Search Minerals Announces Enhanced Economics in Revised Preliminary Economic Assessment of Foxtrot REE Project

VANCOUVER, March 25, 2013 /PRNewswire/ - Search Minerals Inc. ("Search" or the "Company") (TSX Venture: SMY) is pleased to announce the results of a revised Preliminary Economic Assessment ("PEA") on its Foxtrot Rare Earth Element Project ("Foxtrot Project"). This PEA evaluates an open pit-underground scenario with lower capital costs, a lower mining rate and higher grade mill feed. The revised PEA was prepared by Roscoe Postle Associates Inc. ("RPA") and is compliant with National Instrument 43-101 ("NI 43-101"). It reconfirms that the Foxtrot Project has robust economics and excellent potential to become a profitable producer of Rare Earth Elements ("REE"), particularly Dy, Tb and Nd, outside of China.

HIGHLIGHTS:

  • Selective mining of High Grade Core REE material from an initial 4 year open pit followed by a 6year selective underground mining operation, with a 1,500 tpd mining mill rate.
  • Reduction in capital costs to $ 221M from $ 469M, with a 3.8 year payback, $ 219M NPV (at a discount rate of 10%) and 27% pre-tax IRR
  • Net revenue has increased $ 110/tonne milled and Opex costs increased $ 38/tonne, for a net increase in revenue per tonne of $ 72; this increased margin will help protect Search from commodity price fluctuations
  • The updated PEA scenario also provides for a smaller environmental footprint (i.e., smaller open pit, smaller waste dump and smaller tailings pond) and good potential for extended mine life.
  • The revised project will focus on higher grade REE material mined over LOM of 0.89% total REE ("TREE") on average, which compares to the 0.58% TREE on average for the original bulk open pit concept

Jim Clucas, President of Search Minerals, stated: "We are pleased with the results of the revised PEA as it reinforces our view of Foxtrot as an exceptional project that can be developed.  The Foxtrot Project is the cornerstone of our Rare Earth strategy, as it is the first project of what we believe will be many in this district, which Search controls. The smaller scale mining concept is more attractive and achievable with respect to project financing and development without affecting economic returns in a difficult market. The need to originate new sources of neodymium and dysprosium, given their tight fundamentals and dependency on China are now widely evident. The Foxtrot Project presents itself as a unique alternative with further potential resources at depth in the Foxtrot deposit and in additional prospects in the Fox Harbour area".

Operational Highlights:

  • 1,500 tpd production rate;
  • Mine Life: 10 years;
  • First three years of mining by open pit methods - underground development funded by operating profit;
  • Proposed production of 5.3 Mt, at a grade of 0.89% TREE, based on the updated mineral resource estimate disclosed in November, 2012;
  • Processing by gravity, magnetic separation, and flotation concentration, followed by acid leaching, producing a mixed rare earth oxalate concentrate;
  • Average REE recovery of 79%;
  • Total Life-of-Mine production of 38,000 tonnes of TREE, or 4,100 tonnes per year at peak production;
  • Life-of-Mine production includes 7.0 million kg of neodymium oxide (Nd2O3), and 0.9 million kg of dysprosium oxide (Dy2O3).

Financial Highlights

  • $219 million pre-tax Net Present Value (NPV) (at a 10% discount rate);
  • 27% pre-tax Internal Rate of Return (IRR);
  • $640 million pre-tax, undiscounted cash flow;
  • $1.7 billion total net revenue;
  • Pre-tax payback period of 3.8 years;
  • $221 million initial capital cost;
  • $134 per tonne milled average unit operating cost;
  • $320 per tonne milled average unit revenue.

Note: The PEA is preliminary in nature. It includes inferred mineral resources, which are considered too speculative geologically to have the economic considerations applied to them that would enable their categorization as mineral reserves. There is no certainty that the PEA forecast will be realized. Mineral resources that are not mineral reserves do not have demonstrated economic viability.

Foxtrot Project Upside Potential

  • Resources are open at depth;
  • The existing resource model includes considerable additional mineralization that, while lower-grade, remains above a break-even cut-off value;
  • Testwork shows significant quantities of zirconium and niobium in the flotation concentrate - further work may identify a means of extracting them as saleable products;
  • The updated resource contains un-mineralized mafic material that may be sorted, visually in the pit or after crushing and before the concentration process;
  • Several other REE-Zr-Y-Nb prospects, with similar geology and mineralization, occur in the Fox Harbour area; two of these, Fox Pond and Foxy Lady, exhibit similar grades of mineralization (see Search News Release, March 20,2012);
  • Lower grade material, mined in the open pit as waste in this PEA but exhibiting a positive NSR, may be processed at a later date.

PEA

Project Location
The Foxtrot Project is located in Labrador, Canada, approximately 36 km east southeast of Port Hope Simpson, and approximately 10 km west northwest of St. Lewis.  The project is accessible by all-season road, and the deep-water port and airstrip facilities in St. Lewis.

Geology and Mineral Resources
The Fox Harbour area contains three extensive east-west to northwest trending volcanic belts, extending upwards of 30 km in length, and 50 m to 500 m in width.  These volcanic belts are interpreted to be bi-modal mafic and felsic volcanics, with intercalated volcaniclastic units.

The Fox Harbour bi-modal felsic and mafic volcanic package is host to REE-Zr-Y-Nb mineralization. The Foxtrot Project is the thickest currently identified occurrence of these volcanic rocks in the Fox Harbour area.  Mineralization in the Foxtrot Project is largely allanite, zircon, and fergusonite.

Three phases of drilling completed to date targeted the "Mt Belt", a zone of inter-layered bands of mafic and felsic volcanic rocks.  All of the mineralization with economic potential found to date lies in the felsic bands of the "Mt Belt".  The central portion of the deposit is still open below 450 m depth.

There is also potential for the delineation of additional resources along strike, both east and west of the central portion of the deposit, and in other portions (e.g., Fox Pond and Foxy Lady Prospects) of the Fox Harbour area.

In a news release dated November 1, 2012, Search released an updated NI 43-101 compliant mineral resource estimate.  Indicated Mineral Resources were estimated to total 9.2 Mt at 0.88% TREE, and Inferred Mineral Resources were estimated to total 5.2 Mt at 0.77% TREE (both at an elevated cut-off grade of 130 ppm dysprosium).  The updated resource model was used as the basis for proposed production described in the PEA.

Subsequent to the latest resource estimate, a high-grade core (HGC) was delineated, and served as the focus for underground mining. The HGC contains grades that are approximately 30% higher than the material (HGC plus lower grade material) mined in the open pit.

Mining
Mining will be carried out initially by open pit methods, transitioning to an underground operation in Year 4.  Open pit mining, using conventional truck and shovel methods, will be carried out by a contractor.  The strip ratio averages 1.76:1.  No pre-stripping is required, as the deposit is exposed on surface.

Open Pit mining quantities consist of:

  • A short ramp-up to full production in Year 1
  • Production of 540,000 tonnes per year at peak, or 1,500 tpd; and
  • Waste mining averaging 818,000 t per year

Underground mining of the HGC will commence after the open pit is completed, using longhole mining methods and backfill. Underground development will be funded by operating profit from the first three years of mining by open pit methods.

Underground mining quantities consist of:

  • Production beginning in Year 4
  • Production of 540,000 tonnes per year at peak, or 1,500 tpd; and
  • Production grades are approximately 30% higher than open pit grades

Production quantities total 5.3 Mt, at an average grade of 0.89% TREE.  This includes dilution of the mineralized felsic material with the intercalated mafic material in each block within the open pit. Underground production quantities are higher grade (0.96% TREE) due to selective mining of the HGC material with less mafic and lower grade material dilution.

Processing and Recovery
There is no change to metallurgy since the last PEA.  A number of alternative unit processes have been identified, and remain to be tested for upside potential.

The recovery flowsheet involves crushing, grinding and gravity concentration, followed by magnetic separation (to reject iron from the gravity concentrate) and flotation of the gravity tails.  The overall recovery to concentrate is in the range of 80% to 85% for every element. 

The combined concentrate will undergo acid baking and water leaching.  Preliminary results indicate approximately 95% dissolution.  The solutions from the water leaching will then be subjected to (1) acid and iron removal, (2) purification of minor elements as necessary, and then (3) recovery of a mixed rare earth oxalate product.

Overall recovery is estimated to average 79%.  Recoveries and production of individual REE are described in the following table:

TABLE 1   REE PRODUCTION
 
Element Recovery Average
Annual
Production
(kg)
Mine Life Total
(kg)
Yttrium 80%           446,000 4,458,000
Lanthanum 82%        729,000 7,289,000
Cerium 79%        1,423,000 14,227,000
Praesodymium 82%          170,000 1,704,000
Neodymium 78%        602,000 6,016,000
Samarium 80%           112,0000 1,125,000
Europium 80%              5,600 56,000
Gadolinium 79%           87,000 867,000
Terbium 78%             14,000 137,000
Dysprosium 77%           79,000 790,000
Holmium 78%             15,000 156,000
Erbium 78%             43,000 433,000
Thulium 78%             6,000 63,000
Ytterbium 78%             39,000 385,000
Lutetium 78%             6,000 57,000
Total Material Recovered   3,776,000 37,760,000
       

1. Note: the above table shows rare earth elements - to obtain the equivalent quantities of rare earth oxides, each element must be multiplied by a factor ranging from 1.14 to 1.27.

Testwork shows significant quantities of zirconium and niobium in the flotation concentrate. Further work may identify a means of extracting them as saleable products.

Revenue
There is no change in prices from the last PEA.  Both recent prices and independent forecasts for rare earth oxide prices cover a wide range.  Search has chosen a conservative price set, as detailed in the table below.  These prices may be representative of a time when several rare earth projects outside of China may be in operation.

Revenue for the Foxtrot Project is dominated by dysprosium and terbium (heavy rare earth elements), and neodymium (light rare earth element), elements that are projected to remain in supply deficit.

 
TABLE 2   REE REVENUE
     
Rare Earth Oxide Price
($/kg)
Net Revenue
(%)
Yttrium 20 5%
Lanthanum 10 3%
Cerium 5 0%
Praesodymium 75 8%
Neodymium 75 29%
Samarium 9 0%
Europium 500 2%
Gadolinium 30 0%
Terbium 1,500 14%
Dysprosium 750 38%
Holmium - 0%
Erbium 40 0%
Thulium - 0%
Ytterbium 50 1%
Lutetium - 0%
Total/Average 38 100%

No revenue has been included for Ho, Lu, and Tm, as the markets for these rare earths are very small, and there is no certainty that revenue can be realized.

Third-party separation charges have been applied at a rate of $5/kg for light rare earths (La, Ce, Pr, Nd, Sm) and Y, and at a rate of $30/kg for heavy rare earths.  These charges represent 15% of the gross revenue on the payable REE.

The price set used in the PEA averages $38/kg payable rare earth oxide, net of separation charges.

Total net revenue is $1.7 billion, averaging $170 million per year.  On a unit basis, net revenue is $320 per tonne milled.

Capital Costs
The estimated initial capital cost has been developed to include open pit mining, processing, infrastructure, tailings and indirect capital costs.  The capital cost estimate includes a contingency of $49 million (30% of direct and indirect capital costs).

 
TABLE 3   INITIAL CAPITAL COST ESTIMATE
 
Capital Cost Item Cost
($ millions)
Open Pit Mining     2.1
Underground Mining -
Processing 70.0
Tailings 10.0
Surface Infrastructure   34.4
Indirects/Owners 29.1
EPCM 17.5
Working Capital 9.3
Contingency (30%) 49.0
Total Capital Cost 221.2
 

Sustaining capital, totalling $127 million, consists of underground mine development and mobile equipment fleet, as well as process, and infrastructure equipment replacement, tailings expansion, progressive environmental rehabilitation, mine closure costs, and recovery of working capital.

Operating Cost
The Life-of-Mine operating costs have been estimated for each of three main areas: mining, processing, and general and administration.  Table 4 summarizes the average Life-of-Mine operating unit costs.

 
TABLE 4   OPERATING COST ESTIMATE
 
Operating Costs Item Cost
($/t milled)
Total Mining 47
Processing - Concentration & Leaching 70
General and Administration   17
Total Operating Costs 134

Preliminary Economic Assessment
Financial evaluation of the Foxtrot Project was carried out using a cash flow model, on a pre-tax basis.  Estimates are based on constant Q1 2013 dollar basis, with no provision for escalation.  Results are provided in the following table:

 
TABLE 5   PEA FINANCIAL RESULTS
 
  Value ($ millions)
Gross Revenue $ 2,004
Separation Charges $ 304
Net Revenue $ 1,700
Total Operating Cost $ 713
Operating Cash Flow $ 987
   
Initial Capital Cost $ 221
Sustaining Capital $ 127
   
Pre-Tax Cash Flow $ 640
   
Pre-Tax IRR   27.0%
Payback Period   3.8 years
Net Present Value  
  5% discount rate $ 379
  8% discount rate $ 274
  10% discount rate $ 219
     

Note: The PEA is preliminary in nature. It includes inferred mineral resources, which are considered too speculative geologically to have the economic considerations applied to them that would enable their categorization as mineral reserves. There is no certainty that the PEA forecast will be realized.

Qualified Persons:
The technical and economic information relating to the PEA contained in this press release has been reviewed and approved by Jason Cox, P.Eng., Director of Mine Engineering for RPA, an independent qualified person under NI 43-101.  The PEA technical report will be filed on SEDAR in due course.

Dr. Randy Miller, Ph.D., P.Geo, is the Company's Vice President Exploration and Qualified Person for the purposes of NI 43-101. Dr. Miller has reviewed and approved the technical disclosure contained in this news release as applicable. The company will endeavour to meet high standards of integrity, transparency, and consistency in reporting technical content, including geological and assay (e.g., REE) data.

Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility of the adequacy or accuracy of this release.

About Search Minerals
Search Minerals Inc. (TSXV:SMY) is a TSX Venture Exchange listed company, headquartered in Vancouver, B.C. Search is the discoverer of the Port Hope Simpson REE District, a highly prospective light and heavy REE belt located in southeast Labrador where the company controls a dominant land position in a belt 135km long and up to 12km wide.  In addition, Search has a number of other mineral prospects in its portfolio located in Newfoundland and Labrador, including a number of claims in the Strange Lake Complex, where Quest Rare Minerals has an earn-in agreement with the Company; and at the Red Wine Complex, where Great Western Minerals Group has a Joint Venture with the Company.

Furthermore, Search Minerals is the owner of patents relating to the Starved Acid Leaching Technology ("SALT"), a process with the potential to economically recover nickel and cobalt from known deposits currently considered sub economic.

Search Minerals is led by a management team and Board of Directors with a proven track record in the mining industry. The Company has experienced geological and metallurgical teams led by Dr. Randy Miller and Dr. David Dreisinger respectively.

All material information on the Company may be found on its website at www.searchminerals.ca and on SEDAR at sedar.com.

Cautionary Statements

This news release contains forward-looking statements that are not historical facts, including future plans and objectives of the Company, potential mineralization, reserve and resource determination, price assumptions, cash flow forecasts, projected capital and operating costs, metal or mineral recoveries, mine life and production rates, and other assumptions used in preliminary economic assessments.  Forward-looking statements involve risks, uncertainties and other factors that could cause actual results, performance, prospects, and opportunities to differ materially from those expressed or implied by such forward- looking statements. Factors that could cause actual results to differ materially from these forward- looking statements include those risks set out in Search's public documents filed on SEDAR at www.sedar.com.  Although Search believes that the assumptions and factors used in preparing the forward-looking statements are reasonable, undue reliance should not be placed on these statements, which only apply as of the date of this news release, and no assurance can be given that such events will occur in the disclosed time frames or at all. Except where required by law, Search disclaims any intention or obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

 

SOURCE Search Minerals Inc.



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