43-101 2008 Technical Report On The La Fortuna Project, Durango ...

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16.0 ADDITIONAL REQUIREMENTS FOR TECHNICAL REPORTS ON DEVELOPMENT PROPERTIES AND PRODUCTION PROPERTIES 16.1 EARLIER PROPOSED MINING PLANS Howe’s 2002 report proposed mining by standard open pit mining methods. This plan was for four million tonnes of ore to be mined annually. Howe (2002) believed that much of the rock to be mined was sufficiently weathered and that blasting would not be required. The recent Howe site visit noted significant amounts of chalcedonic silica which could require blasting to remove. A mining contractor was to assume most mining costs with the price per tonne to include amounts for equipment purchase and certain administrative costs such as payroll, purchasing and warehousing. Castle Gold would provide survey and grade control, including geology and sampling. In 2003, Howe proposed a revised operation with an annual production rate of one million tpy. This significantly smaller operation reduced the required mine equipment (primarily vehicles for supervisory staff and site maintenance) by 75%. Infrastructure costs were to be reduced with the purchase of the 1,000,000 tpy heap leach plant located at the San Francisco mine north of Hermosillo in Sonora, Mexico from Geomaque Explorations Ltd. The plant had sufficient capacity to be expanded to 3,500,000 tpy with minimal additional capital investment. The availability of this plant at the present time is unknown. Water is available from local wells and in sufficient quantities to support a heap leaching operation at El Castillo. 16.1.1 Open Pit Parameters For purposes of the 2002 and 2003 Howe studies, an open pit design incorporating an overall pit slope of 45 o , a main ramp with an 8% grade, and a road allowance of 24 m, and bench height of 6 m was used for Whittle pit optimization purposes (see Table 14-14). These same parameters were used for the current study. Several optimum pit shells and production schedules were generated for several different gold prices (US$550, US$575, US$600, US$625, US$650, US$675 and US$700/oz Au) and cost scenarios. Tonnages of ore and waste in each pit were calculated from the optimized pit shells. The base case gold price is $625 and is based on three year moving average. The three year moving average gold price is commonly used within the mining industry to estimate long term gold prices. 16.2 FINANCIAL EVALUATION The following financial evaluation examines the economic viability and robustness of the El Castillo project under recent gold prices and capital and operating costs estimates, as well as a revised proposed production rate of approximately 5.0 million tpy. This evaluation applies the recent gold prices and new costs and production rate to develop a new optimized pit and mining schedule. Howe developed optimum pits for gold prices ranging from $550 to $700 and an optimized mine schedule for the $625 case. While the optimized mining schedule calls for the mine to produce on a fairly aggressive schedule, the optimum plan appears feasible and Howe recommends that Castle Gold acquire the necessary software and expertise to develop its own block model, pit designs and optimized mining schedules. Note that in this report only the average grade, not optimized grade schedules, are used unless otherwise noted. In particular, the Base Case is based on the average mine grade, not the optimized grade schedule. Table 14 on the following page illustrates the distribution of Ore and Waste as well as the average gold grade at each of the gold prices. 50
16.2.1 Capital and Operating Cost Estimates For this financial evaluation, Howe has relied on operating cost estimates provided by Castle Gold that are based in part on recent contractor quotes for hauling, drilling, and blasting, as well as company experience operating in Mexico. While the El Castillo Mine is now in production, and the capital to bring it into production has been spent, Howe has allowed for a total of $4.5 million in sustaining capital over the next nine years of mining operations.. The operating costs are summarized in Table 15. Howe has carefully reviewed the cost estimates provided by Castle Gold and deems them to be reasonable. Table 14. Ore – Waste Distribution and Average Gold Price – El Castillo This financial evaluation has been carried out in constant Year 2008 U.S. dollars. This eliminates the need to make assumptions with regards to inflation. The use of constant dollars could understate the current year dollar amount of taxable income, which therefore could understate taxes payable if a slidingscale tax rate was involved. Based on current federal tax rates in Mexico this is a moot point as the projected tax rate for the life of this project is constant at 28%. 16.2.1.1 Gold Recovery All financial scenarios assume a 68% gold recovery during heap leap operations. While the median projected recovery level is 70% (68-72%) for crushed ore based on metallurgical testing completed to date (see Section 13), Howe has lowered the gold recovery to 68% to reflect the fact that a portion of the ore from the mine will be delivered to the leach pad uncrushed (ROM ore). 51
Page 1 and 2:
TECHNICAL REPORT ON THE EL CASTILLO
Page 3 and 4:
SUMMARY Introduction At the request
Page 5 and 6:
Castillo Remaining Mineral Resource
Page 7 and 8:
Undiluted Reserves at $550 per Ounc
Page 9 and 10: epresent an incremental increase in
Page 11 and 12: TABLE OF CONTENTS 1.0 INTRODUCTION
Page 13 and 14: Table 4. Driving distances from Dur
Page 15 and 16: Castle Gold has accepted that the q
Page 17 and 18: 2.0 PROPERTY DESCRIPTION, LOCATION,
Page 19 and 20: Figure 2. Map showing mining conces
Page 21 and 22: 2.1.2.3 Property Taxes The property
Page 23 and 24: Table 5. Maximum precipitation in a
Page 25 and 26: 3.0 HISTORY The El Castillo Project
Page 27 and 28: commonly reach elevations of 2,500
Page 29 and 30: Figure 4. Cross-section through the
Page 31 and 32: At El Castillo, the presence of cha
Page 33 and 34: Toward the center of the mineralize
Page 35 and 36: 7.0 EXPLORATION In 2006, Castle Gol
Page 37 and 38: 9.0 SAMPLING METHOD AND APPROACH Th
Page 39 and 40: 11.0 DATA VERIFICATION 11.1 INTRODU
Page 41 and 42: Morgain Minerals Inc. El Cairo Gold
Page 43 and 44: 13.0 MINERAL PROCESSING AND METALLU
Page 45 and 46: Table 9. Castle Gold test heap leac
Page 47 and 48: material is relatively consistent a
Page 49 and 50: Plate 6. View of the El Castillo si
Page 51 and 52: 14.2.1 Methods A shift of -500,000
Page 53 and 54: 14.2.4 Pit Optimization Parameters
Page 55 and 56: Undiluted Reserves at $600 per Ounc
Page 57 and 58: Table 13. Comparison of Howe 2003 a
Page 59: 15.2.2 Change of Land Use The Compa
Page 63 and 64: Table 15. Operating Cost Summary (U
Page 65 and 66: will be operating the mine indirect
Page 67: Table 17. Sensitivity Analysis - Gr
Page 70 and 71: 16.2.2 Economic Evaluation The Base
Page 72 and 73: Table 23. US$ - Mexican Peso Exchan
Page 74 and 75: • Castle Gold should complete geo
Page 76 and 77: Panteleyev, A., 1996, Epithermal Au
Page 78 and 79: 9. To the best of my knowledge, inf
Page 80 and 81: CERTIFICATE OF AUTHOR dated July 31
Page 82 and 83: Appendix A Pit Optimization Level P
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43-101 2008 Technical Report On The La Fortuna Project, Durango ...

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