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Excelsior Mining Corp (2)
Symbol MIN
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Close 2016-12-05 C$ 0.58
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Excelsior FS pegs North Star posttax NPV at $807M(U.S.)

2016-12-05 09:24 ET - News Release

Mr. Stephen Twyerould reports


Excelsior Mining Corp. has released the results of a comprehensive feasibility study on the North Star deposit of the Gunnison copper project, located in Cochise county, southeastern Arizona. The project is designed as a copper in situ recovery (ISR) mine using solvent extraction-electrowinning (SX-EW).

Highlights of the FS (all amounts are in U.S. dollars)

  • Net present value of $1,172-million pretax and $807-million posttax at 7.5-per-cent discount rate using a life-of-mine copper price of $2.75/pound;
  • Internal rate of return of 48 per cent pretax and 40 per cent posttax;
  • Initial construction capital costs of $46.9-million, includes 20-per-cent contingency, 16-per-cent EPCM, freight, mobile equipment, owner's costs and capital spares;
  • Payback period for initial capital of 2.3 years pretax and 2.8 years posttax;
  • Average life-of-mine operating costs of 65 cents/pound;
  • All-in cost (LOM capital costs plus operating costs) of $1.23/pound;
  • 42 million pounds of copper added to the probable reserve;
  • Life of mine: 24 years of commercial production;
  • Staged production profile: initial production rate of 25 million pounds of copper cathode per annum using the existing Johnson camp mine (JCM) facilities, followed by an intermediate expansion stage to 75 million pounds per annum and final expansion stage to full production of 125 million pounds per annum (includes the construction of an acid plant at full production). The staged production profile makes possible the funding of future expansions out of cash flow.

Commenting on this news, president and chief executive officer Stephen Twyerould said: "The release of our feasibility study completes the last major technical milestone prior to receipt of operating permits. We have once again delivered a very robust product with outstanding economics. Excelsior's entire team can take pride in this outcome and our belief that the Gunnison copper project will be the next new copper mine in the United States."

                               SENSITIVITY ANALYSIS   

                      Acid plant                          Non-acid plant   
Cu price   $3.25  $3.00  $2.75  $2.50  $2.25    $3.25  $3.00  $2.75  $2.50  $2.25 
IRR          62%    55%    48%    41%    34%      63%    56%    48%    41%    33%  
NPV(i)    $1,588 $1,380 $1,172   $963   $755   $1,396 $1,187   $978   $768   $559 

                                     AFTER TAX    
                      Acid plant                          Non-acid plant          

Cu price   $3.25  $3.00  $2.75  $2.50  $2.25    $3.25  $3.00  $2.75  $2.50  $2.25 
IRR          51%    45%    40%    35%    29%      51%    46%    41%    35%    28%  
NPV(i)    $1,086   $947   $807   $664   $522     $972   $831   $691   $548   $405

(i) In millions at 7.5-per-cent discount rate.

Mr. Twyerould added: "Because of the special characteristics of the North Star deposit, and by extension our ability to employ the in situ mining method, the project economics remain exceptionally strong even at low copper prices. As demonstrated in the table, the high margin enjoyed by the Gunnison copper project is our critical advantage and the key to our risk management."

The FS was completed by M3 Engineering & Technology Corp. of Tucson, Ariz., and is effective as of Dec. 5, 2016. The technical report summarizing the results of the FS, and prepared in accordance with National Instrument 43-101, will be filed on SEDAR and Excelsior's website within 45 days of this news release. Results of the FS disclosed in this press release are in U.S. dollars.

Financial analysis

As highlighted in the tables, the FS demonstrates excellent project economics. Based on an initial production rate of 25 million pounds per annum, the FS base case generates a posttax net present value of $807-million (at a cash flow discount of 7.5 per cent), an internal rate of return of 40.1 per cent and a payback period for initial capital of 2.3 years. This financial analysis is based on a number of assumptions which will be fully set out in the report.

The base case uses the following parameters over the 24 years of production:

  • Copper selling price of $2.75 per pound;
  • Total copper recovery of approximately 48 per cent (based on a combination of metallurgical recovery and estimated sweep efficiency);
  • Average of approximately nine pounds of acid consumed for every pound of copper produced;
  • Initial acid price of $100/ton for years one to three, $125/ton for years four to six, declining to $46.19/ton as of year seven (acid plant is built in year six);
  • State tax rate of 6.97 per cent and a federal tax rate of 35 per cent;
  • Staged production commencing at 25 million pounds per annum, ramping up to 75 million pounds in year four and then to 125 million pounds per annum in year seven.

                       FINANCIAL ANALYSIS SUMMARY                         

                                                 Pretax        Posttax    

IRR                                               48.3%          40.1%     
Initial capital payback (years)                     2.3            2.8      
NPV (million) @ 7.5 %                             1,172            807      
Ratio of initial capital of NPV7.5                 0.04           0.06      

                              COST METRICS                               

                                                     $M     Cost/lb Cu

Direct operating costs                           $1,418          $0.65      
Royalties and other production costs                461           0.22      
Initial capital costs                              46.9           0.02      
All-in cost (all capital plus operating)          2,668           1.23      
Taxes                                               995           0.46

Total initial capital expenditures (including 20-per-cent contingency, 16-per-cent EPCM, capital spares, owner's costs, mobile equipment and freight) are estimated at $46.9-million. The production well field is estimated at $14.6-million and upgrades to the SX-EW and related infrastructure costs are estimated at $26.8-million. Initial production of copper cathode through the JCM facilities is estimated to be 25 million pounds per annum. Total sustaining capital costs over the life of the mine are $742-million, which includes production well field expansion, SX-EW expansion, acid plant construction and water treatment facilities. The direct operating cash cost is 65 cents/pound and the all-in cost (all capital and operating costs) is $1.23/pound.

The company has also evaluated a secondary case without an acid plant. In this case the project retains strong economics, highlighted by a pretax net present value at a 7.5-per-cent discount (NPV7.5) of $978-million and an IRR of 48.4 per cent (posttax: NPV7.5 of $691-million and IRR of 40.5 per cent). Total initial capital expenditures remain the same as the acid plant scenario. Total sustaining capital costs over the life of the mine are $661-million, which includes production well field expansion, SX-EW expansion and water treatment facilities. Average life-of-mine operating direct cash costs are estimated at 97 cents/pound for the no-acid-plant option with an all-in cost of $1.50 per pound.

                               KEY PARAMETERS                               

                                   Acid plant             No acid plant     

Copper cathode sold (Mlb)               2,165                     2,165         
Copper price ($/lb)                      2.75                      2.75          
Gross revenue ($M)                      6,019(ii)                 5,954         

                                  $M   Cost $/lb          $M   Cost $/lb 
Operating costs
Production (well field)         $641       $0.29      $1,303       $0.60    
SX-EW                            497        0.23         512        0.24    
Water treatment plant            113        0.05         113        0.05    
G&A                              167        0.08         167        0.08                               
Direct operating cash costs    1,418        0.65       2,095        0.97    
Royalties                        272        0.13         272        0.13    
Other production expenses        189        0.09         180        0.08    
Initial capital costs(i)    
Production (well field)         14.6        0.01        14.6        0.01    
SX-EW plus infrastructure       26.8        0.01        26.8        0.01    
Owners' costs                    5.5        0.00         5.5        0.00                                
Subtotal initial capital                                                   
costs                           46.9        0.02        46.9        0.02    
Sustaining capital costs     
Production (well field)          396        0.18         396        0.18    
Plant plus infrastructure        346        0.16         265        0.12                                
Subtotal sustaining capital                                                
costs                            742        0.34         661        0.30    
All-in cost (all capital                                                   
plus operating)                2,668        1.23       3,255        1.50    
Taxes                            995        0.46         754        0.35    

(i) Includes 20-per-cent contingency.                                                
(ii) Assumes sale of excess acid in some years.

Mineral resources and mineral reserves

Mineral resource estimate

The total mineral resource estimate for the North Star deposit is based on results from 122 drill holes totalling 158,785 feet and is effective as of Oct. 1, 2016. The estimate is classified as a measured, indicated or inferred mineral resource, consistent with the Canadian Institute of Mining, Metallurgy and Petroleum definitions referred to in NI 43-101. Excelsior is not aware of any environmental, permitting, legal, title, taxation, socio-political, marketing or other issues which may materially affect its estimate of mineral resources.

                        NORTH STAR RESOURCES 
              (Oxide and transition at 0.05% cut-off)        

Category        Short tons            Total Cu                 Cu
                        (M)                 (%)              (Mlb)

Measured               199                0.36              1,427
Indicated              674                0.27              3,567
Total M&I              873                0.29              4,995
Inferred               187                0.17                630

The North Star mineral resources were modelled to respect the detailed lithologic, structural and oxidation modelling completed by Excelsior. Copper mineral domains were interpreted on east-west vertical cross-sections on 100-foot spacing, which encompass the 2.3-mile north-south and 1.3-mile east-west extents of the deposit. These domains were then used to explicitly constrain the estimation of copper grades into 50- by 100- by 25-foot (x, y, z) model blocks using 20-foot composites and inverse-distance interpolation. The grade estimation is further controlled by the incorporation of search ellipses that reflect the orientations of modelled structural zones as well as those of favourable stratigraphic units in areas unaffected by the structures.

All samples were prepared from manually split half-core sections on-site in Arizona. Split drill core samples were then sent to Skyline Assayers & Laboratories in Tucson, Ariz., an independent laboratory, for total copper and sequential copper analyses. Skyline is accredited with international standard ISO/IEC 17025:2005 general requirements for the competence of testing and calibration laboratories. Analytical results for total copper, acid soluble copper and cyanide soluble copper were reported. Excelsior has no relationship with Skyline Labs other than Skyline being a service provider. Standards, blanks and duplicate assays are included at regular intervals in each sample batch submitted from the field as part of a continuing quality assurance/quality control program.

Michael M. Gustin, with the independent firm Mine Development Associates (MDA) of Reno, Nev., is a qualified person as defined by National Instrument 43-101 and is responsible for this mineral resource estimate. He has verified, reviewed and approved the technical disclosure contained in this section of the news release. Mr. Gustin has verified the data underlying the results by reviewing the drilling, sampling, assay, and quality assurance and quality control data, as well as the geologic interpretations completed by Excelsior.

Mineral reserve estimate

The FS mineral reserve is based on an economic analysis of the mineral resource using a copper price of $2.75/pound and key parameters developed from prior testwork, the 2016 FS and the most recent testwork completed in 2015 and 2016. The economic optimization was performed on measured and indicated resources at a cut-off grade of 0.05 per cent total Cu. EBIT (earnings before interest and tax) was calculated on a resource-block-by-block basis using the key economic and technical parameters. For a column of resource blocks to be included in the reserve, the capital costs of establishing the wells for those blocks would have to be less than the combine EBIT for the same blocks. The mineral reserve was estimated after applying engineering and operational design parameters which removed the thinner and deeper portions of the mineral resource. Internal dilution has been included in the final mineral reserve estimate. MDA is of the opinion that the mineral reserve estimate derived in this FS reasonably quantifies the economical mineralization of the North Star deposit. The reserve estimate is as of Oct. 1, 2016, and the mineral reserves presented in the table are included in the mineral resource estimate set out in the table.

                     NORTH STAR MINERAL RESERVES 
               (Oxide and transition at 0.05% cut-off)        

Category        Short tons            Total Cu                 Cu
                        (M)                 (%)              (Mlb)  

Probable               782                0.29              4,505

Neil Prenn, of MDA of Reno, is a qualified person as defined by NI 43-101, and is responsible for reviewing and approving this mineral reserve estimate. He has verified, reviewed and approved the technical disclosure contained in this section of the news release. Mr. Prenn has verified the data underlying the results by reviewing the drilling, sampling, assay, and quality assurance and quality control information, as well as the geologic interpretations completed by Excelsior.

Technical report and qualified person

The report will be filed on SEDAR and on Excelsior's website within 45 days of the date of this news release. The report will consist of a summary of the FS. The report is being prepared under the supervision of Richard Zimmerman, SME-RM of M3 Engineering & Technology Corp., Tucson, Ariz., who is a qualified person that is independent of the company. The report will also receive contributions from the following additional qualified persons, who are also independent of the company:

  • Dr. Ronald J. Roman of Leach Inc., Tucson, Ariz. (metallurgy and leaching recovery);
  • Mr. Prenn of MDA of Reno, Nev. (mineral reserve);
  • Mr. Gustin of MDA of Reno, Nev. (geology and mineral resource);
  • R. Douglas Bartlett of Clear Creek and Associates of Phoenix, Ariz. (hydrology, mining method, permitting and environment);
  • Thomas L. Drielick of M3 Engineering & Technology Corp., Tucson, Ariz. (recovery methods, capital and operating costs, and economic analysis).

Each of these qualified persons has reviewed and approved the technical information contained in this news release that is relevant to their area of responsibility and verified the data underlying such technical information.

About Excelsior Mining

Excelsior Mining is advancing the Gunnison copper project in Cochise county, Arizona. The project is an advanced-stage, low-cost, environmentally friendly in situ recovery copper extraction project that is scheduled for commercial production in 2018.

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