Mr. Rod Husband reports
MAJESTIC FILES NI43-101 REPORT ON UPDATED PRELIMINARY ECONOMIC ASSESSMENT FOR SONG JIAGOU GOLD PROJECT
SRK Consulting China Ltd. has completed a National Instrument 43-101 technical report in support of the preliminary economic assessment (PEA) for Majestic Gold Corp.'s Song Jiagou gold project, located in Shandong province, People's Republic of China. The report has been filed on SEDAR.
The PEA was prepared as an open-pit mining project, and SRK was asked to look at five development scenarios:
- Using only indicated resources and the existing mill capacity (7,400
tonnes per day);
- Using all of the indicated and inferred mineral resources, but not
relocating the two nearby villages (mill expansion to 10,000 tonnes per day):
- Using all of the indicated and inferred mineral resources, but not
relocating the two nearby villages, and using the existing mill
capacity (7,400 tonnes per day);
- Using all of the indicated and inferred mineral resources and
relocating the two nearby villages (mill expansion to 12,000 tonnes per day):
- Using all of the indicated and inferred mineral resources,
relocating the two nearby villages and using the existing mill capacity
(7,400 tonnes per day).
The five-year trailing average gold price of $1,355 (U.S.) per ounce was used for the PEA.
The pretax net present value (NPV) established by the PEA is summarized in the accompanying table.
Scenario Mill throughput NPV (10%)
(in millions of U.S. dollars)
1 7,400 tpd $ 477
2 10,000 tpd 777
2A 7,400 tpd 702
3 12,000 tpd 1,056
3A 7,400 tpd 782
A summary of the main sections of the PEA is as follows:
Mineral resource estimation
SRK received and validated the database provided by Majestic, and removed repeated samples. The database used for the resource estimation consists of samples from 77 surface drill holes, 19 underground drill holes, 46 trenches and 85 underground workings.
The database contains 20,836 gold samples in total, including 13,316 from drill holes, 3,221 from trenches and 4,299 from underground workings. The maximum gold grade is 263.09 grams per tonne and the average gold grade is 0.54 g/t, prior to grade capping. For the PEA, gold values were capped at 40 g/t.
The topographic model was created from the topographic survey conducted in January, 2013. A block model was constructed using 10-metre-by-10-metre-by-five-metre blocks in the x, y and z directions, respectively. Grade interpolation was done using ordinary kriging.
As of Jan. 31, 2013, at a gold cut-off grade of 0.3 g/t, within the mining licence and exploration permit area, the Song Jiagou gold project contains mineral resources as shown in the accompanying table.
Category Tonnes Grade Contained Au
(kt) (g/t) (oz)
Indicated 28,615 1.38 1,269,000
Inferred 35,309 1.43 1,623,000
Included within the total resource and entirely within the boundaries of the current mining licence, the Song Jiagou gold project contains mineral resources as shown in the accompanying table.
Category Tonnes Grade Contained Au
(kt) (g/t) (oz)
Indicated 25,935 1.42 1,184,000
Inferred 28,690 1.35 1,245,000
Mineral resources do not demonstrate economic viability, and there is no certainty that these mineral resources will be converted into minable reserves once economic considerations are applied.
The current mining licence covers an area of 0.3421 square kilometre and extends to a depth of 250 metres surrounded by an exploration permit covering an area of 3.15 square kilometres. Majestic intends to apply to expand the size and scope of the mining licence, and the SRK PEA report is an important first step in this process.
Mining methods
The Song Jiagou gold project is currently in production, with a mining capacity of 5,000 to 10,000 tonnes per day.
Mining activities have been outsourced to Yantai Dahedong Processing Co. Ltd., and mining equipment is also being supplied by the contractor.
The PEA is based on conventional open-pit mining using excavators to load 40-tonne trucks that haul ore to the processing plant -- a distance of about four kilometres. Ore break is by self-propelled air-track drills.
Benches are 10 metres high. The overall slope of the pit is 48 degrees.
The mine is scheduled to operate 330 days per year, three shifts per day and eight hours per shift.
Recovery methods
The Song Jiagou mine has three processing plants. Two of them were put into operation in 2006, with capacities of 200 tonnes per day and 1,200 tonnes per day, and the third was put into operation in May, 2011, with a capacity of 6,000 tonnes per day. The total processing capacity is 7,400 tonnes per day. Ore extracted from the underground mine is processed in the 200-tonne-per-day plant, while the ore mined in the open pit is processed in the other two plants.
Similar flow sheets are adopted in the two plants that process the ore mined from the open pit (the 1,200-tonne-per-day plant and the 6,000-tonne-per-day plant). The flow sheet comprises conventional three-stage crushing and grinding in a closed circuit. The slurry is subjected to a flotation circuit comprising one stage of roughing, one stage of cleaning and two stages of scavenging. The gold concentrate is dehydrated and then sent for metallurgical processing at a nearby smelter.
Operating cost
The following parameters are used to estimate the operating cost in this PEA:
-
Mining cost -- $1.79 (U.S.) per tonne (11.3 renminbi per tonne); mining costs are assumed to increase by five U.S. cents per tonne (0.3 renminbi per tonne) annually;
- Stripping cost -- $1.36 (U.S.) (8.55 renminbi per tonne); stripping costs are assumed to increase by five U.S. cents per tonne (0.3 renminbi per tonne) annually;
-
Processing cost -- $7.55 (U.S.) per tonne (47.46 renminbi per tonne);
- Administration cost -- 72 U.S. cents per tonne (4.5 renminbi per tonne);
- Resource tax -- 72 U.S. cents per tonne (4.5 renminbi per tonne);
- Mineral resource compensation fee -- $31,830 (U.S.) per year (200,000 renminbi per year);
-
Smelting cost -- $15.91 (U.S.) per tonne (100 renminbi per tonne) of dry gold concentrate;
- Exchange rate -- $1 (U.S.) is equal to 6.2834 renminbi ($1 is equal to 6.2789 renminbi).
PEA
SRK was requested to conduct a PEA of developing the project. In the assessment, MineSight Economic Planner (Design) was used for pit optimization, using Lerchs-Grossmann (LG) calculations to maximize the NPV. Five scenarios for the ultimate pit were produced, as described herein. Note that scenarios 2A and 3A were added after the initial news release dated July 8, 2013. A trailing five-year average gold price (that is, 273.89 renminbi per gram, or $1,355 (U.S.) per ounce) and a conversion rate of 6.2834 renminbi per $1 (U.S.) were used.
Descriptions of the five scenarios are described in the accompanying table.
Scenario Operation capacity Description
Mining inventory includes only indicated
resources. Inferred resources are
treated as waste. No village relocation
1 7,400 tpd is needed.
Mining inventory includes both indicated
and inferred resources. No village
2 10,000 tpd relocation is needed.
2A 7,400 tpd
Mining inventory includes both indicated
and inferred resources. Village
3 12,000 tpd relocation is needed.
3A 7,400 tpd
The pretax NPV established by the PEA is summarized in the accompanying table.
Scenario Mill throughput NPV (10%)
(in millions of U.S. dollars)
1 7,400 tpd $ 477
2 10,000 tpd 777
2A 7,400 tpd 702
3 12,000 tpd 1,056
3A 7,400 tpd 782
Scenario 1
In Scenario 1, only the indicated mineral resource was used for the pit optimization, and the relocation of the two villages near the mine was assumed not to be necessary. This scenario used the existing mill capacity and assumed additional capital expenditures of $31.9-million (U.S.) for engineering, road construction, processing facilities upgrades, tailings, land leases and community relations.
The ultimate pit's maximum length along the east-west axis is about 660 metres, and the maximum width along the north-south axis is about 600 metres. The highest elevation of benches is 140 metres and the lowest is minus 125 metres. The vertical depth of the open pit is about 270 metres. At a bench height of 10 metres, there will be a total of 27 benches within the pit.
Despite the limitations imposed by the current mining licence, as of Jan. 31, 2013, at a cut-off grade of 0.3 g/t gold, the Song Jiagou project contains remaining resources within the pit as shown in the accompanying table.
Resource category Tonnes Grade Gold Gold
(kt) (g/t) (kg) (oz)
Indicated 17,200 1.35 23,200 746,600
Inferred(1) 10,128 1.25 Nil Nil
(1) The inferred resources report to waste in scenario 1.
Scenario 1 involves the movement of 57,899,000 tonnes of waste (including the 10,128,000 tonnes of inferred resources) and has a strip ratio of 3.37.
The mining recovery is 95 per cent and the dilution is 5 per cent. The grade of the dilution material is 0.12 g/t. The processing recovery depends on the feed grade. If the average feed grade is greater than one g/t gold, 95 per cent of the gold can be recovered. The gold smelting recovery is 93 per cent. The saleable metal is estimated as 20,441 kilograms or about 657,000 ounces.
According to the preliminary production schedule, scenario 1 will have a life of mine (LOM) of seven years of stable production at a mill throughput of 7,400 tonnes per day.
The pretax NPV at various discount rates is shown in the accompanying table.
Discount rate NPV NPV
(in millions of renminbi) (in millions of U.S. dollars)
10% 2,998 $ 477
7% 3,163 503
12% 2,899 461
Scenario 2
In scenario 2, all of the mineral resources have been considered for the pit optimization, while the relocation of the two villages near the mine was not considered. This scenario involves expanding the mill capacity to 10,000 tonnes per day and assumes additional capital expenditures of $83.4-million (U.S.) for engineering, road construction, processing facilities upgrades, tailings, land leases and community relations.
The ultimate pit's maximum length along the east-west axis is about 730 metres, and the maximum width along the north-south axis is about 640 metres. The highest elevation of benches is 140 metres and the lowest is minus 145 metres. The vertical depth of the open pit is about 290 metres. At a bench height of 10 metres, there will be a total of 29 benches within the pit.
As of Jan. 31, 2013, at a cut-off grade of 0.3 g/t gold, the Song Jiagou project contains remaining resources within the pit as shown in the accompanying table.
Resource category Tonnes Grade Gold Gold
(kt) (g/t) (kg) (oz)
Indicated 19,076 1.32 25,200 809,600
Inferred 13,598 1.37 18,600 599,000
Scenario 2 involves the movement of 65,394,000 tonnes of waste and has a strip ratio of 2.00.
The mining recovery is 95 per cent and the dilution is 5 per cent. The grade of the dilution material is 0.12 g/t. The processing recovery depends on the feed grade. If the average feed grade is greater than one g/t gold, 95 per cent of the gold can be recovered. The gold smelting recovery is 93 per cent. The saleable metal is estimated as 38,584 kilograms or about 1,241,000 ounces.
According to the preliminary production schedule, the LOM of scenario 2 will be 11 years with a capacity of 10,000 tonnes per day, including 10 years of stable production and one year of ramp-up.
The pretax NPV at various discount rates is shown in the accompanying table.
Discount rate NPV NPV
(in millions of renminbi) (in millions of U.S. dollars)
10% 4,882 $ 777
7% 5,394 858
12% 4,584 730
Scenario 2A
Scenario 2A has the same mineral inventory as scenario 2. The saleable metal is estimated as 38,489 kilograms, or about 1,237,000 ounces. According to the preliminary production schedule, the LOM of scenario 2A will be 13 years with a capacity of 7,400 tonnes per day, including 12 years of stable production and one year of ramp-up.
The pretax NPV at various discount rates is shown in the accompanying table.
Discount rate NPV NPV
(in millions of renminbi) (in millions of U.S. dollars)
10% 4,408 $ 702
7% 4,995 795
12% 4,082 650
Scenario 3
In scenario 3, all of the mineral resources have been considered for the pit optimization, and the relocation of the two villages near the mine was also considered. This scenario involves expanding the mill capacity to 12,000 tonnes per day, and assumes additional capital expenditures of $124.4-million (U.S.) for engineering, road construction, processing facilities upgrades, tailings, land leases, relocation and community relations.
The ultimate pit's maximum length along the east-west axis is about 830 metres, and the maximum width along the north-south axis is about 850 metres. The highest elevation of benches is 140 metres and the lowest is minus 190 metres. The vertical depth of the open pit is about 330 metres. At a bench height of 10 metres, there will be a total of 33 benches within the pit.
As of Jan. 31, 2013, at a cut-off grade of 0.3 g/t gold, the Song Jiagou project contains remaining resources within the pit as shown in the accompanying table.
Resource category Tonnes Grade Gold Gold
(kt) (g/t) (kg) (oz)
Indicated 26,284 1.35 35,500 1,140,800
Inferred 22,927 1.40 32,000 1,032,000
Scenario 3 involves the movement of 147,507,000 tonnes of waste and has a strip ratio of 3.00.
The mining recovery is 95 per cent and the dilution is 5 per cent. The grade of the dilution material is 0.12 g/t. The processing recovery depends on the feed grade. If the average feed grade is greater than one g/t gold, 95 per cent of the gold can be recovered. The gold reclamation ratio of the concentrate is 93 per cent. The saleable metal is estimated as 59,632 kilograms or about 1,917,000 ounces.
According to the preliminary production schedule, scenario 3 will have an LOM of 13 years with a capacity of 12,000 tonnes per day, including 12 years of stable production and one year of ramp up.
The pretax NPV at various discount rates is shown in the accompanying table.
Discount rate NPV NPV
(in millions of renminbi) (in millions of U.S. dollars)
10% 6,637 $ 1,056
7% 7,482 1,191
12% 6,164 981
Scenario 3A
Scenario 3A has the same mineral inventory as scenario 3. The saleable metal is estimated as 59,707 kilograms, or about 1.92 million ounces. According to the preliminary production schedule, the LOM of scenario 3A will be 21 years with a capacity of 7,400 tonnes per day, including 20 years of stable production and one year of ramp-up.
The pretax NPV at various discount rates is shown in the accompanying table.
Discount rate NPV NPV
(in millions of renminbi) (in millions of U.S. dollars)
10% 4,915 $ 782
7% 5,928 943
12% 4,399 700
Mineral resources that are not mineral reserves do not have demonstrated economic viability. The PEA is preliminary in nature and is based, in part, on inferred mineral resources that are considered too speculative geologically to have the economic considerations applied to them that would enable them to be categorized as mineral reserves. There is no certainty that the preliminary assessment will be realized. All figures are rounded to reflect the relative accuracy of the estimate.
The company cautions that the cash flow models and resulting NPVs were done on a pretax basis. After tax, NPVs would be adjusted downward after considering depreciation and other allowable expenses and deduction of Chinese corporate taxes (currently estimated at 25 per cent).
Sensitivity analysis shows that the changes of gold price will affect the NPV of the project most significantly; the accompanying table summarizes the changes of NPVs at a 10-per-cent discount rate against the change of gold prices.
NET PRESENT VALUES VERSUS CHANGES OF GOLD PRICE FOR SONG JIAGOU PROJECT
(in millions of U.S. dollars)
-20% -10% Base case 10% 20%
Scenario $1,84 (U.S.)/oz $1,220 (U.S.)/oz $1,355 (U.S.)/oz $1,490 (U.S.)/oz $1,626 (U.S.)/oz
1 $ 334 $ 406 $ 477 $ 549 $ 620
2 544 661 777 893 1,009
2A 495 598 702 805 908
3 729 893 1,056 1,220 1,384
3A 538 660 782 904 1,026
Based on the estimates in the PEA, Majestic plans to move ahead with the continued development of the project, including more detailed engineering studies as well as applications for expanded mining licences.
The PEA was prepared by SRK under the direction of Dr. Anson Xu, PhD, FAusIMM. Dr. Xu is independent of Majestic and is a qualified person as defined by Section 1.4 of National Instrument 43-101. The qualified person has reviewed and approved the information in this news release.
Rod Husband, PGeo, president and a director of Majestic, and Paul Reynolds, PGeo, chief operating officer of Majestic, have read and approved the information in this news release. Both Mr. Husband and Mr. Reynolds are qualified persons as defined by National Instrument 43-101.
We seek Safe Harbor.
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