Winspear Resources Ltd -
Winspear Snap Lake prefeasibility raises cash flow 66%
Winspear Resources Ltd WSP
Shares issued 51,634,088 2000-04-24 close $2.1
Tuesday Apr 25 2000
Mr. Randy Turner reports
Results have been received from the prefeasibility study prepared by MRDI Canada, a division of AGRA Simons Limited (MRDI), for the Snap Lake diamond project on the Camsell Lake joint venture property. This property is located approximately 220 kilometres northeast of Yellowknife, NWT, and is controlled by the Camsell Lake joint venture of which Winspear is the majority owner and operator.
The total minable tonnage included by MRDI in the study is 12,592,100 tonnes of kimberlite at an average grade of 1.75 carats per tonne containing more than 22 million recoverable carats. This represents a 53-per-cent increase in minable tonnage relative to that used in MRDI's September, 1999, scoping study of the project. The after-tax cash flow for the project is calculated at $1.222-billion which represents a 66-per-cent increase over that in the scoping study. The after-tax discounted cash flow rate of return (DCFROR) is calculated as 37.6 per cent and the pay-back period is reduced to 2.1 years from 3.6 years in the scoping study.
The prefeasibility study is based on kimberlite of the NW dike on which a global resource of 21.32 million tonnes grading 1.97 carats per tonne has been defined. This global resource does not include results of six holes drilled north and east of the resource area in late 1999 or those drilled in 2000.
In preparation of the prefeasibility study, MRDI reviewed the classification of the global resource at Snap Lake with the result that indicated resources increased by 29 per cent to 12.05 million tonnes at 1.96 carats per tonne. Inferred resources now stand at 9.27 million tonnes at 1.97 carats per tonne.
The mine plan developed in the prefeasibility study is based on part of this global resource.
MRDI has developed a base case mining plan that includes a sustained mining rate of 3,000 tonnes per day for 12 years. This plan only considers the first phase of development of the Snap Lake deposit and is limited to that portion of the NW dike for which kimberlite occurs above 80 metres above sea level (approximately 350 metres below surface) and exceeds two metres true thickness. Based on these parameters, the estimated minable resource is 12,394,000 tonnes with an average grade of 1.98 carats per tonne. After allowing for mining dilution of 13 per cent and partial recovery of the pillars upon cessation of mining, the minable tonnage is calculated by MRDI as follows:
NW dike - minable Tonnage
Classification Tonnes Grade
(carats per tonne)
Indicated 10,753,600 1.74
Inferred 1,838,500 1.83
Total 12,592,100 1.75
The estimated minable tonnage does not include results from holes drilled within the global resources in 2000. In the mine plan, approximately 185,000 tonnes will be mined from an open pit on the NW peninsula with the remainder to be recovered by underground mining using room and pillar methods. In most areas outlined for underground mining, kimberlite recovery will be 100 per cent. This is achieved by replacing 10 per cent of the mined kimberlite with high-strength concrete and the remaining 90 per cent with cemented paste backfill.
The process plant will be designed with a gravity feed to minimize diamond damage during separation and will incorporate the latest hands-off diamond concentrating processes.
Proposed site facilities to support the project will include a 300-person camp, an 1,820-metre landing strip sized for 737 and Hercules aircraft, a processed kimberlite containment facility, waste rock storage areas, a paste plant, various storage buildings, diesel fuel storage capacity for 28 million litres, and a storage facility for six million litres of propane used to heat mine air.
WWW International Diamond Consultants Ltd. (WWW) had previously estimated a value of $105 (U.S.) per carat based on over 10,000 carats of diamonds obtained from processing 6,000 tonnes of kimberlite from the subcrop of the NW dike. This price was used in the scoping study. Since that time, diamond prices have generally increased. In preparation for a financial analysis of the proposed development of the Snap Lake deposit, WWW undertook a repricing of these diamonds while taking care to be conservative and not to consider in its repricing the large price increases that have characterized the market recently. WWW's new recommended value for these diamonds of $118 (U.S.) per carat, a price increase of approximately 12 per cent. This has been incorporated into the financial analysis for the prefeasibility study at an exchange rate of $1.45 (Canadian) = $1 (U.S.).
MRDI has estimated that the initial capital cost for the Snap Lake project will be $269.4-million prior to production which includes a provision of $24.9-million for contingencies. In addition, provision has been made for working capital of $50.8-million in the year prior to production. Because of changes in the mining plan and schedule, the new cost estimates are not directly comparable with those in the scoping study. Operating costs for the 3,000-tonne-per-day base case, including mining, processing, freight, power, and general and administration, have been estimated at $93.62 per tonne over the life of the mine, an increase of approximately 30 per cent over the scoping study estimate. MRDI states that costs are correct to within +/- 25 per cent.
Previously announced capital and operating cost estimates for the Snap Lake project were based on the scoping study which assumed two years of open pit production followed by underground mining. The prefeasibility study includes reduced open pit mine operations and a significant increase in underground development that is completed during the preproduction period. The cost of that development, of additional facilities associated with the need for high-strength pillars underground and for mine air heating, as well as more rigorous design and cost estimation, results in an overall increase in the capital cost estimate. Increases in the estimated operating costs result mainly from the purchase, transportation, and storage of additional operating supplies for high-strength concrete pillars and mine air heating.
This prefeasibility study has demonstrated that the Snap Lake diamond project is financially robust and capable of development at a sustained rate of 3,000 tonnes per day. Additional information to be obtained from the continuing program at the Snap Lake site will provide diamond values from samples recovered by mining under Snap Lake and practical estimates of mining conditions in this environment for incorporation into the feasibility study. The present schedule for the project anticipates that the regulatory process leading to production permits will begin within six weeks and that the feasibility study will be finalized toward year-end. With the co-operation of consultants, contractors, regulators and aboriginal groups, construction will begin in mid-2001, open pit mining in the third quarter 2002, commissioning in late 2002, and full production in the first quarter 2003.
Winspear notes that although the Snap Lake project as considered by the prefeasibility study defines a significant project in its own right, the study is based on only a portion of the resource potential identified on the property. Only approximately 60 per cent of the global tonnage defined on the NW dike has been considered by MRDI in defining the mine plan presented in the prefeasibility study. Additional development potential is represented by 4.18 million tonnes of kimberlite that is between one and two metres thickness. Given the margin between operating cost and kimberlite value, the 2.0-metre thickness criteria used in the study does not represent the lower limit for economic mining. In addition, significant resources have been defined below 80 metres of elevation within the area containing the global tonnage. Additional work is required to determine the most economic way to mine this kimberlite. Furthermore, additional tonnage beyond the area of the global tonnage estimate is indicated by diamond drill intersections obtained in the fall of 1999 and by the continuing drill program on the property. As these resources become better defined by future programs, consideration will be given as to the optimum way of integrating these resources into the planned operation.
While additional design work will be continuing, all aspects of the prefeasibility proposal will be examined in detail with a view to optimizing project economics. Winspear is very encouraged with results of the prefeasibility study and anticipates timely completion of a feasibility study on the project.
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