Corani

Overview

The 100% owned Corani silver-lead-zinc project is located in the Department of Puno in southern Peru, approximately 160 kilometers southeast of Cusco, in a sparsely populated high Andean mountain desert environment. The project consists of twelve mineral concessions that form a contiguous block of ground covering approximately 5,700 hectares. Corani is the Company’s most advanced mineral property.

The Corani project hosts one of the largest undeveloped silver-lead-zinc deposits in the world. Over and above its world-class size, the Corani project stands alone by virtue of its substantial base metal credits, location in a mining-friendly jurisdiction and overwhelming community support.

Exploration History

After initially exploring the Corani project under the terms of a Letter of Understanding between the Company and Rio Tinto Mining and Exploration Ltd., Bear Creek entered into a definitive option agreement with Rio Tinto in March 2007 to acquire a 70% interest in Corani, which agreement was completed in January 2008. Bear Creek entered into a purchase and sale agreement to acquire Rio Tinto’s remaining 30% interest in the Corani project through a series of staged payments of cash and common shares of the Company. After a number of revisions, amendments and extensions to the purchase agreement, Bear Creek became the 100% owner of the Corani project in February 2011.

Between 2005 and 2012, Bear Creek completed over 93,000 meters of drilling at the Corani project and filed a NI 43-101 resource estimate and preliminary economic assessment in 2008, a pre-feasibility study in 2009, and an initial feasibility study in 2011 (the “2011 Corani Feasibility Study”).

In 2014 Bear Creek commenced optimization and trade-off studies for the Corani project that aimed to improve upon the mine plan and economics of the deposit envisioned in the 2011 Corani Feasibility Study by, most importantly, lowering the total capital costs, reducing the footprint and environmental impact, and optimizing the metal recoveries. These optimization and trade-off studies culminated in an optimized feasibility study for the Corani project (the “2015 Corani Feasibility Study”), the results of which were announced on June 2, 2015.

In November 2016, the Company engaged Graña y Montero Group (“GyM”), to undertake Phase I Detailed Engineering work at the Corani project. A final report on this work is pending. The Phase 1 Detailed Engineering will incorporate further optimizations and trade-offs to the Corani mine plan as detailed in the 2015 Corani Feasibility Study. Specifically, it will establishe final processing flow sheets and equipment lists, optimize mine sequencing, and refine CapEx and OpEx cost estimates for the Corani project. GyM’s Phase 1 Detailed Engineering report, once received, will form the backbone of the Company’s application for a Construction Permit for the Corani project, submission of which is anticipated during Q3 2017.  Approval of the Construction Permit is expected by year-end.

Environmental and Social Governance

In 2012 Bear Creek filed the Corani Environmental and Social Impact Assessment (“Corani ESIA”) with the Peruvian Ministry of Energy and Mines (the “MEM”).  Public hearings required for approval of the Corani ESIA were successfully completed in early 2013, with strong community support expressed for the project and its benefits and, in September 2013 MEM approved the Corani ESIA.

In April 2013 Bear Creek entered into a Life of Mine (“LOM”) agreement with the District of Carabaya, five communities surrounding the Corani project, and ancillary organizations that specified the Company’s commitments to invest in community projects over a period of roughly 23 years (representing the anticipated pre-production and production mine life of the Corani operation).

Under the LOM agreement, annual payments of 4 million Nuevo Soles over the 23-year project life are to be made into a trust designed to fund community projects. Bear Creek made initial payments into the trust in 2013 and 2014. Ongoing payments are triggered by the Company receiving the Construction Permit.

In late 2015, the Company submitted modifications (based on the results of the 2015 Corani Feasibility Study) to its ESIA originally approved in September 2013. In mid-January 2016, the Company received approval of the modified ESIA from the MEM.

2017 Phase 1 Detailed Engineering Results

Phase 1 Detailed Engineering at the Corani Project was completed in September 2017. The Phase 1 Detailed Engineering incorporates further optimizations and trade-offs to the Corani mine plan described in the 2015 Corani Feasibility Study 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.

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

Please review the pertinent NI 43-101 Disclosure.

 2017
PHASE 1
DETAILED
ENGINEERING
2015
CORANI
FEASIBILITY
STUDY
CAPITAL  
Initial Capital$585 M$625 M
Sustaining Capital$0.4 M$39 M
Total Capital$586 M$664 M
PROCESSING  
Ore Milled (k t)139,073137,698
Silver Recovery69.9%71.9%
Lead Recovery61.1%62.8%
Zinc Recovery67.1%60.1%
Payable Silver (from zinc concentrate) (k oz)7,0965,473
Payable Silver (from lead concentrate) (k oz)137,343145,575
Payable Lead (k lbs)1,578,1541,651,849
Payable Zinc (k lbs)1,030,503909,579
OPERATING  
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 1-612.0 M oz/year12.9 M oz/year
Avg. Annual Silver Production Life of Mine8.0 M oz/year8.4 M oz/year
Stripping Ratio1.491.68
Mine Life (extraction)18 years18 years
Mine Life (processing)18 years18 years
Mill Capacity22,500 tpd22,500 tpd
ECONOMICS (after tax)  
Net Present Value$402 M (3)$544 M (4)$643 M (5)
Internal Rate of Return15.4% (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)

Reserves and Resources

The following information is based on the 2015 Corani Feasibility Study. Please review the pertinent NI 43-101 Disclosure.

Corani Mineral Reserves and Mineral Resources

Mineral Reserves

Total

Ktonnes

Silver gpt

Lead %

Zinc %

Silver Million oz

Lead million lb

Zinc million lb

Proven

19,855

69.1

1.09

0.72

44.1

478.7

313.4

Probable

117,843

48.6

0.88

0.57

184.3

2289.2

1470.7

Proven & Probable

137,698

51.6

0.91

0.59

228

2,768

1,784

        

Mineral Resources in Addition to Reserves

Total

Ktonnes

Silver gpt

Lead %

Zinc %

Silver million oz

Lead million lb

Zinc million lb

Measured

14,360

32.01

0.34

0.19

14.8

108.4

61.6

Indicated

83,749

25.37

0.37

0.28

68.3

682.2

512.8

M&I

98,109

26.34

0.37

0.27

83.1

790.6

574.4

Inferred

39,953

37.20

0.58

0.40

47.8

510.6

352.4

The above Mineral Reserves are based on metal prices of $20/oz silver, $0.95 per pound for lead and $1.00 per pound for zinc using variable NSR cutoffs throughout the project life. The Mineral Resources uses a Whittle pit shell generated with metal prices of $30/oz for silver, $1.425/lb for lead and $1.50/lb zinc. The Mineral Resource NSR cut-off was $11.00/tonne.  The Mineral Resource includes potentially leachable mixed oxide material that fell within the Mineral Resource pit shell using a silver cut-off grade of 15g/tonne and block elevation above 4900 meters.

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