IRR 27%, NPV $155 million at a 10% discount rate and a 3.4 year payback (after tax)
VANCOUVER, Feb. 24 /PRNewswire/ - Capstone Mining Corp. ("Capstone") (CS: TSX) today announced that its wholly owned subsidiary, Kutcho Copper Corp., reports the results of the Prefeasibility Study ("2011 PFS") completed by JDS Energy & Mining Inc. ("JDS") on the Company's Kutcho Project located in north-western BC. By incorporating exploration drill results from 2008 and 2010 the 2011 PFS successfully converted much of the Main deposit and the Esso deposit mineral resources into a National Instrument 43-101 ("NI 43-101") reserve. The 2011 PFS exhibits a 27% IRR (after tax) and a $155 million NPV (after tax) at a 10% discount rate. Therefore, Capstone is proceeding with permitting and further engaging stakeholders in consultations regarding development.
The 2011 PFS increases the level of accuracy achieved by the 2010 Preliminary Economic Assessment ("2010 PEA") regarding capital and operating expenditures and better quantifies the project's key economic indicators. It also identified several opportunities for optimization and further economic improvement. The following lists some highlights of the 2011 PFS (with all amounts in Canadian dollars unless otherwise stated):
- NI 43-101 reserve of 10.4 million tonnes with an average grade of 2.01% copper, 3.19% zinc, 34.61 grams per tonne ("g/t") silver and 0.37g/t gold.
- Net Present Value (after tax) at a 10% discount rate is $155 million at US$2.75/lb of copper.
- IRR (after tax) is 27%, with a payback period of 3.4 years.
- Total cash costs of US$0.75 per pound of payable copper*, net of by-product credits and including selling costs.
- A 12 year mine life.
- Pre-production capital costs of $187.3 million that includes a 10% contingency.
- Average throughput of 2,500 tonnes per day over the full production period producing separate copper and zinc concentrates, with by-product gold and silver reporting to the copper concentrate.
- Average annual production during the full production period of 34.7 million pounds of copper, 54.5 million pounds of zinc, 4,664 ounces of gold and 671,800 ounces of silver in concentrates.
- A small environmental footprint as a result of minimal open pit mining (4% of the total production), and utilization of tailings and waste for underground backfill, as well as an encapsulated paste fill arrangement for any tailings and waste that are stored on surface.
- Continued exploration potential at the Sumac deposit in the immediate vicinity of the proposed mine.
- Considerable regional exploration potential including more than 13km of known strike length of the Main-Sumac-Esso productive VMS horizon.
- Recommends commencing with the Environmental Permitting and First Nations discussions.
* This is a non-GAAP performance measure and readers should refer to Non-GAAP Performance Measures note at the end of this news release for further details.
"Given the scarcity of North American high-grade copper deposits, Capstone is pleased that the robust economics of the Kutcho Project support advancing to the feasibility stage and potentially into production," said Darren Pylot, CEO of Capstone. "The pre-feasibility study has confirmed that the Kutcho Project has the potential to be a long term, sustainable operation, capital has increased compared to the 2010 PEA due in part to market conditions and in part due to modifications in the scope of work associated with environmental due diligence. All other aspects such as operating expenditures, metallurgical performance and mine reserves are within expectations. The high grade and low costs associated with the Kutcho Project would complement our existing North American production from our Cozamin and Minto mines."
Kutcho Prefeasibility Study Summary
The 2011 PFS supersedes and replaces prior development studies, which should no longer be relied upon. The principle changes from prior studies include increased accuracy of capital costs, operating costs, copper recovery, mill power consumption (by optimizing the grinding circuit), unit power costs, 2010 exploration results at Esso, and utilization of a paste-fill tailings disposal system that is considered to be an improvement over the long term implications of the previous dry stack scenario.
Geology & Mineralization
The Kutcho property contains three known Kuroko-type volcanogenic massive sulphide ("VMS") deposits as well as numerous other indications of mineralization that demonstrate exploration potential. The three known deposits are aligned in a westerly plunging linear trend, from east to west, they are called the "Main", "Sumac", and "Esso" deposits. The largest of the three, the Main deposit, comes to surface near the eastern end of this trend, whereas the Esso deposit occurs at depths about 400-600m below surface at the western or down plunge end of the trend (as it is currently known). The Sumac deposit lies between the Main and Esso deposits both laterally and vertically, but has seen only cursory drilling. The mineralized trend is open down plunge and along strike, but is poorly explored, indicating exploration opportunities for the future. The current mine design includes a main haulage ramp that passes in close proximity to the Sumac deposit on the hanging wall side and can easily be adapted to provide an exploration platform from which to better conduct exploration drilling for Sumac.
The mineral resources for the Kutcho Project were estimated by Garth Kirkham, P.Geo., an independent Qualified Person as defined by NI 43-101 and were reported in a news release dated December 6, 2010 but are summarized below for convenience. Readers should review that news release for additional information, including the contribution of each deposit to the overall mineral resource, the mineral resource estimates at different cut-off grades, the parameters used in the estimate and the required NI 43-101 disclosure.
Kutcho Project - Mineral Resource Estimate at a 1.5% Copper Cut-Off for All Deposits (1)
|Class||Tonnes (000's)||Grade||Contained Metal|
|M & I||11,280||2.19||3.28||0.39||36.7||545.8||815.3||143||13,313|
(1) Numbers may not total due to rounding
Metallurgical test work was carried out at the pre-feasibility level to investigate the metallurgical response of Kutcho ore and to develop the process flow sheet and design criteria. The test program was aimed at developing a conventional Cu-Zn flowsheet comprising comminution and sequential flotation circuits. Tests were conducted on samples from the Main and Esso deposits that are representative of an expected mill feed from the proposed underground operation. The mineralogy of the Kutcho VMS deposits is fine grained and requires a relatively fine primary grind followed by a regrind. The process outlined in the flow sheet obtained reasonable recoveries and concentrate grades by first producing a copper concentrate, and then a zinc concentrate.
Comminution tests showed that the ore has low level of hardness and abrasiveness with a Bond Rod Mill Work Index of 8.9 kWh/t, Bond Ball Mill Work Index of 12.2 kWh/t and abrasion index of 0.16 g. Target primary grind is a P80 of 75 microns.
The test work utilized core that was stored in Nitrogen to minimize the risk of oxidation. Based on the results of this test work, the 2011 PFS uses the following parameters.
Kutcho Project - Metallurgical Recoveries used in 2011 PFS (Life of Mine Average)
|Metal||Recovery|| Copper Concentrate
| Zinc Concentrate
As discussed in the opportunities section below, there is potential to improve metallurgical performance. It should also be noted that the number of metallurgical employees in mill operations were increased in the prefeasibility study to pursue opportunities in mineral processing, the optimization of which could add significant value during production.
The mining resource is summarized by deposit and mining method in the table below. The Main and Esso deposits vary in dip from 30-70 degrees and in width from 3-20m. The Main deposit essentially outcrops on surface and extends to depth of approximately 250m below surface, while the Esso deposit lies approximately 1,500 m to the west and extends to a depth of 400-600m below surface.
A small starter pit will be pre-stripped in Year 1 and will provide ore in Year 1 while the underground mine is being developed. Two underground mining methods are proposed: mechanized cut & fill ("MCF") for the shallow dipping mineralization, and sublevel long-hole ("LH") stoping with paste backfill for those blocks amenable to bulk mining. The initial pre-production development period is estimated to be 18 months. During the first year, mine production from the Main deposit ramps up to 2,500tpd. Production from the Esso deposit commences in Year 3 and continues into Year 8. The Main deposit is the sole source of mill feed from Years 9 to the end of mine life in Year 12.
Kutcho Project - Mining Reserve used in 2011 PFS
|Mining Area||Tonnes||Classification||Cu %||Zn %||Ag g/t||Au g/t|
As noted in the table, all materials in the mine plan are considered to be a reserve. Mineral Reserves are considered to have economic viability that account for mineability, selectivity, mining loss and dilution. This mine plan does not include resource estimates that include inferred mineral resources since they are considered to be too speculative geologically to have economic considerations applied to them that would enable them to be categorized as mineral reserves. There is also no certainty that these inferred mineral resources will be converted to measured and indicated categories through further drilling, or into mineral reserves, once economic considerations are applied.
Life of mine production is summarized below.
| Cu Con
| Zinc Con
| Copper in Cu
|Gold in Cu Con||oz||53,495||3,727||4,089||5,574||5,989||5,724||5,904||4,468||4,490||3,860||4,048||3,433||2,151|
| Silver in Cu
| Zinc in Zn
Waste Management Plan
Following up on work in the 2010 PEA Capstone's further pursued opportunities to reduce surface disturbance and lessen the environmental impact of mining and milling activities with further design changes in the 2011 PFS. In addition to good stewardship, this has a significant economic benefit by potentially decreasing abandonment and restoration costs.
Mineral waste will consist of overburden, waste rock and tailings. Potentially Acid Generating (PAG) and Non-Acid Generating (NAG) waste rock will be separated during the course of mining. A portion of waste rock generated in the underground mine will remain underground as backfill. The remaining waste rock will be hauled to the surface. The on-surface NAG waste rock will be used as site construction materials during mine operation and at mine closure and as underground mine backfill. The on-surface PAG waste rock will be comingled with the paste tailings in a lined on-land paste tailings storage facility that will minimize the potential for acid generation and the mined-out starter pit. The on-land facility will be fully encapsulated at closure. All remaining waste PAG mine waste and tailing will be utilized as fill underground, i.e., there is no surface PAG waste dump after mine closure.
A water collection pond will be constructed in order to store water runoff from the waste management facilities for treatment in a water treatment plant before discharge to the environment after meeting regulated water quality criteria.
The Kutcho Project is not permitted for development or production. In order to re-initiate the permitting process, the 2011 PFS will be utilized as the basis to re-engage the regulators and stakeholders, including the First Nations.
Direct capital costs are estimated at $139.3 million, including $17.9 million of off-site infrastructure. Indirect capital costs of $34.1 million plus a 10% contingency of $13.9 million bringing the initial capital cost to a total of $187.3 million. The direct capital includes savings generated by the purchase of a used processing facility that consists of new and used fixed plant components based on current market conditions. All underground mobile equipment is new.
Total operating costs, including capital leases carried as an operating expense, are estimated in the 2011 PFS as C$66.15 per tonne of ore processed, broken down as follows:
Kutcho Project - Operating Costs used in 2011 PFS
|Activity/Item|| Unit Cost
The economic assessment in the PFS utilizes mineralized zones that have the economic considerations applied to them which enable them to be categorized as mineral reserves, and there is sufficient certainty that this economic assessment will be realized. There are no inferred mineral resources utilized in the mine Life of Mine Plan ("LOMP").
The Canadian US$ exchange rate is held constant at a value of $C1.09 equals $US1.00, which is consistent with the three year trailing average correlation between the C$/US$ exchange rate and the US$ copper price. The results of the economic analysis are summarized below:
Kutcho Project - Summary of Economic Analysis
|Unit Mining Costs||$/t milled||$30.21|
|Unit Milling Costs||$/t milled||$18.44|
|Unit G&A and Site Services||$/t milled||$10.37|
|Unit Capital Lease Costs||$/t milled||$4.21|
|Unit Total Operating Costs||$/t milled||$63.23|
| Unit Total Operating Costs*
| Total Cash Costs*
(after Zn, Au, Ag credits and offsite costs)
|Total Initial Capital||C$M||$187.3|
|NPV10% Pre Tax||C$M||$244|
|NPV10% After Tax||C$M||$155|
|IRR Pre Tax||%||32%|
|IRR After Tax||%||27%|
|Payback Period (After Tax)||Years||3.4|
* This is a non-GAAP performance measure and readers should refer to Non-GAAP Performance Measures note at the end of this news release for further details.
Risks & Opportunities:
There has been significant progress mitigating the principle risk regarding metallurgical parameters indicated in the 2010 PEA. A comprehensive metallurgical testing program was completed for the 2011 PFS. The 2011 PFS has also increased manpower assumptions for ongoing metallurgical work during the operating phase.
As with all mine development projects, there are a number of risks and opportunities that can affect the successful outcome of the Kutcho project:
- Variation between the predicted and actual deposit shapes, potentially leading to higher dilution, modifications in the mining method or requiring additional definition drilling.
- Weaker underground rock masses may increase ground support requirements.
- Reduction in metallurgical recoveries due to the complex nature of the mineralization.
- Power consumption of major process equipment units may be higher than indicated by the test work completed to date.
- Ability to attain necessary permits in a timely manner.
- Capital and operating cost increases due to equipment and labour shortages and increased consumable prices.
- Decreased metal prices and / or detrimental exchange rates.
The four greatest opportunities to enhance the economics of the project, at Base Case metal prices, have been quantified below:
- Mine Design, enhance haulage route design and decrease operating expenditures by utilization of OEM supplied used equipment.
- Improved zinc separation from copper concentrate, copper recovery and reagent usage. A 3.5% increase in copper recovery from 85.6% to 89.1% increases the NPV10% by $17 million to $172 million and the IRR is increased to 29% from 27%.
- Alternate LNG sources other than Vancouver could have a significant beneficial impact on operating costs.
- The Sumac deposit has the potential to yield further mineral resources in zones parallel to or along strike of the known mineral resources.
With the 2011 PFS in hand, Kutcho Copper Corp. can now proceed towards submission of an Environmental Assessment Certificate (EAC) Application, currently anticipated in the 3rd Quarter 2011 and also commence discussions with First Nations and other stakeholders. Detailed engineering could also continue in order to enhance project economics and further mitigate risk. Should the permit process, First Nations discussions and detailed engineering attain corporate objectives in a timely fashion, it is feasible that a production decision could be made in the 4th Quarter 2011 and assuming a positive decision this could enable construction to commence in the second half of 2012.
The full 2011 PFS, prepared as a NI 43-101 compliant Technical Report, will be filed under Capstone's profile on SEDAR at www.sedar.com within 45 days.
The technical information in this news release has been prepared in accordance with Canadian regulatory requirements set out in National Instrument 43-101 and reviewed by John Sagman, P. Eng, Manager of Projects, Capstone Mining Corp. The PFS was prepared with input from the following: Michael Makarenko, P.Eng., JDS Energy & Mining Inc.; Ali Sheykholeslami, P.Eng., JDS Energy & Mining Inc.; Garth Kirkham, P. Geol., Kirkham Geosystems Ltd.; Hoe Teh, P.Eng., Hoe Teh Consulting Inc., Daniel Jarratt, P.Eng., Allnorth Consultants Ltd, David Archibald, R.P. Bio, Allnorth Consultants Inc, Carlos Chaparro, P.Eng., EBA, a Tetra Tech Company, Guangwen Zhang, P.Eng., EBA, a Tetra Tech Company, Frank Palkovits, P.Eng., Mine Paste Engineering Ltd and Brad Mercer, P. Geol., Capstone Mining Corp. who are responsible for certain sections of the PFS as detailed in the PFS.
This document may contain "forward-looking information" within the meaning of Canadian securities legislation and "forward-looking statements" within the meaning of the United States Private Securities Litigation Reform Act of 1995 (collectively, "forward-looking statements"). These forward-looking statements are made as of the date of this document and Capstone Mining Corp. (the "Company") does not intend, and does not assume any obligation, to update these forward-looking statements.
Forward-looking statements relate to future events or future performance and reflect Company management's expectations or beliefs regarding future events and include, but are not limited to, statements with respect to the estimation of mineral reserves and mineral resources, the realization of mineral reserve estimates, the timing and amount of estimated future production, costs of production, capital expenditures, success of mining operations, environmental risks, unanticipated reclamation expenses, title disputes or claims and limitations on insurance coverage. In certain cases, forward-looking statements can be identified by the use of words such as "plans", "expects" or "does not expect", "is expected", "budget", "scheduled", "estimates", "forecasts", "intends", "anticipates" or "does not anticipate", or "believes", or variations of such words and phrases or statements that certain actions, events or results "may", "could", "would", "might" or "will be taken", "occur" or "be achieved" or the negative of these terms or comparable terminology. By their very nature forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Such factors include, among others, risks related to actual results of current exploration activities; changes in project parameters as plans continue to be refined; future prices of resources; possible variations in ore reserves, grade or recovery rates; accidents, labour disputes and other risks of the mining industry; delays in obtaining governmental approvals or financing or in the completion of development or construction activities; as well as those factors detailed from time to time in the Company's interim and annual financial statements and management's discussion and analysis of those statements, all of which are filed and available for review on SEDAR at www.sedar.com. Although the Company has attempted to identify important factors that could cause actual actions, events or results to differ materially from those described in forward-looking statements, there may be other factors that cause actions, events or results not to be as anticipated, estimated or intended. The Company provides no assurance that forward-looking statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements.
Accordingly, readers should not place undue reliance on forward-looking statements.
* Non-GAAP Performance Measures
"Total Cash Costs" and "Unit Total Operating Costs" are Non-GAAP Performance Measures. These performance measures are included because these statistics are key performance measures that management uses to monitor performance. Management uses these statistics to assess how the Company is performing to plan and to assess the overall effectiveness and efficiency of mining operations. These performance measures do not have a meaning within GAAP and, therefore, amounts presented may not be comparable to similar data presented by other mining companies. These performance measures should not be considered in isolation as a substitute for measures of performance in accordance with GAAP.
SOURCE Capstone Mining Corp.