Mr. Victor Wyprysky reports
CHIEFTAIN REPORTS STRONG FEASIBILITY OPTIMIZATION
Chieftain Metals Corp. has released the results of an independent, technical report updating the company's 2012 feasibility study, prepared in accordance with NI 43-101, concerning the high-grade Tulsequah Chief polymetallic deposit located in northwestern British Columbia, as well as the nearby Big Bull deposit collectively referred to as Tulsequah Shazah camp.
The 2014 feasibility update, prepared by a team led by JDS Energy & Mining Inc., incorporates improvements to the Tulsequah Chief project, including optimizing production configuration, operations, logistics and mill size, and dramatically improving the financeability of the project. The 2014 feasibility update reflects a project with lower capital costs resulting in enhanced projected investment returns notwithstanding the lower annual production. Additionally, this operating profile preserves all the growth potential and is expected to allow Chieftain to flow funds for project expansion out of cash flow. (All amounts are in Canadian dollars unless stated otherwise.)
Highlights of the 2014 Tulsequah Chief feasibility update:
- The update is based on a 1,100-tonne-per-day underground mining operation with an 11-year mine life.
- Reserves of 4.4 million tonnes (of which 684,000 tonnes (15 per cent) are proven) are the
higher-grade portion of the 6.4 million tonnes previously reported in the 2012
feasibility study.
- Base-case metal price deck for metals and foreign exchange based on spot
prices at Oct. 15, 2014.
- Annual zinc production is forecast at 46.9 million pounds at a C1 cash cost of
zinc production (net of byproduct credits) of negative 25 cents per pound.
- The company will use conventional barging for five months of the year to transport
concentrate and supplies. This logistical solution eliminates the road
proposed in the 2012 feasibility study, saving $125-million in capex.
- Preproduction capital costs are estimated to total $198-million,
including contingency.
- Operating costs are estimated to average $186 per tonne processed, including
concentrate shipment.
- The feasibility update yields a pretax net present value (at 8 per cent) of
$212-million and an internal rate of return of 25.2 per cent and posttax NPV (at 8 per cent) of $146-million and
an IRR of 21.9 per cent.
Victor Wyprysky, president and chief executive officer, commented: "We are pleased to deliver a feasibility optimization demonstrating strong economics for Tulsequah. The NPV (8 per cent) of $212-million represents a pretax net asset value of approximately $12.65 per share prefinancing, based on the current outstanding shares and average annual EBITDA at full production of $69-million or $4.09 per share prefinancing based on the current outstanding shares. The lower-tonnage design enables a much lower capex than first envisioned in 2012 without a significant decrease in operating cash flow due to the high-grade focus of the new mine plan. Given the market's current preference for smaller capital projects, this feasibility update is expected to allow Chieftain to finalize project financing and plan construction start-up."
HIGHLIGHTS OF THE TULSEQUAH CHIEF FEASIBILITY UPDATE
Payable
Reserves metal Pricing (1)
Proven and probable reserve 4.44 Mt
Au 2.85 g/t 356 k oz $1,238 (U.S.)/oz
Ag 104 g/t 10,956 k oz $17.00 (U.S.)/oz
Zn 6.95 % 519.5 M lb $1.06 (U.S.)/lb
Cu 1.46 % 120.9 M lb $3.08 (U.S.)/lb
Pb 1.29 % 77.7 M lb $0.93 (U.S.)/lb
Exchange rate U.S.$:Cdn: $0.89
Project highlights
Net smelter
Mining rate 1,100 t/d return (NSR) $ 358/t
Mine life 11 years
Preproduction capex Operating
$ 198-M cost
Sustaining capex $ 84-M Site $ 160/t
Closure costs net of salvage value Ocean
$ 3.8-M transport $ 26/t
Total $ 186/t
Margin $ 172/t
Economic results Pretax Posttax
Undiscounted net cash flow $ 481.8-M $ 345.2-M
NPV (8%) $ 212.0-M $ 145.9-M
IRR 25.2 % 21.9 %
Payback period 3.8 years 3.9 years
(1) Spot prices as of Oct. 15, 2014
Resources and reserves
The mineral resource estimate was updated and classified using the Canadian Institute of Mining and Metallurgy definitions referred to in National Instrument 43-101 into measured, indicated, and inferred mineral resources. The mineral resource estimate was developed using industry-accepted methods with GEMS software in blocks sized five metres by five metres by four metres. For the purpose of resource estimation, all assay intervals within the mineralized units were composited to two metres, and grades were capped prior to estimation. Zinc was capped at 30 per cent, lead and copper at 10 per cent, gold at 25 grams per tonne, and silver at 600 grams per tonne for the resource estimate.
The reserve estimate is summarized in the attached reserve estimate table. The proven and probable reserve totals 4.435 million tonnes of minable material at a dilution rate of 17.6 per cent and mining recovery of 95 per cent. Opportunity exists to refine the stope designs to reduce the dilution to an acceptable industry standard 15 per cent.
TULSEQUAH CHIEF AND BIG BULL MINERAL RESOURCES
(INCLUSIVE OF MINERAL RESERVES) AS OF OCTOBER, 2014
Tulsequah Chief
Category M tonnes Cu (%) Pb (%) Zn (%) Au (g/t) Ag (g/t) ZnEq (%)
Measured 0.787 1.57 1.50 8.60 2.81 105.5 30.9
Indicated 5.136 1.43 1.28 6.76 2.80 102.1 28.1
Total M+I 5.923 1.45 1.31 7.00 2.80 102.5 28.5
Inferred 0.439 0.79 1.03 5.54 2.33 80.6 21.6
Big Bull
Category M tonnes Cu (%) Pb (%) Zn (%) Au (g/t) Ag (g/t) ZnEq (%)
Indicated 0.653 0.34 1.54 4.11 3.03 125.0 23.8
Inferred 1.453 0.37 1.37 4.15 2.67 103.9 21.4
Total combined Tulsequah Chief and Big Bull
Category M tonnes Cu (%) Pb (%) Zn (%) Au (g/t) Ag (g/t) ZnEq (%)
Measured 0.787 1.57 1.50 8.60 2.81 105.5 30.9
Indicated 5.789 1.31 1.38 6.46 2.83 104.7 27.6
Total M+I 6.576 1.34 1.33 6.71 2.82 104.8 28.0
Inferred 1.892 0.47 1.29 4.47 2.59 98.5 21.5
TULSEQUAH CHIEF MINERAL RESERVES
Category M tonnes Cu (%) Pb (%) Zn (%) Au (g/t) Ag (g/t) ZnEq (%)
Proven 0.684 1.48 1.36 7.84 2.71 101 29.4
Probable 3.751 1.45 1.28 6.78 2.88 104 28.9
Total P+P 4.435 1.46 1.29 6.95 2.85 104 29.0
The underground mine
A new underground mine, adjacent to and beneath old workings that were previously operated by Cominco Ltd. from 1951 to 1957, is planned to be developed through the existing 5,200 and 5,400 level adits and would be used as the primary access to the mine for all personnel, mine services, equipment and supplies.
In the 2014 feasibility update, the new mine is proposed to operate as a ramp-entry truck haulage operation through a spiral ramp that will be developed to a vertical depth of 570 metres with mining levels located at 30-metre vertical intervals. Transverse and longitudinal sublevel stoping would be the primary mining methods with a minor amount of mechanized cut-and-fill stoping. Paste backfill and unconsolidated loose waste rock are planned to be used for replacement of mined voids for both methods. Additional cement would be added to the paste backfill for strength where future mining would be adjacent to exposed backfill.
Metallurgy
The 2014 feasibility update comtemplates the design of a process plant for the Tulsequah Chief project to process massive sulphide mineralization at a nominal rate of 1,100 tonnes per day. This process rate would result in the appropriate amount of concentrate for the barging plan as described in the 2014 feasibility update. The process facility is planned to consist of a primary crushing plant, mill feed storage bin and conveyor corridors located underground, grinding, flotation and filtration, effluent treatment plant, part of which was constructed in 2011, and backfill plant. The process plant operation is scheduled to operate two shifts per day and 365 days per year, with an overall availability of 90 per cent. The process plant is designed to produce copper, lead and zinc concentrates and gold-silver dore as outlined in the attached predicted metallurgical table.
PREDICTED METALLURGICAL RESPONSE
Product Wt (t) Concentrate assay estimates Recovery estimates (%)
Cu % Pb % Zn % Ag g/t Au g/t Cu Pb Zn Ag Au
Copper conc 6.2 21 2.8 5.1 1,300 22 89 13 4.5 78 47
Lead conc 1.4 0.3 60 7.1 467 5.6 0.3 65 1.4 6.3 2.8
Zinc conc 10.4 0.7 0.4 60 80 0.8 5.0 3.4 90 8.0 2.9
Pyrite conc 33.0 0.2 0.3 0.6 22 0.3 3.6 8.5 2.9 6.9 3.6
Tailings 48.8 0.1 0.2 0.1 1.6 0.2 2.0 9.0 1.0 0.8 2.7
Feed 100.0 1.46 1.29 6.95 103.72 2.85 100 100 100 100 100
Gravity
concentrate 0.2 224 522 0.1 0.5 0.1 0.5 41.0
Content of arsenic and antimony in the copper concentrate is anticipated to average 1.14 per cent and 0.34 per cent, respectively.
Access and transportation
Concentrate produced during operations is planned to be barged, in containerized bags, along the Taku River, to a transfer barge at the mouth of the river and then onto the Port of Seattle to be shipped to Asia. Operating supplies are planned to be barged to site in containers and stored at Paddy's Flats, 12 kilometres south of the mine. The proposed barging will occur for approximately five months of the year. Cominco used barging during its operations in the 1950s. Improvements to the barge landing area at site are planned to protect the shore, and provide for two barging berths, storage and transfer of Chieftain's concentrates to the barges, and offloading of supplies. The 128-kilometre road from Atlin, B.C., to the Tulsequah Chief mine site described in the 2012 feasibility study is no longer contemplated as the logistical solution for shipping concentrate to market.
An existing all-season gravel road, constructed in 2007 to 2008, connects the different working areas on site. Bagged concentrate and supplies are planned to be transported by tractor/trailer and flat-deck truck to the storage area.
A 1,050-metre-long airstrip exists two kilometres north of the mine near Shazah Creek.
Infrastructure
All surface buildings are planned to be laid out and located in close proximity to the mine, including the mineral process building, an administration building, which includes first aid, fire truck and ambulance, a diesel-generated power plant, maintenance/warehouse facility for surface equipment, and an existing effluent treatment plant. Bulk diesel is proposed to be stored in two-million- by five-million-litre tanks located within a lined spill containment area at Paddy's Flats. A 160-person camp and kitchen/dining facility have been designed to complement the existing 50-person camp located at the Shazah airstrip. The mine dry is planned to be located near the camp.
A 1.7-million-tonne capacity tailings facility is designed to be constructed approximately five kilometres north of the mine in the Valley of Shazah Creek. Depyritized tailings with limestone added are proposed to be transported in the form of a dense slurry by pipe. The ultimate dam height will be nine metres and is designed to have an emergency spillway for unexpected flood events, a toe berm to ensure stability and a liner to prevent seepage. Seismic stability is ensured with a shallow, overall designed dam slope of five horizontal to one vertical. The dam is scheduled to be constructed in two phases, with a small starter dam in preproduction, and the second-phase ultimate dam in year two of operations. Surplus water would be treated and discharged to prevent the accumulation of surplus water in the impoundment.
Potentially acid generating waste rock and pyrite concentrate are planned to be temporarily stored in separate lined impoundments one kilometre south of the mine. PAG waste rock and pyrite concentrate would be rehandled into the mine as backfill during the mine life. These materials would be stored subaqueous to minimize the potential for acid generation.
The capacity of the existing effluent treatment plant is designed to be increased by adding a second phase designed to process additional water from the underground mine, tailings reclaim and mill process.
It is proposed that personnel will work on various rotating schedules, including eight days on/six days off, two weeks on/two weeks off and four weeks on/two week off. The work schedules are required to cover the different tasks on site.
Capital costs
The initial capital requirement for the project is estimated to be $198.0-million, as detailed in the attached preproduction capital costs table.
PREPRODUCTION CAPITAL COSTS
Items Estimate (M$)
Site development $3.8
Underground mining 18.4
Underground infrastructure 10.5
Processing plant 44.6
Tailings and waste rock management 6.6
On-site infrastructure 33.9
Project indirects 15.2
Engineering and EPCM 13.5
Owner's costs 21.4
Preproduction opex 11.7
Subtotal preproduction capital 179.6
Contingency (11.4%) 18.4
Total preproduction capital 198.0
The project has a total sustaining capital requirement of $84.0-million, which includes extension of the main ramp to depth, mobile equipment, mobile equipment rebuilds and replacements, tailings dam raise, completion of phase 2 of the effluent treatment plant, capital improvements, and closure costs, net of salvage value.
An independent review of previous construction on site calculated that Chieftain is benefiting from over $107-million worth of physical work completed on site from 2007 to 2012, including the barge landing, airstrip, construction camp, 23 kilometres of on-site roads, shops and effluent treatment plant.
Reclamation/closure and salvage costs
Total reclamation/closure and salvage costs have been estimated as indicated in the attached reclamation/closure and salvage costs table.
RECLAMATION/CLOSURE AND SALVAGE COSTS
Items M$
Reclamation/closure $8.1
Salvage value 4.4
Operating costs
Total operating costs for the project have been estimated as indicated in the attached operating costs table.
OPERATING COSTS
Items $/tonne
Mining $29.35
Processing 31.08
Power 36.07
G&A 29.85
Transportation (conc. and supplies) 59.74
Total 186.09
This cost estimate represents the life-of-mine cash cost of the project, from years one to 11 inclusive.
The C1 cash operating costs net of byproduct credits based on Oct. 15, 2014, spot prices and on a co-product basis are as set out in the attached C1 cash operating costs table.
C1 CASH OPERATING COSTS
Metal Unit Annual prod. Cash cost (i) Prod. cost
Zinc lb 46.9 million -$0.25 $0.38
Copper lb 10.9 million -$2.53 $1.06
Gold oz 32,100 -$753.24 $574.45
(i) C1 cash cost of zinc production is calculated by taking the
life-of-mine operating costs and the off-site costs to produce
all metals, minus the revenue generated by all produced metals,
excluding zinc, divided by the total pounds of zinc produced.
Note: All silver and lead are accounted for in byproducts.
Financial analysis and sensitivities
Using spot prices at Oct. 15, 2014, the study yields a pretax net present value at 8 per cent of $212.0-million and an internal rate of return of 25.2 per cent, with a payback period of 3.8 years, and a posttax NPV at 8 per cent of $145.9-million and an IRR of 21.9 per cent, with a payback period of 3.9 years.
Sensitivity tables for changes in capital costs, operating costs, metal prices and discount rates are shown in the attached project economics sensitivity table. The project's NPV is most sensitive to grade and metal prices, followed by operating costs, and least sensitive to capital costs.
PROJECT ECONOMICS SENSITIVITY
Average full-production-year
Pretax NPV 8% ($M) operating cash flow ($M)
-10% 0% 10% -10% 0% 10%
Capital cost $236.8 $212.0 $187.2 $68.6 $68.6 $68.6
Operating cost 255.0 212.0 168.9 74.9 68.6 62.3
Metal prices 112.0 212.0 311.9 53.0 68.6 84.2
PROJECT NPV SENSITIVITY TO DISCOUNT RATE
Discount rate Pretax NPV ($M) After-tax NPV ($M)
0% $481.8 $345.2
5% 290.7 204.8
8% 212.0 145.9
10% 169.9 114.1
12% 134.4 87.0
Project schedule
Project construction is expected to commence in the spring of 2015, subject to project financing. Site and plant earthworks and civil construction are expected to begin in late first quarter 2015, mill and plant construction in third quarter 2015, and tailings construction in second quarter 2016, with commissioning and production beginning in fourth quarter 2016. Underground development is planned to begin in first quarter 2016.
Environment and permitting
The Tulsequah Chief project was deemed substantially started by the B.C. Minister of Environment in June, 2012. After a judicial review, it was decided that the minister must consult with the Taku River Tlingit First Nation on the substantially started decision and render a new decision after the end of the consultation period on Nov. 2, 2014.
The company has all necessary permits to begin construction on site, including a Mines Act permit from the B.C. Ministry of Energy and Mines that permits the start of construction on site. A Mines Act permit amendment will be applied for, once further engineering is completed on the tailings dam, surface plant facility and underground mine.
This project design contemplates the necessary fixes to the effluent treatment plant, such that the design deficiencies of the plant will be addressed at the start of the project build.
The mine plan would address the environmental legacy and provide the long-term solution to the acid drainage at the project site. The old workings, mined by Cominco in the 1950s, will be filled with the depyritized tailings and cement to prevent the water from coming into contact with the sulphides and turning acidic. The closure plan contemplates site monitoring of site for 10 years postclosure.
Pursuant to a condition under amendment No. 3 of the B.C. environmental assessment certificate, which contemplates barging, an environmental oversight committee would be created prior to the start of construction and would consist of representatives from the B.C. Ministry of Environment, Taku River Tlingit First Nation, U.S. Department of Interior and Chieftain.
Chieftain will work with authorities to stay within the limits of the current B.C. environmental assessment certificate or determine if any amendment is required due to reduction of production level or conventional barging even though air-cushion barging is fully permitted. Chieftain is not required to obtain permits to conduct conventional barging of containerized concentrate in Alaska when using a third party contractor that has the required permits and authorizations.
Exploration
In the press release of Nov. 20, 2013, Chieftain announced exploration results that confirmed the existence of potential new mineralization near the Tulsequah Chief mine that could significantly extend the life of the operation. This provided another reason to explore several newly modelled 3-D induced polarization geophysical inversion targets identified adjacent to the known Big Bull and Tulsequah Chief mineral resources, as well as the prospective Sparling-Banker high-grade gold-silver-copper-zinc-lead-rich volcanogenic massive sulphide mineral showings.
Technical report
An NI 43-101 technical report will be filed on SEDAR within 45 days and will be available at that time on the corporate website.
Qualified persons
Keith Boyle, PEng, chief operating officer of Chieftain Metals, a qualified person under NI 43-101, has supervised the preparation, and reviewed and approved the scientific and technical content of this news release.
The 2014 feasibility update was conducted under the overall review of Gordon Doerksen, PEng, of JDS Energy and Mining Inc. of Vancouver, B.C., and serves as principal author of the technical report.
The independent qualified persons listed in the attached qualified persons table have assumed authorship of the 2014 feasibility update.
QUALIFIED PERSONS
Gordon Doerksen PEng, project director, JDS Energy & Mining Inc.
Michael Makarenko PEng, senior project manager, JDS Energy & Mining
Scot Klingmann PEng, mining engineer, JDS Energy & Mining
Frank Palkovits PEng, principal, Kovit Engineering
Gilles Arseneau PhD, PGeo, associate consultant, SRK Consulting
(Canada) Inc.
Robert Marsland PEng, senior environmental engineer, Marsland
Environmental Associates
David West PEng, David West Consulting
Harvey McLeod PEng, PGeo, Klohn Crippen Berger
Kelly McLeod PEng, metallurgical engineer, JDS Energy & Mining
Nadia Krys PEng, marine lead/study manager, Ausenco Engineering
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