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Trevali Mining Corp
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Trevali Mining releases Caribou NI 43-101 PEA

2014-05-13 16:14 ET - News Release

Dr. Mark Cruise reports

TREVALI REPORTS PRELIMINARY ECONOMIC ASSESSMENT OF CARIBOU ZINC-LEAD-SILVER MINE IN NEW BRUNSWICK

Trevali Mining Corp. has released the results of the independently prepared preliminary economic assessment (PEA) for its wholly owned Caribou zinc-lead-silver mine and mill complex, located in the Bathurst mining camp of New Brunswick, Canada.

The base-case PEA indicates positive economic results for the Caribou underground mining operation and mill complex with a preproduction capital expenditure of $36.3-million, an after-tax internal rate of return of 56.9 per cent, after-tax net present value of $106-million at a 5-per-cent discount rate, and average annual payable production of approximately 93 million pounds zinc, 32.5 million pounds lead, 3.1 million pounds copper, 730,000 ounces silver and 1,500 ounces gold.

         CARIBOU MINE PROJECT PRELIMINARY ECONOMIC ASSESSMENT HIGHLIGHTS
            (based on $1 (U.S.) per pound Zn, $1 (U.S.) per pound Pb, 
       $3 (U.S.) per pound Cu, $21 (U.S.) per ounce Ag, $1,200 (U.S.) per 
          ounce Au and a Canadian dollar exchange rate of 95 U.S. cents)              

IRR                   Pretax IRR of 69 per cent with a 1.9-year payback         
                      After-tax IRR of 56.9 per cent with a 2.1-year payback      
NPV                   Pretax NPV (5 per cent) of $150-million                    
                      After-tax NPV (5 per cent) of $106-million                   
Production costs      Direct life-of-mine (LOM) cash costs (C1) of 
                      46 U.S. cents zinc equivalent                                         
                      Total site operating cost of $74.77 per tonne milled   
                     (includes mining, milling, general and 
                      administrative, and environmental)  
Capex                 Preproduction capital of $36.3-million            
Production (payable)  Average annual payable production of 93 million    
                      pounds Zn, 32.5 million pounds Pb, 3.1 million 
                      pounds Cu, 730,000 ounces Ag and 1,500 ounces Au                  
Mine life             Planned mine life of 6.3 years 
LOM mill feed         Estimated plant feed(i) of 6,152,000 tonnes grading
                      6.11 per cent Zn, 2.49 per cent Pb, 0.34 per cent Cu,
                      67.9 grams per tonne Ag and 0.86 gram per tonne Au over LOM                                    
Recoveries            Average LOM recoveries of 84 per cent for Zn, 
                      65 per cent for Pb, 45 per cent for Cu, 37.5 per cent
                      for Ag and 10.6 per cent for Au used in the model                                              
Employment and        Estimated to provide approximately 300 permanent 
local/regional        full-time positions                                          
benefits              Approximately $57.3-million in direct royalties 
                      and tax payments                                                               
                                                                            
(i) The estimated plant feed is partly based 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, and there is no certainty that the preliminary economic   
    assessment based on these mineral resources will be realized.               

"We welcome this preliminary economic assessment for our Caribou mine with scheduled commissioning of operations in the first half of 2015," stated Dr. Mark Cruise, Trevali's president and chief executive officer. "These results model a respectable return based on this initial base-case model, and we believe that there is excellent potential for additional optimization given that approximately three million tonnes of mineralized material is presently not included in the mine plan and the deposit remains open for expansion. Given the project's sensitivity and leverage to zinc price, positive consensus forecasts for increasing zinc (and lead) prices should have a beneficial effect on the operations economics."

The restart of the Caribou mine project, through the reactivation of the 3,000-tonne-per-day Caribou mill complex and the associated underground deposit, represents Trevali's initial strategy for its Bathurst mining camp operations in New Brunswick. Longer-term plans, subject to continuing technical studies, include the potential for a second stand-alone milling facility to support development of the company's fully permitted Halfmile mine and the Stratmat deposit, where drilling and baseline permitting programs are in progress.

Study description

The PEA study was conducted in accordance with the definitions in Canadian National Instrument 43-101. SRK Consulting (Canada) Inc. was the lead independent consultant, with contributions from other independent consultants commissioned by Trevali -- Holland & Holland Consulting and Stantec Consulting. The PEA focuses on the polymetallic Caribou mine and mill complex located approximately 50 kilometres west of Bathurst, N.B. Caribou is situated just off of paved Provincial Highway 180, which connects the project to major road, rail and port infrastructure, including the deepwater ocean port and smelting complex at Belledune approximately 80 kilometres to the northeast. Caribou is also connected to the New Brunswick provincial power grid.

The Caribou project has been valued using a discounted-cash-flow (DCF) approach. This method of valuation requires projecting yearly cash inflows, or revenues, and subtracting yearly cash outflows such as operating costs, capital costs, royalties, and provincial and federal taxes. Cash flows are taken to occur at the end of each period. The resulting net annual cash flows are discounted back to the date of valuation, the second quarter of 2014, and totalled to determine net present values (NPVs) at the selected discount rates. The internal rate of return (IRR) is calculated as the discount rate that yields a zero NPV. The payback period is calculated as the time needed to recover the initial capital spent.

The results of the economic analysis represent forward-looking information that are subject to a number of known and unknown risks, uncertainties and other factors that may cause actual results to differ materially from those presented here.

Many costs within the PEA model are based on direct supplier/contractor quotations, including the following:

  • Major mine mobile equipment quotations;
  • Mining contractor quotations as cost base for development and production;
  • Material supply quotations;
  • Building rehabilitation quotations;
  • Consumables -- fuel, power and explosives.

Economics

The base-case Caribou mine project PEA uses price assumptions of $1 (U.S.) per pound zinc, $1 (U.S.) per pound lead, $3 (U.S.) per pound copper, $21 (U.S.) per ounce silver and $1,200 (U.S.) per ounce gold. These prices are based on a review of consensus price forecasts from financial institutions and similar studies that recently have been published. The after-tax net present value (NPV) at variable discount rates, internal rates of return (IRR) are shown in the attached table, illustrating sensitivities to variable zinc and lead prices.

        
        CARIBOU ECONOMIC SUMMARY -- ZINC AND LEAD PRICE SENSITIVITY         

                                              After tax                    
Zinc                 Lead                                                 
price               price      NPV (0%)     NPV (5%)     NPV (8%)      IRR
(US$/lb)          (US$/lb)   (millions)   (millions)   (millions)       (%)

0.80                 0.80          $31          $16           $9        13
0.90                 0.90          $96          $68          $56        37
1.00                 1.00         $141         $106          $89        57
1.10                 1.10         $180         $138         $118        74
1.20                 1.20         $208         $161         $139        89
1.30                 1.30         $246         $192         $167       107
1.40                 1.40         $287         $226         $197       126

                                              Pretax                     
Zinc                 Lead                                                 
price               price      NPV (0%)     NPV (5%)     NPV (8%)      IRR
(US$/lb)          (US$/lb)   (millions)   (millions)   (millions)       (%)

0.80                 0.80          $45          $27          $19        18
0.90                 0.90         $122          $89          $73        45
1.00                 1.00         $199         $150         $128        69
1.10                 1.10         $275         $212         $182        93
1.20                 1.20         $350         $272         $235       116
1.30                 1.30         $424         $331         $287       139
1.40                 1.40         $498         $391         $340       161

Resources

The Caribou PEA underground mine plan models the extraction and processing of an initial 6,152,000 tonnes of mineralized material using a net-smelter-returns cut-off value of $100 per tonne. This mine plan tonnage includes measured, indicated and inferred mineral resources. The Caribou PEA is based on SRK mineral resources as disclosed in the January, 2013, NI 43-101 technical study by SRK Consulting (Canada) Inc. (see Trevali news release dated Jan. 17, 2013).

                ESTIMATED PLANT FEED(I) FOR THE CARIBOU
                  PROJECT TO THE 1,920 MEL MINE LEVEL

Cut-off            Tonnage                       Grade
(NSR $/tonne)     (million      Zn        Pb        Cu        Ag        Au
                    tonnes)     (%)       (%)       (%)     (g/t)     (g/t)

100                6.152      6.11      2.49      0.34     67.89      0.86



                              Contained metal (millions of ounces Au and Ag;
Cut-off           Tonnage   millions of pounds lead, zinc and copper) in situ
(NSR $/tonne)    (million
                   tonnes)         Zn        Pb        Cu        Ag        Au

100                 6.152       828.3     337.1      45.6     13.43      0.17

(i) The estimated plant feed is partly based 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, and there is no certainty that the preliminary
    economic assessment based on these mineral resources will be realized.                                                                                  

           MINERAL RESOURCE STATEMENT(I), CARIBOU PROJECT, BATHURST, N.B.,
                         SRK CONSULTING, JAN. 17, 2013

Cut-off                Tonnage                    Grade
ZnEq(i)               (million     Zn     Pb     Cu      Ag      Au   ZnEq (i)
(%)       Class         tonnes)    (%)    (%)    (%)   (g/t)   (g/t)       (%)

5         Measured        5.61   6.91   2.93   0.46   84.64    0.84     10.58
          Indicated       1.62   7.28   2.94   0.34   83.68    1.06     10.83
          M&I             7.23   6.99   2.93   0.43   84.43    0.89     10.64
          Inferred        3.66   6.95   2.81   0.32   78.31    1.23     10.47

                                 Contained metal (millions of ounces Au and Ag;
Cut-off                Tonnage   millions of pounds lead, zinc and copper) in situ
znEq(i)               (million
(%)       Class         tonnes)        Zn       Pb       Cu      Ag      Au

5         Measured        5.61     855.36   362.69    56.94   15.28    0.15
          Indicated       1.62     259.87   104.95    12.14    4.36    0.06
          M&I             7.23    1115.23   467.64    69.08   19.64    0.21
          Inferred        3.66     560.44   226.60    25.80    9.21    0.14

(i) ZnEq equals ((Cu grade multiplied by Cu price multiplied by Cu recovery)
    plus (Pb grade multiplied by Pb price multiplied by Pb recovery) plus
   (Zn grade multiplied by Zn price multiplied by Zn recovery) plus
   (Au grade multiplied by Au price multiplied by Au recovery) plus
   (Ag grade multiplied by Ag price multiplied by Ag recovery)) divided by
    Zn price. In calculating ZnEq, SRK Consulting (Canada) utilized the
    long-term metal prices provided by Energy & Metals Consensus Forecast.
    The prices are $1,470 per ounce gold, $26 per ounce silver, $3.39 per
    pound copper, $1.18 per pound lead and $1.14 per pound zinc. A recovery
    of 83 per cent was applied to Zn, 71 per cent was applied to Pb,
    57 per cent was applied to copper, 45 per cent was applied to silver,
    and 40 per cent was applied to Au. The pounds of metal are in situ and
    have not had any mining factors applied to them.
                                                 

The total mineralized materials above $100 per tonne tonne net-smelter-returns cut-off value within the crown pillar and below the 1,920 mEL level, the future mine plan area, are 532,000 tonnes at grades 6.85 per cent zinc, 2.85 per cent lead, 0.37 per cent copper, 85.31 grams per tonne silver and 1.12 grams per tonne gold. They are not included in the current mine plan. In addition, there are 3.06 million tonnes of mineralized materials excluded from current mining plan at grades 7.11 per cent zinc, 2.91 per cent lead, 0.39 per cent copper, 82.88 grams per tonne silver and one gram per tonne gold. Reasons for the excluded amounts include parallel zones where only one zone can be mined, stand-off distances from historical mining areas, areas too narrow relative to the current minimum mining width and isolated areas.

Based on potential opportunity identified by SRK, Trevali is currently assessing the requirements to potentially incorporate some of this additional resource tonnage into the mine plan.

The Caribou deposit mineralization remains open for expansion, with drill intercepts encountering significant mineralized intervals outside of the current resource shell.

Mining and processing

Underground operations will take advantage of the extensive in-place historical development and infrastructure. A centralized ramp-trucking system will serve as the main access for the mine. The main mining method will be modified Avoca with waste rock backfill, with the exception of a long-hole-retreat mining method for partial sill-pillar recovery near the end of mine life.

The processing circuit will consist of a 3,000-tonne-per-day semi-autogenous grinding and milling circuits (including fine-grinding IsaMills) with standard sulphide flotation recovery circuits to produce three concentrates: zinc, lead-silver and copper-gold. The average life-of-mine modelled head grade for mill feed is 6.11 per cent zinc, 2.49 per cent lead, 0.34 per cent copper, 67.9 grams per tonne silver and 0.86 gram per tonne gold. Life-of-mine metallurgical recoveries used in the PEA are 84 per cent for zinc, 65 per cent for lead, 45 per cent for copper, 37.5 per cent for silver and 10.6 per cent for gold. No optimization of precious metal recoveries has occurred to date but is being evaluated.

Projected payable metal production from the planned Caribou mine operation is summarized in the attached table, and the annual production schedule based on the initial base-case mine plan is presented in a separate attached table.

                 PROJECTED PAYABLE METAL PRODUCTION                                 

Commodity     Average annual payable production   LOM payable production

Zinc                              93,000,000 lb           584,500,000 lb
Lead                              32,500,000 lb           204,500,000 lb
Copper                             3,100,000 lb            19,500,000 lb
Silver                               730,000 oz             4,600,000 oz
Gold                                   1,500 oz                10,000 oz

Life-of-mine concentrate grades are expected to average 50 per cent zinc in the zinc concentrate, 45 per cent lead in the lead concentrate and 20 per cent copper in the copper concentrate. The precious metals report to both the lead and copper concentrates, which maximizes payability. Future metallurgical test work will seek to enhance recoveries.

   PRODUCTION SCHEDULE BASED ON THE INITIAL BASE-CASE 6.3-YEAR LOM PLAN      

                     Unit             2015       2016       2017       2018

Tonnes per day       t/d             2,333      2,724      3,000      2,987
Total production     kt                852        994      1,095      1,090
Zn grade             %               5.82%      6.27%      6.13%      5.98%
Pb grade             %               2.49%      2.63%      2.52%      2.45%
Cu grade             %               0.33%      0.33%      0.34%      0.40%
Ag grade             g/t             68.74      73.71      67.58      70.78
Au grade             g/t              0.59       0.70       0.85       0.84
Contained Zn         000s lb       109,241    137,552    147,977    143,704
Contained Pb         000s lb        46,768     57,639     60,718     58,993
Contained Cu         000s lb         6,225      7,219      8,324      9,563
Contained Ag         000s oz         1,882      2,356      2,379      2,482
Contained Au         000s oz            16         22         30         29


                     Unit             2019       2020       2021      Total

Tonnes per day       t/d             3,000      2,586        225           
Total production     kt              1,095        944         82      6,152
Zn grade             %               6.44%      5.97%      5.55%      6.11%
Pb grade             %               2.64%      2.20%      1.97%      2.49%
Cu grade             %               0.30%      0.32%      0.29%      0.34%
Ag grade             g/t             71.31      56.13      43.66      67.89
Au grade             g/t              0.84       1.28       1.26       0.86
Contained Zn         000s lb       155,571    124,270     10,030    828,345
Contained Pb         000s lb        63,648     45,776      3,554    337,096
Contained Cu         000s lb         7,225      6,571        516     45,643
Contained Ag         000s oz         2,511      1,703        115     13,428
Contained Au         000s oz            30         39          3        170

Capex and opex

Projected capital and operating costs in the PEA over the planned 6.3-year mine life are summarized in the attached tables.

 
                ESTIMATED LOM CARIBOU PROJECT CAPITAL COSTS
 
                            LOM capital  Initial capital  Sustaining capital
Items                       (millions $)     (millions $)        (millions $)

UG mine mobile
equipment                       $  21.5           $  0.0             $  21.5
UG mine infrastructure             23.0              9.0                14.0
UG contingency (mobile
and infrastructure)                 6.0              0.0                 6.0
UG mine mobile and 
infrastructure
Subtotal                           50.5              9.0                41.6
Underground mine
Development                        26.5              6.2                20.3
Mine energy                         1.1              0.1                 1.0
Mine total                         78.2             15.3                62.9
Tailings and other ponds           23.4              1.1                22.3
Grinding                            3.5              3.4                 0.1
Flotation, including 
Adding Cu circuit                   5.4              5.4                 0.0
Dewatering Zn/Pb/Cu                 1.6              1.6                 0.0
Concentrate storage 
and handling                        2.7              1.2                 1.6
Reagent mixing                      0.8              0.8                 0.0
Services                            1.3              0.8                 0.5
Miscellaneous equipment             1.2              1.2                 0.0
Milling and tailing
Total                              39.9             15.5                24.4
Environmental                       1.6              1.2                 0.3
Project general 
and administration                  5.4              4.2                 1.2
Project grand total               125.1             36.3                88.8

             ESTIMATED LOM CARIBOU OPERATING COST

Items                                   Unit               Values

Mining                            $/t milled                37.06
Milling                           $/t milled                30.14
General and 
administrative                    $/t milled                 5.99
Environmental                     $/t milled                 1.59

Total site operating cost         $/t milled                74.77

A direct life-of-mine cash cost (C1) of 46 U.S. cents per pound of ZnEq is modelled in the PEA.

Key assumptions used in the economic analysis within the PEA are summarized in the attached table.

                         KEY ASSUMPTIONS USED IN ECONOMIC ANALYSIS                          
                                                 
                                       Metal price         Mill                          
Item                            Unit   In USD   In CAD  recovery   Payable        Off-site costs

Zn                              $/lb        1     1.05       84%       85%    TC/RC, deductibles 
Pb                              $/lb        1     1.05       65%       95%     vary with smelter 
Cu                              $/lb        3     3.16       45%       95%     location, smelter 
Ag                              $/oz       21    22.11    37.50%       95%  terms and conditions
Au                              $/oz     1200  1263.16    10.60%       95%
Base-case discount rate                                       5%
Exchange rate (US$/C$)                                      0.95
Schedule 1 -- NB 2% royalty                                   2%
Schedule 2 -- NB 16% royalty                                 16%
10% NPI -- Fern Trust 
based on taxable profit                                      10%
Provincial income tax                                        12%
Federal income tax                                           15%

                      PEA CONTRIBUTORS

Company                          Responsibilities                          

SRK Consulting (Canada) Inc.     Underground mine modelling, general and      
in collaboration with Trevali    administration costing and project economics
Stantec Consulting               Environmental and permitting              
Len Holland, Holland & Holland   Metallurgical and processing              
Consulting                                                                

Project risks

There are two major risks identified that could adversely affect the project economics:

  • Mine rehabilitation and drift slashing (for increased size): The mine is only about 40 per cent dewatered at the time of mine planning. There are uncertainties related to the time required for full dewatering and uncertainties regarding the total quantity and scheduling of the rehabilitation/slashing work that will ultimately be required. An increased quantity of rehabilitation/slashing work and/or schedule delays could adversely affect the PEA economic results.
  • External dilution: There is a risk of increased external dilution beyond the planned amount. This would reduce the mill head grade and impact on revenue.

Optimization and potential for enhanced economics

Opportunities for optimizations and potential enhanced economics have been identified within the preliminary economic assessment, including:

  • There is potential to maximize sill pillar recovery by replacing waste backfill with paste backfill. The current mine plan models an overall low sill pillar recovery of 27.2 per cent due to the unconsolidated waste rock backfill planned for placement immediately above the sill levels. The potential advantages of using paste backfill include:
    • Increase sill pillar recovery to nearly 100 per cent, which could bring up to 1.5 million tonnes of plant feed into the mine plan at grades of 6 per cent zinc, 2.59 per cent lead, 0.29 per cent copper, 71.75 grams per tonne silver and 0.75 gram per tonne gold, thereby extending the mine life with minimal additional development required;
    • Increase stope productivity and shortened stope cycle time, thus increasing stope stability and improving external dilution control;
    • Reduced backfill operating cost;
    • Reduced ventilation requirements;
    • Reduced requirement for life-of-mine tailings pond capacity and potentially savings in environmental expenditures.
  • Trade-off analysis is recommended to weigh these potential advantages against the expected increase in capital costs for installing a paste backfill system.
  • There is potential to bring more mineralized materials into the mine plan in the PEA planned mining areas. There are 3.06 million tonnes in situ mineralized materials above the $100-per-tonne net-smelter-returns cut-off grade excluded from the PEA mining shapes in the planned mining area with an average grade of 7.11 per cent zinc, 2.91 per cent lead, 0.39 per cent copper, 85.31 grams per tonne silver and 1.12 grams per tonne gold. Reasons for the excluded amounts include parallel zones of mineralization where only one zone can be mined, stand-off distances from historical mining areas, areas too narrow relative to the current minimum mining width and isolated areas. Further design optimization could potentially bring some of these mineralized materials into the mine plan.
  • Further stope design optimization will lead to reduced internal dilution and increased plant feed head grades. Overall internal dilution in the planned stopes is currently approximately 20 per cent. In SRK's opinion, it should be possible to reduce internal dilution to less than 15 per cent and increase plant feed head grades by roughly 4.3 per cent.
  • Definition drilling should convert some of the existing inferred mineral resources to indicated or measured category.
  • There is significant potential for resource expansion at depth given drill-grade intervals outside of current resource block and below the PEA modelled mine plan in the future mine plan area.
  • There is potential for increased metallurgical recoveries, specifically optimization of the lead, copper and precious metals recovery.

The full PEA technical report will be filed on SEDAR and on the Trevali Mining website within 45 days of the issuance of this news release.

The PEA is considered preliminary in nature and includes economic analysis that is based, in part, on inferred mineral resources. Inferred mineral resources are considered too speculative geologically to have the economic considerations applied to them that would allow them to be categorized as mineral reserves, and there is no certainty that the results will be realized. Mineral resources are not mineral reserves because they do not have demonstrated economic viability.

Qualified person and quality control/quality assurance

Dr. Mark D. Cruise, EurGeol, Trevali's president and chief executive officer, and Paul Keller, PEng, Trevali's chief operating officer, who are qualified persons as defined by NI 43-101, have supervised the preparation of the scientific and technical information that forms the basis for this news release. Dr. Cruise is not independent of the company as he is an officer, director and shareholder. Mr. Keller is not independent of the company as he is an officer and shareholder. The lead parties responsible for the PEA, SRK, Holland and Holland, and Stantec, are independent of the company.

We seek Safe Harbor.

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