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Gabriel completes basic engineering phase for Rosia Montana
Gabriel Resources Ltd (2) GBU
Shares issued 113,552,669 Feb 25 close $3.95
Tue 25 Feb 2003 News Release
Mr. Simon Lawrence reports
PROJECT UPDATE - ROSIA MONTANA
Gabriel Resources has provided further information on the development of
its 80-per-cent-owned Rosia Montana gold project in Romania.
Highlights
The basic engineering phase of development has been completed.
Total cash costs of $115 (U.S.) per ounce are in the lowest quartile during
the initial five years of mine life.
An updated financial analysis confirms strong project economics.
A total of 20 per cent of local Rosia Montana residents have entered into
legal purchase agreements.
A village relocation program will be accelerated.
The company has received a key archaeological discharge certificate.
Romania has enacted EU compliant environmental laws.
Rosia Montana's EIA is scheduled for approval prior to the end of 2003.
The basic engineering phase of development has been completed.
Overview and scope of the SNC study
SNC Lavalin Engineers & Constructors Inc. was engaged by Gabriel in
October, 2001, to undertake the basic engineering phase of development of
the project in order to produce a control estimate sufficient to provide
the basis for the detailed engineering and preconstruction phases of
development; to engineer and cost additional items identified in the
feasibility study of August, 2001; as well as to support project debt
financing of the project. SNC has now completed the basic engineering and
has delivered the control estimate, incorporating updated capital and
operating costs, to Gabriel.
The basic engineering was originally scheduled for completion during the
fourth quarter of 2002. Completion was postponed as a result of the new
senior technical management team hired by Gabriel in July, 2002, making a
series of changes to the original scope of work in order to improve the
accuracy of the control estimate and to optimize a number of technical and
environmental aspects of the project. The additional time has enabled
Gabriel to complete additional work to enhance several aspects of the
project. The level of engineering completed during basic engineering
represents approximately 25 per cent to 30 per cent of the detailed
engineering ultimately required.
Updated financial analysis
A summary of the updated project economics prepared by Gabriel,
incorporating the control estimate prepared by SNC, on a
100-per-cent-project basis, a nominal 13 Mtpa plant throughput and assuming
owner mining, is set forth below. Dollar figures are in millions of
dollars.
Plant throughput: 13.3 Mtpa
Reserves: 10.6 million ounces gold, 52.3 million ounces silver
Mine life: 16.4 years
Average annual gold initial 60 months, 679,000; life of mine, 533,000
Initial capital cost$437
Working capital: $16
Sustaining capital: $123
Initial Life
60 months of mine
Cash operating
costs $107 $144
Total cash costs 115 152
Total production
costs 174 221
GOLD PRICE
$300 $350 $400
(U.S.) (U.S.) (U.S.)
Internal rate
of return 14.6 20.4 25.5
Net present value
(0 per cent) 622 970 1,319
Net present value
(5 per cent) 273 483 693
Payback
period (years) 3.9 3.0 2.6
Gabriel continues to review the option of using contract mining. An initial
evaluation of this option indicates potential cost savings of $53-million
(U.S.) in initial capital and $50-million (U.S.) in sustaining capital
costs.
Resources, updated estimate
During 2002, Gabriel undertook an infill and grade-control drill program
consisting of 21,457 metres of reverse circulation drilling in 247 holes to
further delineate and upgrade the resource within the proposed pits for the
initial seven years of mining. This program was designed and supervised by
RSG Global of Perth, Western Australia. Upon completion of the program, RSG
prepared an updated resource estimate.
Using a 0.6-gram-per-tonne gold cutoff, a 20-by-20-by-10-metre block size
and ordinary kriging, the updated resource estimate is set forth below.
Category
of Grade (g/t)
resource Tonnes gold silver
Measured 135,253,000 1.58 8.7
Indicated 171,492,000 1.13 4.6
----------- ---- ---
Total
M and I: 306,745,000 1.33 6.4
Inferred 52,936,000 0.99 3.7
Category
of Contained ounces
resource gold silver
Measured 6,900,000 37,800,000
Indicated 6,200,000 25,400,000
----------- ----------
Total
M and I: 13,100,000 63,200,000
Inferred 1,700,000 6,200,000
Independent resource audit
Upon completion of the updated resource estimate, Gabriel engaged
Independent Mining Consultants Inc. of Tucson, to conduct an independent
audit of the resource estimate in order to confirm the resource model for
the project. IMC undertook a review of grade interpolation, resource
classification and constraints on high-grade samples, as well as all QA/QC
procedures, among other matters. IMC concluded that the procedures adopted
by RSG to construct the resource model and prepare the resource estimate
were reasonable and represented an accurate assessment of the resource.
Reserves, updated estimate
Upon satisfactory completion of the independent resource audit, Gabriel
engaged IMC to prepare an updated reserve estimate and a new mine plan.
Using a variable 0.6-gram-per-tonne-gold-cutoff-grade strategy, from 0.62
gram per tonne to 0.94 gram per tonne, and a $300 (U.S.) gold price and a
$4.50 (U.S.) silver price, the updated proven and probable reserve estimate
is set forth below.
PROVEN AND PROBABLE RESERVES
Grade
(g/t)
Category Tonnes gold silver
Proven 110,398,000 1.76 9.5
Probable 107,557,000 1.27 5.4
----------- ---- ---
Total 217,955,000 1.52 7.5
In situ metal (oz)
Category gold silver
Proven 6,200,000 33,800,000
Probable 4,400,000 18,500,000
---------- ----------
Total 10,600,000 52,300,000
Exploration potential
The deposits at Rosia Montana have not yet been fully delineated and remain
open in three directions and at depth. Significant gold mineralization also
exists on the Bucium property, immediately to the southeast of and
contiguous with Rosia Montana. A number of areas of existing inferred
resources at Rosia Montana remain to be upgraded and a number of areas
remain to be tested for the existence of additional resources, including
areas to the north of the valley, east of Cirnic, to both the east and west
of Orlea, between Orlea and Carpeni, to the south at Howie, as well as at
depth. These areas are identified on various maps on Gabriel's Web site at
www.gabrielresources.com. Delineation of additional resources, and their
upgrading to reserves, would provide the potential to extend the current
mine life of the project.
Mine plan
IMC prepared an updated and optimized mine plan which indicates a slight
increase in overall tonnage, an increase in contained ounces, an increase
in gold grades during the initial four years of production and an increase
in the waste-to-ore strip ratio from 0.9:1 to 1.2:1 over the life of the
mine.
The preproduction work has increased commensurate with the increased
requirements for construction materials for the tailings management
facility, rather than to supply material to the process plant. The updated
mine plan contemplates a cutoff strategy pursuant to which the mine is
operated for the first six years of production at cutoff grades that are
higher than the traditional break-even point. This strategy results in the
head grades for the first four years of production being in excess of two
grams per tonne gold. The mine plan produces a mine operating life of 14
years through the selection, production and processing of higher-grade
material in the initial years of operation, while stockpiling lower-grade
material. Once active mining operations cease after the 14th year, the
31.9-million-tonne stockpile of lower-grade material will be reclaimed and
processed for an additional three years of process plant operation. As the
updated mine plan schedules the Cirnic pit to be mined out prior to the
Cetate pit, the Cirnic pit will be backfilled in the later years of the
mine life.
Process plant
During basic engineering, a number of modifications were made to the
flowsheet and process plant in order to better accommodate the winter
climate at Rosia Montana, as well as to enhance the environmental
protection aspects of the project. The addition of a cyanide destruct
circuit to the process plant design, using the SO2/air process, eliminates
the concerns associated with discharging cyanide into the TMF. The addition
of a plant to treat acid rock drainage provides additional environmental
safeguards.
Additional metallurgical testwork, as recommended in the feasibility study
of August, 2001, was conducted by SGS-Lakefield Research, of Lakefield,
Ont., in order to investigate the suitability of the gravity circuit
design. The testwork indicated an improved gold and silver recovery by
producing and regrinding a sulphide gravity concentrate. Accordingly, the
flowsheet was modified to include in-line pressure jigs and three vertical
grinding mills. Overall gold recoveries have improved to 82.3 per cent,
with overall silver recoveries improving to 58.1 per cent.
Tailings management facility
A significant geotechnical program, including 100 drill holes and 70 test
pits, was recommended by SNC and undertaken by Gabriel in 2002 in order to
support the design of the TMF, as well as to study the plant site, waste
dumps and open-pit areas. The results of the geotechnical work indicate
that more than twice the volume of material than previously predicted must
now be removed in order to provide access to competent bedrock for the
foundation of the TMF dam wall. The TMF will generally require one
additional lift for each year of active mine operations. The TMF uses a
centreline method of construction and was developed in accordance with all
internationally and Romanian accepted standards in order to provide a
zero-discharge facility for the safe and environmentally stable storage of
process tailings. The design for the TMF has been certified by independent
Romanian dam experts and specialists and has also been subjected to a third
party review by Montgomery Watson Harza, of Denver, an independent
international consulting firm specializing in tailings dam design and
construction.
Capital costs
Initial capital costs, as set out in the control estimate included as part
of the basic engineering, will be approximately $437-million (U.S.), which
amount includes a contingency of approximately $43-million (U.S.).
Items of the initial capital cost that have experienced the greatest
increase, together with the approximate magnitude of the increase, are set
out below. Cost variance figures are in millions of dollars.
Cost
Initial capital cost item variance
Mining, increase
in mining fleet $26
Process plant,
support caissons 2
Process plant, addition
of gravity circuit 4
Process plant,
lime-handling facilities 1
Process plant, cyanide
destruct SO2/air circuit 4
Tailings management facility 53
Acid rock drainage plant 4
Environmental, water
management dams and ponds 14
EPCM fees, to reflect
higher initial capital costs 12
Community development,
acceleration of
village relocation 38
Community development,
regional socioeconomic
development activities 3
Archaeological and cultural
heritage program expansion 2
Owners' costs and insurance 17
---
Total 180
Total initial capital costs relating to mining are $53-million (U.S.) and
consist primarily of the mining equipment and fleet necessary to conduct
mining operations. These costs have increased due to the inclusion of
additional haul trucks and shovels to accommodate the accelerated mining
rate necessary to optimize the increased head grades reflected in the
updated mine plan during the initial five years of production.
Total initial TMF costs of $78-million (U.S.), which include $29-million
(U.S.) of preproduction mining costs, reflect the increase in both the
quantities and the cost of material to be used in the construction of the
TMF resulting from the geotechnical investigations conducted during 2002.
Process plant and infrastructure costs for the mine complex have increased
slightly, to $146-million (U.S.), due to the addition of the SO2/air
cyanide destruct circuit at a cost of approximately $4-million (U.S.), the
addition of a gravity circuit at a cost of $4-million (U.S.), together with
some minor modifications at a cost of $3-million (U.S.). These incremental
costs to the process plant are more than compensated for by the
environmental benefits provided by the addition of these items to the
project.
Environmental costs have increased by approximately $18-million (U.S.),
represented by $14-million (U.S.) to accommodate necessary water management
dams and storm water ponds, to address and manage historical acid rock
drainage impacts of the project, and $4-million (U.S.) for the addition of
an acid rock drainage plant.
An additional $12-million (U.S.) has been added to EPCM costs as a result
of the overall increase in initial capital cost, and $17-million (U.S.) has
been added to cover corresponding increases in owners' costs and insurance.
Due to the continuing success associated with the community development
program, Gabriel has brought all sustaining capital costs forward into
initial capital costs, thereby increasing initial capital costs by
$38-million (U.S.) to $63-million (U.S.). By accelerating the community
development program, Gabriel will compress the time frame required to
complete all three phases of the program. Phase 1 of the community
development program was originally designed to cover all properties
required for construction of the project, phase 2 covered all properties
located in areas impacted during the initial seven years of the mine life
and phase 3 covered the balance of properties in areas affected during the
balance of the project's mine life.
Overall sustaining capital has witnessed a net reduction of $2-million
(U.S.) down to $123-million (U.S.). The savings of approximately
$38-million (U.S.) resulting from the acceleration of the community
development program are offset by the sustaining capital for the TMF having
increased by $24-million (U.S.) to $47-million (U.S.) to reflect the
greater quantities of material required for subsequent lifts, together with
$10-million (U.S.) in additional environmental and mine closure costs.
Operating costs
Cash operating costs average $107 (U.S.) per ounce of gold recovered, net
of silver credits, over the initial five years of mine life, and average
$144 (U.S.) per ounce over the life of the mine.
Total cash costs average $115 (U.S.) per ounce of gold recovered, net of
silver credits, over the initial five years of mine life, and average $152
(U.S.) per ounce over the life of the mine.
Total production costs average $174 (U.S.) per ounce of gold recovered, net
of silver credits, over the initial five years of mine life, and average
$221 (U.S.) per ounce over the life of the mine. All per-ounce calculations
of costs have been made in accordance with the guidelines established by
the Gold Institute.
Per-tonne on-site operating costs, including costs for mining, processing,
cyanide destruction, tailings, and general and administrative costs,
average $7.18 (U.S.) over the initial five years of mine life, and average
$6.48 (U.S.) over the life of the mine.
The two principal components of the increase in cash costs are electric
power costs and reagent costs. Power costs are estimated in the control
estimate at approximately four cents per kilowatt hour (kWh), as opposed to
previous estimates of 2.2 cents per kilowatt hour. Gabriel is currently in
discussions with a variety of power suppliers in Romania with a view to
ascertaining whether lower prices can be obtained through long-term
fixed-price power contracts. Higher reagent costs can largely be attributed
to the addition of neutralizing chemicals within the cyanide destruct
circuit inside the process plant, together with a modest increase in the
consumption of cyanide.
Average total cash operating costs for the initial five years of mine life
remain in the lowest quartile of cash operating costs in the gold mining
industry, and remain at the very lower end of the second quartile for the
life of the mine.
Executive summary of the basic engineering
The executive summary of the basic engineering will be filed on Sedar
within 30 days of the issuance of this news release and will be available
on the Sedar Web site (www.sedar.com).
Community development, resettlement and relocation program
After discussions with the World Bank Group and the IFC during mid-2002,
Gabriel elected to update, upgrade, and improve the resettlement and
relocation plan (the RAP), in order to bring it into more detailed
compliance with all relevant World Bank Group/IFC guidelines and policies.
The updated RAP was completed and published on Jan. 31, 2003. A copy of the
RAP is available on Gabriel's Web site at www.gabrielresources.com, as well
as in the community information centre located in Rosia Montana. The RAP
will also form an integral part of the environmental and social impact
assessment presently being prepared for the project.
With the finalization and publication of the updated RAP, Gabriel has
recommenced making payments to property owners which have negotiated
resettlement or relocation packages and entered into legal purchase
agreements. In addition, Gabriel has now ceased making the one-time delay
payments, in an amount equal to 3 per cent of the value of a property,
which began in August, 2002, pending completion of the updated RAP.
At the present time, approximately 20 per cent of all local property owners
in Rosia Montana have entered into purchase agreements with Gabriel.
Support for the project from the local community and all levels of the
Romanian government continues to be strong.
Archaeological discharge program
Following the approval of the National Archaeological Commission in
December, 2002, the Romanian minister of culture has issued an
archaeological discharge certificate to Gabriel for the balance of the
project's plant site and associated infrastructure, as well as the area in
the Corna valley required for the TMF. Gabriel has now completed
archaeological investigations and received discharge certificates for all
of the principal areas necessary to commence construction of the project.
As part of the program conducted during 2002, Gabriel agreed to preserve in
situ a circular funerary structure identified during the 2002 program. This
structure is not located in the areas required for mining and processing
and will not impact the development of the project. During 2003, additional
archaeological investigations will be undertaken on the Jig and Orlea
areas, which are currently scheduled to enter into production later in the
project's mine life.
Environmental impact assessment
The Romanian government has recently enacted an updated environmental law
and associated regulations regarding the preparation of environmental
impact assessments, in order to harmonize its environmental laws and
regulations with those of the European Union. The new laws will enable
Gabriel to apply for and receive an integrated approval for all
environmental aspects of the development and operation of the project, as
well as to ensure appropriate public participation in the permitting
process, consistent with the EU's current practice. The EIA for the project
is currently under preparation and is scheduled for submission to the
Romanian government during the third quarter of 2003. In October, 2002, the
project description was submitted to the Romanian government as the initial
step in the EIA process, a copy of which was posted in October, 2002, on
the Web site of Rosia Montana Gold Corporation SA, Gabriel's
80-per-cent-owned Romanian subsidiary, at www.rosiamontanagoldcorp.com.
Gabriel's corporate policy regarding the environmental aspects of the
development of the project is to fully comply with all relevant World Bank
Group guidelines and policies, European Union directives, and Romanian laws
and regulations. To assist Gabriel in meeting these guidelines and
policies, Gabriel has engaged, after extensive discussion and consultation
with the IFC during 2002, a number of internationally recognized experts in
environmental matters relating to the development of mining projects, to
assist in the preparation of the EIA.
An integral part of the design of the project is the inclusion of a
state-of-the-art cyanide destruct circuit using the SO2/air process, which
will reduce the levels of cyanide being placed into the TMF to less than
one part per million. Discharge levels of less than one part per million of
cyanide are well below current World Bank Group/IFC guidelines and
policies, European Union directives, and Romanian laws and regulations for
mining projects, and will make the project one of the most environmentally
friendly mines in Europe.
EPCM contract tender issued
Gabriel has issued an international tender for an engineering, procurement
and construction management contract to provide all necessary engineering
support for the permitting of the project, as well as for the detailed
engineering and construction phases of the project.
Project financing
With the conclusion of the basic engineering, Gabriel is currently
reviewing a variety of potential sources of financing for the project with
a view to arranging the most appropriate financing package to advance the
future development of the project. As part of that review, Gabriel will
continue its discussions with a number of commercial banks regarding the
provision of project debt financing.
Project development plan, 2003
Gabriel's project development plan for 2003 is focused on the key items
necessary to advance the future development of the project. These include
acceleration of the community development program and completing the EIA
process.
Gabriel currently anticipates that the EIA process will be completed during
late 2003 in order to allow construction to commence during the third
quarter of 2004, with initial gold production anticipated in the second
half of 2006. |
