Pre-feasibility
Background
A Definitive Feasibility Study ("DFS") on the Minto Main deposit was conducted in 2006 by Hatch and positive results of the study led to the construction of the mine and mill. Commercial production was declared on October 1, 2007 with ore being extracted exclusively from the Main pit. In 2006, Sherwood geologists identified a possible extension to the main deposit, 130m south of the pit currently under development. An aggressive drill program was conducted which resulted in the discovery and definition of a significant new resource called Area 2. To assess the economic potential of the Area 2 resource, a Pre-feasibility Study ("Area 2 PFS") was completed under the supervision of SRK Consulting (Canada) Inc. and published in 2007.
Subsequent discoveries that expanded Area 2 and discovered and defined Area 118, Ridgetop and Minto North warranted completion of an updated PFS, which was published in December 2009. The pre-feasibility study for the Phase IV expansion ("Phase IV PFS") of the Minto copper-gold mine details the basis of ramp up in mill throughput to a nominal 4,100 tonnes per day ("tpd") throughput and 91.3% availability, resulting in 1.37 million tonnes per year processed in an optimised mill, with ore to be extracted from new mineralized areas discovered since 2006. The Phase IV PFS results in a total of 366 million pounds of copper in concentrate produced over an eight year mine life, commencing January 2010. Permit amendments are required for production in 2012 and beyond.
The Phase IV PFS also discusses two possible options for further increases in production and/or increases in mine life and mineral reserves: (1) a possible further increase in mill capacity to 7,500 tpd of throughput, focused on open pit mining of mineral resources outside of the current proposed open pits, and (2) the possible development of a 1,000-2,000 tpd underground mine to provide higher grade feed relatively earlier in the mine life than an expanded open pit operation. On preliminary analysis, the underground option appears to have a more attractive investment profile. As a result, the underground option will be prioritized in 2010, offering the potential for higher production than outlined in the Phase IV PFS.
Expanded Scope
In addition to looking at the economic potential of the Area 2 deposit, the study was expanded to incorporate several other concurrent Minto Project improvements that were identified post-DFS, including:
- Implementation of coarser initial grinding in conjunction with a regrind of rougher cell concentrates;
- Increase in mill capacity to 3,500 tonnes per day;
- Utilization of grid electrical power;
- Review of waste rock and tailings deposition options;
- Optimization of the pit slopes for the Main pit based on new geotechnical data and analysis;
- Improved recoveries for partially oxidized material.
Highlights
The PFS was completed in December 2009 and laid out the basis for production from the Area 2/118, Ridgetop and Minto North deposits at a higher mill throughput than was defined in the 2006 DFS completed by Hatch Ltd. or the Area 2 PFS. Highlights of the Phase IV PFS include the following:
- Increase in mill throughput to 4,100 tonnes per operating day, resulting in a sustained 1.37 million tonnes of ore per year (3,750tpd after allowances for maintenance and availability);
- Proven and probable mineral reserves increased to 10.9 million tonnes grading 1.64% copper, 0.64 g/t gold, and 5.9 g/t silver, for a contained 395 million lbs of copper, 224,000 oz of gold, and 2.0 million oz of silver;
- Mine life extended to 2018 with an average of 45 million pounds of copper production per year, with additional upside opportunities identified, as discussed below;
- Life-of-mine capital cost of C$48.2 million, primarily based on an assumption of conversion to self mining, which decision will be subject to a cost-benefit analysis vs. remaining with contract mining;
- Life-of-mine cash costs of US$1.34/lb of copper, after by-product credits (with gold at US$300/oz and silver at US$3.90/oz, as per the agreement with Silver Wheaton);
- Net present value, at a constant US$2.25/lb copper price for unhedged production and a 7.5% discount rate, of C$199 million before tax and C$160 million after tax, which amounts increase to C$291 million before tax and C$218 million after tax at a flat US$2.60/lb copper price for unhedged production, and to C$395 million before tax and C$281 million after tax at a flat US$3.00/lb copper price for unhedged production;
- Important opportunities identified for incremental higher grade production relatively early in the mine life from underground mineral resources not within the current Phase IV pits or the current mineral reserve;
- A C$20 million allowance has been made in the cash flow model for post-closure abandonment and reclamation.
The Phase IV PFS represents an interim update on the Minto Project with resource estimates as of the end of April 2009 and costs as of the end of 2009. However, continued exploration success in 2009, which could result in further reserve increases beyond those outlined in the Phase IV PFS, and other optimization opportunities, suggest that additional value remains to be extracted from the Minto Project and Capstone will continue to pursue the crystallization of these value opportunities.
Permitting
In order to implement the life-of-mine plan set out in the Phase IV PFS, amendments will be required to the current operating permits and licences at the Minto Mine for production in 2012 and beyond. With the Phase IV PFS as a guide, MintoEx has commenced the process of preparing an application for such amendments, which application it intends to file with the Yukon regulators in the first half of 2010.
In the financial model, C$20 million has been allowed for mine site reclamation following closure. However, it should be noted that this amount is an allowance; the actual reclamation cost will be estimated in conjunction with regulators during the permitting process.
Economics
SRK reports that the estimated economic benefit of mining the Minto Phase IV deposits is sufficient to take the Phase IV expansion project to the next level. While more detailed work will be required to optimize the project, there is adequate economic justification for MintoEx to proceed with further work and, in particular, the application for licence and permit amendments from the Yukon Government.
The table below shows the comparison of Phase IV PFS Base Case (at a flat US$2.25/lb for unhedged copper production) and Alternate Cases (at a flat US$2.60 and US$3.00/lb for unhedged copper production, respectively). The Phase IV deposits add economic benefit to the mine, yielding a Base Case pre-tax Net Present Value at a 7.5% discount rate ("NPV7.5%") of C$199 million. The Alternate Case models yield a substantial improvement in the project economics due to higher metal prices based on current forward projections.
Comparison of Phase IV Base and Alternate Cases
| Item |
Unit |
Phase IV PFS Base Case |
Phase IV PFS Case 2 |
Phase IV PFS Case 3 |
| Waste mined (millions) |
tonnes |
70.4 |
70.4 |
70.4 |
| Ore mined (millions) |
tonnes |
10.0 |
10.0 |
10.0 |
| Total mined (millions) |
tonnes |
80.4 |
80.4 |
80.4 |
| Strip ratio (waste: ore) |
W:O |
7.0 |
7.0 |
7.0 |
| Mill Feed* |
Mt |
10.9 |
10.9 |
10.9 |
| Copper mill head grade |
% Cu |
1.64% |
1.64% |
1.64% |
| Gold mill head grade |
g/t Au |
0.64 |
0.64 |
0.64 |
| Silver mill head grade |
g/t Ag |
5.9 |
5.9 |
5.9 |
| Copper in concentrates (millions) |
lb |
366 |
366 |
366 |
| Gold in concentrates (000s) |
oz |
166 |
166 |
166 |
| Silver in concentrates (000s) |
oz |
1,685 |
1,685 |
1,685 |
| Concentrate Grade |
% Cu |
40% |
40% |
40% |
| Copper Price Unhedged production, flat) |
US$/lb |
$2.25 |
$2.60 |
$3.00 |
| Copper Price (LOM average, including hedging) |
US$/lb |
US$2.25 |
US$2.55 |
US$2.90 |
| Gold price (net received from Silver Wheaton) |
US$/oz |
$300.00 |
$300.00 |
$300.00 |
| Silver price (net received from Silver Wheaton) |
US$/oz |
$3.90 |
$3.90 |
$3.90 |
| Exchange rate |
US$/C$ |
$0.91 |
$0.91 |
$0.91 |
| NSR |
C$/t milled |
$75 |
$86 |
$99 |
| Unit Mining Costs |
C$/t mined |
$2.31 |
$2.31 |
$2.31 |
| Unit Total OPEX (incl. royalties) |
C$/t milled |
$42.86 |
$42.92 |
$42.98 |
| Unit On-site OPEX (inc. royalties) |
US$/lb Cu payable |
$1.20 |
$1.20 |
$1.20 |
| Unit Off-site OPEX |
US$/lb Cu payable |
$0.29 |
$0.29 |
$0.29 |
| Unit By-product Credit |
US$/lb Cu payable |
$0.15 |
$0.15 |
$0.15 |
| Unit OPEX net by-product credits |
US$/lb Cu payable |
$1.34 |
$1.34 |
$1.34 |
| Total Capital (initial, sustaining) |
C$ millions |
$48 |
$48 |
$48 |
| Allowance for closure costs |
C$ millions |
$20 |
$20 |
$20 |
| NPV7.5% pre-tax |
C$ millions |
$199 |
$291 |
$395 |
| NPV7.5% after tax |
C$ millions |
$160 |
$218 |
$281 |
| *Note: Mill Feed includes Ore Stockpile |
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*Note: Mill Feed includes Ore Stockpile
Base case sensitivity analyses were run for copper grade, copper price, capital expense ("CAPEX"), and operating expense ("OPEX"). Each variable was changed from -20% to +20% of the base case value. Each variable was changed independently of the other variables so there is no compounding effect of multiple variable modifications. The results show the project is most sensitive to copper grade followed closely by copper prices. Normally grade and metal price effects are equal but in Minto's case, the copper price is hedged for some of the production so the effect of copper price is tempered with some metal price certainty.
Risks & Opportunities
- Timing and approval of permit revisions, which could delay access to new mining areas if not granted in time to allow stripping of Minto North in 2012;
- Exchange rates, metal prices and external influences;
- Grade control, given the relatively narrower mineralized horizons in the Phase IV pits as compared to the Minto Main pit.
The most important opportunities to improve the project are:
- Optimization of mine plan to smooth out the production profile and optimize stripping;
- Underground production potential, bringing currently defined ex-pit high grade feed to the mill relatively early in the mine life. A conceptual level review was completed that involves underground extraction of higher grade ore, eliminating the need for further plant expansions and allowing processing of higher grade ore sooner than in an expanded open pit scenario:
- Conversion of current inferred mineral resources within existing Phase IV pit outlines to higher classifications, increasing the mineral reserve and reducing strip ratios:
- Conversion of current higher grade inferred mineral resources outside the existing Phase IV pit outlines to higher classifications, possibly resulting in increased mineral reserves; and
- Discovery of new mineral resources and mineral reserves.
Unless otherwise stated, all reporting is in Canadian dollars and metric units.
To view News Release summarizing the results of the Phase IV PFS, please
click here.
To view the full Phase IV PFS, please
click here.
