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

We recently had an opportunity to speak again with Alan Pangbourne, the CEO of Chesapeake Gold Corporation. He updated us on the company’s Preliminary Economic Assessment (PEA) that just came out for 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, in Durango State, Mexico. The company is headquartered in Vancouver, British Columbia, Canada. 

Chesapeake Gold trades on the Toronto Stock Exchange. It has over 67,000,000 outstanding shares. 

Chesapeake’s Leadership Team

In addition to the CEO, the leadership 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. 

The Metates Project

Chesapeake has a 100 % interest in the Metates Project, one of the largest undeveloped gold and silver deposits in the world.  Metates is located 175 km northeast of Mazatlan in Durango State. The deposit is host to 20 M oz. gold, 550 M oz. silver, and 4 Bn lbs. of zinc. 

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 heap leaching for the recovery of precious metals, starting with its application of this technology at Metates. 

Most Recent Drilling and Assay Results

Chesapeake’s recent press release highlights the success of their recent drilling efforts, which continue to show major upside potential for precious metal recovery at the deposit. The latest drilling took place at the high-grade core of the deposit, so they were expecting good results. The upside surprise is that the gold and silver content was 18% above what they thought they would intercept. 

This is a major increase in ore quality right where they intend to build the mine. So, instead of about 110,000 oz. a year, it's the equivalent of 130,000 oz. or more a year. In dollar terms, it’s the equivalent of USD $200 increase in the gold price because of the extra revenue that comes early in the mine plan. It has a massive impact on NPV and IRR. 

PEA at Metates

The PEA demonstrated that their heap-leaching technology at the Metates Project provides a viable, financeable and expandable economic project. It demonstrates that for USD$360M of capital they can produce 110,000 oz. of gold and another 2½ Moz. of silver each year for the first 15 years. It also shows a mine lifespan of 31 years. The project has an NPV of CAD $1.4 Bn. and an IRR of 35% in the current PEA. Furthermore, all of this is doable without a partner.

Oxidation and Metal Extraction

The details of exactly how this heap-leaching oxidizing technology works are quite interesting. It has been used in the copper mining industry with great success, oxidizing chalcocite, covellite and pyrite to extract copper from the ore. 

In the most simplistic of terms, the process essentially makes grey ore-rocks turn brown. The change in color is caused by pyrite in the ore-rock being oxidized to form iron sulphate and iron oxides during the process. Once that pyrite oxidizes, gold and silver are released and then dissolved into a cyanide solution.

What the process actually does is speed up the natural processes that would take place over a long timeframe.  The whole oxidation process takes time, even when accelerated by the technology, and one of the key parameters is to optimize the economics by knowing how far down the oxidation curve to take the process so that the recoveries are sufficient. 

Chesapeake is in the process of calibrating the economics against the oxidizing curve. They are using freshly drilled, representative samples, not something that has been sitting in a core shed for years. The test work is starting now.  It's a slow process, requiring oxidation first and then cyanide leaching. It’s going to take time; they have to do the oxidation first and then the cyanide leaching to get the final answers. Recovery values will be established at 30, 60, 90, 120, 180 days so that the oxidation curve can be calibrated. 

At the end of the calibration process, Chesapeake will report out a complete view of their results. They intend to provide the best point on the calibrated recovery curve where they obtain the optimal recovery versus cost. These numbers will be used in the design criteria for the Pre-Feasibility Study (PFS). 

Cash Position

Chesapeake has USD $35 M in the bank at the end of the first quarter of 2021. The company’s overhead and spend rate are low. Additional work this year will probably total around $20 M, according to Pangbourne. In fact, he believes that he has enough money to get beyond the PFS and into the Feasibility study and beyond. They will need money, however, when the mine construction phase commences. 

Can Chesapeake Ramp Things Up?

With the current plan, the CAPEX requirement is about one-tenth the size that was envisioned in their earlier plan. Pangbourne indicated that they could ramp the project back up to its originally envisioned size. He wouldn’t do so, however, without conducting a proper Feasibility Study.

That being said, Pangbourne already knows where they would place a second oxidation pan, so clearly the project is expandable. The 15,000 t/day that they have in the plan now is credible, financeable and deliverable, but it’s not really big. But before expanding it, they wish to demonstrate proper operational production, consistent over several quarters, with the plan in place today. 

Furthermore, it is also possible that some other company with a bigger balance sheet could come in and take the project back up to its originally envisioned size. If a Barrick or a Newmont suddenly wants another 500,000 oz. or so a year of production, then it’s a valid project at the originally large size. 

What Should Investors Be Looking For?

Pangbourne reiterated that investors should keep their eye on the test calibration results from the oxidation curve. Also, he thinks investors should pay attention to the infill drilling results; it really could add a lot to the value of the project.  As 2002 unfolds, people should be looking forward to the development plan.

 To find out more, go to the Chesapeake Gold Website