Welcome to Orla Mining's Camino Rojo Oxide Project Feasibility Study Update conference call. My name is James. I will be your conference operator today. All lines have been placed on mute to prevent any background noise, and after the speaker's remarks, there will be a question-and-answer session. If you'd like to ask a question during this time, simply press star, followed by the number one on your telephone keypad. If you'd like to withdraw your question, press the pound key. Please be advised that this call is being recorded, and I would now like to turn the meeting over to Jason Simpson, President and CEO of Orla Mining. Please go ahead, Mr. Simpson.
Thank you, operator, and welcome everyone. On the call with me this morning, we have Etienne Morin, Chief Financial Officer; Andrew Cormier, Chief Operating Officer; and Hans Smit, former COO and current technical advisor and qualified person, who led this feasibility update for our Camino Rojo Oxide Project. Before we begin, I would like to remind you that during today's call, we will be making forward-looking statements. I would invite you to review the cautionary language on the first slide of today's presentation, which describes some of the risks and uncertainties that may affect Orla's performance in the future. 2020 was a transformational year for Orla as we continued to make great strides towards becoming a gold producer. We believe that our success is based upon the right formula for value creation.
We have a tremendous portfolio composed of high-quality assets across multiple geographies, being developed by a team of industry veterans with the support of reputable shareholders, including companies like Newmont and Agnico Eagle, individuals like Pierre Lassonde, and investment institutions. During 2020, in the face of the COVID-19 pandemic, we were able to advance our key strategic objectives and maintain the health and safety of our workforce while generating a peer-leading share price return of 243% in 2020 and 553% over the past two years.
Our delivery included financing the Camino Rojo Oxide Project through a combination of debt and equity, strengthening our management team with the notable additions of Andrew Cormier, Chief Operating Officer, Sylvain Girard, Senior Vice President, Exploration, as well as Sean Spraggett, our new general manager in Panama. We continued engineering and procurement throughout the year.
We completed the project permitting, allowing us to commence earthworks on-site. We also continued to progress our attractive growth pipeline. In Mexico, we advanced our sulfide trade-off studies. This included new metallurgical work, geological modeling, and the supporting drill activities. In Panama, we are updating the pre-feasibility study for our Cerro Quema Oxide Project. We also resumed exploration drilling on the Caballito copper-gold discovery. Additionally, in December, we commenced trading on the New York Stock Exchange to broaden our investor base and bolster our overall company profile. Most recently, and the subject of this call, we completed the value-enhancing layback agreement at Camino Rojo. This agreement allows Orla to expand the north wall of the oxide pit onto the adjacent property and increase reserves and life for our first mine.
Today, we are delighted to share with you the results of the updated feasibility study, which reflects some of the benefits of the pit expansion made possible through the completion of that agreement. Before we dig into the details of the updated feasibility study, I would like to highlight our overall objectives for 2021. As you know, we have assets in Mexico and Panama. Both countries have oxide projects with low capital cost, low strip ratio open pits amenable to heap leaching, producing high-margin ounces that can be delivered to market quickly. Both countries also have large sulfide discoveries and great exploration potential, which will prove to be tremendous value generators. Starting in Mexico, construction at the Camino Rojo Oxide Project is our number one priority.
We are working to safely advance the project to first pour in late 2021, and Andrew Cormier, our COO, will walk you through the construction progress in just a minute. At Camino Rojo, we will also complete an infill drill program on the Fresnillo concession, which we expect will bring additional material into the Measured and Indicated category, facilitating a subsequent mineral reserve update. Sulfide development will also continue. Below the oxide pit is a sulfide mineral resource of over seven million ounces.
It is located only 50 kilometers from Newmont's Peñasquito plant. A directional drill program was started in the fourth quarter of 2020, and will continue in 2021. This program will add closer space drilling of the sulfide deposit, providing additional information about the continuity and geometry of the higher grade mineralization, as well as producing material for geotechnical and metallurgical testing and studies.
For the Camino Rojo sulfides, we are evaluating three development scenarios through internal trade-off studies. A higher grade underground project aimed at recovering a core of deposit with small scale processing on-site, an option of an open pit with standalone processing on-site, and an open pit recovering the maximum available ounces, contemplating processing at Newmont's Peñasquito facility. All options have the potential to create incredible value for Orla, and we are working to determine which scenario maximizes value to shareholders.
We are expecting to complete a PEA by the end of this year, leading us toward project development. Finally, in Mexico, we are continuing our regional exploration program to discover satellite deposits. We will complete a low-cost, shallow drilling program to obtain geochemical information from the bedrock hidden five to 10 meters below the overburden. Combined with the existing geological information, new targets will be identified.
We are also updating the pre-feasibility study for the Cerro Quema project. We are targeting early second quarter for completion of the study update, with a possible construction decision by year-end, depending on progress with concession renewal and permitting. We will also be drilling along the Caballito Trend and over the Comita deposit area to define additional copper gold sulfide mineralization. Geophysical IP survey and global project data review are also planned to define new drill targets. As we have discussed in the past, the updated feasibility study for the Camino Rojo oxides, enabled by the layback agreement, offers considerable benefits. Today, we can outline some of those benefits in more detail. Primarily, the updated feasibility study demonstrates a more than 50% increase in reserves, leading to an increase in mine life from under seven years to over 10 years.
The result is an updated project net present value of $452 million, and an after-tax internal rate of return of 62% at a $1,600 gold price. The infrastructure will remain as presented in the 2019 feasibility study, which is currently under construction, with the obvious exceptions being a larger waste dump and leach pad to account for the additional tons. The layback agreement allows for a larger pit, producing approximately 318,000 ounces of more gold in comparison to the 2019 feasibility study, resulting in improved cash flow generation, all coming without material changes to the current infrastructure design. The cost of the layback agreement is $62.8 million, payable to Fresnillo through staged cash payments.
The first $25 million will be paid when final approval of the layback agreement is received from the Mexican Federal Competition Commission. We expect this will occur in the first quarter of 2021. The second payment to be made is in the second quarter, second half of 2022, and the third payment being made in the second half of 2023. With the layback agreement, we can mine and recover, for our account, all oxide and transitional material amenable to heap leaching within an expanded open pit.
After a small confirmation drill program on the Fresnillo property, we will update the mineral reserve estimate to include all economic oxide and transitional material from the expanded pit, including the portion located on Fresnillo's concession, that is currently classified as waste in the updated feasibility study. Project construction is underway, and we continue to target first pour in late 2021. I will now pass the call over to Hans Smit to discuss some of the highlights of the updated feasibility study. Hans?
Thank you, Jason, and good morning, everyone. I'm pleased to provide you with some of the details of the updated Camino Rojo oxide feasibility study. The study encompasses the benefit of being able to mine more of the heap leach mineral resources on the Orla concession by expanding the pit envisioned in the 2019 feasibility study onto the Fresnillo concession to the north. The Camino Rojo oxide project will consist of an open pit mine and a conventional heap leach operation. 18,000 tons per day of oxide and transitional ore will be mined and crushed to 80% passing 28 mm, conveyor stacked onto a heap leach pad and leached using a low concentration sodium cyanide solution. Pregnant solution from the heap leach will be processed in the Merrill-Crowe plant, where gold and silver will be precipitated and doré will be produced.
The new study is based on the same ore operating plan as the 2019 study. This is the project currently in construction. The main differences in the new plan are a larger open pit and related increases to the heap leach pad and waste dumps, all of which were anticipated in initial design. The new study reflects the actual capital costs incurred to date and increased precision in estimates for activities still to be completed due to the advanced stage of project engineering. We take confidence in seeing that the cost estimates from 2019 are largely in line with the actual costs we're incurring for the equipment purchases and construction contracts.
The layback agreement allows Orla to expand the north wall of the oxide pit onto the Fresnillo property, thus enabling the extraction of more of the leach material resource that is below the 2019 pit. The increase in mineral reserves outlined in this update is derived solely from the conversion of Measured and Indicated mineral resources located on Orla's concession. We have not updated the mineral resource report in 2019, and all material on the Fresnillo claim in the updated feasibility study is currently modeled as waste. The mineral reserve has increased 54% and now sits at just over 67 million tons in an average grade of 0.73 grams per ton gold. This equates to about 1.6 million ounces of gold on a contained basis, and just shy of one million ounces on a recovered basis.
Estimated mine life is 10.4 years, with annual average production of 118,000 ounces of gold in the first five years and 94,000 ounces of gold over the life of mine. The gold mineral reserve price of $1,250 was maintained from the 2019 study. Recovered silver amounts to approximately 6.2 million ounces, with an average annual production of 597,000 ounces of silver. Estimated gold recovery is 62%, 2% lower than in the 2019 feasibility. The larger pit in the updated study will go deeper, therefore, have a higher percentage of transitional ore over oxide ore in comparison to the 2019 pit. Transitional ore has lower recovery. 2/3 of the updated mineral reserve is oxide material, representing 72% of the estimated recovered gold.
Expanded pit has a strip ratio of 0.92, higher than the 0.54 strip ratio in the 2019 study. This increase is because of the deeper pit and the higher percentage of sulfide mineral rock that overlies the eastern part of the deposit. As mentioned, all mineral reserves included in this study are contained solely on Orla's concessions, and all material on the adjacent concession is included as waste in this study. Following the completion of an approximately 2,500-meter confirmatory drill program and the integration of Fresnillo's drill data with the Orla data set, a subsequent mineral reserve update is expected that would include all the economic oxide and transitional material from the entire extent, expanded pit.
Based on our current assumptions and limitations set by the layback agreement, this will not result in a significant increase in the size of the pit. However, some of the material assumed to be waste on the Fresnillo concession in this updated feasibility could be reclassified as ore. This would result in additional ore tonnage to the crusher and a reduced waste-to-ore stripping ratio. Initial capital costs for the project total $134 million. That's about $11 million more than in the 2019 feasibility study. Primary reasons for this increase include: the power line capital was brought forward into initial capital from sustaining capital, items identified through construction engineering, new environmental and permitting payments required for the expanded project, and the cost of measures Orla has instituted to operate safely during the COVID-19 pandemic.
Overall, there has been a good match between purchase and contract prices and the estimates from the 2019 study. 58% of capital costs are based on purchase orders and updated firm proposals for equipment, material, and construction contracts from ongoing EPCM and site activities. For capital items not yet purchased, budgetary supplier quotes were used. To date, we have committed $78 million towards capital costs. Operating costs are based on contract mining, with all other mine components being owned and operated by Orla. The site's proximity to infrastructure, low stripping ratio, compact footprint, and flat pad location all contribute to the project's simplicity and low estimated all-in sustaining cost of $543 per ounce of gold. Operating costs of $8.17 per ton are in line with the 2019 estimates.
Estimated mining costs are $1.75 per ton moved, or $3.37 per ton processed, which covers contractor charges and owner costs for engineering and supervision. Increased mining costs per ton of ore processed due to a higher stripping ratio compared to the 2019 study are offset by reduced costs per ton moved. The lower costs relate to being able to utilize bigger equipment in the larger pit, eliminating the need for support on the steeper back wall envisioned in 2019 due to the previous property constraints, as well as a more competitive contracted price. Mining costs include rehandling of 9.2 million tons in the low-grade stockpile, which will be processed in the final year of stacking.
Process costs of $3.20 per ton processed reflect relatively low consumption rates of cyanide at 0.35 kilograms per ton, and lime at 1.25 kilograms per ton. The project's favorable location in regard to transportation and industrial suppliers. A new power line to site is 49% completed. In the 2019 study, a power line was not planned to be completed until the end of the first year of production. New process cost estimates include the benefit of having line power at a cost of $0.10 per kWh before production begins, versus using more expensive diesel generators in the first year of operations. The power line being built is also considerably less expensive than the 2019 estimate.
An additional $2.7 million in initial capital in the updated study replaces $5 million in the sustaining capital in the 2019 study. Our thanks to the site team to make this improvement a reality. General administrative costs of $60 per ton processed include a 112-person count. We have worked diligently to ensure a significant portion of the employees will be hired from the local area, so the larger camp envisioned in the 2019 plan is no longer required, reducing G&A costs. Closure costs of $29 million include regrading of the waste dump and capping of the dump and heap leach to reduce water infiltration.
Increases from the 2019 estimate are because of larger heap leach and waste dumps that will need remediation, and an increase in rehandling of some of the waste material to ensure long-term environmental protection. Due to the shape and characteristics of the deposit, mineral resources do not increase significantly with higher gold prices. To be conservative, we have maintained a mineral reserve gold price of $1,250 and a mineral resource gold price of $1,400. The updated feasibility study economics were conducted using a gold price of $1,600 per gold ounce and a silver price of $20 per ounce, in line with long-term consensus pricing. Importantly, Camino Rojo is currently in construction, and the consensus gold prices for the period of first production are currently well above the $1,600 per ounce assumption used in the study.
Our previous feasibility economics were completed at $1,250 gold. We have provided a sensitivity table to various gold prices for comparison. One update we made is adjusting the cash flow discounting period based on the current date of the study. Given we are now only one year from production, all cash flows are discounted to year minus 1. All capital costs already expensed and paid for are included, but not discounted. The previous feasibility was discounting to year minus 2. The project after-tax net present value at 5% discount rate is $452 million, while after-tax internal rate of return is a healthy 62%, a significant improvement from the 2019 study.
I'd like to thank the team supporting this update, led by Kappes, Cassiday & Associates and supported by Independent Mining Consultants, Resource Geosciences, John Ward, Barranca Group, Piteau Associates, and HydroGeoLogica, Inc. A great team for a great project. The 43-101 compliance technical report will be released within 45 days. I will now pass the baton to Andrew Cormier, our COO, to provide an update on development at Camino Rojo.
Thank you, Hans. Upon receiving all permits included in our environmental impact assessment in 2020, we commenced earthwork in the fourth quarter. Ongoing site activities include flora and fauna relocation, site clearing, and the installation of the construction camp and offices, and site fence erection. Construction of the permanent power line to site continues ahead of schedule and is currently 49% complete. As Hans mentioned, this will eliminate the need for temporary diesel power generation for construction and during the first year of production. Process plant equipment has started to arrive on site, including piping, liner for the ponds, and equipment for the crushing and stacking areas. Detailed engineering is over 90% complete, while procurement is well advanced with $78 million of the total capital committed.
Having the four construction drawings and equipment on site positions us well for the execution of the project and keeping our costs on budget. We have also awarded most major contracts, including the civil work, and we are currently in the final stages of completing the mining contract. As you can see on this slide, some of the cacti being relocated as part of the flora and fauna efforts. There's also a recent photo illustrating the earthworks and site clearing that is ongoing. I should highlight that since the start of construction, we have had 0 lost time incidents. The health and safety of our people is critically important. Earthworks and civil activities will continue in the first half of the year, along with the construction of the crusher facility, stacking systems, heap leach pad and ponds, Merrill-Crowe plant, overhead power line, and camp.
Mining pre-strip is scheduled to begin in the second quarter, with processing and stacking ore by the end of the third quarter. On this slide, you can see the progress being made with the power line construction. The other photo shows the arrival of equipment on site, specifically heap leach liners and piping. One area that should be discussed is our continued efforts to combat COVID-19. COVID-19 clearly requires additional procedures, protective equipment, testing, and education plans related to the health and safety of our employees, contractors, and communities. All of our sites have implemented protocols that meet or exceed those of their respective national health guidelines.
Our health and safety approach and resources are being shared with the local health units and surrounding communities. In addition to providing protective equipment, we're informing the local communities on the hazards of COVID-19 and providing education to reduce the spread. A significant portion of our equipment is sourced directly from Mexico and the United States. To date, we have not experienced any delays. The updated feasibility study incorporates additional costs related to the additional measures put into place due to COVID-19. I will now pass the call back to Jason.
Thank you, Andrew. The Camino Rojo oxide project will be a tremendous first mine for Orla, a low capital, high margin, heap leach project that will generate significant free cash flow. And with the continued support of local communities and stakeholders, we have a fantastic opportunity to develop a quality operation. This project is laying the foundation for the business and future growth opportunities. This includes the Camino Rojo sulfides and multiple options in Panama. We intend to stay focused on methodically converting our mineral resources into shareholder value. At this point, I'll turn the call back over to the operator and answer any questions.
At this time, I'd like to remind everyone, in order to ask a question, please press star, followed by the number one on your telephone keypad, and we'll pause for a moment while we compile the Q&A roster. And again, if you'd like to ask a question, please press star, followed by the number one on your telephone keypad. Our first question comes from the line of Andrew Mikitchook from BMO Capital Markets. Go ahead, please. Your line is open.
Hi, thank you for taking my question. Congratulations on the big, big jump in the mine life and the reserves. Can you just maybe walk us through the numbers, potentially, say, as of December 31st, on capital spent and not included into the feasibility NPV calculations, and maybe contrast that against cash on hand, if appropriate, so that we have a sense of where the company stood, say, at the end of last year?
Sure, Andrew. I'll lead off, and then I'll hand it over to Etienne. To be clear, the capital that has been spent is included in the updated feasibility study, and we'll get Etienne to give you an update on total capital spent, committed, and remaining.
Yeah. So Andrew, we have $37 million spent to date. That capital, as mentioned by Jason, is included in the feasibility study. We've committed $78 million up to this point, and our cash balance as of the end of December is about $72 million.
Just to be clear, these are all U.S. dollars?
Yes.
Just one second question, before I hand it on to others. You guys kindly provided a chart showing the production profile change between this feasibility and the one from two years ago. And there's a noticeable bump up, year by year of production. Is my interpretation correct that, at a fixed, you know, crushing, stacking rate, that bump up reflects either better grade scheduling or better and/or better recoveries? Or am I missing something in my interpretation of that little bump year by year?
I think what you're seeing in the production profile, Andrew, is the first year is our ramp-up year, and so we'll be spending the first quarter, quarter and a half, getting up to full speed and to commercial production by quarter two of 2022. So that's what would represent that first bump. And the specifics of recovery, you know, over the life of mine, you know, generally speaking, you can say that the recovery is higher at the beginning of mine life, reducing towards the end of mine life, as you process more of the transitional material.
Okay. Thank you. I'll sign off. Congratulations, and I'll let others ask questions.
And again, as a reminder, if you would like to ask a question, please press star, followed by the number one on your telephone keypad. Our next question comes from the line of Bryce Adams with CIBC. Go ahead, please. Your line is open.
... Hey, good all, good morning, all. Thanks for taking my question. I actually jumped on a bit late, so sorry if I missed it in the discussion, but I wanted to ask on the stacking rates, maybe it's a follow on from Andrew. But 18,000 tons per day, has that stacking rate been optimized, or is there a chance that, that the stacking rate could be further optimized? And if so, what are the, what are the trade-offs you would consider for that optimization?
Hi, Bryce, it's Jason here, and then, of course, I'll let Andrew follow on to my introductory answer. As we've talked about before, we made a decision early in engineering to construct it at 18,000 tons a day, and hence, the equipment is sized in that fashion. We have not yet begun the process of optimizing, you know, things like stacking rates and potentially trade-off studies to add equipment. That is certainly a possibility and something that I know, Andrew, once we get to producing at the design rates, we'll immediately begin considering ways we can, you know, creep that up to 19,000-20,000 tons a day and the potential cost of doing so.
Okay, beauty. We'll treat it as a lock for now. In my mind, I was maybe thinking that there was some upside to that, you know, closer to the start of production. But that's it for me. Thanks a lot for the update. I'll jump back in the queue.
Thanks, Bryce.
Our next question comes from the line of Eric Winmill with Scotiabank. Go ahead, please. Your line is open.
Oh, hi, good morning. Thanks a lot for taking my question. Just a quick one on permitting. I understand that the change in land use permits are fairly straightforward to modify, but any additional comments or clarity you can give in terms of the process and timing we can expect?
Hi, it's Jason here. I'll answer the permitting question. So yes, we will have to perform an amendment to our impact assessment in Mexico, what we call MIA, which, as you pointed out, is a fairly straightforward process. Additionally, we'll need a land permit for the area on Fresnillo's ground that we now intend to mine via an open pit. We'll start that process as soon as we have the COFECE approval and finalized. And we don't need any of those amendments or additional land permits for either construction or preliminary mine life. So we have plenty of time to secure those. But yes, we do need to get those amendments for the new areas that we intend to mine.
Okay, that's great. No, appreciate the clarity. So, nice to see the updated study, and I'll hop back in the queue. Thanks a lot.
Our next question comes from the line of Bryce Adams with CIBC. Go ahead, please. Your line is open.
Yeah, good morning. Jumping back in. Again, sorry if I missed it, but just wanted to touch on the mineralization on the other side of the concession boundary. Too early to quantify it, I understand that, but just wondering if there's any discussion points around that. Do you think that there's significant upside there, or is it going to be pretty modest upside?
Yeah, we've been trying to guide for some time that we expect it to be a helpful improvement, but not of the quantum characterized in this updated feasibility study. The sequence you know that we'll have to follow is you know the exploration drilling that was described by Hans to be able to legitimately include Fresnillo's drilling into our database and then produce a reserve update. The other thing I should point out, though, is that the mineralization of the holes on the Fresnillo concession close to our boundary line are consistent with the mineralization that we see on our property. So we are confident that it does extend onto their land and look forward to providing a subsequent reserve update.
Okay, so it's always nice when you have that magic wand and you can turn waste into ore. We look forward to that update in the future.
Thanks, Bryce.
There are no further questions in queue at this time. I'd like to turn the call back over to Jason Simpson, President and CEO of Orla Mining.
Thank you, operator. I would like to thank the team and for their efforts in delivering this updated feasibility study. The Camino Rojo Oxide project will be a tremendous first mine, and we look forward to providing construction updates in the coming months. Never hesitate to reach out to Orla should you have any follow-up questions. Thank you for your time, and we wish you all a safe and healthy 2021.
Ladies and gentlemen, this does conclude today's conference call. You may now disconnect.