Capstone Mining Corp. (CS: TSX) today announced that its wholly owned subsidiary, Kutcho Copper Corp., reports the results of the Prefeasibility Study completed by JDS Energy & Mining Inc. 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.
Highlights
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.
- 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.
"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
Changed Approach
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.
Mineral Resources
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
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 Grade Grade Copper 85.6% 28.7% 0.8% Zinc 82.9% 5.4% 57.2% Gold 43.0% 2.65 g/t Silver 66.1% 380 g/t
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.
Mine Plan
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 Main 8,106,267 Probable 1.92 2.51 28.02 0.31 Esso 2,334,894 Probable 2.32 5.53 57.48 0.59 Total 10,441,161 Probable 2.01 3.19 34.61 0.37
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.
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.
Environmental Considerations
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.
Capital Cost
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.
Operating Costs
Total operating costs, including capital leases carried as an operating expense, are estimated in the 2011 PFS as C$66.15 per tonne of ore processed, broken down as follows:
Kutcho Project - Operating Costs used in 2011 PFS Activity/Item Unit Cost (C$/tonne) Mining $30.21 Processing $18.44 Administration $10.37 Capital Leases $4.21 Royalties $2.92 Total $66.15
Economic Analysis
The economic assessment in the PFS utilizes mineralized zones that have the economic considerations applied to them which enable them to be categorized as mineral reserves, and there is sufficient certainty that this economic assessment will be realized. There are no inferred mineral resources utilized in the mine Life of Mine Plan ("LOMP").
The Canadian US$ 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:
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:
1. Variation between the predicted and actual deposit shapes, potentially leading to higher dilution, modifications in the mining method or requiring additional definition drilling. 2. Weaker underground rock masses may increase ground support requirements. 3. Reduction in metallurgical recoveries due to the complex nature of the mineralization. 4. Power consumption of major process equipment units may be higher than indicated by the test work completed to date. 5. Ability to attain necessary permits in a timely manner. 6. Capital and operating cost increases due to equipment and labour shortages and increased consumable prices. 7. 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:
1. Mine Design, enhance haulage route design and decrease operating expenditures by utilization of OEM supplied used equipment. 2. 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%. 3. Alternate LNG sources other than Vancouver could have a significant beneficial impact on operating costs. 4. The Sumac deposit has the potential to yield further mineral resources in zones parallel to or along strike of the known mineral resources.
Technical Report
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.
Source: Capstone Mining Corp.