Lupaka Gold’s (TSX-V: LPK) Invicta Gold Project is on the brink of production, set to become Peru’s next producing gold mine.
However, everything is not going to plan…for the better.
What has been quietly observed is that (1) the grades are coming in higher than the PEA and (2) the company is already making plans to increase production above the PEA throughout rate of 350 tpd. All this means higher levels of production and cash flow once the actual mining commences later this year.
Recent underground sampling of mineralization is revealing an asset that offers more than originally outlined in the company’s April 2018 Preliminary Economic Assessment (“PEA”) which gives investors additional upside for any increases in mine output, improvement of grade and additional ounces to the overall resource.
The April 2018 PEA for the Invicta Mine outlined a mineral resource of 3 million tonnes of Indicated Mineral Resources at 5.78 grams per tonne (“g/t”) gold equivalent (“AuEq”) ounces using a 3.5-g/t cut-off grade (“COG”), and 600,000 tonnes of Inferred Mineral Resources at 5.49 g/t AuEq.
Within that resource the Company has a PEA that outlines an initial 6-year mine life that will produce produce a total of 669,813 tonnes of mineralized material processing 350 tonnes per day (“tpd”) at an average grade of 8.6 g/t Au-Eq. Lupaka’s grades included estimated metallurgical recoveries, and the true grade will likely be even higher than 8.5 g/t AuEq.
Just to highlight, with an all in sustaining cost (“ASIC”) of $575 per gold ounce equivalent, Lupaka Gold will be one of the lowest cost junior producers.
Source: AuCu Consulting, Ron Stewart (@RonStew12139302)
As part of the development work to put Invicta into production, Lupaka has been conducting channel sampling every 5 metres on all workings during development.
The results have demonstrated continuity of the high grade mineralization and additional potential that the Aetnea vein hosts.
In March 2018, the company released preliminary sample results:
In June, Lupaka released further results from a underground sampling program on the newly developed 3430 production sublevel.
The company provided additional results in July:
In addition to the sampling, development and rehabilitation of the Invicta mine has provided ~6,500 tonnes of mineralized material from the 3400 Level and when sampled on surface returned an average grade of 7.21 g/t AuEq.
Grade consistency is always a problem with mining. However, it is appearing that the Invicta PEA outlined a muted gold grade on a smaller area of the known mineralization which does not highlight the potential for higher grade zones and the prospectivity of the area.
Higher grades could improve the bottom line as mining proceeds through the Aetnea vein and into the other zones around the current area of operational focus.
Past exploration at the Invicta mine property indicates that the property has considerable potential for mineral resource expansion through exploration.
Structural studies, geophysical and geochemical work conducted to date strongly suggest the potential for mineral resource expansion along existing mineralized structures.
Past sampling around Invicta revealed the exploration potential with many areas reporting grades greater than 6 g/t AuEq. mine
All in all, the focus on a smaller area for the PEA and initial mine plan reveals that the company’s plan has been to bring production online with a well defined resource with the Aetnea vein through underground mining with minimal capital expenditures, rather than trying to finance and build a large scale operation off the back.
With the commencement of limited toll mining in September, and the beginning of full scale production hopefully in October, Lupaka will have the necessary cash flow to conduct exploration and prove up more ounces in the ground and significantly alter the assumptions of the April 2018 PEA to extend the life of mine.
The next milestone is the final mining exploitation licence, which requires an inspection by the Peruvian Ministry of Mines and Energy.
The inspection will be performed before the end of October and upon receipt of the exploitation licence, the company will have the go ahead to produce at a rate of 400 tonnes per day, or 12,000 tonnes per month.
However, with the permit to operate at 400 tpd, the company could see its potential production increase by 14% from the 350 tpd production assumption outlined in the PEA, boosting the project’s cash flow.
Currently, shares in Lupaka gold are trading near year-lows which discounts a years’ worth of work and development that has improved access to the mine, defined a PEA, divestment of non primary assets, cash flow from initial toll mining and on the cusp of full scale mining.
The company laid out a plan to bring into production the Invicta mine with a small area of operational focus and a humble gold grade in comparison to recent sampling.
The plan is working and it is starting to reveal that there is more to the story than initially outlined…a good thing for investors.
*The author of this article was compensated for the creation of this article in cash. The author picked up shares in the public market, ranging from prices of 14 cents to 20 cents over the past year. This article is meant to serve informational and marketing purposes only and not a technical report and does not constitute a buy recommendation. As always, please do your own diligence.
*The Mineral Resource Statement for the Invicta Project is tabulated to a cut-off grade of 3.0 g/t Au-Eq. Cut-off grades are based on a price of US$1,250 per ounce of gold, US$17.00 per ounce of silver, US$3.00 per pound of copper, US$1.05 per pound of lead and US$1.20 per pound of zinc. The equivalent gold calculation assumes mill recoveries of 85 percent for gold, 80 percent for silver, 82 percent for copper and lead and 77 percent for zinc
Lupaka Gold Inc. (TSX-V: LPK) has been completing the necessary steps to achieve commercial production at its wholly-owned Invicta Gold project in Peru, located 120 km north of Lima by road. Recently, I had the opportunity to re-visit the mine site to see how work is progressing towards production.
It is at this point in the life span of a mining company where institutional investors typically invest, and the stock price starts to move back up towards full value, which makes it a good time to invest. Lupaka Gold (TSX-V: LPK) is at this point.
With financing secured, the company has commenced construction and development work in order to commence production in the second half of 2018, resulting in potential full appreciation for its shares. The Company’s diligence and hard work is starting to bare fruit through the following recent developments:
The financing secured in 2016 was through Pandion Finance for a total of $7 million (U.S.), available to the Company in three tranches, all of which have now been drawn. This forward gold sale agreement is repayable to Pandion by delivering a total of 22,680 ounces of gold over 45 months.
Pandion plays a partnership role in development by receiving payment in gold from the actual mine rather than by way of equity or traditional debt structures. It also does not dilute shareholders as would with a financing in the market.
With money in place, now begins the real work.
On March 1, 2018, Lupaka issued a preliminary economic assessment (PEA) which outlined low capital expenditures, an initial mining scenario of 350 tonnes per day (tpd), and a very quick payback and path to cash flow. The strategy is to commence mining in an area close to existing infrastructure and focus on a small portion of the resources within the Aetnea vein. While the current Environmental Impact Assessment allows for up to 1,000 tpd, Lupaka’s approach is to start small and gradually increase production over the next few years.
The PEA boasts all-in sustaining costs of $575 per gold ounce equivalent (“AuEq oz”) over an initial six-year mine life and an average annual pre-tax operating profit of $12.3-million ($1300 gold assumption), very attractive economics at current metal prices. There is no need to state the Internal Rate of Return (“IRR”) as it produces meaningful cash flows within the first year.
The updated mineral resource (part of the PEA) outlines 3.0 million tonnes (“Mt”) of Indicated Mineral resources at 5.78 grams per tonne (“gpt”) AuEq oz using a 3.5-gram-per-tonne cut-off, and 0.6 Mt of inferred mineral resources at 5.49 gpt AuEq oz. The initial six-year mine plan is designed on only a portion of the mineral resource (~0.6Mt at an average head grade of 8.58 gpt AuEq, incorporates existing infrastructure which minimizes capital start-up costs.
The company now has over 24 years of tonnage, in terms of Indicated Mineral resources, mining at the 350 tpd, however management’s goal would be to increase production towards the EIA level of 1,000 tpd, which would increase production from 33,700 AuEq oz/yr up to closer to 100,000 AuEq oz/yr.
At the main portal, the company recently announced sample assay values over the footwall vein averaged 9.86 gpt AuEq over a strike length of 130 metres, with an average width of 6.1 metres. The average sampled grades are in-line, or higher, than grades within the mine plan, based on the PEA. With a combined average width of over 12 metres, the sub-vertical Invicta deposit extends for over 130 metres in strike length on the 3400 level and will be immediately accessible for extraction when the Invicta mine becomes operational in the second half of 2018.
The start small approach also allows the Company to reinvest into exploration in surrounding areas, in order to gain confidence to increase the mine plan, and to prove up new resources to potentially extend production for years to come.
Lupaka has been granted a water use permit from the Peruvian Ministry of Agriculture. Surface rights have been attained, a well has been constructed, and testing studies have concluded it can supply water up to 60 liters per second during the dry season, which should be sufficient supply for an onsite mill in the future.
As part of the agreement that was completed with the community of Lacsanga in July/2017, Lupaka was to undertake and complete certain improvements to the roads, including widening and creation of bypasses around the communities. The company signed a contract with local operators to expand, enhance and modify 27 kilometres of road commencing from the paved Huacho-Churin-Oyon Highway, located at approximately 1,500 metres above sea level, up to the Invicta project located at approximately 3,500 metres above sea level.
Work is ongoing to ensure that 30-tonne trucks can operate safely and efficiently using North American standards. This involves proper safety berms, passing stations, water drainage, widening hard rock areas using explosives and community by-passes routes.
There is a camp to house workers on site that was built by previous operators. It currently can house about 60 to 70 people, but it is already looking like they will have to expand the camp to accommodate a growing team.
Lupaka announced that development would begin with rehabilitation, preparation at Invicta with three crews, a new adit and 3430 level to be constructed. The Invicta project has approximately of 1.2 kilometres of existing adits, cross-cuts and underground workings.
As you can see below, the cross cut at the 3430 level is in the process of rehabilitation and construction. Over the past few months, work has been advancing to the point the cross cut has approached the main vein wall. Two 4.2-yard PLH Scoops have arrived on site along with a single boom jumbo drill in preparation of accelerated development and stope preparation.
At the lead of operations on site is recently appointed Dan Kivari, P.Eng. (picture in the centre above). He has more than 30 years of international experience in metallurgy, engineering and management of mineral projects throughout various stages of development. Most recently, Mr. Kivari held the position of chief operating officer at Stellar Mining Corp., a privately held mining company in Peru.
Mr. Kivari’s previous work experience includes several senior operating roles such as regional manager for Agnico Eagle Ltd.’s Western and Nunavut operations, where he was responsible for the development of the Meadowbank gold project, and vice-president of operations with Yamana Gold (TSX: YRI) overseeing the development of the Chapada copper-gold project. Throughout this experience, he has picked up the skills necessary to build a team for the Invicta Project.
There is still plenty of work to be done to meet the company’s goal to de-risk and evaluate the suitability of a plant by the second half of 2018. New bulk samples need to be extracted and sent to toll milling facilities to test and optimize metallurgical recoveries and concentrate quality.
A previous run-of-mine bulk test in February 2016 achieved good recoveries in concentrate streams — returning 87.5% gold, 91.2% silver, 91.5% copper, 90.03% lead and 90.1% zinc. The sample was a blend of approximately 80% run-of-mine material and 20% from a low-grade stockpile derived from development.
Looking forward, the company and the geology suggests that there is plenty more to be mined and there is the potential for the construction of a mill which would further reduce the company’s costs and improve any future valuation of the Invicta mine.
From six months ago, the Invicta Gold project is now a completely different scene. Today the roads have and continue to be widened (making them safe), staff and operating equipment is on site and the newly created 3430 Level cross cut has hit the main zone of mineralization.
From an investors perspective, mines moving to production present the greatest investment opportunity because each advancement the company makes de-risks the project and it becomes a question of the operating team to achieve goals on budget and proving the business model works. Lupaka is at this stage and its shares present an opportunity right now.
The hard work is underway at Invicta and the team is already in place to bring it into production, just in time for improving metal prices and the renewed interest in gold. The company appears to be well positioned to bring the project online during the second half of 2018 and meet its objective of becoming cash flow positive in its inaugural year.
Investors can look forward to the following positive catalysts:
With an all-in-sustaining cost of $575 per AuEq oz over initial six-year mine life, and plenty of resources not yet announced with permits in place to increase production, Lupaka Gold (TSX-V: LPK) is a company to watch.
It is at this stage where investors could see the greatest share price appreciation as the company is on task and working towards becoming a producing gold mine.
Lupaka Gold Inc. (TSX-V: LPK)
With the recent close of the sale of the company’s Crucero property to GoldMining (TSX-V: GOLD), Lupaka Gold Corp. (TSX-V: LPK) has secured the funds to take the next step with its Invicta Gold project. Today, the company announced the commissioning of a Preliminary Economic Assessment “PEA” for the Invicta Gold Project.
With the backing of Pandion Finance and its gold purchase agreement providing the necessary funding, Lupaka is motivated to meet its obligations which makes now an exciting time for the company and its shareholders.
The company has hired SRK to prepare the PEA. This provides a continuity of project knowledge as the project’s 2012 resources estimate was prepared by SRK and the company’s own internal mining studies of Invicta were prepared with assistance from SVS Ingenieros of Lima “SVS”, Peru, a subsidiary of the SRK Consulting Group. The company plans the completion of the PEA technical report in the first quarter of 2018.
The initial six-year mine plan that was developed and prepared by SVS, which outlined ~735,000 tonnes at a grade of ~6.1 g/t AuEq. for 23,000 oz. of gold equivalent a year, according to a rough calculation. The plan was developed from the 3,400-metre level and extends up 120 metres.
Drill results indicated that the mineralization extends at least as far below the 3,400 level as it does above. In addition, there is a well-defined section of measured and indicated directly along strike to the northeast that is within a few hundred metres, and of the same characteristics as the segment in the mine plan.
The first bulk sample in October 2015 produced a copper, lead and zinc concentrate that was sold to an off-taker. The concentrate was exceptionally clean and was absent of any penalty elements, so buyers could pay well for it because they can mix it with less clean concentrate and blend it.
The company completed its second run-of-mine bulk test in February 2016 and achieved good recoveries in concentrate streams — returning 87.5% gold, 91.2% silver, 91.5% copper, 90.03% lead and 90.1% zinc. The sample was a blend of approximately 80 % run-of-mine material and 20 % from a low grade stockpile derived from development.
The bulk sample was processed with the prime objective of producing a saleable concentrate and no effort was made to optimize content of specific metals, according to the company. The resulting concentrate was clean, with few penalty elements which is ideal for sale and blending with other concentrates.
Once in production, the hope is that cash flow from Invicta will be used to grow the operation. There are numerous zones outside of the Atenea vein that contain mineralization, and the targeted Atenea resource could increase, as development offers access to high-grade intercepts and underground drill sites. In addition, based on gold and copper within the under-explored quartz-sulphide vein zones, the company believes the Invicta resource could expand.
At 350 tonnes per day, Invicta could operate for between 10 and 15 years based on the current measured and indicated resource in the Atenea zone. However, the project is permitted to operate at 1,000 tonnes per day and the company would like to increase their resources through drilling, expand operations to the 1,000 tpd rate and build their own mill on site but for the time being will use third party transport and processing contractors. All of this could take production to over 70,000 AuEq. oz/yr, according to a cocktail napkin calculation.
Proceeds from Invicta will also be used for more exploration at its other projects in Peru — Josnitaro which is a whole other story, worthy of an update of its own.
***MiningFeeds was compensated to provide marketing services. As always, do your own diligence. The writer of this article, Nicholas LePan does own shares.
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