Stonegate Agricom Announces Positive Pre-Feasibility Results for Paris Hills Phosphate Project, including Pre-Tax NPV of $241.7 million and IRR of 31%
TSX: ST and ST.WT
TORONTO, March 26, 2012 /CNW/ - Stonegate Agricom Ltd. ("Company") (TSX: ST) today announced the results of its Pre-Feasibility Study for the development of an underground mine in the Lower Phosphate Zone of its Paris Hills Phosphate Project in Idaho, U.S.A. The Pre-Feasibility Study was compiled by Agapito Associates Inc. of Grand Junction, Colorado. All amounts are estimates and in U.S. dollars.
Pre-Feasibility Study Highlights:
- Production of 10 million tonnes of direct-ship, concentrate-quality phosphate rock (no beneficiation required)
- Total project financing requirements for development of $134.3 million, which includes contingency of $16.1 million and working capital of $6.5 million
- Cash operating cost of $72.99 per tonne of saleable product (FOB mine site)
- Assumed average product price of $160 per tonne (FOB mine site)
- 14-year mine life with production reaching more than 800,000 tonnes per annum in the third year and more than 1 million tonnes in the fifth year. Total production and mine life potentially could be increased as assay results of ongoing and future drilling on the property are incorporated into Mineral Reserve estimates
- Phosphate rock meets industry specifications for concentrate: life-of-mine grade averages 29.4% P2O5, Minor Element Ratio 0.07 and CaO:P2O5 ratio 1.53
- NPV (8% discount rate): pre-tax $241.7 million, after-tax $179.4 million
- IRR: pre-tax 31%, after tax 27%
Overview
"With the completion of our work on the Paris Hills Pre-Feasibility Study, Stonegate has achieved a major milestone in the development of our high-grade phosphate deposit in Idaho," said Mark Ashcroft, President and Chief Executive Officer.
"The results demonstrate that an underground Lower Phosphate Zone mine at Paris Hills would have competitive operating costs and would be well-positioned as a supplier of phosphate rock to North American fertilizer producers and/or via U.S. West Coast ports to Asian fertilizer producers.
"The Lower Phosphate Zone's high grade, ranging as high as 32% P2O5, is an important advantage for the project because the mined material will be concentrate-quality and can be shipped directly without incurring the capital or operating costs associated with a processing (beneficiation) plant that is typically required at other phosphate mines," Mr. Ashcroft added.
"Additional engineering work, laboratory testing and project analysis is currently underway and Stonegate expects to achieve its previously announced objective of completing a bankable Feasibility Study by the end of 2012."
The Pre-Feasibility Study's estimates of phosphate Mineral Reserves and Mineral Resources, which are key in determining the expected mine life, were based on assay results for drill core obtained from definition drilling at the project between September 2010 and February 2012. In the coming months, the Company plans additional definition drilling in areas on the property that it has not yet drilled, which could lead to the conversion of additional Inferred Mineral Resources into Measured and Indicated Mineral Resources, expand the amount of Proven and Probable Mineral Reserves and increase the expected mine life. An updated NI 43-101 compliant estimate of Lower Phosphate Zone Mineral Reserves and Mineral Resources is expected to be published in the second half of 2012.
The Paris Hills Pre-Feasibility Study was limited in scope to the Lower Phosphate Zone and therefore does not address the Mineral Resource or mine potential of the Upper Phosphate Zone. Assaying of the Upper Phosphate Zone core samples of recent drill holes had been delayed in order to give priority at the laboratories to the assaying of Lower Phosphate Zone core samples. The Company plans to publish a NI 43-101 compliant Mineral Resource estimate for the Upper Phosphate Zone in the second half of 2012.
Project Information
The Paris Hills Phosphate Project is wholly owned and being developed by Idaho-based Paris Hills Agricom Inc., a subsidiary of Stonegate Agricom. The property encompasses an area of approximately 1008 hectares located in Bear Lake County, Idaho, 3.2 kilometres west of the towns of Paris and Bloomington and near electrical power lines and a major highway, and 19 kilometres from rail transportation. The property's sedimentary phosphate deposit is one of the highest-grade deposits in the world and is the highest-grade deposit in the Americas among those phosphate properties that are currently being mined, explored or developed.
Stonegate acquired the property in September 2009 and began definition drilling at the property in September 2010. In August 2011, the Company released laboratory results confirming the deposit's in-situ phosphate material - obtained from core samples from 15 drill holes and without any additional processing (beneficiation) - could be used successfully as a concentrate to make phosphoric acid and end-product fertilizers diammonium phosphate (DAP) and monoammonium phosphate (MAP), which all met or exceeded minimum industry specifications. In November 2011, Stonegate published a NI 43-101-compliant technical report updating Mineral Resource estimates.
Mining Operations
The Paris Hills Pre-Feasibility Study includes a mine plan for the underground room-and-pillar mining of the horizontal limb of the Lower Phosphate Zone. Production is expected to ramp up to more than 800,000 tonnes per year in the third year after production begins and reach project's target of 1 million tonnes in the fifth year. The horizontal limb, which dips approximately 12 to 20 degrees to the northwest, can be easily accessed where it outcrops on the hillside at the south end of the property near Bloomington Canyon Road. As a result, most of the initially accessed material will be concentrate-quality phosphate rock available for sale to fertilizer manufacturers.
Capital Expenditures and Project Financing
The Pre-feasibility Study estimates total project life-of-mine capital expenditures of $238.7 million, including $24.1 million for contingency. This includes initial project capital expenditure of $149.2 million to the end of the third year of production and $89.5 million of sustaining capital expenditures for the remaining mine life.
Because of significant revenues generated by phosphate rock concentrate sales starting in the first production year, $134.3 million of total capital expenditures will need to be externally financed. This includes $16.1 million of contingency and $6.5 million of working capital.
Of total capital costs, approximately 68% are related to underground equipment and facilities and the remaining 32% for surface equipment and facilities.
Operating Cost Estimate
Operating costs for production at the mine are estimated at $72.99 per tonne of saleable product. The following table provides details of these costs.
| Summary of Operating Costs | ||
| Item | $/tonne | Percentage of Costs |
| Labor | $37.59 | 51.5% |
| Operating Materials and Supplies | $7.38 | 10.1% |
| Maintenance Materials and Repairs | $4.20 | 5.8% |
| Power and Fuel | $5.97 | 8.2% |
| Receding Face | $7.54 | 10.3% |
| Mine Drainage and Water Treatment | $0.36 | 0.5% |
| Administration | $2.69 | 3.7% |
| Contract Crushing | $6.61 | 9.1% |
| Construction Rock | $0.66 | 0.8% |
| Operating Cost | $72.99 | 100.0% |
Assumed Product Price
Typical commercial grades of phosphate rock concentrate range from about 27.5% to 36.6% P2O5. The grade of phosphate material found in most mines in the world is below the commercial-grade range for concentrate and, therefore, requires processing or beneficiation before it can be used or sold. The Pre-Feasibility Study estimates that Paris Hills Lower Phosphate Zone mined material will have an average grade of 29.4% P2O5 over the life of the mine, or well within the commercial grade range. The grade is estimated to be approximately 30% P2O5 or higher in six of the 14 years, including 31.8% in the first year, 30.8% in the second and 30.0% in the third.
In addition, the Paris Hills Lower Phosphate Zone mined material will meet other industry specifications for phosphate rock concentrate, including Minor Element Ratio (MER) and CaO:P2O5 ratio. The Pre-Feasibility Study estimates MER to be 0.07 (less than 0.10 is desirable for phosphate rock concentrate) and the CaO:P2O5 ratio to be 1.53 (less than 1.6 is desirable for phosphate rock concentrate).
Since the grade and other key characteristics of the in-situ Lower Phosphate Zone material at Paris Hills will be suitable for ammonium phosphate fertilizer production, beneficiation of the mined material will not be required and the mined material will be marketed as crushed phosphate rock concentrate.
According to a third-party marketing study performed by CRU Strategies for the Pre-Feasibility Study, an appropriate sales price for Paris Hills phosphate rock concentrate would be $160/tonne FOB mine site.
CRU also estimates transportation costs to potential customers would be approximately as follows: by truck, in Idaho $11/tonne; by truck to Montpelier, Idaho and then by rail to U.S. West Coast ports in Washington or Oregon $21/tonne, Edmonton, Alberta $31/tonne, Louisiana $47/tonne, and Florida $57/tonne.
Mine Life
The estimated 14-year mine life is based on current estimates of Mineral Reserves. Mineral Reserve estimates could be increased in the future based on ongoing and future drilling in areas on the property that have not yet been drilled. A map of the drill hole sites and mineralized area at the Paris Hills Phosphate Project is available at http://files.newswire.ca/923/Stonegate_Paris_Hills.pdf
Project Economics
The Pre-Feasibility Study estimates life-of mine revenue (after deduction of royalties) of $1.53 billion and after-tax net cash flow (after deduction of capital and operating costs) of $429 million.
The following table provides the estimated net present value (NPV) of cash flow and internal rate of return (IRR), assuming that an 8% discount rate is applied to cash flows over the estimated 14-year mine life.
| NPV and IRR - Base Case | |
| Discount Rate | 8% |
| NPV Pre-tax | $241.7 million |
| NPV After-tax | $179.4 million |
| IRR Pre-tax | 31% |
| IRR After-tax | 27% |
| Payback Pre-tax | 4.6 years |
| Payback After-tax | 4.7 years |
Rail Loadout Option
The option of constructing a rail loadout near Montpelier, Idaho (19 kilometres from the project site), connecting with the Union Pacific mainline, was evaluated. In that scenario, phosphate rock concentrate would be trucked from the mine to Montpelier and loaded into unit trains via a dedicated loading loop track. The loadout facility would add an additional $28.9 million in total capital expenditures and raise the operating costs by $4.23/tonne, of which $3.28/tonne would be for trucking. The following table provides NPV and IRR for the project including the rail loadout option.
| NPV and IRR - Including Rail Option | |
| Discount Rate | 8% |
| NPV Pre-tax | $196.9 million |
| NPV After-tax | $146.7 million |
| IRR Pre-Tax | 26% |
| IRR After-tax | 23% |
| Payback Pre-tax | 5.1 years |
| Payback Pre-tax | 5.2 years |
Project Timetable
The Pre-Feasibility Study concludes that the Company should proceed with a Feasibility Study for the Lower Phosphate Zone at Paris Hills. The Company plans to continue with drilling, geotechnical and other work throughout the spring and summer months, update the Mineral Resource and Mineral Reserve estimates in the second half of 2012, and complete the bankable Feasibility Study by the end of 2012.
Mineral Reserves and Resources
The Pre-Feasibility Study provides an update of the Mineral Resource estimate, and reports for the first time a Mineral Reserve estimate, for the Lower Phosphate Zone, based on assay results from 33 exploration holes drilled on the property. The Mineral Resource and Mineral Reserve calculations are compliant with Canadian Institute of Mining, Metallurgy and Petroleum ("CIM") Best Practice Guidelines for Industrial Minerals. The following two tables summarize the results.
| Mineral Reserve of the Lower Phosphate Zone (effective date March 26, 2012) | |||||||||
| P2O5 | Fe2O3 | Al2O3 | MgO | CaO | CaO/P2O5 | ||||
| Tonnes †, ‡ | Thickness | Grade | Grade | Grade | Grade | MER | Grade | Ratio | |
| (meters) | (wt %) | (wt %) | (wt %) | (wt %) | (wt %) | ||||
| Proven | 5,167,101 | 1.8 | 30.0 | 0.56 | 1.07 | 0.44 | 0.069 | 45.22 | 1.51 |
| Probable | 4,848,361 | 1.7 | 28.8 | 0.54 | 0.93 | 0.58 | 0.071 | 44.95 | 1.56 |
| Reserves | 10,015,462 | 1.8 | 29.4 | 0.55 | 1.00 | 0.50 | 0.070 | 45.09 | 1.53 |
| † Average in-situ bulk dry density of 2.6 t/m3. | |||||||||
| ‡ Minimum mining height of 1.5 m + 0.15 m dilution. | |||||||||
| Mineral Resource of the Lower Phosphate Zone2 (effective date March 26, 2012)6 | |||||||||
| P2O5 | Fe2O3 | Al2O3 | MgO | CaO | CaO/P2O5 | ||||
| In-Place Tonnes1,2 |
Thickness | Grade | Grade | Grade | Grade | MER | Grade | Ratio | |
| (millions) | (meters) | (wt %) | (wt %) | (wt %) | (wt %) | (wt %) | |||
| Measured3 | 12.2 | 1.8 | 30.5 | 0.51 | 0.99 | 0.27 | 0.059 | 45.8 | 1.50 |
| Indicated4 | 10.1 | 1.7 | 29.7 | 0.51 | 0.89 | 0.29 | 0.056 | 45.5 | 1.52 |
| Total M&I | 22.3 | 1.8 | 30.1 | 0.51 | 0.94 | 0.28 | 0.057 | 45.7 | 1.51 |
| Inferred5 | 8.1 | 1.7 | 29.3 | 0.51 | 0.86 | 0.29 | 0.055 | 45.3 | 1.52 |
| 1 Average in-situ bulk dry density of 2.6 t/m3. | |||||||||
| 2 Zone thickness cut-off 1.0 m, composite grade cut-off 24.0% P2O5, excludes out-of-seam dilution. | |||||||||
| 3 Measured Mineral Resource located within a 200-m radius of an exploration hole. | |||||||||
| 4 Indicated Mineral Resource located between a 200-m and 400-m radius of an exploration hole. | |||||||||
| 5 Inferred Mineral Resource located between a 400-m and 800-m radius of an exploration hole. | |||||||||
| 6 Numbers may not add up due to rounding. | |||||||||
Report Filing
A 43-101-compliant technical report on the Pre-Feasibility Study is being filed on SEDAR at www.sedar.com. A copy is also being posted on the Company's website at www.stonegateagricom.com.
Qualified Persons
The Pre-Feasibility Study was compiled by Agapito Associates Inc. of Grand Junction, Colorado supervised by Leo J. Gilbride, P.E., Vanessa Santos, P.G., and Gary L. Skaggs, P.E., P.Eng., each of whom are independent qualified persons under the standards set forth by National Instrument 43-101.
The contents of this news release have been reviewed and approved by Daniel Thompson, P.E., Manager, Technical Services, Paris Hills Agricom Inc., who is a qualified person as defined in National Instrument 43-101.
About Stonegate Agricom
Stonegate Agricom, which is actively engaged in acquiring and developing agricultural nutrient projects, is currently focused on the development of two potentially world-class, long-life phosphate deposits, the Paris Hills Phosphate Project located in Idaho and the Mantaro Phosphate Project located in Peru. The Company is confident that the two deposits have sufficient size and grade to become strategic, cost-effective sources of phosphate supply for major fertilizer producers. The Company intends to continue definition and exploration drilling to confirm and expand estimates of NI 43-101 compliant mineral resources in the deposits and then complete feasibility studies leading to a decision to proceed with extracting and processing the phosphate. More information is available at www.stonegateagricom.com.
Cautionary Note Regarding Forward-Looking Statements
This press release contains "forward-looking statements" and "forward-looking information" within the meaning of applicable law. Generally, forward-looking statements and forward-looking information can be identified by the use of forward-looking terminology such as "plans", "expects" or "does not expect", "is expected", "budget", "scheduled", "estimates", "forecasts", "intends", "anticipates" or "does not anticipate", "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". All forward-looking statements and forward-looking information are based on reasonable assumptions that have been made by the Company as at the date of such information. Forward-looking statements and forward-looking information are subject to known and unknown risks, uncertainties and other factors that may cause the actual results, level of activity, performance or achievements of the Company to be materially different from those expressed or implied by such forward-looking statements and forward-looking information, including but not limited to: risks relating to assumptions used in preparation of the Pre-Feasibility Study on the Lower Phosphate Zone of the Paris Hills Phosphate Project including government regulation, phosphate prices, labour costs and capital costs, and project risks including a project location, permitting requirements, project delays, ground control and dilution and water management; the general risks associated with the speculative nature of the Company's business, commodity prices, current global financial conditions, uncertainty of additional capital, price volatility, the Paris Hills and Mantaro projects are advanced exploration stage projects, limited operating history, no history of earnings, government regulation in the mining industry, environmental risks and hazards, impending climate change legislation, required approvals and permits, foreign subsidiaries, risks relating to the retention of the Paris Hills project, expiration of leases and permits for the Paris Hills Project, political and economic risk in Peru, risks relating to the retention of the Mantaro project, title to mineral properties, obtaining and converting mineral concessions and surface rights, community relations and project support, water rights, exploration, development and operating risks, uncertainty in the estimation of mineral reserves and resources, uncertainty of inferred mineral resources, mineral exploration, reliability of historical exploration work, absence of public trading market, risks associated with having a controlling shareholder, arbitrary offering price, dilution to the common shares, dependence on key personnel, currency fluctuations, insurance and uninsured risks, competition, legal proceedings, conflicts of interest and lack of dividends as well as those factors discussed in the section entitled "Risk Factors" in the Company's most recently filed annual information form available at www.sedar.com. Although the Company has attempted to identify important factors that could cause actual results to differ materially from those contained in forward-looking statements and forward-looking information, there may be other factors that cause results not to be as anticipated, estimated or intended. There can be no assurance that such information will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements or information. Accordingly, readers should not place undue reliance on forward-looking statements or forward-looking information. The forward-looking statements and forward-looking information contained in this press release are included for the purpose of providing investors with information to assist them in understanding the offering as well as the Company's expected financial and operational performance and may not be appropriate for other purposes. Stonegate does not undertake to update any forward-looking statement or forward-looking information that is included herein, except in accordance with applicable securities laws.
Wayne Cheveldayoff
Vice President, Investor Relations
Stonegate Agricom Ltd.
Tel: 416-479-4359
[email protected]
Christine Stewart
Renmark Financial Communications Inc.
Tel: 416-644-2020
[email protected]
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