4th Dec 2006 08:45
Thor Mining PLC04 December 2006 THOR MINING PLC Results of the definitive feasibility study at Moliyhil Dated: 4 December 2006 Thor Mining PLC ("Thor" or the "Company") the specialist metals companycurrently focussed on advancing tungsten-molybdenum and uranium projects in theNorthern Territory of Australia, today announced the completion of a definitivefeasibility study ("DFS") on the Molyhil Tungsten-Molybdenum Project ("Molyhil")in the Northern Territory of Australia. The study confirmed that the project istechnically and economically viable, with strong financial returns and a rapidcapital payback. Following release of the DFS today trading resumed on the Australian StockExchange. Highlights • DFS on Molyhil confirms viability of a 300,000tpa mining and processing operation; • Thor will proceed with the development which has a rapid capital payback and strong financial returns; • Financial modelling for the project indicates a pre-royalty EBIT of AUD117 million over the first 4 years; • A NPV of AUD88 million discounted at 8% at an average AUD/USD exchange rate of 0.73; • An IRR of 111%; • Significant opportunities identified for reduction of CAPEX through the purchase of second-hand equipment; and • Further drilling planned for the first quarter of 2007, which is designed to increase the life of mine within open pit designs and to increase the resource at depth. Introduction The Board today agreed to proceed with a new mine development at Molyhil,subject to securing all necessary approvals, including a suitable off takeagreement; and completing a fund raising in the first quarter of 2007. The DFS, which was carried out over the past 12 months, paves the way for thefinancing and development of Molyhil during 2007. The Company proposes tocomplete a fundraising and an off take agreement during the first quarter of2007. Thor is currently in discussions with a number of parties in relation tothis, however, at this stage, no terms have been agreed. Construction istargeted to commence in May 2007 with first production in the first quarter of2008. The DFS confirmed the viability of a mining and processing operation based on aJORC compliant resource for the Molyhil deposit of 2.4 million tonnes grading0.8% combined tungsten WO3 and molybdenum MoS2 to a vertical depth of 150metres. The operation would be based on an open pit mining operation and 300,000tpaprocess plant with an initial 4-year mine life. Drilling is planned in 2007 toextend the mine life both within the planned pit designs and at depth. This deepdrilling is to be completed with a view to extending the life of the mine byunderground mining at the cessation of open pit operations. Estimated recoveries based on metallurgical test work of 67% for tungsten and77% for molybdenum, the operation would generate two quality concentrateproducts, initially by flotation of molybdenum (MoS2), followed by gravityseparation and concentration of tungsten (WO3). The estimated capital cost is AUD44.5 million, which includes the engineering,procurement and construction management contracts and a contingency. Theforecast total operating cost is AUD94/tonne. The stage 1 and stage 2 open pitshave been designed to optimise cash flow in the first year of production to takeadvantage of current strong commodity prices and achieve an early payback ofcapital. Significantly, the DFS indicates that a capital payback period of less than 7months can be achieved with the stage 1 pit, with the operation generating apositive pre-royalty EBIT of AUD117 million over its initial 4-year life, usinga base case sale price of US$20/lb of molybdenum and US$204/mtu for tungsten. Atthese base case prices the project has a net present value ("NPV") of AUD88million, an internal rate of return (IRR) of 111%, and a capital payback of 7months. However the projects financial model is highly sensitive to changes inthe commodity price. For example, if commodity sales prices reduce by 15% fromthe base case level then the NPV reduces to AUD56 million and the IRR to 74%with a payback period of 11 months. Thor has already secured key items of plant and equipment for the Molyhildevelopment, including an option to purchase a spirals plant and tables and asecond-hand two-stage crushing circuit at a significantly reduced cost comparedwith a new circuit. Additional metallurgical tests to further optimise theflotation conditions and concentrate grade and recovery forecast arerecommended. No change to the current cleaning circuit is expected howeverfurther optimisation of the re-cleaning circuit is likely to reduce flow sheetcomplexity and possibly capital cost. A particular area of focus in there-cleaning work would be the recovery of Mo in the -75 (micro)m fractions,especially looking at separation of Mo from both Cu and Fe. As a result of thisa discount of 20% to the current commodity prices has been applied to thefinancial model. Additional test work focusing on the recovery of the finetungsten, currently excluded from the flow sheet and recovery forecasts, isrecommended and represents an upside recovery of 15%. Based on the positive results of the DFS, Thor has decided to proceed with theMolyhil project, subject to determining a number of key outcomes, such asfinalisation of the off take agreement and finance package as well as StateGovernment and Native Title approvals. Commenting on the DFS results, Thor's Chief Executive Officer, Mr John Young,said: "We are very pleased with the outcome, which confirms the viability of amining development at Molyhil to underpin Thor's transition to production nextyear. The DFS indicates a rapid capital payback and strong financial returns,with the key to this project being rapid development to take advantage ofcurrent strong commodity prices." "We have also identified several opportunities to significantly reduce theestimated capital cost through the acquisition of suitable second-handequipment," he added. "This has the potential to enhance returns and improve theoverall economics. Our focus now is on securing all necessary approvals andcompleting financing and off-take agreements over the next few months" Executive Summary The Molyhil project is a proposed open cut mine and processing facility to beconstructed in the Northern Territory. The main objective of the proposedfacility is to produce scheelite and molybdenite concentrate for sale. Thor, through its wholly-owned Australian subsidiary Sunsphere Pty Ltd, owns100% of the Molyhil, which comprises EL 22349, totalling 829 km2 in area, andincludes ML 23825 which covers the deposit (former open pit, waste dumps andRun-of-Mine stockpile). In 2004, Thor applied for ML 24429 to further extend themining operation and recently MLA 25721 to cover the project infrastructurerequirements. The combined mining lease applications cover an area of 247 ha. The DFS report has been prepared by a number of consultants including ProteusEngineers, AMC and Golder Associates and covers the technical and economicfeasibility of developing Molyhil. The DFS includes preliminary design,engineering and cost estimates for the mining, process plant and associatedfacilities for a 300,000tpa operation. The DFS mineral resources and ore reserveestimation was classified in compliance with the JORC Code. All prices are inAustralian Dollars unless stated to the contrary. The Ore Reserve estimate has been established through a series of mineoptimisations and mine designs. The current pit model has proved and probablereserves of 1.094Mt at 0.21% (Mo) and 0.62% (W). A two-staged pit design has been recommended, providing 201,621t of ore grading0.26% (Mo) and 1.28% (W) in stage 1 and 892,237t of ore grading 0.20% (Mo) and0.47% (W) in stage 2. Stripping ratios are 8.0:1 and 7.4:1 respectively. Miningis planned to be undertaken by conventional truck and shovel operations undercontract mining arrangements. The metallurgical test work and resultant process flow sheet indicate therecovery of 889 tpa of dry Molybdenite concentrate (77.0% recovery of Mo) and1,511tpa of dry Tungsten concentrate (67.20% recovery of WO3) at saleablespecifications. Additional test work is being commissioned to finesse therecovery/grade of both concentrates. No change to the current cleaning circuitis expected however further optimisation of the re-cleaning circuit is likely toreduce flow sheet complexity and possibly capital cost. A particular area offocus in the re-cleaning work would be the recovery of Mo in the -75 (micro)mfractions, especially looking at separation of Mo from both Cu and Fe. As aresult of this, a discount of 20% to the current commodity price has beenapplied in the financial model. Additional test work focusing on the recovery ofthe fine tungsten, currently excluded from the flow sheet and recoveryforecasts, is recommended and represents an upside recovery of 15%. The suggested process flow sheet is a partial secondary crush SAG comminutioncircuit, followed by flotation to produce a Molybdenite concentrate. A finalstage of flotation removes pyrite prior to a gravity separation of the Tungstenconcentrate, with subsequent magnetic and high tension separation of the driedTungsten primary concentrate to reject the remaining magnetic and conductingminerals to produce a saleable tungsten concentrate. Geochemical test work on representative tailings samples has been commissionedwith results anticipated in January 2007. Provision has been made in the designof the tailings storage facility for the installation of a liner andunderdrainage system if geochemical testing of the tailings and tailings liquorindicate that the installation would be required. The cost of three subsequent 1.5m lifts to contain the final tailings volumeshas been included in the operational costs. While it is anticipated that the project will require a formal assessmentthrough a Public Environmental Review, no environmental or heritage concernshave been identified that cannot be managed within the framework of anEnvironmental Management Plan. The estimated capital cost for the Molyhil process plant and facility, includingan allowance for contingency, EPCM and Owner's costs is AUD45.5 million. Noallowance has been made in the base case for escalation over the project life.The effect of escalation on the capital cost is illustrated in the sensitivityanalysis. The capital cost of the project has been reduced through the use of BOOcontracts to provide the accommodation village, power station, fuel storagefacilities and support buildings. These costs are reflected in the process plantoperating cost which has been estimated at AUD63.10/tonne of ore treated. Theaverage operating cost of the mining operation has been estimated at AUD31.04/tonne of ROM ore produced. In addition, there are also opportunities to reduce the direct capital cost ofthe process plant and facilities by AUD3.6 million through the use ofsecond-hand equipment or by reducing design and construction specifications dueto the relatively low project life required. The operating cost includes transporting the concentrate to Darwin Port, but noallowances have been made for any shipping or handling charges ex Darwin Port asno definite sales arrangements have been agreed to date. The base case scenario uses the following assumptions: • A constant Molybdenum price of US$25 per pound less 20% discount; • A constant Tungsten (APT) price of US$255 per mtu less 20% discount; • No allowance for taxation, Northern Territory Government royalties or Central Land Council royalties; • A commission of 0.75% paid on revenue received; • Capital expenditure of AUD45.5 million inclusive of AUD1.0M of owner's costs, EPCM and a 10% contingency; • Salvage value of the plant and equipment is assumed to be sufficient to meet final closure obligations; • Operational insurances and duties are assumed to be AUD500,000 pa. • Discount rate 8% and an average AUD/USD exchange rate of 0.73 has been used; and • 100% equity finance. Based on these assumptions the project has a NPV of AUD88 million, an IRR of111%, and a capital payback of 7 months. The project financial model is highlysensitive to commodity price changes. For example, if commodity sales pricesreduce by 15% from the base case, the NPV reduces to AUD56 million and the IRRto 74% with a payback period of 11 months. The DFS confirms that the project is technically and economically viable and itis recommended for development. Glossary of geological and technical terms TERM DESCRIPTION DFS Definitive Feasibility Study MOLYBDENUM Molybdenum (Mo) is a transition metal. The pure metal is silvery white in colour, fairly soft, and has one of the highest melting points of all pure elements. In small quantities, molybdenum is effective at hardening steel. TUNGSTEN Tungsten (W) is found in several ores including wolframite and scheelite. It is a very hard, heavy, steel-grey to white transition metal . The pure form is used mainly in electrical applications but its many compounds and alloys are widely used in many applications. ORE Ore defined as mining product containing economically recoverable minerals. SCHEELITE CaWO4, Calcium Tungstate MOLYBDENITE MoS2, Molybdenum disulfide. CONCENTRATE The valuable metal from which most of the waste rock has been removed. WASTE Mining product containing no economically recoverable minerals. TAILINGS (TAILS) The waste product from the process. BERM The walls are stepped. The inclined section of the wall is known as the batter, and the flat part of the step is known as the bench or berm. The steps in the walls help prevent rock falls continuing down the entire face of the wall SAG Semi Autogenous Grinding, uses grinding media (balls) and the ore itself to effect the reduction in size of the ore to meet the size specification for the flotation circuit. PYRITE Iron sulphide, FeS2 SULPHIDE Minerals containing sulphur COMMINUTION Process of reducing the size of the ROM material through crushing, screening and grinding ROUGHER The rougher flotation cells are designed to recover the coarse liberated and fasterFLOTATION floating molybdenite mineral SCAVENGER The scavenger flotation cells are designed to recover the slower floatingFLOTATION molybdenite mineral CLEANING Further stages of flotation used to improve the grade of the molybdenite recoveredFlotation from the rougher and scavenger flotation units (micro)m Micron, one millionth of a metre Mtu Metric tonne unit, a unit of mass used in mining to measure the mass of the valuable metal in an ore. Customarily, the metric ton unit is defined to be one metric ton of ore containing 1% metal, but it is the metal, not the ore, that is being measured.tpa Tonnes per annum THICKENER A piece of equipment that recovers water from a slurry ROM Run of Mine, the ore that is extracted from the mine to be processed CELLS An individual flotation unit RECOVERY The percentage of the valuable mineral that is recovered in the concentrate fraction of the particular process. MAGNETIC Magnetic separation is used to separate magnetic minerals from non-magneticSEPARATION minerals and can be undertaken on either wet or dry material HT SEPARATION High Tension separation is used to separate minerals that are conductors from minerals that are non-conductors GEOTECHNICAL Scientific methods and engineering principles to acquire, interpret, and apply knowledge of earth materials for solving engineering problems. BOO Build Own and Operate, a contractual arrangement whereby the contractor designs, constructs and operates the plant to supply product or services whilst retaining ownership of the plant. The contractor is reimbursed for the supply of product or services rather than for the supply of the plant. PABX Private Automatic Branch Exchange, a telephone exchange that is owned by a business MATV Master Antenna Television System EPBC The Environment Protection and Biodiversity Conservation NOI Notice of Intent, used to notify the Department of Primary Industries, Fisheries and Mines of details of the proposed project PER Public Environmental Review APT Ammonium Paratungstate CIF Carriage Insurance Freight, international shipping terminology denotes that the seller delivers the product to the port of destination and has included these costs in the stated price and will provide the buyer with the documents necessary to obtain the goods from the carrier. EPCM Engineering, Procurement and Construction Management FIFO Fly in and fly out of the mine site. Employees stay in temporary accommodation and return "home" at the end of their shift roster OH&S Occupational Health and Safety CCE Capital Cost Estimate p.a. Per annum NPV Net Present value, is the present value of cash flow minus initial investment of the project. It is one method of ranking projects; it measures the excess or shortfall of cash flows, in present value terms, once financing charges are met and takes into account the reducing value of future revenue due to the anticipated interest rate over the period. IRR Internal Rate of Return, is another method of ranking projects and is defined as the discount rate that results in a net present value of zero, and it is usually interpreted as the expected return generated by the investment. EBIT Earnings before interest and tax JORC Compliance The information in this report that relates to exploration results, mineralresources or ore reserves is based on information compiled by John Young, who isa Member of The Australasian Institute of Mining and Metallurgy. John Young, theChief Executive Officer of Thor, has sufficient experience which is relevant tothe style of mineralisation and type of deposit under consideration and to theactivity which he is undertaking to qualify as a Competent Person as defined inthe 2004 Edition of the "Australasian Code for Reporting of Exploration Results,Mineral Resources and Ore Reserves". John Young consents to the inclusion in this RNS announcement of the mattersbased on his information in the form and context in which it appears.) Enquiries: John Young + 61 (0)419 954 020 Thor Mining PLC Chief Executive OfficerJohn Simpson 020 7512 0191 ARM Corporate Finance Nominated Adviser LimitedLeesa Peters 020 7429 6600 Conduit PR Limited Public Relations/UK or 020 7429 6603 Jos Simpson Nicolas Read + 61 (0) 8 9388 1474 Jan Hope & Partners Public Relations/Australia Updates on the Company's activities are regularly posted on Thor's websitewww.thormining.com, which includes a facility to register to receive theseupdates by email. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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