Esperanza Increases Cerro Jumil Resource to 1.85 Million Gold Equivalent Ounces

According to the latest report from Natural Resource Holdings, a gold mine or deposit with over 1 million ounces is a very rare asset. In fact, there are only 439 assets that meet the industry’s perceived economic threshold of 1 million gold ounces, the report says.

Esperanza Resources’ (EPZ – $1.63) 100% owned Cerro Jumil property is such an asset!

In a new NI 43-101 compliant resource estimate the gold equivalent ounces for the project increased to approximately 1.85 million ounces, or up 55 percent compared with the previous resource estimate from September 2010.

Since 2010, over 22,000 metres of additional drilling have increased both the resource tonnes and the average grade of the gold and silver resource. Step-out drill holes on the Las Calabazas Zone indicated an extension of the gold mineralization with gold values between 0.90 and 3.86 grams per tonne. Also expansion holes in southwestern direction intersected gold mineralized veins grading between 0.37 and 2.25 grams per tonne.

Further, successful infill drilling was completed at the West and Las Calabazas Zones, which increased the confidence levels in the overall resource, improved the understanding and definition of the mineralization and confirmed overall higher gold and silver grades.

Moreover, in the 2010 estimate the silver presence, located in the West Zone, wasn’t included because the Company decided it wasn’t significant enough to be mined. Thanks to additional drilling conducted the last two years, the silver resource has expanded significantly and has now been included in the resource.

The new resource, based on 362 drill holes, totaling 64,809 metres, contains 50.34 million tonnes grading 0.91 grams per tonne (g/t) gold and 9.89 g/t silver in the measured and indicated category. There is an additional 7.97 million tonnes grading 0.66 g/t gold and 10.90 g/t silver in the inferred category.

Category	Tonnes (million)	Gold Grade (g/t)	Silver Grade (g/t)	Gold oz (million)	Silver oz (million)
Measured	30.36	0.97	9.63	0.94	9.40
Indicated	19.98	0.82	10.30	0.53	6.61
Inferred	7.97	0.66	10.90	0.17	2.79
Total	58.31	–	–	1.64	18.8
The September 2012 NI 43-101 compliant resource estimate for Cerro Jumil. Note that the resource is presented at a cut-off grade of 0.3 grams per tonne gold-equivalent using assumed metal prices of $1,200 per gold ounce and $22.50 per silver ounce and having regard for metallurgical recoveries. Source: Company Press Release.

It’s clear that this updated resource will also have a positive influence on the September 2011 Preliminary Economic Assessment (PEA), which was based on the September 2010 resource estimate.

2011 PEA

In September 2011, Esperanza published results of an independently prepared Preliminary Economic Assessment (PEA) for Cerro Jumil based on the 2010 resource estimate. The PEA showed that, at a very conservative gold price of $1,150 per ounce, the project has an after tax Net Present Value (NPV) of $122 million at a 5% discount rate generating an Internal Rate of Return (IRR) of 26%. At a near present gold price of $1,700 per ounce, Cerro Jumil produces an after tax NPV of $309 million and an IRR of 53%.

The PEA also concluded that Cerro Jumil is a technically straight-forward and economically viable project with an average production of 106,000 ounces of gold per year. Start-up and closure costs are calculated at $120.6 million, which is mild, and operating costs are $499 per ounce of gold, which is fairly low.

Gold Price ($/oz)	$950	$1,150	$1,700
Base Case
NPV (5%) (million)	$54	$122	$309
IRR	15%	26%	53%
ROM
NPV (5%) (million)	$51	$106	$260
IRR	16%	27%	54%
The sensitivity of the project to metals prices is illustrated by the table above. The $1,150 per ounce gold price is the trailing three-year average price at the time of the PEA (September 2011). Source: Company Press Release.

For the PEA, two methods for open-pit mining and heap-leach gold recovery were evaluated. In the first method, the mined rock will be crushed to a maximum size of 55mm (approx. 2 inches). From there, it will be conveyed to the leach pad and irrigated with recovery solutions. The second method is identical to the first one, except that the mined rock will directly be fed to the heap leach pads without being crushed first. This is the “Run-of-Mine” (ROM) alternative.

Upcoming Milestones

Although there’s still significant potential to increase Cerro Jumil’s resource in several directions and at depth, the company will focus on bringing the mine into production before continuing with further exploration.

The Company is in full preparation of a Bankable Feasibility Study, which is aimed to be completed in the course of this year. Such a study is necessary to attract debt providers and other investors who will finance moving the project into production. It includes an estimate of ore reserves; description of the suggested methods of breaking, haulage and extraction; description of proposed processing and waste disposal; an economic evaluation including an estimate of the capital expenditure requirements and operating costs and a comparative analysis of the effect of various assumptions, financing costs, operating costs and taxation; and an estimate of operating levels, environmental costs, shutdown and reclamation costs.

Next to the Feasibility Study, Esperanza also hopes to get all the necessary permits by the end of this year.

These two items form the basis to start construction of the mine in the second half of 2013 with the ultimate goal of becoming an actual producer in the course of 2014.

Conclusion

This is all very exciting as we’ve never had a Company on Smallcaps.us that actually went from the exploration phase to production.

Our ultimate goal in our previous Company Report (pdf) was to see a 2 million ounce gold resource for Cerro Jumil after the release of the next resource report. We came very close.

Now that the new resource has been published, we’ll start work on our next update report. In the meanwhile, we have a price target of $3.78 on Esperanza. Buy.

Smallcaps.us Advice: Buy

Price Target: $2.40

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