Combined Star - Orion South Prefeasibility Study NPV of $1.3 billion and IRR
of 16 percent 279 million tonne, 35 million carat mineral reserve
Stock Symbol: SGF: TSX
SASKATOON,
President and CEO, Kenneth MacNeill, states: "Shore is very pleased with the positive results of the combined PFS. These robust prefeasibility numbers confirm that a world class diamond mine is feasible in central Saskatchewan. Shore Management and Directors acknowledge the extensive and diligent work that has been performed by Shore's technical team and associated consultants to reach this most important milestone in the successful evaluation of the Star and Orion South Kimberlites.".
The Combined Star - Orion South PFS Highlights Include:
- Probable Mineral Reserves of 279 million diluted tonnes at a weighted average grade of 12.5 carats per hundred tonnes ("cpht") containing 35 million carats at a weighted average price of $226 per carat (US $192) over the Life of Mine ("LOM"); - Total diamond production of 35 million carats over a 20 year LOM; - Robust project economics over a 20 year LOM due to proximity to infrastructure (electric power, paved highways, railroads, water and labour) in Saskatchewan; - A Net Present Value ("NPV") of $1.3 billion (using a 7 percent discount rate) for an Internal Rate of Return ("IRR") of 16 percent before taxes and royalties and an after-taxes and royalties NPV of $786 million with an IRR of 13.5 percent; - With a 20 percent increase in diamond prices compared to March 2008, as is currently indicated in the diamond market, the NPV (using a 7 percent discount rate) increases to $2.1 Billion for an IRR of 20 percent before taxes and royalties and the after-taxes and royalties NPV increases to $1.3 billion with an IRR of 17 percent (see discussion below under "Star - Orion South Prefeasibility Study Results"); - Pre-production capital cost of $1.6 billion with a total capital cost of $2.5 billion (including direct and indirect costs) over the LOM and an initial capital cost payback period of 4.6 years. With a current 20 percent increase in diamond prices compared to March 2008, the payback period is reduced to 3.5 years; - P&E have recommended that Shore advance the Star - Orion South Kimberlites to a Feasibility Study, based on the robust economics indicated in the PFS.
Senior Vice
Star - Orion South Prefeasibility Study Results
The Star - Orion South PFS cash flow model is based on developing two open pits, initially on Star and subsequently on Orion South. The cash flow model assumes one processing plant and infrastructure that will serve both open pits and assumes the project has a four-year pre-production development period followed by a 20 year production period. The model assumes on-site construction would start in Q4-2011 with ore production commencing in 2015 and ceasing in 2035. The financial evaluation in the PFS is done on a 100 percent basis and does not separate the cash flows of the joint venture partners.
Following the price collapse in rough diamonds in
Diamond prices used in this combined PFS are based on valuations by WWW using their
Table 1. Economic criteria utilized in cash flow model
------------------------------------------------------------------------- Area Criterion Basis Used In Cash Flow Model ------------------------------------------------------------------------- Project start Assumed date of corporate Q1, 2011 date approval to proceed with project ------------------------------------------------------------------------- Production Process plant functional Q4, 2015 parameters ------------------------------------------------------------------------- Projected start of ore Q1, 2016 production ------------------------------------------------------------------------- No. of operating days per 355 days per year year ------------------------------------------------------------------------- Process plant 97 percent availability ------------------------------------------------------------------------- Processing rate 40,000 tpd ore ------------------------------------------------------------------------- Estimated LOM total plant 279 Mt ore at a feed weighted average 12.5 cpht grade ------------------------------------------------------------------------- Diamond recovery 100 percent ------------------------------------------------------------------------- Revenue Source of revenue Rough diamond sales ------------------------------------------------------------------------- Revenue per tonne of ore $38.09 processed ------------------------------------------------------------------------- Net Revenue per tonne of $12.40 ore processed ------------------------------------------------------------------------- Weighted average diamond $226 (US$192) price per carat (March 2008 valuation) ------------------------------------------------------------------------- Projected diamond price 2.5 percent diamond price escalation escalation is applied from 2011 to 2020 followed by 1.8 percent from 2021 to 2035 ------------------------------------------------------------------------- Cost escalation 0 percent ------------------------------------------------------------------------- Exchange rate $1.00=US$0.85 ------------------------------------------------------------------------- Marketing costs 2.2 percent of gross revenue ------------------------------------------------------------------------- Royalties Assumed basis generally consistent with diamond royalty structures in the Northwest Territories and Ontario, Canada ------------------------------------------------------------------------- Operating Mining $4.87 / tonne processed costs ------------------------------------------------------------------------- Ore processing $3.29 / tonne processed ------------------------------------------------------------------------- General and $1.65 / tonne processed Administration ------------------------------------------------------------------------- Capital Capital over LOM $8.98 / tonne processed Costs ------------------------------------------------------------------------- Marketing Marketing cost $0.84 / tonne processed ------------------------------------------------------------------------- Royalties Royalties cost $1.54 / tonne processed ------------------------------------------------------------------------- Closure Mine closure cost $0.31 / tonne processed ------------------------------------------------------------------------- Taxes Tax cost $4.20 / tonne processed ------------------------------------------------------------------------- Abbreviations: Mt - Million tonnes; tpd - tonnes per day.
Economic Analysis
The cash flows utilize a 2.5 percent diamond price escalation that is applied from 2011 to 2020 followed by 1.8 percent escalation from 2021 to 2035. Pre-tax and after-tax results of the economic analysis are shown in Table 2 for comparison. The economic analysis assumes that diamond prices will increase at a rate faster than costs due to long-term diamond supply / demand fundamentals.
Table 2. Economic analysis results of discounted cash flow model for base case.
------------------------------------------------------------------------- Item Pre-Tax & Royalty Basis After-Tax & Royalty Basis ------------------------------------------------------------------------- Undiscounted $5,072M $3,466M Net Cash Flow ------------------------------------------------------------------------- NPV (4%) $2,371M $1,553M ------------------------------------------------------------------------- NPV (5%) $1,950M $1,252M ------------------------------------------------------------------------- NPV (6%) $1,596M $999M ------------------------------------------------------------------------- NPV (7%) $1,297M $786M ------------------------------------------------------------------------- NPV (8%) $1,045M $605M ------------------------------------------------------------------------- NPV (9%) $831M $452M ------------------------------------------------------------------------- NPV (10%) $649M $322M ------------------------------------------------------------------------- IRR 16% 13.5% ------------------------------------------------------------------------- Payback (years) 4.6 -------------------------------------------------------------------------
Economic risks were assessed using base case cash flow sensitivities to recovered grade, diamond prices, $/US$ exchange rate, capital costs and operating costs. Each of the sensitivity items were independently adjusted up and down by 10 percent, 20 percent and 25 percent to project the impact on the NPV at a 7 percent discount rate. The NPV after each sensitivity item was adjusted by 75 percent, 80 percent, 90 percent, 110 percent, 120 percent and 125 percent of the base are presented in Table 3. The sensitivity analysis shows that a combined Star - Orion South PFS is most sensitive to $/$US exchange rate fluctuations.
Table 3. Sensitivity Analysis Results (pre-tax & royalty basis, NPV at a 7 percent discount rate)
------------------------------------------------------------------------- 75% 80% 90% 100% 110% 120% 125% ------------------------------------------------------------------------- Recovered Grade (cpht) $ 288 $ 490 $ 893 $1,297 $1,701 $2,104 $2,306 ------------------------------------------------------------------------- Diamond Price $ 288 $ 490 $ 893 $1,297 $1,701 $2,104 $2,306 ------------------------------------------------------------------------- $/US$ Exchange Rate $2,426 $2,144 $1,673 $1,297 $ 989 $ 733 $ 620 ------------------------------------------------------------------------- Capital Costs $1,708 $1,626 $1,461 $1,297 $1,133 $ 968 $ 886 ------------------------------------------------------------------------- Operating Costs $1,593 $1,534 $1,416 $1,297 $1,178 $1,060 $1,000 -------------------------------------------------------------------------
Mineral Reserve Estimate
The Star - Orion South PFS Mineral Reserve Estimate (Table 4) was derived from the Mineral Resource $/tonne block models for both Star and Orion South. Utilizing operating costs for mining, processing, G&A and engineered pit slopes, pit optimizations were undertaken to derive pit shells to be used as guides for final pit design purposes. This sequential pit design includes vehicle access ramps, conveyor ramps and berms. Pit design surfaces were created to determine which mineralization contained within them from the Resource models were to be converted to reserves by $/tonne value cut-off with the inclusion of ore losses and dilution. All reserves estimated for the Star and Orion South Kimberlites are in the Probable category and no additional evaluation is required prior to commencement of mining operations. These Probable reserves are estimated from the Indicated resource category only. An additional 70 million tonnes of inferred resource and 180 to 220 million tonnes of kimberlite in the potential mineral deposit category also lie outside the current PFS pit design, which defines the mineral reserves and resources in the Star and Orion South Kimberlites. The potential mineral deposit is conceptual in nature, is not a resource estimate and it is uncertain if additional exploration work would lead to the kimberlite presently included as potential mineralization being upgraded to any resource category. This potential kimberlite mineral deposit cannot be relied upon when considering any project economics.
Table 4. Mineral Reserve Estimate in the Probable Category for kimberlite units in the Star - Orion South PFS
------------------------------------------------------------------------- Kimberlite Tonnes Carats Grade Kimberlite Unit (000's) (000's) (cpht) ------------------------------------------------------------------------- Star Cantuar 14,826 1,124 7.6 ------------------------------------------------------------------------- EJF-Inner 86,536 12,476 14.4 ------------------------------------------------------------------------- EJF-Outer 40,691 3,971 9.8 ------------------------------------------------------------------------- Pense 7,298 1,740 23.8 ------------------------------------------------------------------------- MJF 21,132 1,717 8.1 ------------------------------------------------------------------------- LJF 352 18 5.1 ------------------------------------------------------------------------- Star Total 170,835 21,046 12.3 ------------------------------------------------------------------------- Orion South EJF Inner 62,303 9,609 15.4 ------------------------------------------------------------------------- EJF Outer 16,691 1,519 9.1 ------------------------------------------------------------------------- Pense Inner 29,641 2,677 9.0 ------------------------------------------------------------------------- Orion South Total 108,635 13,805 12.7 ------------------------------------------------------------------------- Combined Star - Orion South Total 279,470 34,851 12.5 -------------------------------------------------------------------------
Table Notes
1. The Mineral Reserves have a 1 millimetre bottom screen size cut- off. 2. The above Mineral Reserve was defined with a process cost of $3.29/t and G&A cost of $1.65/t resulting in an internal cut-off of $4.94/t. 3. The Cantuar grade for Star (7.6 cpht) is lower in this reserve estimate as compared to the Star PFS, as this estimate considers diluted tonnes which includes a significant volume of nearby waste mined in order to access these Cantuar tonnes. 4. The Pense grade for Star (23.8 cpht) is elevated in this reserve estimate as compared to the Star PFS, as only a high grade portion of the Pense is included in this reserve estimate.
Mining
Comprehensive mining optimization simulations completed by P&E determined that the optimal economic approach to the mining of the combined Star - Orion South reserves, is to commence with three phases over ten years of mining on Star, followed by two phases over eight years of mining on Orion South and finally mining the last phase in the Star open pit for two years, for a total LOM of 20 years.
An In-Pit Crush and Convey ("IPCC") system will be used to pre-strip the overburden and waste rock materials and expose the kimberlite ore in Star and Orion South. Conventional hydraulic excavators and haul trucks will be used to mine the ore and to remove associated overburden and waste rock to an IPCC system. The ore and waste rock will be separately sized in the pit and subsequently conveyed to the processing plant ore stockpile and to the waste management area, respectively. The PFS assumes that the initial overburden pre-stripping work will be done utilizing Shore's work force, with the assistance of earthmoving contractors, using conventional scrapers, excavators, haul trucks and ancillary equipment. Upon completion of the initial pre-strip work, the main pre-strip will be conducted by Shore with hydraulic excavators and the IPCC system.
Processing Plant and Infrastructure
The Star - Orion South PFS assumes that the processing facility will be optimally located near the Star and Orion South pit edges. The facility is designed to treat 40,000 tonnes of kimberlite per day employing autogenous milling as the primary diamond liberation method, followed by dense media separation and x-ray with scavenging grease for final diamond recovery. Extensive ore dressing investigations on drill core and pilot scale testing on underground bulk samples, coupled with detailed computer simulations, show that autogenous milling of the Star and Orion South Kimberlites results in the most efficient and lowest cost diamond liberation, while reducing diamond breakage in the process.
Electrical service will be provided to the site by a 16 kilometre transmission line at 230 kilovolts, connecting to the existing provincial grid to the southeast of the site and crossing the Saskatchewan River. Site road access will be accomplished by utilizing the provincial grid road to the northern boundary of the Fort a la Corne forest, and then upgrading the existing forest roads to accommodate higher traffic flows. Other support facilities include an administration / change house building, warehouse, maintenance shops, fuel storage, water treatment facilities and processed kimberlite containment areas.
Environment, Permitting and Closure
The Environmental Impact Assessment ("EIA") process was initiated in
In
Shore currently has all necessary licences and permits for present operations. The permits that will be required for the construction and operation of the proposed mine will be applied for following Ministerial approval upon conclusion of the EIA. Additional permits will be required from the federal government, including authorization from the Department of Fisheries and Oceans to allow anticipated changes to fish and fish habitat, permits from Natural Resources
Progressive reclamation of the overburden and processed kimberlite storage areas will proceed throughout the LOM and is accounted for in the G&A cost. Final site reclamation and closure, including the removal of site facilities, will be performed at the end of the LOM in accordance with Saskatchewan's Reclaimed Industrial Sites Act. The conceptual closure plan is based on a target end land use of self-sustaining forest.
Community Relations
Community Open House meetings conducted by Shore in furtherance of the Star and Orion South projects were successfully launched in
Project Timeline
The PFS assumes the following Project timelines:
- Feasibility Study completion during Q1, 2011; - Permitting activities to support a Q4, 2011 construction start; - Processing plant commissioning within 4 years after acquiring the necessary permits to proceed with construction.
Shore commissioned the combined NI 43-101 compliant Mineral Reserve estimate, PFS and related Technical Report for the Star and Orion South Kimberlites and, as such, the PFS and Technical Report are the sole responsibility of Shore. Newmont did not participate in the preparation, supervision or review of the work associated with this exercise and takes no responsibility for the content or information included in the NI 43-101 Technical Report or this press release.
P&E Mining Consultants Inc. is an established and internationally recognized geological and mine engineering consulting firm specializing in resource estimates, scoping, prefeasibility studies and participation with other consulting firms on feasibility studies, with over 85 projects undertaken in the last 5 years. P&E has Certificates of Authorization from the Association of Professional Geoscientists of Ontario and Professional Engineers Ontario and the Association of Professional Engineers and Geoscientists of Saskatchewan.
P&E consents to the statement of Probable mineral reserves contained herein.
Senior Vice
Caution Regarding Forward-Looking Statements
This news release contains forward-looking statements as defined by certain securities laws, including the "safe harbour" provisions of Canadian securities legislation and the
Forward-looking statements in this press release include, but are not limited to, anticipated diamond price adjustments, the anticipated scope of construction at the proposed Star-Orion South Diamond Project, the anticipated Project schedule and attendant timelines, assumptions made in the cash flow model, and assumptions made respecting capital and operating costs.
The Project schedule includes an estimated 4 year long pre-production period and a 20 year long mine production phase followed by mine closure. These durations were developed based on currently projected timelines for power distribution line design and construction; equipment and material procurement, deliveries, assembly and commissioning; environmental assessment and review; technical studies including a recommended feasibility study for the Project; permitting and other factors. The assumed dates and timing of milestone events such as the 2015 commencement of ore production, and the 2035 cessation of operations were based on available information, and the time lines between the assumed dates are reasonable based on the envisaged Project. There is a possibility the assumed dates such as the date for corporate approval to proceed with the Project will shift forward into the future for a multitude of reasons including, but not limited to, longer than projected time lines for environmental assessment and public consultation, engineering, procurement, construction and commissioning.
The cash flow model includes estimates of future federal, provincial and local government taxes. Federal and provincial (Saskatchewan) corporate income taxes payable on pre-tax cashflows were estimated based on future tax rates. The values of future property and school taxes were estimated based on the current understanding of the levels of local government taxes paid by similar-scale mines in Saskatchewan. Diamond royalty payments were estimated based on an assumed diamond royalty structure generally consistent with terms and royalty payments of diamond royalty regimes already in place elsewhere in
The estimated capital and operating costs (+/- 25 percent estimation) were derived from first principles and supported by budget quotations and/or cost information derived from relevant cost databases and/or contractor quotations, and assumptions. The cash flow model excludes capital contingencies.
These forward-looking statements are based on Shore's current beliefs as well as assumptions made by and information currently available to it and involve inherent risks and uncertainties, both general and specific. In making the forward-looking statements contained in this news release, Shore has utilized diamond valuations completed in
Risks exist that forward-looking statements will not be achieved due to a number of factors including, but not limited to, developments in world diamond markets, changes in diamond prices, risks relating to fluctuations in the Canadian dollar and other currencies relative to the US dollar, changes in exploration, development or mining plans due to exploration results and changing budget priorities of Shore or its joint venture partners, the effects of competition in the markets in which Shore operates, the impact of changes in the laws and regulations regulating mining exploration, development, closure, judicial or regulatory judgments and legal proceedings, operational and infrastructure risks and the additional risks described in Shore's most recently filed Annual Information Form, annual and interim MD&A. Shore's anticipation of and success in managing the foregoing risks could cause actual results to differ materially from what is anticipated in such forward-looking statements.
Although management considers the assumptions contained in forward-looking statements to be reasonable based on information currently available to it, those assumptions may prove to be incorrect. When making decisions with respect to Shore, investors and others should not place undue reliance on these statements and should carefully consider the foregoing factors and other uncertainties and potential events. Unless required by applicable securities law, Shore does not undertake to update any forward-looking statement that is made herein.
For further information: Joseph Dickson, Investor Relations Manager at (306) 667-3505 and www.shoregold.com
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