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Pre-Feasibility Study Shows After-Tax NPV of US$416m and IRR of 31%
TSX Venture Exchange: PMV
Australian Securities Exchange: PVM
VANCOUVER, Jan. 12, 2012 /CNW/ - PMI Gold Corporation (TSX-V: PMV) (ASX: PVM) ("PMI" or "the Company") is pleased to report the results of the NI 43-101 compliant Pre-Feasibility Study ("PFS") for its flagship 100% owned Obotan Gold Project in Ghana, West Africa, through its wholly owned subsidiary Adansi Gold Company Ghana Limited ("Adansi"). The PFS was completed by GR Engineering Services Limited ("GRES").
- Independent NI 43-101 compliant Pre-Feasibility Study report on Obotan Gold Project (Ghana) outlines a robust gold project development opportunity, with:
- Pre-tax Net Present Value ("NPV") of US$680.5M and post-tax NPV of US$416.4M assuming a US$1,300/oz gold price, 5% discount rate and contract mining scenario
- Pre-tax IRR of 42% and post-tax IRR of 31% (2.9 years payback post commencement of gold production)
- Initial capital costs of US$183.5M (excluding pre-strip mining cost of US$68.3M)
- Maiden Proven and Probable Mineral Reserves of 30.3Mt at 2.32g/t for 2.26Moz of gold across four deposits
- Hard rock CIL plant capacity of 3.0Mtpa with capacity of up to 3.84Mtpa for soft oxides
- Average annual forecast gold production of 205,600oz pa over an initial 11.2 year mine life
- Forecast life-of-mine total cash cost of US$690.2/oz (including royalties, refining costs and pre-strip mining)
- Key elements of definitive Feasibility Study ("FS") already underway, with FS targeted for completion by end of Q2, 2012, leading to a development decision in Q3, 2012.
- Discussions underway with several leading banks which have expressed strong interest in financing the Obotan Project.
- Further JORC/NI 43-101 resource update for Obotan Project due in Q1, 2012, incorporating the results of 28,800 metres of additional diamond core drilling
The strong economics of the proposed development - including a pre-tax NPV of US$680.5 million and post-tax NPV of US$416.4 million - provide a strong foundation for the definitive Feasibility Study on the Obotan Project (see Figure 1), which is already underway and targeted for completion by the end of June 2012, paving the way for a development decision in the September 2012 Quarter.
Post completion of the FS, the financing, construction and development of the Obotan Project can proceed. This will be PMI's first gold operation in West Africa and, contingent on the outcomes of the FS, the Project development is planned to proceed in Q3, calendar 2012, with initial mine development activities scheduled to commence in Q1, calendar 2013 and targeting full production for calendar 2014.
The Obotan PFS, which was independently compiled by GRES a leading experienced engineering company of Perth, Western Australia, based on work by four leading international geological and engineering consultants, resulted in a life-of-mine production of 2.10 million recovered ounces of gold over an initial 11.2 years (inclusive of 1 year pre-strip operations).
This Project is based on a NI 43-101/JORC compliant estimate of combined Proven and Probable Mineral Reserves of 2.26 million ounces at 2.32g/t gold (1.06 million ounces at 2.36g/t gold in the Proven category and 1.20 million ounces at 2.28g/t gold in the Probable category).
Annual gold production is forecast at 205,600oz at an estimated life-of-mine total cash operating cost of US$690.2 per oz including royalties, refining costs and pre-strip mining, positioning the Obotan Project at the lower end of the global cash cost curve.
The estimated production profile is based on processing 3Mtpa of ore for 10 years with a total of 30.3Mt of ore mined. Initial capital costs are estimated at US$183.5 million, including a contingency of US$23.2 million. Deferred and sustaining capital is estimated at US$21.9 million.
The PFS was based on a gold price of US$1,300 per ounce, 5% discount rate and contract mining scenario, with the Project generating a pre-tax NPV of US$680.5 million and post-tax NPV of US$416.4 million. The pre-tax IRR is 42% and the post-tax IRR is 31% with a capital payback of 2.9 years from commencement of first gold production.
Commenting on the PFS results, PMI's Managing Director and CEO, Collin Ellison, said:
"Our focus is now moving on to complete the definitive Feasibility Study - the key elements of which actually commenced in the second half of last year and are already well underway. We are on target to complete the next resource estimate update before the end of February and the FS by the end of Q2, 2012, putting us in a position to make a development decision on Obotan in Q3, calendar 2012."
"PMI has an objective of commencing plant commissioning in Q4, calendar 2013 and gold production by the start of calendar 2014. It is anticipated that the project will start pre-strip mining in Q1, calendar 2013, requiring the issue of tender documents to preferred contractors in Q1, calendar 2012. Furthermore, we shall also review the delivery times for key plant and equipment and if necessary place orders for their supply."
"This timetable will enable PMI to join the ranks of leading West African gold producers by early 2014 . We are now well placed to make the transition from explorer to producer on an exciting project which has been significantly de-risked through the earlier successful mining that was carried out at gold prices less than US$350 per ounce."
"Our target now is to identify and develop new shallow oxide resources within trucking distance of the Nkran processing plant at Obotan and the adjoining Asanko (Asankrangwa) concessions, as part of an increased regional exploration push the details of which will be announced in the near future."
"With exploration ramping up at Obotan and across our regional tenement holdings at Kubi and Asanko, we are looking forward to a period of strong news flow from drilling as well as a further upgrade of the JORC/NI 43-101 resource base at the Obotan Project next month."
"Finally, in order to facilitate the expansion of exploration activities PMI has recently introduced changes to its drilling fleet with the addition of two multipurpose Reverse Circulation (RC)/Diamond core (DD) drill rigs and one Rotary Air Blast (RAB)/AirCore drill rig complementing the existing dedicated diamond drill rig. The establishment of a dedicated sample preparation facility at Obotan in October 2011, operated by AMS/MinAnalytical, has also shortened the turn-around of assay results which is providing significant support to our expanded exploration drive."
Pre-Feasibility Study Basis and Options
The PFS report has been prepared by GRES for PMI based on work by the following independent international consultants:
- CSA Global ("CSA")
- Knight Piésold Consulting ("KPC")
- SRK Consulting ("SRK")
- BizGeo Company ("Bizgeo")
The PFS report summarizes the geology, mining and mine production schedule completed by SRK; metallurgy, process plant, design, infrastructure design, capital and operating cost estimates and financial modeling completed by GRES; the tailings storage facility design completed by KPC and the baseline environmental and sociological evaluation completed by Bizgeo.
The PFS has been completed to a +25/-25% level of accuracy based on a production profile of processing 3.0Mtpa of ore for 10 years.
A life-of-mine study summary is outlined below. The mine plan was developed using a lower cut-off grade of 0.5 g/t and a gold price of US$1,300 per ounce:
|Fresh Ore Mined||Mt||29,710|
|Oxide Ore Mined||Mt||635|
|Total Material Mined||Mt||260,365|
|Total Mill Feed Processed||Mt||30,270|
|Open Pit Mining Life||years||11.2|
|Contained Gold||koz Au||2,256|
|Recovered Gold||koz Au||2,097|
|Average Strip Ratio||(waste/ore)||7.6|
|Average Grade||g Au /t||2.32|
|Average Gold Recovery||%||93.0|
|Average Annual Tonnes Processed||Mtpa||2,957|
|Average Annual Production||oz Au / yr|| 205,637
The initial capital cost estimate for the Project is US$183.5 million in Q3, calendar 2011 US dollars. Sustaining and deferred capital over the life of mine is estimated at US$21.9 million and is primarily for the subsequent lifts of the tailings impoundment facility equipment replacement and general allowances for mining processing and administration. The capital cost does not include the pre-strip mining cost of US$68.3M.
The study is based on costs going forward and does not take into account historic exploration and development costs of Obotan for which Adansi (a wholly owned subsidiary of PMI Gold Corporation) will obtain tax deductions.
Capital costs are summarised below:
Summary Capital Estimate
|Cost Area||US$ Million|
|Process Plant Direct||81.8|
|Spares and First Fills||7.4|
|Deferred & Sustaining Capital||21.9|
The capital estimate includes 14.5% contingency of US$23.2 million in the initial capital.
Total direct operating cash costs are estimated at US$690.16 per ounce (including royalties, refining charges and pre-strip mining costs). Royalties of 7% have been accounted for in the economic analysis.
Operating costs are summarised below:
Summary Cash Costs
| US$/oz Au
|General & Administration||34.6||1.1||16.51|
|Bullion and Refining||11.2||0.4||5.34|
|Total Cash Operating Cost||1,447.6||47.8||690.16|
Alternative treatments of mining pre-strip costs:
| Excluding pre-strip
| Including pre-strip
|Initial capital cost||US$ Million||183.5||251.8|
|Cash operating costs (including royalties and refining)||US$/oz||690.16|| 657.61
The economic analysis has been completed on behalf of Adansi and on the basis that Adansi is the 100% owners of the Obotan Project. It is noted that the regulations in Ghana stipulate a "Net Profit Interest Royalty" of 10% be paid to the Government of Ghana at the same time as any dividends are paid by Adansi.
The proposed new corporate tax rate of 35% has been incorporated into the analysis together with the proposed new depreciation rates of 20% per annum. A proposed 10% windfall profit tax has not been included, as the basis for any such tax is not known.
A 5% royalty to the Ghana government and a further royalty of 2% to the vendor (Goknet Mining Company Limited) are also provided for.
A summary of the Project economic analysis pre-tax at various gold prices is as follows:
| Gold Price
| Pre-Tax NPV
All estimates are based on a US$1,300/oz optimised open pit design.
A summary of the Project economic analysis post-tax at various gold prices and based on a US$1,300/oz pit design is as follows:
| Gold Price
| Post Tax NPV
| Post Tax
| Payback Period
Note1: from the commencement of gold production
Mineral Resource Estimate
The NI43-101/JORC compliant Mineral Resource estimate used as a basis for the PFS, at a 0.5g/t gold cut-off, is shown below:
|Mineral Resource (inclusive of Mineral Reserves)|| Tonnes
Based on the positive outcome of the PFS, a portion of the Mineral Resource has been upgraded to Mineral Reserves. Only Measured and Indicated Mineral Resources were included in the mine plan for the study.
Mineral Reserves Used in the Mine Plan
The reported Reserve estimate is shown in the following table:
|Reserve Classification|| Tonnes
| Au ozs
|Total Proven + Probable||30.3||2.32|| 2.26
- The SRK Mineral Reserve was estimated by construction of a block model within constraining wireframes based on Measured and Indicated resources.
- The Reserve is reported at lower a cut-off grade of 0.5g/t Au, which defines the continuous/semi-continuous mineralized zone potentially amenable to the low grade, bulk tonnage mining scenario currently being considered by PMI.
- The grades and Reserve tonnes have been modified by a 95% mining recovery and a 5% allowance for mining dilution at 0.0g/t gold.
- At 93% metallurgical recovery for Oxide and Transitional material and 94.5% metallurgical recovery for Fresh material was used in defining the optimal pit shell
- The Mineral Reserves are based on the October 2011 Mineral resource reports for the Nkran, Adubiaso, Abore and Asuadai deposits
- All tonnes reported are dry tonnes
- The base case pit optimization utilized a US$1,300/oz gold price
- Mineral Reserves are reported in accordance with the NI 43-101 & JORC.
It is proposed that the Obotan Project will initially be an open pit mining operation providing ore at a nominal rate of 3Mtpa during the process plant operating life of 10.2 years following a 1-year waste pre-strip operation.
Annual mine production of ore and waste will peak at 35.0Mtpa, with a life-of-mine stripping ratio of 7.6. The base case pit design was optimized at US$1,300/oz gold and a mine recovery of 95% and mining dilution of 5% at a grade of 0.0g/t.
A mining contractor is proposed for earth moving activities. All deposits would be mined utilizing conventional truck and shovel methods.
Approximately one year of waste stripping will be required at Nkran to expose sufficient ore to maintain a constant ore feed rate of 3.0Mtpa. The cost of this pre-strip is estimated at US$68.3m and is included in mine operating costs.
The overall mining sequence is based on commencing operations at Nkran followed by mining the satellite deposits at Adubiaso, Abore and lastly Asuadai (see Figure 2). The opening up of each deposit is to be developed to optimise ore feed to the mill while maintaining throughput of 3.0Mtpa.
Metallurgy and Mineral Processing
The PFS has been based on testwork undertaken by the previous operators, Resolute Mining Ltd ("Resolute") plus operational data from 5-years of production. New metallurgical testwork is being undertaken by PMI, supervised by GRES to validate the earlier testwork and operating results. The original Resolute testwork was carried out by AMMTEC Pty Ltd, AMDEL Ltd, Supaflow Technologies Pty Ltd, Analabs Pty Ltd and METCON Research Inc. under the supervision of Lycopodium Pty Ltd and Orway Mineral Consultants as part of the Lycopodium Feasibility Study for Resolute.
Resolute's operating data indicates overall recovery of 93.5% for oxide ore and 93.1% for primary ore.
The Obotan carbon-in leach ("CIL") plant is designed to nominally crush and mill 3.0Mtpa of primary ore with a maximum wet plant capacity of approximately 3.8Mtpa to allow for higher throughput when treating soft oxides.
The process includes single stage jaw crushing, a SAG and ball mill in closed circuit with hydro-cyclones, pebble crusher, a gravity circuit and a single stage pre-leach and seven stage CIL circuit. The process plant will be located proximal to the Nkran deposit where 80% of the Reserves are located. Maximum haulage distance for ore from the satellite deposits will be 15km.
The process plant design allows for a gravity recovery of gold of 40%. This recovery is similar to that achieved by Resolute. The proposed process flow sheet is similar to that employed by Resolute.
The PFS has assumed the cost for the construction of new administration buildings, temporary and permanent mine village facilities, a new 30km 116Kv power line, and the rehabilitation and expansion of the existing borefield.
The recent agreement with the Anglican Church (as announced 20 December 2011) to purchase the original Resolute's administration and mine village buildings was not incorporated into the PFS. The refurbishment of these facilities is expected to cost marginally more than the new facilities but will provide immediate access during development and for current exploration activities.
The key sensitivities are set out below:
|Factor||Change||Effect on NPV|
|Ore Grade||-10%|| -28%
When the Company examined a sensitivity model from the base case, whereby the operating costs were increased by 10%, capital costs increased by 10% and grade reduced by 10%, the resulting after tax NPV was still a strong $221.8 million.
Project Development Plan
PMI had already commenced various FS work in Q3/Q4, 2011. This FS work entailed geotechnical and metallurgical drilling and laboratory analysis, environmental baseline monitoring and socio-economic evaluation. A new resource estimate of the Obotan deposits is scheduled for completion before the end of February and will form the basis for the FS mineral reserves and mine production schedule. The Company is now focused on completion of the Obotan Gold Project FS by the middle of 2012.
Information that relates to Mineral Resources at the Obotan Gold Project is based on a resource estimate that has been carried out by Mr Peter Gleeson, and information that relates to Mineral Reserves at the Obotan Gold Project is based on a reserve estimate that has been carried out by Mr Duncan Pratt, both full time employees of SRK Consulting, Australia. Mr Gleeson is a Member of the Australian Institute of Geoscientists (MAIG) and Mr Pratt (CP Mining), is a Member of the Australasian Institute of Mining and Metallurgy (MAusIMM). Both have sufficient experience which is relevant to the style of mineralisation and type of deposit under consideration and to the activities undertaken to qualify as a Competent Person as defined in the 2004 Edition of the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves (JORC), and as a Qualified Person in terms of NI43-101. The Mineral Resource and Mineral Reserve estimates have been prepared in accordance with the 2010 Canadian Institute of Mining, Metallurgy and Petroleum (CIM) Definition Standards for Mineral Resources and Mineral Reserve as incorporated by reference in National Instrument 43-101 of the Canadian Securities Administrators, and is consistent with the Australasian Guidelines and Code for the Reporting of Exploration Results, Mineral Resources and Ore Reserves (Revised December 2007) as prepared by the Joint Ore Reserves Committee of the AusIMM, AIG and MCA (JORC). Both Mr Gleeson and Mr Pratt consent to and approve the inclusion of matters based on information in the form and context in which it appears.
PMI will file a NI 43-101 compliant technical report on the Obotan Project outlining the Mineral Resources and Reserves Estimate and the result of a Pre-Feasibility Study. The report will be available on www.sedar.com within 45 days of the date of this press release.
The NI 43-101 technical report will be authored by Peter Gleeson MAIG, Duncan Pratt MAusIMM, CP Mining for SRK and Bill Gosling FAusIMM of GRES. These independent Qualified Persons have verified the data in this news release. Collin Ellison, President & CEO, MIMMM, C.Eng, is a "qualified person" within the definition of that term in NI 43-101, has supervised the preparation of the technical information contained in this news release.
This news release includes forward-looking statements or information. Forward-looking statements or information involve risks, uncertainties and other factors that could cause actual results, performances, prospects and opportunities to differ materially from those expressed or implied by such forward-looking statement. All statements other than statements of historical fact included in this release, including, without limitation, statements regarding future gold production of 2.10Moz over an initial 10.2 year mine life; average annual gold production of 205,600oz pa; forecast life of mine cash cost of US$690/oz; initial capital cost of US$183.5M; completion of a further JORC/NI 43-101 resource update in February 2012; forecast operating parameters including ore mined, mill feed and recoveries; determination of a development decision for the Obotan Project in the September 2012 Quarter; full production in 2014; and financial outcomes of the PFS, including NPV, are forward-looking statements of information. There can be no assurance that such statements will prove to be accurate and actual results and future events could differ materially from those anticipated in such statements or information. Important factors that could cause actual results to differ materially from the Company's plans or expectations include the actual results of current exploration activities; changes in gold prices; changes in exchange rates; possibility of equipment breakdowns, delays and availability; changes in mine plans; exploration cost overruns; unexpected increases in costs of equipment, steel, cement and consumables such as diesel and fuel oil; unexpected environmental liabilities or social charges; the unknown impact of the 10% windfall profit tax announced by the Government of Ghana; title defects; the failure of contract parties to perform the unavailability of capital and financing; adverse general economic, market or business conditions; regulatory changes; failure to receive necessary government or regulatory approvals; and other risks and factors detailed herein and from time to time in the filings made by the Company with securities regulators and stock exchanges, including in the section entitled "Risk Factors" in the Company's Annual Information Form dated September 20, 2011.
Any forward-looking statement or information only speaks as of the date on which it was made and, except as may be required by applicable securities laws, the Company disclaims any intent or obligation to update any forward-looking statement, whether as a result of new information, future events or otherwise. Although the Company believes that the assumptions inherent in the forward-looking statements are reasonable, forward-looking statements are not guarantees of future performance and accordingly undue reliance should not be put on such.
On behalf of the Board,
Managing Director & CEO
Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.
PDF with caption: "Figure 1. Location of Projects ". PDF available at: http://stream1.newswire.ca/media/2012/01/12/20120112_C3690_DOC_EN_8843.pdf
PDF with caption: "Figure 2. Obotan Gold Project - Nkran, Adubiaso, Abore and Asuadai Deposit Locations ". PDF available at: http://stream1.newswire.ca/media/2012/01/12/20120112_C3690_DOC_EN_8844.pdf
For further information:
| Investor Relations Canada:
Rebecca Greco, Fig House Communications
P. +1 (416) 822-6483
E. [email protected]
| Investor Relations Australia:
Nicholas Read/Paul Armstrong, Read Corporate
P. +61 8 9388 1471
M. +61 419 929 046
| PMI Contact Canada:
Marion McGrath, Corporate Secretary
P. +1 (604) 684-6264
Toll-Free: 1 (888) 682-8089
| PMI Contact Australia:
Collin Ellison, Managing Director & CEO
P. +61 8 6188 7900
or visit the PMI Gold Corporation website at www.pmigoldcorp.com