic analysis. A small deficit in capacity exists between the Option 1 volume and tailings to TMF quantities, but this can be managed over the last two years of production by backfilling the unused underground development driftwork. This balancing of volumes will be further developed in more detail in future work.

The capital cost for the filter presses is estimated to be US$7.5 million including a 10% contingency. The tailings storage facility capital cost is estimated to be US$2.1 million including a 15% contingency. Operating costs for the filtering and placement of tailings are estimated at US$1.84 per tonne milled.

7 Mining

Mining is accomplished through underground longhole stope mining with structural (cemented) and non-structural (uncemented) backfill utilizing development rock and filtered tailings. Initial development of the mine will occur over approximately 9 months with some production occurring during this period, and full production in Year 1.

An elevated cut-off grade of 2.2 g/t Au was determined to be optimal, with the addition of 2.0 g/t Au stope areas which are immediately adjacent to the 2.2 g/t Au areas and require limited additional development. The actual calculated cut-off grade, based on estimated costs, is 1.52 g/t Au. The stope optimization shapes were used as a basis for the mine design. These optimized stope shapes were viewed on screen and those that were low grade, geographically isolated, or otherwise sub-economic when considering development costs, were eliminated from the design. Typically, a crown pillar of 25 m or greater is used; however, there is one instance where an up-stope is mined to within 5 m of the surface.

Dilution, recovery, and an allowance for development not included in the design were applied to the mine design and are summarized in Table 6. Development not included in the design includes passing bays, muck bays, power bays, and additional cut-outs utilities and pumping.

Table 6: Mine Dilution, Recovery, and Development Allowance

Location Additional Development Allowance Unplanned Dilution Mining Recovery
4 m x 5 m Drifts 10% 0% 100%
3 m x 5 m Drifts 5% 0% 100%
Stopes* 0% 3% 95%

*Stopes already include a 0.25 m dilution on each side of the stope wall (0.5 m total/stope) included in the stope optimization shape (~10% planned dilution). This planned dilution is included in the 3-D shape and received grade information based on the block model.
Source: SRK, 2016

A production rate of approximately 1,300 t/d was targeted from the underground with an objective of producing approximately 50,000 oz of Au per year. The mine will meet the 1,300 t/d plant feed with a 365 days per year, 24-hour schedule with two shifts of 12 hours each. Productivities have been adjusted for maintenance, operations, and efficiency delays. The yearly production schedule was generated using iGantt scheduling software and is summarized in Table 7.
The mine plan includes some low-grade marginal material that is stockpiled and then fed into the plant at the end of the life of mine. The mine plan includes only Measured and Indicated Mineral Resources. Mineralized tonnage >1.2 g/t Au consists of 61% Measured Resources and 39% Indicated Resources. All inferred material has been treated as waste with zero gradewhere mined in the development process or adjacent to a stope.

Access to the mine is through two portals with 4 m x 5 m drifts used for the main ramps and primary haulage drifts. The veins and mineralized zones between veins will be accessed via a two ramp system and all material will be truck hauled to surface. The overhand mining sequence will advance in each stope block by mining from lower to upper levels. An initial development drift, the undercut mucking drive, will be constructed below the stoping area proceeding longitudinally along the stope in mineralized material. Temporary brow support may be required where the LHD enters the stope depending on rock quality and stope width. A second development drift, the overcut drill drive, is a drift along the top of the stope proceeding longitudinally along the stope in mineralized material where longhole drilling will take place to drill out the stope. These drifts will be 5 m high x 3 m wide.

The stope will be drilled and blasted and the shot mineralized material will stack at the bottom of the stope. The stope is mucked out through access at the stope bottom, in the undercut mucking drive. Once a stope is mucked, backfilling commences filling the stope up to the floor level of the overcut drive that was on the top of the stope.

The sequence is then repeated with a new drift, the new overcut drive, driven in the un-mined vein mineralized material above the initial stope. The overcut drive for the lower stope becomes the undercut for the new upper stope and the sequence repeats with drilling, blasting, and mucking of each of the higher level stopes being conducted on the fill of the stope below. The sequence continues to the top of the underground mining zone at a geotechnically designed level that allows an appropriate off-set to the open pit mine for safety and stability. Figure 4 shows the mine configuration colored by grade and by time period.

The mine design and mine schedules, including capital and operating costs are being reviewed by the mining team from Ausenco based in Santiago, Chile. Specifically, Ausenco will undertake a full review of the geotechnical aspects of the mine design including the proposed backfilling process and operation.

Figure 4: Underground Mine Configuration (August 2016)

Underground Mine Configuration
Source: SRK, 2016
Note: Diagram on left shows the distribution of veins and the associated gold grade; Diagram on right shows the extraction sequence over the life of mine.


Note:  Diagram shows the underground stopes included in previous Open Pit (mauve) and the underground stopes from original SRK design (blue). Also shown is the underground infrastructure (Source: SRK).

Ventilation raises have been included between the levels and two boreholes to the surface allow a full ventilation circuit.

The mine requires backfill to meet the required geotechnical stability of the stopes to maximize recovery and minimize losses, as well as to use as much filtered tailings as possible to minimize the TMF size and cost, and to use all development rock for backfill. Additionally, efforts were considered to minimize the use of cement.

The backfill method incorporates two different types of fill. The first is non-structural and gives no substantial support but provides a working surface for equipment. The second is structural fill assumed to have strengths in the 200 to 400 kPa UCS range. Over the life of mine, approximately 64% of the backfill is non-structural with the remainder being structural.

Non-structural fill is typically used in stopes that have a substantial pillar remaining in place after mining. The non-structural material proposed will be filtered tailings with a 2 m cap of waste rock. The non-structural material provides a base for mining the stope above. The non-structural material also allows for use of the filtered backfill material and reduces the need for additional TMF capacity on the surface.

Structural fill is used in stopes that have a narrow pillar remaining next to the stope after mining to increase extraction or minimize dilution. SRK assumed 70% of the structural fill to be 4% cement (by weight) and the remainder at 8% (by weight). As no test work is available on the characterization of the tailings at this time, these assumptions were made to allow for costing. Future work will need to test both the tailings and backfill to confirm these assumptions, and to develop an optimum case for the Project balancing extraction and cement costs.

Table 7: 2016 Mine Plan

Item Yr 1 Yr 2 Yr 3 Yr 4 Yr 5 Yr 6 Yr 7 Yr 8 Yr 9 Totals
Mineralization t/d (t/d) 462 1,298 1,302 1,302 1,302 1,298 1,302 1,301 1,020  
Total Tonnes (mineralization + waste+ stockpiles) (t) 283,992 575,314 651,584 540,140 487,446 493,468 493,657 479,222 378,939 4,383,762
Waste Tonnes (Au < 0.6 g/t) (t) 129,655 55,873 133,867 21,924 4,758 5,183 4,047   616 355,923
Mineralized Tonnes (Au > 1.2 g/t) (t) 126,113 475,091 475,302 475,160 475,104 475,179 475,241 475,014 372,223 3,824,428
Mineralization Au (g/t) 3.03 3.31 3.63 3.33 3.62 4.27 3.72 3.98 3.54 3.66
Mineralization Ag (g/t) 2.85 3.30 3.43 2.22 2.44 2.79 3.26 3.27 2.53 2.91
0.60 to 0.80 (Stockpile) (t) 6,288 31,960 18,558 15,753 4,407 5,594 8,715 1,607 4,766 97,648
0.60 to 0.80 Au (g/t) 0.65 0.69 0.72 0.73 0.74 0.65 0.66 0.72 0.78 0.70
0.60 to 0.80 Ag (g/t) 1.79 1.46 1.35 1.22 1.28 1.30 1.17 1.41 1.45 1.38
0.80 to 1.0 (Stockpile) (t) 14,275 4,639 17,990 12,974 1,238 6,347 1,288   508 59,260
0.80 to 1.0 Au (g/t) 0.88 0.90 0.90 0.90 0.80 0.90 0.84   0.83 0.89
0.80 to 1.0 Ag (g/t) 1.45 1.76 2.24 1.25 1.94 1.31 1.55   1.34 1.67
1.0 to 1.2 (Stockpile) (t) 7,661 7,750 5,869 14,329 1,940 1,164 4,365 2,601 825 46,504
1.0 to 1.2 Au (g/t) 1.06 1.14 1.11 1.10 1.16 1.16 1.09 1.05 1.10 1.10
1.0 to 1.2 Ag (g/t) 2.03 1.78 1.51 1.89 1.36 1.11 2.00 2.14 1.53 1.82
Backfill Volume (m3) 7,222 139,352 140,541 139,220 127,421 168,923 169,977 197,464 150,325 1,240,444
Non-structural Backfill Volume (m3) 7,222 133,602 137,128 139,220 87,713 68,873 49,474 69,873 104,045 797,150
Structural Cement Backfill Volume (m3)   5,750 3,413 - 39,708 100,050 120,503 127,591 46,280 443,294
Main Ramp Development Length
(4 m x 5 m)
(m) 2,816 1,378 2,884 904 210 277 240 29 99 8,838
Surface Raise meters (m) 171                 171
Internal Raise meters (m) 97 35 162             294
Stope (t) 17,829 302,333 358,381 286,140 276,902 344,088 370,700 414,492 335,352 2,706,218
Level Development (3 m x 5 m) (t) 118,259 198,876 137,358 208,631 200,056 135,501 110,940 63,300 38,621 1,211,542

Material tonnages and grades reflected in Table 5-2 do not represent Ore Reserves.

Source: SRK

The backfill will be backhauled from the processing plant location by the mine trucks and then deposited in the stopes. The cement will be added by a screw conveyor at the processing plant, or by mixing at the mine using simple methodologies.

Mine equipment will include top hammer longhole drills, two boom jumbos, 3 m3 LHD’s, 20 t haul trucks, and auxiliary equipment including scissor lifts, explosive loaders, maintenance and lube trucks, grader, and personnel carriers.

Underground services including ventilation, mine dewatering, ground control, and power systems were considered in the design and are included in the costing.

Mining capital was estimated at US$6.5 million during preproduction with US$20.7 million required over the Life of Mine. Mining capital has no contingency included. Mine mobile equipment is not included in the capital cost as it is estimated as a lease and included in the operating costs. Mine operating costs were estimated to be US$34.6/t milled.

8 Geotechnical

Geotechnical investigations were conducted by SRK to provide feasibility-level geotechnical design parameters for the open pit and underground designs (SRK, 2013c). The objective of the investigation was to provide suitable design parameters for mining the Miraflores deposit, through simultaneous operations of open pit and underground mining.

The 2013 investigation program consisted of geotechnical core logging of eight oriented HQ3 diamond drillholes. A total of 2,145 m of core was logged. Detailed face mapping of the existing exploration tunnel was also conducted as part of the 2013 field program. This new data has been used in conjunction with data previously gathered in 2012 support of the scoping-level design (SRK, 2012). The geotechnical information was used to develop underground design parameters including stope sizes, pillar sizes, dip pillar sizes, and a crown pillar size (work will be further developed in future designs as open pit was eliminated in this study), ground support, backfill, infrastructure off-set, dilution and recovery (Table 8). It is anticipated that final stope dimensions will be established just prior to mining and will be based on geotechnical characterization from local delineation drilling.

Table 8:  Underground Mine Design Parameters

Design Parameters Strong Rock Weak Rock
Stope Dimensions Stope Height (m) 20 20
Stope Length (m) 90 30
Max Stope Width (m) 15 15
Minimum Stope Width (m) 1.5 1.5
Crown Pillars Crown Height (s1) (m) 83 83
Crown Width (vertical dimension) (m) 25 25
Sill Pillars Sill Height (σ1) (m) 15 15
Sill Width (vert.) (m) 5 5
HW Height (σ1) (m) 25 25
HW Width (between stopes) (m) 5 5
Rib Height (σ1) (m) 15 15
Rib Width (strike) (m) 3 3

Source: SRK

9 Project Infrastructure

The Miraflores deposit is located in a populated part of Colombia and is approximately four-hours driving on paved roads from the Antioquian capital of Medellin. The economy of the Municipality of Quinchía is rural. Agricultural activities dominated by coffee and mixed-crop farming are the principal sources of land use and income. Small-scale, artisanal gold mining is important in various areas such as Miraflores, El Chuscal and Quinchía.

The town of Rio Sucio has basic hotel, restaurant, and shopping facilities and is located approximately 30 km from the Project.

Power is readily available with a major transmission line for power in the region that runs 5 to 10 km from the Miraflores site running parallel to the Cauca River. The site capital budget includes US$1 million for a site substation at the process plant site and an allowance of US$450,000 for site distribution including distribution to the mine site. Underground distribution capital is including in the mine capital budget.

Preliminary water sources identified by SRK include the Quinchía and Cauca Rivers and tributaries that flow on the Miraflores property as well as water from underground dewatering. Metmincohas access to approximately 7 liters per second of water rights available in the area. The water source for the process plant will be a combination of supply from the underground dewatering and site collection draining to the flotation tailings pond. Water will be available primarily from recycled tailings pond water.

SRK has identified and evaluated suitable sites for a future plant location. The area identified as the primary target is the flatter ridge area south of the mineralized area. Site works for a three borehole drill program, totaling 147 m of drilling and ten test pit geotechnical program, is complete.

Additional detailed work will be conducted in the next phase of work. The road system will include an upgrade to the access road from the Quinchiato Irra road to the Project property and construction of new access and haul roads to the TSF facilities, underground portals, and process plant (Figure 5).

Other on-site infrastructure items include sewage treatment facilities, waste storage areas, explosives storage, security, administration and maintenance facilities, warehouse facility, and an assay laboratory. Costing for these items have been included within the capital estimate.

Figure 5:  Site Layout

Site Layout


10 Market Studies and Contracts

10.1 Markets

Gold markets are mature and with reputable smelters and refiners located throughout the world. The BMO Street Commodity Consensus Outlook provides a median outlook for gold in 2018 of US$1,317/oz gold and a long term outlook of US$1,300/oz gold.

Silver is a minor contributor to the overall economics of the Project. The BMO Street Commodity Consensus Outlook provides a median outlook of US$18.52/oz silver. The long term outlook is US$19/oz.

For the purposes of this report, US$1,300/oz Au has been assumed for gold and US$18.00/oz Ag for silver.

10.2 Contracts

Miraflores is not currently in production and has no operational sales contracts in place at the time of this report.

11 Environmental Studies, Permitting and Social or Community Impact

The area around the Miraflores Project (and the region as a whole) has been heavily disturbed through the anthropogenic conversion of native forest to principally coffee plantation. This land use change has sensitized the local population, and Non-Governmental Organizations (NGOs) to additional disturbance activities, especially those associated with natural resource extraction and beneficiation (i.e. mining). Appropriate and effective stakeholder engagement and community relations is essential for the success of the Project, and Metminco has re-established communications with the local municipalities and indigenous Embera Chami and Karamba communities.

Baseline data collection and preliminary impact analyses were initiated in 2010, expanded in 2012, but suspended in 2013 when Seafield entered into receivership. Metminco has recently reinitialized these programs in order to meet the requirements of the EIS based on the latest mine plan. Surface water baseline monitoring and mitigation will be critical for the Project given the municipal discharges of untreated waste waters in the region and the presence of illegal artisanal miners who are releasing regulated pollutants (including mercury and cyanide) into local surface waters. In addition, while the deposit has low sulfidation (<0.6% S), the absence of neutralizing capacity in the rock could lead to an elevated risk of acid rock drainage.

The new mine plan will require modifications to the EIS, and will include the appropriate environmental and social management plans based on the identified impacts. These will include the necessary environmental measures for the proper closure and abandonment of the operation. To ensure that these activities are carried out, an Environmental Insurance Policy shall remain in effect for three years from the date of termination of the contract. SRK prepared a conceptual closure plan for the Miraflores Project in 2013 as part of the original EIS effort. This plan (and the projected closure cost estimate) will need to be updated based on the modification to the mine plan presented herein.

12 Capital and Operating Costs

Costing of the Project has been completed to various levels of detail. Table 9 outlines the various degrees of detail for both capital and operating costs by discipline. The scoping level study should be considered to be at an accuracy of +/- 30% including contingencies.

Table 9: Capital and Operating Cost Level of Study by Discipline

Discipline Item Level Comments
Mine Underground Operating Cost PFS To confirm PFS level:
Further refinement of first principle costing and tie back to production schedule.
An up to date labor salary study is still required for a PFS level.
Updated cost quotes to 2016
Underground Capital Cost PFS Could refine auxiliary equipment and utility costs.
Process Design Capital Cost PEA Lyntek scope of work. Capital equipment was updated with quotes however installation and other costs were not updated. A complete capital cost estimate was not compiled by Lyntek.
Operating Cost PEA Previous FS work by Lyntek and not confirmed by SRK. Operating costs from previous PEA cost was used with adjustments by SRK to account for labor, power, and inflation.
Tailings Facility Capital/Operating Cost PEA Flotation tailings costs needs to be re-estimated based on quantities of a PFS level design. Leachate costs need to be re-estimated based on quantities in the current Feasibility Study level design.
Infrastructure Capital Cost PEA Update designs and estimates to be consistent with current Project parameters with refined power supply, access, and support facility data to increase accuracy.
Owner’s Cost Capital Cost PEA Update construction schedule, confirm adjustments to Project size and changes to plant and tailings facility, optimize and refine closure costs.
General & Administrative Operating Cost


To develop to next level of study: Create detailed cost estimate with acceptable detail for the next level of study.

Source: SRK

12.1 Capital Cost Estimates

The capital cost estimate for the Miraflores PEA LoM totals US$98 million, including contingency, and is summarized in Table 10. The capital is broken down by initial capital, required to start and develop the mine, and sustaining capital used to continue operations.

Table 10: LoM Capital Costs (US$ millions)

Description Initial Sustaining LoM
Underground Mining 6.5 14.2 20.7
Processing 38.0 0 38.0
Tailings 8.6 0 8.6
Infrastructure 5.0 0 5.0
Owner's Cost 9.0 6.0 15.0
Investment on Water Monitoring 0.1 0 0.1
Equipment Salvage 0 (3.4) (3.4)
Sub-total 67.2 16.8 84.0
Contingency 14.0 0 14.0
Total Capital 81.2 16.8 98.0

The capital cost estimate developed for this study includes the costs associated with the engineering, procurement, preliminary estimates of taxes, duties, and freight, construction, commissioning and pre-operation required for all Project facilities. The cost estimate was based on preliminary estimates developed for the Project by SRK for mining, processing, owner’s cost, investment of water monitoring, equipment salvage, and sustaining costs. GRES contributed the tailings filter cost. DN developed the dry stack tailings costs. The capital cost estimated includes direct and indirect costs. Estimates are based on preliminary designs and costs from other similar projects combined with first principles estimates.

Contingency is in the capital cost estimate for processing (25%), tailings (15%), infrastructure (25%), and owner’s costs (25%). The overall contingency initial front capital is 17%.

12.2 Operating Cost Estimates

Operating costs are based on underground mining, process, tailings and G&A estimates. All costs are in Q3 2016 US dollars. The mining operating costs do not include capitalized development costs. LoM operatingcosts by cost center are shown in Table 11. Over the life of the Project, operating costs are estimated at US$57.17/t milled.

Table 11: LoM Operating Costs

Description US$/t milled LoM(US$ millions)
Mining $34.67 139.7
Processing $15.41 62.1
Tailings $1.84 7.4
G&A $5.25 21.1
Total $57.17 230.3

The financial results are derived from annual inputs provided by SRK, Metminco, GRES, and DN. SRK developed the economic model. Cash flows are reported on a yearly basis. The basis is considered to be 2016 Q3 US dollars.

13 Economic Analysis

13.1 Principal Assumptions

A financial model was prepared on an unleveraged, post-tax basis. The model includes a pre-tax summary for completeness. The basis and results are presented in this section. Key criteria used in this analysis are summarized in Table 12.

Table 12: Project Main Assumptions

Description Value Units
Project Schedule    
Pre-Production Period 18 months
Mine Life 9 years
Plant Feed Rate 1,300 t/d
Gold/Silver Circuit    
Average Gold Recovery 91 %
Average Silver Recovery 54 %
Gold Price 1,300 US$/oz
Silver Price 18 US$/oz

An 18-month pre-production period allows for the post permitting activities through to commercial production, including all construction activities and surface rights settlement, pre-production mine development, process plant and facilities construction and infrastructure development.

Mill feed is planned at 1,300 t/d with varying grades that provide average LoM plant feed grades of 3.51 g/t Au and 2.84 g/t silver (including low grade stockpile feed material).

A flat 33% income tax has been used. This is the result of combining the Colombian corporate income tax at 25% and the CREE tax at a rate of 8%.
Working capital changes are based on accounts receivable paid 30 days after a sale is reported, accounts payable are due 30 days following delivery of service, 16% VAT (IVA) tax over capital is recovered after a period of 30 days and operations net inventories of 30 days.

The financial inputs to the economic model are provided in Table 13.

Table 13: Financial Inputs

Description Value Unit
Project Equity 100% Percent
Working Capital Requirement Receivables/Payables, IVA 30 days
Depreciation 5 year accelerated  
Discount Rate 8%  
Effective Corporate Tax Rate 33% Colombian Income Tax
Governmental Royalty 4.0% effective rate Percent over gross sales

The following exchange rates and consumables were used:

  • US$1.00 = COP$3,000;
  • Diesel: US$0.70/L; and
  • Power: US$0.11/kWh.

13.2 Economic Results

After-tax NPV is US$73 million, using an 8% discount rate (NPV 8%) with an IRR of 26%. These and other economic results are summarized in Table 14.

Table 14: After-Tax Technical Economic Model Results

Description Units Value Unit Cost (US$/t-RoM)
Mineralization Processed kt 4,028  
Gold Recovered koz 414  
Silver Recovered koz 199  
Gold Market Price US$/oz $1,300  
Silver Market Price US$/oz $18  
Gross Revenue US$M 539.2  
Gold Refinery US$M (0.2) ($0.05)
Doré Transportation & Insurance US$M (1.5) ($0.38)
Silver Refinery US$M (0.1) ($0.02)
Subtotal US$M (1.8) ($0.45)
NSR US$M 537.4 $133.43
Gold Royalty US$M (21.4) ($5.30)
Silver Royalty US$M (0.1) ($0.03)
Net Revenue US$M 515.9 $128.09
Operating Costs      
Mining US$M 139.7 $34.67
Processing US$M 62.1 $15.41
Tailings US$M 7.4 $1.84
G&A US$M 21.1 $5.25
Subtotal US$M 230.3 $57.17
LoM Cash Cost US$/oz-Au 607 -
First 8 Years Cash Cost US$/oz-Au 599 -
Operating Margin (EBITDA) US$M 286 $70.93
Capital Costs      
Underground Mining US$M 20.7  
Processing US$M 47.5  
Tailings Facility US$M 9.6  
Infrastructure US$M 6.3  
Owner Costs US$M 17.2  
Investment on Water Monitoring US$M 0.1  
Salvage US$M (3.4)  
Subtotal US$M 98.0  
Income Tax US$M (41.2)  
After-Tax Free Cash Flow US$M 146.4  
After-Tax NPV@8% US$M 73.4  
After-Tax IRR % 26%  

The Project cash costs are summarized in Table 15.

Table 15: Cash Cost Breakdown

Description US$/oz
Underground Mining 339
Processing 151
Tailings 18
G&A 51
Selling/Refining 4
By-Product (Silver) Credits (9)
Direct Cash Costs $555
Governmental Royalties 52
Indirect Cash Costs $52
Direct + Indirect Costs $607
Sustaining Capex 41
All-In Sustaining Costs (AISC) $648

Cash costs do note include: Private royalties, depreciation and amortization, ARO provisions, inventory allowances, corporate overheads, debt, employee adjustments, finished goods/by-product adjustments, exploration and study costs, permitting costs, or community related costs.

13.3 Sensitivity Analysis

The Project sensitivity analysis on an after-tax basis is summarized in Table 16 and in Figure 6. As presented, the Project is most sensitive to market price followed by operating costs and capital costs, respectively.

Table 16: Project Sensitivity (After-tax)

NPV @ 8% (US$ Millions) -20% -15% -10% -5% Base 5% 10% 15% 20%
Revenue 25 37 50 62 73 85 97 108 120
Operating Costs 94 89 84 79 73 68 63 57 52
Capital Costs 87 84 80 77 73 70 66 63 59

Figure 6: Project Sensitivity Analysis (After-tax)

Project Sensitivity Analysis

On an after-tax basis and using variable gold prices, Table 17 shows the sensitivity of the Project with regards to payback period, NPV discount rate and IRR.

Table 17: Base-Case Gold Price Sensitivity Analysis (After-Tax)

Gold Price(US$) NPV (5%)US$ Millions NPV (8%)US$ Millions IRR Payback(years)
Base 96 73 26% 2.8
$1,300 96 73 26% 2.8
$1,400 117 91 29% 2.5
$1,500 137 109 33% 2.3
$1,600 158 127 36% 2.1