Florida Canyon Update
On August 2, 2017, Solitario announced results from its Preliminary Economic Assessment (“PEA”) for its high-grade Florida Canyon Zinc Project, formerly called the Bongará Zinc Project.
Project and PEA Background Information
In November 2016, Solitario announced it would initiate a PEA on the Florida Canyon deposit. In January 2017, SRK Consulting (U.S.), Inc. (“SRK”), an independent and internationally recognized mining engineering firm, was engaged to complete the PEA. In April 2017, Milpo elected to participate in funding and preparation of the PEA.
Summary of Key Economic Inputs (100% basis of project)
Mine Plan Resource
The Florida Canyon deposit consists of high grade zinc and lead sulfide bodies with silver credits contained in both flat lying “mantos” and more steeply dipping breccia bodies. The resource has been estimated using 486 surface and underground core holes. Twenty individual domains have been constrained in the resource model by wireframed 3D solids.
The Mine Plan Resource takes into account metallurgical recoveries based on composition. It is neither a Mineral Resource or a Mineral Reserve as defined by CIM guidelines. It is presented to define the material used in the preparation of the mine plan for this PEA.
Although the modeled mineralization is primarily sulfide, oxidation of the ore is also present. Metallurgical testing shows that mixed ore can be economically processed with good recovery of metal. Blocks in each domain in the Mine Plan Resource model have been assigned a grade, density and metallurgical recovery in order to define their net smelter return value. Internal mining dilution of 34% has been applied. These block-by-block NSR values were used to design the mine plan. The average NSR value of the mineable resource is $148.16 per tonne.
Mine Plan Resource (100% basis)
**ZnEq estimate is based on a NSR value of $19.62 per 1% ZnEq. The $19.62 is calculated using a Zn price of $1.20/lb, a Pb price of $1.00/lb, an Ag price of $17.50/oz. The ZnEq also includes TC/RC and transportation costs and assumes an average Zn recovery of 78.15% which differs somewhat from that presented in the economic model. An example of the NSR to ZnEq calculation is (148.16/19.62)/0.7815.
Conservative Pricing Alternative
Included in the Florida Canyon PEA is an alternative economic analysis of the project using much lower metal pricing to gauge how the project would perform in a lower metal price environment. Prices used in this alternative case scenario were $1.06/lb. zinc and $0.88/lb. lead. The alternative case also used a higher discount rate of 9%. Cost inputs remained the same as in the base case scenario. Under this lower price scenario, the project is still attractive with an after-tax NPV9% of $106 million and an after-tax IRR of 19.1%.
The PEA envisions the mine as an underground operation utilizing conventional mining methods with an average throughput rate of 2,500 tonnes per day, or approximately 912,000 tonnes per year. Depending upon the geometry of the ore zones, longhole stoping will be used in steeply dipping zones and mechanized drift-and-fill extraction methods in shallowly dipping mantos. Minimum mining heights of drift-and-fill stopes are 3m or 4m depending on the geometry of the ore. Longhole stopes will be developed on 16m sublevels. Stopes of 8m or less in width will be developed longitudinally whereas stopes with thickness of greater than 8m will be developed by transverse stoping.
Cemented paste backfill will be placed underground to increase mining recovery and to stabilize mined-out areas. Adits provide access from the surface to the ore zones in the currently defined mine plan. The mill head grades from the mine do not vary significantly during the first ten years, but the grade in the final three years of the current mine plan is moderately lower.
Processing and Metallurgy
The PEA incorporates a conventional mill design flow sheet with three-stage crushing followed by single-stage grinding to 80% minus 44 microns, with two multi-stage flotation circuits. The first circuit will produce a lead concentrate and the second multi-stage flotation circuit, the zinc circuit, receives tails from the lead circuit to produce a zinc concentrate. Both final concentrates will be transferred to their respective thickeners and then filtered (10m2 filtration area for lead concentrate, and 60 m2 filtration area for zinc concentrate) to approximately 9% moisture before being trucked offsite to smelters. Under average conditions, it is expected that Florida Canyon will produce approximately 287 tonnes per day of zinc concentrate grading 50% zinc and 46 tonnes per day of lead concentrate grading 50% lead.
Tailings from the flotation plant will be thickened to approximately 50% solids by weight. A fraction of the tails representing approximately 60% of the solids will be piped to a filtration plant located by the tailings storage area and then dry stacked at a moisture of approximately 17% by weight. Water recovered in the tails filter will be recycled to the process plant. The remaining 40% of the solid’s stream will be transfer to a backfill plant to be used in the underground operation.
Metallurgical testing has indicated that the ore does not contain penalty elements that would attract extra smelter charges.
Location, Infrastructure and Power
The project is located approximately 8 km from a paved road that connects coastal northern Peru with the Amazon basin. Infrastructure required for mining includes expansion of a local access road network, a mill, new mine development and a dry stack tailings facility. Power will be provided by a hydroelectric facility owned by a third party.
Environmental and Social Considerations
The small footprint of the underground mine design reduces surface disturbance and the use of tailings backfill minimizes the storage requirement for tailings on the surface. Waste rock will be used in tailings facility construction and for underground structural fill, thereby minimizing the need for waste storage on the surface. Low iron sulfide content in waste and ore combined with carbonate host rocks creates a net neutral geochemical environment which minimizes impacts to local water resources. The use of locally produced hydroelectric power will reduce air emissions compared to on-site power generation.
Delineating additional resources is the most promising opportunity to significantly enhance project economics. The most prospective targets include:
1. Extension drilling south of the San Jorge zone and northeast of the Karen-Milagros zones are considered the highest priority to increase high-grade zinc sulfide resources. Both zones are open in the recommended areas of drill testing.
Although metallurgical studies to date indicate excellent zinc recoveries in sulfides (+90%), it is likely that higher average recoveries and a higher concentrate grades can be achieved for the global resource base. More detailed metallurgical optimization tests are required to determine this.
Additional trade-off studies may develop more efficient tailings management to reduce construction and closure costs.
A Technical Report in support of the 2017 PEA prepared in accordance with National Instrument 43-101 Standards for Disclosure for Mineral Projects (“NI 43-101”) will be filed on SEDAR within 45 days of the August 2, 2017 news release. The summary results of the PEA are preliminary. For the full details and further information with respect to the key assumptions, parameters, and risks associated with the results of the PEA, the mineral resource estimates included therein, and other technical information, please refer to the complete Technical Report to be made available at SEDAR.
In April 2017, Solitario announced that our partner, Minera Milpo, has elected to participate in the development and funding of a Preliminary Economic Assessment on the Florida Canyon zinc deposit.
In February 2017, Solitario & Milpo significantly increased joint venture property holdings in northern Peru by acquiring 6,500 hectares (16,055 acres) of new mineral concessions in early January 2017. The acquired property fills an ownership gap in our consolidated claim position held by the Florida Canyon and Chambara joint ventures, both of which are mutually owned by Solitario and Milpo (click here).
In January 2017, Solitario engaged SRK Consulting to complete a Preliminary Economic Assessment ("PEA") on its Florida Canyon high-grade zinc deposit which is expected to be completed in the second-quarter 2017.
SRK Consulting (U.S.), Inc. ("SRK") is an independent and internationally recognized mining engineering firm with offices in both Peru and the United States, among other international locations. A total of 486 core holes (117,280 meters) have been drilled on the project. Work to date has demonstrated that Florida Canyon is a high-grade zinc deposit with an average resource grade in excess of 12% zinc equivalent, has a relatively large resource base with excellent expansion potential, and produces a clean high-grade zinc sulfide concentrate. SRK previously prepared a NI 43-101 Technical Report on Resources for the Florida Canyon Project in 2014.
Florida Canyon is currently our core asset. It is an advanced exploration stage high-grade zinc project located in northern Peru. We are fully carried to production by our joint venture partner Milpo Mining. We are not required to contribute any funds prior to the completion of a feasibility study and our share of mine construction costs will be funded by a loan from Milpo and repaid from 50% of the net proceeds from production attributable to our 30% interest. Based on the high-grade zinc content of the defined resources, and the fact that the deposit remains open to expansion, we believe it is one of the best undeveloped zinc projects in the world.
Although the price of zinc fell significantly during 2015, our partner, Milpo Mining still elected to advance the project. Thus far in 2015, six more kilometers of access road have been completed, and an additional four kilometers is expected by the end of the year. This will complete the 35 kilometer access road from the main highway to the project site and represents a major milestone for the project. Significant progress was also made to further refine the resource estimate as well as additional engineering studies. Milpo is planning on constructing 10 to 12 kilometers of drill access roads. These roads will be used for testing the extension of San Jorge zone to the south and the Karen-Milagros zone to the northeast.
On November 19, 2014, Solitario announced that Compania Minera Milpo S.A.A. (“Milpo”; Lima Stock Exchange: MILPOCI) has announced its intent to acquire from its parent Votorantim Metais (“Votorantim”) an interest in Solitario’s Florida Canyon Zinc Project in Peru. Milpo’s Board of Directors approved the purchase of an interest in Florida Canyon and another significant zinc project in Brazil from Votorantim. A combined valuation of US$60 million was placed on the two projects. Milpo will assume operatorship in the project from Votorantim under its joint venture agreement with Solitario. Votorantim owns slightly more than 50% of Milpo’s publically traded shares.
Milpo is the second largest zinc producer in Peru operating three of the largest underground zinc mines in Peru. In Milpo’s initial filing, the percentage interest it intends to purchase from Votorantim in each of the two projects is undisclosed at this time. Additional information will be provided to the market by Milpo when the transaction is concluded. From the second half of 2006 to the end of 2013, Votorantim reported that it has expended approximately US$42.4 million on exploration and development at Florida Canyon.
Terms of the Florida Canyon Joint Venture with Milpo
Currently, Solitario owns 100% of the Florida Canyon project. Since inception of the joint venture in 2006, Votorantim/Milpo has funded 100% of project expenditures. Milpo can earn up to a 70% interest in the project by continuing to fund all project expenditures and committing to place the project into production based upon a positive feasibility study. After earning 70%, Milpo has further agreed to finance Solitario's 30% participating interest for construction. Solitario will repay the loan facility through 50% of its net cash flow distributions.
On June 23, 2014, Solitario announced the initial NI 43-101 compliant resource estimate for its high-grade Florida Canyon zinc project in northern Peru. The Mineral Resource Statement and Technical Report was prepared on behalf of Solitario by SRK Consulting (U.S.) Inc., an independent and internationally recognized mining engineering firm. SRK verified and validated a comprehensive resource model previously developed by Solitario’s joint venture partner, Votorantim Metais. The full Technical Report has been filed on SEDAR and can be accessed by clicking here.
Highlights of the Florida Canyon Resource Estimate:
The resource was reported using Net Smelter Return (NSR) cutoff grades by material type determined by current metals prices (zinc and lead - $0.95/lb. and silver $20/oz.) and projected mining, processing, transport and smelting costs. The resource reported in this statement is contained within a footprint of drilling of approximately one by three kilometers, with opportunities for expansion through infill and step-out exploration both laterally and vertically.
Zinc mineralization occurs as a Mississippi Valley Type (“MVT”) deposit and is contained in carbonate rocks of the Pucara rock formation, the host-rock for the many of Peru’s zinc mines. Peru is the third largest zinc producing country in the world. The Florida Canyon resource estimate was based on a database that includes drilling campaigns of two different companies. A total of 82 drill holes were completed by Cominco totaling 24,781 meters drilled from 1997 to 2000, and 404 drill holes completed by Votorantim including 92,499 meters drilled from 2006 to 2013. The drill data were verified and validated by SRK in compliance with NI 43-101 guidelines. The Mineral Resource Statement for the Florida Canyon Zinc project is presented in Table 1. Cutoff grades and their derivation are provided in the resource table notes.
An important component of SRK’s Technical Report was to differentiate three types of mineralization present within the Bongará deposit defined to date. These are sulfide, mixed and oxide zinc mineralization. Sulfide mineralization dominates the currently estimated resources totaling approximately 63% of the resource, with oxide accounting for 28% and mixed resources making up the remaining 9%. In addition, SRK has acknowledged a significant amount of technical work completed by Votorantim, which has advanced the Project well into prefeasibility-level of study in some areas of development.
The Bongará Technical Report and Resource Statement was prepared by SRK Consulting (U.S.), Inc. and provides a classification of resources in accordance with the Canadian Institute of Mining, Metallurgy and Petroleum Standards on Mineral Resources and Mineral Reserves: Definitions and Guidelines, November 27, 2010.
2013 Drilling Results
On August 20, 2013, Solitario reported further outstanding drilling results on its high-grade Bongará zinc project in Peru. Included in these results are core holes V-465, that intersected 10.7 meters grading 45.60% zinc, 5.25% lead and 106.71 gpt silver and hole V-433 that intersected 5.0 meters grading 38.22% zinc, 3.89% lead and 60.76 gpt silver.
Exceptional Drilling Results
The San Jorge mineralized area, and the Florida Canyon deposit in general, remain open to expansion in all directions. Of particular importance is the discovery that zinc grades at San Jorge increase to the south. In fact, the southernmost area tested by the underground drilling program contains some of the highest zinc grades ever encountered on the property. Based on these results, Votorantim has proposed extending the San Jorge exploration tunnel a further 300 meters to the south where high-grade mineralization remains wide open.
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Solitario Zinc Corp.
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