Mr. Michael Williams reports
VENDETTA ANNOUNCES POSITIVE PRELIMINARY ECONOMIC ASSESSMENT WITH PRE-TAX IRR OF 31% AND NPV (8%) OF $204M ON PEGMONT LEAD-ZINC PROJECT
Vendetta Mining Corp. has released the results of an independent preliminary economic assessment for its Pegmont lead-zinc project in Queensland, Australia. The preliminary economic assessment was prepared in accordance with National Instrument 43-101 -- Standards of Disclosure for Mineral Projects.
The preliminary economic assessment was developed by a team of independent consultants, including AMC Mining Consultants (Canada) Ltd., GR Engineering Services (GRES) and AARC Environmental Solutions. Unless otherwise noted, all dollar figures reported are in Australian dollars.
Project economic highlights:
- Mine life of 10 years at 3,000 tonnes per day, open pit followed by underground;
- Long-term consensus metal prices -- 94 cents per pound lead, $1.09 per pound zinc and $16.50 per ounce silver;
- U.S. dollar to Australian dollar exchange rate of 0.75;
- Preproduction capital of $170-million and life-of-mine sustaining capital of $59-million;
- Pretax net present value (8 per cent) of $201-million and internal rate of return of 32 per cent;
- After-tax net present value (8 per cent) of $124-million and internal rate of return of 24 per cent;
- After-tax payback period of 3.5 years;
- Spot price case after-tax net present value (8 per cent) of $158-million and internal rate of return of 27 per cent;
- Spot price case after-tax payback period of three years;
- Average annual production of 124 million pounds of lead, 50 million pounds of zinc and 298,000 ounces of silver;
- Life-of-mine all-in sustaining cash cost (AISC) of 71 cents per pound payable lead in concentrate (after credits);
- Average net smelter return (NSR) of 135 per tonne of ore;
- Opportunities for continued refinement through further mine plan optimization and metallurgical testwork;
- There remain significant mineral resources not included in the preliminary economic assessment mine plan, which, with further drilling, will potentially increase either the mine life or production rate.
Michael Williams, Vendetta's president and chief executive officer, commented: "The results outlined in the PEA demonstrate a robust, stand-alone project. The project has been able to take advantage of Pegmont's location in the centre of well-developed infrastructure to deliver a prestart capital that makes this an achievable project to develop for an aspiring junior miner. We are pleased with the strong results of the PEA, and intend to now move to add incremental tonnes that can be brought into the mine plan, continue with early permitting work and expand exploration efforts. In addition to extracting more value out of the project, Vendetta will move forward with evaluating value-adding opportunities in the region. The PEA demonstrates low-risk economics and well-established mining and milling techniques in a stable and supportive jurisdiction."
Project technical and financial details
Economic results and sensitivities
The attached table summarizes the key economic inputs. Base case metal prices and exchange rates are based on institutional consensus pricing. Income and other taxes presented in the preliminary economic assessment are preliminary, based on general Australian corporate tax rates and do not reflect any tax planning opportunities.
SUMMARY OF KEY ECONOMIC INPUTS AND RESULTS
Inputs Unit Base case Spot case
Zinc price U.S.$/lb $1.09 $1.18
Lead price U.S.$/lb $0.94 $0.91
Silver price U.S.$/oz $16.50 $15.31
Discount rate % 8 8
Exchange rate U.S.$:A$ 0.75 0.71
Payable metal -- lead % 95 95
Payable metal -- zinc % 85 85
Minimum deduction -- lead % 3 3
Minimum deduction -- zinc % 8 8
Australian corporate tax % 30 30
Pretax economics NPV at 8% $M 201 249
IRR % 31 37
Payback period Years 2.7 2.4
After-tax economics LOM cash flows (undiscounted) $M 288 343
NPV at 8% $M 124 158
IRR % 24 27
Payback period Years 3.5 3.0
LOM payable metal Lead Mlb 1,069 1,069
Zinc Mlb 317 317
Silver Moz 1.1 1.1
Costs Cash cost $/lb payable lead 0.65 0.60
AISC cost $/lb payable lead 0.71 0.66
As indicated in the attached table, project cash flow and net present value are particularly sensitive to changes in exchange rate and lead price, while relatively less sensitive to changes in zinc price, operating expenditures and capital expenditures. The attached table shows the effect on the after-tax economics of the project of increasing or decreasing metal prices, capital and operating costs, and exchange rates against the disclosed base-case assumption.
AFTER-TAX NPV (8 PER CENT) SENSITIVITIES
Input Input factor
85% 90% 95% 100% 105% 110% 115%
Lead price (U.S.$/lb) 42.7 70.0 97.3 124.4 151.1 177.8 204.5
Zinc price (U.S.$/lb) 95.3 105.1 114.8 124.4 134.0 143.6 153.2
Capex (life of mine) 145.9 138.7 131.6 124.4 117.1 109.7 102.2
Opex (per tonne milled) 174.9 158.1 141.2 124.4 107.4 90.2 73.1
Exchange rate (U.S.$:A$) 234.7 197.9 161.2 124.4 87.1 49.5 12.0
Capital and operating cost estimates
Initial and sustaining capital
GRES provided capital estimates for all project infrastructure, mineral processing, bore field, gas pipeline, camp, fuel storage, offices and workshops. Equipment pricing was based on quotations and actual equipment costs from recent, similar GRES projects considered representative of the project. The capital estimate is deemed to be of a level of accuracy consistent with industry standards for a preliminary economic assessment. Underground sustaining capital, including decline access, ventilation and electrical, was estimated by AMC, based on benchmarked data.
Contingencies were applied to the capital cost estimate as an allowance by assessing the level of confidence in the engineering estimate basis and vendor or contractor information.
INITIAL AND SUSTAINING CAPITAL
Area Initial ($M) Sustaining ($M) Total ($M)
Site infrastructure (on and off site) 39.6 1.2 40.8
Mineral processing 69.9 2.1 72.0
Mining (establishment and underground) 18.3 37.0 55.3
Project indirects (EPCM and owner costs) 32.3 - 32.3
Closure - 14.5 14.5
Contingencies (mine, process and infrastructure) 10.3 3.9 14.2
Total project 170.3 58.7 229.0
Operating costs
Operating costs were estimated by GRES and AMC. The operating costs are summarized in the attached table.
OPERATING COST SUMMARY
Area Units Cost
Open-pit mining $/tonne mined $3.08
Underground mining $/tonne mined $50
Processing $/tonne milled $26.30
Common site G&A $/tonne milled $6.24
All-in opex $/tonne milled $74.30
Off-site charges
Projected treatment charges (TCs) and transport charges for the lead and zinc concentrates were provided to AMC by Ocean Partners, a specialist consultant and trader in base metal concentrates.
Off-site charges include concentrate transport to smelters located in Mount Isa (lead) and Townsville (zinc), treatment and refining charges, and potential penalties, as shown in the attached table.
OFF-SITE COST SUMMARY
Off-site charges Units Lead concentrate Zinc concentrate
Transport to smelter $/wmt concentrate $50 $100.58
Smelter treatment charge U.S.$/dmt concentrate $165 $181
Silver refining U.S.$/oz $0.80 $0.80
Minimum deduction Units 3 8
Lead in zinc concentrate U.S.$/dmt concentrate - $2/1% lead > 3.5%
Chloride plus fluorine penalty U.S.$/dmt concentrate $2/100 ppm Cl plus F > 500 ppm -
Iron penalty U.S.$/dmt concentrate - $1.50/1% iron > 9%
Mineral resource update
The basis for the preliminary economic assessment is the mineral resource estimate completed by AMC. The company reported details of the mineral resource update in a news release dated Aug. 9, 2018. The attached table summarizes the current mineral resource, including those mineral resources that were not included in the preliminary economic assessment mining inventory. Full details of the mineral resource estimate are detailed in the technical report.
The company continued to drill subsequent to the effective date. Results from these additional holes and future planned programs will be used in future updates to the mineral resource. Assay results have been released and will be described in the technical report.
2018 MINERAL RESOURCE ESTIMATE AS OF JULY 31, 2018
Classification Material type Tonnes (kt) Pb (%) Zn (%) Ag (g/t)
Indicated Transition 1,111 4.9 2.3 8
Sulphide 4,647 6.9 2.6 12
Total 5,758 6.5 2.6 11
Inferred Transition 1,829 5.2 2.0 7
Sulphide 6,447 5.1 3.1 9
Total 8,277 5.1 2.8 8
Mine planning
AMC utilized the Geovia Whittle pit optimization process to define ultimate pit limits. The mine scheduling package Minemax was then used to target the most economic ore early in the mine life, with constraints applied for the timing of in-pit tailings storage.
The open pit has been designed to be a conventional contractor truck-and-shovel operation. Average open-pit mining recovery and dilution applied were 95 per cent and 5 per cent, respectively. Material is delivered by haul truck to a run-of-mine (ROM) pad to be loaded into the primary crusher, with discharge from the crusher conveyed to a coarse stockpile adjacent to the mill.
Mining commences in the Burke Hinge zone pit (BHZ), a satellite pit to the main zones, which allows for 410,000 tonnes of sulphide and 80,000 tonnes of transition plant feed to be stockpiled on the ROM pad for the start of processing. Mining then moves to another separate pit, Main 1, followed by Main 2 and a pushback into Main 3 to complete the locations for life-of-mine in-pit tailing storage. The largest pit has four stages (Main 4 to Main 7).
The open-pit contractor mining fleet includes 90-tonne class trucks, loaded by 200-tonne diesel-hydraulic shovels. Drill and blast will be undertaken with track-mounted drill rigs drilling 150-millimetre holes. Explosives are planned as downhole service by an explosives supplier. Haul roads are designed to be 23 metres wide to allow for two-way traffic at a maximum gradient of 10 per cent. Where possible, waste is also placed onto in-pit dumps to reduce overall costs.
Over the mine life, a total of 8.9 million tonnes of material is sent to the mill from the open pits, as well as a total waste movement of 110.8 million tonnes, for a life-of-mine strip ratio of 12.5:1.
The underground areas were assessed by comparing open-pit value with the value generated using the Datamine mine shape optimizer (MSO) software. The combined value at each depth then determines the maximum value. The underground mineral resources are primarily flat dipping (23 degrees to 30 degrees) and vary in thickness across each zone (three metres to 12 metres), lending themselves to room and pillar mining. The more steeply dipping portions of zone 3 are suitable for longhole open stoping. Three separate areas could be optimally mined from underground: one directly beneath the main pit (zone 3A), one to the side of the main pit (zone 3B) and the Bridge zone.
A minimum 20-metre crown pillar is left between the pit and stopes. For room and pillar extraction, AMC has applied a dilution factor of 10 per cent at zero grade to the mineral resource. A mining recovery factor of 86 per cent has been applied to the stopes. For longhole mining, AMC has applied a dilution factor of 12 per cent at zero grade to the mineral resource and a mining recovery factor of 95 per cent to the stopes. Longhole stopes are backfilled with waste rock.
Contractor mining using trackless diesel loaders and trucks as well as diesel-electric drilling equipment is planned. Declines provide fresh-air intake, with each panel having a ventilation shaft fitted with a primary exhaust fan on surface.
Open-pit mining accounts for 84 per cent, or 8.9 million tonnes, and underground for 16 per cent, or 1.7 million tonnes, of the total 10.6 million tonnes of material processed.
The mineral resource used for the preliminary economic assessment mine design does not include any of the zone 5 resource, which is included in the mineral resources above (please see attached table). Screening work indicated that this zone needs to be expanded to arrive at a potential extraction strategy, with the possibility that these resources may ultimately be brought into a future mining plan.
Processing
Two metallurgical testwork programs have been conducted on samples from Pegmont, as reported by the company on March 6, 2017, and March 5, 2018, and summarized in the attached table. The later testwork is more detailed locked-cycle testwork on the zones forming the basis of the mining inventory of the preliminary economic assessment, and was used as the basis for developing the process design criteria for the preliminary economic assessment.
RECOVERIES AND CONCENTRATE GRADES BY ZONE MINED IN THE PEA
Zone Test type Bond ball millwork index (kwh/t) Lead concentrate Zinc concentrate
Pb recovery (%) Pb grade (%) Zn recovery (%) Zn grade (%)
Sulphide
Zone 1 Locked cycle 18.4 91.8 66.3 75.5 54.5
Zone 2 Locked cycle 20.9 90.8 67.8 71.3 54.9
Zone 3 Locked cycle 20.1 89.7 68.2 73.7 54.8
Bridge zone Locked cycle 19.1 92.7 68.0 70.4 52.3
BHZ Locked cycle 16.6 91.5 70.6 61.8 50.7
Transition
Zone 1 Locked cycle - 91.3 72.5 75.2 53.3
BHZ Open cycle - 80.6 57.0 19.3 48.9
The process plant operating costs were developed by GRES, based on a design processing rate of 3,000 tonnes per day of material for the flotation plant. The plant will normally operate 24 hours per day, 365 days per year.
A conventional sequential flotation circuit has been selected for the recovery of the lead and zinc minerals from the Pegmont deposit.
The process plant shall consist of a conventional three-stage crushing and a single-stage ball mill grinding circuit, followed by differential flotation of the lead and zinc minerals to produce separate, saleable lead and zinc concentrates. The concentrates from the lead and zinc flotation circuits will be thickened and subsequently filtered on site for road transport to off-site smelters.
The lead concentrate will be transported by road to Mount Isa, while the zinc concentrate will be transported by road to a rail siding located at the nearby town of Malbon, and then transported by rail to Townsville, Queensland. The containerized transport of concentrate and rail loading infrastructure will allow the transport of lead and/or zinc concentrate to alternative smelters out of the port of Townsville, if commercially more advantageous to do so.
Tailings from the flotation plant will be thickened to approximately 53 per cent solids by weight. Water recovered in the tailings thickener will be recycled to the process plant. Tails will be disposed of in mined-out open pits.
Broken Hill-type deposits typically have iron in the zinc concentrate, attracting a penalty when present at over 9 per cent. Iron in zinc concentrate ranges from 5.5 per cent to 11 per cent in the zones at Pegmont. Fluorine plus chlorine attract a penalty in the lead concentrate over 500 parts per million; this is below detection limits for standard geochemical analysis for fluorine. Precise fluorine analysis is pending for most of the preliminary economic assessment mine plan. Precise fluorine assayed 50 parts per million and 147 parts per million in BHZ transition and sulphide, respectively. In the absence of precise fluorine analysis in the other zones, flourine levels of 500 parts per million were assumed. Cadmium is present in the zinc concentrates at levels of between 2,740 parts per million and 3,830 parts per million in the preliminary economic assessment mine plan; it attracts a penalty over 4,000 parts per million, hence no penalty is applied.
Infrastructure
Access
Road access to the project is via public roads from the Selwyn Toolebuc road, approximately 130 kilometres south-southeast of Cloncurry.
The preliminary economic assessment includes developing a 10.5-kilometre all-weather unsealed road, 3.2 kilometres of which is new and includes a crossing of Sandy Creek from the Selwyn Toolebuc road to the plant, which then continues onto the accommodation village.
The project will be a fly-in-fly-out operation, with flights from Townsville to the existing Osborne Airport, a fully sealed, all-weather airport that is capable of servicing jet-powered aircraft and currently servicing Chinova's Osborne operations.
Power
Located approximately 16 kilometres to the south of the project is a high-pressure natural gas pipeline, the Cannington Lateral, which provides gas to the Osborne and Cannington mine sites. The line runs from the main north-south line supplying Mount Isa. A 16-kilometre-long spur line is planned to supply Pegmont with natural gas for power generation.
Electrical power for the operation will be gas-fired generator sets, estimated to be an average load of 6.1 megawatts for the processing plant and associated services, and excludes the future underground mining requirement. Electrical power will be generated by gas-fired generator sets, each rated at 2,500 kilowatts at full load and expected to run at 80 per cent load and 2,000 kilowatts each. Including mining and camp demand power, nominally four sets will be required to be running, with five sets installed for demand and standby application.
Process water
Process water shall comprise recovered water from the tailings thickener, return water from the tailings storage facility and topped up by raw water from a bore field. Both the Osborne and Cannington mines obtain process water from bore fields located in the Great Australian Artesian basin. The preliminary economic assessment contemplates constructing a bore field comprising five bores sunk in the Great Australian Artesian basin, reporting to a transfer tank, and then be pumped via a 27-kilometre-long pipeline and stored in a 1,000-cubic-metre raw water tank located adjacent to the process water pond. No specific groundwater investigation for process water was performed for the preliminary economic assessment.
Airstrip, camp and services
During construction, rooms at the existing 300-person Osborne camp will be rented from Chinova. A new 204-person accommodation village will be built to the north of the project and shielded from both noise and light by a series of local hills. The village is located approximately two kilometres from the processing plant, providing ease of access for personnel.
Communications to the project are planned to be provided by installing a spur (approximately 16.6 kilometres long) of the existing Telstra fibre optic cable, which runs in parallel to the high-pressure gas line, offset by 150 metres.
Potable water will be generated on site from the raw water supply via a reverse osmosis plant before being pumped to the plant and mining amenities, as well as the accommodation village.
A separate packaged sewerage treatment system will be installed to treat both the accommodation village and the processing plant/mining demands.
Diesel fuel for light vehicles and the mining fleet is stored in self-bunded modular tanks.
Closure planning
The project will remove and stockpile topsoil from mining and infrastructure areas for use in reclamation work. Waste dumps, including in-pit dumps above pit lake water level, will be resloped and topsoil spread prior to revegetation. In-pit tails areas, once stable, will be capped with waste rock and sloped to shed water off the tails area, and topsoil will be spread prior to revegetation. A closure bund will be placed around the pits.
Opportunities for project enhancement
Additional optimization studies are anticipated to improve the overall economics. Specific areas of advancement include:
- Geostatistical review of the mineral resource estimate, investigating grade envelope definition;
- Further infill drilling with diamond core;
- Additional metallurgical testwork to advance optimization of recovery, including variability testwork;
- Investigate postprimary crusher material sorting;
- Investigate flash flotation of lead and optimal grinding size to improve zinc floatation;
- Reduce reagent and collector dosages to reduce mill opex;
- Mining, waste dump placement, scheduling of open-pit and underground interaction, and more detailed underground mine planning.
Permitting
The Pegmont project will be subject to federal, state and local regulatory requirements. A new mining licence covering parts of the existing exploration permit will be required. At the same time, application for infrastructure mining licences over the bore field pipeline and gas pipeline corridor will be made. The applications trigger a right-to-negotiate process with the native title party and landholder compensation negotiations. ARC Environmental Solutions has undertaken flora and fauna baseline surveys over parts of the project located on the exploration permit and the mining licences, indicating no threatened flora or fauna species are present. Baseline flora and fauna surveys will need to be expanded to include the infrastructure corridor containing the bore field water and gas pipelines, as well as the fibre optic telecommunication cable. Other baseline surveys and cultural heritage surveys over the project area will be required.
Project development requires the existing environmental authority will be amended by way of an environmental impact assessment (EIA), describing the project design, baseline results and potential impacts.
About Vendetta Mining Corp.
Vendetta Mining is a Canadian junior exploration company focused on advanced-stage exploration and development at the Pegmont lead-zinc project in Australia. Vendetta has an option to acquire a 100-per-cent interest by completing certain work requirements as well as making option and advance royalty payments.
Qualified persons and technical report
Peter Voulgaris, MAIG, MAusIMM, a director of Vendetta, is a non-independent qualified person as defined by National Instrument 43-101. Mr. Voulgaris participated in the preparation of the mineral resource update and preliminary economic assessment. Mr. Voulgaris has reviewed the technical contents of this press release and consents to the information provided in the form and context in which it appears.
The following qualified persons, under the terms of NI 43-101, participated in the preparation of the technical report and have reviewed the technical contents of this press release for the Pegmont project. The qualified persons consent to the information provided in the form and context in which it appears.
Geology and mineral resource
John Morton Shannon, PGeo, principal geologist at AMC Mining Consultants (Canada), is an independent qualified person, as defined in NI 43-101.
Dinara Nussipakynova, PGeo, principal geologist at AMC Mining Consultants (Canada), is an independent qualified person, as defined in NI 43-101.
Mining
Philippe Lebleu, PEng, principal mining engineer at AMC Mining Consultants (Canada), is an independent qualified person, as defined in NI 43-101.
Gary Methven, PEng, principal mining engineer at AMC Mining Consultants (Canada), is an independent qualified person, as defined in NI 43-101.
Infrastructure, metallurgy and mineral processing
Brendan Mulvihill, MAusIMM, CP (metallurgy), senior process engineer at GR Engineering Services, is an independent qualified person, as defined in NI 43-101.
A technical report titled, "Pegmont Project Mineral Resource Update and Preliminary Economic Assessment," and prepared in accordance with NI 43-101 will be filed on SEDAR within 45 days of this news release. For the final full details and further information with respect to the key assumptions, parameters and risks associated with the results of the preliminary economic assessment, the mineral resource estimates included therein and other technical information, please refer to the complete technical report to be made available on SEDAR.
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