We have been following Golden Arrow Resources (GRG.V) for almost two years now and we saw the company transform itself from an early-stage exploration company to an advanced stage developer with in excess of 100 million ounces silver on its Chinchillas Silver project.

A first Preliminary Economic Assessment estimated the fair value of that project at $98.5M (using a silver price of $22/oz and a discount rate of 8%). However, the company was able to add tens of millions of silver ounces to an updated resource estimate which should definitely have an impact on the NPV of the project.

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The Preliminary Economic Assessment

Golden Arrow has filed an updated PEA in December of last year (and re-filed it in February) that incorporates a larger resource than the first PEA, based on 121 drill holes. This allowed for an increase in the resource estimate to in excess of 160 million silver ounces of which 112.5 million ounces are pure silver with the balance being almost 650 million pounds of lead and half a billion pounds of zinc. The planned pit has now been expanded as you can see in the right top image.

The current plan is to develop Chinchillas as an owner-operated mine using optimized pit shells which should include roughly 34 million tonnes of silver-lead-zinc ore for a total silver production of approximately 90 million ounces (with an additional 464 million pounds of lead and 248 million pounds of zinc). Keep in mind the pit shells were optimized based on the data available at the cut-off date. As the Chinchillas resource estimate continues to expand, the shape of the optimal shells will undoubtedly change and we are expecting a pre-feasibility study to show more silver being recovered than the 90 million in this PEA.

As reported before, the initial capital expenditure is expected to be $237M with an additional $84M to be incurred as sustaining capital expenditures (which works out to be less than $1 per ounce). This results in an after-tax NPV8% of $225M when using a silver price of $22/oz and $90M using a silver price of $17/oz. However, during our talks with Vice President Brian McEwen, we had the impression he is extremely optimistic to see the capital expenditures coming down a bit. If the initial capex could be reduced by $20M (our estimate, not an official guidance), the NPV of the project will be impacted by the same amount as the discount rate won’t be of any importance. This would increase the NPV in the $17 silver scenario by 22%, excluding the potential of an increased resource estimate.
The economics at Chinchillas benefit tremendously from the very high recovery rates for lead and silver (which are between 93% and 95%) which is excellent. The average recovery rate of the zinc in a zinc concentrate is a bit lower but still very decent between 75% and 85% depending on the different zones of Chinchillas. Golden Arrow will produce both a lead and a zinc concentrate at the project and will very likely ship it to a smelter through the port in Antofagasta, Chile.

What has happened since the PEA and what will 2015 bring?

Drilling has been ongoing at Chinchillas as Golden Arrow has planned an exploration program of up to 16,000 meters of drilling which still includes resource expansion drilling, as the mineralization remains open in all directions. And indeed, the drill bit continues to find very impressive intersections such as 32 meters of in excess of 9 silver-equivalent ounces per tonne. Golden Arrow is trying to define the limits of the mineralization, but has been unsuccessful so far (which is a good thing).

More drill results will continue to trickle in as Golden Arrow has once again signed a very advantageous deal with its drill services provider. Just like the previous contracts, the drill contractor has agreed to get paid for its services in shares of Golden Arrow at a deemed price which is substantially higher (in excess of 500%) compared to the most recent share price.


Golden Arrow’s Chinchillas silver project continues to expand and now really has become a Deposit for the Times. The total size of the Chinchillas mineralized zone is still unknown and the company continues to surprise us as virtually all step-out holes encounter mineralization at a decent average grade. A 16,000 meter drill program is ongoing which should lead to another resource update with both more ounces in a higher resource category.

Every drill hole makes the project more impressive and Golden Arrow still has to figure out where the mineralization actually ends. With 165M silver-equivalent ounces in an official resource estimate, successful step-out holes and an exploration target of roughly 200 million low-grade ounces, Chinchillas sure seems to be on its way to half a billion silver-equivalent ounces.

Disclosure: Golden Arrow Resources Corp. is a sponsoring company. Please see our disclaimer for current positions.

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