Minco Silver receives happy PEA of Fuwan
2007-10-22 15:24 ET - News Release
Dr. Ken Cai reports
MINCO SILVER RECEIVES POSITIVE PRELIMINARY ECONOMIC ASSESSMENT ON FUWAN; CONFERENCE CALL
Minco Silver Corp. has received the results of a preliminary economic assessment on its 100-per-cent-owned Fuwan silver project located in Guangdong province, China, completed by independent engineering firm SRK Consulting (China).
Conclusion and recommendations
On the basis of available information, SRK concludes that the Fuwan project is technically and economically viable as an underground mining operation with a capacity sufficient to support a processing rate of the order of 2,500 tonnes per day. The preproduction capital cost is estimated to be $57-million (U.S.). Average annual silver production is estimated at 4.9 million ounces over a mine life of 12 years with average operating costs of $29.02 (U.S.) per tonne milled or cash costs of $2.40 (U.S.) per ounce silver after credits from other associated metals. The project generates total gross revenue of $713-million (U.S.), total after-tax net cash flow of $241-million (U.S.), an after-tax net present value of $113-million (U.S.) using an 8-per-cent annual discount rate and an after-tax internal rate of return of 38 per cent. Payback period of preproduction capital cost is 1.7 years from the start of production.
The results of the PEA indicate that, at an IRR of 38 per cent after tax, the Fuwan silver project is expected to be robust. In common with virtually all mining developments, the project economics are sensitive to metal price and grade of the deposit. The Fuwan silver project provides high leverage to the silver price.
As such, SRK recommends Minco Silver to advance the project to a prefeasibility/feasibility level and particularly recommends the following:
Expedient investigation and application for long-lead-time items, such as for surface land use and mining permit application;
Appropriate metallurgical testwork to confirm a cost-effective process, particularly including reagent election specific to ore mineralogy;
Early initialization of a shaft access development program to gain required information about the actual characteristics and conditions of the ore zones.
Geology and resources
The PEA is based on the resource estimates reported by P&E Mining Consultants Inc. in the technical report and updated resource estimate on the Fuwan property, Guangdong province, China, with an effective date April 15, 2007. The P&E resource estimate, based on the results up to Minco Silver's phase 3 drilling program completed in January, 2007, and a 50-gram-per-tonne cut-off grade, is summarized the resource estimate table.
RESOURCE ESTIMATE
Resource area and
classification Tonnes Ag (g/t) Ag (oz) Au (g/t) Pb (%) Zn (%)
Fuwan permits
Indicated 4,477,000 203 29,206,000 0.20 0.18 0.53
Fuwan permits
Inferred 13,845,000 180 80,307,000 0.25 0.22 0.58
The PEA includes inferred mineral resources that are considered too speculative geologically to have the economic considerations applied to them that would enable them to be categorized as mineral reserves and there is no certainty that the preliminary assessment will be realized. The exploration program is, however, considerably advanced since the April 15, 2007, resource estimate report. Phases IV and V drilling had been completed but the results were not available for report preparation and were not taken into account for the PEA. Further, Minco Silver's proportionate ownership of the silver mineralization that lies within the Changkeng permit has not been included (4.1 million tonnes inferred, averaging 142 g/t Ag, for an additional 18.7 million ounces of silver).
Mining
A number of mining methods have been assessed and the drift and fill method was selected, on the basis of available information, for the Fuwan project PEA. Drift and fill mining has been envisaged to consist of first driving stoping panel access drifts in ore across the orebody at 100-metre horizontal intervals. Drift and fill stopes of 50 m length will then be driven from the panel access drifts. The stope drifts are then backfilled to prevent subsequent deformation, caving and subsidence. The next stoping drift in that panel unit is excavated adjacent to the previously filled excavation. This process is continued in sequence, allowing adequate time for the backfill to stabilize. A panel unit will consist of three to five stoping drifts, and the entire panel includes several panel units.
The proposed mine access plan for the Fuwan orebodies uses access to the orebody via a circular shaft and a 4.5 m by 4.5 m ramp with a 15-per-cent decline. Orebody development will occur by driving development access drifts at the perimeter of the ore zone.
Mine ore production will initially be 1,500 tpd, ramping up to 2,500 tpd by the start of the second production year and thereafter. For the purposes of this PEA a base case life of mine of 12 years has been considered.
Metallurgy
Metallurgical testwork was carried out by Process Research Associates (PRA) and a process flow for the Fuwan silver ore has been proposed. The process involves comminution, Pb rougher flotation, Zn rougher flotation, and then regrinding of both Pb and Zn rougher concentrates. The reground concentrates will then be cleaned by flotation to produce Pb and Zn concentrates which are dewatered and stored for transportation to the smelters. The flotation tailings are to be thickened before being transferred to the tailings management facility and underground as backfill.
PRA testwork found that a simple flow sheet using conventional flotation and standard reagents provides excellent recoveries.
RECOVERIES
Total recoveries
Sample ID Ag (%) Au (%) Pb (%) Zn (%)
Zone 1 sample 97.3 68.2 89.8 97.3
Zone 2 sample 97.7 69.7 96.0 97.2
Composite sample 97.9 77.4 94.0 97.9
Waste management and tailings disposal
Although the base case scenario plans for a 12-year mine life, over a potential 18-year mine life it is anticipated that a total of approximately 1.5 million tonnes of waste rock will be generated. During the initial 12 months it is anticipated that waste rock will be used at the mine site for the construction of level platforms, road access, embankments and as a rock fill material for infrastructure construction. It has been assumed that 60 per cent of tailings at Fuwan will be disposed of underground as backfill with the balance reporting to surface tailings storage facilities located to the south of the orebody. It is anticipated that the coarse fraction will be separated, likely using cyclones, and used for backfill in the mining operation. Over a potential 18-year mine life it is anticipated that about 17.4 million dry tonnes of tailings will be generated at Fuwan for storage at surface. This is expected to generate a volume of about 2.85 million cubic metres of tailings, depending on the type of tailings disposal technology and level of dewatering. It is anticipated that tailings will be thickened to a minimum density of about 1.8 tonnes per cubic m.
Hydrological, geotechnical, environmental and socio-economics
At the time of preparing this PEA, investigations were being carried out to evaluate site-specific hydrological, environmental and geotechnical conditions. The evaluation is currently being done by the 757 geological exploration team under contract to Minco Silver. SRK is providing support to the company for this investigation. The results of this investigation were not available for the purpose of the PEA.
Detailed environmental and socio-economic studies have not been done yet. However, Minco Silver intends to commission this study in preparation of a feasibility study due to commence in the first half of 2008.
Economic evaluation
Based on the mineral resources estimated by PRA, SRK has developed a plan to mine and process an average of 2,455 tpd, operating 330 days per year, for a total 9.7 million tonnes mined over a 12-year mine life. For the base case assessment, it has been assumed that the resources within the higher-grade areas will be mined first. This selective mining of the ore may be more representative of a mine plan that will result from a detailed feasibility study, and results in somewhat variable mill head grades which are higher in the initial years to repay the capital cost, and decreasing in later years. For the purpose of this PEA, a 90-per-cent ore recovery rate and a 12-per-cent dilution rate have been used. Operating costs are estimated to be $29.02 (U.S.) per tonne milled. The preproduction capital costs are estimated to be $57-million (U.S.). The net after-tax cash flow is estimated to be $241-million (U.S.). The after-tax net present value at an 8-per-cent annual discount rate is estimated to be $113-million (U.S.) and the after-tax internal rate of return is 38 per cent.
SUMMARY OF THE PEA ECONOMIC EVALUATION
Items Unit Value
Preproduction capital cost US$M 56.9
Sustaining capital cost US$M 18.2
Total revenue US$M 712.8
Total operating cost US$M 312.8
Total tonnage mined Mt 9.7
Cash operating cost US$/t milled 29.02
Cash operating cost US$/ oz silver produced $2.40
Total silver production M oz 58.8
Total project cash flow US$M 320.9
Income tax payable US$M 79.8
Royalty payable US$M 26.0
Total net after-tax cash flow US$M 241.1
NPV at 8% annual discount rate US$M 113.3
NPV at 10% annual discount rate US$M 94,3
NPV at 12% annual discount rate US$M 78,4
Internal rate of return % 38
Payback period for preproduction
capital cost Year 1.7
Among the factors assumed in the development of the PEA cash flow model are:
Mining recovery of 90 per cent, dilution 12 per cent at zero grade;
Production of 1,500 tpd for year 1 and 2,500 tpd for year 2 and thereafter, operating 330 days per year;
Mill plant concentrate recoveries of 94 per cent for silver, 65 per cent for gold, 84 per cent for lead and 95 per cent for zinc;
Head grades of 181 to 282 g/t silver, 0.21 g/t gold, 0.19 per cent lead and 0.51 per cent zinc;
Silver price of $12.11 (U.S.) per troy ounce based on average Shanghai Gold Exchange (SGE) silver price during the August, 2005, to August, 2007, period less 13-per-cent value-added tax (VAT); Gold price of $624.57 (U.S.) per troy ounce based on average SGE gold price over the August, 2005, to August, 2007, period; 67 (U.S.) cents per pound for lead and $1.30 (U.S.) per pound for zinc based on average LME prices during the August, 2005, to August, 2007, period;
Resource compensation tax (royalty) of 4-per-cent revenue for gold and silver, and 2-per-cent revenue for lead and zinc;
An income tax rate of 25 per cent of taxable income;
Analyses are in constant U.S. dollars of mid-2007 value.
Sensitivity analysis
The project cash flow is sensitive to silver price, operating cost, capital cost and also other variables. As may be expected, the price of silver is the most sensitive since about 80 per cent of the projected revenue is from silver.
SILVER PRICE SENSITIVITY
Silver value NPV@8% NPV@10% NPV@12% IRR
(US$/troy oz) (US$M) (US$M) (US$M) (%)
7.00 18 11 5 14
8.00 37 27 19 19
9.00 55 43 34 24
10.00 74 60 48 29
11.00 93 76 62 33
12.00 111 93 77 38
13.00 130 109 91 42
14.00 149 125 106 46
15.00 167 142 120 49
16.00 186 158 135 53
Qualified persons
SRK Consulting -- Dr. Yonglian Sun, PhD, CPEng, project manager and client liaison; Dwight Crossland, BSc, mining; Chris Stinton, CPEng, process and metallurgy; Kevin Holley, CPEng, geotechnical engineer -- tailings and rock mass assessment.
Minco Silver -- Tim Marlow, CEng, MIMMM, vice-president of operations and study manager; Dwayne Melrose, PGeo, vice-president of exploration and qualified person responsible for verification and quality assurance of the company's exploration data and analytical results.
Conference call
Minco Silver will host a conference call on Tuesday, Oct. 23, at 11 a.m. ET or 8 a.m. PT. To participate, please dial 416-849-4293 for local and international callers, or 1-866-400-2240 toll-free within North America.
We seek Safe Harbor.
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