2009-08-27 08:22 ET - News Release
Mr. George Read reports
STAR DIAMOND PROJECT POSITIVE PRE-FEASIBILITY STUDY
Shore Gold Inc. has released the positive results of the prefeasibility study (PFS) on the Star kimberlite, which includes the 100-per-cent Shore Gold-owned Star diamond project and Star West, which is that portion of the Star kimberlite that falls within the adjacent Fort a la Corne joint venture (FALC-JV: 60 per cent Shore and 40 per cent Newmont Mining Corp. of Canada Ltd). The PFS was led by P&E Mining Consultants Inc., an independent and internationally recognized geological and mining consulting firm. A number of other independent consulting firms also provided their study results to Shore and P&E for use in developing the PFS.
President and chief executive officer, Kenneth MacNeill, states: "Shore is very pleased with the positive results of the Star PFS. These prefeasibility numbers confirm the potential for a world-class diamond mine in east-central Saskatchewan and provide every reason to move this project to the feasibility stage. Shore management and directors acknowledge the extensive and diligent work that has been performed by Shore's technical team and associated consultants to reach this most important milestone in the successful evaluation of the Star diamond project."
The Star diamond project PFS highlights include:
- Probable mineral reserves of 171 million tonnes at a weighted average grade of 12 carats per hundred tonnes containing 20 million carats at a weighted average price of $265 per carat ($225 (U.S.));
- Total diamond production of 20 million carats over a 12-year total mine life;
- Robust project economics over a 12-year mine life due to proximity to infrastructure (hydroelectric power, paved highways, water and labour);
- A pretax base case net present value (NPV) of $474-million (using a 7-per-cent discount rate) for an internal rate of return (IRR) of 12 per cent and an aftertax NPV of $291-million with an IRR of 10 per cent;
- Preproduction capital cost of $1,487-million with a total capital cost of $1,646-million (including direct and indirect costs) over the life of the mine and an initial capital payback period of 5.2 years;
- P&E recommendation that Shore advance the Star diamond project to a feasibility study based on the positive PFS.
Senior vice-president, exploration and development, George Read, states: "The Star PFS and reserve estimate show that Star can be economically developed as a stand-alone diamond mine. The determination of a resource estimate on the neighbouring Orion South kimberlite within the FALC-JV is currently under way. A resource estimate on Orion South has the potential to significantly augment the economics documented in this Star PFS. The National Instrument-43-101-compliant technical report that summarizes the PFS and mineral reserve estimate will be available on the Shore website and SEDAR within 45 days of this news release."
Star diamond project prefeasibility study results
The Star diamond project PFS cash flow model is based on developing the Star open-pit, processing plant and infrastructure as a stand-alone project and assumes the project has a four-year-long preproduction development period followed by a 12-year production period. The model assumes on-site construction would start in the fourth quarter of 2010 with ore production commencing in mid-2014 and ending in mid-2026. The financial evaluation in the PFS is done on a 100-per-cent basis and does not separate the cash flows of the joint venture partners.
ECONOMIC CRITERIA USED IN CASH FLOW MODEL
Basis used in
Area Criterion cash flow model
Project start date Assumed date of corporate March 31, 2010
approval to proceed with
project
Production parameters Projected start of ore Second quarter 2014
production
Number of operating
days per year 360 days per year
Process plant availability 97 per cent
Processing rate 40,000 tpd ore
Estimated LOM total plant feed 170.8 mt ore at
average 11.7 cpht
Diamond recovery 100 per cent
Ore processing rate/plant 14.2 mtpa ore/
capacity 14.6 mtpa ore
Instantaneous process rate 2,000 tph/
17.5 mtpa
Revenue Source of revenue Rough diamond
sales
Weighted average diamond $265 (US$225)
price per carat
Projected diamond price 1-per-cent price
escalation increase per year
commencing in
year 2010
Cost escalation 0 per cent
Exchange rate $1 equals 85 U.S. cents
Payable 100 per cent
Marketing costs 2.2 per cent of
gross revenue
Royalties Assumed basis
generally
consistent with
diamond royalty
structures in the
Northwest
Territories and
Ontario, Canada
Operating costs Open-pit mining $6.29/tonne
($/tonne processed) processed
Ore processing $3.29/tonne
processed
General and administration $1.65/tonne
processed
Marketing $0.76/tonne
processed
Taxes and royalties $3.51/tonne
processed
Closure cost $0.38/tonne
processed
----------------
Total $15.88/tonne
processed
Capital costs Preproduction capital $7.72/tonne
processed
Mine EPCM and indirect costs $0.25/tonne
processed
Plant EPCM and indirect costs $0.76/tonne
processed
Sustaining capital $0.98/tonne
processed
----------------
Total $9.71/tonne
processed
LOM -- life of mine
Mt -- megatonnes
Mtpa - megatonnes per year
Tph -- tonnes per hour
tpd -- tonnes per day
EPCM -- engineering procurement construction management
Economic analysis
The cash flows use a 1-per-cent annual compound diamond price escalation rate starting in year 2010. Pretax and aftertax results based on 1-per-cent annual diamond price escalation are shown for comparison. Shore anticipates that diamond prices will increase at a rate faster than costs due to long-term diamond supply/demand fundamentals.
ECONOMIC ANALYSIS RESULTS OF DISCOUNTED CASH FLOW MODEL FOR BASE CASE
Item Pretax basis Aftertax basis
Total LOM gross revenue $5,912M $5,912M
Undiscounted cumulative cash flow $2,003M $1,540M
NPV (4%) $957M $687M
NPV (5%) $774M $537M
NPV (6%) $614M $406M
NPV (7%) $474M $291M
NPV (8%) $352M $191M
NPV (9%) $245M $103M
NPV (10%) $152M $26M
IRR 12.0% 10.4%
Payback (years) 5.2
Economic risks were assessed using base case cash flow sensitivities to recovered grade, diamond prices, U.S.-dollar exchange rate, capital costs and operating costs. Each of the sensitivity items were independently adjusted up and down by 10 per cent, 20 per cent and 25 per cent to project the impact on the NPV at a 7-per-cent discount rate. The net present value of the project after each sensitivity item was adjusted by 75 per cent, 80 per cent, 90 per cent, 110 per cent, 120 per cent and 125 per cent of the base are presented here. The sensitivity analysis shows that the Star diamond project is most sensitive to U.S.-dollar-exchange-rate fluctuations.
SENSITIVITY ANALYSIS RESULTS
(aftertax basis, net present value (7 per cent))
75% 80% 90% 100% 110% 120% 125%
Recovered
grade
(cpht) $(187)M $(85)M $107M $291M $471M $649M $737M
Diamond
price $(187)M $(85)M $107M $291M $471M $649M $737M
$/US$
exchange
rate $849M $711M $479M $291M $134M $(2)M $(60)M
Capex $545M $495M $393M $291M $187M $82M $30M
Opex $468M $433M $363M $291M $219M $146M $110M
Capex -- capital expenditure
OPEX -- operating expenditure
Mineral reserve estimate
The Star diamond project mineral reserve estimate was derived from the mineral resource dollar-per-tonne block model. Using operating costs for mining, processing, general and administrative, and engineered pit slopes, a pit optimization was undertaken to derive a pit shell for design purposes. This five-phase pit design includes vehicle-access ramps, conveyor ramps and berms. The pit design surface is used to determine which mineralization contained within it from the resource model is to be converted to reserves by dollar-per-tonne value cut-off and the inclusion of appropriate ore losses and dilution. All reserves estimated for the Star kimberlite are in the probable category and no additional evaluation is required prior to mining. These probable reserves are estimated from the indicated resource category only. The pit design includes the mining of approximately 26 million tonnes of kimberlite in the inferred resource category containing approximately three million carats; however, the financial model does not recognize any revenue associated with the recovery of these additional carats as insufficient exploration work was carried out to move these into the reserve category. An additional 60 million to 70 million tonnes of kimberlite in the potential mineral deposit category also lie outside the current PFS pit design, which defines the mineral reserves and resources in the Star kimberlite. The potential mineral deposit is conceptual in nature, is not a resource estimate and it is uncertain if additional exploration work would lead to the kimberlite presently included as potential mineralization being upgraded to any resource category. This potential kimberlite mineral deposit cannot be relied upon when considering any project economics.
MINERAL RESERVE ESTIMATE IN THE PROBABLE CATEGORY FOR KIMBERLITE
UNITS WITHIN THE STAR DIAMOND PROJECT
Kimberlite unit Tonnes (thousands) Carats (thousands) Grade (cpht)
Cantuar 13,485 1,663 12
EJF-inner 91,383 13,237 14
EJF-outer 35,534 2,995 8
Pense 8,498 1,217 14
MJF 20,932 950 5
LJF 1,006 34 3
------- ------- --
Total 170,838 20,096 12
1. The mineral reserves have a one-millimetre bottom-screen size cut-off.
2. The above mineral reserve was defined with a process cost of $3.29 per
tonne and general and administrative cost of $1.65 per tonne, resulting
in a cut-off of $4.94 per tonne which is equivalent to 1.86 carats per
tonne.
Mining
An in-pit crush and convey system will be used to prestrip the waste materials and expose the kimberlite ore. Conventional hydraulic excavators and haul trucks will be used to mine the ore and to remove associated overburden and waste rock. The ore and waste rock will be separately sized in the pit and then conveyed to the processing plant ore stockpile and to the waste management area, respectively. The PFS assumes that the initial overburden prestripping work will be done using Shore's work force, with the assistance of an earthmoving contractors, using conventional scrapers, excavators, haul trucks and ancillary equipment.
Processing plant and infrastructure
The Star diamond project PFS assumes that the processing facility will be located 1.2 kilometres north of the Star pit edge. The facility is designed to treat 40,000 tonnes of kimberlite per day employing autogenous milling as the primary diamond liberation method, followed by dense media separation and X-ray with scavenging grease for final diamond recovery. Extensive ore dressing investigations on drill core and pilot-scale testing on underground bulk samples, coupled with detailed computer simulations, show that autogenous milling of the Star kimberlite will result in efficient and low-cost diamond liberation, while reducing diamond breakage in the process.
Electrical service will be provided to the site by a 16-kilometre transmission line at 230 kilovolts, connecting to the existing provincial grid to the southeast of the site and crossing the Saskatchewan River. Site road access will be accomplished by using the provincial grid road to the northern boundary of the Fort a la Corne forest, and then upgrading the existing forest roads to accommodate higher traffic flows. Other support facilities include an administration/change house building, warehouse, maintenance shops, fuel storage, water-treatment facilities and processed kimberlite containment areas.
The total direct capital costs for the process plant and infrastructure are estimated at $612.7-million, while indirect costs, including engineering, procurement and construction management, freight, commissioning, vendor support, first fills and owner's costs, are estimated at $188.4-million. An additional $178-million is estimated for contingency at 22.2 per cent of direct and indirect costs.
Environment, permitting and closure
The environmental impact assessment (EIA) process was initiated in November, 2008, by Shore with the submission of a project proposal (now referred to as an initial environmental evaluation) to the Saskatchewan Ministry of Environment (MOE) and federal agencies for a combined Star-Orion South diamond project recognizing the distinct potential of a combined mining and processing project. In response to Shore's project proposal, the province, in conjunction with the federal government, developed draft project specific guidelines to outline the requirements of the EIA. These draft guidelines were released for comment on July 11, 2009. Shore intends to prepare the environmental impact statement (EIS) for submission as soon as practical. The EIS will confirm the project footprint, will identify potential environmental issues, propose mitigative measures and provide an assessment of the project. The proposed mine layout is estimated to disturb approximately 3,000 to 4,000 hectares, or 2.3 per cent to 3 per cent of the FALC forest, and would, among other impacts, result in changes to several small waterways, require crossing of water courses, require construction and management of overburden and processed kimberlite storage areas, and require management of mine water.
Shore currently has all necessary licences and permits for present operations. The permits that will be required for the construction and operation of the proposed mine will be applied for following ministerial approval upon conclusion of the EIA. The submissions for these applications are expected to generally take up to 90 days for review and approval. Additional permits will be required from the federal government, including authorization from the Department of Fisheries and Oceans to allow anticipated changes to fish and fish habitat, permits from Natural Resources Canada for the explosives storage site, and authorizations from Environment Canada and Transport Canada.
Site reclamation and closure, including the removal of site facilities, will be performed at the end of the life of mine in accordance with Saskatchewan's Reclaimed Industrial Sites Act. The conceptual closure plan is based on a target end land use of self-sustaining forest.
Community relations
Community open house meetings conducted by Shore in furtherance of the Star diamond project were successfully launched in February, 2009, with local communities showing overwhelming support for the project. The open house meetings are part of the environmental impact assessment process under way as a result of the filing of the project proposal. A description of community engagement activities will form part of the environmental impact statement which will be submitted to the Saskatchewan Ministry of Environment at the conclusion of the assessment. Development of a mine will bring substantial economic development to the cities of Prince Albert, Melfort and other communities in the surrounding district. The mine is expected to provide direct employment for approximately 500 people annually over its 12-year operating life.
Project timeline
The PFS assumes the following project timelines:
- Feasibility study completion by the end of February, 2010;
- A production decision by March 31, 2010;
- Permitting activities to support a 2010 construction start;
- Processing plant commissioning within four years after construction permit approvals.
Shore commissioned the PFS, National Instrument-43-101-compliant mineral reserve estimate and related technical report for the Star and Star West properties, and as such, the PFS and technical report are the sole responsibility of Shore. Newmont did not participate in the preparation, supervision or review of the work associated with this exercise and takes no responsibility for the content or information included in the National Instrument 43-101 technical report or this press release.
Fred Brown, CPG, PrSciNat, of P&E, is the independent qualified person who was responsible for the Star kimberlite resource estimate upon which the reserves were developed. Mr. Brown, a certified professional geologist (No. 11015) with the American Institute of Professional Geologists and a registered professional natural scientist with the South African Council for Natural Scientific Professions (No. 400008/04), has over 21 years of worldwide experience in mining resource and reserve assessments and related work and has worked on diamond mines in southern Africa for De Beers.
Senior vice-president, exploration and development, George Read, professional geoscientist in the provinces of Saskatchewan and British Columbia, is Shore's qualified person responsible for the verification and quality assurance of analytical results.
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