GEOFIN
Geological & Financial 1500 Bishop St.
Consulting Services White Rock, BC V4B 3K7
Tel/Fax 604-542-2691
Scoping Study
Of
The Ferguson Lake Copper Nickel Cobalt Palladium Platinum Massive Sulphide Project
August 2001
Nunavut Territory, Canada
100% owned by
Starfield Resources Ltd.
A $6.0 billion Cdn Gross metal value “Resource”
Laurence Stephenson
August 2001
TABLE OF CONTENTS
Page
Introduction 1
Location, Access and Claims 1
Resources 1
Mining and Milling Operations 2
Mining 2
Milling 3
Shipping and Smelting 4
Buildings 4
Operating Costs 5
Summary 6
APPENDIX I 7
INTRODUCTION
An initial scoping report was completed for Starfield Resources Ltd. in December 2000 to study the developing economic resource at the company’s Ferguson Lake Copper Nickel, Cobalt, Palladium and Platinum Project, Nunavut Territory, Canada.
This report is adjusted to include the significant increase in the total resource tonnage and especially in the higher grade core resource tonnage that has been achieved over the last eight months and to reiterate the potential of economically exploiting the resource.
Results continue to indicate that the resource being developed associated with the ever present EM and Mag anomaly will, in my opinion, support a viable economic mining operation. Although much work needs to be completed, the Ferguson Lake belt represents one of the largest undeveloped sulphide nickel-copper-cobalt-palladium-platinum resource in the world. It remains open to increasing its resource tonnage.
This scoping study will assist in determining location and sizes of tailings impoundment, shaft development and location, ideal mining methods including stope development, equipment access needs, power development needs, scheduling of concentrate deliveries and type and saleability of concentrate.
By developing a stand alone operation without ties to the major mining companies, Starfield will be able to take advantage of the projected deficit in base and especially precious metals (palladium and platinum) in the next decade and sell its concentrate at a premium. As well by developing this study as a precursor to the pre and full feasibility studies, the company will be able to prepare banking institutions to fully fund the eventual bankable feasibility study.
Cost estimates are derived from actual currently available equipment (used) from direct range numbers from the manufacturers and from real operational purchases. They reflect the non-negotiated pricing of the equipment.
LOCATION ACCESS AND LAND TENURE
The Ferguson Lake Property is located in Nunavut Territory, Canada, 145 kilometres south of Baker Lake and 190 kilometres west south west of Ranklin Inlet. Current access to the property is by winter cat train road from either Rankin Inlet or Baker Lake or by air to the 2000 metre gravel airstrip located on the property.
This scoping study includes development of an all weather road to Baker Lake or Ranklin Inlet as part of the capital expense although the Territory government is seriously considering developing such an access either from Ranklin to the Lupin Mine area or conversely from Thompson, Manitoba. These proposals should be considered as distinct possibilities given the development of the Dempster Highway in the Yukon and the significant economic development of the Arctic by the increased openness of that region by that action. The fact that such a road in Nunavut would develop possibly three to four mining operations would be a strong incentive to making the territory self-sufficient and qualifiable for provincial status.
The mineral rights are held by duly and legally staked and recorded claim tenure and there are no major outstanding Aboriginal land claim issues in this territory.
RESOURCES
The indicated mineral resource has been developed by Dr. N.C. Carter on an ongoing basis. Dr. Carter has updated the exploration development program resource estimate (Table 1). His intimate knowledge of that program provides a high level of confidence in the resource estimate and its distribution along the mineralized formation.
The full resource as of August 2001 is detailed in Table 1. For the purpose of this study all the currently delineated resources will be considered economically feasible and processable. Therefore the “updated scoped” mine plan will be based on the 51.7 million tonne resource grading 0.92 % copper and 0.58% nickel with 1.44 grams per tonne palladium and platinum and 0.1% cobalt.
Both cobalt and platinum/palladium analysis are incomplete in that some of the INCO 1950’s drilling was not assayed for those elements.
Further drilling and analysis has to be completed to elevate this resource to a mineable reserve calculation.
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TABLE 1
Cutoff Grade Tonnage (millions) % copper % nickel % cobalt gm/t Palladium Platinum
1.0% Cu+Ni 51.7 0.92 0.58 0.1 1.44
1.5% Cu+Ni 25.5 1.15 0.78 0.1 1.86
2.0% Cu+Ni 9.3 1.37 0.87 0.1 2.06
The Company’s independent consultant, N.C. Carter, Ph.D., P.Eng., has prepared the new estimates pursuant to -CIM “Standards on Mineral Resources and Reserves” designed by the CIM Standing Committee on Reserve Definitions, adopted by CIM Council on August 20, 2000 and published in the CIM Bulletin of October, 2000. Dr. Carter calculated the new resource estimates manually for individual drill hole cross-sections employing the following parameters: Cut-off Grades – 1.0%, 1.5% and 2.0% combined Cu + Ni. Minimum Drill Intersection – 2.00 meters. Area of Influence for Individual Drill Holes (down-dip) – midway point between drill holes. Area of Influence for Individual Cross-Sections – midway point between sections. Assumed Specific Gravity – 3.80. A total of 145 drill hole intersections of massive sulphide mineralization were utilized in the resource calculations. Intervals between holes range from 120 meters on initial stepouts to approximately 40 meters for in-fill drill holes
MINING AND MILLING OPERATIONS
From the drilling and surface work to date it has been determined that there will be a combination of open pit and underground mining operation feeding a milling operation with the same type of ore. It does not appear that there is any oxidized ore so that the milling operation will be treating sulphide ore that is charactorized as being 80-90% pyrrhotite 2-6 % chalcopyrite and 2-3% pentlandite and 7-15% magnetite from preliminary ore microscopy studies.
Since those studies charactorized the ore as being discreet grains, until proper metallurgical testing is complete, it will be assumed that two concentrates – nickel and copper will be produced along with possibly a third depending on where the cobalt, platinum and palladium report.
The initial open pit mining is anticipated to occur only during the first year and will be designed as a less expensive tune up and run in of the mill for the underground ore. It will provide a ready mill feed while stope development and active mining faces are developed. Anticipated stripe ratio is nominally put at 4:1 waste to ore but has not been confirmed by actual mine design.
Since the ore is reported to be relatively homogeneous and common to this type of “deposit” in make up, the mining and milling system will not require any exotic variation from industry standards of this type of mineralization.
Mining
Due to the limited amount of open pit mining it has been simply assumed that contract mining will be used at a cost per tonne of $2 (US) per tonne moved or $10 (US) per ton of ore (waste to ore ratio of 4:1 requires 5 tonnes moved including the tonne of ore moved for processing).
During this period of open pit operations, a 500-metre shaft and related facility would be constructed. Since there would be some synergy to include the remainder of the surface buildings in the mining milling complex the estimated capital cost of these surface structures is included in Table 5.
From the size and shape of the mineralized resource reported to date it is proposed that the underground mining procedures be conducted as trackless operations. This would be similar to the operations currently underway at Nanisivik Mines, Baffin Island, Nunavut, and at Lupin Mine, Contwoyto Lake, Nunavut. In the former underground mining cost for the 2200 tonne per day operation are currently $37 (US) per tonne and at the latter 1500 tonne per day operation are currently $56 (US) per tonne all in (this is down from their shut down costs of $72 US per tonne). Other remote operating mines in the northern territories of Canada that can be used for comparison for operations are Cominco’s Polaris Mine, BHP’s Ekati Mine. As well information from Echo Bay’s Great Bear Lake operations and Cominco’s Pine Point Operations could be used as historical reference. Cullaton Lake Mines would also be worthy of investigation as it is the most proximal operation to the Ferguson Lake Project.
For the current envisioned operation assumed for this study, it is estimated that for the mill to process 3700 tonnes per day another 500 tonnes of waste material from haulage and stope development for a total of 4200 tonnes per day will be required. This waste to ore ratio of 1:5 (reverse to the open pit ratio) is higher than that at Nanisivik (approximately 1:8) and would probably decrease over time as the operations became seasoned.
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To produce 1000 tonnes per day a volume of approximately 500 cubic metres of material have to be moved per day. With an estimated average width of 10 metres for the resource indicated to date this will require a 15 –20 metre stope face (assuming a 3 metre “shot” drill cut). For an under ground loader of two tonne capacity over 500 loading movements are
required to load the 10 ton underground haul truck 100 times. Given operating breaks and travel time it is assumed that two and a half loaders and five trucks will be needed to move the 1000 tonnes per day.
The initial mining plan should therefore require at least a 4200 tonne per day capacity so that will require 10 loaders and 20 underground trucks.
Jumbo drills are very efficient but it is assumed that at least one per 1000 tonnes per day is required to blast drill prepare the sulphide mineralization. From conversations with the onsite geologist the waste rock is a very hard ultramafic that should be competent in the open stoping mining method assumed for the 50° dipping mineralized zone. Extra drill steel will be necessary for haulage way development due to the hard nature of the waste rock where these tunnels will be placed. The ground conditions appear very strong but at least one rock bolter will be required and probably two foreman vehicles along with the four jumbo drills.
Mining by open stopes is assumed given the current information available.
From our investigation the total capital cost for this equipment is summarized in Table 2.
TABLE 2
Equipment Item Capacity Cost Estimate/machineNew Used
Jumbo Drill (4) 60 m/hr $400,000 $50,000
Scoop trams (10) 2 tonne bucket $300,000 $20,000
Underground ore truck (20) 10 tonne $500,000 $20,000
Rock Bolter (1) 10/ hr $160,000 $60,000
Boss Buggy (2) 4-6 people $ 30,000 $15,000
Total Cost Estimate $ 14,820,000 $ 940,000
Milling
The sulphide nature of the mineralization for processing lends itself to well established procedures for extracting a nickel and copper concentrate. Over time the operation should be able to recover in the middle to high 90% of the metal value. The flow sheet (Figure 1) shows the milling process through primary and secondary crushing, to proper flotation size in a ball mill circuit. Due to the magnetic nature of the sulphide ore (assumed for the total pyrrhotite host) a preliminary magnetic separation should erase any ultramafic waste rock that is included in the process. Consideration of putting this or another separator before the ball mill to pull the harder ultramafic waste out could reduce the wear on that circuit.
The waste could be scavenged for any remaining mineralization if necessary.
Flotation would be standard as the identified mineralogy is straight forward and common to this type of deposit. A third circuit is tentatively proposed as it is not clear where all the platinum group minerals and the cobalt will report.
Drying and preparing the concentrate for shipping is the final procedure of the milling cycle.
Table 3 outlines, from our investigation the total capital cost for this equipment. The external mill building is included Table 5.
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TABLE 3
Equipment Item Capacity Cost Estimate/machineNew Used
Jaw crusher 150 tonne/hr $1,500,000 $270,000
Secondary crusher (rod mill) 2 50 tonne/hr $350,000 $200,000
Screens (4) 150 tonne/hr $75,000 $40,000
Ball Mills (6) 35 tonne/hr $600,000 $250,000
Magnetic Separator (2) 125 tonne/hr $75,000 $30,000
Flotation Cells – Copper 100 tonne/hr $625,000 $375,000
Nickel 100 tonne/hr $625,000 $375,000
Scavenger 10 tonne/hr $312,500 $175,000
Third ? (to recover Co Pt & Pd) ? $625,000 $375,000
Dryer Filter 3-4 10 tonne/hr $17,100 $8,500
Thickener 3 75 tonne/hr $60,000 $35,000
Total Cost Estimate $ 10,857,375 $5,130,500
Shipping and Smelting
With respects to the mineralization identified to date and the proposed milling outlined above approximately 50 to 100 tonnes of concentrate will be produced daily. In this outlined flow sheet it is assumed that an all year access road would be constructed that would sustain up to five 20 tonne loads on a near daily basis. The trucks or truck and pup (one or two, since it will be an almost private road) would make a daily run to Ranklin Inlet (or Baker Lake) and return with supplies. Alternate ways of transport are readily conceivable (Winter road tractor trains, blimps or other innovative methods), but would depend on a fuller study than envisioned for this report.
Capital cost for the transport would be minor and is included in the general figure and detailed in Table 4.
Port facilities at Ranklin Inlet or Baker Lake are assumed to be undertaken by the government or by current utilized technology without any capital cost accruing to the project except perhaps some storage facilities. The Nanisivik and Polaris situations would be studied to build on their experiences. Again any capital cost is included in the general figure.
Since the ore would be shipped in the four to five month shipping season smelter contracts could work for and against the independent operation but with the low cost of ocean transport most of the world’s smelters would be open to its product. Based on the costs at Nanisivik for smelting their zinc silver ore and until further metallurgical testing is complete the smelting cost have been set at $30 US per ton of processed mineralized rock including transportation (Nanisivik’s cost are calculated at $27 US per tonne of ore).
TABLE 4
Equipment Item Capacity Cost Estimate/machineNew Used
Road trucks and pups (3) 40 tonne $480,000 $225,000
Storage Shed – Ranklin Inlet or Baker Lake 25000 tonne $170,000 $130,200
Total Cost Estimate $650,000 $355,200
BUILDINGS
External well constructed buildings for the office and onsite residences will be required and it is assumed that the maintenance shop will be developed underground like it is at the Lupin Mine. Due to the remote location and the high cost of shipping it is proposed that a large inventory of parts will be maintained. A higher inventory is designated for the used equipment scenario due to its condition.
An electric power plant system will be required, as there is, at present, no power available. Table 5 summarizes the estimated capital cost for all the buildings, shaft development, power plant, mine vehicles and inventory.
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TABLE 5
Equipment Item Capacity Cost Estimate/machineNew Used
Administration/Dormitory Building 250-300 people $12,000,000 $7,000,000
500 metre Shaft 4000 tonne/day $20,000,000 $12,000,000
Power Plant 500,000 kilowatts $16,275,000 $14,322,000
Surface Vehicles Pick-ups & SUV type (5) $200,000 $125,000
Spare Parts Inventory $1,627,500 $2,604,000
Total Cost Estimate $50,102,500 $36,051,000
OPERATING COSTS
Although ultimate staffing configuration will require more detail than this study, the following outline is offered as a first pass guide. The experience at the Lupin Mine and at Polaris should assist in formulating the final analysis. Actual cost numbers from existing mines in Northern Manitoba have been adjusted to reflect the more remote location of the Ferguson Lake Project in preparing this scoping estimate of costs.
The mining operation will need approximately forty people per shift based on the equipment and scale of mining. This estimate includes 28 to operate the machinery listed above plus an estimated 10 helpers and the two foremen. Included in this number would be a certified blaster, underground surveyor and samplers. Depending on scheduling and labour contracts, a total of 3 or 4 shifts teams would be required.
The milling operations will need approximately 15 to 20 personnel per shift and a like number of shift teams to the mining. Shipping, smelting, security, maintenance and support personnel is estimated at between 30 to 40 in total as only security and maintenance would have any shift work. Management, mine geologists and their support staff is estimated at 15 personnel.
The total employment at the mine would be between 250 – 300 people (Nanisivik Mines has a work force of 225) and would generate a payroll of approximately $30 million Cdn annually. Consumables which will including fuel for the underground operation, blasting supplies, mill reagents and other supplies, to sustain this operation is estimated from real operations at an equal amount to this payroll expense of $30 million Canadian annually. Power consumption generated from the power plant would be in the 35 million kilowatt hours range which is arbitrarily charged at $0.10 per hour (B. C. Hydro currently charges $0.05 per kilowatt hour) for an annual cost of $3.5 million Canadian. This would translate into an annual total cost of approximately $55 million Canadian or for the planned 1.5 million tonne operation, a cost per tonne of $65 Cdn or US $41. With efficiency of experience it would be reasonable to expect these costs to decrease towards the mining and milling cost at Nanisivik which are US $37 per tonne.
Smelting and transportation is estimated at US $30 per tonne or $30 million annually for the scale of operation envisioned in this study. Operating costs are summarized below in Table 7.
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SUMMARY
Because the size of the resource has been increased so dramatically in the last 8 months we increased the proposed annual production of the resource to 1.5 million tonnes per year. This is reflected in the capital cost estimate being increased only in the mining and milling costs directly, but we have increased the capital cost proportionately, in most of the other areas to reflect the additional costs associated with the increased throughput. Capital cost estimate now stands at $270 million Cdn for the proposed model. Table 6 (Capital Costs) and Table 7 (Operating Costs) are reproduced here comparing the initial estimate and our revised estimate for the 1.5 million tonne per year operation (nominally 3700 tonnes per day).
TABLE 6
Capital costs
Cost Estimate US$1.5mill t/yr 1 mill t/yr
Mining (Table 2) $ 14,820,000 $7,446,100
Milling (Table 3) $ 10,857,375 $8,783,800
Smelting (Table 4) $650,000 $642,750
Shaft, Power Plant, Surface Equipment (Table 5) $50,102,500 $45,102,500
Road to Ranklin Inlet $65,000,000 $65,000,000
Transportation to site $4,650,000 $4,034,582
Site construction $5,000,000 $4,034,582
Total Cost Estimate $151,079,875 $135,044,315
Contingency (15%) $22,500,000 $13,187,077
Total Cost Estimate US$ $173,579,875 $148,231,392
Total Cost Estimate Cdn$ $270,000,000 $227,697,991
From the analysis above, the operating costs for the operation can be determined.
TABLE 7
Operating costs
per Tonne
Estimated Total Mining Costs Cdn$ $63.50
US$ $41.34
Smelting Cdn$ $46.08
Estimated Total Operating CostsCdn$ $109.58
US$ $71.34
Using current prices which are at historically low values, this update study calculated an Internal Rate of Return of 21% with a Net Present Value (NPV) of $5.4 million Cdn at a 20% discount rate ( Copper $0.64; nickel $2.30; colbalt$9.20; platinum $446; palladium $456) and mining the high grade core initially.
Historic prices reflect what most mining companies use to evaluate projects because it “smoothes” out the periods when high prices are the norm and when low prices are the norm. They would reflect the actual metal prices that the operation would be expected to receive over the life of the mine.
TABLE 8
Cutoff Grade 2.0% 1.5% 1.0%
$Cdn Historic $ Current $ Historic $ Current $ Historic $ Current $
Value Per Tonne $223 167 $202 $151 $162 $121
Net Profit Per Tonne $112 $56 $91 $40 $51 $10
Total Tonnage 9.3 million 25.5 million 51.7 million
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Using historical prices ( Copper $0.95; nickel $3.30; colbalt$12.00; platinum $450; palladium $450) an Internal Rate of Return of 45 % was calculated with a NPV of $269 million Cdn at a 20% discount rate and again mining the high grade core initially. The profit per tonne (Table 8) of $92 would generate annual cash flows of almost $138 million annually and would pay back the capital cost in just under 2 years.
With an estimated 50 million shares outstanding, this represents an estimated $2 per share generated cash flow by this project.
Using historical prices ( Copper $0.95; nickel $3.30; colbalt$12.00; platinum $450; palladium $450) and mining the highest grade first (2% copper and nickel; Table 1) then the next high grade (+1.5% copper nickel; Table 1) this update study calculated an Internal Rate of Return of 56% which produces a NPV of $349 million Cdn at a 20% discount rate.
This analysis again shows that Starfield Resources’ Ferguson Lake Property continues to show the potential to develop into a major mining operation. In my opinion, it has the potential to continue to grow and remains the largest undeveloped copper nickel cobalt, palladium platinum resource in the world.
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APPENDIX I
SENSITIVITY ANALYSIS
Base Scenario: 1.5 million tonnes per year, 34.5 year mine life (current resource delineated); 17 year mining high grade zone 50 million shares outstanding; NPV discounted at 20%. Recovery of metal for high grade remains at 85% and overall at 89%
Scenario 1 “Positive” Changes
Parameter Variation from base IRR NPV/share Change from current $
Base Case 49% $6.26 +$5.75
Metals prices UP 10 % 60% $8.76 +$8.20
> 100 million tonnes Reserve half higher grade 49% $6.52 +$6.00
Cost lowered US $10 after 10 years 49% $6.71 +$6.20
(Voluntary Disclosure: Position- Long; ST Rating- Strong Buy; LT Rating- Strong Buy) |
