Feb 6 2017
Ascendant Resources Inc. (TSX VENTURE:ASND) ("Ascendant" or the "Company") is pleased to provide a progress report further to the operational update issued January 17th, 2017. Following the change of ownership on December 20, 2016 the Ascendant management team has had the opportunity to undertake a more detailed review of current mine operations with the mine staff and its technical consultants in order to construct a plan to optimize operations at the El Mochito Mine with the goal of delivering sustainable profitability. The Company has also initiated a detailed review of the exploration opportunities at El Mochito to enhance ore grade and increase tonnage. Management continues to further examine opportunities to optimize operations and drive exploration success.
The Company is currently focused on immediate opportunities to increase mine production and underground development, improve maintenance programs, review equipment status and focus on an overall reduction of operating costs. Ascendant has identified several immediate optimization activities to be implemented that should have a material impact on cash flows in the near-term. These initiatives are intended to improve current production which was hindered by short-term mine objectives and significantly lower investment in underground development and backfilling of open stopes during the second half of 2016. These low levels of reinvestment have resulted in a limited underground development program that has restricted access to higher grade chimney ore. The lack of adequate backfilling and ground stability work has also necessitated more underground rehabilitation work than had been expected to ensure a safe working environment.
The issues outlined above combined with suboptimal equipment availability (due to reduced spare parts availability) and poor mine logistics have impacted recent production. During the fourth quarter of 2016, ore throughput averaged 1,468 tpd. Production in the fourth quarter was impacted by a slow restart following a mine fatality in August which saw the temporary shutdown of the mine in September to review safety practices. For January, production averaged approximately 1,530 tpd when operating. Current operating costs, which have a high degree of fixed costs and are significantly impacted by production volume, are approximately $75/t before capital expenditures. Many of the issues identified during the due diligence process were identified as opportunities that could be overcome under the new leadership of the Ascendant management team, however, the initial lower ore throughput means management is starting below our initial expected baseline. Despite this initial setback, and based upon the review to date, management remain highly confident that the mine production rates in excess of 2,200 tpd combined with lower units costs to the mid or low $50/t range can be achieved over the next 18 months.
President and CEO, Chris Buncic commented, "The past 45 days since taking control of the operations at El Mochito on December 20th, 2016 have been an extremely busy and productive period for the Company. As discussed in today's press release, under-investment by the previous owner and poor production rates leading up to the Acquisition have set our timeline back several months but we are confident that we have seen the inflection point and the outlook going forward remains strong." He continued, "Regarding operations, our mining team and technical consultants have created an achievable plan to ramp-up production to 2,000 tpd and potentially higher over the next 12 -18 months. At the same time, new exploration and development programs should enable us to access higher grade "chimney" style ore in conjunction with this higher throughput. We remain extremely pleased with the timely nature of the acquisition given the continued strength in the zinc market and we look forward to providing regular market updates as we move forward."
Initial Optimization plans
While Ascendant continues its review, following the Company's third week of technical review on site, numerous opportunities have been identified and are being implemented to increase throughput and reduce costs. The initial focus targets the following areas:
- Underground Safety - We remain committed to improving the overall safety standards at El Mochito. Ascendant has continued to instill an improved safety culture at the mine and addressed deficiencies in various safety areas such as adding fire extinguishers, refuge areas and emergency signage underground.
- Reduce Unproductive Time per shift - Currently it is estimated that up to a third of every shift is lost in unproductive time due to logistics, poor planning and communications. Ascendant management believes an improved focus on scheduling, more detailed supervision and accountability should reduce this lost time to more acceptable levels, adding additional productive hours per day.
- Horizontal Development - During the latter part of 2016 horizontal development was reduced to very low levels. In order to ensure sufficient working areas and to gain access to new higher grade zones management are aiming to accelerate underground development in excess of 1,000 ft per month. Increased underground flexibility should support a more stable operating environment moving forward.
- Haulage Logistics - Maximizing ore tonnes per truck trip and increasing the number of trips per shift can be achieved, including appropriate staffing of vehicles to maximize productive hours per day. Various programs are being implemented including driver priority at shift change, better truck loading and better underground planning to ensure over utilization of the fleet is maximized. For every additional truck cycle per shift management estimates that this could add approximately 48tpd per truck. As such assuming 7 trucks are available this could add more than 350 tpd of combined ore and waste movement.
- Fleet Availability and Utilization - Continued improvement in the maintenance programs remains a priority given the age of much of the fleet. A lack of preventative maintenance in the past has resulted in lower availability which Ascendant is currently addressing. Once availability is enhanced, the focus will shift to improving fleet utilization. We note fleet availability rates have already begun to show improvement and are now closer to 70% as compared to 60% in the second half of 2016 given more focus on preventative as opposed to reactive maintenance. That said, overall utilization rates remain low at closer to 55% due planning and communication issues. As part of this process we plan to undertake a review of the fleet to determine the optimal size which may lead to fleet renewal to support sustainable long-term production targets.
- General Operating Costs - Ascendant is placing renewed focus on reducing costs related to production and to ancillary activities with an initial target of a 10% reduction. Ascendant is in the process of commencing several initiatives to reduce overall input costs, external service costs and extraneous expenses.
Union Transition and the CBA
During the process of Ascendant's negotiations for the acquisition of the El Mochito Mine with the previous owners, the collective bargaining agreement ("CBA") between the Company's Honduran subsidiary American Pacific Honduras SA de CV and the applicable workers' union expired at the end of September 2016. It was agreed between the previous owners and the union to defer negotiations on a new CBA until the completion of Ascendant's acquisition. During this period, dissatisfaction amongst workers led to a change in union leadership, which has culminated in a work stoppage at the El Mochito Mine that commenced late last week. Management is currently in discussions with the new union representatives to restart operations. The expectation is that once the workers have returned to work and full operations have resumed, management will immediately progress to negotiate a new CBA. In the meantime, mining and milling operations have been put on hold but general maintenance and administrative activities continue at the mine.
Mr. Buncic continued, "While we are disappointed with the work stoppage, this temporary delay ultimately gives us the opportunity to bring forward the negotiation of a new collective bargaining agreement, which we knew from the outset would be required, and allows us to start off on the right foot as we deliver on our strategy. We are optimistic these negotiations will be concluded in the near term and will create a positive long term compensation structure for our employees that will incentivize them in line with our corporate objectives."
Exploration Review Update
Over the past several weeks, the Company has continued to review the various exploration targets to better define short and long-term opportunities and goals. To date the exploration at El Mochito has created numerous targets for future evaluation which management believe could add significant high grade resources and potentially extend the mine life of EL Mochito upon future definition. Figure 1 outlines the various near mine target areas, classified in terms of short, medium and long-term targets. The rate at which the Company may define such targets is limited to available cash flow. Please refer to the Company's NI 43-101 technical report on the El Mochito Mine available at www.SEDAR.com (the "El Mochito Technical Report").
The El Mochito exploration teams estimate that, based upon historical work, there is the potential to add in the order of 2.0MM tonnes of additional resources from short and medium term targets, though there is insufficient exploration at this time to define the targets as a resource and it is uncertain if further exploration will result in any part of the target becoming a resource or mineral reserve. Of importance is that the bulk of these additional untested resources are targets of extensions of known chimney zones where ore grades are typically materially higher than that of current production. As the mine focuses on blending chimney ore with the larger mantos regions, defining additional chimney material should enable a higher percentage of higher grade chimney material in the blend. This provides the potential to see a material long-term boost in head grade to the mill provided these programs are successful.
Short-term targets are defined as those where drilling stations are essentially in place or could quickly be installed without the need for underground development. Key targets include the Victoria zone (current ore grades for known resources in the mantos in this region are 5.2% zinc, 1.5% lead and 24 g/t silver and 4.3% zinc, 2.6% lead and 44 g/t silver in the chimney's in the region) and the smaller Palmer Dyke targets (current resources in the region grade over 6.0% zinc, 4.8% lead and 79 g/t silver) per the El Mochito Technical Report.
Medium-term targets require a degree of underground development to access these regions to undertake drilling and future production development. While there are several such targets, a key undertaking would be the development along the Imperial trend to open up drilling stations for the upward extension of the McKenney, Barbasco, Imperial and Esperanza chimney zones. Definition of these zones is currently restricted by the inability of the drills to reach these areas from current drilling platforms. Once again, ore resources in these regions which has either been mined or are currently in the mine plan suggest the potential to define higher than average ore grade material. It is estimated that a total of 4,500 ft of development would be required to be able to fully establish the drilling platforms for the upper chimney extensions of these zones. This development would also open up the higher regions of the mine area to new exploration which has been constrained historically by the lack of development to access drilling in this area. Additional medium-term targets are the further extension of known resources where drilling to date has been restricted due to lack of access such as the Santa Elena zone, Nina Blanco and the Deep Mantos targets.
Longer-term targets are generally more speculative in nature and further away from current workings, yet most have some historical drilling to support further exploration efforts. Management believes the potential exists to add material tonnage to the overall resource if successful. The bulk of these targets are focused on the extension of structural zones which historically have controlled the ore deposit. A primary example would be along the Porvenir trend where historical drilling about 3,000 ft form current working intersected large widths of ore grade material that has yet to be fully defined. Further the potential for mineralization to exist between current workings and the target area is viewed as high. For example, historical drilling in the area produced hole 14-PS-01 which intersected 30.7ft @ 9.9% zinc, 2.0% lead and 32 g/t silver. Hole 14-PS-02 intersected 27.8ft @ 5.9% zinc, 3.8% lead and 35 g/t silver. In addition to near mine longer term targets there are numerous regional targets to be explored starting from grass roots exploration to better understand known outcropping in the region.
This press release was prepared under the supervision of Mr. Robert Campbell, M.Sc., P.Geo., a member of the board of directors of Ascendant and a "qualified person" for the purposes of NI 43-101.