Bluestone Resources Inc. (OTCQB: BBSRF) (TSX-V: BSR) is pleased to announce the results of the Independent Feasibility Study (“Feasibility Study”) prepared in accordance with National Instrument 43-101 (“NI 43-101”) for its 100% owned high-grade Cerro Blanco Gold project (the “Project”). The Feasibility Study demonstrates that the Project represents a robust, rapid pay-back, high-grade underground mining operation.
Darren Klinck, President and CEO commented, “The Feasibility Study outlines a robust development-ready, underground gold mine with a modest capital expenditure demonstrating superior economics. The mine plan supports the original conviction that the Project can be developed into a small footprint, low impact operation that will provide significant opportunities for local stakeholders and generate attractive returns for investors. Furthermore, over the next six months as we optimize the project and work to establish adequate project financing, we will see significant opportunity to continue with our objective to upgrade Inferred Resource ounces and then update the mine plan to incorporate potential meaningful mine life extension, further enhancing project economics.”
Feasibility Study Highlights
Unless otherwise indicated, all dollar amounts are stated in U.S dollars (“$”). Base case was completed at a gold price of $1,250/oz and a silver price of $18/oz.
- Average annual production of 146,000 ounces gold over the first three years of production.
- Average life of mine (“LOM”) all-in sustaining costs (“AISC”) of $579/oz (net credits), which would place the Project in the bottom end of the lowest quartile of the global cost curve.
- Average annual free cash flow of $91 million (CAD$117 million) per year over the first three years of production.
- After-tax internal rate of return (“IRR”) of 34%.
- Net present value (“NPV”) of $241 million after-tax (CAD$309 million).
- Initial capital of $196 million with an after-tax payback period of 2.1 years.
- Life of mine production of approximately 902,000 ounces over 8-year mine life.
- Proven & Probable Mineral Reserves of 940,000 ounces of gold and 3.6 million ounces of silver (3.4 million tonnes at 8.5 g/t Au and 32.2 g/t Ag). The Feasibility Study excludes an additional 357,000 ounces of Inferred Resources (1.4 million tonnes at 8.1 g/t Au and 23.6 g/t Ag).
“The Feasibility Study is a major milestone on the path to development for the Project. In a very short 18 months, we have assembled a terrific team in Guatemala and Canada, completed a significant amount of technical work, and delivered a Feasibility Study that demonstrates a materially de-risked project with attractive economics. Advancing the Cerro Blanco Project represents a tremendous opportunity to our many stakeholder groups including local communities in Guatemala, government partners, and our shareholders,” commented Darren Klinck, President and CEO.
Project Enhancement Opportunities
Although Bluestone considers the Feasibility Study as providing a robust basis for moving forward with attractive returns and payback, opportunities have been identified to further enhance the Project economics and optimize the engineering. The Company intends to focus on the following opportunities over the next six months in parallel with project financing initiatives:
- Mine life extension through the potential conversion of a portion of the 360,000 ounces of Inferred Resources (per the press release dated September 11, 2018) to Measured and Indicated Resources through infill drilling (currently ongoing), followed by an updated mineral resource and mine plan.
- Potential resource growth from step-out drilling along existing veins that extend beyond the current resource envelope (currently ongoing).
- Identification of new high-grade veins during infill drilling program underway as illustrated in the press release dated January 9, 2019.
- Further optimization of the mine plan and sequencing through basic engineering and trade-off study review.
- Review opportunities to optimize backfilling assumptions including evaluating alternatives to paste fill which could reduce capital and operating expenditure.
- Preliminary test work in evaluating the potential of using ore sorting technologies was very successful and highlighted an opportunity as a cost-effective method to help reduce potential dilution and enhance the production profile by allowing new areas of the orebody to be economically mined.
A drilling program is currently underway as announced on November 13, 2018 and ongoing results will be incorporated into an updated resource estimate in Q3 2019 followed by an updated Feasibility Study.
Cerro Blanco Feasibility Study
The Feasibility Study provides a compilation of the geological, engineering, and hydrology work performed by the previous owners between 1997 and 2017, as well as work undertaken by Bluestone. The results of the Feasibility Study incorporate the infrastructure in place, including 3.2 kilometers of underground development decline, fully functional water treatment plant, maintenance shops, warehouse and office facilities, and a total of 580 holes and over 128,000 meters of drilling.
Bluestone engaged a consortium of independent consultants, led by JDS Energy & Mining Inc., an international engineering firm with extensive experience in both the construction and operation of mining projects. The Feasibility Study was supported by additional leading consultants with expertise in various fields, including: Capuano Engineering, Hatch Ltd., Kirkham Geosystems Ltd., and Stantec Inc.
An independent Technical Advisory Committee (“TAC”) was established to act as a peer review over key technical aspects of the Feasibility Study. The TAC is a group of internationally recognized technical experts who have been engaged with management and the Engineering Area Leads throughout the Feasibility Study. Chaired by Alf Hills, the additional TAC members are Scott Donald (Water Management, Hydrogeology, and Groundwater Modelling), Allan Moss (Mining and Geotechnical), Roger Nendick (Processing and Infrastructure), Robert Sim (Resource Estimation), and Dr. Ward Wilson (Water and Tailings Management).
Table 1 – Summary of the Economics of the Cerro Blanco Feasibility Study
|Gold price (base case)||$1,250/oz|
|Silver price (base case)||$18.00/oz|
|Exchange rate (Guatemala Quetzal to US Dollar)||7.5:1|
|Exchange rate (CAD to US Dollar)||0.78:1|
|Average annual gold production (years 1-3)||146,000 ounces|
|Average annual gold production (LOM)||113,000 ounces|
|Total gold production (LOM)||902,000 ounces|
|Average gold head grade||8.5 g/t|
|Average silver head grade||32.2 g/t|
|Average gold recovery||96.0%|
|Average silver recovery||85.0%|
|Throughput||1,250 tonnes per day|
|Mine life||8 years|
|Operating costs||Mining – $67.01/tonne mined
Processing – $19.79/tonne milled
Site Services (includes dewatering) – $19.21/tonne milled
G&A – $11.76/tonne milled
|Total operating costs||$117.78/tonne milled|
|Cash costs (LOM net credits)||$424/oz Au|
|All-in Sustaining Cash Costs (LOM net credits)*||$579/oz Au|
|Initial capital (including contingency)||$196 M|
|Sustaining capital, including closure costs||$140 M|
|Average annual after-tax free cash flow||$91 M per year (years 1-3)|
|Total production after-tax free cash flow||$538 M|
|NPV5% (pre-tax)||$292 M|
|NPV5% (after-tax)||$241 M (base case), $301 M ($1,350/oz gold)|
|IRR (after-tax)||34% (base case), 40% ($1,350/oz gold)|
*all in sustaining cash costs (net credits) = (operating costs + offsite costs + royalties + sustaining and closure capital – value of payable silver ounces) / payable gold ounces
Table 2 – Economic Sensitivities
|Gold price ($/oz)||$1,200||$1,250||$1,300||$1,350||$1,400|
|After-tax NPV 5%||$212 M||$241 M||$271 M||$301 M||$331 M|
|After-tax Payback||2.3 years||2.1 years||2.0 years||1.9 years||1.8 years|
Comparison to the February 2017 Preliminary Economic Assessment (PEA)
The February 2017 PEA presented a scenario at the time of acquisition with the information available from the previous owners. Since Bluestone acquired the Project, a comprehensive review of the geology and structural controls of the deposit has been completed and formed the basis for the new resource estimate (see press release dated September 11, 2018). This included an infill drilling program undertaken as part of the resource estimate update exercise and was successful in refining the resource model thereby confirming the understanding of the deposit. Dewatering, ventilation, and cooling are important aspects of the mine design at the Project and were investigated in detail with the Feasibility Study. A fully calibrated numerical ground water model was developed, allowing for a comprehensive assessment of the hydrogeological regime and optimization of the underground mine dewatering requirements, and development of a site-wide water balance. Precedents from existing mining operations that manage and control similar underground mining environments were benchmarked against and have validated Bluestone’s assumptions and approach.
Key differences between the PEA and Feasibility Study include:
- Total ounces in the mineral resource remain virtually unchanged; however, slightly fewer ounces converted into the mine plan with the refined resource model. An infill drilling program is currently underway to convert Inferred Resources into Measured and Indicated Resources.
- Operating costs were affected with a shift in the split of mining methods driven from the new mine plan, resulting in an increase to the amount of cut and fill mining.
- With a better understanding of the groundwater conditions, operating costs increased to ensure the mine dewatering could be fully and properly managed in parallel with the mine plan. In addition, enhanced ventilation has been included to ensure underground mine air quality and temperature are consistently managed.
- Additional pre-production and sustaining capital requirements are also necessary for dewatering infrastructure.
FEASIBILTY STUDY DETAILS
Geology and Mineral Resource Estimate
The Project is a classic hot springs-related, low sulphidation epithermal gold-silver deposit comprising a system of moderate to steeply dipping quartz-adularia-calcite veins. The Mineral Resource estimate has a footprint of 800 x 400 meters between elevations of 525 meters and 200 meters above sea level. The bulk of the high-grade veins occur as two upward-flared vein arrays (North and South Zones) that converge at depth into master feeder veins, that appear to define a positive flower structure. Most of the veins are hosted in a gently dipping sequence of siltstones, limestones, conglomerates, and andesitic tuffs (Mita Unit) that are overlain by approximately 100 meters of silicified conglomerates and sinter beds (Salinas Unit) representing an un-eroded paleosurface that forms the low-lying hill at the Project. The Salinas rocks are host to a tabular zone of low-grade disseminated gold and silver mineralization.
The updated Mineral Resource estimate is the result of 128,220 meters of drilling at the project (580 drill holes) by previous operators and Bluestone, including 104 holes (18,033 meters) drilled from underground. The Mineral Resource estimate is based on a new and robust geological and structural model, supported by over 3 kilometers of underground infrastructure.
The Mineral Resource estimate was disclosed in a press release dated September 11, 2018.
Table 3 – Cerro Blanco Mineral Resource Estimate at a 3.5 g/t Au Cut-Off
|Resource Category||Tonnes (000’s)||Au Gradeg/t||
|ContainedGold (000’s Oz)||Contained Silver (000’s Oz)|
|Measured & Indicated||3,718||10.05||37.89||1,201||4,529|
- All Mineral Resources have been estimated in accordance with Canadian Institute of Mining and Metallurgy and Petroleum (CIM) definitions, as required under NI 43-101, with an effective date of September 10, 2018.
- Mineral Resources reported demonstrate reasonable prospect of eventual economic extraction, as required under NI 43-101. Mineral Resources are not Mineral Reserves and do not have demonstrated economic viability.
- Underground Mineral Resources are reported at a cut-off grade of 3.5 g/t Au. Cut-off grades are based on a price of US$1,250/oz gold, US$16/oz silver, and a number of operating cost and recovery assumptions, plus a contingency.
- Numbers are rounded.
- The Mineral Resources may be affected by subsequent assessment of mining, environmental, processing, permitting, taxation, socio-economic, and other factors.
Mineral Reserves and Mining
The estimated Mineral Reserves presented by reserve class are shown in the following table. The overall diluted gold grade of the mineralized material going to the mill is estimated at 8.5 g/t.
These Mineral Reserves support an initial 8-year mine life. An infill drill program is currently underway (as per the press release dated November 13, 2018) that is targeting the conversion of Inferred Resources into Measured and Indicated Resources. The Project deposit is expected to be accessed by the existing 3.2 kilometers of underground development. The current decline will serve as the primary access to the mine for personnel, materials, and haulage of mineralized material to the plant site. Annual ore production of up to 460,000 tonnes is planned from a combination of long-hole stoping and cut and fill mining methods.
Table 4 – Cerro Blanco Mineral Reserves as at January 29, 2019
|Category||Tonnes (000’s)||Au Gradeg/t||Ag Gradeg/t||ContainedGold (000’s Oz)||Contained Silver (000’s Oz)|
- The Qualified Person for the Mineral Reserve estimate is Michael Makarenko, P. Eng., of JDS Energy & Mining Inc.
- Effective date: January 29, 2019. All Mineral Reserves have been estimated in accordance with CIM definitions, as required under NI 43-101.
- Mineral Reserves were estimated using a $1,250 /oz gold price and gold cut-off grade of 3.5 g/t. Other costs and factors used for gold cut-off grade determination were mining, process, and other costs of $109.04/tonne, transport and treatment charges of $5.00 /oz Au, a royalty of $24.84 /oz Au, and a gold metallurgical recovery of 95%.
- Silver was not used in the estimation of cut-off grades but is recovered and contributes to the revenue stream.
- Tonnages are rounded to the nearest 1,000 tonnes, metal grades are rounded to one decimal place. Tonnage and grade measurements are in metric units; contained gold and silver are reported as thousands of troy ounces.
- Rounding as required by reporting guidelines may result in summation differences.
Dewatering, ventilation, and cooling are important aspects of the mine design at the Project. The water in the immediate mine area will be lowered by a series of surface and underground dewatering wells. Any remaining water underground will be captured and pumped to surface through the collection at underground sumps. Currently, approximately 40% of the Mineral Reserves sit above the water table and are accessible through the 3.2 kilometers of lateral underground development. Precedents from existing mining operations that manage and control similar underground mining environments have validated Bluestone’s approach and assumptions.
In addition to the existing surface dewatering wells, a series of new dewatering wells are planned to draw down the water around the deposit. A portion of the mine water will be treated and discharged, and the balance disposed of through a series of new reinjection wells.
Initial estimates of dewatering rates to meet the needs of the mine plan were estimated from a detailed numerical ground water model, which included steady state and transient state calibration.
The number of wells required to achieve the desired dewatering will comprise five of the existing wells and eight new dewatering wells.
The Feasibility Study is based on a process plant capable of treating 1,250 tonnes per day of ore. The comminution circuit includes three-stage crushing and two stage ball mill grinding to produce a target grind size of 80% passing 50 microns. Processing will incorporate a rate of 460,000 dry tonnes per year at an average feed grade of 8.5 g/t gold and 32.2 g/t silver. Based on recent test work, the optimized flowsheet includes pre-oxidation, a 48-hour leach circuit, followed by a 6-hour carbon-in-pulp adsorption circuit with expected recoveries of 96% gold and 85% silver.
Capital & Operating Costs
Initial capital to fund construction and commissioning is estimated at $196 million. The Project benefits from a significant amount of underground development already in place, a water treatment plant, maintenance and warehouse facilities, offices, and communications. The project is located eight kilometres from the Pan American Highway and an under-utilized electrical substation.
Table 5 – Cerro Blanco Capital Cost Estimate
|Initial Capital ($M)||Sustaining Capital ($M)||Life Of Mine ($M)|
|On-Site Infrastructure (dewatering)||$19.2||$44.5||$63.7|
Table 6 – Cerro Blanco Operating Cost Estimate
|Cost Per Payable Au Ounce ($/oz)||Cost per Tonne Milled ($/t)|
|Site Services (includes dewatering)||$73.57||$19.21|
|Total Direct Operating Costs||$451.05||$117.78|
|Refining & Transport||$6.02||–|
|Total Cash Costs (net credits)||$424||–|
Table 7 – All-in Cash Costs Including Sustaining Capex
|Refining & Transport||$5.4|
|Total ($M)||$521 M|
|All-in Sustaining Cash Costs (net of credits)($/oz)||$579/oz Au|
All-in sustaining costs are presented as defined by the World Gold Council less corporate G&A. Calculated as: (refining costs + third party royalties + operating costs + sustaining capital costs + closure capital costs – payable silver ounces value) / payable gold ounces.
The Project is located approximately 160 kilometers southeast of Guatemala City. The site is accessible via the Pan-American Highway (CA1) through the town of Asunción Mita. Existing infrastructure is in place to provide year-round access, a new 5 kilometer-long access road and 8.2 kilometer power transmission line will be installed as part of the construction of the Project. The topography is flat with rolling hills. Guatemala has 400 kilometers of coastline, with the closest deep-water port (Puerto Quetzal) on the Pacific Ocean, which is connected by good highway access to the Project.
Corporate Social Responsibility and Economic Benefits
Bluestone is a values-based company where environmental and community stewardship are integral to our core values. We live in the communities we operate in and follow best practices to minimize impacts to the environment. The Project and local team have been part of the local community for over a decade and Bluestone is active in engaging with the stakeholders around the Project.
The development of the Project is expected to provide substantial economic benefits to Guatemala, both locally and at a national level. During the 18 to 24-month construction period, the Project is expected to generate direct employment of 500+ people, and once in operation, direct employment of 400+ people. It is estimated that during production the mine will inject approximately $60 million annually and contribute approximately $500 million to the Guatemalan economy through direct employee wages, consumables, taxes, and royalties. In addition, the project is expected to generate several hundred additional indirect jobs with local suppliers and service providers.
A key priority will be to train and develop skills of the local workforce as the Project advances which is in-line with Bluestone’s philosophy of working with our stakeholders and communities.
In 2018 Bluestone engaged a third -party consultant to lead an updated social baseline assessment as well as an IFC performance gap assessment. Bluestone is committed to following best practices and international standards.
With the Feasibility Study now completed, Bluestone will advance the Project toward development over the next few quarters. Key next steps include:
- Optimization and trade-off studies to be undertaken.
- Infill drilling as part of the resource conversion and expansion program currently underway.
- Commence engineering and design activities.
- Update resource estimate and mine plan.
- Advance project financing activities.
The Technical Report summarizing the results of the Feasibility Study is being prepared in accordance with NI 43-101 and will be filed under the Company’s profile on SEDAR within 45 days of this press release. The Qualified Persons have reviewed and verified that the technical information in respect to the Feasibility Study in this press release is accurate and approve the written disclosure of such information.
The Qualified Persons who will prepare the Technical Report are:
|Qualified Person||Company||QP Responsibility|
|Maz Mohaseb, P.Eng.||JDS Energy & Mining Inc.||Project Management, Environmental/ Permitting/Social, CAPEX, OPEX, Economic Analysis|
|Michael Makarenko, P.Eng.||JDS Energy & Mining Inc.||Mineral Reserve Estimate, Mining Methods|
|Michael Levy, P.E.||JDS Energy & Mining Inc.||Underground Geotechnical|
|Kelly McLeod, P. Eng.||JDS Energy & Mining Inc.||Metallurgy, Recovery Methods|
|Richard Boehnke, P.Eng.||JDS Energy & Mining Inc.||Infrastructure|
|Garth Kirkham, P.Geo.||Kirkham Geosystems Ltd.||Geology, Mineral Resource Estimate|
|Hhan Olsen, P.G., CPG||Stantec Consulting Inc.||Water Management|
|Bryan Ulrich, P.E.||Stantec Consulting Inc.||DSTF, Waste Rock Facility|
Other than as set forth above, all scientific and technical information contained in this press release has been reviewed, verified, and approved by David Gunning, P.Eng., a mining engineer, and the Vice President Operations, or David Cass, P.Geo., and the Company’s Vice President Exploration, both Qualified Persons under NI 43-101.