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Santa Luz Project

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Overview

Santa Luz is a previously operating open pit mine and processing plant, which commenced production mid-2013 but was shut down in 2014 by a previous owner to focus on optimizing gold recoveries. The original processing plant was carbon-in-leach (CIL), which did not operate well, with low gold recovery rates associated with carbonaceous ores.

In October 2018 Leagold completed a feasibility study on Santa Luz which demonstrated that resin-in-leach (RIL) will be successful for the project, with estimated gold recoveries of 84%. Highlights from the feasibility study include:

  • Capital cost to complete and re-start the mine of $82 million, including $12.3 million of working capital and first fills
  • Proven and Probable open pit mineral reserves of 28.2Mt at 1.39 g/t containing 1.26 million ounces (further details here)
  • Gold production of 1.06 million ounces over an 11-year mine life at AISC of $856/oz
  • After-tax cash flow of $302 million, using $1,200/oz gold price
  • Strong economics: IRR of 47% and NPV5% of $149 million
  • Operating plan includes an initial period with a significantly reduced open pit strip ratio (Phase 1 of LOM)

The feasibility study includes the option for a phased open pit mining schedule. This mine schedule starts with a low-strip ratio pit design that is included within the full mine plan, which allows for future decision points that may also include further upside potential from underground mining.

Santa Luz represents a key growth opportunity for Leagold, with potential to add over 100,000 ounces per year gold production following a short 10-month construction period. As Santa Luz was a previously operating mine, all major infrastructure is in place and the new construction is mostly limited to retrofitting the plant for gold recovery using resin versus carbon.

A technical report prepared in accordance with National Instrument 43-101 – Standards of Disclosure for Mineral Projects (NI 43-101) will be filed under Leagold’s profile on SEDAR at www.sedar.com and on this website within 45 days of October 25, 2018.

Qualified Persons

Leagold’s October 2018 Updated Feasibility Study was prepared by RPA. Messrs. Hugo Miranda, C.P., Mark Mathisen, C.P.G., and Richard Addison, P.E., are “Qualified Persons” as defined by NI 43-101 and are independent of the Company. The feasibility study was prepared in accordance with standards as defined by the Canadian Institute of Mining, Metallurgy and Petroleum ("CIM") "CIM Definition Standards on Mineral Resources and Mineral Reserves", adopted by CIM Council on May 10, 2014.

 

In October 2018 Leagold completed a feasibility study on Santa Luz, highlights of which are included below. The feasibility study demonstrated that resin-in-leach (RIL) will be successful for the project, with estimated gold recovery rates of 84%. The feasibility study includes updated capital cost estimates, with approximately 75% of the construction capital costs (before contingency) based on vendor contracts or quotes which are therefore substantially fixed. The total estimated cost to complete the Santa Luz project and to re-start the mine is $82 million, inclusive of contingency and working capital, to be spent over a 10-month period. Most of the goods and services will be sourced from domestic Brazilian suppliers. A technical report prepared in accordance with National Instrument 43-101 – Standards of Disclosure for Mineral Projects (NI 43-101) will be filed under Leagold’s profile on SEDAR at www.sedar.com and on this website within 45 days of October 25, 2018.

Table 1: Santa Luz Capital Cost Summary

Category $M(1)
Process plant alterations   $37.6
Tailings and water storage modifications   3.8
EPCM   2.7
Owner’s costs, including pre-operation staff hiring   11.8
Contingency   4.6
    Sub-total, construction costs   60.5
Pre-stripping mining cost   9.2
Working capital and first fills    
  Consumables, inventories, other working capital 5.6  
  Plant first fills 6.7  
     12.3
    Grand total   $82.0

(1) Costs in Brazilian Reals converted to US dollars with an exchange rate of 3.7 BRL-USD

All necessary licences and permits are in place for construction and the resumption of operations, with only minor adjustments needed with respect to the updated plans for modifying the existing tailings facilities.

The original processing plant at Santa Luz was placed in operation in mid-2013 and was shut down in September 2014 by a previous owner. The original plant was carbon-in-leach (CIL), which did not operate well, with low gold recovery rates associated with carbonaceous ores. Subsequent metallurgical testing programs, including the operation of a pilot-scale plant, has demonstrated that resin-in-leach (RIL) will be successful for the project with estimated gold recovery rates of 84%.

The updated process plant will include crushing and grinding, RIL, elution, and electrowinning. The crushing section of the plant is part of the original facility and requires only minor improvements. The grinding section will be upgraded to two mills operating in series: the original SAG mill and a new ball mill.

Most of the construction capital is related to the installation of the RIL circuit, which primarily consists of a pre-aeration tank, two conditioning tanks and five stirred RIL tanks in series. The process used in gold recovery using resin is similar to the use of activated carbon, but the gold is adsorbed onto the resin beads rather than activated carbon grains. Gold recovery using resin offers all the advantages of the more common carbon recovery, with some additional benefits: i) the size of the resin beads (1 mm) is more consistent than natural carbon, allowing for easier control, ii) improved flow characteristics of resin beads, and iii) better recovery rates from ores containing high levels of organic compounds. Resin technology for gold recovery has been used at mines in South Africa, USA (Nevada), Malaysia, and in Russia.

As a benefit from the prior operation at Santa Luz, all of the major infrastructure requirements for the project are already in place, including a 138 kV connection to the national electric grid. The existing plant is being regularly maintained, with only minor retrofitting needed to ensure a smooth re-start of the operation. There are currently two tailings facilities at Santa Luz that will be modified: one facility will be expanded with the installation of a geomembrane liner to accept additional tailings from the new operation, while the second facility will be modified to enable 2 million cubic metres of water storage.

Furthermore, the long lead time major equipment required for the project has already been purchased and is on site. This equipment includes the following: new ball mill, cyclones, leach tanks, leach tank agitators, screens (inter-tank, resin and vibratory), electrowinning cells, elution heaters and columns, lime bin, and various pumps and samplers.

Open Pit Mining and Processing Operations

Santa Luz will continue to be a conventional truck and shovel open pit mining operation, utilizing a mining contractor. Production will come from two open pits: one at the C1 deposit and one at the Antas 3 deposit. Processing throughput will be 2.7 million tonnes per year, or a nominal 7,400 tonnes per day. Gold recoveries are 84% in a blended feed of high carbonaceous material, low carbonaceous material, and dacite.

A portion of the C1 and Antas 3 pits were previously mined in 2013 and 2014. Currently, there is water stored in both pits. The water will be pumped to the water storage facility prior to re-starting the operation. Water for use at the site will be sourced from precipitation and from pumping from the adjacent Itapicurú River, with the water storage facility providing an additional water source during the dry season.

Table 2 summarizes the open pit mine plan and processing schedules for the life of mine (LOM), including existing stockpiles, along with the initial Phase 1 portion of the mine plan. Tables 7 and 8 in the appendix contain additional details on the open pit mining and processing profiles, presented on an annual basis. The LOM plan includes $56.8 million of capitalized waste stripping in years 3 to 6, which is an expansionary, non-sustaining capital expenditure as defined by the World Gold Council. A future decision regarding this capital investment can be taken in year 3 and would be required for the full LOM plan. The LOM plan does not include the potential opportunity of mining the down-dip extension of the C1 deposit with underground mining methods. Leagold intends to evaluate this upside opportunity with an additional drill program and study after the re-start of the project.

Table 2: Santa Luz Open Pit Mining and Processing Profile

  Units Phase 1 of LOM LOM Total
Total ore mined kt 16,651 26,220
Total waste mined kt 61,789 161,072
Total material mined kt 78,440 187,292
Strip ratio w:o 3.7 6.1
Gold grade g/t 1.45 1.43
Contained gold oz 773,588 1,205,456
Total ore processed kt 18,710 28,279
Processed grade g/t 1.38 1.39
Contained gold – processed oz 832,419 1,264,072
Recovery % 84% 84%
Gold production oz 697,199 1,059,787
Mine life years 7 11

Table 3: Santa Luz Average Operating Costs1

  Units Phase 1 of LOM LOM Total
Mining cost2 $/t mined $2.19 $2.22
Processing costs $/t milled $13.63 $13.51
Site G&A $M/year $7.6 $7.6
Cash cost per ounce $/oz $704 $784
AISC per ounce3 $/oz $788 $856

1 Costs in Brazilian Reals converted to US dollars with an exchange rate of 3.7 BRL-USD
2 Mining costs inclusive of drilling and blasting, load and haul, stockpile re-handling, mine management and administration, and grade control
3 AISC includes mine cash costs, royalties, sustaining capital expenditures, and operational waste stripping costs

Project Cash Flow

The financial analysis was performed on an after-tax basis using the parameters summarized in Tables 1, 2, and 3. The key economic assumptions include a 1% royalty to the Federal government, 1% royalty to a third-party, a 2% royalty on a portion of the production from the C1 deposit area, and corporate tax rate as provided for under the currently effective mining and tax legislation in Brazil and the incentives granted by the Superintendence for the Development of the Northeast (SUDENE).

Table 4: Santa Luz Summary Cash Flow at $1,200/oz gold1

  Units Phase 1 of LOM LOM Total
Revenue $M 836.6) 1,271.7)
Refining and transportation   (17.4) (21.0)
Royalties   (32.5) (43.3)
Operating costs   (473.2) (810.3)
Operating margin   313.6 397.1
Sustaining capital   (26.3) (33.0)
Capitalized stripping (non-sustaining)   0.0 (56.8)
Working capital recovery   5.6 5.6
Salvage value   15.0 15.0
Reclamation   (8.7) (10.9)
Taxes/net VAT   (8.6) (15.5)
Net cash flow (LOM)   290.5 301.6
Net cash flow (years 1–5 only) $M 233.1 137.2
AISC2 $/oz $788 $856
Upfront capex $M $82.0 $82.0
Upfront capex payback period years < 2 years < 2 years
IRR (after-tax) % 63% 47%
Project NPV5% (after-tax) - $1,200 $M $165 $149

1 Costs in Brazilian Reals converted to US dollars with an exchange rate of 3.7 BRL-USD
2 AISC includes mine cash costs, royalties, sustaining capital expenditures, and operational waste stripping costs

At $1,200/oz gold, the life of mine will generate net cash flow of $301.6 million over 11 years. While the life of mine plan provides for greater scale and increased optionality to gold prices, it is noted the Phase 1 portion of the mine plan generates net cash flow of $290.5 million over years 1 to 7, and $233.1 million over years 1 to 5.

As previously noted, a phased approach to open pit mining permits future mining schedules to also consider the potential and benefits of underground mining, following completion of drilling and additional studies.

Community and Social Actions

The Santa Luz project is expected to generate several positive impacts on the social and local environment, including:

  • Creation of up to 975 jobs during construction and 650 jobs during operations
  • Strong local employment, with most of the workers living within 75 km of the mine
  • Economic growth in local areas in the provision of services, construction and manufacturing sectors
  • Social and community development projects.

Leagold has commenced a community engagement program, which includes the completion of the construction and recent resettlement of 97 families to the Nova Esperanza village.

Qualified Persons

Leagold’s October 2018 Updated Feasibility Study was prepared by RPA. Messrs. Hugo Miranda, C.P., Mark Mathisen, C.P.G., and Richard Addison, P.E., are “Qualified Persons” as defined by NI 43-101 and are independent of the Company. The feasibility study was prepared in accordance with standards as defined by the Canadian Institute of Mining, Metallurgy and Petroleum ("CIM") "CIM Definition Standards on Mineral Resources and Mineral Reserves", adopted by CIM Council on May 10, 2014.

3D Animation

3D Animation

The Mineral Resources utilized in Leagold’s October 2018 feasibility study were prepared based on a total of 241,172 metres drilling by previous owners of the property during the period of 2003 to 2017, and are unchanged from the Mineral Resources used by Brio Gold in its feasibility study published on September 5, 2017.

Santa Luz Project Mineral Resource Statement (Effective Date of June 30, 2017)

Classification Tonnes (kt) Gold grade (g/t) Gold ounces (koz) Cut-off Grade (g/t Au)
Measured – open pit 31,100 1.36 1,356 0.5
Indicated – open pit 1,700 1.25 69 0.5
Measured and Indicated – open pit 32,800 1.35 1,425 0.5
Inferred – open pit 1,100 1.17 40 0.5
         
Measured – underground 100 1.94 8 1.5
Indicated – underground 5,900 2.55 484 1.5
Measured and Indicated – underground 6,000 2.54 492 1.5
Inferred – underground 6,600 2.19 461 1.5
         
Indicated – stockpiles 2,100 0.89 59 -
         
Total Measured and Indicated 40,900 1.50 1,976 -
Total Inferred 7,700 2.02 501 -

Notes:

  1. CIM (2014) definitions were followed for Mineral Resources.
  2. Underground Mineral Resources are reported at a cut-off grade of 1.5 g/t Au.
  3. Open Pit Mineral Resources are reported at a cut-off grade of 0.5 g/t Au.
  4. Mineral resources are inclusive of mineral reserves and do not include dilution.
  5. Metal price assumption for gold was $1,500/oz and constrained by a Whittle pit shell.
  6. Tonnage and grade measurements are in metric units. Contained gold ounces are reported as troy ounces.
  7. Summation errors may be present due to rounding.

The Mineral Reserves have been updated based on the parameters of Leagold’s Updated Feasibility Study and have been estimated using a gold price of $1,200/oz. The Proven and Probable mineral reserves totaled 28.2 Mt at an average grade of 1.39 g/t containing 1.259 million ounces of gold (including stockpiles). The LOM plan is based on the open pit mining of both the C1 and Antas 3 deposits, and does not yet include the potential of mining additional resources with underground mining methods.

Santa Luz Mine Mineral Reserve Statement (Effective Date of October 22, 2018)

Classification Tonnes (kt) Gold grade (g/t) Gold ounces (koz)
Proven – open pit 25,000 1.43 1,153
Probable – open pit 1,100 1.40 47
Probable – stockpiles 2,100 0.89 59
Total Proven and Probable 28,200 1.39 1,259

Notes:

  1. CIM (2014) definitions were followed for Mineral Reserves.
  2. Mineral Reserves were generated by Santa Luz Project personnel and adjusted by RPA to reflect the October 22, 2018 mining surface.
  3. Mineral Reserves are quoted at cut-off grades of 0.53 g/t Au, for dacite-leachable, 0.39 g/t Au for dacite-high-sulphide, and 0.60 g/t Au for carbonaceous ore.
  4. C1 uses 10 m bench height and Antas 3 uses 9 m bench height.
  5. Process recovery of 86% for dacite-leachable, 84% for dacite-high-sulphide and 84% for carbonaceous ore.
  6. Mineral Reserves are based on Measured and Indicated Mineral Resources.
  7. Metal price assumption for gold was US$1,200/oz.
  8. Tonnage and grade measurements are in metric units. Contained gold are reported as troy ounces.
  9. Summation errors may be present due to rounding.

There are no known legal, political, environmental or other risks that could materially affect the potential development of the mineral resources or mineral reserves.

A technical report prepared in accordance with National Instrument 43-101 – Standards of Disclosure for Mineral Projects (NI 43-101) will be filed under Leagold’s profile on SEDAR at www.sedar.com and on this website within 45 days of October 25, 2018.

Qualified Persons

Leagold’s October 2018 Updated Feasibility Study was prepared by RPA. Messrs. Hugo Miranda, C.P., Mark Mathisen, C.P.G., and Richard Addison, P.E., are “Qualified Persons” as defined by NI 43-101 and are independent of the Company. The feasibility study was prepared in accordance with standards as defined by the Canadian Institute of Mining, Metallurgy and Petroleum ("CIM") "CIM Definition Standards on Mineral Resources and Mineral Reserves", adopted by CIM Council on May 10, 2014.

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