31st Jan 2006 07:02
Peter Hambro Mining PLC31 January 2006 31 January 2006 Million Ounce Target - Detailed Plan, Costs & Evaluation Peter Hambro Mining plc ("PHM" or "the Group") has produced updated businessplans for the Pokrovskiy Flanks, Pioneer and Malomir deposits. The findings ofthe reports support the Group's target of a million ounces of gold production in2009 and provide more clarity as to the expected development and subsequentrelevant contribution of each asset. Based on these plans the Group intends tofurther develop each of the primary assets and to invest the capital expenditurerequired to meet the production targets. The economic evaluation of these fourdeposits can be summarised as follow: ----------------- ---------- ------- ------ ---------------Project 2009 NPV* IRR* 2006-09 Capital Production Expenditure ('000oz) (US$m) (%) (US$m)----------------- ---------- ------- ------ ---------------Pokrovskiy flanks 330,000 380 51 134----------------- ---------- ------- ------ ---------------Pioneer 250,000 204 46 81----------------- ---------- ------- ------ ---------------Malomir 430,000 290 51 112----------------- ---------- ------- ------ ---------------Existing PokrovskiyDeposit 170,000 149 n/a----------------- ---------- ------- ------TOTAL 1,180,000 1,023 71----------------- ---------- ------- ------ * Assumes gold price of US$450/oz, discount rate of PHM convertible bond coupon,and other assumptions listed below. The valuations do not include any value forother Group assets, e.g. Tokur, Yamal assets, Omchak JV, 31st December 2005balance sheet items etc. See below for sensitivity analysis. Each project has been the subject of a comprehensive business planning,geological and engineering analysis the results of which are summarised below.The Group expects that, based on current gold prices and the assumptions withinthe business plans, the capital expenditure required for these projects can befinanced from the existing cash held by the Group, future production cashflowsand the use of the project finance markets. Commenting on the announcement, Peter Hambro, Executive Chairman of the Groupsaid:- "I am delighted that we can announce detailed plans for achieving our 2009million ounce target. We are very proud of our record of delivering on allprevious Group production targets and today's announcement should provide ourinvestors with the necessary building blocks to analyse how we will fulfil our2009 target. Our preliminary analysis shows that using a gold price US$100/oz below thecurrent market as a base case, we will deliver a net present value of over abillion dollars from these assets alone." Conference Call A conference call to discuss the announcement will be hosted by Peter Hambro, Executive Chairman of Peter Hambro Mining Plc, Jay Hambro, Business Development Director and Dmitry Chekashkin, Finance Director of Management Company PHM, on Tuesday, 31 January 2006 at 14:30 UK time. Details to access the conference call are as follows: The Dial-in number in the UK will be: 0845 245 3471 and internationally will be +44 (0) 1452 542 300. Replay will be available after the call has finished for seven days on 0845 245 5205 in the UK and on +44 (0) 1452 55 0000 internationally with the access code in both cases 4725224 . Enquiries: Alya Samokhvalova, Director of External Communications +44 (0) 207 201 8900or Marianna Adams www.peterhambro.comPeter Hambro Mining David Simonson or Tom Randell +44 (0) 207 653 6620Merlin Pokrovskiy Flanks Summary In 2004 the Group received an independent geological study on the areaimmediately surrounding the existing Pokrovskiy mine and deposit. This studyencouraged the Groups geological team to invest its time and budget in the areawith the consequent result that the area is expected to generate approximatelythree hundred and thirty thousand ounces of gold in 2009. Geology The Pokrovskiy deposit consists of a set of large, irregular but mostlyflat-lying ore bodies within a sequence of volcanic and sedimentary rocks ofMesozoic age, lying above a thick dacite sill (shaped like an inverted bowl).The ore bodies consist of gold disseminations that appear to be associated withintense block faulting which characterises the geology of this region.Significant mineralisation has yet to be found below the sill, which thuscurrently forms a 'floor' to the deposit. Some of the fractures that intersectthe dacite sill are mineralised within the sill, and may represent the channelsthrough which the hydrothermal mineralising fluids travelled. In general, away from the central Pokrovskiy area where the dacite sill is atits shallowest depths, instead of flat-lying ore bodies there are more steeplydipping veins and mineralised zones, controlled principally by the distributionof faulting, within the same sequence of Mesozoic sedimentary and volcanic rocksthat host the main Pokrovskiy ore deposit. There are also alluvial placer deposits along most of the surrounding streamvalleys. To the south-west of the central Pokrovskiy area there is potentially avery large area in which gold-bearing fanglomerates occur. These are thickflood-deposited sediments derived from erosion of the Pokrovskiy area, and thenatural separation processes (similar to the 'hushing' ore concentration methodsused since Roman times) makes these in themselves a very large and attractiveexploration target. As reported in the Group's 2004 Annual Report, the deposit is estimated tocontain the following reserves and resources: Area Category Ore Gold Content (C or P) ('000t) (kg) ('000oz)Flanks of Pokrovskiy DepositReserves in flanks C1 1,563 1,197 38 C2 13,624 15,956 513Exploration Areas P1+P2 92,922 217,368 6,989Total for flanks of Pokrovskiy 108,109 234,521 7,540 In order to create a "mineable reserve" for the purpose of business planningonly, the PHM geological and engineering team apply the following assumptions:- Assume all material is to be addressed by open pit mining- Assume 100% of C1 & C2 is mineable- Assume 75% of P1 & P2 is mineable- Assume mining losses of 3%- Assume mining dilution of 11% The result of this process is a business planning "mineable reserve" of 94.2mtonnes of ore at an average grade of 1.9g/t containing 5.6m ounces. Mining & Processing It is expected that the mining and processing operations and facilities alreadyin place at Pokrovskiy will be expanded and developed to exploit the PokrovskiyFlanks. It is expected that a new plant facility will be constructed within thePokrovskiy processing unit area with an annual processing capacity of 4mtpa in2009 increasing to 8mtpa in 2010 and 9mtpa from 2013. On the basis of experience at the Pokrovskiy deposit the following miningequipment is planned to be used on the Pokrovskiy deposit flanks:• Excavators with a bucket capacity of 10m3;• 45 tonne capacity dump trucks; (The efficiencies of larger excavators and trucks are being considered);• Atlas Copco drill rigs;• Other relevant specialist ancillary equipment. There is already a mining equipment repair workshop at Pokrovskiy and in theinterest of economising it is not necessary to provide additional repairfacilities. It is expected that full scale mining of the deposit will commence in 2009 with9m tonnes of material being moved. Of this material 3m tonnes are expected to behigh grade ore for the RIP plant. As with mining, the processing technology is expected to be very similar to thatalready used at the Pokrovskiy resin in pulp plant. In summary: directcyanidation of the grinded ore with subsequent adsorbtion on resin, desorptionof the gold bearing matrix and gold sedimentation through electrowinning. Thistechnology is currently used for ore treatment at the Pokrovskiy deposit andaccording to pilot tests has proved to be optimal for ores at the flank depositsas well. Equipment requirements for the new resin in pulp processing facility are:• Crushing and grinding circuit;• Wet grinding line;• Classifier;• Thickener;• System of conveyers and pumping machinery;• Adsorption and disorption complex. The grade of gold mined and recovery rate of gold processed is assumed to remainsimilar to that currently experienced at Pokrovskiy. The average grade over thelife of the mine is expected to be c.3g/t. The new plant is expected to have arecovery rate of c.90%. Expenditure Capital expenditure estimates have been generated using the Group's previousexperience of acquiring and using equipment for the main Pokrovskiy deposit.Total project capital expenditure is targeted as follows: Item Amount US$ '000Further exploration 7,000Infrastructure construction 2,000Construction of tailings dam 6,000Mining equipment and waste stripping 34,500Processing plant construction 84,500Total project capital expenditure 134,000 Economic Evaluation The project is expected to generate a post tax net present value of c.US$380mand an IRR of c.51%. This analysis makes the following assumptions:- Valuation period to 2018;- Reserves and a resources as described above;- Discount rate of 7.125% (the interest rate of PHM's convertible bond);- Income tax rate of 24% and royalty rate of 6% as is currently applicable;- Capital expenditure estimates and mining costs are in line with current levels experienced by the Group;- Gold price of US$450/oz flat for the period; and- This is an ungeared cash flow and before the effect of the Group's unaudited net cash balance of US$133m at 31/12/05. Pioneer Deposit Summary The Group obtained the Pioneer licence in 2001 and has subsequently been activein exploring and developing the deposit area. Currently the deposit hosts alarge exploration camp with advanced infrastructure to facilitate a sizabletrial mining operations. Studies on the deposit have implied that it is amenableto economic exploitation through a large scale mining operation combined with amix of high grade ore processing at a plant similar to that at Pokrovskiy and alarge heap leach operation. The deposit is located approximately 30km fromPokrovskiy and is expected to benefit from a degree of shared infrastructurewhich is enhanced by the expectation that the deposit will be mined and oreprocessed using methods similar to that used at Pokrovskiy currently. Geology The Pioneer deposit consists of a series of mineralised fracture zones cuttingsedimentary and igneous rocks of Mesozoic age. The whole area has been subjectto block faulting, with faults and fractures of several different orientations.This major fracturing has provided channels for hydrothermal mineralisingfluids. The faults and fractures which are mineralised trend N-S and NE-SW. Theprincipal mineralisation so far found is concentrated along and around severalkilometres length of one such fracture. Within these zones, at regular intervalsof about 400m which appear to coincide with intersections of fractures, thereare major enrichments which take the form of steeply dipping ore shoots orcolumns, in which gold occurs within veinlets and stockworks as well as withinthe main fracture zones. As reported in the Group's 2004 Annual Report and the July 2005 Pioneer update,the deposit is estimated to contain the following reserves and resources: Area Category Ore Gold Content (C or P) ('000t) (kg) ('000oz)Pioneer DepositBakhmut & Promezhutochnaya* C2 30,367 65,566 2,108Other zones^ C2 614 3,900 125 P1 7,227 11,400 367 P2 118,158 195,300 6,280Total for Pioneer 156,366 276,166 8,880* from 2004 Annual Report^ from July 2005 Pioneer Update In order to create a "mineable reserve" for the purpose of business planningonly, the PHM geological and engineering team apply the following assumptions:- Assume all the C2 material and 50% of the P1 & P2 material is to be addressed by open pit mining. The further 50% of P1 & P2 may be exploited at a later date but is not included in the analysis.- Assume 100% of C1 & C2 is mineable- Assume 75% of P1 & P2 is mineable- Assume mining losses of 2%- Assume mining dilution of 7%The result of this process is a business planning "mineable reserve" of 84.9mtonnes of ore at an average grade of 1.6g/t containing 4.5m ounces. Mining & Processing It is expected that the mining and processing operations and technologiesalready in place at Pokrovskiy will be adopted at Pioneer. It is expected that asubstantial heap leach operation will be constructed at Pioneer with an annualprocessing capacity of 5mtpa available by 2009. The initial operation istargeted to be able to process 1mtpa in 2007 and 3mtpa in 2008. The oreextracted from the high grade sections at Pioneer will be treated at Pokrovskiy- with 1mtpa being processed from 2009-2012 at the new Pokrovskiy Flanks milland 2mtpa thereafter at the current Pokrovskiy mill. On the basis of experience at the Pokrovskiy deposit the following miningequipment is planned to be used on the Pioneer deposit:• Excavators with a bucket capacity of 10m3;• 45 tonne capacity dump trucks (The efficiencies of larger excavators and trucks are being considered);• Atlas Copco drill rigs;• Other relevant specialist ancillary equipment. There is already a mining equipment repair workshop at Pokrovskiy and in theinterest of economising it is not necessary to provide additional repairfacilities. An all year road will be constructed at a cost of c.US$3m between the Pioneerand Pokrovskiy deposits with construction commencing in 2006. It is possiblethat the waste stripped from Pioneer and Pokrovskiy will be used for theconstruction of the road which will further optimise the cost estimates. It is expected that full scale mining of the deposit will commence in 2007 with7m tonnes of material being moved. Of this material 1m tonnes are expected to beore for the heap leach. As with mining, the processing technology is expected to be very similar to thatalready used at Pokrovskiy. As discussed above, the new Pokrovskiy Flanks, wherethe Pioneer high grade ore will be treated, will be similar to the Pokrovskiymill in technology. The proposed Pioneer heap leach operation will use a similarcrushing, stacking and treatment technology as used at Pokrovskiy. According topilot tests this process will prove to be optimal. Equipment requirements for the new resin in pulp processing facility are:• Crushing;• Agglomeration;• Stacking;• System of conveyers and pumping machinery; and• Adsorbtion and desorption complex. The grade of gold mined and recovery rate of gold processed differs between thetwo treatment processes. The high grade ore treated at Pokrovskiy has an averagegrade ranging from 3 to 3.5g/t and a 90% recovery is expected to be achievable.The lower grade ore sent to the heap leach is assumed to average c.1.6g/t atoutset lowering to c.1g/t from 2015. The Pokrovskiy heap leach recovers inexcess of 60% of the ore, this recovery rate has been assumed for Pioneer. Expenditure Capital expenditure estimates have been generated using the Group's previousexperience of acquiring and using equipment for the Pokrovskiy deposit. Totalproject capital expenditure is targeted as follows: Item Amount US$ '000Further exploration 7,000Infrastructure construction 7,000Construction of auxiliary and domestic infrastructure 10,000Mining equipment and waste stripping 35,000Heap leach operation construction 22,000Total project capital expenditure 81,000 Economic Evaluation The project is expected to generate a post tax net present value of c.US$204mand an IRR of c.46%. This analysis makes the following assumptions:- Valuation period to 2018;- Reserves and a resources as described above;- Discount rate of 7.125% (the interest rate of PHM's convertible bond);- Income tax rate of 24% and royalty rate of 6% as is currently applicable;- Capital expenditure estimates and mining costs are in line with current levels experienced by the Group;- Gold price of US$450/oz flat for the period; and- This is an ungeared cash flow and before the effect of the Group's unaudited net cash balance of US$133m at 31/12/05. Malomir Deposit Summary The Group acquired the Malomir licence in February 2005 and has subsequentlybeen active in exploring and developing the deposit area. The acquisition of theMalomir deposit has been part of a long-term development strategy of the Group.An exploration licence for the area surrounding the deposit was obtained in 2003at which time exploration on this area began. Geology The principal gold mineralisation at Malomir - known as the 'Diagonalnoye' orebody - is in the form of hydrothermal veinlets, stockworks, and disseminations,in a zone of crushed rock and breccias above a major thrust fault within ameta-sedimentary sequence (largely black shales, with some sandstones andlimestones) of Carboniferous age. The thrust zone dips to the north-west, hencethe outcrop at surface trends south-west to north-east. There is a zone (up to150m thick) of low-grade disseminated mineralisation, within which a number oflens-shaped bodies of higher grade ore can be identified. The known ore body is bounded laterally by N-S and E-W faults. There is alsogold mineralisation associated with the E-W Malomir Fault which defines thenorthern end of the Diagonalnoye deposit. In particular there are graniticigneous intrusions along this fault which are chemically altered and alsocontain gold. As reported in the Group's 2004 Annual Report, the deposit is estimated tocontain the following reserves and resources: Area Category Ore Gold Content (C or P) ('000t) (kg) ('000oz)Malomir DepositDeposit C1 23,550 47,500 1,527 P1 60,364 132,800 4,270Total for Malomir 83,914 180,300 5,797 In order to create a "mineable reserve" for the purpose of business planning,the PHM geological and engineering team apply the following assumptions:- Assume all material is to be addressed by open pit mining- Assume 100% of C1 & C2 is mineable- Assume 80% of P1 is mineable- Assume mining losses of 3%- Assume mining dilution of 8% The result of this process is a business planning "mineable reserve" of 77.6mtonnes of ore at an average grade of 1.9g/t containing 4.8m ounces. Location & Climate Conditions The Malomir deposit is located in the Selemdzhinskiy district of the AmurRegion, 80km west of the regional centre of Yekimchan and 35km east of Stoyba.The territory is located on the southern end of the Selemdzhinskiy ridge andcharacterised by taiga landscape. Absolute elevation reaches between 700-971mand relative elevation is between 150-200m. The slope gradient is between 15-20degrees. The region has a continental climate with a maximum temperature of+35degreesC in July and a minimum of -47degreesC in January. The deposit islocated in a continuous permafrost zone. The deposit benefits from the following means of communication- Air transport - there is an airport in Yekimchan with direct links to Blagoveschensk and a small aircraft landing strip in Stoyba. The airport in Blagoveschensk has direct links to Moscow, Khabarovsk, Irtkutsk, Krasnoyarsk and other cities.- Road transport - the nearest town is Stoyba (35 km by road to the south, from here it is possible to get to Yekimchan, Fevralsk and Svobodniy by road.- Rail transport - the railway passes through Fevralsk (BAM railway) and Svobodniy (Transiberian railway). The distance from Stoyba to Fevralsk station is 85km and to Svobodniy station is 240km.- Power supply - power supply is available in close proximity from the hydro power electric station number 110kv (lines run from Yekimchan to Svobodniy). Mining & Processing It is expected that the mining and processing operations and technologiesalready in place at the Group's Pokrovskiy mine will be adopted at Malomir. Itis expected that a new plant facility will be constructed within the Malomirlicence area with an annual processing capacity of 5mtpa in 2009. The mill isexpected to begin processing at 3.5mpta in 2008 and to be at full capacity of7mtpa by 2011. On the basis of experience at the Pokrovskiy deposit the following miningequipment is planned to be used on the Pioneer deposit:• Excavators with a bucket capacity of 10m3;• 45 tonne capacity dump trucks (The efficiencies of larger excavators and trucks are being considered);• Atlas Copco drill rigs; and• Other relevant specialist ancillary equipment. Technological research has been carried out on 15 assays of ore from the Malomirdeposit from primary ore and ore from the oxidisation zones. The recommended oreprocessing scheme is flotation with subsequent cyanidation of the flotationtailings. This process is targeted to provide gold recovery of c.90%. Equipment requirements for the new processing facility are:• Crushing and grinding circuit;• Wet grinding line;• Classifier;• Thickener;• System of conveyers and pumping machinery;• Flotation complex; and• Adsorbtion and desorption complex. The grade of ore processed by the new plant is assumed to average c.3.8g/t atthe outset reducing to c.1.6g/t from 2015. Expenditure Capital expenditure estimates have been generated using the Group's previousexperience of acquiring and using equipment for the Pokrovskiy deposit. Totalproject capital expenditure is targeted as follows: Item Amount US$'000Further exploration 8,000Infrastructure construction 4,000Construction of auxiliary and domestic infrastructure 10,000Construction of tailings dam 7,000Mining equipment and waste stripping 19,000Processing plant construction 60,000Other 4,000Total project capital expenditure 112,000 Economic Evaluation The project is expected to generate a post tax net present value of c.US$290mand an IRR of c.51%. This analysis makes the following assumptions:- Valuation period to 2018;- Reserves and a resources as described above;- Discount rate of 7.125% (the interest rate of PHM's convertible bond);- Income tax rate of 24% and royalty rate of 6% as is currently applicable;- Capital expenditure estimates and mining costs are in line with current levels experienced by the Group;- Gold price of US$450/oz flat for the period; and- This is an ungeared cash flow and before the effect of the Group's unaudited net cash balance of US$133m at 31/12/05. Valuation Sensitivities The net present values and the internal rates of return presented above aregenerated from PHM's base case business planning assumptions. The realities aresubject to market forces and may represent significantly different variables -for example the gold price is currently c.US$110/oz higher than as used in thebase case. In order that the valuations may better reflect these differences the tablesbelow show how the base case NPV and IRR will move with different gold pricesand discount rates but all other assumptions unchanged: NPV - Variable gold price and discount rates. Upside Gold Price Scenarios (US$/oz) 450 500 550 600 650 -------- -------- -------- -------- -------- -------- -------- Discount Rates 0.000% 1,792 2,207 2,621 3,036 3,450 5.000% 1,202 1,490 1,779 2,067 2,355 7.125% 1,023* 1,273 1,524 1,774 2,024 10.000% 829 1,038 1,246 1,455 1,664 15.000% 585 741 897 1,054 1,210 NPV - Variable gold price and discount rates. Downside Gold Price Scenarios (US$/oz) 450 425 400 375 350 -------- -------- -------- -------- -------- -------- -------- Discount Rates 0.000% 1,792 1,585 1,378 1,171 964 5.000% 1,202 1,058 913 769 625 7.125% 1,023* 898 773 648 523 10.000% 829 725 620 516 412 15.000% 585 507 429 351 272 IRR - Variable gold price and discount rates. Upside Gold Price Scenarios (US$/oz) 450 500 550 600 650 -------- -------- -------- -------- -------- -------- -------- IRR 71%* 86% 101% 117% 135% IRR - Variable gold price and discount rates. Downside Gold Price Scenarios (US$/oz) 450 425 400 375 350 -------- -------- -------- -------- -------- -------- -------- IRR 71%* 64% 57% 50% 43% * PHM Base Case DISCLAIMER Past performance of the Company or its shares cannot be relied on as a guide tofuture performance. Some statements contained in this release and the associated presentation or indocuments referred to in it are or may be forward-looking statements. Actualresults may differ from those expressed in such statements, depending on avariety of factors. Any forward-looking information contained in this presentation has been preparedon the basis of a number of assumptions which may prove to be incorrect, andaccordingly, actual results may vary. Investors must be aware that onlyPokrovskiy main pit and Pioneer reserves have been approved by the Russianauthorities as extractable. However the assumptions used in this presentationare based on other reserves having been approved for extraction. No assurancesmay be given that the Russian licensing authorities will approve any Group'sreserves for extraction. Any mining, engineering and business plans prepared bythe Group are based on the Group's interpretation and understanding of thecurrent business, regulatory or political circumstances in Russia and in thegold market and may be subject to change should any of these circumstanceschange. This presentation does not constitute, or form part of or contain any invitationor offer to any person to underwrite, subscribe for, otherwise acquire, ordispose of any shares in Peter Hambro Mining plc or advise persons to do so inany jurisdiction, nor shall it, or any part of it, form the basis of or berelied on in any connection with or act as an inducement to enter into anycontract or commitment therefore. No reliance may be placed for any purposewhatsoever on the information or opinions contained in this document or on itscompleteness and no liability whatsoever is accepted for any loss howsoeverarising from any use of this document or its contents otherwise in connectiontherewith. This press release and associated presentation has been prepared in compliancewith English law and English courts will have exclusive jurisdiction over anydisputes arising from or connected with this presentation. The content of this press release has been approved by JP Morgan Cazenove asnominated adviser to the Group. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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