Telson Mining Corporation Announces Positive Preliminary Economic Assessment for the Campo Morado Mine
Telson Mining Corporation
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Telson Mining Corporation Announces Positive Preliminary
Economic Assessment for the Campo Morado Mine
Vancouver, British Columbia, April 4, 2018
Telson Mining Corporation (“Telson” or the “Company”) (TSX Venture – TSN.V) is pleased to announce the
positive result of an independent Preliminary Economic Assessment study ("PEA") prepared in accordance
with National Instrument 43-101 (“NI 43-101”) on the 100% owned Campo Morado Mine ("Campo Morado" or
the "Project") located in Guerrero State, Mexico.
Campo Morado PEA Highlights1
• Pre-tax Net Present Value ("NPV") at a 8% discount rate of US$81Mn
• After-tax NPV at a discount rate of 8% of US$65Mn
• Undiscounted cash flow before income and mining taxes of US$114Mn
• Undiscounted cash flow after income and mining taxes of US$91Mn
• Life of mine ("LOM") of 12 years, with 9.7 million tonnes of potential mill feed at an average grade of
4.33% zinc grade, 1.00% Lead grade, 0.78% copper grade, 131.9 grams per tonne ("g/t") of silver and
1.71 grams per tonne ("g/t") of gold
• Mining rate of 2,500 tonnes per day ("tpd")
José Antonio Berlanga, Director and CEO , stated: "The positive Preliminary Economic Assessment marks
another significant milestone for Telson. It validates the positive economic value of last year’s acquisition of
the Campo Morado mine. We expect to improve the Net Present Value of the mine in the short run by
implementing several strategies summarized belo w and we will embark on a Pre -Feasibility Study designed
to demonstrate the improvements in mining and milling that we are instituting. The PEA is based on historical
operating costs incurred by the previous operator of the Campo Morado mine as Telson is still in the pre -
production stage and it is too early to forecast any cost savings resulting from the changes we have
implemented. Among the strategies we have identified as drivers of increasing the NPV are:
1 Cautionary statement NI 43-101: The PEA was prepared in accordance with National Instrument 43-101 Standards of Disclosure for
Mineral Projects ("NI 43-101"). Note: The PEA is preliminary in nature and 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 PEA based will be realized. Mineral Resources are not Mineral Reserves and do no t have
demonstrated economic viability. Calendar years used are for illustrative purposes. Some figures may not sum exactly due to rounding.
Unless otherwise indicated the currency used is United States dollars.
Telson Mining Corporation
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Shares Issued: 125,612,775
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1. Cost reductions resulting from: i) a reduced local workforce. We are currently operating the mine
and approaching similar output as the former operator with approximately 50% of the previous
workforce. It should be noted that the former owner was focused only on zinc production and was
mining three separate mineralized bodies at the same time which required additional personnel,
services, equipment and infrastructure. We are focused on all metals and only mining one
mineralized body at a time, such that we can operate with a smaller workforce; ii) a change from
room and pillar mining to sub-level caving (see s. 16.3 of the PEA); and iii) a reduction in haulage
distance as a result of new egress portal being developed;
2. conducting an aggressive exploration campaign designed to increase the mineral resources at
Campo Morado;
3. analyzing leaching processes to increase recoveries of precious metals from concentrate and
existing tailings.
While we look forward to optimizing the performance of the Campo Morado mine, we also wish to emphasize
that our primary goal for 2018 is to build our new mine at our flagship Tahuehueto project in Durango, Mexico.
We point out that we published a NI 43-101 Technical Report Preliminary Feasibility Study Telson Resources
Project Durango, Mexico with an effective date of December 6, 2016 and a report date of January 20, 2017 (see
Tahuehueto PFS). based on a 5 50tpd operation at Tahuehueto that assigned a pre-tax Net Present Value ,
using an 8% discount, of US$138Mn and a post-tax Net Present Value using an 8% discount, of US$77M n to
Tahuehueto, such that the base case scenario NPV of both projects of the Company, Tahuehueto and Campo
Morado, adds to US$218Mn on a pre -tax basis and US$142Mn on a post -tax basis. We are building a mill
capable of processing 1,000 tpd at Tahuehueto and are also working on an updated PFS to reflect the
improved economics of such an operation. We believe this will validate the upside potential of the economics
of the Company for our shareholders and look forward to a very exciting year ahead of us.”
Description of Campo Morado Mine and PEA
The Campo Morado Project hosts several polymetallic massive sulphide deposits containing zinc, copper,
silver, gold and lead mineralization. Five deposits have been extensively drilled: G9, El Largo, Reforma, Naranjo
and El Rey. The Project is comprised of a previously mined underground multi-metal mine with infrastructure,
installations and equipment capable of processing 2,500 tonnes of material per day. Farallon Resources Ltd.
(Farallon) began mining operations at the G9 Mine at Campo Morado in April 2009. Nyrstar NV (Nyrstar)
purchased Farallon and the Campo Morado Mine in December 2010 and continued mining operations at G9
mine with some production from the El Largo deposit until production was suspended in January 2015 and
the mine was placed on care and maintenance.
Telson Mining Corporation purchased the Campo Morado Mine from Nyrstar Mining Ltd. and Nyrstar Mexico
Resources Corp. (together the “Nyrstar Group”) in June 2017 and restarted mining operations under a
preproduction plan and initiated production of zinc concentrates in October 2017. Telson intends to advance
preproduction towards full commercia l production during 2018. The purchase price of the Nyrstar Group
subsidiaries that own the Campo Morado Mine was US$20M n of which US $3.5Mn has been p aid and the
balance of US$16.5Mn is due to be paid on or before June 13, 2018.
Telson Mining Corporation
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Shares Issued: 125,612,775
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Mineral Resource Estimate
The current Campo Morado resources occur in five main mineralized zones, G9, El Largo, Naranjo, Reforma
and El Rey. Within these main zones, 36 sub -zones of well defined, massive and semi -massive sulphide
deposits modeled three dimensionally are used to c onstrain the resources. The boundaries of these sub -
zones are delineated by geological and assay data from extensive drilling and underground excavation. The
resource estimate is based on 1,541 surface and underground drill holes and the 33,523 assays obtained from
them that intersect and occur within these mineralized zone models. The mined -out volumes of the
underground excavations of previous mining operations in turn deplete the resources. Two contiguous 5 -
metre cube block models were used to cover this area. The overall combined resource of the five zones
estimated by ordinary kriging is presented below. The tabulation is based on zinc equivalency (ZnEq) 2 that
incorporates the contributions of zinc, copper, gold, silver and lead and metal recovery factors achieved at
the processing facility on site. The base case at a 5.5% ZnEq cut -off is highlighted in bold typeface. The
effective date for the mineral resource estimates3 for the five individual main mineralized zones is September
30, 2017.
Campo Morado Resource Estimate 2017
Cut-off ZnEq
(%) ZnEq (%) Tonnes Au (g/t) Ag (g/t) Cu (%) Pb % Zn (%)
Measured
3.0 6.94 17,004,000 1.34 91 0.73 0.67 3.17
4.0 7.87 13,412,000 1.49 104 0.76 0.78 3.71
5.5 9.27 9,292,000 1.70 124 0.82 0.94 4.56
7.0 10.71 6,318,000 1.88 143 0.87 1.11 5.44
Indicated
3.0 5.78 16,848,000 1.25 85 0.68 0.61 2.25
4.0 6.62 12,324,000 1.42 99 0.72 0.73 2.68
5.5 7.94 7,335,000 1.70 123 0.78 0.92 3.31
7.0 9.32 4,086,000 1.96 151 0.86 1.12 3.94
Measured + Indicated
3.0 6.36 33,852,000 1.29 88 0.70 0.64 2.71
4.0 7.27 25,736,000 1.46 102 0.74 0.76 3.22
5.5 8.68 16,627,000 1.70 123 0.80 0.93 4.01
7.0 10.16 10,404,000 1.91 146 0.87 1.11 4.85
Inferred
3.0 5.03 3,316,000 0.98 76 0.52 0.58 2.10
4.0 5.85 2,152,000 1.11 90 0.55 0.71 2.54
5.5 7.27 988,000 1.32 116 0.64 0.92 3.20
7.0 8.75 416,000 1.52 148 0.76 1.10 3.78
2 Zinc equivalent calculations used metal prices of USD 1.20/lb for zinc, USD 2.80/lb for copper, USD 17/oz for silver, USD 1150/oz for
gold and USD 0.90/lb for lead and metallurgical recoveries of 70% for zinc, 68% for copper, 38% for silver, 25% for gold, and 60% for
lead. The zinc equivalency calculation is as follows:
ZnEq General Equation = Zn% + ((Cu % *(Cu recovery / Zn recovery) * ((Cu $ per %) / Zn $ per %)) + ((Ag g/t * (Ag recovery / Zn recovery)
* (Ag $ per gram / Zn $ per %)) + ((Au g/t * (Au recovery / Zn recovery) * (Au $ per gram / Zn $ per %)) + ((Pb % *(Pb recovery / Zn
recovery) * ((Pb $ per %) / Zn $ per %))
ZnEq = Zn% + ((Cu % *(68/70) * (61.73/26.455)) + ((Ag g/t * (38/70) * (0.547/26.455)) + ((Au g/t * (25/70) * (36.97/26.455)) + ((Pb %
*(60/70) * ((19.84/26.455))
Telson Mining Corporation
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Where:
Au price = $1150/oz Au metal recovery = 25%
Ag price = $17/oz Ag metal recovery = 38%
Cu price = $2.80/lb Cu metal recovery = 68%
Pb price = $0.90/lb Pb metal recovery = 60%
Zn price = $1.20/lb Zn metal recovery = 70%
3 Capping to reduce statistically anomalous high values was applied to the updated mineral estimate. All mineral resource estimates,
cut-offs and metallurgical recoveries are subject to change as a consequence of more detailed economic analyses that wou ld be
required in pre-feasibility and feasibility studies.
Capital and Operating Cost Estimates
The Project is a previously operating mine that is being brought back into production. Consequently, this PEA
treats the initial capital investment as a sunk cost, and all subsequent investment is considered as sustaining
capital expenditure.
Over the LOM period, sustaining capital is provided for as shown in table below.
Sustaining Capital estimate for the Campo Morado Mine
Sustaining Capital
LOM TOTAL
(USD’000)
Development 25,500
Mill/Concentrator 12,000
Tailings Storage 10,000
Infrastructure (Other) 10,000
Social Responsibilities 12,000
Rehabilitation & Closure Costs 3,200
Total 72,700
Operating cost estimates for the Project are forecast on the basis of previous operators operating experience
at the Project, modified where appropriate to reflect increased throughput and proposed changes in the
underground mining method.
Telson Mining Corporation
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Shares Issued: 125,612,775
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Over the LOM period, operating costs are forecast as shown in table below.
Operating cost estimate for the Campo Morado Mine
Project Operating Costs LOM Average
USD/t milled
LOM TOTAL
USD’000
Selling Costs 23.52 228,997
Royalties 2.97 28,896
Mining 32.78 319,190
Processing 24.72 240,745
G&A 14.76 143,744
TOTAL Operating Costs 98.74 961,571
The LOM capital and operating costs as discussed in the PEA will most likely be further refined as
Telson continues to bring the Campo Morado Project back into production and continues to optimize
the various costs at site.
Economic Analysis
Micon has prepared its assessment of the project based on a discounted cash flow model, from which Net
Present Value (NPV) can be determined. A real discount rate of 8.0% is applied to the base case cash flow.
The prices used in the cash flow projection are rolling average prices for each metal for the 12 months ended
January 2018, which Micon believes provide a reasonable estimate of project revenues for this PEA. The prices
used are shown in table below.
Metal Price Forecast
Metal Unit Price (USD/unit) Unit Price (USD/unit)
Zinc tonne 2,954.70 pound 1.340
Lead tonne 2,346.40 pound 1.064
Copper tonne 6,274.20 pound 2.846
Silver troy ounce 17.08
Gold troy ounce 1,269.00
Telson Mining Corporation
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Frankfurt: TSGN.F
Shares Issued: 125,612,775
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Since the project has already been constructed, initial capital costs are treated as sunk. However, LOM
sustaining capital is estimated at USD 72.7Mn, mainly for underground development and expansion of tailings
storage capacity.
Total cash costs over the LOM period average USD 98.74/t milled. Costs incurred in Mexican pesos (MXN)
have been converted at the rate of MXN 18.75/USD.
Pursuant to the share purchase agreement dated April 27, 2017 (the “Agreement”) between Telson and the
Nyrstar Group, Nyrstar r etains the right to receive a variable purchase price royalty (the “Zinc Royalty”) on
future zinc production on the first 10 million tons of ore processed by Telson when the price of zinc is at or
above US$2,100 per tonne (see Telson news release dated June 14, 2107 for further details). Telson maintains
the right under the Agreement to purchase 100% of the Zinc Royalty at any time for US$4Mn. Buy-out of the
Zinc Royalty to Nyrstar is assumed to take place prior to the cash flow period and is treated as a sunk cost. A
3% royalty payable to SGM on the NSR value of concentrate sales (before transport costs) has been provided
for in the cash flow model.
This PEA is preliminary in nature; it includes inferred mineral resources that are considered too speculati ve
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 PEA will be realized.
Annual base case cash flows and unit costs on a zinc equivalent basi s are presented in the chart and table
below.
Annual Cash Flow Forecast
-20
0
20
40
60
80
100
120
140
Yr-2 Yr-1 Yr1 Yr2 Yr3 Yr4 Yr5 Yr6 Yr7 Yr8 Yr9 Yr10 Yr11 Yr12
$'millions
Capex Opcosts Tax Cashflow Revenue Cum.C/F Cum.DCF
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Unit cost estimate on Zinc Equivalent Basis
LOM total
(USD'000)
USD/t milled Gross
Rev.
(%)
Margin
(%)
USD/lb
ZnEq
Mining 319,190 32.78 28% 0.35
Mill/Concentrator 240,745 24.72 21% 0.27
G&A 143,744 14.76 13% 0.16
Direct site costs 703,679 72.26 61% 39% 0.78
Transport, TC/RC 228,997 23.52 20% 0.25
Cash Operating Costs 932,676 95.78 81% 19% 1.03
Royalties 28,896 2.97 3% 0.03
Production Taxes - - 0% -
Total Cash Costs 961,571 98.74 84% 16% 1.06
Capital Expenditure 72,700 7.47 6% 0.08
Total Production Costs 1,034,271 106.21 90% 10% 1.15
At an annual discount rate of 8.0%, the discounted cash flow evaluates to a net present value (NPV)
of USD 65 million after tax. At an annual discount rate of 8.0%, the discounted cash flow evaluates to
a net present value (NPV) of USD 81 million before tax.
Owing to the absence of pre-production capital expenditures in the forecast period, no internal rate of
return (IRR) or payback period can be determined.
Risks and Opportunities
A summary of key risks and opportunities identified by the QPs is provided in the table below.
Risks and Opportunities
Discipline Opportunity Risk
Geology and
exploration
There are a number of
exploration targets on the Campo
Morado property that represent
an excellent upside opportunity.
They have the potential to add to
the resource base with further
work.
Mineral resources Several drill holes with missing
assays have been assigned zero
A number of the Mineral Resource
assumptions for reasonable
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Discipline Opportunity Risk
grade. If this information is found,
it will likely have a positive impact
on the grade in the local area of
these drill holes.
prospects of eventual economic
extraction at the Reforma, Naranjo,
El Largo and El Rey deposits are
based on analogues to G-9, including
metallurgical recoveries and mining
methods. Actual data collected from
the deposits may vary from these
assumptions.
There is a risk some of the Measured
Mineral Resources at Reforma,
Naranjo and El Rey will not have the
appropriate drill support until grade
control drilling is completed.
The tonnages and grade for the
potentially recoverable pillars at G9
are based on the assumption that a
practical, economically feasible
method can be developed to mine
them.
Mine plan The mining sequence has been
prepared on an area-by-area
basis and so there may be an
opportunity to improve the
production grade profile in a
more detailed plan.
Evaluation is at a PEA level only.
Mining engineering may reveal
planning constraints not recognised
in this study.
Tailings Subject to further testwork, leach
recovery of copper, gold and
silver from reprocessing existing
tailings may be possible.
Expansion of storage capacity
require d to accommodate material
in the PEA plan.
Process Equipment for finer grinding is on
site but not yet installed.
The Campo Morado tailings have
a high precious metals content
that may, in the future, be
reprocessed if an economically
viable method for precious metals
recovery is developed
Achieving planned plant throughput
and recovery into concentrate may
increase operating costs.
Infrastructure Telson has all of the infrastructure
currently necessary to operate the
Campo Morado Project.
Environmental,
closure, permitting
and social
Telson has all the current
environmental permits to
operate. The communities and
Environmental laws are tightened
and become more stringent as a
result of Mexico’s involvement in the