Mr. Adriaan Bakker reports
POSITIVE PRELIMINARY ECONOMIC ASSESSMENT ACHIEVED FOR THE LAC DORE VANADIUM PROJECT, CHIBOUGAMAU, QUEBEC AFTER-TAX NPV OF CDN $814M AND AFTER-TAX IRR OF 15.42%
Vanadiumcorp Resource Corp. has released the positive findings of an independent preliminary economic assessment (PEA) for its 100-per-cent-owned Lac Dore vanadium project situated 30 kilometres southeast of Chibougamau, Que. The project is to produce vanadiferous titanomagnetite (VTM magnetite) concentrate from the Lac Dore deposit, which will either be processed using the company's Vanadiumcorp-Electrochem technology or marketed to third parties. Highlights of the PEA base case include:
- After-tax net present value (NPV) of $814-million, postinflation but not discounted;
- After-tax internal rate of return (IRR) of 15.42 per cent;
- Pretax NPV of $1,057-million;
- Pretax IRR of 17.46 per cent;
- Nominal VTM production rate of 864,000 tons per year at a nominal price of $100 (U.S.) per ton;
- Average mining head grade of 26.6 per cent VTM;
- LOM (life of mine) adjusted to 20 years, requiring 64 per cent of the currently known inferred resources;
- After-tax payback period of six years after start-up;
- LOM operating margin of 25 per cent, including inflation.
Vanadiumcorp Resource Inc. engaged IOS Services Geoscientifiques Inc. for the purpose of compiling the PEA. IOS is a thoroughly independent consulting firm and one of the largest independent consulting firms in geology in the province of Quebec, having been involved with more than 1,400 projects. IOS collaborated with the development of the Lac Dore project for more than 20 years, as the contracted developer and project manager for its previous owner. IOS utilized its extensive knowledge and data pertaining to the significant mineralization present on Vanadiumcorp's Lac Dore project.
The Lac Dore 2017 PEA is preliminary in nature and includes exclusively 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 PEA will be realized.
Adriaan Bakker, Vanadiumcorp's president and chief executive officer, commented: "We are very pleased with the results of this preliminary economic assessment, which clearly establishes Lac Dore as one of the premier undeveloped vanadium resources, located in a favourable jurisdiction for mining development. The PEA illustrates robust economics and marks a significant milestone for Vanadiumcorp to continue to advance Lac Dore towards production. The base case shows that Lac Dore could generate more than $1.4-billion in pretax net cash flows and deliver life-of-mine, after-tax net present value of $814-million. Thanks to the experience of IOS with Lac Dore and vanadium expertise, we have based our economic base case on a conservative magnetite concentrate production model that demonstrates a positive cash flow scenario for Lac Dore and provides ideal feedstock for Vanadiumcorp-Electrochem process technology. Vanadiumcorp-Electrochem process technology, tested on vanadiferous titanomagnetite from Lac Dore, is achieving excellent recoveries and scaling toward one-tonne-per-month nameplate capacity. With the support of all our stakeholders, including our shareholders, employees, local entrepreneurs, Chibougamau regional communities and the Canadian government, we are looking forward to advancing this outstanding vanadium project to the next stage of development."
Economic model
Inputs and assumptions used in the study are shown in the attached tables. All prices are stated in dollars, and tons as a metric measure.
CAPITAL AND OPERATING COSTS
Capital cost ($M) Operating cost LOM ($M) Operating cost per ton VTM
Site preparation $4.2M $0M n/a
Mine $0M $526M $23.50/t
Mill $114.6M $540M $27.16/t
Buildings $15.3M $0.8M $0.05/t
Tailing and waste pads $6.7M $36.9M $2.18/t
Roadworks $7.0M $1.0M $0.05/t
Power line $17.0M $0 $0/t
Trucking and handling $3.1M $62.1M $3.67/t
Ancillary facilities $34.2M $6.6M $0.29/t
Preconstruction and EPCM $83.7M $0 n/a
Working capital $20.2M (year 24) $0 n/a
Closure costs $5M $0 n/a
Contingency 15% $30.5M $0 n/a
Total capital costs $321.2M $1,073.8M $56.90/t
The average LOM operating expense is estimated at $56.89 per tonne of VTM, or 42 per cent of the selling price.
Inferred resource: 99,104,000 tons at 26.3 per cent VTM at 1.08 per cent V2O5 (vanadium oxide)
VTM resource: 26,067,000 tons VTM
Required resource for PEA: 63,663,000 tons at 26.6 per cent VTM or 64 per cent
Average pit ratio: 1.34 tons of waste per ton of ore
VTM production rate: 100 tons per hour, 24 hours per day and 360 days per year
Currency exchange rate: 75 U.S. cents per $1 (Canadian)
VTM price: $100 (U.S.) per ton, FOB at Chibougamau
Inflation: 2 per cent yearly
Discount rate: 0 per cent
Depreciation rate: 15 per cent
Equity debt ratio: 100-per-cent equity
Total investment: $343,299,705
Overall operating cost:
$57.95 per ton VTM
A series of yearly cash flows is calculated over a mining life of 20 years, plus four preproduction years. The model incorporates the effect of 2-per-cent inflation, a working capital allocation, a 15-per-cent depreciation on equipment, a progressive buyback of the power line by Hydro-Quebec, 30-per-cent fiscal depreciation and processing allocation (applicable only if metallurgical extraction is made in Quebec) plus the following taxes:
- Environment taxes on tailing, effluents, dusts and water;
- Municipal and school taxes on non-production-related investments;
- Quebec's mining tax, which is progressive (1 per cent to 4 per cent) and based on headframe revenues;
- Quebec's income tax, which is progressive (16 per cent to 28 per cent) according to profit margin after allocations;
- Federal income tax (15 per cent) after allocations.
No royalties are attached to the project. All preconstruction costs were included in the economic studies, including operating cash flows for the company, resource definition costs, metallurgical testing, engineering and provisions for environmental rehabilitation. The NPV and IRR calculations include the four preproduction years and are summarized in the attached net present value table.
NET PRESENT VALUE
Discount rate (above 2% inflation) Pretax NPV ($M) After-tax NPV ($M)
0% $1,057-million $814-million
5% $498-million $369-million
7.5% $333-million $237-million
10% $212-million $139-million
IRR 17.46% 15.42%
Multivariate sensitivity analysis has been conducted by fluctuating capital expenditures (negative 30 per cent/positive 50 per cent), mine and mill operating cost (negative 30 per cent/positive 30 per cent), VTM grade (20 per cent to 35 per cent), pit ratio (0.8 to 1.67), currency exchange (60 U.S. cents to $1 (Canadian)), VTM pricing ($50 (U.S.) per ton to $150 (U.S.) per ton), scale (17 to 300 tonnes per hour of VTM), interest rate (5 per cent to 25 per cent) and equity to debt ratio (0 per cent to 90 per cent). The economics are quite robust, maintaining positive cash flows even over protracted and extremely unfavourable conditions. The most sensitive assumption remains the VTM selling price, which will be dictated by the contract with a non-arm's-length processing metallurgical facility. The decision to dissociate VTM production at the mine site from vanadium extraction of the VTM is based on the premise that the contemplated process is currently being developed and its economic outcome is currently too speculative to be included in the current study.
Mr. Bakker added: "We were intentionally very careful in our selection of base-case input parameters. The positive base-case economics are based on conservative, industry standard assumptions for all key inputs. Including all reasonable, potential and future outcomes, the sensitivity analysis demonstrates robust project economics. For example, if the Canadian dollar was to reach par with the U.S. dollar, or if magnetite price was to drop to $80 (U.S.) per ton, the project still has posttax internal rates of return of 7.9 per cent and 8.85 per cent, respectively. Although less attractive, such unfavourable economic conditions will still maintain the project profitability."
Intensive smelting of VTM currently accounts for 73 per cent of the world's vanadium production, with vanadium being only a byproduct of smelting. Consequently, most steel and vanadium smelting plants outside of China and Russia are currently troubled or shut down. Difficulties with this process reside in the elevated cost of steel production compared with conventional blast furnaces, which cannot be compensated by the credits from the slag. Similarly, the conventional salt roasting process, used by every primary vanadium producer, has been demonstrated as not economically robust in the current stringent environmental regulation and harsh climatic conditions, and disregarded.
Since late December, 2016, Vanadiumcorp initiated a partnership with Electrochem Technologies and Materials Inc. (Montreal, Que.) to assess the metallurgical and chemical processing of the vanadiferous magnetite from Lac Dore at Electrochem's facilities located in Bourcherville, Que. Testing of the Vanadiumcorp-Electrochem digestion process on Lac Dore VTM produced pure vanadium chemicals, copper and titanium dioxide. Then, copper can be converted using Electrochem's vertically integrated patented electrochemical technology (Canadian patent CA 2,717,887 C) to produce 99.9-per-cent-pure electrolytic iron and to regenerate acid. The novel patentpending chemical technology (U.S. provisional patent application U.S. 62/463,411) is jointly owned by Vanadiumcorp Resources (50 per cent) and Electrochem Technologies and Materials (50 per cent).
"Vanadium electrolyte remains in short supply globally as the most critical component of vanadium redox flow batteries (VRFBs), and VTM remains the only abundant primary source of it. Direct processing of magnetite concentrate would help address the industry need to stabilize the variable nature of vanadium market, which is largely a function of outdated smelting and roasting methods of production in use today," added Mr. Bakker, president and chief executive officer of Vanadiumcorp. "Our decision to produce magnetite concentrate dedicated to our proprietary process, rather than take the conventional route, is a conservative base case that decreases sensitivity to specific commodity pricing and provides ideal feedstock for our low-carbon-footprint process technology. Direct transformation of all three products (vanadium chemicals, iron and titanium dioxide) provides a distinct advantage in the fastest-growing segment of all the vanadium compounds known as vanadium electrolyte. Vanadium electrolyte is a critical battery material that can be reused indefinitely and has far reaching benefits for a sustainable future."
The chemical and electrochemical processes invented and currently tested by Dr. Francois Cardarelli, president of Electrochem Technologies and Materials would be the cleanest process for the production of vanadium chemical, as well as for production of pure iron for the steel or manufacturing industry. As the process does not involve carbon-based pyrometallurgy, it will generate a minimum amount of greenhouse gas emissions, as well as very little residues. Its power consumption is estimated at about half of that involved in smelting or roasting processes.
About 120 workers will be required to support the mine operation, which can all be drawn from local communities. Chibougamau being a former mining town, the population is acquainted to mining activity and anticipated to be supportive of the project.
The results of the current PEA will be used to justify systematic drilling to upgrade the resource, as well as to test Vanadiumcorp-Electrochem chemical technology and Electrochem's electrochemical technology at a pilot-plant scale. The PEA further aims to evaluate the economics of developing the project for the production of vanadiferous titanomagnetite (VTM) concentrate, to be used or sold for its processing.
Vanadiumcorp will be filing a National Instrument 43-101 technical report on the Lac Dore 2017 PEA within 45 days of this news release.
Qualified persons
The Lac Dore 2017 PEA was prepared by IOS and is based on a mineral resource estimate for the Lac Dore vanadium project published as a National Instrument 43-101 technical report with an effective date of May 21, 2015. The qualified persons listed in the attached qualified persons table have participated in the development of the PEA or are responsible for specific inputs into the PEA.
QUALIFIED PERSONS
Qualified person Company Responsibility
Rejean Girard, PGeo IOS Geoscientifiques Inc. Project management, economic analysis, costs,
infrastructure and logistics
Christian D'Amours, PEng Geopointcom Inc. Resource estimations
Jonathan Lapointe, PIng MetChib Services Metallurgiques Inc. Crushing, milling and beneficiation circuit design
Eric Larouche, PIng IOS Geoscientifiques Inc. Infrastructure design
This release was approved by Mr. Girard, PGeo, independent consultant to Vanadiumcorp. Mr. Girard is a qualified person as defined by National Instrument 43-101. Portions related to the resource estimation have also been approved by Mr. D'Amours, PGeo, independent consultant to Vanadiumcorp, a qualified person as defined by National Instrument 43-101.
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