news Corner Bay Minerals Inc -
Corner Bay Alamo Dorado project summary
Corner Bay Minerals Inc BAY
Shares issued 10,941,109 1999-11-12 close $2.18
Friday Nov 12 1999
Mr. Steven Butler reports
Corner Bay has outlined a minimum silver resource of 64,500 ounces of silver on its Alamo Dorado silver-gold project in Sonora, Mexico.
Scoping study in March was based on a heap leach development of a 56,000-ounce silver reserve. The project's modest capital requirements, low-strip ratio, and above-average recoveries imply a very robust financial return.
The March scoping study suggests a base case valuation in the range of $4.40 per share (net asset value (NAV) at 10-per-cent discount rate). The upside case ($5.25 per share) reflects the potential for a 30-per-cent reserve addition on the basis of continued positive drill results.
On the basis of the attractiveness of the Alamo Dorado project and the deep discount in Corner Bay shares, it is believed that Corner Bay is a strong merger candidate. The company is initiating coverage with an S4 (speculative) rating.
Property summary
Corner Bay's principal project is the Alamo Dorado project in Sonora, Mexico. The project is accessible by road to the town of Alamos located 67 kilometres to the northwest. The Miguel Hidalgo dam is located 10 kilometres southwest of the project, and could provide water and power. The Alamo Dorado concessions total 5,374 hectares. Corner Bay can earn a 100-per-cent interest in the project for total cash payments of $800,000 (U.S.) over four years, of which $175,000 (U.S.) has already been paid.
The disseminated nature of the mineralization at Alamo Dorado is unique for the western flank of the Sierra Madre occidental geological province, which normally hosts hydrothermal belts of epithermal and mesothermal veining and silicification. Alamo Dorado's mineralization is hosted within a medasediment terrain (quartzite/gneiss and schists) proximal to granodiorite intrusives, and is believed to be structurally controlled. The zone was identified by Corner Bay geologists as a predominant gossanous ridge extending approximately 500 metres in a north-south direction.
Corner Bay's expenditures to date on the project total less than $1.75-million. The company has completed a total of 42 reverse circulation drill holes and four large-diameter diamond drill holes (for purposes of more extensive metallurgical tests).
The exploration potential on the property is represented by other gossanous and silicified zones located northwest and southeast of the main mineralized zone. In particular, the southeast area hosts a 750-metre-long gold-silver geochemical anomaly that is approximately 100 metres wide.
March scoping study
Based on the initial 19-hole drill program, Mintec calculated an initial resource and reserve estimate for the deposit and Metcon Research conducted a preliminary metallurgical study. Mintec calculated an indicated resource of 47.8 million tonnes grading 42 grams per tonne silver and 0.15 g/t gold (no cutoff). Within this geological resource, Mintec calculated a pittable reserve of 24.8 million tonnes grading 71 silver and 0.22 gold. This reserve was incorporated into the March scoping study and is summarized below. These estimates support an IRR in excess of 40 per cent.
MARCH SCOPING STUDY
Tonnes (at 20 g/t
Ageq cutoff) 24,774,358
Grade
g/t silver 71
g/t gold 0.22
Recoveries
per cent silver 67
per cent gold 89
Strip ratio 1.09:1
Capital costs $20,000,000
Mining costs
(U.S. dollar
per tonne) 0.85
Processing costs
(U.S. dollars
per tonne) $2.80
The attractive features of the Alamo Dorado deposit include: its low strip ratio; high recoveries; the presence of gold as a meaningful by-product; and higher-grade mineralization exploitable in the early years.
The company has derived its capital and operating cost estimates by comparisons to other heap leach deposits. The capital costs and mining costs closely match those of Geomaque's San Francisco gold heap leach deposit and the processing costs mirror those of Coeur d'Alene's silver/gold heap leach deposit in Nevada.
The recovery assumptions were based on the results from four composite samples taken from two different elevations in the deposit.
RECOVERY RESULTS FROM BOTTLE ROLL TESTS
Sample Ag (%) Au (%)
High grade above
75 metres 74.03 78.53
Low grade above
75 metres 66.68 100.00
High Grade below
75 metres 70.09 79.54
Low grade below
75 metres 58.12 100.00
Average 67.23 89.52
The recovery assumptions for both silver and gold are higher than the norm. At least for silver, it is mostly explained by the minerals of the deposit. The silver at Alamo Dorado is contained in argentite and chlorargyrite. The silver recovery from chlorargyrite is far superior to that from argentite. If the company were to assume more conventional recovery rates for silver and gold of 60 per cent and 70 per cent respectively, its NAV would decline appreciably. The company has completed four large-diameter diamond drill holes which represent a metallurgical bulk sample. This material will be composited for advanced column leach testing, which is expected to be completed in early 2000.
Resource/reserve growth
Since March the company has deepened 12 of its pre-existing 19 holes and completed an additional 23 reverse circulation holes. The significance of the extended holes is that the length of the mineralized intervals was increased by 63 per cent (arithmetic average) at the expense of a 5-per-cent decline in grade. The additional 23 holes were consisted of in-fill and down-dip holes. Corner Bay believes that it is possible that the revised scoping study could reveal a 30-per-cent increase in the resource and reserve at Alamo Dorado.
PREVIOUS ASSAY RESULTS
from extended holes
grade*
Hole metres g/t thickness
8 96 90 8,640
25 230 73 16,790
10 149 157 23,393
9 116 60 6,960
14 122 27 3,294
2 132 82 10,824
1 139 101 14,039
6 81 65 5,265
4 74 22 1,628
5 102 72 7,344
--- --- ------
Average 124 75 9,818
NEW ASSAY RESULTS
from extended holes
grade*
Hole metres g/t thickness
8 140 130 18,200
25 296 64 18,944
10 227 117 26,559
9 195 82 15,990
14 198 49 9,702
2 179 68 12,172
1 234 71 16,614
6 186 57 10,602
4 141 25 3,525
5 224 52 11,641
--- --- ------
Average 202 72 14,398
PERCENTAGE OF CHANGE
(all results in per cent)
grade*
Hole metres g/t thickness
--- --- ------
8 46 44 111
25 29 -12 13
10 52 -25 14
9 68 37 130
14 62 81 195
2 36 -17 12
1 68 -30 18
6 130 -12 101
4 91 14 117
5 120 -28 59
--- --- ------
Average 63 -5 47
* excluding two holes which intersected new lower zones of mineralization.
Valuation
The company's base case valuation on Corner Bay assumes the March scoping study parameters as previously outlined. The long-term metal price assumptions include $5.50 per ounce (U.S.) for silver and $315 per ounce for gold. It is believed that the most likely scenario for Corner Bay is to eventually be taken over by a silver producer. Therefore, the company presents its estimates assuming 100-per-cent debt financing. (If it assumed a 50-per-cent equity financing at current prices, its 10-per-cent NAV would decline from $4.40 to $3.45 per share.)
The upside case is based on an assumed 30-per-cent increase in tonnage and a 5-per-cent decrease in grade on the scoped minable resource. It has also assumed a 30-per-cent increase in throughput, a decrease in the strip ratio from 1.09:1 to 0.9:1 and a $5-million (U.S.) increase in capital costs. The result is an increase in the company's 10-per-cent NAV from $4.40 to $5.25 per share.
The sensitivity analysis indicates that, even assuming more conventional heap leach recovery assumptions for silver and gold, Corner Bay's shares would have a NAV between $3.02 perr share (10-per-cent base case) and $3.57 per share (10-per-cent upside case).
NAV SUMMARY
(Canadian dollars per share)
Discount rate 8% 10% 12%
Base case $5.10 $4.40 $3.81
Base case
modified for
above
50-U.S.-cent
silver price $6.02 $5.21 $4.53
60 per cent
silver, 70
per cent gold
recovery $3.54 $3.02 $2.59
Above
10-per-cent
capital costs $4.92 $4.23 $3.65
Above
10-per-cent
operating costs $4.55 $3.92 $3.39
Upside case $6.13 $5.25 $4.50
Upside case
modified for
Above 50-U.S.-cent
silver price $7.25 $6.24 $5.38
60 per cent
silver, 70
per cent gold
recovery $4.22 $3.57 $3.02
Above
10-per-cent
capital costs $5.91 $5.03 $4.30
Above
10-per-cent
operating costs $5.45 $4.65 $3.98
(c) Copyright 1999 Canjex Publishing Ltd. canada-stockwatch.com
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