Pulacayo Project Feasibility Study - Apogee Silver

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Pulacayo 1 000 t/d Phase I Feasibility Study - NI 43-101 Technical Report 090644-3-0000-20-IFI-100 extended durations can be agreed. For gold and silver, the QP may have a similar range, but it is more likely that buyers will look for an early Quotational Period to allow them to earn contango. 19.4.8 Payment Terms Standard industry terms allow for a first provisional payment by the buyer for 90% of the value of the concentrates at a fixed date ‘X’ days after vessel departure from the load port or ‘Y’ days after vessel arrival at the discharge port, with final payment due when all final information (prices, assays, weights, etc.) is known. In several instances, a second provisional payment may also be provided as an interim payment prior to when all final details (weights, assays and prices) are available. Most traders will offer some form of financing with many frequently offering to pay for concentrates as they are delivered to them at the port or in their warehouses. While most will offer this service for ‘free’, some will look to charge extra for this although rates tend to be relatively reasonable and below most miners’ cost of capital (e.g. LIBOR +2 to 3%). For purposes of the Feasibility Study, it is recommended that the following payment terms be used: Direct Smelter Sale First Provisional Final Payment 90% of invoice value 4 , 15 days after vessel arrival at discharge port. 100% of the invoice value, less the value of the first provisional, on final settlement (assume 100 days after vessel arrival) Trader Sale First Provisional: 90% of invoice value, 5 days after the end of the month of delivery of each monthly quota of concentrates. Second Provisional: 100% of invoice value, less the value of the first provisional payment, 45 days after the date of the first provisional payment. Final Payment : 100% of the invoice value, less the value of the first and second provisionals, on final settlement (assume 120 days after the end of the month of delivery of the monthly quota). 4 The invoice value equals the net value of the payable metals less all charges (treatment charge, refining charges, escalators/deescalators (if any), penalties, freight allowance (if any)) TWP Sudamérica S.A. Av. Encalada 1257 Of. 801, Santiago de Surco Lima 33, Perú (51-1) 4377473 Page 233
Pulacayo 1 000 t/d Phase I Feasibility Study - NI 43-101 Technical Report 090644-3-0000-20-IFI-100 19.4.2 Weight Franchise For sales to buyers where delivery is made to the receiving smelter’s port of discharge, no weight franchise will typically apply unless the concentrates are being shipped to a destination where internationally recognized weighing and sampling procedures and facilities are not available (e.g. most destinations in China). If delivery is made to one of these destinations or, in the case where delivery is made to an intermediate destination (e.g. to a warehouse or basis an FOB delivery), a weight franchise will typically apply, with such franchise intended to represent the handling losses which are typically incurred in-transit to the destination. Weight franchises can range from 0.15% to as high as 0.50% but are typically in the 0.20 to 0.30% range 5 . 19.5 Concentrate Logistics 19.5.1 General The Pulacayo-Paca project is located some 7,800 km by road from the Chilean ports of Arica, Antofagasta and Mejillones and some 2,200 km from the Peruvian port of Callao. Although the zinc concentrates can very likely be exported through one of the Chilean ports 6 , with rising environmental concerns, the Chileans have reportedly been looking to restrict bulk lead concentrate flows through their ports and, for this reason, unless the lead concentrates can be containerized, exports may have to go through Peru where a substantial lead business already exists. At this point in time, Arica and Antofagasta do apparently still permit lead concentrate exports in containers (in bags in containers or in bulk in lined containers) although some additional charges may apply (including additional International Maritime Organization – IMO – charges). As noted in previous sections, because of the volumes of concentrates projected to be produced, it is most likely that they will either be sold to a trader and (a) exported “as is”, loaded in containers (in bags or in bulk in lined containers), or (b) delivered to a warehouse in Bolivia, Chile or Peru for blending or accumulation with other small parcels after which the concentrates will either be loaded and shipped in containers (as per (a)) or shipped in bulk lots of approximately 5,000 wmt (typical minimum bulk shipment sizes). Bulk shipments of concentrate in ocean-going vessels remain the standard means of delivering concentrates to the market. Most major mines ship concentrates in 10 to 15,000 wmt parcel sizes, although shipments of smaller lots (approximately 5,000 wmt), while more expensive, are not entirely uncommon. As with many of the commodity markets, the ocean freight market has witnessed severe volatility since the early part of this decade. After years of relative stability, surging demand and a shortage of vessels drove ocean rates for bulk commodities to their highest levels in history with the Baltic Dry Index (BDI) – an overall measure of the spot dry bulk cargo market which captures daily bookings for capsize, panamax and handy size vessels - hitting all-time highs above 11,000 5 Weight franchises will tend to be higher if concentrates are to be blended as losses due to handling and dilution can expected to be greater. 6 Iquique, Chile, some 600 kms by road from the mine, may also be an alternative load port TWP Sudamérica S.A. Av. Encalada 1257 Of. 801, Santiago de Surco Lima 33, Perú (51-1) 4377473 Page 234
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