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

The El Castillo Project contracts out a large amount of its operating costs including drilling, blasting,
mining, truck haulage and crushing. Thus, the project will require very little capital to increase production
to 4.8 million tonnes of ore per year. The breakeven gold price of $370 per ounce should be sufficiently
low to protect El Castillo from a substantial drop in the price of gold. Thus Howe concludes the El
Castillo Project is economically viable and robust under conservative operating scenarios.
In the current evaluation, Howe has created an “Optimum Pit” for each of the gold prices from $550 to
$700 per ounce of gold. In addition, Howe has optimized the mine production schedule to maximize the
present value of the El Castillo project for the US$625/ounce Base Case. Thus, the present value of the
Net Cash Flow for the $625 case discounted at 10% increases from $53.8 million to $64.3 million. This is
done by mining the highest gold grades as early in the mining schedule as reasonably feasible. While
Howe has not created optimized production schedules for each of the other optimum pits, using the grade
schedule from the $625 case, Howe has created a pseudo-optimized production schedule for each of the
other gold price cases. Table 22 illustrates the impact of optimizing the mine schedule on each of the
other optimum pits using the 10% discount rate.
The Exchange rate for the Mexican Peso and the US Dollar has been relatively stable for the last few years
as compared to other Resource Exporters such as Canada, Australia, South Africa and Brazil, all of whom
have experienced rapid increases in their exchange rates against the US dollar.
Table 22. Impact of Mine Schedule Optimization based on a 10% Discount Rate
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