Chesapeake Gold (CKG) - Unlocking Gold & Silver with Oxidisation Process

We recently had an opportunity to speak with Alan Pangbourne, the CEO of Chesapeake Gold Corporation. He updated us on the company’s recent progress at their Metates Project in Mexico.

Company Overview

Chesapeake Gold Corp. is engaged in the discovery, exploration, and development of gold, silver, and zinc in North and South America. Its flagship project is the Metates project, consisting of 14 mineral concessions totaling 14,727 hectares, in Durango State, Mexico. The company is headquartered in Vancouver, British Columbia, Canada. 

Chesapeake Gold trades on the Toronto Stock Exchange and it has over 67,000,000 outstanding shares. Eric Sprott is its largest institutional holder. 

Chesapeake’s Management Team

In addition to the CEO, the management team at Chesapeake consists of P. Randy Reifel, President and Director; Taje Dhatt, Vice President Strategy and Corporate Development; Gary A. Parkinson, Vice President Development; Alberto Galicia, Vice President Exploration; and Erik Underwood, CFO. A seven-person board of directors assists management with company decisions.

The Metates Project

Chesapeake has a 100 % interest in the Metates Project, one of the largest undeveloped gold and silver deposits in the world.  The deposit is located 175 km northeast of Mazatlan in Durango State. It contains over 18 M oz. gold, 500 M oz. silver, and 4 Bn lbs. of zinc in proven and probable reserves. 

In early 2021, Chesapeake acquired Alderley Gold Corp. a private Canadian mining company with an innovative oxidizing heap-leaching technology for producing gold and silver. Chesapeake intends to utilize this technology at Metates. The company envisions becoming a leader in the heap leaching of precious metal ores, starting with its application of this technology at Metates.

Geological Summary of Metates

The geology of the Metates deposit is actually quite simple. There are three dominant rock types: Regional Mesozoic sedimentary rock, an intrusive quartz latite igneous body, and a latite breccia related to the emplacement of the intrusive.   

Gold and silver occur as sulphide veinlets and disseminations in both the intrusive and sedimentary host rocks. The mineral resource is broadly divided into intrusive-hosted and sediment-hosted mineralization. About 80% of the resources are sediment hosted and 20% intrusive hosted.

Drilling Progress

Chesapeake has been engaged in a drilling program at their flagship property. Their most recent effort penetrated 2,500 m of rock. The assay revealed several important intercepts, including one with 1.8g/t gold and silver equivalent, which is actually double the grade of the average high-grade core that's in Metates. Now, the company believes that there is likely to be an extensive higher-grade core within the overall high-grade deposit.

Despite the fact that Chesapeake already has a high-grade precious metal project in their hands, the CEO defended the continued drilling that they are doing. They are in the process of assessing this higher grade occurrence. It will likely be the focus of the company’s first production. It obviously impacts the profitability and free cash flow, so it makes for a better project. Chesapeake has the money to do this drilling without raising any additional cash.

Metates: Developing A Really Big Deposit

The whole of the Metates deposit is huge. A big question for investors revolves around how Chesapeake will be able to arrange all the financing and do all the work given the immense size and scope of Metates. A conventional open-pit mine is planned. It's a USD$3.5Bn CAPEX project. 

Metates is unique in that a smaller mine can first be placed into production and scalable expansion can largely be funded by cash flow. Therefore, they intend to determine definitively if there is a coherent super-high-grade core. 

The drilling work that they are doing now will add ounces to this core area. This program can be broken up into multiple pieces over 18-months to two years. 

Heap Leaching in a Nutshell

Heap leaching is a processing method used to extract gold, silver, and other metals from their parent sulphide ores. It involves mining and crushing the ore, then placing it on a lined pad, and then using appropriate chemical reagents to dissolve target metals. Leachate material is collected and processed to recover gold and silver. The barren solution is recycled back to the heap. 

Optimizing the heap-leaching process is of critical importance economically.  That is what the metallurgical analysis that Chesapeake is performing will help pinpoint. Using reasonable and conservative estimates, the company would like to obtain a 70 to 90 percent metal recovery from the process. With the Alderly oxidizing heap-leach technology, there's a trade-off going further down the oxidation curve of how much gold recovery they can get versus the time it takes to actually get it. It’s actually a time-value-of-money decision process: is the 0.1% per week extra recovery worth the cost of circulating the solution, the reagent consumption versus the incremental gold and silver obtained? 

Financial Discussion

Chesapeake closed out the first quarter of 2021 with UDS $35 M in the bank. Their monthly burn rate is $3 M to $5 M. 

The smaller scale core project currently envisioned is in the realm of a company of Chesapeake’s size. They foresee producing about 15,000t/day. There are people out there that can finance a USD $3.5 Bn project, but Chesapeake is not one of them. 

The smaller project, however, will be financeable by the company. Many costs, such as water and electric consumption, diesel gensets, and other infrastructure considerations, have been minimized in their evolving plan. They are looking to avoid all of those expensive triggers so that they will efficiently decrease their required capital spending. 

Timing of the PFS and Ultimate Investor Returns

Chesapeake intends to deliver a pre-feasibility study (PFS) on Metates by the fourth quarter of 2022. They will rely on the continuing assay results that they are obtaining to support the numbers that are in the preliminary economic assessment (PEA) that then will enable a PFS that documents a credible project. 

Given the size of the overall deposit, some investors may be wondering when they’ll start seeing some real returns. Pangbourne assures investors that the company is talking about seeing substantial progress in revenue flow within months, not beginning years down the road. The project is potentially big enough that they want to finish their 18- to 24-month work plan, especially with gold hovering around $1800/oz. 

Closing Thoughts

Pangbourne closed out our conversation by saying that the forward trajectory of this project is much like taking a journey. The size of the prize is big. The PFS is coming soon. Ultimately, there will come a feasibility study, and money will be coming in. He thinks that at this point in time, spending $35 M is justified to continue down this road.

To find out more, go to the Chesapeake Gold Website