Capstone Reports Results of Preliminary Economic Assessment on Kutcho
Copper-Zinc Project, BC
Report Benchmarks Development Potential & Key Opportunities for High
Grade Underground Copper-Zinc Mine
"The Kutcho Preliminary Economic Assessment takes a radically different approach to the potential development of the Kutcho copper project," said Stephen P. Quin, President & COO of Capstone. "By going underground, scaling back the throughput and focusing on high grades, we have been able to reduce the capital cost and operating costs and, equally as important, significantly reduce the environmental footprint of the project," he said. "With annual production forecast at approximately 34 million pounds of copper and 42 million pounds of zinc, along with by-product silver and gold, total cash costs* after by-product credits fall to US$1.41 per pound of copper. Opportunities for further optimization have been identified, particularly improved metallurgical recoveries and lower cost power, which now can be pursued."
Highlights of PEA
-----------------
The PEA brings the Kutcho Project significantly closer to a viable
development option and identifies key areas that remain to be assessed that
could provide further reductions in costs and improved recoveries, and provide
an attractive development opportunity. These enhancements will be the key
focus in the immediate future. Following are the highlights of the Kutcho PEA:
- Pre-production capital costs of C$133.5 million, including a 15%
contingency;
- Small scale open pit followed by underground extraction of the
majority of the mill feed;
- Mill feed of 10.9 million tonnes with an average grade of 2.01%
copper, 2.80% zinc, 29.8 grams per tonne ("g/t") silver and 0.36g/t
gold, of which 10.1% is in the inferred category (see comments
below);
- Average annual throughput of 2,500 tonnes per day over a 12 year mine
life producing separate copper and zinc concentrates, with by-product
gold and silver reporting to the copper concentrate;
- Average annual production of 33.9 million pounds of copper,
41.7 million pounds of zinc, 2,858 ounces of gold and 454,000 ounces
of silver in concentrates over the 12 year mine life;
- Unit operating costs of C$72.26/tonne milled;
- Total cash costs* of US$1.41 per pound of payable copper, net of
by-product credits and including selling costs;
- Significantly reduced environmental footprint as a result of almost
totally eliminating open pit mining, using tailings and waste for
backfill underground, and utilization of encapsulated dry-stack for
tailings that are stored on surface, as well as other improvements;
- Defined opportunities for further optimization post-PEA, including
improved metallurgical performance and reduced power costs that
could, combined, further enhance the project economics;
- The PEA recommends focusing on efforts to crystallize the power and
metallurgical recoveries prior to advancing to a preliminary
feasibility study;
- The PEA further recommends using the PEA as a basis to re-engage the
regulators and project stakeholders in order to better understand the
permitting and approval requirements for this significantly different
approach to project development.
* This is a non-GAAP performance measure and readers should refer to
Non-GAAP Performance Measures note at the end of this news release
for further details.
Kutcho Preliminary Economic Assessment Summary
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The PEA was compiled by JDS Energy & Mining Inc. ("JDS") for Kutcho Copper
Corporation ("Kutcho Copper"), a wholly owned subsidiary of Capstone Mining
Corporation ("Capstone").
Changed Approach
The PEA supercedes and replaces prior development options, which should no
longer be relied upon. The principle changes from prior studies include the
following:
1. Inclusion of updated mineral resource estimate for the Main, Esso and
Sumac deposits, as announced February 9, 2009 that incorporated the
results of 83 new holes drilled in 2008 within the Main deposit;
2. Underground development of the Main and Esso deposits, with only a
small starter open pit, as compared to the open pit only or large
open pit and satellite underground options reported previously;
3. Reduction in the milling rate to 2,500 tonnes per day ("tpd") as
compared to the 4,000tpd to 6,000tpd forecast previously;
4. Improved waste management plan, using tailings for paste backfill
underground resulting in reduced dry-stacked tailings on surface, and
storage of development waste as backfill underground; and
5. Significantly reduced area of disturbance.
Geology & Mineralization
Kutcho property contains three known Kuroko-type volcanogenic massive sulphide ("VMS") deposits. They are aligned in a westerly plunging linear trend and from east to west they are called the Main, Sumac, and Esso deposits. The largest of the three, the "Main" deposit, comes to surface near the eastern end of this trend, whereas the "Esso" deposit occurs at depths about 400-600m below surface at the western or down plunge end of the trend as it is currently known. The Sumac deposit lies between the Main and Esso deposits both laterally and vertically, but has seen only cursory drilling. The mineralized trend is open down plunge but is poorly explored.
Mineral Resources
The mineral resources for the Kutcho Project were estimated by
Kutcho Project - Mineral Resource Estimate at a 1.5% Copper Cut-Off
for All Deposits (1)
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Grade Contained Metal
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Copper Zinc Sil-
Class Tonnes Copper (mill- (mill- Gold ver
(000's) Copper Zinc Gold Silver Equiv. ions ions (000s (000s
(%) (%) (g/t) (g/t) (%)(2) lb) lb) oz) oz)
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Measured
(M) 5,421 2.15 2.86 0.34 31.4 3.70 256.6 341.8 59 5,482
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Indicated
(I) 4,994 2.14 2.83 0.39 33.5 3.74 235.8 312.0 62 5,376
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M & I 10,415 2.14 2.85 0.36 32.4 3.72 492.4 653.8 121 10,857
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Inferred 1,893 2.09 2.93 0.46 33.6 3.78 87.3 122.4 28 2,047
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(1) Numbers may not total due to rounding
(2) Equivalent copper grade calculated using these metal prices in US$:
Cu equals $1.50/lb, Zn equals $0.50/lb, Ag equals 12.00/oz, Au equals
$700.00/oz
Metallurgy
As is not uncommon for VMS deposits, the mineralogy of the deposits comprising the Kutcho Project is fine grained and requires a relatively fine primary grind followed by a very fine regrind to produce copper and zinc concentrates at reasonable recoveries and concentrate grades. Extensive test work has been carried out by various owners evaluating a number of metallurgical options, including a preliminary set of tests at SGS Lakefield carried out under Kutcho Copper's direction on pre-2008 core that had been stored in freezers to minimize the risk of oxidation. Based on this test work, the PEA uses the following parameters.
Kutcho Project - Metallurgical Recoveries used in PEA
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Assumed Assumed Copper Assumed Zinc
Metal Recovery Concentrate Grade Concentrate Grade
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Copper 84% 30.3%
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Zinc 74% 4.0% 53%
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Gold 27% 1.76g/t
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Silver 52% 280g/t
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As discussed in the opportunities section below, there is potential to improve metallurgical performance, which could benefit the project economics. All core drilled in 2008 is stored in non-oxidizing conditions and is available for the next round of test work.
Mine Plan
The mining resource is summarized by deposit and mining method in the table below. The Main and Esso deposits vary in dip from 30-70 degrees and in width from 3-20m. The Main deposit essentially outcrops on surface and extends to depth of approximately 250m below surface, while the Esso deposit lies approximately 1,500 m to the west and extends to a depth of 400-600m below surface.
A small starter pit will be pre-stripped in Year -1 and will provide ore in Year 1 while the underground mine is being developed. Two underground mining methods are proposed: mechanized cut & fill ("MCF") for the shallow dipping mineralization, and sublevel long-hole ("LH") stoping with backfill for those blocks amenable to bulk mining. The initial pre-production development period is estimated to 18 months. Mine production ramps up to 2,500tpd during the first year from the Main deposit, while production from the Esso deposit commences in Year 5 and continues into Year 9, with Years 10-12 coming only from the Main deposit.
Kutcho Project - Mining Resource used in PEA
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Mining Area &
Method* Tonnes Cu % Zn % Ag g/t Au g/t Eq. Cu %
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Main LH 3,056,439 1.84 2.41 27.89 0.29 2.94
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Main MCF 4,793,260 1.98 2.64 28.31 0.31 3.18
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Esso LH 1,436,238 2.10 3.43 34.46 0.45 3.66
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Esso MCF 1,209,563 2.49 4.08 37.45 0.61 4.35
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Main - Starter Pit 446,215 1.88 1.64 23.86 0.26 2.65
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Grand Total 10,941,715 2.01 2.80 29.80 0.36 3.28
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Of the material within the mine plan, 21.1% is measured, 68.8% is indicated and 10.1% is in the inferred category. Mineral Resources that are not mineral reserves do not have demonstrated economic viability. Mineral resource estimates do not account for mineability, selectivity, mining loss and dilution. These mineral resource estimates include inferred mineral resources that are normally considered too speculative geologically to have economic considerations applied to them that would enable them to be categorized as mineral reserves. There is also no certainty that these inferred mineral resources will be converted to measured and indicated categories through further drilling, or into mineral reserves, once economic considerations are applied.
Production Summary
Life of mine production is summarized below.
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Production Year
Parameter Unit Total --------------------------------------------
1 2 3 4 5
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Mill Feed Kt 10,941.7 904 913 913 913 913
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Copper % 2.01% 2.01% 2.03% 2.03% 1.94% 2.09%
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Zinc % 2.80% 2.08% 2.65% 2.69% 2.50% 3.27%
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Gold g/t 0.36 0.36 0.29 0.29 0.32 0.40
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Silver g/t 29.80 27.07 29.07 29.12 28.04 31.74
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Cu Con
Produced dmt 608,876 50,390 51,302 51,244 49,135 52,960
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Zinc Con
Produced dmt 428,288 26,254 33,791 34,250 31,855 41,695
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Copper in
Cu Con M lbs 406.7 33.7 34.3 34.2 32.8 35.4
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Gold in
Cu Con oz 34,298 2,796 2,274 2,312 2,507 3,203
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Silver in
Cu Con oz 5,450,549 409,238 443,431 444,200 427,824 484,170
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Zinc in
Zn Con M lbs 500.4 30.7 39.5 40.0 37.2 48.7
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Production Year
Parameter --------------------------------------------------------------
6 7 8 9 10 11 12
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Mill Feed 913 913 913 913 913 913 913
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Copper 2.17% 2.13% 2.11% 2.00% 1.95% 1.81% 1.81%
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Zinc 3.44% 3.22% 3.19% 3.07% 2.61% 2.46% 2.45%
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Gold 0.44 0.44 0.44 0.39 0.37 0.30 0.30
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Silver 33.16 33.67 33.15 29.46 29.58 26.82 26.65
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Cu Con
Produced 54,978 53,854 53,409 50,585 49,410 45,835 45,775
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Zinc Con
Produced 43,790 41,043 40,644 39,077 33,243 31,381 31,264
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Copper in
Cu Con 36.7 36.0 35.7 33.8 33.0 30.6 30.6
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Gold in
Cu Con 3,500 3,520 3,467 3,114 2,913 2,355 2,337
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Silver in
Cu Con 505,923 513,682 505,778 449,487 451,206 409,097 406,513
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Zinc in
Zn Con 51.2 48.0 47.5 45.7 38.8 36.7 36.5
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Waste Management Plan
A significant enhancement in the PEA over prior studies is the waste management plan, which should result in significantly reduced surface disturbance and a considerably enhanced abandonment and restoration plan. Tailings, after extraction of recoverable metals, will be either filtered and disposed of underground as paste backfill or filtered and dry stacked within a lined facility in order to minimize potential leakage or oxidation. There will be no conventional tailings storage involved and the tailings facility will be located well away from natural drainages. The underground mine development will generate waste rock, the majority of which is expected to be not potentially acid generating ("non-PAG") rock and will be used to construct civil works and the tailings berm. The remainder of the non-PAG waste and all of the potentially acid generating ("PAG") waste will be stored underground. The small starter pit will be backfilled with tailings and likely covered with non-PAG waste to eliminate potential for acid generation.
Environmental Considerations
The Kutcho Project is not permitted for development or production. The PEA will be used as the basis to re-engage the regulators and stakeholders, including the potentially affected First Nations, in order to re-initiate the permitting process.
Capital Cost
Direct capital costs were estimated at C$90.4 million, including C$18.0 million of off-site infrastructure. Indirect costs and a 15% contingency bring the initial capital cost to a total of C$133.5 million. With the addition of capital leases and LOM sustaining capital, the LOM total capital is estimated at C$161.5 million.
Operating Costs
Total operating costs, including capital leases as an operating expense, are estimated in the PEA as C$72.26 per tonne of ore processed, broken down as follows:
Kutcho Project - Operating Costs used in PEA
-----------------------------------------
Unit Cost
Activity/Item (C$/tonne)
-----------------------------------------
Mining $30.88
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Processing $24.45
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Administration $11.65
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Capital Leases $3.11
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Royalties $2.17
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Total $72.26
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Economic Analysis
The economic assessment in the PEA is preliminary in nature and uses inferred mineral resources that are considered too speculative geologically to have the economic considerations applied to them that would enable them to be categorized as mineral reserves, and there is no certainty that this preliminary economic assessment will be realized. The inferred mineral resource used in the mine plan is 10.1% of the total life of mine ("LOM") resource.
Two LOM price scenarios were evaluated. The "Base Case" used prices designed to approximate long term projections with no escalation or de-escalation going forward.
Kutcho Project - Base Case Metal Price Assumptions
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Production Year
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Metal Unit 1 2 3 4 5 6 7 8-12
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Copper US$/lb Cu $2.25 $2.25 $2.25 $2.25 $2.25 $2.25 $2.25 $2.25
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Zinc US$/lb Zn $0.70 $0.70 $0.70 $0.70 $0.70 $0.70 $0.70 $0.70
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Gold US$/oz Au $750 $750 $750 $750 $750 $750 $750 $750
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Silver US$/oz Ag $12.00 $12.00 $12.00 $12.00 $12.00 $12.00 $12.00 $12.00
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Case 2 contains metal pricing that is identical to the 2008 SRK Base Case
PEA in order that a direct comparison can be made between the two development
scenarios. The metal price assumptions by case are shown below. All other
"cases" are examined by use of sensitivity analysis.
Kutcho Project - Case 2 Metal Price Assumptions
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Production Year
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Metal Unit 1 2 3 4 5 6
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Copper US$/lb Cu $2.44 $2.36 $2.29 $2.22 $2.17 $2.13
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Zinc US$/lb Zn $1.02 $0.98 $0.95 $0.92 $0.92 $0.92
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Gold US$/oz Au $600 $600 $600 $600 $600 $600
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Silver US$/oz Ag $10.00 $10.00 $10.00 $10.00 $10.00 $10.00
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---------------------------------
Production Year
------------------------
Metal 7 8 9-12
---------------------------------
Copper $2.10 $2.09 $2.00
---------------------------------
Zinc $0.92 $0.92 $0.92
---------------------------------
Gold $600 $600 $600
---------------------------------
Silver $10.00 $10.00 $10.00
---------------------------------
The Canadian to $US exchange rate is held constant at a value of 1.20. The
results of the economic analysis are summarized below.
Kutcho Project - Summary of Economic Analysis
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Item Unit Base Case Case 2
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Average Copper Price US$/lb $2.25 $2.14
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Average Zinc Price US$/lb $0.70 $0.93
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Average Gold price US$/oz $750 $600
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Average Silver price US$/oz $12.00 $10.00
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Exchange rate C$:US$ $1.20:$1.00 $1.20:$1.00
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Unit Mining Costs $/t milled $30.88 $30.88
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Unit Milling Costs $/t milled $24.45 $24.45
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Unit G&A and Site Services $/t milled $11.65 $11.65
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Unit Capital Lease Costs $/t milled $3.12 $3.12
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Unit Total Operating Costs $/t milled $70.10 $70.10
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Unit Total Operating costs
(with royalties) $/t milled $72.26 $72.33
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Total Cash Costs* (after Zn,
Au, Ag credits and offsite costs) US$/lb Cu $1.41 $1.24
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Total Capital (excluding sustaining
capital, capital leases and closure) $M $133.5 $133.5
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NPV10% Pre Tax $M $63 $93
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NPV10% After Tax $M $36 $58
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IRR Pre Tax % 19% 25%
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IRR After Tax % 16% 21%
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Payback Period (After Tax) Years 5.2 4.1
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* This is a non-GAAP performance measure and readers should refer to
Non-GAAP Performance Measures note at the end of this news release
for further details.
Sensitivity Analysis
Sensitivity analysis was carried out using metal prices, mill head grade, capital costs and operating costs as variables. Each variable was changed independently. Sensitivities were generated using the NPV@10% discount rate as the measure of project performance. The net present value ("NPV") of the project is most affected by the price of metal or parameters directly affecting revenue such as metal recovery, exchange rate and head grade. Also, project performance is significantly more sensitive to Operating than Capital costs. These results identify two areas on which to focus in order to effect positive changes to economic performance of the Kutcho project. Other than metal pricing which is out of the operator's control, metallurgical recovery, and operating cost control have a marked effect. Capital costs have a relatively small impact on NPV and may be in part a result of using capital leasing to reduce the amount of preproduction capital and in effect moving these burdens to the operating side. Case 2 assumes higher initial metal prices which approximate current spot values but decrease over time to stabilize at long term prices used in the 2008 PEA base case. The boost to revenue for the first several years, due to these higher metal prices, has a positive effect on the project economics. It's also interesting to note that the high sensitivity to revenue enhancing parameters are augmented also and reinforce the needed focus on metal recoveries.
Risks & Opportunities:
Aside from the usual risk associated with the advancement of a mineral project towards a production decision, such as metal prices, resource continuity, mineability, construction risk, capital and operating cost risk, the principal risk related to the Kutcho Project is confirmation of the metallurgical parameters used in the PEA, which were based on preliminary test work completed at SGS Lakefield. Additional test work is required to confirm and potentially enhance the overall metallurgical performance of the project.
The two greatest opportunities to enhance the economics of the project are increased metallurgical recoveries and utilizing a cheaper power supply. These opportunities at Base Case metal prices have been quantified below:
1. A 10% drop in power cost, from $0.27/kWh to $0.24/kWh increases Base
Case net present value at a 10% discount rate ("NPV10%") by
C$8 million to C$44 million and the internal rate of return ("IRR")
from 16% to 17%;
2. An increase in copper recovery to 86% from 84% has the same impact,
increasing the NPV10% to C$44 million and the IRR to 17%;
3. An increase in gold recovery to 50% from 27% also has the same
impact, increasing the NPV10% to C$44 million and the IRR to 17%; and
4. Were grid power to be accessed and assuming BC Hydro's Zone II rate
of $0.126 per kWh (which would require an additional $22.4 million of
capital at site and at the Dease Lake plant), the NPV10% would
increase by C$15 million to $51 million with an IRR of 17%.
Looking Forward
---------------
With this PEA in hand, Kutcho Copper has now provided a benchmark against
which to evaluate the potential economics for the advancement and development
of the Kutcho Project. From the sensitivities and risks and opportunities
discussed above, it is clear that the emphasis needs to be on enhancing the
metallurgical performance of the Kutcho Project and evaluating options for
lower cost power.
Technical Report
----------------
The full PEA, prepared as a NI43-101 compliant Technical Report, will be filed under Capstone Mining's profile on SEDAR at www.sedar.com and available on Capstone's website at www.capstonemining.com/s/Kutcho.asp?ReportID=363270
The TSX does not accept any responsibility for the adequacy or accuracy
of this press release.
Quality Assurance
The technical information in this news release has been prepared in accordance with Canadian regulatory requirements set out in National Instrument 43-101 and reviewed by Stephen P. Quin, P. Geo., President & COO for Capstone Mining Corp.. The PEA was prepared with input from the following: Michael Makarenko, P.Eng., JDS Energy & Mining Inc.;
Forward-Looking Statements
This document may contain "forward-looking information" within the meaning of Canadian securities legislation and "forward-looking statements" within the meaning of the
Forward-looking statements relate to future events or future performance and reflect Company management's expectations or beliefs regarding future events and include, but are not limited to, statements with respect to the estimation of mineral reserves and mineral resources, the realization of mineral reserve estimates, the timing and amount of estimated future production, costs of production, capital expenditures, success of mining operations, environmental risks, unanticipated reclamation expenses, title disputes or claims and limitations on insurance coverage. In certain cases, forward-looking statements can be identified by the use of words such as "plans", "expects" or "does not expect", "is expected", "budget", "scheduled", "estimates", "forecasts", "intends", "anticipates" or "does not anticipate", or "believes", or variations of such words and phrases or statements that certain actions, events or results "may", "could", "would", "might" or "will be taken", "occur" or "be achieved" or the negative of these terms or comparable terminology. By their very nature forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Such factors include, among others, risks related to actual results of current exploration activities; changes in project parameters as plans continue to be refined; future prices of resources; possible variations in ore reserves, grade or recovery rates; accidents, labour disputes and other risks of the mining industry; delays in obtaining governmental approvals or financing or in the completion of development or construction activities; as well as those factors detailed from time to time in the Company's interim and annual financial statements and management's discussion and analysis of those statements, all of which are filed and available for review on SEDAR at www.sedar.com. Although the Company has attempted to identify important factors that could cause actual actions, events or results to differ materially from those described in forward-looking statements, there may be other factors that cause actions, events or results not to be as anticipated, estimated or intended. The Company provides no assurance that forward-looking statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements.
Accordingly, readers should not place undue reliance on forward-looking statements.
* Non-GAAP Performance Measures
"Total Cash Costs" and "Unit Total Operating Costs" are Non-GAAP Performance Measures. These performance measures are included because these statistics are key performance measures that management uses to monitor performance. Management uses these statistics to assess how the Company is performing to plan and to assess the overall effectiveness and efficiency of mining operations. These performance measures do not have a meaning within GAAP and, therefore, amounts presented may not be comparable to similar data presented by other mining companies. These performance measures should not be considered in isolation as a substitute for measures of performance in accordance with GAAP.
For further information: about Capstone, please contact: Darren Pylot, Vice Chairman & CEO, Stephen Quin, President & COO Or Investor Relations' Mark Patchett at (604) 684-8894 or (866) 684-8894, [email protected]
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