Good afternoon, depending on where you are in the world today. We are here to talk about the feasibility study that was recently completed at Salares Norte, a major project in the Gold Fields group in Chile. Joining me today, I have Luis Rivera, who is the Regional Head of South America. I have Avishkar Nagaser, who's Investor Relations Manager. I have Max Combes, who's the Project Director on Salares Norte. Francois Swanepoel, who's the Technical Manager on the project, and also Diego Huete, the Geology and Exploration Manager on the project. I'm going to give a brief introduction as to where we are on the project, and maybe just remind you what we announced to the market in the middle of February. We declared a maiden reserve and a feasibility study that was completed and peer-reviewed on Salares Norte.
That maiden reserve came out at 21 million tons at 5.1 grams per ton of gold, 57.9 grams per ton of silver, which gave a declared reserve of 3.5 million ounces of gold, and on a gold equivalent basis, that translates to 4 million ounces of gold. Some of the key metrics of the project, this is an initial 11 and a half year life of mine. Remember, we're only focusing here on the Salares Norte project. There is significant exploration potential around us that we're not covering here today. The annual process plant throughput would be 2 million tons a year. Life of mine production, 3.7 million ounces of gold equivalent. That's actually produced gold.
That average production would then translate into around about 450,000 ounces a year for the first seven years at an all-in sustaining cost of under $500 an ounce, around about $465 per ounce. If you look over the first 10 years, given that the production is front-ended, we're around about 355,000 ounces equivalent gold production over that 10 years. The feasibility study is telling us that the cost at the end of 2018 money terms translates to $834 million to build this project. What does that mean? It means that over the life, the all-in costs of the project, which includes that upfront capital, will be $785 per equivalent ounce. Or if you strip out the upfront project capital cost, we're looking at $545 an ounce on an all-in sustaining cost basis.
As we've mentioned when we announced the results in the middle of February, we're looking here at a return of around about 25% at a $1,300 gold price with a payback of around 2.2 years. A very robust project, that gives an NPV at a discount rate of 7.5% of $654 million. Just to remind you, it's an open pit operation with contract to mining. There'll be a dual stage processing circuit. Because of the silver we'll have Merrill-Crowe, then we'll have a CIP afterwards to capture most of the gold. We've got more than adequate water. A lot of people have asked us, do we have water for the project? We have more than adequate water that has actually been permitted, so there's no issue on water. We're obviously far from the grid, so it's envisaged to have an on-site power station.
14 MW is the required power. We will obviously consider renewables down the road. The big issue, the team will talk about it some more, is that the environmental impact assessment process is underway as we speak. That was formally accepted for review on the 11th of July, 2018. We expect that to be an 18-24-month process, which is customary in Chile for these kind of project approval processes. While we're busy with that, we're doing detailed engineering. Currently, we're at around 35%, and by the end of this year, we're looking to significantly improve that number. Construction of this project, if all goes well, could commence in the spring of 2020. That's the introduction. With that, I'm going to hand over to Max Combes, who will take you through some more of the detail along with his team. Thank you.
Good morning. I will start talking about the journey we have done with this project. It's been a long time ago. The discovery of this project happened in 2011. Since then, we have been doing a lot of work. Through the years, we have completed a scoping study, we have completed a pre-feasibility study, then an interim feasibility study, finalizing with a definitive feasibility study at the end of last year. Along all these years also, we have been improving the knowledge of the deposit that ended up with the maiden reserve declaration that Nick just mentioned. In parallel to that, the project has gone through several permitting processes in order to do these studies.
More important, the process of the EIA, which started in 2017 with the baselines, with the presentation of the EIA submission to the government in July last year. At the moment, we are in the middle of that process, as Nick mentioned, we expect this process to last between one and two years. After we got this approval on the EIA, they call it the RCA, we're going to have to obtain the full notice to proceed approval from the board, looking for construction in the fourth quarter of 2020. This is approximately two years of construction, expecting the first gold in the beginning of 2023. In the meantime, also, we are progressing the detail engineering, also we started to work on the sectorial permits.
Salares Norte is a project that is located in the third region of Chile, Atacama, very close to the border to Argentina, is a project that is located at an average of 4,500 meters altitude. It's a very isolated project. It's very far from any of the communities. We are situated in a closed basin, located, as you can see on the map, around five hours driving from Copiapó, also very close to El Salvador mine, which we have an airstrip there. I will hand over the presentation now to the geology and exploration manager. He's going to explain about the geology of the project.
Okay, good morning. We're going to go through a little bit about the regional geology and the district exploration. Salares Norte is classified as a high-sulfidation epithermal deposit. The global distribution of these deposits around the world are shown over this map that we can see. There are several oxide examples in the Miocene, between 23 to 5 million years, around Peru, Chile, and the Argentine Andes. There are some giants over the area as well. Our main focus is to show the ones in Chile and the area. Opposed to the orogenic gold deposit, they are pretty deep and old on the geological terrains. We have the epithermal, as shown here on the slide, on the upper part, it's more superficial deposits form. Some notable examples of the Andes, some high-sulfidation epithermal deposits and districts that they become.
One of them is El Indio, which was in Chile as well. It started producing in 1979. It had initial reserves of 2.5 million ounces of gold equivalent, and at the end of its life, produced over 7.2 million ounces. It had a reserve growth of nearly 2.9. La Coipa is another example. It's more a silver mine than gold, it had an initial reserve that nearly double over the life of mine. There's several other examples here in Peru, Yanacocha. That also, it's one of the giants of the Americas that nearly more than 10 times increased the size. Another important one to mention is Veladero as well in Argentina. That as well grow nearly two times. What we want to show here basically is we started with Salares Norte. These are our districts. They're very important.
They're long-lived assets, over 15 to 20 years that we're doing the exploration now over the terrain. To show the Maricunga Belt. It's located in northern Chile. It had already a total endowment of over 90 million ounces of gold equivalent. All of them except La Coipa, Esperanza, and Salares Norte are porphyry style. They are copper-gold deposits. They're large, but with low grade. La Coipa is in care and maintenance since 2013. As we saw on the previous slide, produced over 25 years and 7.5 million ounces of gold equivalent. The Maricunga was suspended in 2016. It produced over approximately three million ounces of gold over 20 years. Salares Norte was the first discovery in the northern part of the belt, probably 100 km north of La Coipa. The history of the discovery starts way back in 2008, 2009.
The initial RC started at Horizonte, which is another project that had positive results. In 2009, 2010, there was a follow-up over that area and had interesting intercepts over 100 meters with half a gram. In 2010, 2011 was the first drilling program at Salares Norte, and we hit a discovery hole, which was hole 02, 96 meters, 1.5 grams of gold and 60 grams of silver. It was oxidized and had good metallurgical response to the preliminary leach test done over that period. From 2011 to 2013, there was a delineation drilling. We had one particular hole, was a spectacular hole with 132 meters at 53 grams of gold, and 59 grams of silver. We had the first maiden resource declaration. From there, 2013 up to now, last year, we completed infill and exceptional drilling.
We've been drilling over 142 km over the project and actually a bit more that included some acceleration as well. We had the resource update, was late December of 25.6 million tonnes at 4.76 grams of gold, 53 grams of silver. For 3.9 million ounces of gold and 43 million ounces of silver. Just to advance a little bit quicker here. We have land consolidation, as well over the area. We increased our land holding over 25,000 hectares. We exercise some options that we have over the area. There are some JVs that are under negotiation as well over the area. This table summarizes over the amount of hectares that we control over the area. The district, what we call, it's around the Salares Norte deposit area. There are multiple targets that we have. It's Aster two, Aster three, Salares, Salada, and Horizonte, there to the south.
The geology of Salares Norte, we started way back in 2011. We identify several domes over the area and breccia pipes over this area. This slide here is basically to show the evolution of the drilling over the years. Now we're in 2013, 2014, 2016, 2017. As you can see, we advanced on the deposits Brecha Principal and Agua Amarga. If we do a cross-section to explain a little bit the geology over the area. We have on the right side here, it's the Brecha Principal deposit. On the left is Agua Amarga. As we can see, Brecha Principal, it's a more vertical deposit, and it has a mushroom format here that's very common on this sort of diatreme deposits. On the left, we have Agua Amarga. This one here is showing the alteration that plays a key role on the mineralization.
We're seeing silica, dense argillic and steam heat alteration here as well. These are just some cross-section showing some of the hits that we have over these ore bodies. This is a small geological video that we put together. There we go. Just showing the surface geology. We got these domes on one side and the other of the deposit. Those are the drill holes. That's showing the lithotypes that we have. Now we're seeing the hydrothermal breccia, the polymict breccia on orange, the monomict breccias, basaltic andesites units. We go back now showing the pit. Now we're seeing the alteration. As you can see, there's an intense silica alteration on the core of the systems here, which host the highest grades. That one is the alteration showing as well, the steam heated that we have on the top of the deposits.
This one here is showing the mineral domains that were used with all the geological mapping that was done to generate the model. It's the blocks showing the high-grade blocks. It completes the view showing the pit. To advance on the resource and reserves. On the last year, we put a lot of focus on increasing the infill in Agua Amarga. We did drill nearly 13,500 meters. We also did some close space drilling over Brecha Principal and Agua Amarga. We added 250,000 ounces in the last update. There was process cost improvement, the finish off of high grades as well in Agua Amarga. Went through internal and external audits over the year, in the last year. They were completed and passed, and we had the maiden reserve declaration based on the DFS. The resource is the number that we saw before.
We have here again, it's a total of 3.9 million ounces of gold, 43 million ounces of silver. For the reserve, we have 21 million tons at 5.13 grams of gold, 57 grams of silver, for a total of 3.47 million ounces of gold and 39 million ounces of silver. Just to show some of the areas. Those are recent photos from the project. On the right top is Agua Amarga and on the bottom, Brecha Principal. This is what we call the grade control. We increase the drilling in some sections to take a look at the continuity. Just to show that we're basically increasing the spacing between the holes, and we had very positive results. The ones on red are showing the new results from that infill program.
I have to highlight that the second best hole of the project comes from this infill grade control program. This one also showing Agua Amarga. We confirmed the resource blocks as well and confirmed the grades. The model is robust, as all the progress done over the years. We had some, as well, external audits, GeoSpark, and some other companies. We had external geologists as well doing audits on the geology. We had the Optiro resource estimation in January, also the reserve audit completed. We made another video to show the resource model. Well, it's going to be for the next. Sorry. Thank you.
Now we hand over to Francois Swanepoel, who's going to talk us about the design on the technical aspect of the project.
Thank you, Max, and good morning to all. Firstly, starting off with the mine design. This is a conventional facility or conventional mining operation with conventional diesel-powered equipment that we're envisaging. The operating model is based on contractor mining, both for the mining and for blasting services. The system is plant constrained. We've got significant overburden on the ore body, that's really driving the size of the mining fleet. As a result, we're going to mine the ore associated with the ore body at a higher rate than the plant can actually take. There's going to be a significant stockpiling strategy. That has given us some potential upside in terms of grade streaming. We plan to stockpile the ore that we mine and then send high grades preferentially to the plant.
Key focus areas during the feasibility study was to optimize the SMU and the bench height study. We really want to get to the ore zone as fast as possible, and we've made significant advances since the previous phases of the study in that regard. The phase design and sequencing for the mine has been finalized. We've defined a really achievable ramp-up schedule, which we'll talk about a bit later. Finally, we verified the ore mining strategy where, as I explained, that we're going to mine the ore at a higher rate than the plant can actually process. In terms of the actual mine configuration, we've got the two deposits adjacent to each other. Firstly, the Brecha Principal sector. We see right to the north of that, Agua Amarga. In the end, these two pits actually merge when we mine it.
We've got two waste storage facilities. Firstly, the one to the south, that will be used for pre-strip. That waste will be used to construct platforms for our dry stack tailings facility, as well as the ore stockpiles. All operational waste will report to the north once the pre-strip has been completed. It's a fairly compact site. In terms of project physicals, the DFS results on waste is 308 million tons. Pre-strip is approximately 50 million tons, and we really worked hard to reduce that number to the current values. Ore mined, 22.2 million tons. Over the life of mine, that gives us a life of 11.5 years.
Of that, 18.8 million tons plus the 2.3 million tons of marginal material is all in the indicated category, and we've got 1.1 million tons of material in the inferred category. This gives us a strip ratio of approximately 14 to 1. The gold grade for the study was 4.96 or close to five grams per ton, and the silver grade, 55.6 grams per ton. There's a significant amount of silver associated with this facility, and that really influenced the process flow sheet, which we'll come to in a second. In terms of the mining schedule criteria, what we really tried to achieve in the feasibility study was to get the pre-strip done in two years, and that really is to match it with the plant construction schedule, which is also roughly 21 months.
We're really aiming to get the pre-strip done by the time we commission the plant. We also aim to have at least five years of continuous mining activity at the peak rate in order to be able to negotiate reasonable contracts on the mining side. The aim was to reduce the peak mining rate to lower than 50 million tons per annum. We don't want to stress the contractor in this regard. We wanted to make sure that the plan is operable in terms of climatic conditions, achievable in terms of ramp up, and so forth. If we look at the actual schedule that we came up with, we can see we've got a reasonable ramp-up during year minus two, minus one. Those are the two pre-strip years, and then we're going into production.
We've managed to get the peak mining rate down to 44 million tons per annum, we're really maintaining about 7 years at between 40 and 44 million tons over the life of mine. It gives us a nice period to optimize the investment in the mining fleet. In this case, through the contractor. Moving on to metallurgy. We've performed extensive metallurgical test work. We've done test work on more than 200 samples. We've done the full process of flow sheet testing. In the end, what we found was the metallurgical recovery is only dependent on head grade and on mineralization, whether it's oxide or sulfide material. The ore is free milling and amenable to cyanidation. The ore body is predominantly oxides, more than 98%, that's really driving the recoveries. We've got excellent recoveries over the life of mine. Gold 92.7% and silver 67.5%.
This is really behaving really well from a metallurgical perspective. In terms of the metal production profile over the life of mine, this graph just shows the gold to silver ratio. We see at the peak, we're probably producing around about 550,000 ounces of gold. On top of that, we've got quite a significant amount of silver that we need to deal with. Hence the need to have dual metal extraction processes in terms of Merrill-Crowe and then carbon in pulp that's acting as a scavenger stage. Moving on to the process flow sheet. This is just a schematic diagram. It's very conventional upfront with a single-stage jaw crusher. We've got a SAG and ball mill, conventional pinion and ring gear driven. From that point, we move to the leaching tanks. It's cyanide leaching in agitated leach tanks.
We move on to the Merrill-Crowe circuit. After the Merrill-Crowe, where we remove most of the metal, about 85% of the metal, we have after that step, we've got a CIP scavenger stage. We've got eight CIP tanks to clean up the tail for us and make sure that we get optimum extraction in the circuit. I'm just going to point out what's different to a conventional circuit that one would expect. Firstly is the dual circuit, the Merrill-Crowe portion. We've got a cyanide detox step. The aim is to get the cyanide to levels below 15 ppm before we deposit on the TSF. We've got a mercury retort facility where we recover some elemental mercury.
Finally, something that we've felt very strongly about since the initiation of the project is we wanted to introduce filter dry stack tailings for this project. We've got three tailings filters at the tail end. These filters will produce filter cake, which will be transported with trucks before it's placed and compacted on the dry stack facility. Processing infrastructure side, just the physical, see how this actually looks. This is an overview of the site. Again, very compact. You can see the plant is located very close to the mine. In terms of, we're located at an altitude of 4,500 meters above sea level in the Andes. Despite that, the topography is very forgiving. We're quite fortunate. This shows what terrain we have to deal with. Firstly, I'm indicating where the truck shop is going to be. Secondly, the process plant.
Thirdly, we've got the crusher location, the filter dry stack tailings location, and the dry stack. It's fairly good terrain that we have to construct this project. The next is a diagram of what the actual facilities will look like. I just want to highlight that it's a fairly compact site. We're really focusing on integrated operations. The administration buildings and all the facilities are located very close to each other, and we're really driving integration as far as possible with this particular project. Maybe just pointing out in the northeastern corner, we've got the on-site power station and the fuel facilities. As Nick mentioned earlier, this will be on-site power generation due to the distance to the national grid being that far. Moving on to tailings filtration and the actual deposit. We can see on this map again, it's all quite close to the other infrastructure.
The tailings filtration plant is approximately one kilometer away from the processing facility. The tailings will be transported hydraulically to the tailings filter plant, where it will be filtered, and then from that point, it will be handled with conventional trucks and placed on the tailings storage facility. The main criteria for the TSF, the first thing we wanted to do was to avoid the site being not the first thing. This was important for us to avoid the site being tailings constrained, and we wanted to limit the footprint. From that perspective, filter tailings was the best option for us. We wanted to limit or eliminate completely any infrastructure downstream of this particular facility, which we've managed to do in the layout. We wanted to avoid any upstream tailing storage facilities. We know that a high portion of failures are associated with this particular construction methodology.
We've reinforced something that we believe is the best available technology in terms of tailings deposition, which deals with the use of vertical plate filters for tailings filtration. This allows us to improve geotechnical and geochemical stability of the tailings in the short and long term, post-closure as well. Using filtered tailings allows us to reduce water consumption, and I'm very happy to say that the water requirements for this plant is about 12 liters per second, it's extremely low. We're in an area where water is quite scarce, and we're really trying to optimize the use of that water as far as possible. Just for some of those on the call who may not be familiar with filtered dry stack tailings, I've just got a couple of photos here, the first being conventional hydraulically placed tailings.
We can see that contains a lot of water. On the top right-hand side, we can see an operating dry stack in Chile, and you can see you can easily maneuver on that with heavy mechanized equipment. On the left bottom, you can see filter cake. It's soil-like in nature. We've got some of our test results. That shows Salares Norte tailings at a moisture content of 15.7%. This is really going to be quite a geotechnically stable facility over long term because we're trying to reduce the moisture and water content as far as possible. It's just a schematic of what the actual tailings filtration plant will look like.
We need two tailings filters to deal with the capacity. We've decided that we will install a third filter just to make sure that we've got sufficient redundancy in the system to deal with any eventualities. This plant's also decoupled from the primary facility, the process facility. We've got surge capacity, so this can continue to operate independently of the actual processing plant. Some design details of the TSF has been designed for a capacity of 24.1 million tons. Overall, the height of this facility will be less than 40 meters. Again, I just want to highlight that it's compacted. We've got a liner installed. This is really a best available technology design. In terms of access roads to sites and distances from the airport and port facilities from firstly the capital city of the Atacama Region, we're about 330 kilometers away. That's from Copiapó.
We are 180 kilometers away from El Salvador Airport. The port of Puerto Angamos, which will serve as the main entry point, especially for the construction phase, is about 850 kilometers away. There are also other port facilities that are located a bit closer, like the port of Huasco. In terms of the site access route, all of this is existing, so there's no big expenditure required to construct access routes. The only thing that we need to focus on as part of the project is internal roads. There's no significant expenditure in that regard. Moving on to power and fuel. The power station and fuel station is in the top right-hand corner of this slide, and it's quite a modular design. Initially, we'll focus on diesel generators. The objective is to get this plant away with a technically proven solution.
From that point, we'll start to introduce renewable energy as per our strategy that we've developed. We are more than 100 kilometers away from the grid. We believe that non-conventional renewable energy is a very likely option for us. Regardless of this, we need 100% thermal generation capacity to operate this plant during the night, obviously. The base case considers diesel power station, which we'll install about 17.5 MW. That's installed capacity. Then the actual requirements is close to 13 MW, 12-13 MW on an average basis, and that will be operated under a BOOT contract modality. Then we'll continue with staged introduction of non-conventional renewable energies, starting with non-process loads. This is the renewable energy strategy, and we can see following the plant ramp-up with the amount of renewable energy we plan to incorporate for the project.
Our final target being to generate about 20% of total energy consumption by renewable energy sources approximately two years after we commission the plant. There are various benefits for going with the staged approach, and that is basically that the intent is not to complicate the actual construction and commissioning of the processing facility. We want to get that away. Afterwards, start with the construction of the renewable energy facilities for the project. I'll just quickly move through this. We envisage energy savings of approximately $0.75 per tonne once we have this strategy fully implemented. That hasn't been considered in the actual project financials to date. In terms of water supply, we're dependent on groundwater that's located approximately 12 kilometers away from the processing facility. We've already got water rights granted at 114 liters per second.
The current demand for the plant is only about 30 liters per second. The water will be sourced from two main wells. The water quality is generally of good condition. TDS is below 1,000, so we're quite fortunate in that regard. For potable water, we plan to install a reverse osmosis plant. For sustainable development, I'll give it back to Max.
Thank you, Francois. In terms of safety and health management, we have been working in preparation for this project for many, many years. We have had exploration activities and also early construction activities at site for a long time. Therefore, it has allowed us to experiment the conditions of the site and the conditions of the altitude. We got a very mature risk management process in place. We got a very good clinic facilities taking care of, in particular, the altitude problems. We have an emergency brigade already in place, and also we have incorporated in the last year the proactive measures and practices with our workforce. We are working with first-class contractors or integrators like Fluor. We have already integrated a safety manual for the project, taking into consideration both companies' high standards.
In terms of environmental, we have focused mainly in the baseline studies in recent years to feed our EIA and feasibility study. We have also built a very robust hydrogeological model. A lot of activity and a lot of drilling has been done at site to understand very well the groundwater. We have been also setting the foundations for climate change management. That is being incorporated into the technology we are including in the project. Of course, we got the day-to-day management of environmental management like waste management and compliance to the permits we have already in place. In terms of the EIA process, as I mentioned before, we have introduced or submitted to the authority the EIA document last July. The reason to introduce the EIA is an alteration and loss of the chinchilla habitat.
A chinchilla is a species that is an endangered species declared in Chile. Therefore, that trigger the reason to enter an EIA. We have received the first document of questions and observation from the authority last October. Since then, the team has been working to answer all these observations and questions. In the meantime, we have also in January, this been declared indigenous consultation by the authority. We want to consult with some of the indigenous community that is close by the road we're going to use, if they are in agreement with the project and the measures we are implementing for them. The indigenous consultation was finally closed last week with a letter from the community indicating that they have already negotiated or agree with us what are the measures and activities they're going to do together. We got a long-term agreement with this community.
Therefore, that was a unique case in Chile where indigenous consultation is closed by the request of the same community. We, as I mentioned before, are ready to present the addendum of the first questions and observations. If everything goes well, we're going to be introducing this by the end of this week. In terms of project execution strategy, just a quick overview of the schedule of the project. As Nick mentioned, we intend to go to construction in the fourth quarter of 2020 if we got all the permits already in place. We have work schedule.
I don't want to go into the detail, but this is a schedule that take into account the weather conditions and the altitude and also the construction strategy that we have designed for the project that is mainly based in modularization and doing as many activities we can outside of the project. As we mentioned, considering all the contingencies, we are expecting to have the first gold in the first quarter of 2023. In terms of the results of the business case, as has been mentioned, the CapEx is $834 million, December 2018 money terms. This is on a split of the CapEx. As we can see, around 20% of the CapEx is related to the pre-stripping, and the process plant is 38%. The rest is the different facilities, owner cost, and utilities.
In terms of the all-in sustaining cost, there is also a graph of the split, where the cost is. I'm not going to go into that detail. It's in the presentation. In terms of metal production, as we mentioned before, we got the first seven years with very high production. After that, we are taking the stocks with lower grade. You can see that during these first seven years, we got also very low all-in sustaining cost. We have also included here the pre-development cost. We're going to spend $80 million. That was between January this year until the sanction of the project, which after that is $834 million. The all-in sustaining cost, as I mentioned, was $545, and the all-in cost, including the initial CapEx, is $785 per equivalent ounce. A free cash flow margin of 46%, and the NPV, that is based in $1,200 gold.
This is our deck for the project, not taking into account today's gold price. The NPV will be $510 million. The IRR close to 22% at $1,200 gold and $17.5 silver. If we consider the discounted NPV at today's, that was January, was $402 million. Still a very robust project. That's including the $80 million of pre-development. I will hand over to Nick to talk about the next steps.
Thank you very much, Max. Obviously, there's been a lot of work ongoing to get us to this point. Clearly, as you can see, we're still around about 18 months away from what we'd hope to be a construction start. As Max has mentioned, there's obviously permits and so on. There's the feedback from the authorities on the EIA. We're working through that. So far, so good. The first and most important milestone for us to get to is to get that EIA approval. As we mentioned earlier, it was formally accepted in July of last year, we would expect to have that in place all being well by the middle of next year.
In the meantime, we'll continue doing all of the preparatory work so that we can do a construction start. Key towards that is doing the detailed engineering to make sure that we really firm up all of the activities, the sequence of activities, and also make sure we understand the detail behind all of that. That will de-risk the project significantly and make sure that we can hit the schedule that Max briefly talked about when he showed the project execution plan timeframes. That'll be the work that is included in that $80 million or so that Max has talked about to get us to that point where we can start the construction of the project. In addition, obviously, a lot of people have asked us this on the road when we first put out the feasibility study results and the maiden reserve.
How are we going to fund this particular project? As you can see from the project, the good news is it's very robust. I think you'll find that this project still looks pretty good at prices below $1,200. You can see it's a short payback period. Because of the accelerated mining strategy, we are able to preferentially feed the higher grade in the earlier part of the mine schedule. From a financial perspective, this shouldn't be a high-risk project to finance. The good news there is that this is something that I think even at fairly conservative prices, we should be able to come up with a funding strategy that works for us. We don't know exactly what that strategy is going to be at this stage. What I can share with you is that we are evaluating a number of different strategies.
We may bring in a partner to partner with us. That doesn't necessarily mean it has to be a fully-fledged joint venture. It could be a passive partner. It could be a strong technical partner. We're going to look at all of these options. We haven't locked ourselves into that. Clearly, as we prepare ourselves for a final board approval, which would obviously incorporate a funding strategy. We're going to be working through that. We've got time. Bear in mind that the EIA, as I've mentioned, we're still a year away at least from getting that approval in all likelihood, unless of course, we get it earlier, that would be a good issue to deal with, it wouldn't be a bad issue to deal with.
We've got time to work through these issues, and we'll figure out the best strategy and obviously taking into account where Gold Fields is as a company, what it wants to do. Certainly, this is the kind of project, and I just want to reiterate what Max and the team have said here today. This is the kind of project that ticks all of the boxes in terms of the Gold Fields strategy. It's a long life operation. It's 10 years plus. It's low cost. It's in a jurisdiction that we like and we've been busy in for over 10 years. We've been in Chile now for a good 10 years or plus. We've really started to learn a lot about the jurisdiction.
As you've heard, it's in a belt that is very prospective and contains multi-million ounce deposits that just got bigger over time, as Diego pointed out to you earlier in the presentation. The funding strategy is key. We'll have to decide whether we go it alone or whether we go with a partner, or if we look at other innovative financing techniques. There's a team working on that in tandem with all of the work that Max and his team are doing to get this project ready for a construct decision. Final board approval, of course, would be when we get the final environmental impact assessment. We'll have to update our numbers, obviously, because as you heard, the project is stated in quarter four 2018 terms.
When we take it to the board for final approval, we'll have to assess whether there's any impact of any escalation or other changes, which obviously we can't discount between now and when we have a construction approval and a construction start. Lastly, let's just bear in mind, Salares Norte is only a small part of the total land package that we have here. As we've mentioned earlier, there was a slide, you can see that we have a lot of ground around us that is very prospective. Whilst we're doing all this work and getting the project ready to go, at the same time, we're also doing district exploration. We're actively drilling a number of targets. It's early days, but so far it looks encouraging. I think over time, there's every reason to believe that we'll add to this project.
Certainly, from where I sit and the team, we see Salares Norte as the first step in what will be a much bigger land package that is exploited for the benefit of Gold Fields shareholders over time. With that, I think it's probably a good time for us to close and leave now the time that we do have. We've gone through this in a reasonable amount of time, just about an hour. We'd like to leave time now for questions. Bear in mind, Lucho Rivera is here as well, who is the regional head, in South America. He's based here in Lima. Of course, Avishkar is here, Max and Francois and Diego, you've heard from, of course, from myself. With that, we're going to hand it back to questions which possibly Avishkar will monitor for us.
I will. There's quite a few questions. I'm going to ask them one at a time, I suppose the best way. Firstly, James Bell from RBC. I see the study metrics and reserves use $1,750 silver, which is above the spot price of $1,517. If you ran $1,300 gold and spot silver, how does the metrics look? Is the project sensitive to moves in silver price?
Max.
Silver at the study prices account for approximately 10% of the overall project value. I think there's probably about a 15% change between the study price we've used for silver and spot. Therefore, it's not sensitive. It wouldn't move the project metrics in any significant way.
Okay. Can you talk about the trade-offs between contractor versus owner mining, given the potential mine life extensions that deposits like this have? Are there contractors that have successfully operated at altitude of Salares Norte in Chile?
Yep. Firstly, we need to realize that Gold Fields doesn't have any active operations in Chile. That was a key factor in our decision to go with contractor mining. That coupled with the fact that we wanted to keep initial CapEx under control, led us to contractor mining. In terms of contractors operating at this elevation, Chile is a mining country with significant copper deposits in the Andes. There are a number of contractors operating at similar altitudes and it's something that the industry here is really good at operating at those sort of altitudes. No, we're definitely not outside the envelope as far as that's concerned.
Okay. Last one from James Bell. How much project debt do you think the project can handle versus the initial capital? Can you also talk about the potential terms you would consider as acceptable to Gold Fields and partnering with another miner?
Okay. I'll answer that question.
Certainly, if you looked at conventional project financing, probably with a degree of commodity hedging put in place, this project could probably be financed through conventional project financing. Given the fact that there's a 2.2-year payback, we wouldn't think that that would be a challenge for us. Certainly, initial indications from the market here in South America is there'd be an appetite to finance a project like this. I think what we have to do here is not just look at the project, but look at the impact on the greater Gold Fields, and the fact that we need to consider what other commitments we've got. That's why we're going to be looking at other opportunities. Certainly, it could be project finance, and we're not saying that we're discounting that as an option.
In terms of how much would we give away and what sort of deal would we want, that can only be assessed once we, and if we test the market. One of the things we may consider is to determine what we think the market might value this project at some point over the next six months. At this stage, we're not going to commit to any particular route or to any particular outcome. I think it's fair to say, James, that the work is all ahead of us, and once we've done that, we'll come back and give a better indication. The point is, we've got time. It's not something I think that has to be sorted out in the next three months. Certainly, from my perspective, by the end of the year, we'd need to have a strong indication as to where we are.
Thank you.
I've got two from Yatish at Macquarie. With the SMA taking a hard stance on Kinross and Barrick's operations on polluting the environment, how confident are you in terms of your environmental management plans with a specific focus on water management? What measures are in place to circumvent any pollution of groundwater?
That's a good question. Of course, during this project study, we have taken into consideration where we are. Atacama is a region. It's a desert. The water is a big issue. We have taken this very seriously. I just want to point out some key differences here. The project you just mentioned are located in a different basin, and they are located on top of the basin of the Copiapó River. Copiapó River feeds downstream into farming and also into the city. It's a very sensitive area. They have some issues there related to infiltration and some other accusations. Our case, just to differentiate, is that we are located in a closed basin up in the Salar Grande. This is a basin where we are the only one sitting in that basin. There's no other commercial activity or no human activity in the basin.
The closest or the near community people is 65 kilometers away in two, three basins downstream. With regards to water, we are the only users. We have obtained the water rights and also deal with the authority to protect that basin in terms of being the owners of all the rights there. As Francois mentioned, we are using very small quantity water. We got 114 liters per second water rights already obtained. We are asking for 30 liters per second for the necessities of the plant and the different activities like the mine and other infrastructures. We have also included the latest technology, as also mentioned here, in terms of tailings filtration. In order to reduce the minimum possible water, we have included, without the need to do it, just to avoid having any issues with the recent experience.
We have included a membrane underneath the stacked, dry, and compacted tailings. It wasn't necessary from the pure technical point of view. Also, we have done a lot of work in terms of geochemistry in our waste dumps to prove, and we got very well-developed models to prove that there is a very low probability of impacting the groundwater.
Okay. One more from Yatish. In years four and five, would there be potential to consider an underground transition given the ore body is open at depth? If so, is there implications from a processing perspective if you transition from oxides to sulfides? Is the plant being constructed on a modular basis?
You want to answer that?
At this stage, the process flow sheet caters for oxide ores only. The ore, as I mentioned, is 98% oxide, so it's entirely driven by that. I think at this stage, what we require for the sulfides would be some deep drilling. There's more geological information that would be required for us to make any reasonable assessment of that. I think there's.
There's definitely a critical mass of oxides to get this project underway. I think the sulfides option will be explored further down the road.
Can I just add to what Francois said? It's coming back to the district exploration. Given the fact that we have a number of concessions within 20-kilometer radius to the plant with good terrain and topography, it would be more logical for us to look for shallower oxides around us than to go deeper below the existing operation. If anything, the greater likelihood is for us to be adding incremental oxides from the concessions around us, and that speaks to the district exploration program. That would probably be the first preference for us. I think there's a lot there that could keep us busy for many years if we're successful in the exploration work that we're currently busy with. Thank you.
Okay. I've got a whole bunch of questions from Victor Flores. I'm going to ask them one at a time because
Yeah
I suppose they're quicker that way. Could you please provide nominal plant capacity in tons per year?
The plant capacity is 2 million tons per annum, so it's a fairly small front end to the plant. Maybe just on the back end, there's going to be a significant amount of ounces coming out. The plant's been designed to push out about 5 million ounces of gold and silver combined, but it's 2 million tons per annum.
Can you provide unit costs in terms of mining costs per ton moved, processing costs per ton processed, and G&A in $ per year?
Firstly, in terms of mining cost, life of mine mining cost is $2.28 per ton. The processing cost is just over $35 per ton of life of mine. Finally, G&A on an average basis is $25 million per year.
Sustaining capital, $ million per year over life of mine, closure costs in $ million.
Sorry, just to add that, what Francois said, these are based in firm quotes.
In terms of sustaining CapEx, sustaining CapEx is just below $70 million over the life of mine. Closure cost has been estimated at $78.3 million. I just want to point out that number is heavily influenced by the amount of rainfall or lack of water on site. There's no effluent from site, so we don't have large water treatment requirements at end of life. That definitely impacts the closure burden. As I said, that's $78 million.
Okay. Assumptions on ore hardness and assumptions on power cost.
Okay. Ore hardness, we've done extensive combination circuit test work. The ore is classified as between medium to moderate hardness. If we look at A cross B type values, it's in the 40, around about the 40 ranges. It's definitely not a challenge. It's nothing like we have at some of our other operations, I'm glad to say, in West Africa, for example. It's quite manageable. In terms of power cost, the study was performed with 100% diesel power, the cost we used for the study considers diesel at $70 per barrel. Sorry. Yep. Oil price of $70 per barrel, which roughly translates to $0.70 per liter of diesel, that gives us a power cost of just over $0.28 per kilowatt hour.
Yeah.
Last one from Victor. What proportion of cost is U.S. dollars versus other currency?
The current estimate is that between 35%-40% is U.S. based, and the remainder will be mostly CLP, Chilean peso.
Thank you, Victor. Rich Howard, question from him. Please give color related to the Franco-Nevada purchase of royalty.
That's the sale of the royalty. This process is independent to us, but just to mention that we currently conserve the same rights we had before the sale of that royalty, which is a 2% NSR. Is it NSR?
NSR.
We got the right to buy the 1% by $66 million, once we are in production. Basically, it's that. We are conserving the same contract structure we had before the selling of that.
Yeah. I think the point is there's no commercial impact on us.
Yeah. That's included in the financial model.
Yeah.
Okay. Patrick Mann. What is the biggest risk to project delivery?
Well, I would say that, and this is already considering the scale, is always the permitting. Chile. We've got a lot of regulations and a lot of permits that we need to go through. From the technical point of view, I think we've got a very good project. It's very mature. We've been studying it for more than three years. We've got very first-class contractors and consultants, and we've been advancing detail engineering. I think we're going to be in the unique position compared to other projects when we go to construction, we're going to have most of the engineering already done. From the technical point of view, I think the risk is low. The biggest risk is the delaying on the permitting, I would say.
Okay, I've got a holder again from Adrian Hammond at Standard Bank. Does this project represent growth or replacement for Gold Fields?
Yeah. Adrian, I would say that we've mentioned before that we have a solid profile over the next 10 years of about 2 million ounces for Gold Fields. That does not include Salares Norte. That's just on the existing operations with Gruyere coming into production in June and with the Damang ramp-up, which is happening as we speak, and of course the base load from everywhere else. That 2 million ounces over 10 years did not assume that Salares Norte went ahead. If Salares Norte went ahead, and if we did 100% ourselves, then as you can see, particularly in the first seven years, you'd be adding over 400,000 ounce a year of production to the base. Obviously, if we did a deal that was, say, 50-50 with somebody else, then obviously you'd be adding half those ounces.
Essentially, this would be a growth in the production ounces for the group, if we go ahead with this.
Would Gold Fields lift its net debt to EBITDA threshold to help fund the project, and to what level?
Yeah. The beauty of this project is that essentially the big dollars only start happening from the beginning of 2021. As you've heard from Max and the team, the project build is just over two years. We'd be spending of the order of that $800 million at a rate of about $400 million a year, roughly. By that time, we have finished all of the project work at Damang. We've finished all the project work at Gruyere. Capital would be less, we'd be in a good position in terms of lower capital to absorb this.
In addition, as we've mentioned before, we would expect Gold Fields, all things being equal, assuming that the market prices are roughly where they are now, we would expect Gold Fields over the next 18 months, particularly when Gruyere gets into production second half of the year, to be cash positive and for us to be able to reduce our debt between then and when this project starts to be funded. I think we'll be in a good position to assess. At the same time, we would take a very hard look at this project before we committed to doing 100% of it on our own. We'd look very carefully at where the market is, where we are, and make sure that we can comfortably do this with headroom to spare. We would never fund this project by pushing the limits here.
We'd do this in a way that we could comfortably do. We've got time. The beauty here is we've got time. We don't have to make that call today. We'll make that call, I'm pretty sure, in the next 12-18 months before we start. That will be determining the right answer for us going forward.
Okay. Have you approached potential partners? If so, would you want to remain the operator?
We have not followed an active process at this stage of soliciting interest from potential partners. What I can tell you is there's been no lack of interest, unsolicited, that is, from companies that would wish to partner with us. I don't think this would be a challenge in finding a partner. In terms of operatorship, I think our preference would be to operate. That said, if we get the right technical partner, we would obviously have to look at all of the commercial aspects in any kind of deal where we are not the operators. I think our first prize, particularly given the fact that we see Salares Norte as being the start of something much bigger in the district, it would be preferable for us to be operators. Again, there's no hard and fast lines in the sand at this stage.
Okay. Max, I wonder if you're going to add to this. What are the key project risks identified? Do you want to talk more about it?
Well, at this stage, most of the project risks identified are related to the EIA process and on the delay that this can cause into the process. They are mainly related to the questions and observation we are receiving from the authority related to how we're going to handle the chinchilla impact, or how we're going to handle the community, the indigenous communities, and questions about water. These are the main risk. We got other risk, of course, associated with the altitude and the weather conditions that are being built into the project execution strategy and also into the schedule. The main risk, the number one risk, of course, in our list is related to safety and related to the long distance we need to drive to site, and that's related to potential accident transporting people. There is no any specific or high risk other than those.
Okay. Are the costs provided net of silver credits?
The costs are reported on a gold equivalent basis. Silver is included.
Okay. Potential upside to reserves within the next two years?
Diego, you want to answer that?
Well, we're still, as we could see, even some sections that we went through, Agua Amarga still have potential. It's still open, the deposit. Obviously, I'm very close to what we call near mine. Around Salares, there is a couple of targets that can provide some additional resource first, then reserves to the project, the life of mine.
Yeah, the thing is, year-on-year, we have been improving the project. The more we drill, the more we find. As Diego mentioned, we need to close this for the EIA, for the feasibility study at some point in time, still high potential to grow this in the future years.
Okay. Tax and royalty rates?
Francois, you want to take that?
The corporate income tax in Chile is 27%. On top of that, there's a mining tax, which really functions as a royalty. The second part of the question was?
The royalty.
The royalty, yeah. We've got a third-party royalty on the project, but there are no government-imposed royalties. That third-party royalty is 1% on the project. That's after having bought back the additional second %, as Max explained earlier.
Okay. What contingency is built into the CapEx schedule?
We got, yeah. Within the contingency or the schedule, you mentioned?
CapEx, sorry.
The capital.
Quanta, yeah.
Okay. I think we got $ 106 million. It is around 15% contingency.
Okay. That is it from Adrian. The last lot of questions I have is from Tanya at Scotiabank. Some of them have been answered already, so I will not go through those. Why is the tailings filter facility separate from the processing plant?
That was a deliberate design point. What we wanted to do is find the optimal site for tailings filtration on the property, and we have done that, looking at geology, hydrogeology. The next point was to see what is the best means of transporting tailings to that particular point. We had two options: either install the tailings filtration plant at the processing facility, but then we had to truck the tailings over native soil to the tailings storage facility, and we thought it was a much better option to pump it hydraulically to the tailings filter facility, filter it there, and then that being right adjacent to the facility, limit the transport of the actual dry tailings to the minimum amount possible. We definitely think it is the best design option for us.
Okay, the other unanswered one from Tanya is, what currency assumption have you used? How sensitive is it to currency change?
Yes. We have been using CLP 651 per USD. As we mentioned, more than 60% around the cost of the project is in CLP, there's sensitivity on the exchange rate.
Okay. Just a reminder, if you want to ask a question, please submit to the webcast on the website. Andrew Williams from Sun Valley. He's asking, are there any contractor mining cost benchmarks that are comparable to the 228 you quoted, is any of the material free dig?
Firstly, the question of free dig is we've got quite a significant amount of steam-heated alteration, which is a weak alteration. We've got about 40 million tons between Brecha Principal and Agua Amarga combined, most of that material will be free dig. In terms of benchmarking, we've done a number of studies. In the first instance, we invited fixed and firm quotes from multiple contractors. Secondly, we prepared a shadow bid with our mining consultant. Thirdly, we had an independent peer review by an expert with a significant database of mining costs in Chile. We're quite confident that the values that we're using in the model is representative of current rates in Chile.
Okay, that's it from the webcast. If you have any other questions, please email me and I will get the team to come back to you. Any closing comments, Nick?
Well, I just want to say thanks, everybody, for dialing in and for all of the very good detailed questions that we've had as a follow-on from the presentation. We believe that this is one of the more exciting projects in our portfolio, certainly, it represents something we can add on to, I guess, over time. We really don't see this project as being what you see is what you get. We see this as being the first step in a growth strategy in a district that has a lot of potential. A lot of work ahead of us, of course. We've got to get the project now to a point where we can get it to a construction decision. A lot of work there.
As Max has said, we're doing a lot of work planning the construction, in particular, adopting a strategy of making sure that we can do as much work off-site in terms of fabrication as opposed to doing it on-site. That's going to make things easier, cheaper, and less risky. The team is working on all of those activities between now and hopefully when we can start building the mine in the spring of next year. With that, I just want to thank everybody for joining us today. I want to thank the team that have come up from Chile, from Santiago to present. Lucho and his team here in Lima, in providing all of the overall support, of course, Avishkar, for helping us to coordinate this. With that, we want to say thank you very much. Have a great day.