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.

Phase 1 Detailed Engineering and 2017 Corani Technical Report

In November 2016, the Company engaged Graña y Montero Group (“GMI”), to undertake Phase I Detailed Engineering work at the Corani project and a final report on this work was provided to Bear Creek in September 2017. The Phase 1 Detailed Engineering work incorporates further optimizatons and trade-offs to the Corani mine plan described in the 2015 Corani Feasibility Study, and specifically establishes final processing flow sheets and equipment lists, optimizes mine sequencing and refines capital expenditure (“CapEx:) and operating expenditure (“OpEx”) cost estimates for the Corani Project. GMI’s Phase 1 Detailed Engineering report forms the backbone of the Company’s application for a Construction Permit for the Corani project whcih was submitted during Q4 2017.

In October 2017, Bear Creek filed an updated Feasibility Study Technical Report entitled “NI43-101 Technical Report, Corani Project Detailed Engineering Phase 1 (FEED)” (the “2017 Corani Technical Report”), which supports and augments the Phase 1 Detailed Engineering report of GMI. The 2017 Corani Technical Report is dated effective September 13, 2017 and was prepared on behalf of the Company by Sedgman Chile SpA, with contributions from other mining and engineering consulting firms.

 

Phase 1 Detailed Engineering Updates and 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 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 $404 million, an internal rate of return (“IRR”) of 15.1% and a payback period of 3.6 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.
  • 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 $1.81 in the first six years of operation and $5.01 life of mine.
  • 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 stripping ratio of 1.49:1. 

Key Corani Project Metrics

 

2017

PHASE 1 DETAILED ENGINEERING

CAPITAL

 

Initial Capital

$585 M

PROCESSING

 

Ore Milled (k t)

139,073

Silver Recovery

69.9%

Lead Recovery

61.1%

Zinc Recovery

67.1%

Payable Silver (from lead & zinc concentrates) (M oz)

144

Payable Lead (B lbs)

1.59

Payable Zinc (B lbs)

1.03

OPERATING

 

Total Production Costs (1)

$3,350 M

AISC (2) per oz Silver (by-product basis) Years 1-6

$1.81

AISC (2) per oz Silver (by-product basis) Life of Mine

$5.01

Avg. Annual Silver Production Years 1-6

12.0 M oz/year

Avg. Annual Silver Production Life of Mine

8.0 M oz/year

Stripping Ratio

1.49

Mine Life (extraction)

18 years

Mine Life (processing)

18 years

Mill Capacity

22,500 tpd

ECONOMICS (after tax)

 

Net Present Value

$404 M (3)

Internal Rate of Return

15.1% (3)

Payback period (years)

3.6 (3)

(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) Using 2017 Detailed Engineering report base case metal prices ($18/ounce silver, $0.95/pound lead and $1.10/pound zinc)

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.

Reserves and Resources

The following information is based on the 2017 Corani Technical Report. Please review the pertinent NI 43-101 Disclosure.

Corani Mineral Reserves and Mineral Resources

Mineral Reserves

Total

M tonnes

Silver gpt

Lead %

Zinc %

Silver

Million oz

Lead

Million lb

Zinc

Million lb

Proven

20.8

65.8

1.03

0.71

44

472

323

Probable

118.3

47.5

0.87

0.57

181

2,274

1,486

Proven & Probable

139.1

50.3

0.90

0.59

225

2,746

1,809

        

Mineral Resources in Addition to Reserves

Total

M tonnes

Silver gpt

Lead %

Zinc %

Silver

Million oz

Lead

Million lb

Zinc

Million lb

Measured

13.4

34.5

0.39

0.17

15

111

50

Indicated

83.3

26.9

0.38

0.27

72

701

500

M&I

96.7

27.9

0.38

0.26

87

812

550

Inferred

39.9

37.2

0.58

0.40

48

511

352

The following metal prices and cut-off assumptions were used to calculate the Reserves and Resources presented above:

Reserves: $20/oz Ag, $0.95/lb Pb and $1.00/lb Zn; Variable NSR cut-off values from $11/tonne to $23/tonne at different times in the production schedule to manage mill requirements and maximize project economics

Resources: $30/oz Ag, $1.425/lb Pb and $1.50/lb Zn; Cut-off was $9.49/tonne processing cost, plus $1.51 G&A cost which represents the internal process cut-off.

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