|
Economics
Bateman, as part of the feasibility, completed a DCF/NPV model to evaluate the cash flow directly relating to the Kakanda Tailings Project. The project economics were based on capital and operating costs and metal prices prevailing at the time of the study in 1997 and anticipated a 14 year life for the mining and processing of both tailings and hard rock resources. MPH has reviewed the assumptions and cost estimates and is of the opinion that they have been done to proper engineering standards and detail. There have been considerable changes in both operating and capital costs as well as significant increases in commodity prices since 1997. To enable the Company to assess the current economic aspects of the project in light of the changes MPH has extrapolated the 1997 capital and operating costs to 2006 by utilizing industry standard cost indexes for surface mining and milling operations.
Applying these cost indices to the 1997 Bateman cost estimates MPH has revised these original costs to 2006 values for the purposes of a preliminary economic analysis. In addition Bateman included the hard rock resources in its production scenario as they considered them to be provisional indicated resources. MPH has removed these resources from the preliminary economic analysis as they are considered to be inferred by NI-43-101 standards. All amounts are stated on a pre-tax basis. The basic input parameters and results (rounded) are summarized in the following table.
| Item |
Units |
Year-1 |
Year 1 |
Year 2 |
Year 3 |
Year 4 |
Year 5 |
Year 6 |
Year 7 |
Year 8 |
| Total tonnes mined |
000’s mt |
|
854 |
2,276 |
2,846 |
2,846 |
2,846 |
2,846 |
2,846 |
1,000 |
| Cu grade |
% |
|
1.22 |
1.22 |
1.22 |
1.22 |
1.22 |
1.22 |
1.22 |
1.22 |
| Co grade |
% |
|
0.15 |
0.15 |
0.15 |
0.15 |
0.15 |
0.15 |
0.15 |
0.15 |
| Cu produced |
Tonnes |
|
9,581 |
25,551 |
31,938 |
31,938 |
31,938 |
31,938 |
31,938 |
11,224 |
| Co produced |
Tonnes |
|
1,050 |
2,800 |
3,500 |
3,500 |
3,500 |
3,500 |
3,500 |
1,230 |
| Gross revenue* |
000’s US$ |
|
72,228 |
179,325 |
224,158 |
224,158 |
224,158 |
224,158 |
224,158 |
79,323 |
| Operating cost |
000’s US$ |
|
23,886 |
60,443 |
78,077 |
78,042 |
84,505 |
78,860 |
78,860 |
27,714 |
| Construction Capex |
000’s US$ |
(116,718) |
(127,766) |
(104,271) |
|
|
|
|
|
|
| Cash flow |
000’s US$ |
(116,718) |
(79,424) |
14,612 |
146,081 |
146,116 |
139,653 |
145,297 |
145,297 |
51,609 |
| Cumulative cash flow |
000’s US$ |
(116,718) |
(196,143) |
(181,530) |
(35,450) |
110,666 |
250,319 |
395,617 |
540,914 |
592,523 |
| |
|
|
|
|
*includes a portion of Cu priced for Sludge & Scrap |
view PDF of Chart
The base case updated model shows that the undiscounted cumulative cash flow for the tailings project is US$593.4 million, with Simberi’s 51% interest being US$366.4 million. Project internal rate of return (“IRR”) is 37% before tax. Project net present value (“NPV”) at a 20% discount rate is US$116.3 million. Payback period is approximately 2.25 years. The base case uses a Copper price of US$ 1.75/lb and a Cobalt price of US$13/lb.
| Indicated Tailings Resources (tonnes) |
18.4 million tonnes |
| Inferred Hard Rock Resources (tonnes) |
11.3 million tonnes (not included in the model) |
| Tailings Grade |
1.22% Cu. 0.15% Co |
| Hard Rock Grade |
3.25% Cu 0.20% Co |
| Mine Life (tailings only) |
7.25 years |
| Copper Produced |
32,000 t annually |
| Cobalt Produced |
3,500 t annually |
| Design Capacity Tailings |
8,500 tonnes per day (2,850,000 t/yr) |
| Capital cost |
$348 million |
| Cash Operating Cost (Tailings) |
$27.80/t |
| Process Recovery |
92% Cu 82% Co |
| Copper Price |
$1.75/lb |
| Cobalt Price |
$13.00/lb |
| Financial Projections: |
| Gross Revenues |
$1.4 billion |
| Net Project Revenues |
$948 million |
| Cash flow for Simberi 51% |
$642 million |
| NPV @ 20% discount |
$116.3 million |
| NPV @ 10% discount |
$272.8 million |
| IRR |
37% |
| Payback |
2.25 years |
The Kakanda Tailings Project appears to be economically robust. Run of Mine copper-cobalt grades for the unconsolidated tailings deposits at Kakanda are in fact substantially higher than many open-pit bedrock deposits that are currently in production worldwide. Because of these high grades the project can likely remain viable and competitive in the technical sense for the foreseeable future. The main risk factor inherent in the Kakanda Project is the country risk component.
Extension of the mine life will be dependent on the success of the proposed exploration program that is designed the determine the amount and grade of new tailings deposited at Kakanda since 1997 and to upgrade the currently delineated 11.3 million tonnes of hard rock inferred resources to measured and indicated as well as additional drilling on other areas of the property. If achieved this would add an additional 6 to 7 years to the project life.
MPH is of the opinion that the 1997 pre-feasibility and feasibility studies managed by Bateman for IPRC were done to proper engineering standards. Although some of the latter stages of this work were cut short by the events leading up to the 1998-2002 civil war in the DRC, the overall report remains essentially valid, however the costs dated. It should therefore be a relatively less complicated process, than the original study, to update the Kakanda tailings feasibility study to current standards. MPH concludes that updating the feasibility study is fully warranted and justified.
|
