Chesapeake Gold (CKG) - New Technology Gives New Hope
Chesapeake Gold is focused on the exploration and development of precious metals projects in the Americas. Chesapeake owns the Metates project located in Durango state, Mexico. Metates is one of the largest undeveloped gold, silver and zinc deposits in the world.
Few world-class open-pit mines have low cost, scalable development options. Metates benefit from its highest ore grade early in the mine life, a low strip ratio and close proximity to key existing infrastructure. Chesapeake Gold has access, under licence, to an innovative precious metal processing technology that can develop Metates as a sulphide heap leach operation.
We met with Alan Pangbourne, CEO of Chesapeake Gold which is a new story for us. It's a well-established story but there is a new component to it, which is why we wanted to find out more about the company.
The underlying asset at Metates is huge, with over 18Moz of Gold and 500Moz of Silver in Durango, Mexico. Chesapeake Gold is well funded with over CAD$35M in the bank and with the deal that was done with Alderley Gold, which holds a licence to a oxidation technology that they believe will solve their long-known metallurgical problem. In addition, the company had a perception problem with total capital cost overhang. The Pre-Feasibility Study that was done in 2016 had a CAPEX price tag of about CAD$3.5Bn.
The History: Team Experience & Legacy Issues
Alan Pangbourne is a metallurgist by profession and has been in the mining industry for his entire career and has lived in 7 different countries. He worked in South America for over 22-years where he ran an engineering company initially, building lump-sum turnkey projects for the Gold business specifically. Then he joined BHP and more recently, he was the COO at SSR for 5-years. Now he is at Chesapeake and Metates where there are plans to change the culture and change the company which he’s done before in previous roles. He positions himself as a problem solver and was looking for this type of project because the technology they bring will change the way people look at refractory Gold deposits.
Alderley Oxidation Technologies: License Terms, & How it Works
The oxidation technology has been licensed to Alderley Gold. There is one other user, the owner, who have not yet demonstrated commercial production. Chesapeake plans to advance with their own testing and ramp up at site. Pangbourne has been looking at assets for the last 2.5-years, trying to find the one that works for everybody until they found the Metates project which ticked all the boxes. Most of the previous Chesapeake team is still there, and Pangbourne is working with them as they move forward.
Pangbourne had been watching the technology for a long time, and then 2.5-years ago he put together a company, got the license and all the associated R&D information that came with it. The license has a 1% Royalty Stream on production using the technology. Chesapeake will use the license and technology, and owe the owner a 1% Royalty Stream once they're in production. Any improvements are mutually shared. There are no limits on where they can use it, it's unrestricted. The technology is being developed by the licensor at the moment who has already done all the test work on their ore body. The license is a process 'chemistry set' that's applicable to heap leaching, similar to the Copper business which has been oxidising secondary Copper Sulphide for 3-decades. This technology doesn't require billions of dollars to build a heap leach.
Unlocking the Potential: Solving Problems & Implementing Change
The key for Chesapeake Gold is being able to unlock Metates because of the huge numbers. The previous operators had worked out how to unlock Metates as an autoclave but the problem is the capital cost and therefore the economics which don't work so it is an economic issue, not a technical issue. The heap leach approach will unlock the deposit in an economic way using less energy and less capital.
There's a 2016 PFS from the previous management team and the numbers are vast in terms of the capex and the opex which is why Metates is an obvious deposit on which to use this heap leach technology.
Timeline for Studies & Tests to Come
Before they did the deal, they got some samples from Metates and ran them through the lab, and made sure that the chemistry worked. They checked that the Metates' Sulphides will oxidise and that after the oxidation, the Gold and Silver can still be extracted with Cyanide. The technology ticked those boxes and worked chemically and technically. The original board had an independent review of the test work and the results.
The technology has been tested in the lab and on-site where they have implemented the technology on test heaps up to 50,000t and are working on scaling it up beyond that. Chesapeake must go through the process of testing the technology at scale to prove to themselves and to prove to the market that it works and that the recoveries and the costs will be as predicted.
The first thing Chesapeake Gold is doing at Metates is large diameter core drilling which they will test at a lab for crushed size, oxidation times, reagent strengths and consumptions, cyanide leach times, ore variability and ore type testing. The lab testing will take 18-months to 2-years as with heap leach. Even a conventional heap leach takes 90-days per column. The metallurgical work done by mid-2022 will be sufficient to support a PFS they are planning to update next year and will give them a degree of confidence.
After that, they will continue to do more test work as they need to complete all the variability across all of the ore types but their focus initially is on about 205Mt at about 1g/t Gold equivalent that is all contained in the intrusive. It's a slightly higher grade than the rest so it gives a starter project to work on.
The new Pre-Feasibility Study will have a range in terms of the economics due to the variability in sampling and by the time they do a Feasibility in 2023, there will be more certainty from the variability testing, and more data points to feed it.
Money Matters: Cash Position & Burn Rate
Chesapeake raised CAD$20M in August and has CAD$35M in the bank today which they believe is enough to actually get to the end of the Feasibility Study. With such a large deposit that's already been drilled out, they don’t need to do a large infill drilling programme until they are about to start the project. CAD$35M should get them to the end of 2023.
The Business Plan & End Goal
The capex should come down dramatically with the new technology and the company doesn’t need a major or large mid-tier to step in and get involved. If all works out as is hoped, there will be a project that is financeable by a company the size of Chesapeake, and then it's scalable. They are starting just on that 205Mt, so will start in the 15,000t - 20,000t a day range. It is a project which a competent management team can keep control of and deliver it on time, on budget, safely and it will work and it is financeable by a company the size of Chesapeake. The aim of the company is that Metates will become a cornerstone asset to build a real mining company on.
Interesting Investors: When Should They Get Involved?
Metates has been quiet for a long time and is significantly undervalued. The market needs to understand that they're not going to try and build a CAD$3.5Bn project, so investors will be interested in the 90% reduction on the capital. Chesapeake is going to build Metates and going to build a company. Pangbourne has previously taken a struggling company with a single asset and built a bigger, better, reliable, predictable company out of it that makes money which will take some time.
The Future: When to Expect More News?
The company is currently working on getting the permit and mobilising a contractor to drill the holes which they hope to be doing by the end of the month. They have talked to an assay lab and are sorting out the quotes. They want to take the existing PFS and update it by doing some engineering around layouts, earthworks and construction costs in Mexico. Then investors can compare and see if they believe this is what it could look like and compare that to the autoclave.
We had been keen to speak to Chesapeake Gold regarding the Metates deposit because at first look at the project, it just seemed problematic. A new team has come in, made an agreement, and has plans and information which they will be able to deliver into the market. We look forward to hearing more from this story and to see what comes out during the next few months.
To Find out more, go to Chesapeake Gold's Website.