Preliminary Economic Assessment
On August 23rd, 2011, Buchans Minerals announced the completion of a positive Preliminary Economic Assessment (“PEA”) on its 100% owned Lundberg base metal project near Buchans, central Newfoundland. The PEA is compliant with National Instrument 43-101 (“NI 43-101”) and was completed by Wardrop Engineering, a Tetra Tech Company (“Wardrop”). The PEA is based on a 5,000 tonne per day open pit mining and milling operation over a 10 year mine life. The project’s base case is forecast to provide a pre-tax internal rate of return (“IRR”) of 43.94% and a net present value (“NPV”) at a 6% discount rate of CDN$217.8 million. At base case metal prices plus 10% the IRR is 53% and the NPV at a 6% discount rate is CDN$291.3 million.
Highlights
- Pre-tax IRR of 43.94% and an NPV at a 6% discount rate of $217.8 million on total life of mine (LOM) cash-flow of $471.5 million.
- Average operating costs for the first five years of the project are $24.53 per tonne on net revenue of $61.76 per tonne. This translates to a revenue to cost ratio of 2.5:1. For the 10 year LOM the average operating costs are $23.79 per tonne on net revenue of $52.95 per tonne for a revenue to cost ratio of 2.2:1.
- Payback for the project is estimated at 1.5 years on initial capital of $119.6 million and sustaining capital of $32.4 million for total capital expenditures of $152.0 million. Capital estimates includes $10.2 million indirect costs, $3.8 million owners costs and $19.1 million contingency.
- Average throughput of 5,000 tonnes per day, with a stripping ratio of 3.06 to 1, producing separate zinc, copper and lead concentrates with silver credits in both the lead concentrate and to a lesser degree the copper concentrate.
- Average annual production of metal in the concentrate is estimated to be 27.1 million pounds of zinc (Zn), 5.5 million pounds of copper (Cu), 16.3 million pounds of lead (Pb) and 164.1 thousand ounces of silver (Ag).
- A National Instrument 43-101 (“NI 43-101”) Inferred Resource was used by Wardrop in the conceptual open pit design (see Resources & Conceptual Mine Plan below). The open pit design is comprised of 17.28 million tonnes of the Inferred Resource averaging grades of 1.63% zinc (Zn), 0.69% lead (Pb), 0.40% copper (Cu) and 5.96 g/t silver (Ag) over LOM. In the event metal prices improve in the future, the remaining insitu inferred resource that is excluded from the current Wardrop open pit mine design of 4.93 million tonnes may be included in a future economic evaluation.
Opportunities
The Company is considering undertaking further evaluations of several aspects of the project that may extend the life and/or profitability of the project that include:
- Conducting additional metallurgical tests to improve zinc recoveries, optimize reagent consumption and investigate producing a barite concentrate to enhance the project revenue.
- Conducting geotechnical stuidies to determine if the amount of waste rock can be reduced in the open pit design by steepening the pit slope beyond its current conservative design of 45 degrees.
- Completing metallurgical tests and a conceptual mining plan on the Company's 100% owned Daniels Pond deposit with a view to evaluating it as a possible satelite mining operation and providing additional feed to the proposed Lundberg milling facility (located 80 kilometres away). Details of the Daniels Pond NI 43-101 compliant Indicated Resource of 929,000 tonnes and Inferred Resource of 332,000 tonnes (at a 2% Zn cut-off) may be viewed at the Dasniels Pond page on this website.
- Engaging in discussions with other companies in the region that have developed NI 43-101 compliant base metal resources that are too small to be mines by themselves but may also be considered for evaluation as satellite deposits to the Lundberg milling facility.
- Exploring for additional high grade massive sulphide resources at the 100% owned Buchans North and Clementine West prospects located in close proximity to Lundberg.
Economics
The PEA is based on Inferred Mineral Resources, which are not Mineral Reserves and do not have demonstrated economic viability. Inferred Mineral Resources are considered too specultive geologically to have the economic considerations applied to them that would enable them to be categorized as Mineral Reserves and there is therefore no certainty that the conclusions of the PEA will be realized.
The key economic and operating input factors for the PEA are as follows:
|
Item
|
Unit
|
Base Case
|
|
Exchange Rate
|
Value of CND$
|
US$0.988
|
|
Zinc resource grade
|
%
|
1.63
|
|
Copper resource grade
|
%
|
0.40
|
|
Lead resource grade
|
%
|
0.69
|
|
Silver resource grade
|
g/t
|
5.96
|
|
Zinc concentrate grade
|
%
|
53.04
|
|
Copper concentrate grade
|
%
|
24.08
|
|
Lead concentrate grade
|
%
|
73.92
|
|
Zinc process recovery
|
%
|
66.16
|
|
Copper process recovery
|
%
|
89.33
|
|
Lead process recovery
|
%
|
78.67
|
|
Metal Price - Zinc
|
US$/lb
|
1.22
|
|
Metal Price – Copper
|
US$/lb
|
3.62
|
|
Metal Price – Lead
|
US$/lb
|
1.10
|
|
Metal Price - Silver
|
US$/oz
|
22.74
|
|
Net Smelter Royalty
|
%
|
3
|
|
Operating Costs – Mining
|
CAN$/tonne milled
|
9.23
|
|
Operating Costs – Processing
|
CAN$/tonne milled
|
12.53
|
|
Operating Costs – G&A
|
CAN$/tonne milled
|
2.03
|
|
Total Operating Costs
|
CAN$/tonne milled
|
23.79
|
|
Total Capital
|
CAN$ million
|
152.0
|
|
Life of Mine Cash Flow
|
CAN$ million
|
471.5
|
|
Pre-Tax IRR
|
%
|
43.94
|
|
Pre-Tax NPV @ 6%
|
CAN$ million
|
217.8
|
|
Pre-Tax NPV @ 8%
|
CAN$ million
|
186.4
|
|
Life of Mine
|
Years
|
10
|
|
Payback Period
|
Years
|
1.4
|
Resources & Conceptual Mine Plan
For purposes of designing the open pit, Mercator Geological Services Ltd. modified their original NI 43-101 compliant resource block model (see news release on November 7, 2008) by elimination of sub-blocking within the model. This resulted in a consistent 5m x 5m x5m block size for the entire modified model. At a cutoff value of 1% Zn-Pb-Cu the modified block model contains 22.21 million tonnes with average grades of 1.62% Zn, 0.69% Pb, 0.38% Cu, and 5.81g/t Ag. From this modified block model Wardrop calculated an Inferred Resource within the conceptual open pit mine design of 17.28 million tonnes with average grades of 1.63% zinc (Zn), 0.69% lead (Pb), 0.40% copper (Cu), and 5.96 g/t silver (Ag) at the same cutoff value, for a combined base metal grade of 2.72% (Zn-Pb-Cu). The conceptual open pit mine design developed by Wardrop is anticipated to be comprised of 20 benches down to a depth of 200 metres with a final footprint having approximate dimensions of 800 metres north-south by 900 metres east-west. With a stripping ratio of 3.06 to 1 it is estimated that 52.93 million tonnes of waste will be removed from within the conceptual open pit mine design.
The design employs conventional open pit mining methods of truck and shovel with an equipment fleet comprising a single, 251 mm diameter rotary blast hole drill rig for mining both the resource and waste, an 11 m3 (bucket capacity) hydraulic face shovel with a fleet of haul trucks (91 tonne). Supplementary equipment would also include a loader, grader, dozers, and a backhoe excavator plus other ancillary equipment. The design forecasts a mill feed at a rate of 5,000 tonnes per day, beginning in the first year of the mine life.
Metallurgy & Processing
Metallurgical testing was performed by SGS Canada Inc. ("SGS") and included thirty two (32) flotation scoping tests and three (3) locked cycle flotation tests on a variety of samples from the deposit. Based on SGS's test results, Wardrop used the following concentrate grades and metal recoveries in the PEA:
| Copper: |
24.1% concentrate grade |
89.3% recovery |
| Lead: |
73.9% concentrate grade |
78.7% recovery |
| Zinc: |
53.0% concentrate grade |
66.2% recovery |
| Silver in Lead concentrate |
27.8% recovery at a grade of 359.5 g/t |
|
| Silver in Copper concentrate |
10.5% recovery at a grade of 37.8 g/t |
|
The PEA assumes installation of a mill/concentrator facility producing saleable concentrates for each zinc, copper and lead. It is assumed that concentrates would be trucked to port facilities in Newfoundland for shipping to smelters.
Site Plan & Reclamation
To minimize the impact on adjacent green-field areas, the conceptual mine plan proposes locating the mine facilities on “brown field sites” or ground that was previously impacted by the former Buchans mine that closed down in 1984. The proposed mine plan is only conceptual in nature and in the event the Lundberg project proceeds to the pre-feasibility stage, future mine plans will be subject to public and regulatory consultation. It is anticipated that the open pit itself will be located just west of the town of Buchans, underlying the former “Lucky Strike” glory hole and mill site, whilst the proposed location for the new processing facilities is northwest of the open pit, adjacent to the former Rothermere shaft. The proposed tailings site is expected to overlay the footprint of the old Buchans mine tailings pond, located just south of the open pit and is expected to have sufficient capacity to contain all the tailings from the 5,000 tonnes per day operation over LOM of 10 years, plus additional capacity for a further 8 years if needed. The waste rock dump is expected to be located 1 kilometre south of the open pit and east of the existing tailings pond. This location was selected because of its close proximity to the open pit, distance from the town, bowl shaped topography and its location within drainage already impacted by historic operations. Closure and reclamation of the project site is expected to involve the removal/demolition of all surface structures and buildings, whereby concrete foundations will be demolished to grade and covered with non acid generating crushed waste rock. All disturbed areas are expected to be graded to restore the natural drainage patterns to the extent possible, followed by scarifying and seeding to promote revegetation. It is anticipated that waste rock stockpiles will be contoured to promote drainage and maintain slope stability, covered with 30 cm of overburden and seeded to promote revegetation. The tailings management area is expected to be closed out with a dry, water shedding cover. It is also anticipated that seeding will apply grass species appropriate to the local ecology and that runoff and seepage quality will be monitored following completion of the closure works to verify the performance of the works in maintaining acceptable water quality.
Community
The proposed open pit is located close to the town of Buchans and may ultimately impact the local community. As the Company moves towards development of the Lundberg project, it anticipates engaging in discussions with local landowners, the municipality of Buchans and regulatory authorities with a view to agreeing on plans that best suit all parties impacted by the proposed operation. The Company believes it is worth noting that there are several recent examples of Canadian mining companies that have successfully worked with local communities to allow open pit mining operations in close proximity to those communities.
Risks
As with all mine development projects, there are a number of risks that can affect the successful outcome of the project, including without limitation:
-
Decreased metal prices and / or detrimental exchange rates.
-
Variation between the calculated resource estimate and the actual resource, potentially leading to higher dilution, modifications in the mining method or requiring additional definition drilling.
-
Reduction in metallurgical recoveries and concentrate grades upon conducting further metallurgical tests on samples that are more reprasentative of the entire resource.
-
Operating and capital costs may vary as more detailed engineering work is completed.
-
Generally accepted concentrate sales terms utilized in the PEA may be more beneficial or detrimental in the future.
-
Ability to obtain the necessary permits in a timely manner.
-
Ability to negotiate with local landowners, businesses and/or local municipality in regards to possible purchase, relocation or re-building of homes, facilities, services and / or structures.
Lundberg Resource
Table 1a outlines the Lundberg Inferred Resource Estimate at various zinc thresholds; Table 1b outlines the Lundberg Inferrred Resource Estimate using a threshold of 1% combined copper, lead and zinc. Table 2a outlines the Engine House Inferred Resource Estimate at various zinc thresholds; Table 2b outlines the Engine House Inferred Resource Estimate using a threshold of 1% combined copper, lead and zinc.
Table 1. Lundberg Inferred Resource Estimate (1% combined Cu+Pb+Zn)
|
Tonnes
|
Zn%
|
Pb%
|
Cu%
|
Combined Cu Pb Zn%
|
Ag g/t
|
Au g/t
|
|
20,700,000
|
1.68
|
0.72
|
0.38
|
2.78
|
5.92
|
0.07
|
Table 2. Engine House Inferred Resource Estimate (1% combined Cu+Pb+Zn)
|
Tonnes
|
Zn%
|
Pb%
|
Cu%
|
Combined Cu Pb Zn%
|
Ag g/t
|
Au g/t
|
|
1,120,000
|
2.04
|
0.85
|
0.82
|
3.71
|
9.79
|
0.12
|
Table 3. Lundberg Inferred Resource Estimate
|
Zn% Threshold
|
Tonnes
|
Zn%
|
Pb%
|
Cu%
|
Combined Cu Pb Zn%
|
Ag g/t
|
Au g/t
|
|
1.0
|
15,690,000
|
1.96
|
0.83
|
0.38
|
3.17
|
6.57
|
0.08
|
|
1.5
|
9,300,000
|
2.46
|
1.03
|
0.43
|
3.92
|
8.26
|
0.10
|
|
2.0
|
5,340,000
|
3.02
|
1.25
|
0.49
|
4.76
|
10.27
|
0.12
|
|
2.5
|
3,170,000
|
3.56
|
1.46
|
0.53
|
5.55
|
12.28
|
0.14
|
|
3.0
|
1,880,000
|
4.13
|
1.66
|
0.57
|
6.36
|
14.32
|
0.14
|
|
3.5
|
1,090,000
|
1.93
|
1.93
|
0.62
|
7.34
|
16.46
|
0.15
|
Table 4. Engine House Inferred Resource Estimate
|
Zn% Threshold
|
Tonnes
|
Zn%
|
Pb%
|
Cu%
|
Combined Cu Pb Zn%
|
Ag g/t
|
Au g/t
|
|
1.0
|
890,000
|
2.37
|
0.95
|
0.96
|
4.28
|
11.29
|
0.15
|
|
1.5
|
600,000
|
2.89
|
1.10
|
1.05
|
5.04
|
12.17
|
0.16
|
|
2.0
|
370,000
|
3.62
|
1.27
|
0.97
|
5.86
|
12.71
|
0.19
|
|
2.5
|
240,000
|
4.35
|
1.41
|
0.94
|
6.70
|
12.34
|
0.22
|
|
3.0
|
190,000
|
4.77
|
1.50
|
0.93
|
7.20
|
12.32
|
0.23
|
|
3.5
|
140,000
|
5.28
|
1.56
|
0.91
|
7.75
|
12.33
|
0.23
|