Preliminary Economic Assessment, Yauricocha Mine, Yauyos Province, Peru Effective Date: June 30, 2020 Report Date: November 19, 2020
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Preliminary Economic Assessment, Yauricocha Mine, Yauyos Province, Peru Effective Date: June 30, 2020 Report Date: November 19, 2020 Prepared for Sierra Metals Inc. Signed by Qualified Persons: Américo Zuzunaga Cardich, Sierra Metals Inc., Vice President Corporate Planning Andre Deiss, BSc. (Hons), Pr. Sci. Nat., SRK Principal Consultant (Resource Geology) Carl Kottmeier, B.A.Sc., P. Eng., MBA, SRK Principal Consultant (Mining) Daniel H. Sepulveda, BSc., SME-RM, SRK Associate Consultant (Metallurgy) Prepared by SRK Consulting (Canada) Inc. 2US043.007 November 2020 Preliminary Economic Assessment, Yauricocha Mine, Yauyos Province, Peru November 2020 Prepared for Prepared by Sierra Metals Inc. SRK Consulting (Canada) Inc. Av. Pedro de Osma 2200–1066 West Hastings Street No. 450, Barranco, Vancouver, BC V6E 3X2 Lima 04, Peru Canada Tel: +51 1 630 3100 Tel: +1 604 681 4196 Web: www.sierrametals.com Web: www.srk.com Project No: 2US043.007 File Name: Yauricocha_TR_PEA_2US043.007_20201119_rev47.docx Copyright © SRK Consulting (Canada) Inc., 2020 SRK Consulting 2US043.007 Sierra Metals Inc. Yauricocha_Technical_Report_PEA Page ii Important Notice This report was prepared as a National Instrument 43-101 Technical Report for Sierra Metals Inc. (“Sierra Metals”) by SRK Consulting (Canada) Inc. (“SRK”). The quality of information, conclusions, and estimates contained herein is consistent with the level of effort involved in SRK’s services, based on: i) information available at the time of preparation, ii) data supplied by outside sources, and iii) the assumptions, conditions, and qualifications set forth in this report. This report is intended for use by Sierra Metals subject to the terms and conditions of its contract with SRK and relevant securities legislation. The contract permits Sierra Metals to file this report as a Technical Report with Canadian securities regulatory authorities pursuant to National Instrument 43-101, Standards of Disclosure for Mineral Projects. Except for the purposes legislated under provincial securities law, any other uses of this report by any third party is at that party’s sole risk. The responsibility for this disclosure remains with Sierra Metals. The user of this document should ensure that this is the most recent Technical Report for the property as it is not valid if a new Technical Report has been issued. Copyright This report is protected by copyright vested in SRK Consulting (Canada) Inc. It may not be reproduced or transmitted in any form or by any means whatsoever to any person without the written permission of the copyright holder, other than in accordance with stock exchange and other regulatory authority requirements. CK Yauricocha_TR_PEA_2US043.007_20201119_rev47.docx November 2020 SRK Consulting 2US043.007 Sierra Metals Inc. Yauricocha_Technical_Report_PEA Page iii Executive Summary This PEA report was prepared as a Canadian National Instrument 43-101 (NI 43-101) Technical Report (Technical Report) for an updated Mineral Resource estimate prepared for Sierra Metals Inc. (Sierra), on the Yauricocha Mine (Yauricocha or Project), which is located in the eastern part of the Department of Lima, Peru. Sierra engaged various specialist groups to evaluate how, on a conceptual level; mining, mineral processing, and tailings management could be adapted at the Property to achieve a sustainable and staged increase in mine production and mill throughput. Sierra Metals prepared life of mine (LOM) production and development plans based on four production rate options ranging from the base case of 3,780 tonnes per day (tpd) to 7,500 tpd (Table 1-1). The specific details for these production options are described in Section 16, operating and capital cost information is provided in Section 21, and an economic analysis of each production rate option is provided in Section 22. Table 1-1: LOM Production Rates Tonnes/Day Tonnes/Year Comments 3,780 tpd (base case) 1.3 M Constant production rate through LOM * 5,500 tpd 2.0 M Increases from 3,780 tpd to 5,500 tpd in 2024 6,500 tpd 2.4 M Reaches 6,500 tpd in 2024 7,500 tpd 2.8 M Reaches 7,500 tpd in 2024 Source: Sierra Metals, Redco, 2020 Note: * *3780 tpd used as the base case assumes that permits will be received to reach that level, which is in the initial process. This Preliminary Economic Assessment (PEA) report was prepared in accordance with the Canadian Institute of Mining, Metallurgy and Petroleum Standards on Mineral Resources and Reserves: Definitions and Guidelines, May 10, 2014 (CIM, 2014). The reader is reminded that PEA studies are indicative and not definitive and that the resources used in the proposed mine plan include Inferred Resources as allowed for by the Canadian Securities Administrators (CSA) NI 43-101 in PEA studies. The PEA is preliminary in nature; it includes Inferred Mineral Resources that are considered too speculative geologically to have the economic considerations applied to them that would enable them to be categorized as Mineral Reserves, and there is no certainty that the results of the PEA will be realized. This PEA report is not a wholly independent report as some sections have been prepared and signed off by qualified persons (QPs) from Sierra Metals, the project owner and producing issuer. The terms ‘QP’ and ‘producing issuer’ are used here as defined under NI 43-101 Standards of Disclosure for Mineral Projects. The QPs responsible for this report are listed in Sections 2.2 and 2.3. Additionally, Sierra is a producing issuer as defined in the NI 43-101 guidelines. 1.1 Property Description and Ownership The Yauricocha Mine is in the Alis district, Yauyos province, Department of Lima, approximately 12 km west of the Continental Divide and 60 km south of the Pachacayo railway station. The active CK Yauricocha_TR_PEA_2US043.007_20201119_rev47.docx November 2020 SRK Consulting 2US043.007 Sierra Metals Inc. Yauricocha_Technical_Report_PEA Page iv mining area within the mineral concessions is located at coordinates 421,500 m east by 8,638,300 m north on UTM Zone 18L on the South American 1969 Datum, or latitude and longitude of 12.3105⁰ S and 75.7219⁰ W. It is geographically in the high zone of the eastern Andean Cordillera, and within one of the major sources of the River Cañete which discharges into the Pacific Ocean. The mine is at an average altitude of 4,600 masl (Gustavson, 2015). The current operation is an underground polymetallic sulfide and oxide operation, providing material for the nearby Chumpe process facility. The mine has been operating continuously under Sociedad Minera Corona S.A. (Minera Corona) ownership since 2002 and has operated historically since 1948. Sierra purchased 82% of Minera Corona in 2011. 1.2 Geology and Mineralization The Yauricocha Mine features several mineralized bodies, which have been emplaced along structural trends, with the mineralization itself related to replacement of limestones by hydrothermal fluids related to nearby intrusions. The mineralization varies widely in morphology, from large, relatively wide, tabular manto-style deposits to narrow, sub-vertical chimneys. The mineralization features economic grades of Ag, Cu, Pb and Zn, with local Au to a lesser degree. The majority of the deposits are related to the regional high-angle NW-trending Yauricocha fault or the NE-trending and less well-defined Cachi-Cachi structural trend. The mineralization generally presents as polymetallic sulfides but is locally oxidized to significant depths or related to more Cu-rich bodies. 1.3 Status of Exploration, Development and Operations The mine is concurrently undertaking exploration, development and operations. Exploration is ongoing near the mine and is supported predominantly by drilling and exploration drifting. The mine is also producing several types of metal concentrates from the underground mine areas. 1.4 Mineral Processing and Metallurgical Testing Yauricocha is consistently producing commercial quality copper concentrate, zinc concentrate, and lead concentrate. The lead concentrate produced in the oxide plant, because of its small tonnage and/or lower grades, is blended in the plant with the concentrate produced from the polymetallic circuit to generate a lead concentrate of commercial quality. The plant has been subject to continuous improvements in recent years to improve recovery and deportment of metals. Recent improvements to the processing facilities include: • Addition of one OK-50 flotation cell to increase Cu-Pb bulk flotation stage; • Installation of x-ray slurry analyzer for six streams: flotation feed, middling Zn feed, copper final concentrate, lead final concentrate, zinc final concentrate and final tailings; • Mechanical rod feeder for primary rod mill grinding for improved safety and production; • Installation of five DR-180 cells in the Second Zn Cleaning Flotation Stage; four DR-180 cells in the Third Zn Cleaning Flotation Stage in order to improve the Zn concentrate grade and to increase the nominal plant capacity up to 4000 tpd; and CK Yauricocha_TR_PEA_2US043.007_20201119_rev47.docx November 2020 SRK Consulting 2US043.007 Sierra Metals Inc. Yauricocha_Technical_Report_PEA Page v • Installation of 10 DR-180 cells in the Bulk Cleaning Flotation Stage arranged in three banks, with which the flotation retention time is increased from 9 minutes to 17 minutes: – First Cleaning Flotation Stage (comprising 5 cells); – Second Cleaning Flotation Stage (comprising 3 cells); and – Third Cleaning Flotation Stage (comprising 2 cells). Table 1-2 shows the mill’s feed tonnages