VANCOUVER (miningweekly.com) – Canadian explorer Golden Arrow Resources has made the leap from project developer to revenue-earning miner in record time through its novel partnership with senior miner Silver Standard Resources, after the latter exercised its option to form a joint venture (JV) with the company that will leverage significant synergies between the miners’ respective assets.
“It was just like a gift from heaven,” Golden Arrow president and CEO Joseph Grosso tells Mining Weekly Online in an interview (see attached video).
Following an 18-month preliminary period, TSX-listed Silver Standard announced on March 31 that it has exercised its option on Golden Arrow’s Argentina-based Chinchillas silver/lead/zinc project and form a JV to combine Chinchillas with the producing Pirquitas silver/zinc mine into a single new operation.
For Grosso, confirmation of the agreement is a win-win-win situation for all parties involved. For Silver Standard, it means the continuation of the depleted Pirquitas mine; Golden Arrow instantly becomes a revenue-earning miner; and the local Jujuy-province community gets to preserve about 650 jobs.
He explains that as president and chairperson of the board, he started feeling the financial pain of taking Chinchillas through to the feasibility level, and beyond that, considering how to build the required infrastructure to get the mine operating profitably. “We were being told numbers in the area of $300-million to $350-million to develop the Chinchillas discovery,” he said.
While considering development scenarios for the project, Grosso got wind that one of about seven mines within reasonable distance of the Chinchillas project was to shutter on the back of depletion. In 2015, Silver Standard made the announcement that its Pirquitas mine will close in 2017, setting up a too-good-to-be-true opportunity that Grosso grabbed with both hands.
“They made an announcement that they were terminating the operation within a year for lack of more minerals. It was logical to approach the president of Silver Standard [John Smith], and then, we discovered that we have exactly what would essentially be a continuation of Pirquitas for them, and for me, avoiding having to do a feasibility study and going [to market] to raise $300-million to $350-million, which would be enormously dilutive to our shareholders,” Grosso, says.
Under terms of the business combination with Silver Standard, the two partners will spin out their respective assets into a new private entity held 75%/25% by Silver Standard and Golden Arrow, respectively, with Silver Standard being the operator.
Chinchillas is about 42 km by road from the Pirquitas mine and 280 km from the provincial capital of San Salvador de Jujuy. The Chinchillas project is located in the prolific Bolivian silver/zinc/tin belt, which extends into northern Argentina. The project is road accessible, and work can be completed year-round.
While Silver Standard initially guided for the 4 000 t/d Pirquitas mill and processing facility to run out of ore in 2017, it now expects the mill to continue running for another 12 months, processing stockpiled ores until the first deliveries of Chinchillas ore start mid-2018.
Until then, the JV will work on development of the Chinchillas project, which currently holds measured and indicated resources of 29.3-million tonnes, grading 149 g/t silver equivalent for 140-million ounces of silver equivalent.
One of the top ten resource companies listed on the TSX-V, Vancouver-based Golden Arrow in March published the results of a pre-feasibility study, outlining low capital cost of $81-million to develop Chinchillas. The mine plan envisions Chinchillas producing 8.4-million ounces of silver equivalent a year over an eight-year mine life, with robust operating margins based on cash costs of $7.40/oz of payable silver sold. All-in sustaining costs were pegged at $9.75/oz of silver, net of by-products.
Chinchillas has an after-tax net present value of $178-million, using a 5% discount rate, and based on metal prices of $19.50/oz silver, $0.95/lb lead and $1/lb zinc. It boasts an attractive after-tax internal rate of return of 29%.
During the preliminary period, Silver Standard funded $16-million in support of completing the feasibility study, including drilling, metallurgical testwork and engineering studies. It also paid Golden Arrow a C$2-million option payment during this period.
Grosso says that the JV offers the potential for Silver Standard to double, or even triple the estimated $350-million value that the Pirquitas infrastructure would bring to the partnership, because the current resources have been delineated on only about 40 ha of Chinchillas’ more-than-2 043-ha of prospective landholdings and could significantly increase in value with further exploration.
Part of the Grosso Group, with fellow TSX-V-listed stablemates Argentina Lithium and Blue Sky Uranium, Golden Arrow expects to fund its 25% share of capital expenditures – estimated at about $10-million this year – through a $15-million cheque it expects to receive from Silver Standard upon closing of the JV deal, slated for the end of May, as part of the option exercise payment. This represents the company’s share of earnings from the Pirquitas operation since the JV accord was inked on September 30, 2015, and effective from October 1 of the same year.
“The bottom line for our shareholders is that Chinchilla has earned income to the tune of 25% of Pirquitas output for two-and-a-half-years before delivering first ore to the mill,” Grosso states excitedly.
Golden Arrow has nominated mining engineer Alf Hills to be appointed to the JV board.
The permitting process for the combined project continues to advance, with Grosso reporting positive support from the local communities and government authorities.
The Chinchillas environmental and social impact assessment has been prepared and submitted to the Argentine regulatory authorities, and is in the consultation process. Work is in progress with local communities on social programmes and understanding of the Chinchillas project as it advances to production.
Based on and subject to the permitting process, construction at Chinchillas is expected to start during the third quarter, with ore delivery to the Pirquitas mill expected in the second half of 2018.
A bonus is the untapped high-grade resource below the current Pirquitas openpit that could add dramatic upside to the combined project in a higher silver price environment, Grosso points out.
Meanwhile, Grosso, one of the early mining pioneers in Argentina in 1993, after the sector was opened to foreign investment, is optimistic about Golden Arrow’s significant 200 000 ha suite of exploration properties spread over western Argentina.
The company has budgeted $2-million for exploration and drilling on the most promising Antofalla silver/gold/base metal property, which Grosso points out has “strong geologic similarities” with Chinchillas.
Recent results at the 8 760 ha Antofalla project have been encouraging, returning intercepts of 281 g/t silver and 0.5% lead over 3.35 m, and 168 g/t silver over 8 m in channel samples; and 3.87 g/t gold, 146 g/t silver and 1% lead, and 0.14 g/t gold, 4 404 g/t silver and more than 30% lead in rock chip samples from other similar breccia “vents” in the area.
“Not since our first months at the Chinchillas project has the team been so excited about the potential for a significant discovery,” Grosso states.