Soho Resources (SOH.V) - potential for second open pit

Comment by Objective Capital , Sep 12, 2011
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Soho continues to advance it Tahuehueto polymetallic project in northwestern Mexico. The company’s engineering consultants, Knight Plesold Consulting (KPC), have completed a preliminary site engineering assessment, which includes the geomechanical data characterisation and slope stability assessment required to prepare preliminary recommendations for open pit design at El Creston. The work also included sizing and layout development for proposed waste management facilities at the site and work to refine the preliminary mine and camp conceptual models.

KPC has also provided preliminary recommendations for open pit slopes at the Cinco de Mayo zone, following initial inspections of the cliff faces and rock exposures. Further work is required to confirm the preliminary assessments.

The preliminary economic assessment for Tahuehueto, prepared last autumn, indicated an internal rate of return of 31 percent, based on capital costs of US$89.1m and conservative metals prices, which include US$965 per ounce for gold, US$15.38 for silver and US$0.88 for zinc.

Objective's view:

We view the bulk of this work as a normal development in the continuing advancement of Tahuehueto. We do however, note the preliminary indication that Cinco de Mayo may be amenable to open pit mining, in addition to El Creston, which would improve project economics significantly. Our most recent valuation of Soho and Tahuehueto did make allowance for this possibility and as a result, our base-case and optimistic valuations remain unchanged. Nevertheless, we view the preliminary engineering work at Cinco de Mayo as providing additional comfort for our hypothetical mining model.