Bilbao Silver-Lead-Zinc Project - Preliminary Economic Assessment
April 28 2014 - 6:27PM
Marketwired Canada
Xtierra Inc. (TSX VENTURE:XAG) ("Xtierra" or the "Company"), reports that it has
received an updated NI 43-101 compliant resource estimate and a Preliminary
Economic Assessment (PEA) on the Bilbao Project, both prepared by
RungePincockMinarco (Canada) Limited (RPM).
The Bilbao Project is a polymetallic sulphide and oxide replacement
silver-lead-zinc-copper deposit located approximately 500km northwest of Mexico
City in the southeastern part of the State of Zacatecas.
RPM updated the previous resource model taking into account additional drilling
completed in both 2012 and 2013 and coordinated and supervised various third
party independent consultants to carry out various studies including: Nordmin
Engineering Ltd. developed a mine design and production schedule; DRA Americas
Inc. analyzed metallurgical testing and recovery methods and designed a process
plant; Golder Associates carried out various environmental studies including the
design of a tailings disposal facility; and Micon International Limited carried
out a high level review of metal markets.
The following disclosure is based on and/or derived from the PEA. The PEA is
preliminary in nature in that it includes in part inferred mineral resources
that are considered too speculative geologically to have the economic
considerations applied to them that would enable them to be categorized as
mineral reserves. Mineral resources that are not mineral reserves do not have
demonstrated economic viability. There is no certainty that the results
projected by the PEA will be realized with further work and actual results may
vary substantially. Because inferred resources are speculative, the modifying
factors that are applied to assess the potential economic viability of the
project are also speculative.
Exploration and Drilling
RPM, after reviewing the extensive work previously completed and the large
amount of information generated, recommended extending the scope of the
previously completed infill drilling program by a minimum of four holes and
assaying historical core in strategic locations.
Six infill holes were drilled in June 2013, completing an additional drilling
campaign in the southern part of the silver-zinc-lead project. This drilling
followed a 10 hole, 2032 metre infill drilling campaign during the third quarter
of 2012.
Since 2006, Xtierra has drilled 113 diamond drill-holes in the Bilbao deposit.
All of the drill-holes are diamond NQ-HQ core holes with most (104) being
vertical. The drill campaigns defined a general grid of 50 m by 50 m and a
tighter drilling grid of 26 holes defining a 35 m by 35 m in the high grade
core. The drilled zone extends over an area of 530m along north-south axis and
580m along east-west axis.
Mineral Resource Estimates
The new Zn/Pb/Ag/Cu resource estimation of the Bilbao deposit was prepared by
RPM to incorporate new drilling information acquired during 2011-2013. The
geological model was generated using 113 holes (all the logged drill holes). The
block resource model was estimated using 105 holes which had assays. A lithology
model was built and Indicator and Ordinary Kriging (OK) were used to estimate
Zn, Pb, Ag and Cu resources. Density measurements were updated using 224 new
density determinations completed since the last 2010 model was constructed. The
previous 2011 model was based on the average of 14 measurements and assigned a
density of 3.6g/cc to sulphide blocks while the new 2013 model established a
mean density of 3.3 g/cc for the sulphide zone.
RPM used three year trailing average prices of US$0.94 lb/Zn, US$1.01 lb/Pb and
US$30.24 oz/Ag for purposes of determining cutoff grades and Zn equivalent
values. Metallurgical recoveries were applied in the equivalent equation as
76.7%, 90.6% and 73.4% for Zn, Pb, and Ag, respectively. The Zn equivalent
equation used is as follows: Zneq = Zn + 0.969(i)Pb + 0.09947(i)Ag.
The total resources by mineral type at 3% Zn equivalent cut-off, excluding
approximately 1 million tonnes of previously mined out ore, estimated by RPM and
reported in April 2014 are shown in the following table:
----------------------------------------------------------------------------
Zn
equiv. Indicated Inferred Zn Ag Cu
Ore Type (%) Tonnes TonnesTotal Tonnes (%) Pb (%) (ppm) (%)
----------------------------------------------------------------------------
Oxide 6.50 791,082 3,069,582 3,860,664 1.70 2.33 42 0.17
----------------------------------------------------------------------------
Mixed 7.10 778,336 238,923 1,017,259 2.06 2.17 52 0.18
----------------------------------------------------------------------------
Sulphide 6.88 4,555,809 1,201,032 5,756,841 2.03 1.40 69 0.17
----------------------------------------------------------------------------
Total 6.76 6,125,227 4,509,537 10,634,764 1.91 1.81 58 0.17
----------------------------------------------------------------------------
The previous resource estimation was originally carried out by Richard Parker
Consulting Geologist in 2011 and included 84 drill holes. The resources reported
in 2011 (including both oxide and sulphide) were 10,617,891 tonnes @ 6.48% Zneq
in the Indicated category and 430,000 tonnes @ 5.19% Zneq in the Inferred
category. (Technical Report dated April, 2011 entitled "Geology and revised
Minerals resources of the Bilbao Silver-Lead-Zinc Deposit - State of Zacatecas,
Mexico" by RTG Parker, Consulting Geologist).
Net Smelter Return Cut-off Value
The Net Smelter Return (NSR) cutoff value of US$45.21 per tonne of ore used for
the Bilbao Project stope tonnes and grade determination is based on direct
mining, processing and G&A costs.
Potentially Mineable Resource
The potentially mineable underground resource is estimated by RPM to be 5.2M
tonnes at grades of 2.10 % Zn, 1.40 % Pb and 63.96 grams Ag per tonne. The
tonnes and grade include an average dilution of 10 percent, at zero grade, as
well as mining losses of 5%. The RPM PEA relies on Indicated Mineral Resources
(approximately 75 percent of the total resource tonnes) as well as Inferred
Mineral Resources (approximately 25 percent of the total resource tonnes).
Mine Design and Production Planning
The current mine plan incorporated in the PEA targets the extraction of the
sulphide zone only given the results of the metallurgical test work on the oxide
and transition zones completed to date.
The mine production schedule is based on a production rate of 2,000 tpd of
potentially economic mineralization, or 720,000 tonnes per year. This provides
for a mine life of approximately 8 years, mining out the resources available.
Underground mining methods will be used to access the sulphide zone located
approximately 50 meters below surface, and accessed via a portal and ramp
system. The main access to the underground mine will be via a main ramp from
surface to the 1860 Level.
The main proposed mining method is Longhole Open Stoping using downholes, while
near the top of the deposit Longhole Open Stoping using upholes will be
employed. Longhole stopes will be backfilled with a cemented rock fill.
Based on the selected mining method a dilution factor of 10% is applied which
allows for dilution from hanging and footwall wall exposures and cemented
backfill dilution which results from blasting against backfilled stopes. Mining
recovery of 95% is assumed for this deposit.
Recovery Methods
The mineral processing plant described is for the treatment of a
silver-lead-zinc sulfide ore at a design throughput rate of 2,000 t/d. The
mineral processing plant will produce lead-silver and zinc concentrates which
will be transported off-site.
The process flow sheet selected for the Bilbao process plant comprises two
stages of crushing, two stages of grinding, lead rougher flotation, lead
regrind, lead cleaner and lead concentrate and dewatering stages, zinc rougher
flotation, zinc regrind, zinc cleaner flotation and zinc concentrate and
dewatering stages.
The plant will be capable of processing 720,000 tonnes per year with an average
grade of 2.1%, 1.4% and 63.96 g/t of zinc, lead and silver respectively. The
plant has an operating regime of 360 days per year, 7 days per week, 24 hours
per day and a plant utilization of 92%, resulting in an average nominal
throughput of 91 tonnes per hour.
The plant will produce, on average, 16,913 dry tonnes per year of silver-rich
lead concentrate, and 26,966 dry tonnes per year of zinc concentrate. Plant
recovery is estimated to be 76.7% for zinc, 90.6% for lead and 73.4% for silver
over the life of the mine.
Capital and Operating Costs
Project capital costs, as of April 2014, are estimated by RPM to be US$99.5
million including an allowance for contingencies of US$8.7 million, equivalent
to 8.8% of total capital expenditure. The capital cost outlines total
pre-production capital of US$91.2 million and remaining other capital and
sustaining capital costs of US$8.3 million for the eight year production life,
including acquisition to replace mine equipment fleet, plant and infrastructure.
The operating expenditure is based on all development work in waste being
performed by contractors, and stope development by Xtierra personnel and
equipment fleets. The strategy was determined as the most cost effective for the
operation and ensures sustainability of a skilled labor force. The average total
unit operating cost over the life of the project is US$66.90/t of ore, including
mining, processing, general and administration, freight and insurance, smelting,
refining and penalty costs.
Economic Analysis
The economic analysis was completed by RPM for a 720,000 tonne per year
processing plant capacity and is based on the potentially mineable underground
resource of 5.2 million tonnes at grades of 2.10 % Zn, 1.40 % Pb and 63.96 grams
Ag per tonne.
At the request of Xtierra, RPM has based its economic analysis of the Bilbao
project on three-year average metal prices. For the three-year period ending 31
October, 2013, the rolling average prices based on LME cash buyer quotes for
zinc and lead, and as reported by Kitco on www.kitco.com for silver are as
follows: Zinc US$0.92/lb; Lead US$1.00/lb; and Silver US$30.38/oz.
Total revenue for the project is based on 720,000 tonnes per year production to
be reached in production year 2 and continuing for the life of the project
average US$73.6 million per year (gross revenue). The current plan estimates
11,000 tonnes of zinc concentrate and 7,000 tonnes of lead concentrate in the
first production year.
Cash Flow
Pre-tax earnings total US$59.9 million over the eight year mining plan to
extract the Indicated and Inferred potentially minable resource. Economic
results of the Bilbao Project pre-tax cash flow model indicate an Internal Rate
of Return (IRR) of 13.2% and a Net Present Value (NPV) of US$11.0 million at a
10% discount rate and a NPV of US$18.7 million at an 8% discount rate. RPM
considered the ten percent discount rate appropriate for this evaluation as the
overall project risks are considered to be relatively low in terms of total
capital committed, geological risk and market risk.
This preliminary economic assessment is preliminary in nature. It includes
inferred mineral resources that are considered too speculative geologically to
have the economic considerations applied to them that would enable them to be
categorized as mineral reserves, and there is no certainty that the preliminary
economic assessment will be realized.
After-tax net cash flow totals US$32.6 million over the eight year mine plan.
Economic results of the Project after-tax cash flow model indicate an IRR of
8.1% and an after-tax NPV of negative US$5.8 million at a 10% discount rate and
a NPV of US$359,000 at an 8% discount rate.
RPM also developed a sensitivity analysis to the Project's IRR and NPV to +/- 15
percent changes to key assumptions in the cash flow model based on variations in
key project elements of metal price, operating and capital costs. The Bilbao
Project was found to be most sensitive to changes in operating costs where a 15%
reduction in operating costs would result in pre-tax NPV of US$45.0 million and
a pre-tax IRR of 22.0%. RPM noted that there may be opportunity to reduce
operating costs significantly (approx. US$5/t to US$6/t) by reducing the number
of stopes filled with backfill. With regard to changes in metal prices, the
Bilbao Project was found to be most sensitive to movements in the price of
silver.
Recommendations by RPM
Recommendations have been made by RPM in the PEA identifying various
opportunities to increase the mineable resource and reduce operating costs
through additional exploration and engineering, improving the overall economics
of the project. RPM recommendations include:
-- Additional definition drilling targeted at the Bilbao transition and
sulphide zones could lead to re-classification of inferred resources to
indicated resources, potentially contributing to the total mineable
resource studied at the pre-feasibility level;
-- The potential to increase level spacing and correspondingly reduce level
development, through use of cable bolts, may lead to lower mine
development costs and should be further assessed;
-- Further analysis of hydraulic and sand backfilling options, in terms of
preparation and distribution, may further reduce overall operating
costs;
-- There may also be opportunity to reduce operating costs significantly
(approx. US$5/t to US$6/t) by reducing the number of stopes filled with
backfill all together. Further geotechnical study would need to be
carried out for this scenario to better understand possible ore losses
with pillars left in place, and possible recovery of these pillars
through caving activity. Potential also exists for deferral of ramp and
associated development;
-- Inclusion of transition zone material in the mine plan should be
investigated (requiring additional metallurgical testwork) to extend the
life of mine and/or potentially increase the mining rate per year;
-- Further optimization of stope sequencing could lead to improved cash
flow and should be studied;
-- Exploration drilling at the Bilbao 2 area, approximately 1.5 km south of
Bilbao, has potential to offer additional mineral resources to the
project due to the fact that current trenching, sampling and resulting
soil geochemistry information identifies similarities between the two
areas. An additional source of feed to the designed plant could lengthen
the overall life of the mine, increase the daily production rate, or
result in a combination of the two, improving the NPV and IRR of the
project.
RPM noted that the Bilbao deposit contains a reasonable quantity of mineral
resources between the oxide, transition, and sulphide mineral zones; however,
the lack of metallurgical test data available for the transition zone and
identified recovery challenges for the oxide zone currently limit the scope of
this PEA to the total mineable sulphide resources to offset the capital costs
associated with the project.
A Technical Report in compliance with NI 43-101 has been filed on SEDAR.
Future Plans
Having now received the completed Preliminary Economic Analysis for the Bilbao
Project from RPM, the Company's focus going forward is to seek alternatives to
maximize the value of Bilbao including seeking to develop Bilbao either alone or
in joint venture with a partner or through corporate transactions.
RPM have made numerous recommendations throughout the PEA identifying various
opportunities to increase the mineable resource and reduce operating costs
through additional exploration and engineering, improving the overall economics
of the Bilbao project.
Further metallurgical test work on the oxide ore to optimize economic metal
recoveries, including the recovery of lead by means of gravity separation, has
shown some promise and further metallurgical test-work on the oxide ore should
be undertaken.
The continuing operations of the Company are dependent upon its ability to raise
adequate financing and additional funding will be required for working capital,
optimisation and feasibility studies, further exploration and for financing in
the longer term to develop the Bilbao project.
Cautionary Notes:
This press release may contain "forward-looking information" within the meaning
of applicable Canadian securities legislation. The TSX Venture Exchange has not
reviewed and does not accept responsibility for the adequacy or accuracy of the
content of this release.
For further information visit www.xtierra.ca.
FOR FURTHER INFORMATION PLEASE CONTACT:
Xtierra Inc.
Gerald Gauthier
President & Chief Operating Officer
+1 (416) 362-8243
Xtierra Inc.
Tim Gallagher
Director
+1 (416) 925-0090
Xtierra Inc.
Luis De La Fuente
Director Mining (Mexico)
+52 (492) 924-4254
info@xtierra.ca
www.xtierra.ca
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