Our next guest had a stellar 2009. His company’s stock soared from $0.60 per share to close at $4 per share on consistent good news at its Santo Domingo project in Chile. Based on the results of a positive scoping study a while back, this looks like a deposit destined to become a mine with a resource of over 400 million tonnes of copper, iron and gold ore. Far West’s President and CEO, Rick Zimmer joined us on Resource Intelligence TV to explain how the company will move Santo Domingo into production.
Resource Intelligence: Let’s talk about Santo Domingo. You’ve done a lot of drilling already on this project in Chile. How much have you accomplished?
Rick Zimmer: We’ve discovered a very large open pitable deposit in the order of roughly 400 million tonnes of ore. We’ve done extensive drilling—upwards of 90,000 metres drilled. We’ve spent about $28 million exploring this project already, so we’re in a very good position.
We also did a fair bit of drilling in an area between two ore zones that we formerly thought were blank. Based on our previous studies and geological sections and investigations we were doing, we thought it would be right to do some expansion of the resource, so we drilled in there and found a good deal of new mineralization. It essentially doubled the size of the resource.
RI: A double is an outstanding achievement in drilling, Rick. You just doubled the size of the resource and now you’ve got a new drill program starting right away. What do you hope to achieve?
RZ: We are shooting for 14,000 metres roughly split between 6,000 metres in diamond drill and 8,000 metres in RC drilling. First, the idea is to do some infill drilling. We have a 100m by 100m drilling pattern on the deposit. Now we want to infill drill in there to get some more confidence in the resource. And number two would be to capture some additional samples for more metallurgical studies that we will be progressing with in about six months.
RI: That should push you over 100,000 metres of drilling in total on the project in just three and a half years, which is both impressive and costly. What’s your cash position now?
RZ: We did a private placement late last year with Quadra Mining to the tune of $10 million, so we are well funded to carry out this next phase of work.
RI: What was it specifically about Santo Domingo that convinced Quadra to get involved?
RZ: I’m sure they were looking at the economics and the existing infrastructure of the project. The other factor, of course, was that they have a huge deposit to the north of us that they are currently looking to develop as well.
RI: Far West stock has gone from $0.60 to almost $4.70 in about 14 months. What is the market reacting to do you think?
RZ: The market is reacting to the size of our project and the fact that we’ve doubled our resource, as well as Quadra’s involvement in advancing this. Investors are beginning to realize that we’re very serious about our commitment to Santo Domingo. They’re beginning to see what we see: This is a mine that will bring cash flow to our bottom line and a lot of upside to our shareholders. At lower metal prices than today, and even before we doubled the resources at Santo Domingo, the economics of the project showed a Net Present Value of about $500 million.
RI: On the Santo Domingo project you essentially have three deposits. Which is most important to the success of the project?
RZ: As you say, Santo Domingo has three distinct deposits. We call them Santo Domingo, Iris Norte and Estrellita. Of the deposits, Santo Domingo is by far the largest. It is roughly 300 million tonnes; Iris Norte is roughly 80 million tonnes; and Estrellita is 30 million tonnes. Estrellita is not included in our resource statement because it is more of an oxide deposit, whereas the other deposits are sulfide deposits.
RI: Santo Domingo is located in Chile, not far from the coast. How would you describe your existing infrastructure?
RZ: The deposit is extremely well located. It is really one of the pearls of undeveloped copper deposits still out there. We are just outside the town of Diego de Almagro, a town of roughly 4,000 people. We are located 60 km from the port to the west, and 60 km to the east is a smelter in a town called El Salvador, which is a feeding smelter. The elevation is 1,000 metres, which is a lot lower than many other existing mines of this kind. We’re also well serviced by the Pan American Highway, which goes right past the property to the east and west. And the deposit is only 1km off the paved road.
Additionally, water is very much at a premium in Chile. I don’t think we will find enough water on our own property based on studies to this date. We have two other options though. We could either buy water rights, which we are currently negotiating with a number of vendors, or we would use sea water. We’re only 60 km from the coast and sea water is acceptable to the mining process we’re using, so that is a potential solution as well. In the end, this is simply an economic decision. The important thing for us was to prove that we could run the copper flotation using sea water. Our tests have shown that we can.
RI: You did a scoping study a while back, which helped you value the project based on industry standards. What did it tell you then, and now that you’ve doubled that resource, what would a new scoping study tell you?
RZ: That scoping study was based on our previous resource calculation and gave Santo Domingo a NPV of around $500 million. At today’s metal prices the project probably has an NPV of $2 billion. Once you double the resources you get an entirely different picture. It’s a project with a heck of a lot of upside for investors.
RI: What are you looking at in terms of operating costs based on what you know already?
RZ: Our operating costs will be somewhere around $10 dollars per tonne. That number is based on the calculations of an internationally known engineering company.
RI: How big is the entire property?
RZ: Our land package is 200 square km. Of that we’ll use probably 5% of it for supportable infrastructure to develop the mine.
RI: So you’ve got 95% of the land holdings still for exploration. Are you exploring that?
RZ: We are doing some limited exploration on the project area at this point, but we are devoting most of our effort to the program that we have commenced with the funding from the financing with Quadra.
RI: How far into the permitting process have you advanced?
RZ: We have cleared the first stage of permitting, which in Chile is called a DIA, a kind of initial environmental study. The next stage is called an EIA or Environmental Impact Assessment, which will be required to gain construction permits. To do that we’ll need about a year’s meteorological results and the results of our upcoming pre-feasibility study.
RI: How important is mining in Chile?
RZ: As opposed to many places in the world where mining is often opposed, Chile is copper mining. That’s what the whole country was built on, and it is still a major source of the country’s GDP. In our case we have a local situation which is very interesting. A mine in the area just 60 km away is closing down, so there is going to be a lot of social dislocation going on. We have the populous actually pushing for us to get going and get a mine operating in the area, and that’s absolutely essential in a permitting situation.
RI: Rick, your management team, directors and founders hold a significant portion of Far West Mining, so you’ve got some interest in seeing this through to production and a cash flow scenario. How are you going to make that happen?
RZ: We have a game plan and we’re going to stick to it rigorously. We have adequate funds to advance Santo Domingo to the next stage and a team of professionals who have put mines into production not only recently but also over many decades. So we have the internal infrastructure to make it happen.
In terms of exploration activities, we are doing a drill program now to get some more metallurgical results so we can begin a prefeasibility study. We are going to use that as a springboard to the next phase of the development of the project.
In order to move beyond the pre-feasibility study in Chile, which I believe we can complete by late 2010 or early 2011, we are evaluating all options, including a financial partner, a joint venture partnership or an outright sale or merger. What’s most important to me is to make sure our shareholders get the best possible return on their investment.
- 2010: Convert tonnage from inferred to indicated resources through drilling
- Prefeasibility complete by Q3 2010
- Complete feasibility study by 2011
Disclosure: No Positions