Message to our Shareholders
Fiscal 2015 was another tough year, the third consecutive, for the exploration sector with the SP/TSX Venture Index falling below 600 in August 2015 from a high of 2,464 in 2011 reflecting the poor health of the mining exploration industry as a whole. The tough markets experienced by the explorers over the past few years have extended to all resource-based companies which have seen major declines in share prices as shareholders, from institutional to retail, surrendered to falling commodity prices. The equity markets for resource companies remain challenging and will likely remain challenging for 2015. After an unprecedented 10 year resource bull market, we are in the midst of a cyclical bear market. The experts say that low commodity prices are the new norm just as they predicted that high prices were the new norm a few years ago. The key to managing this downturn is preservation: the preservation of capital and the preservation of key assets to capitalize on the next upswing in gold prices. We have seen this play before.
At Atacama, we are fortunate to own a major gold asset representing one of the largest undeveloped oxide gold deposits in the world, the Cerro Maricunga deposit, with proven and probable reserves of 3.74 million ounces of gold in 294.4 million tonnes of ore at a grade of 0.40 g/t gold. The majority of required expenditures to outline the reserves have been spent and environmental base line data has been collected. The inherent value of the deposit is clear and the costs to maintain the project going forward are minimal. The next major expenditure is related to a feasibility study which we will contemplate when the market is receptive.
Our August 2014 Prefeasibility Study revealed the economic potential of Cerro Maricunga outlining a 280,000 ounce per year heap leach project (first 8 years of production) with a 13 year mine life and an after tax IRR of 25% and NPV5% of US$410 million. While the gold grade is low in comparison to other producing mines, there are numerous offsetting positives it shares with other successful low grade operations such as relatively inexpensive mining and processing methods, a low strip ratio and a large scale of operation. While high grades are nice, it should be remembered that higher grades almost always come with higher costs. It is project economics that drive, or should drive, development. With respect to project economics, while gold prices have declined approximately 20% since the publication of the PFS to around $1,100 per ounce, we have seen an offsetting
13% decline it the value of the Chilean peso and a 25% decline in the price of diesel. Other mine consumables are showing declines as well and the labour market in Chile, which has a resource-based economy, has also softened. These are all factors which will offset the decline in gold price and will have a positive impact of project economics.
With the plans for Cerro Maricunga largely defined and the costs minimized, Atacama has attracted a sophisticated and dedicated shareholder base which understands the inherit value of Cerro Maricunga. Over the past 12 months, Atacama has raised approximate $2.4 million, almost entirely from existing shareholders, including management, which has been dedicated to maintaining the value of Cerro Maricunga. We have implemented cost cutting initiatives, reducing corporate costs and cutting and deferring management salaries. It should be noted that management are significant Atacama shareholders owning over 30% of the common shares and, therefore, our interests are directly aligned with those of all shareholders.
We recently announced the acquisition of a small copper mine north of Santiago. The operation, which produces 50 tonnes of high grade copper concentrates a month with significant gold and silver credits, was leased from Los Vilo’s S.A. which is owned by Atacama’s Chairman. Atacama’s primary focus clearly remains on moving Cerro Maricunga forward; however, the income stream from the Los Vilos mine will assist in partially offsetting the future cash requirements in Chile.
Thank you to our Directors for their input and commitment to Atacama Pacific. It is unfortunate that Scott Caldwell is leaving the board due to time constraints as he focuses on the start-up of Aurora Mine in Guyana. We have appreciated his wisdom over the past few years and wish him all the best in his future endeavours. Joining the board this year is Steven Butler who was a mining analyst with Canaccord Genuity and BMO Nesbitt. Mr. Butler brings a wealth of mining and financial acumen to Atacama and we look forward to his input.
As we come to a close, we thank our employees and consultants who have worked with us over the past few years to move Cerro Maricunga from an exploration concept to one of the largest undeveloped oxide gold projects in the world. And importantly, we thank all of our shareholder and stakeholders for your dedication and support over the past 12 months and your confidence in Atacama Pacific going forward. It is our goal to create value for you.
Sincerely
Carl B. Hansen, President and CEO
October, 2015
|
|
