Timmins greenlights San Francisco mine after study

2008-04-08 09:14 ET - News Release

Mr. Arturo Bonillas reports

TIMMINS GOLD CORP.: PRE-FEASIBILITY STUDY CONFIRMS ECONOMIC VIABILITY OF THE SAN FRANCISCO MINE SONORA, MEXICO

Timmins Gold Corp. has completed and filed the technical report titled National Instrument 43-101 F1 technical report on the preliminary feasibility study for the San Francisco gold project, Sonora, Mexico, dated March 31, 2008, prepared by Micon International Ltd. of Toronto (Micon) and Independent Mining Consultants Inc. of Tucson, Ariz. (IMC). Management is very pleased with the results of the study, as it demonstrates the strong economics of the project.

According to the conclusions and recommendations of Micon, Timmins should proceed with development of the San Francisco open-pit mine, crushing, heap leaching and gold recovery plant, as described in the preliminary feasibility study. Given the amount of work conducted previously at the San Francisco project on the known exploration and areas of mineralization, the property should be regarded as an advanced-stage exploration project with significant economic potential.

        MINERAL RESERVES OF THE SAN FRANCISCO PROJECT

Case            Reserve     Gold   Reserve    Grade    Gold
                class    cut-off   
                            (g/t) (1,000 t)  (g/t)(1,000 oz)

High-grade      Probable    0.50    12,000    1.05    403.7
crusher feed
Low-grade       Probable    0.23     4,653    0.88    132.0
crusher feed
Subtotal        Probable            16,653    1.01    535.7
crusher feed
Low grade       Probable    0.28     5,981    0.39     75.3
ROM leach
                                    ------    ----    -----
Grand total     Probable            22,634    0.84    611.0
                                    ------    ----    -----

Stripping ratio (waste:ore) is estimated to be 2.0:1 on average over the life of the mine.

Capital and operating costs and project economics

Significant capital and operating costs associated with recommissioning operations at the San Francisco gold property over the life of mine (LOM) are reported by Micon.

Initial capital costs:  $33.8-million (U.S.) (including a 20-per-cent ($5.6-million (U.S.)) contingency)

Sustaining capital costs:  $12.7-million (U.S.)

Total cash operating costs:  $412 (U.S.) per ounce of gold

     NET PRESENT VALUE AND SENSITIVITY ANALYSIS OF PRETAX CASH FLOWS

                              LOM(i)
            Before- After-    Total                               LOM net
Gold           tax    tax     undis-    NPV 5%   NPV 10%   NPV 15%   cash
price          IRR    IRR   counted  discount  discount  discount    flow
(US$)           (%)    (%)(US$1,000)(US$1,000)(US$1,000)(US$1,000) US$/oz

$686         51.7%  38.5%  $ 61,565  $ 48,757  $ 38,538  $ 30,280    $152
(base case)
$850         86.7%  66.2%  $127,722  $104,454  $ 85,981  $ 71,119    $315
$1,000      129.2%  97.7%  $188,467  $156,913  $131,797  $111,536    $465

(i) Life of mine

     SUMMARY OF PROJECT BASE CASE DISCOUNTED CASH FLOW AND UNIT COSTS

                                LOM     NPV     NPV     NPV    US$     LOM
IRR                           total    disc.   disc.   disc.   per     ave.
38.5%     ($1,000 U.S.)    (undisc.)   at 5%  at 10%  at 15% tonne U.S./oz

Revenue   Gross sales       278,188 241,900 212,654 188,763  12.29  686.63
less      Refining charges     (709)   (613)   (536)   (473) (0.03)  (1.75)
less      Bullion delivery   (2,334) (2,047) (1,818) (1,632) (0.10)  (5.76)
less      Royalty                 -       -       -       -      -       -
                            ------- ------- ------- -------- ------ -------
Net sales revenue           275,145 239,240 210,300 186,658  12.16  679.12

                             CASH OPERATING COSTS    
General and 
administrative 
costs               6,821   5,921   5,200   4,614   0.30   16.84
Mining costs      113,070  99,032  87,640  78,273   5.00  279.08
Crushing costs     22,161  19,118  16,688  14,720   0.98   54.70
Processing costs   19,736  17,174  15,111  13,426   0.87   48.71
Laboratory costs    3,686   3,202   2,814   2,498   0.16    9.10
Social and 
environment 
management          1,677   1,456   1,278   1,134   0.07    4.14
                  ------- ------- ------- ------- ------ -------
Total cash 
operating costs   167,152 145,903 128,731 114,665   7.38  412.57
Net cash 
operating margin  107,994  93,337  81,570  71,993   4.77  266.55

Capital 
expenditures  

Initial/
expenditure
capital            33,769  33,359  32,974  32,609   1.49   83.35
Sustaining
capital            12,659  10,651   9,079   7,827   0.56   31.25
Change in 
working capital         -     569     979   1,277      -       -
Net cash flow 
before tax         61,565  48,757  38,538  30,280   2.72  151.96

Project highlights, improvements and new developments

It is important to note that the prefeasibility study, base case economic model has been calculated on a variable gold price that averages $686 (U.S.) per ounce over the life of the proposed operation. This average price is 31 per cent below the current spot price of approximately $900 (U.S.) per ounce of gold (April 2, 2008). As a result, in addition to considering the potential for an expanded mineral resource/reserve, company management believes it is also important to consider the sensitivity analysis detailed in Section 18.8 (economic analysis) of the prefeasibility study in assessing the long-term viability and economic potential of the San Francisco project. As expected, the project is most sensitive to revenue drivers (that is, total reserve, reserve grade, recoveries) and operating costs, more specifically mining costs, as they constitute a significant portion of cash costs. The project is less sensitive to capital costs.

In addition to the encouraging conclusions and recommendations detailed in the prefeasibility study, company management believes it is important to note that the mineral reserve estimate and economic model reflected in the prefeasibility study are based upon a measured and indicated mineral resource of 716,790 ounces of gold, an estimate that was completed in February, 2007 (measured mineral resource equals 5.35 million tonnes grading 0.912 g/t Au plus indicated mineral resource equals 22.3 million tonnes grading 0.781 g/t Au). The inferred mineral resource totalling 63,490 ounces Au (2.5 million tonnes grading 0.788 g/t Au) has not been included in the economic analysis. This mineral reserve and mineral resource estimate was based upon floating cone parameters using $500 (U.S.) per ounce gold, 64-per-cent recoveries and an internal cut-off grade of 0.23 g/t gold. Since reporting this estimate, the company has completed an additional 5,123 metres of drilling with the objective of both increasing the confidence level and expanding the mineral resource on which the final mine plan will be based. Management expects the updated mineral reserve/resource estimate, pit optimization and mine plan being completed by IMC will significantly improve the already-robust economics of the San Francisco project. The updated estimate will be based upon revised parameters, including a higher gold price and recovery, along with reduced internal and break-even cut-off grades. Once the updated resource estimate is finalized in the second quarter 2008, an updated prefeasibility study may be commissioned. Taking into consideration sensitivity studies included in the 2007 resource estimate and the current gold market price, management expects the updated mineral resource will be appreciably greater than the resource estimate used in this study. This conclusion is supported by the table detailing the various floating cones for resource definition.

               FLOATING CONES FOR RESOURCE DEFINITION -- 
         MEASURED, INDICATED AND INFERRED MINERAL RESOURCES

        Gold           Gold                                Gold
Gold    resource    cut-off          Ore      Gold    resources   Strip
price   classes(ii)    (g/t)  (x 1,000 t)     (g/t)  (x 1,000 t)  ratio

500     MII            0.23       30,154     0.805        780.4    1.71
600     MII            0.23       36,378     0.762        891.2    1.87
650     MII            0.23       39,381     0.747        945.8    1.98
700     MII            0.23       41,803     0.738        991.9    2.13

(ii) Cautionary statement: Mineral resources that are not mineral
reserves do not have demonstrated economic viability. The table 
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.

Other highlights of the prefeasibility study include forecast gold recoveries significantly higher than those experienced historically. Both independent and in-house column leach tests were conducted on material crushed to 100 per cent, minus 1/2 inch, to support this parameter. Company management recognizes that the project is particularly sensitive to gold recovery, and its dependence on achieving the targeted particle size. The independent column leach tests were conducted by Process Research Associates of Richmond, B.C., using 2.5-metre columns, while in-house tests were conducted at the lab facilities at the San Francisco mine on both 2.5- and six-metre columns. The six-metre columns were used to better simulate the actual height of the heaps.

Project development

Most of the significant capital and operating costs included in the prefeasibility study are based upon firm contracts and quotations. These include, but are not limited to, contract mining costs, new heap-leach pad construction, processing plant and primary crusher refurbishment, and new secondary and tertiary crusher acquisition costs. The new secondary and tertiary crushers have been purchased from Sandvik. The crushing circuit has been specifically designed to accommodate the kinetics of the San Francisco ore while producing the optimum crush size and maximize throughput capacity.

Based on results obtained from the work completed to date by Timmins, the significant amount of historical information available from previous operators and management's comfort with the detailed work, analysis, conclusions and recommendations within the prefeasibility study, the company intends to proceed with development of the San Francisco mine. Management expects capital expenditures will be financed through a combination of debt and equity. A team of very experienced professional and technical staff, led by Alfredo Barraza, mine manager, has already been assembled and is working on project implementation and will ultimately be responsible for mine operations. With many of the contracts already negotiated and capital equipment ordered, management is confident mining will be initiated prior to the year-end with cash flow from operations in the second quarter 2009.

Qualified person

Pursuant to National Instrument 43-101, Darcy Krohman, PGeo, CA, executive vice-president and chief financial officer of Timmins Gold, is the qualified person responsible for the disclosure in this news release. Fieldwork has been conducted by Timmins Gold employees and contractors. Independent qualified persons responsible for preparation of the prefeasibility study are William J. Lewis, PGeo, R. James Leader, PEng, Christopher A. Jacobs, CEng MIMMM, and Ian R. Ward, PEng, all of Micon International Ltd., and Michael G. Hester, FAusIMM, of Independent Mining Consultants.

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