Pacifico delivers positive drilling update at Sorby Hills
Shares in Pacifico Minerals Ltd (ASX:PMY) surged more than 20% in morning trading to a 12 month high of 1.2 cents after management provided a promising update on its Phase II drilling program at the company’s 75% owned Sorby Hills Lead-Silver-Zinc Project 50 kilometres north-east of Kununurra in Western Australia.
Pacifico intends to develop a large near-surface flat-lying lead-silver-zinc deposit, and with this recent drilling showing strong visible lead mineralisation, management is becoming increasingly confident that it can increase the indicated resource within the current Mineral Resource Estimate.
Assay results should start surfacing in August, and these have the potential to provide further share price momentum.
The other key takeaway was the observed zinc mineralisation in recent drilling, suggesting a greater potential for zinc production than was originally anticipated.
Surge in silver and lead works well for Pacifico
After completing the acquisition of a 75% interest in the Sorby Hills Project in late 2018, Pacifico carried out a Phase I drill program that significantly increased the Indicated Resources included in the PFS completed in the first half of 2019.
The PFS estimated capital expenditure of $95.4 million to develop the mine, with a 16-month payback and a pre-tax NPV8 of $243 million.
NPV8 refers to the present value of the estimated revenues generated net of estimated direct expenses and discounted at an annual rate of 8%.
Commodity prices have been working in Pacifico’s favour with the lead price increasing from less than US$1800 per tonne at the start of June to recently close in on the US$2100 per tonne mark.
Making Pacifico look even more attractive is the strong silver price which has increased from about US$14.50 per ounce to a recent high of approximately US$16.50 per ounce, representing a gain of 14% in the space of two months.
While the commodity price assumptions for lead used in the PFS were broadly in line with where the metal is currently trading, the assumed price of silver was US$15.40 per ounce, implying better economic returns from an optimised PFS based on the current spot price.
Optimised PFS should show enhanced economics
The Phase II infill and extension drilling program commenced in May 2019 with an intention to combine an updated MRE with the recently improved metallurgical testwork results and mining studies that are currently underway to enhance the economics and improve confidence of an optimised PFS scheduled for completion during the December quarter of 2019.
The drilling program aimed to convert Inferred Resources to higher confidence Indicated Resources, currently at 10.9 million tonnes of 5.0% lead equivalent (3.9% lead and 46g/t silver).
Pacifico was also looking to provide geotechnical (pit wall stability) information for pit designs, as well as delivering representative samples for further metallurgical work.
The program was focused on shallow mineralisation above 100 metres in depth that may be mineable by open pit, at its B and CDEF deposits as illustrated below.
When considering the prospect of an upgrade in project economics and asset value, zinc could be the real wildcard.
On this note, management said that the mineralisation had not previously been considered in project economics, however it was commonly observed during the phase II program.
There is an existing known inferred resource of zinc dominant mineralisation at the Alpha Zinc Deposit, and Pacifico’s technical team sees great potential for the delineation of further zinc resources which would add significant value while also enhancing project economics.
From a processing perspective, management said that the relatively low zinc content of the Sorby Hills lead ore could also be extractable if a zinc circuit could be justified by increasing the zinc dominant resource at the Alpha Zinc Deposit.
MRE potential upside
In parallel with advancing its mining studies, Pacifico plans to conduct further drilling in 2020 to continue expanding the Indicated Resource of the B and CDEF deposits, and convert Inferred Resources at the A, H, I, Alpha and Beta deposits to Indicated Resources.
Other drilling targets include extensions to the zinc dominant mineralisation at the Alpha Zinc Deposit and targets outside the defined deposits for lead and zinc, as well as silver.
Management expects that the deposit size at Sorby Hills will continue to grow as extensions and other targets outside of the main defined deposits (based on both historical and Pacifico drill programs) are drilled and added to the resource base.
Compilation and assessment of the current and historical drill hole information is in progress, with an aim to provide a sound geological and mineralisation model on which to base the revised MRE.
Final assay results are expected by late August, and a revised MRE will be completed in September.