Mr. Keith Henderson reports
VELOCITY ANNOUNCES PRELIMINARY ECONOMIC ASSESSMENT FOR THE ROZINO GOLD PROJECT, SOUTHEAST BULGARIA
Velocity Minerals Ltd. has released the results of an independent preliminary economic assessment on its Rozino gold project located in southeast Bulgaria. The preliminary economic assessment provides a base case assessment of developing the project by open-pit mining and gold recovery by a combination of onsite preconcentration in a flotation plant and further processing in an existing operating carbon-in-leach (CIL) plant located in Kardzhali, 85 kilometres by road from Rozino. Saleable gold dore will be produced at Kardzhali. The preliminary economic assessment financial model returns an after-tax NPV5 (net present value at a 5-per-cent discount) of $129-million and an after-tax internal rate of return (IRR) of 33.1 per cent.
Rozino is located within the Tintyava prospecting licence, an exploration property in which Velocity Minerals has an exclusive right to acquire a 70-per-cent interest by delivering the preliminary economic assessment report to the underlying property owner, Gorubso Kardzhali AD, in the coming weeks.
"We have achieved our goal of advancing Rozino from discovery and exploration drilling through to this positive economic assessment in just over one year. On delivery of the preliminary economic assessment, the company will have earned its 70-per-cent interest in the project and will move forward towards a prefeasibility study in joint venture with our partner Gorubso," commented Keith Henderson, Velocity Minerals' president and chief executive officer. "We believe that there is significant potential for resource expansion at Rozino and additional exploration drilling is expected to be completed over the coming months in tandem with infill drilling of the existing mineral resource.
"The work completed at Rozino represents an important first step in Velocity's strategy to explore and develop multiple satellite deposits for processing in the existing centrally located CIL plant. The company is completing due diligence on other advanced properties located within the exploration and mining alliance area, with a view to earning 70-per-cent interests through additional option agreements with Gorubso. The aim is to build a multiasset production profile that maintains annual production of more than 100,000 ounces of gold over a period in excess of 10 years."
Preliminary economic assessment highlights:
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After-tax financials -- after-tax NPV5 of $129-million and after-tax IRR of 33.1 per cent;
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Cash cost -- all-in sustaining cost of $543 (U.S.) per ounce;
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Annual gold production -- steady-state annual production of 65,000 ounces, peak annual production of 78,000 ounces;
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Capital costs -- total estimated capital costs of $97.6-million (includes contingency);
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Sustaining capital -- low estimated sustaining capital of $6.3-million;
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Mining -- open pit with 0.6 gram per tonne gold cut-off grade (COG), attractive strip ratio of 2.5 and 1.51 grams per tonne life of mine (LOM) gold grade;
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Processing -- on-site flotation producing gold-bearing pyrite concentrate assaying 30 grams per tonne gold and transportation to the CIL plant (located 85 kilometres from the project) for processing;
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ROCE -- return on capital expenditure of 3.3.
The preliminary economic assessment is preliminary in nature and includes inferred mineral resources that are too speculative geologically to have economic considerations applied to them that would enable them to be categorized as mineral reserves. There is no certainty that the preliminary economic assessment results will be realized. Mineral resources are not mineral reserves and do not have demonstrated economic viability.
The preliminary economic assessment was prepared by CSA Global, an international mining consultancy with experience in Bulgaria, in accordance with National Instrument 43-101 -- Standards of Disclosure for Mineral Projects. A technical report prepared pursuant to NI 43-101 on the project will be filed on SEDAR within 45 days of the date of this news release.
Rozino development -- mine site to payable gold
The preliminary economic assessment provides a base case assessment of developing Rozino by open-pit mining, on-site crushing, milling and simple flotation to produce a 30 g/t gold concentrate. The concentrate would then be trucked 85 kilometres on existing roads to the currently operating CIL plant, where saleable gold dore would be produced.
In addition to returning positive economic results, this assessment also provides significant benefits, including shortened permitting timelines and capital cost reductions for the following reasons:
- The existing CIL plant and tailing management facility are fully permitted, currently operational and have sufficient capacity to process concentrate from Rozino.
- The use of the existing CIL plant reduces total capital cost requirements.
- On-site development at Rozino only requires permitting for mining, preconcentration and disposal of relatively benign waste products.
The engineering work leading to the preliminary economic assessment results presented here included a range of development scenarios, which will be documented in the upcoming preliminary economic assessment.
Preliminary economic assessment results and sensitivity
The preliminary economic assessment's financial model returns an after-tax NPV5 of $129-million and an after-tax IRR of 33.1 per cent. Total undiscounted posttax cash flow over the life of the project is estimated to be $182-million, with a robust return on capital expenditure of 3.3.
Sensitivities After-tax IRR (%) After-tax NPV5 (millions)
Capex -25% 43.8 $148.5
Base case 33.1 129.2
+25% 25.7 110.3
Opex -25% 41.2 173.6
Base case 33.1 129.2
+25% 24.2 84.5
Gold price $1,000 (U.S.) 17.6 51.3
Base case $1,250 (U.S.) 33.1 129.2
$1,500 (U.S.) 46.0 207.0
Cut-off grade 0.5 g/t gold 29.2 133.3
Base case 0.6 g/t gold 33.1 129.2
0.7 g/t gold 36.7 122.3
Mining
The preliminary economic assessment model uses open-pit contractor mining and a gold price of $1,250 (U.S.), which is the three-year trailing average gold price. Pit shells at this gold price returned 461,000 ounces of potentially minable gold at the Rozino deposit, based on an updated mineral resource estimate (effective date of Sept. 10, 2018).
Mining of the Rozino deposit would follow a conventional drill and blast, load and haul open-cut mining operation using contractor mining services. Mining would commence in 2022 and ramp up to a maximum annual total mining tonnage of approximately 6.8 million tonnes per year. The steady-state feed rate of the flotation plant is 1.75 million tonnes per year delivered by haul truck. The mining operation requires a fleet of 90-tonne excavators loading blasted and free-dig material into 45-tonne class articulated dump trucks (ADTs). The planned mining operation is to be supported by a fleet of ancillary equipment, including graders, dozer, bowsers, drill rigs and other support equipment. The mining costs also include grade-control drilling, pit dewatering and monthly management fees.
Mining parameters Units Base case
Steady-state production rate Mt per year 1.75
Average waste mining rate Mt per year 4.50
Total mineralization mined Mt 9.5
Total waste mined Mt 23.7
Total material mined Mt 33.2
LOM average strip ratio Wt:ot 2.5
Average mined gold grade G/t Au 1.5
Total mined gold Koz 461
Cut-off grade G/t Au 0.6
LOM Years 6
Mining cost -- opex $/t mined 3
Processing
The project would process 1.75 million tonnes per year through a conventional crushing, milling and flotation processing facility located at the Rozino mine site, with a LOM average grade of 1.5 g/t gold to produce 436,000 tonnes of dry concentrate at 30 g/t gold, with a mass pull of approximately 4.5 per cent by weight.
The Rozino mineralization contains less than 1 per cent total sulphides, of which 98 per cent is expected to be recovered in the flotation circuit, resulting in very low-sulphide tailings, with no deleterious elements that would be deposited in a tailings impoundment located to the south of the flotation plant. A waste rock and water storage dam would be located in the same catchment area in order to minimize the environmental footprint.
The resulting low-volume concentrate would be trucked 85 kilometres on existing roads to the currently operating CIL plant. The concentrate would be trucked utilizing a fleet of standard on-highway 20-tonne trucks requiring approximately 11 trips per day.
Flotation plant processing parameters Units Base case
Flotation plant throughput T/d 5,000
Annual plant throughput Mt per year 1.75
Float plant metallurgical recovery % 91.4
Mass pull % 4.4
Moisture in concentrate % 8.0
Average annual concentrate production Dmt x 1,000 73.0
Total concentrate production Kt 436
Concentrate grade G/t Au 30.0
Flotation process costs -- opex $/processed t 5.84
Concentrate transport cost $/t concentrate 15.9
New concentrate handling facilities would be constructed at the CIL plant and would feed a reconstituted slurry directly into a conventional carbon-in-leach circuit, elution and electrowinning facility to produce saleable gold dore.
A total of 365,000 ounces of gold dore would be produced as saleable gold product over the LOM. The tailings from the CIL plant would be deposited in the existing and fully permitted tailing management facility.
CIL plant processing parameters Units Base case
CIL plant metallurgical recovery % 86.6
Steady-state average dore production Koz per year 65.0
Total gold production Koz Au 365
CIL planned upgrade cost $M 0.7
CIL operating cost $/t milled 2.4
CIL operating cost $/t concentrate treated 52.0
Operating costs
Operating costs for mining have been developed from international benchmarked contractor mining rates based on mining operations of similar size utilizing similar mining equipment for drill and blast, load and haul, support equipment and incremental depth increases in cost. The mining costs also allow for dewatering, rehandle and grade-control drilling. The unit costs have been developed in conjunction with the detailed bench mining schedule to develop a cost profile commensurate with the mining plan.
The flotation plant processing costs have been developed from international benchmarked operating costs based on processing plants of similar size and adjusted for local energy and reagent costs.
The CIL plant processing costs have been developed from actual costs adjusted based on required throughput of concentrate.
On-mine costs largely consist of general and administrative costs, and have been calculated from first principles based on local labour rates (derived from similar operations within the region) and include provisions for stores and equipment.
A provision for sustaining capital has been allowed at 4 per cent of the total operating cost. A provision of $1 per tonne mineralized material milled has been allowed for the rehabilitation of the site once mining ceases.
The operating costs have been used to determine the break-even cut-off grade used to select the specific cut-off in the updated mineral resource model for use in the pit optimization study for the determination of the ultimate optimal pit shell based on a gold price of $1,250 (U.S.) per ounce.
Operating costs $/tonne milled
Mining 14.0
Flotation plant 5.8
CIL plant 2.4
On mine 4.1
Rehabilitation provision 1.0
Sustaining capital 0.6
All--in opex 27.9
All--in opex (AISC) -- U.S.$/oz payable 543.3
Capital costs
Capital costs for mining have been calculated from international benchmarked contractor rates for mobilization of equipment and construction on a mine services area that includes heavy equipment workshops, stores and administrative structures.
The flotation plant capital cost estimate has been calculated from international benchmarked capital costs based on floatation processing plants of a similar size. A capital allowance has been calculated for the tailing management facility and water storage facilities at the Rozino site based on international benchmarking capital rates in conjunction with estimated dam wall volumes.
At the currently operating CIL plant, a $700,000 capital expenditure provision has been estimated for the construction of a truck offload facility, concentrate storage, repulping facility, additional gold stripping vessel and electrowinning cell. The remaining equipment and facilities at the CIL plant have been determined to be of adequate size and condition, and would require no further capital expenditure.
The following capital ratios have been applied in the capital estimate:
- Capital allowance of 1.5 per cent for project indirect costs;
- Capital allowance of 3.5 per cent for owners costs;
- Capital fee of 12.5 per cent for engineering procurement and construction management (EPCM);
- Contingency of 10 per cent for estimation inaccuracy and miscellaneous items.
Capital costs (millions)
Mine infrastructure $ 6.3
Flotation plant 55.2
TMF 13.7
CIL plant upgrades 0.7
Owners cost 2.6
Indirect costs 1.1
EPCM 9.1
Contingency 8.9
Total project capex 97.6
Future work
Upon delivery of the preliminary economic assessment report in the coming weeks, a joint venture will be deemed to have been formed between Velocity Minerals (70 per cent) and Gorubso (30 per cent).
Next steps for the project include completion of a prefeasibility study, which is expected to be completed in Q3 2019. Work to be completed as part of the prefeasibility study will include:
- Exploration drilling of priority targets located contiguous to the preliminary economic assessment pit outlines aimed at resource expansion;
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Infill resource drilling aimed at upgrading inferred mineral resource estimates to indicated mineral resource estimates;
- Additional metallurgical testing to optimize gold recovery;
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Geotechnical and hydrogeological engineering studies;
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Completion of an environmental social impact assessment -- work was initiated in June, 2018, and is currently continuing.
The preliminary economic assessment report will include detailed recommendations and a budget estimate.
Updated mineral resource estimate
An updated mineral resource estimate using all of the relevant drill hole information to date was reported for a range of cut-off grades returning an inferred mineral resource of 13 million tonnes of 1.37 g/t gold at a 0.6 g/t gold cut-off grade for total contained gold of 573,000 ounces. The estimates are based on composited gold assay grades from angled diamond drilling two metres down the hole.
Velocity Minerals has received results from approximately 9,050 metres of diamond drilling to date. Relative to the dataset available for the previous March, 2018, estimates, the current sampling database contains assay results for an additional 12 holes for 1,580 metres of drilling.
Cut-off grade (g/t Au) Inferred mineral resource estimate
Tonnes (Mt) Gold grade (g/t) Gold metal (koz)
0.2 50 0.59 948
0.5 17 1.17 639
0.6 13 1.37 573
0.7 9.7 1.57 490
Recoverable resources were estimated for Rozino using multiple indicator kriging (MIK) with block support adjustment, a method that has been demonstrated to provide reliable estimates of recoverable open-pit resources in gold deposits of diverse geological styles.
The Rozino sampling database includes 197 diamond holes for 31,338 metres of drilling, of which 86 drill holes (14,289 metres) completed by Asenovgrad Geoengineering EAD are not included in the resource estimation dataset due to insufficient quality control data. Drilling used in the previous March, 2018, resource estimation totalled 90 drill holes (13,558 metres) and comprise 56 drill holes (9,055 metres) completed by Velocity Minerals, 28 drill holes (3,794 metres) completed by Hereward Ventures Ltd. and six drill holes (740 metres) completed by Asia Gold Inc. The remaining angled drill holes from the database are located outside the mineralized envelope and did not inform the resource estimation. Relative to the dataset available for the March, 2018, estimates, the current sampling database contains assay results for an additional 12 holes for 1,580 metres of drilling.
Samples from Velocity Minerals' diamond drilling provide 67 per cent of the estimation dataset, with angled diamond holes drilled by Hereward and Asia Gold contributing 28 per cent and 5 per cent, respectively.
Estimated resources are constrained within a mineralized envelope interpreted from composited gold grades and geological logging from diamond drilling two metres down the hole and surface trenches. The envelope captures intervals of greater than 0.1 g/t Au, with the lower boundary reflecting the contact between variably mineralized sedimentary rocks and an unmineralized basement. It covers an area of approximately 780 metres by 600 metres. Estimated resources extend to the base of mineralized drilling at approximately 190 metres of depth, with approximately 90 per cent of estimates from depths of less than 105 metres and less than 1 per cent from below 140 metres.
Bulk densities of 2.31, 2.41 and 2.58 tonnes per cubic metre were assigned to completely weathered, transitional and fresh material, respectively, using surfaces representing the base of complete oxidation (BOCO) and top of fresh rock interpreted by Velocity Minerals. Within the resource area, the depth to BOCO averages around eight metres, with fresh rock occurring at an average depth of around 19 metres.
Indicator class grades used for the MIK modelling were determined from the mean composite gold grade of each indicator class. The effect of extreme grades on estimates was reduced by cutting seven outlier composites with gold grades of greater than 40 g/t to 40 g/t for determination of the mean grade for the highest indicator class.
The work program at Rozino was designed, and is supervised, by Stuart Mills, CGeol, the company's vice-president of exploration, who is responsible for all aspects of the work, including the quality control/quality assurance program. Onsite personnel at the project rigorously collect and track samples, which are then security sealed and shipped to ALS Global's laboratory in Romania. Samples were prepared and analyzed by fire assay using a 30-gram charge in compliance with industry standards. Field duplicate samples, blanks and independent controlled reference material (standards) are included in every batch.
Hereward and Asia Gold's diamond core from angled drilling was sampled and analyzed by industry standard methods. The core was generally halved for analysis with a diamond saw over generally one-metre intervals. Samples were analyzed for gold by fire assay by commercial laboratories. Information available to demonstrate the reliability of these results includes duplicates and blanks for both datasets and certified reference standards for Asia Gold's drill results.
Qualified persons
Karl van Olden, FAusIMM, has overall responsibility for the preliminary economic assessment and has approved the content of this news release. Mr. van Olden is a fellow of the Australasian Institute of Mining and Metallurgy, a qualified person as defined by NI 43-101 and independent of the company. He is a full-time employee of CSA Global.
Gary Patrick, BSc, MAusIMM (CP), is responsible for reviewing metallurgical aspects of the preliminary economic assessment study on behalf of CSA Global and has approved the content of this news release. Mr. Patrick is a member of the Australasian Institute of Mining and Metallurgy. He is also a qualified person as defined by NI 43-101. Mr. Patrick is independent of the company. He is an associate metallurgical consultant to CSA Global.
Len Holland, BSc, CEng, FIMMM, FMES, is responsible for, and supervised, metallurgical testing at Rozino. He has approved the content of this news release. Mr. Holland is an employee of Holland and Holland Consultants, a qualified person as defined by NI 43-101 and independent of the company.
Jonathan Abbott, MAIG, is responsible for the updated mineral resource estimate and has approved the content of this news release. Mr. Abbott is an employee of MPR Geological Consultants Pty. Ltd., a member of the Australian Institute of Geoscientists, a qualified person as defined by NI 43-101 and independent of the company.
About Velocity Minerals Ltd.
Velocity Minerals is a gold exploration and development company focused on Eastern Europe. The company's management and board include mining industry professionals with combined experience spanning Europe, Asia and the Americas as employees of major mining companies as well as founders and senior executives of junior to mid-tier public companies. The team's experience includes all aspects of mineral exploration, resource definition, feasibility, finance, mine construction and mine operation as well as a record in managing publicly listed companies.
About Bulgaria
Bulgaria is a member of NATO (2004) and a member of the European Union (2007). The local currency (BGN) has been tied to the euro since 1999. The country is served by modern European infrastructure including an extensive network of paved roads. Bulgaria boasts an exceptionally low corporate tax rate of only 10 per cent. The country's education system is excellent with good availability of experienced mining professionals in a favourable cost environment. Foreign mining companies are successfully operating in Bulgaria. The country's mining law was established in 1999 and updated in 2011. Mining royalties are low and compare favourably with more established mining countries.
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