Copper $ 3.23 +0.00 +0% Volume: July 28, 2014
Silver $ 20.60 -0.12 -0.58% Volume: July 28, 2014
Gold $ 1,304.50 -2.93 -0.22% Volume: July 28, 2014
TSX: MUX $ 3.16 +0.07 +2.27% Volume: 116,227 July 28, 2014
NYSE: MUX $ 2.92 +0.06 +2.1% Volume: 1,873,507 July 28, 2014
1,304.50 -2.93 -0.22% Volume: Pricing delayed 20 minutes July 28, 2014 6:55 PM
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Los Azules – Argentina (Exploration)

Los Azules is a 100% owned advanced-stage porphyry copper exploration project located in the cordilleran region of San Juan Province, Argentina near the border with Chile. Los Azules is one of the world's largest, undeveloped, high-grade, open pit copper projects, which contains significant growth potential. In May 2013, McEwen Mining announced an updated NI 43-101 mineral resource estimate for Los Azules. This season, a total of 15,800 meters of drilling was completed.

The resource contains 14.3 billion pounds of copper (inferred) and 5.4 billion pounds of copper (indicated). Gold resources are 840,000 ounces indicated, and 2.58 million ounces inferred. Silver resources are 22.9 million ounces indicated, and 85.8 million ounces inferred.  Drilling this season represents the first time a meaningful amount of deeper drilling has occurred at Los Azules. Prior to this year the deepest drill hole was 650 meters. This season there has been a total of 6 holes that exceeded 700 meters. This deeper drilling has begun to identify a potential parallel trend, west of the original Los Azules ore-body. Copper mineralization discovered within this trend occurs near surface and also at depth (down to 1,050 meters below surface). This is significant because it may indicate that previous shallow drilling, which makes up the majority of the Los Azules resource, failed to adequately test the deeper potential of the deposit. As a result, many new exploration targets have emerged.

Mineral Resource Estimate Greater than 0.35%

Mineral
Resource
Category
Tonnes
(millions)
Copper
%
Contained
Copper
(B lbs)
Gold
grams/tonne
Silver
grams/tonne
Indicated 389 0.63 5.4 0.07 1.8
Inferred 1397 0.46 14.3 0.06 1.9

Details on the parameters of the resource estimate are as follows:

  • The resource estimate is based on data from 185 drill holes comprising a total length of 59,518 meters of drilling completed to the end of March 2013.
  • There were a total of 27,688 individual samples selected for analysis.  The samples were collected and analyzed in accordance with industry standards.  Splits from the drill core samples were submitted to either Alex Stewart in Mendoza or ALS Chemex or ACME in Santiago, Chile for fire assay and ICP analysis. Accuracy of results is tested through the systematic inclusion of standards, blanks and check assays.
  • The May 2013 mineral resource estimate for the Los Azules Copper Project was prepared under the direction of Robert Sim P.Geo. of SIM Geological Inc.  The mineral resource estimate uses drill hole sample assay results and the interpretation of a geologic model that relates to the spatial distribution of copper in the deposit.  Interpolation characteristics were defined based on the geology, drill hole spacing and geostatistical analysis of the data.  Block grade estimates were done using Ordinary Kriging (OK) with a nominal block size measuring 20 meters long, 20 meters wide and 15 meters high.  Resources are classified according to their proximity to sample data locations and are reported, as required under NI 43-101, according to the CIM Definition Standards for Mineral Resources and Mineral Reserves.
  • Mineral resources, which are not mineral reserves, do not have demonstrated economic viability.
  • The quantity and grade of reported Inferred resources are uncertain in nature and there has been insufficient exploration to classify these inferred resources as Indicated or Measured, and it is uncertain if further exploration will result in upgrading them to an Indicated or Measured category.
  • As required under NI 43-101, reasonable prospects for economic viability of the mineral resources has been exhibited by the application of a resource limiting pit shell built about copper grades in the model using a projected metal price of US$2.75 per lb. Cu, mining costs of US$1.00 per tonne, milling and G&A costs of US$4.25 per tonne, 100% recoveries and an average pit slope of 34 degrees.

Los Azules Resource Map

Expected Los Azules Impairment Charge

We are conducting an impairment test of our Los Azules project in Argentina as a result of the recently announced acquisition of Lumina Copper Corp. by First Quantum Minerals Ltd., for approximately C$470 million. Lumina's only significant asset is the Taca Taca copper project located in Salta, Argentina. While there are some notable differences between Taca Taca and Los Azules, we believe the similarities in project scale and location within Argentina warrant consideration for the Lumina transaction to be a triggering event for impairment analysis. Our preliminary analysis, which places a substantial weighting on the announcement day value of the Lumina transaction to value Los Azules, indicates a pre-tax asset impairment charge in the range of approximately $90-135 million(1). The actual amount, when we have completed the final impairment assessment, will be reported in our quarterly 10-Q which is due to be filed on August 7, 2014.


Preliminary Economic Assessment for Los Azules

In November 2013, McEwen Mining filed the new Preliminary Economic Assessment (PEA) for Los Azules. The results from the PEA demonstrate that Los Azules has the potential to become one of the largest, lowest cost copper mines in the world. In addition, there remains excellent exploration potential to further expand the size of the existing mineral resource. Highlights from the PEA are shown below:

PEA Study Highlights*

($3.00/lb Copper and $1,300/oz Gold)

  • Pre-tax Net Present Value (“NPV”) of $3.0 billion (8% discount rate) and an Internal Rate of Return (“IRR”) of 17.6%.
  • After-tax NPV of $1.7 billion (8% discount rate) and an IRR of 14.3%.
  • Annual copper production during years 1-5 to average 255,000 tonnes (563 million lbs), which would have placed it in the top 3%¹ of copper mines in the world during 2012. Life of mine (“LOM”) annual copper production to average 171,000 tonnes (377 million lbs) over 35 years.
  • Cash operating costs during years 1-5 to average $0.87/lb copper (net of gold by-product), placing it in the bottom 14%¹ in the world during 2012. Cash operating costs over entire mine life to average $1.08/lb copper (net of gold by-product).
  • Indicated resource of 5.4 billion pounds of copper and 0.8 million ounces of gold and Inferred resource of 14.3 billion pounds of copper and 2.6 million ounces of gold (please see Table 2 below for resource details).
  • Initial capital costs to construct the mine and a 120,000 tonnes per day (“tpd”) process plant have been estimated at $3.9 billion.
  • Capital payback on a pre-tax basis has been estimated at 3.8 years at $3.00/lb copper and $1,300/oz gold.

¹ Based on internal market data.

The updated PEA contemplates the construction of a mine and process plant operating over a 35 year mine life at a throughput of 120,000 tonnes per day. The mine would produce a copper cathode via a pressure oxidative leach process, in addition to heap leaching the lower grade mineralized material. Compared to the previous PEA released in December 2010, there have been two significant improvements to the project:

  1. Resource Size: Indicated and Inferred resources have increased by 184% and 55% respectively, which were slightly offset with decreases in respective grades of 14% and 12%. Overall, this has led to a 37% increase in mine life and 44% increase in total copper production.
  2. Process Methodology: The current PEA plans to produce copper cathode at site whereas the 2010 PEA contemplated producing copper concentrate and transporting it via pipeline through Chile. The main advantages of producing copper cathode at site are that it eliminates this previously planned pipeline through Chile, which was a substantial risk for the project, as well as an overall increase in recovered metal, both copper and gold. Additional benefits include: i) a reduction in export taxes (5% payable on cathode versus 10% on concentrate) and, ii) the removal of treatment and refining charges from the smelting process.

Pertinent Details of the PEA

Pre-tax NPV ($3.00/lb Cu, 8% discount rate) $3.02 billion
After-tax NPV $1.68 billion
Pre-tax IRR 17.6%
After-tax IRR 14.3%
Initial Capital Expenditure $3.92 billion
LOM Sustaining Capital $1.47 billion
LOM Average Operating Costs $8.65/t ore
First 5 Years Average C-1¹ Cash Costs (net of by-product credits) $0.87/lb Cu
LOM Average C-1 Cash Costs (net of by-product credits) $1.08/lb Cu
Nominal Mill Capacity 120,000 tpd
Average Tonnes of Mineralized Material Processed Annually – Mill 43 million tonnes
Average Tonnes of Mineralized Material Processed Annually - Heap Leach 6 million tonnes
Mine Life 34.9 years
LOM Strip Ratio 0.76
LOM average annual copper production 171,000t or 377m lbs
First 5 years average annual copper production 255,000t or 563m lbs

¹ C-1 cash costs include at-mine cash operating costs, treatment and refining charges, mine reclamation and closure costs, and copper cathode and gold doré transportation and freight costs.

In comparing the economics to the 2010 PEA, the pre-tax NPV discounted at 8% has increased from $2.8 billion to $3.0 billion and the IRR has decreased from 21.4% to 17.6%. In addition, the payback of pre-production capital has increased from 3.1 years to 3.8 years from the start of production. The previous PEA did not include economics that were calculated on an after-tax basis.

The PEA contains a cash flow model based upon the geological and engineering work completed to date and technical and cost inputs developed by Samuel Engineering, Inc., Ausenco Vector, WLR Consulting, Inc., and MTB Project Management Professionals, Inc. The base case was developed using long term forecast metal prices of $3.00/lb for copper and $1,300/oz for gold. The Canadian National Instrument 43-101 (“NI 43-101”) technical report summarizing the results of the updated PEA will be filed on SEDAR and the Company’s website within 45 days.

Los Azules technical information and figure on this page were derived from (1) the news release titled “McEwen Mining's Los Azules Copper Project Continues to Grow!” released on May 15, 2013 by McEwen Mining. To access the news release click here.  And (2) the technical report titled “Technical Report Los Azules Porphyry Copper Project, San Juan Province, Argentina", with an effective date of August 1, 2013, prepared by Richard Kunter, FAusIMM, CP, QP, Robert Sim, PGeo, Bruce M. Davis, PhD, FAusIMM, James K. Duff, PGeo, William L. Rose, PE, Scott C. Elfen, PE, and Steven A. Pozder, PE, MBA, all of whom are qualified persons and all of whom but  James K. Duff  are considered independent of McEwen Mining, as defined by Canadian National Instrument 43-101 "Standards of Disclosure for Mineral Projects" ("NI 43-101"). To access the report click here.

Cautionary Notes

McEwen Mining reports its resource estimates in accordance with standards of the Canadian Institute of Mining, Metallurgy and Petroleum referred to in Canadian National Instrument 43-101 ("NI 43-101"). These standards are different from the standards generally permitted in reports filed with the SEC. Under NI 43-101, McEwen Mining reports measured, indicated and inferred resources, measurements which are generally not permitted in filings made with the SEC. According to Canadian NI 43-101 criteria, the estimation of measured resources and indicated resources involve greater uncertainty as to their economic feasibility than the estimation of proven and probable reserves. Under SEC Industry Guide 7 criteria, measured, indicated and inferred resources are considered Mineralized Material. The SEC considers that in addition to greater uncertainty as to the economic feasibility of Mineralized Material compared to proven and probable reserves, there is also greater uncertainty as to the existence of Mineralized Material. U.S. investors are cautioned not to assume that measured or indicated resources will be converted into economically mineable reserves. The estimation of inferred resources involves far greater uncertainty as to their existence and economic viability than  the estimation of other categories of resources. 

Mineral resources which are not mineral reserves do not have demonstrated economic viability.

This website contains certain forward-looking statements and information and investors are encouraged to review our "Cautionary Note Regarding Forward Looking Statement". 

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