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Fruta del Norte Project

The Fruta del Norte (FDN) deposit is located within a 150 km long copper--gold metallogenic sub-province located in the Cordillera del Cóndor region. The nearest city to the Fruta del Norte Project area is Loja, the fourth-largest city in Ecuador. The FDN Project is situated about 139 km east--northeast of Loja.

An independent Feasibility Study ("FS") for the Fruta del Norte Project was prepared by Amec Foster Wheeler, with the support of four other globally recognized, leading engineering firms into a Technical Report filed on SEDAR in accordance with National Instrument 43-101 ("NI 43-101"). (See Technical Report on Feasibility Study, Fruta del Norte Project, Ecuador - April 30, 2016 under Technical Reports)

Feasibility Study Highlights
  • Probable Mineral Reserves totaling 4.82 million ounces of gold and 6.34 million ounces of silver (15.5 million tonnes at 9.67 g/t Au and 12.7 g/t Ag);
  • Estimated average annual gold production of 340,000 ounces at an average life of mine ("LOM") total cash cost of $553/oz and an estimated LOM all-in sustaining cash cost ("AISC") of $623/oz, placing FDN in the lowest cash cost quartile globally;
  • Estimated LOM production of approximately 4.4 million ounces of gold and 5.2 million ounces of silver over an initial 13-year mine life using an average gold recovery of 91.7% and average silver recovery of 81.5%;
  • Estimated Project capital cost, including contingency, of $669 million, net of taxes;
  • Targeted start of construction in mid-2017;
  • Expected first gold production in first quarter 2020 with first year of full production in 2021;
  • Project economics at a gold price of $1,250/ounce and a silver price of $20/ounce resulted in the following:
Pre-tax After Tax
Net Present Value at a 5% discount rate (NPV5) $1,283 million $676 million
Internal Rate of Return (IRR) 23.8% 15.7%
Capital Payback (yrs) 3.7 4.5

Notes:
  1. All figures are reported on a 100% equity project basis valuation. Capital payback is calculated based on start of production.
  2. Economic valuation is presented using a start date of July 1, 2017.

Further Optimization, Cost Reductions and Project Potential

The Company believes there are potential opportunities to further improve the economics of the FDN Project through:
  • Review of the mine plan to potentially improve the production ramp-up and optimization of the mining methods to increase the use of transverse-long-hole stoping ("TS") over the higher cost, lower productivity drift and fill ("D&F") methods;
  • Further metallurgical testwork to increase the ratio of doré versus gold in concentrate produced through gravity concentration of flotation concentrate to recover additional free gold;
  • Evaluation of aggregate supply for the Project construction and supply of aggregate for backfill. Currently the Project is relying on a quarry operation to be developed on site. Further analysis of alternative sources needs to be completed which could result in lower capital and operating costs;
  • Evaluation of owner self-perform construction, which could result in capital cost savings versus the traditional Engineering, Procurement and Construction Management approach that was used for the FS. The Company will also study other potential ways to reduce the capital cost; and
  • Potential extension of LOM, perhaps materially, in two ways: (i) through the inclusion of significant additional Mineral Resources not included in the initial mine plan; and (ii) through the identification of mineralization as a result of on-going and future exploration on the Company's concessions which could support the conversion of Mineral Resources to Mineral Reserves.

Description of Fruta Del Norte

(Click here to see Annual Information Form)

The Fruta del Norte deposit is located within a 150 km long copper--gold metallogenic sub-province located in the Cordillera del Cóndor region. The nearest city to the Fruta del Norte Project area is Loja, the fourth-largest city in Ecuador. The Fruta del Norte Project is situated about 139 km east--northeast of Loja. Vehicular access from Loja to the Fruta del Norte site is via a 150 km long paved highway to the town of Los Encuentros. A 40 km long gravel road connects Los Encuentros to the Fruta del Norte Project site.

Regional, Local and Property Geology

The Fruta del Norte deposit is located in the Cordillera del Cóndor region. The deposit is hosted by andesites of the Misahuallí Formation and feldspar porphyry intrusions. The Cordillera del Cóndor region consists of sub-Andean deformed and metamorphosed Palaeozoic and Mesozoic sedimentary and Mesozoic arc-related lithologies that formed between the eastern flank of the Cordillera Real, and west of the flat-lying strata of the Amazon basin. Intruding the sub-Andean rocks is a composite I-type batholith, the Zamora Batholith, which has an elongate north--northeast axis that parallels the Ecuadorian Andes for over 200 km, extending into northern Peru. The batholith is considered to be the plutonic expression of a Jurassic-aged, subduction-related, continental magmatic arc established on the western margin of the Amazon craton. In the area of the Fruta del Norte deposit, the batholith consists of phases of monzonite, diorite and granodiorites with local porphyritic and aplitic dikes and breccia zones.

The Fruta del Norte deposit is an intermediate sulphidation epithermal gold--silver deposit measuring approximately 1,670 m along strike, 700 m down dip and generally ranging between 150 m and 300 m wide. The top of the deposit is located beneath approximately 200 m of post-mineralization cover rocks. The eastern and western limits of the deposit are defined by two faults that together form part of the Las Peñas fault system that is thought to control the gold--silver mineralization. The southern limit of the mineralization along the fault system has not been fully defined by exploration activities.

Mineralization

Mineralization is characterized by intense, multi-phase quartz--sulphide ± carbonate stockwork veining and brecciation over broad widths, typically between 100--150 m wide in the coherent central and northern parts of the system where the gold and silver grades are highest. Mineralized shoots are typically present within dilatant zones developed along inflections of vein strike or dip where the geometry permits maximum opening at the time of mineralization.

The mineralogy of Fruta del Norte consists of chalcedonic to crystalline quartz, manganese-carbonates, calcite, adularia, barite, marcasite, and pyrite, as well as subordinate sphalerite, galena, and chalcopyrite, and traces of tetrahedrite and silver sulphosalts. The bulk of the gold is microscopic and associated with quartz, carbonates and sulphides. Much of the gold is free milling, but the mineralization is moderately refractory, with approximately 40% of the gold locked in sulphides. However, coarse visible gold is commonly observed. Individual gold grains range from discrete specks less than 0.1 mm in size to broccoli-like, arborescent crystals >10 mm across. Visible gold occurs in all mineralized zones, in quartz or carbonate, as well as within pyrite or silver sulphosalt clusters.  
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