Bear Creek Mining Announces Results of Phase I Engineering Work for Corani Project
TSX VENTURE: BCM
VANCOUVER, Sept. 15, 2017 /CNW/ - Bear Creek Mining Corporation (TSX Venture: BCM) ("Bear Creek" or the "Company") announces that GMI Ingenieros Consultores S.A. ("GMI"), a subsidiary of Peruvian engineering and construction firm Graña y Montero Group, has provided the Company with the results of the Phase 1 Detailed Engineering work at the Corani silver-lead-zinc project in Peru that commenced in November 2016 (see Bear Creek news release dated November 14, 2016).
The Phase 1 Detailed Engineering incorporates further optimizations and trade-offs to the Corani mine plan described in the feasibility study entitled "Optimized and Final Feasibility Study, Corani Project, Puno, Peru, Form 43-101F1 Technical Report" dated effective May 30, 2015 (the "2015 Corani Feasibility Study") and filed on SEDAR on July 17, 2015. Specifically, it establishes final processing flow sheets and equipment lists, optimizes mine sequencing, and refines capital expenditure ("CapEx") and operational expenditure ("OpEx") cost estimates for the Corani project. GMI's Phase 1 Detailed Engineering report will form the backbone of the Company's application for a Construction Permit for the Corani project, submission of which is anticipated during Q4 2017. Approval of the Construction Permit is expected during Q1 2018.
With the completion of the Phase 1 Detailed Engineering, Bear Creek's evolution toward becoming an emerging producer is progressing. In order that this corporate transition be steered at the executive level by an experienced and successful mine builder, Andrew Swarthout has elected to step down from his position as President and CEO of Bear Creek to assume the role of Executive Chairman, effective October 1, 2017. Catherine McLeod-Seltzer, current Chairman of the Company, will continue to serve as a director.
A warm welcome is extended to Mr. Anthony Hawkshaw, who was selected by the Company's Board of Directors to replace Mr. Swarthout in the position of President and CEO of Bear Creek Mining. Mr. Hawkshaw has over 30 years' senior executive experience in the mining industry and a proven track record of successfully executing the transformation of a mineral exploration company into a mid-tier producer. Additional details are provided below.
Key Updates and Project Metrics (all dollar amounts are expressed in US dollars unless otherwise noted)
- The Phase 1 Detailed Engineering utilizes a contract mining fleet to operate the Corani mine, rather than an owner-operated fleet as provided for in the 2015 Corani Feasibility Study. As a result, initial CapEx is reduced to $585 million and sustaining CapEx is reduced to $0.4 million (from $625 million and $39 million, respectively, as estimated in the 2015 Corani Feasibility Study). While this trade-off transfers capital to operating expenses, the Company believes it is an improved approach at this time as it mitigates the level of project financing risk associated with the Corani project and provides the project with immediate skilled mining operators and staff. However, the decision to use a contract mining fleet for all or part of the anticipated Corani mine life is fluid and subject to future reconsideration if warranted by ongoing economic analysis or other factors.
- Treatment and refining charges, tailings disposal costs, electrical power costs, administrative expenses, labor costs, working capital, and corporate tax rate were updated in alignment with current estimates and rates.
- Metal prices used to calculate the Corani project economics were revised in accordance with NI 43-101 guidelines to $18.00/oz silver, $0.95/lb lead and $1.10/lb zinc.
- At the metal prices quoted above, the optimizations, tradeoffs and revised cost inputs considered in the Phase 1 Detailed Engineering result in an after-tax net present value ("NPV") (at a 5% discount rate) of $402 million, an internal rate of return ("IRR") of 15.4% and a payback period of 3.5 years.
- The key factors affecting the NPV and IRR are:
- the shift from an owner-operated mining fleet to contract mining;
- revised metal prices;
- increased labor, maintenance and mobile equipment costs;
- a decrease in zinc and lead treatment charges and refining charges offset by a significant increase in per ounce silver refining charges;
- a roughly 10% increase in projected power costs; and,
- an increase in the Peruvian income tax rate from 26% to 29.5%.
- The Corani project retains its exceptional leverage to metal prices, with an approximate $112 million difference in Corani NPV (after tax, at a 5% discount rate) for every $1 movement in the silver price, with proportional changes in lead and zinc prices.
- At recent metal prices of $17.81/oz silver, $1.02/lb lead and $1.40/lb zinc, the Phase 1 Detailed Engineering optimizations result in an NPV (after-tax, at a 5% discount rate) of $540 million, an IRR (after tax) of 18.0% and a payback period of 3.1 years, highlighting Corani's leverage to increasing zinc and lead prices in addition to silver.
- Utilizing contract mining and current cost estimates as noted above increases the estimated all-in sustaining cost ("AISC") per ounce of silver (net of by-products) to $1.80 in the first six years of operation and $5.00 life of mine (from $0.36 and $4.09, respectively, as estimated in the 2015 Corani Feasibility Study).
- Recovery rates for silver, lead and zinc were revised as a result of a new mine sequence plan. In comparison to the 2015 Corani Feasibility Study, the recovery rates for silver and lead decreased 2% each, while the recovery rate for zinc increased 7%.
- Revisions to the design of the Corani open pits result in a decrease in the stripping ratio to 1.49:1 from 1.68:1 in the 2015 Corani Feasibility.
- Proven and Probable Mineral Reserves are substantially unchanged from the 2015 Corani Feasibility Study.
KEY CORANI PROJECT METRICS
|2017 PHASE 1
|Initial Capital||$585 M||$625 M|
|Sustaining Capital||$0.4 M||$39 M|
|Total Capital||$586 M||$664 M|
|Ore Milled (k t)||139,073||137,698|
|Payable Silver (from zinc concentrate) (k oz)||7,096||5,473|
|Payable Silver (from lead concentrate) (k oz)||137,343||145,575|
|Payable Lead (k lbs)||1,578,154||1,651,849|
|Payable Zinc (k lbs)||1,030,503||909,579|
|Total Production Costs (1)||$3,347 M||$3,050 M|
|AISC (2) per oz Silver (by-product basis) Years 1-6||$1.80||$0.36|
|AISC (2) per oz Silver (by-product basis) Life of Mine||$5.00||$4.09|
|AISC (2) per oz Silver (co-product basis) Life of Mine||$11.54||$11.26|
|Avg. Annual Silver Production Years 1-6||12.0 M oz/year||12.9 M oz/year|
|Avg. Annual Silver Production Life of Mine||8.0 M oz/year||8.4 M oz/year|
|Mine Life (extraction)||18 years||18 years|
|Mine Life (processing)||18 years||18 years|
|Mill Capacity||22,500 tpd||22,500 tpd|
|ECONOMICS (after tax)|
|Net Present Value||$402 M (3)||$544 M (4)||$643 M (5)|
|Internal Rate of Return||15.4% (3)||18.5% (4)||20.9% (5)|
|Payback period (years)||3.5 (3)||3.8 (4)||3.6 (5)|
|(1) Total Production Costs are calculated as total cash operating costs + sustaining capital costs + reclamation and closure costs + social costs|
|(2) AISC are per payable oz, and are calculated as cash operating costs + sustaining capital costs + reclamation and closure costs + social costs|
|(3) NPV (at 5% discount rate, after tax), IRR (after tax) and payback period using 2017 Detailed Engineering report base case metal prices ($18/ounce silver, $0.95/pound lead and $1.10/pound zinc)|
|(4) NPV (at 5% discount rate, after tax), IRR (after tax) and payback period using 2017 Detailed Engineering report base case metal prices ($18/ounce silver, $0.95/pound lead and $1.10/pound zinc) applied to 2015 Corani Feasibility Study|
|(5) NPV (at 5% discount rate, after tax), IRR (after tax) and payback period per 2015 Corani Feasibility Study using base case metal prices used therein ($20/ounce silver, $0.95/pound lead and $1.00/pound zinc)|
Andrew Swarthout, President and CEO of Bear Creek Mining states "The modifications, optimizations and tradeoffs to the Corani mine plan envisioned in GMI's Phase 1 Detailed Engineering report substantially de-risk the Corani mine plan and provide a current and more detailed picture of the scope of the project and the costs of constructing and operating the proposed Corani mine. The use of a contract mining fleet rather than an owner-operated fleet to operate the Corani mine is more closely aligned with conventional practices in Peru and mitigates the financing risk by decreasing the upfront capital required to build the project. Furthermore, as is typical when undertaking detailed engineering-level work, GMI utilized current and project-specific cost quotes that are accurate to +/- 10% (compared to the +/- 20% accuracy standard as used in the 2015 Corani Feasibility Study). The net result of this rigorous work is a realistic, economically robust project that remains highly leveraged to rising metal prices."
Leverage to Metal Prices
The Corani project remains highly leveraged to metal prices, with a difference in NPV of $112 million for every $1 movement in silver price (with proportional changes in lead and zinc prices). The following table shows the NPV, IRR and payback period at recent spot metal prices.
|Base Case (3)||Recent Metal Prices (4)|
|NPV (1)||$402 M||$540 M|
|Payback period (years)||3.5||3.1|
|(1) After tax, at a 5% discount rate|
|(2) After tax|
|(3) $18.00/oz silver, $0.95/lb lead and $1.10/lb zinc|
|(4) $17.81/oz silver, $1.02/lb lead and $1.40/lb zinc (spot prices at September 11, 2017)|
As announced above, in order that Bear Creek's future evolution be steered at the executive level by an experienced and successful mine builder, Andrew Swarthout has elected to step down from his position as President and CEO to assume the role of Executive Chairman. Bear Creek's Board of Directors is pleased to announce the appointment of Mr. Anthony Hawkshaw to the position of President and CEO and as a director of the Company. Both appointments will be effective October 1, 2017.
Mr. Swarthout co-founded Bear Creek Mining in 2003 and was a critical and integral contributor to the acquisition, discovery and development of the Corani deposit and the architect of the Company's exceptional technical and management teams. He will continue to lend his expertise and oversight to Bear Creek as he guides the Company's vision and execution of its goals in his new role as Executive Chairman.
Mr. Hawkshaw has over 30 years' global experience in the mining sector. He was a founding shareholder, director and CFO of Rio Alto Mining from 2007 to 2014. Tony was a key contributor to the vision, strategy and growth of Rio Alto, which under his tenure grew from a TSXV-listed exploration company to a TSX- and NYSE-listed intermediate gold producer on the basis of its acquisition, development and successful execution of the La Arena project and subsequent acquisition and development of the Shahuindo deposit, both of which are located in Peru. Rio Alto Mining was acquired for these outstanding assets by Tahoe Resources Inc. in 2015 in a deal worth US $1.12 billion. Prior to Rio Alto, Tony held senior executive positions at numerous resource firms including Pan American Silver, Chariot Resources and Grove Energy. In addition to his track record of successfully executing the transformation of a mineral exploration company into a mid-tier producer, Mr. Hawkshaw has arranged numerous debt, equity and convertible debt financings with institutional investors, commercial banks and multilateral lending agencies, and has experience in the concentrate off-take and metals trading markets. Mr. Hawkshaw is currently a director of Regulus Resources Inc.
Catherine McLeod-Seltzer, Chairman of Bear Creek Mining, states, "Tony Hawkshaw is an extremely talented mining executive with a proven track record of creating shareholder value by successfully steering Latin America-focused mining companies through the transition from developer to profitable multi-mine producer. Tony is a leader with the experience, technical proficiency, and ability to communicate with and inspire the financial markets and represent the Company to its many stakeholders. We feel privileged that Tony has agreed to lead our company through this next very exciting phase."
Andrew Swarthout adds. "I have known Tony for seven years and had the opportunity to follow his involvement as he played a crucial role taking Rio Alto from exploration through development and production. Tony's Peruvian experience, contacts and track record will benefit our Company as we turn the corner towards project execution. I look forward to joining Tony in assuming our new roles at Bear Creek as we work with our extremely capable Peruvian team headed by Elsiario Antunez de Mayolo, who will continue in his role as Chief Operating Officer of Bear Creek and General Manager, Peruvian subsidiaries. Elsiario's hands-on technical expertise in developing and operating large mines in Peru coupled with Tony's leadership and financial experience will create a remarkably strong team with the right balance of proficiencies to advance Corani through to production."
"I am excited to be joining Bear Creek and the superb team they have in place to advance the Corani deposit to development," states Anthony Hawkshaw. "Peruvian legislation regulating mine development and operation is clearly defined and impartial, and the Corani deposit is located near infrastructure and mining friendly communities. Combined, these factors make the path to realizing value predictable and achievable. The opportunity to be involved in the development of a world-class mine is a rare privilege that I am looking forward to."
Catherine McLeod-Seltzer, current Chairman of the Company, will continue her role as a director of the Company upon Mr. Swarthout's appointment to Executive Chairman and will continue to provide Bear Creek and its Board of Directors with her unparalleled market savvy and experience garnered from shepherding companies from infancy through to maturity.
An updated feasibility-level technical report for the Corani project (the "2017 Corani Feasibility Study") that incorporates the results of the Phase 1 Detailed Engineering and reflects the impact of these mine plan modifications and revised metal prices on the project economics, will be filed on SEDAR within 45 days of the date of this news release.
GMI's final report on the Corani Phase 1 Detailed Engineering results will form the basis of the Company's application for a Construction Permit for the Corani project, submission of which is anticipated to occur during Q4 2017. Additional permits underlying the Construction Permit include the Environmental Permit, which the Company received in 2013, the Water Permit, which is currently in process, and a number of secondary, prescriptive permits that are either in hand or in process.
Concurrent with completion of the Phase 1 Detailed Engineering and ongoing permitting, the Company has engaged financial consultants to assess project financing alternatives and gauge interest amongst prospective participants in a project finance structure for the Corani mine. Feedback received by the Company and its consultants during this assessment phase has been positive and with the Phase 1 Detailed Engineering now completed, the Company expects these efforts to escalate in the coming months.
Pending receipt of the Construction Permit, Bear Creek's Board of Directors anticipates consideration of a production decision for the Corani project in H1 2018, which decision will be dependent on favorable market conditions and firm interest from project finance participants.
Since discovering the Corani deposit a decade ago, Bear Creek has worked hard to establish the trust and support of the communities in the project vicinity and the individuals who call this area home. As a result of conducting itself in an open, honest, and transparent manner and adopting a community-driven and culturally-respectful approach to community initiatives, the Company enjoys an unrivaled level of community support. As the Corani project advances, the full impacts and benefits of development and construction initiatives will be more keenly felt by neighboring communities. Bear Creek recognizes this evolving dynamic and is continuing to work hard to maintain its social licence throughout the life of the project.