POSITIVE FEASIBILITY STUDY CONVERTS 6.2 MILLION OUNCES TO MINERAL RESERVES AT CANADIAN MALARTIC PROJECT
Osisko Mining Corp. is releasing the results of the feasibility study of its 100-per-cent-owned Canadian Malartic gold project located in Malartic, Que. The study was compiled by BBA Inc., with the collaboration of MICON International Ltd., G Mining Services, Genivar, Golder Associates and the Osisko Technical Group.
The study included modelling of an optimized engineered pit that resulted in a proven and probable mineral reserve estimate of 6.28 million ounces, which represents an 82-per-cent conversion rate relative to the global 7.7-million-ounce measured and indicated resource estimate (see Sept. 8, 2008, news in Stockwatch).
During the first five years of operation, Canadian Malartic will produce an average of 618,000 ounces of gold (plus 784,000 ounces of silver) at an average operating cost of $313 (U.S.) per ounce of gold after royalties and silver credits. Annual output for the planned mining operation is scheduled to average 591,000 ounces of gold (plus 754,000 ounces of silver) during a 10-year mine life, at an average operating cost of $319 (U.S.) per ounce of gold after royalties and silver credits. A gold price of $775 (U.S.) per ounce was assumed in the financial analysis, and third quarter 2008 market prices for all materials and labour were applied. The study assumed an exchange rate of $1.18 (with respect to Canadian expenditures) and an oil price of $70 (U.S.) per barrel.
Capital expenditures (capex) are estimated at $723.4 M (U.S.) and a provision for contingency of $65.6-million (U.S.) for a total capex of $789 M (U.S.) or $146 (U.S.) per recoverable ounce. This places Canadian Malartic within current industry norms as one of the best undeveloped gold projects in the world. capex to completion (capex less sunk costs) is estimated at $643 M (U.S.) ($119 (U.S.) per recoverable ounce), and additional net project funding requirements are estimated at $553 M (U.S.). The pretax internal rate of return (IRR) on a capex to completion is estimated at 28.8 per cent, and the pretax NPV (discounted 5 per cent) is estimated at $1,001 M (U.S.).
Results of the study demonstrate that Canadian Malartic is a robust project in the current market. Sean Roosen, president and chief executive officer, noted: "We are very proud to be able to present our shareholders with these positive feasibility results. This study is based on extensive hard work by the Osisko team and our consultants. The all-in cost (capex plus OPEX) is estimated at $465 (U.S.) per recoverable ounce, demonstrating that Canadian Malartic is a world class gold project with robust economics. While we are very happy with these positive feasibility results for Canadian Malartic, we believe that the economics of this project will be significantly enhanced with the addition of the South Barnat deposit, from which we have been generating very promising drilling results."
Summary highlights of the study are shown in the related table.
(dollar amounts in U.S.)
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Proven and Probable Gold reserves (oz) 6,283,000
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Estimated Net Recoverable Gold (oz) 5,397,000
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Average Annual Gold Production (oz) 591,000
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Average Annual Silver Production (oz) 754,000
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Cash Cost per ounce
- before royalties $320
- with royalties, net of silver revenues $319
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Total Investment (capex) $789 M
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capex per recoverable oz $146
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capex to completion $643 M
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capex to completion per recoverable oz $119
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Additional Funding Requirements $553 M
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Sustaining Capital $95 M
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Closure Costs $45 M
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Operating Cash flow pre-tax $2,463 M
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IRR - pre-tax (capex to completion) 28.8%
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IRR - after-tax (capex to completion) 25.1%
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Payback 42 months
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Mine Life 10 years
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Osisko has already paid approximately $82.0 M (U.S.) toward capital expenditures in the form of capital equipment purchases (milling equipment) and the relocation plan (home and land purchases and new northern sector development). It is also estimated that only 7.6 per cent of operating costs will be diesel purchases, limiting the project exposure to oil prices.
The study shows that on its own, the main deposit provides strong returns in the current economical environment. It will be the foundation for further growth of the Company through the drill definition of new resources on our current targets, potential new discoveries in other areas on our large land position, and the possibility of new acquisitions within trucking distance from the proposed mill site.
Over the coming year, Osisko will be drill-defining several near-surface mineralized zones that have the potential to provide higher grade resources for blending opportunities and increased early debt pay-down. To date, the drilling results on the South Barnat zone have been very encouraging and it is expected that an inferred resource estimate will be completed in early 2009. Deeper targets will also be investigated as the main deposits have only been drilled to depths of approximately 400 metres.
Location
The Canadian Malartic project is located 25 kilometres west of Val d'Or in the historically rich gold mining district between Val d'Or and Cadillac. The Project is easily accessible by road, being located near highway 117, and is also serviced by a railway. Electrical power is easily accessible with the project being located within 19 kilometres from Hydro-Quebec's electrical power grid. The region also benefits from a strong contractor and supplier base to the mining industry and an experienced mining work force. The greater Malartic area produced about 8.7 M ounces of gold during the period from 1935 to 1983.
Capital investment program
The initial capital investment program amounts to $789 M (U.S.)and is summarized below:
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Mining - Equipment $100.1 M
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- Pre-production $ 36.6 M $136.7 M
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Mineral Processing Plant $348.0 M
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Tailings and Water Management $15.3 M
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Electrical and Communication $19.5 M
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Administration Buildings and Infrastructure $29.7 M
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Community Development and Relocation Program $87.0 M
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Indirects $72.7 M
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Owner's Cost $14.5 M
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Sub-total $723.4 M
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Contingency $65.6 M
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Total $789.0 M
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capex to completion $642.9 M
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Additional Funding Requirements $552.8 M
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The company has entered into commitments on many long-lead items, construction contracts and fixed price quotations for an estimated cost of $286 M. No contingency has accordingly been applied to those amounts. A contingency provision of 15 per cent has been estimated on the remaining project outlays. The level of accuracy of the capital investment estimate is +/- 10%.
The investment program is scheduled over a two-year period. Sustaining capital is estimated at $95 M and mainly for additional mining equipment. Closure cost provisions amount to $45 M.
During the preproduction period, the company is expected to mine 6,382,000 tonnes of ore and 18,675,000 tonnes of waste at a total cost of $36.6 M. Commercial production is estimated to commence in April 2011.
In order to accelerate the development of the project, the company entered into contracts for the fabrication of long-lead delivery equipment, and initiated work on certain development activities including the relocation. As of Sept. 30, 2008, the company had invested $82 M (U.S.). Furthermore, Osisko negotiated a capital lease financing agreement with CAT Finance for US$83 M, which will reduce the capital requirements during the construction by a net US$64.1 M. The summary of investment to completion is as follows (in million US$):
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Total Investment $789.0
Less:
Investment to September 30, 2008 82.0
Net Capital Lease 64.1
capex to completion 642.9
Less:
Cash on Hand for Project Funding Requirements 90.1
Additional Funding Requirements $552.8
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Mining and reserve estimates
The preliminary pit optimization was established using the measured and indicated resources calculated by MICON International Limited. For the purpose of the Study and the reserve estimate, the in-pit measured and indicated resources between surface and vertical depth of 400 metres were considered. An open pit optimization was performed using Whittle software, which is based on the Lerchs-Grossmann algorithm using a base case gold price of $775 (U.S.) per ounce. The optimal pit shell produced with this algorithm was used as a guideline for the design of the engineered pit. This pit resulted in a mining reserve conversion rate of 82% relative to the global measured and indicated resources using a weighted dilution factor of 7.6 per cent. The table below shows the reserve and resource statement for the Canadian Malartic deposit:
Reserve and resource estimates using base case $775 (U.S.) engineered pit shell
With 0.36 g/t Au lower cut-off grade
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Category Tonnes (M) Grade (g/t) Au oz (M)
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Proven Reserves 5.16 1.14 0.19
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Probable Reserves 178.2 1.06 6.09
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Proven & Probable Reserves 183.3 1.07 6.28
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Indicated Resources 54.0 0.81 1.41
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Inferred Resources 37.4 0.60 0.72
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This estimate of reserves and resources does not include the South Barnat zone or any other mineralized zone currently being evaluated by Osisko on the Canadian Malartic property.
Summary of the annual mine production plan is as follows:
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Ore Waste Ore Stockpile Total
Mined Grade Mined Reclaim Moved Waste to Ore
Period (kt) (g/t) (kt) (kt) (kt) Ratio
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Pre-prod.
(2010) 2,829 1.10 9,481 12,310 3.35
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Pre-prod.
(2011) 3,553 1.05 9,194 12,747 2.59
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Sub-total
Pre-prod. 6,382 1.07 18,675 25,057 2.93
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2011 16,538 1.20 21,759 38,298 1.32
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2012 18,685 1.10 45,286 1,390 65,361 2.42
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2013 16,124 1.05 47,893 3,951 67,968 2.97
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2014 20,253 1.07 43,697 63,950 2.16
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2015 22,539 1.10 41,472 64,011 1.84
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2016 21,418 0.93 38,239 59,657 1.79
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2017 19,662 0.88 34,137 1,213 55,012 1.74
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2018 21,673 1.01 23,044 44,717 1.06
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2019 17,366 1.22 11,517 2,709 31,592 0.66
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2020 2,689 1.66 1,083 4,983 8,755 0.40
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Sub-total
Prod. 176,947 1.07 308,126 14,247 499,320 1.74
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Total 183,329 1.07 326,801 14,247 524,376 1.78
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The deposit will be mined by conventional open pit mining methods using an initial fleet of 12, 227-tonne haul trucks, two electric hydraulic shovels, and various ancillary equipment to support the mining operations. The mine production daily rate, including waste, is estimated at an average of 152,000 tonnes per day. The waste to ore ratio is estimated at 1.78 to 1. The pit design includes an inter-ramp pit slope of 55 degrees for all areas except the northeast sector which was designed at an inter-ramp pit slope of 46 degrees.
Mining costs have been estimated at an average of $1.41 (U.S.) per tonne mined. Fuel price assumption is based on US$70 per barrel of oil. The average annual fuel consumption is estimated at 23 million litres.
Mineral processing
The plant design is a conventional cyanidation and carbon-in-pulp plant with a nominal throughput capacity of 55,000 tonnes per day (20 M tonnes per annum) based on 92-per-cent plant availability. Gold recovery is estimated at 85.9% based on an average head grade of 1.07 g/t Au for design criteria.
Grind is estimated at P80 equals 64 microns with an average leach time of 28 hours.
The design is based on numerous tests that were conducted at various laboratories, including SGS Lakefield located in Lakefield, Ontario.
In order to minimize the environmental impact of the project, the use of thickened tailings disposal technology has been selected. The actual proposed plan is to dispose of the tailings over the former East Malartic tailings area.
The mineral processing costs, including tailings operations and power, are estimated at $4.96 per tonne milled.
Operating costs
Total operating costs, including US$0.65/tonne milled for general and administration services, are estimated at US$9.43 per tonne milled or an average of US$320 per ounce before royalties and silver credits.
During the first five years of operations, the Canadian Malartic project is expected to produce an average of 618,400 ounces of gold at an operating cost of $313 per ounce before royalties and silver credits.
The summary per year is outlined below, based on an average gold recovery of 85.9 per cent:
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Tonnes Average Gold Cost/ounce Total Silver
Milled Grade Production Excluding Cost(i) Production
Year (000s) (g/t Au) (oz) Royalties (per oz) (oz)
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2011(ii) 15,056 1.20 498,000 273 271 621,000
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2012 20,075 1.11 619,000 312 310 785,000
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2013 20,075 1.08 596,000 328 327 762,000
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2014 20,075 1.07 597,000 327 325 759,000
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2015 20,075 1.16 650,000 306 302 823,000
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2016 20,075 0.96 524,000 376 373 678,000
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2017 20,075 0.91 498,000 393 392 643,000
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2018 20,075 1.01 563,000 336 334 713,000
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2019 20,075 1.17 649,000 266 264 827,000
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2020 7,672 0.95 202,000 270 267 270,000
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Total 183,329 1.07 5,397,000 320 319 6,880,000
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(i) Total cost includes royalty expenses and is net of silver revenues
based on a silver price of $10 per ounce.
(ii) Commercial production is expected to commence on April 1, 2011.
Rate of return
Under the base case scenario at a gold price at US$775 per ounce, the internal rate of return (IRR) on the capex to completion is estimated at 28.8 per cent before taxes and at 25.1 per cent after tax (unleveraged).
The table below outlines sensitivities under various price scenarios:
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IRR (%) IRR (%) NPV at 5% NPV at 0%
Gold Price ($) before tax after tax discount (M $) discount (M $)
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650 19.0 16.6 536 991
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700 23.1 20.1 722 1,256
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750 27.0 23.5 908 1,522
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775 28.8 25.1 1,001 1,655
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800 30.7 26.7 1,094 1,788
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900 37.5 32.6 1,466 3,220
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Foreign currency
The company estimates that 60 per cent of capital costs and 56 per cent of operating costs are based in Canadian dollars. The effect of various exchange rates is summarized below:
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Cash IRR
capex to completion Operating Costs Before Tax
(US$M) (US$/oz) (%)
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1.10 674 336 26.2
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1.18 643 320 28.8
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1.25 619 309 30.9
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1.30 604 301 32.3
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Financing and cash resources
As at Sept. 30, 2008, the company had cash resources of CAN$139 M. In addition, the company had an undrawn capital lease facility with CAT Finance of US$78.6 M.
The company is in discussion with several parties to secure the necessary funding to develop the Project. All alternatives are being considered including joint ventures, sale of gold revenue stream, royalties and project debt.
Sean Roosen noted: "The current financial markets are very challenging. However, we believe that the robust economics of the Canadian Malartic Project will allow us to secure the required funding to bring the Project to completion. Our current cash resources allow us to continue the development in accordance with our schedule".
Environmental impact assessment
Osisko submitted its environmental impact assessment study for its Canadian Malartic mining project to Quebec's Ministere du Developpement durable, de l'Environnement et des Parcs (MDDEP) on Sept. 4, 2008.
The impact study concluded that chosen site for mining infrastructure, the selected technology, and the open communication with the various stakeholders, the Canadian Malartic project would have a minimal impact on the environment and the population and well within acceptable industrial norms
The study is currently being reviewed by Quebec government authorities to establish compliance with MDDEP guidelines. The BAPE public hearing process will start following the MDDEP's review of the study, leading to a report that will be submitted for approval to members of the Quebec Cabinet.
Detailed report
The entire feasibility study will be filed within 45 days on SEDAR and on the company's corporate website.
Qualified person
The feasibility study was prepared by BBA Inc. under the supervision of Mr. David Runnels, a registered professional engineer, an independent Qualified Person under the standards set forth by National Instrument 43-101. Mr. Luc Lessard, Vice-President Engineering and Construction for Osisko and a registered professional engineer, is the Company's designated Qualified Person for the purposes of the Study. Mr. Runnels and Mr. Lessard have reviewed and approved the contents of this press release.
Conference call
Osisko will host a conference call on Tuesday, Nov. 25, at 10 a.m. EST where senior management will discuss the study and will be available to respond to questions from analysts and investors. Those interested in participating in the conference call should dial in at 647-426-1845 (Toronto local and international), or 1-866-782-8903 (North American toll free). An operator will direct participants to the call.
© 2008 Canjex Publishing Ltd.
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