Sprott Resource Holdings Inc. Announces Positive Results from Technical Studies on the Minera Tres Valles Copper Project Project Expected to Generate Significant Cash Flow in 2020 High Project Internal Rate of Return with Less than 2 Year Payback
TORONTO, November 2, 2018 -- Sprott Resource Holdings Inc. (“SRHI” or the “Company”) (TSX:SRHI) is pleased to announce the results from a series of technical studies (the “Technical Studies”) on its 70% owned Minera Tres Valles Copper Project (“MTV” or the “Project”) located in Salamanca in Region IV of Chile which will be reported in a consolidated NI 43-101 compliant technical report (the “Technical Report”). The Technical Studies were completed by Amec Foster Wheeler, a Wood company (“Wood”) along with contributions from independent consulting firms.
“We are very pleased with the results of the Technical Studies which validates our initial due diligence and investment thesis for the Project,” said Steve Yuzpe, CEO of SRHI. “The Technical Studies confirm that MTV should almost triple current levels of production achieving a run rate of approximately 18,000 tonnes per annum of copper cathodes,” added Mr. Yuzpe. “Based on a long-term copper price of US$2.75/lb, the preliminary economic assessment which looked at the total available mineral resources on the Project indicates that MTV could generate US$34 million in project cash flow in 2020 peaking at US$45 million in 2022.”
“The mine is operating well and crushing more than 100,000 tonnes of mineralized material per month,” said Luis Vega, CEO of MTV. “With the substantial infrastructure and development built by Vale S.A., the capital cost required to ramp up to full production is low and has resulted in attractive project economics with a short payback period.”
“We continue to believe in the long-term fundamentals for copper and Chile as a premier mining jurisdiction,” said Rick Rule, CIO of SRHI. “MTV is a core asset for SRHI and we are focused on building from this foundation.”
Table 1. Technical Studies – Economic Analysis Highlights (US dollars)
| Base Case | PEA Case | ||||
|---|---|---|---|---|---|
| Pre-tax Net Present Value (NPV) (8%) | $87M | $129M | |||
| After-tax Net Present Value (NPV) (8%) | $87M | $129M | |||
| Pre-tax Internal Rate of Return (IRR) | 93% | 131% | |||
| After-tax Internal Rate of Return (IRR) | 93% | 131% | |||
| Payback (years) | 2.0 | 1.2 | |||
| Average Annual Copper Cathode Production (2019-2025) | 24M lbs | 34M lbs | |||
| Total Copper Cathode Production (LOM) | 177M lbs | 250M lbs | |||
| 2020 Cash Flow | $23M | $34M | |||
| Life of Mine | 6.5 years | 7.5 years | |||
| Operating Cash Cost (per lb of finished copper) | $1.66/lb | $1.65/lb | |||
| Upfront Capital Cost | $15M | $21M | |||
| LOM Capital Cost | $32M | $52M |
Notes:
1. Base Case includes only the Don Gabriel Manto open pit, Papomono Masivo underground and ENAMI tolling revenues. The PEA Case includes the Don Gabriel Manto, Papomono Masivo, Don Gabriel Vetas, Papomono Norte, Manto Norte, Epitermal, Papomono Cumbre, Papomono Mantos Conexión and Papomono Sur. The PEA Case also includes ENAMI tolling revenues.
2. The PEA Case is preliminary in nature and includes inferred resources that are too speculative geologically to have the economic considerations applied to them. There is no certainty the PEA Case will be realized.
3. Base Case capital cost estimate was completed at a cost accuracy of +/- 25%. PEA Case capital cost estimate was completed at a cost accuracy of +/- 50%.
4. Based on long-term flat copper price forecast of US$2.75/lb.
5. Includes revenue from long-term tolling contract with ENAMI of minimum of 15,000 t/month and a tolling rate of US$27.50/t of material received. MTV delivers copper cathodes produced from supplied feed material to ENAMI, on the basis of a contractual metallurgical recovery of 78%.
6. MTV has tax losses available to apply that will shelter any tax payable on operating profits, due to capital costs and operating losses sustained by prior operators. MTV is subject to a sliding scale copper royalty payable to the Chilean government.
7. Does not include copper production from purchasing of mineralized material from small scale third party miners and any additional copper production pursuant to excess recovery from the ENAMI toll milled material.
8. NPV is calculated based on monthly discounting using a reference date of July 2018.
Highlights of the Technical Studies include:
- Low Capital Cost to Triple Production with Short Payback Period
- Low project capital requirement of US$15 million for the base case mine plan (the “Base Case”) and US$21 million for the PEA (the “PEA Case”) to ramp-up operation to approximately 18,0001 tonnes per annum of copper cathodes within 24 months
- Low capital intensity
- Short payback of 2.0 years for the Base Case and 1.2 years for the PEA Case
- Positive project economics demonstrated by economic analysis confirms SRHI’s investment
thesis2
- Base Case pre-tax and after-tax NPV (8%) of US$87 million and IRR of 93% based on a longterm flat copper price of US$2.75/lb
- PEA Case pre-tax and after-tax NPV (8%) of US$129 million and IRR of 131% based on a longterm flat copper price of US$2.75/lb
- Average annual copper cathode production estimates (2019-2025) of 24 million pounds per annum for the Base Case and 34 million pounds per annum for the PEA Case
- 6.5 year mine life (“LOM”) for the Base Case and 7.5 year LOM for the PEA Case with opportunity to extend through exploration on 44,000 hectares of land
- Attractive LOM operating cash costs estimate of US$1.66/lb of finished copper for the Base Case and US$1.65/lb of finished copper for the PEA Case
- Base Case demonstrates potential to generate cash flow of US$23 million in 2020 with peak cash flow reaching US$45 million in 2022
- PEA Case demonstrates potential to generate cash flow of US$34 million in 2020 with peak cash flow reaching US$45 million in 2022
- Completion of Technical Studies and related Technical Report is key to advancing currently ongoing project financing discussions
Technical Studies
The purpose of the Technical Report is to consolidate all the NI 43-101 compliant Technical Studies completed over the past 10 months, including:
1 Based on preliminary economic analysis (PEA) case study results. See “Notes on Preliminary Economic Assessments”.
2 See “Notes on Preliminary Economic Assessments”.
- Mineral resource and mineral reserve estimates for the Don Gabriel and Papomono deposits;
- Preliminary Feasibility Study (“PFS”) for the implementation of chloride leaching (“Salt Leach”);
- Feasibility Study (“FS”) for the expansion of the Don Gabriel Manto open pit;
- PFS for the underground exploitation of the Papomono Masivo mine zone; and,
- Preliminary Economic Assessment (“PEA”) on a subset of MTV's mineral resources.
The Technical Studies comprise a Base Case based on the exploitable mineral reserves from the Don Gabriel Manto open pit and the Papomono Masivo incline block cave underground deposit. These studies were completed at a FS level for Don Gabriel Manto and a PFS level for Papomono Masivo and the Salt Leach conversion. Wood has also completed a PEA Case for the exploitation of the Don Gabriel Manto and Papomono Masivo deposits and eight additional mining zones within the Don Gabriel and Papomono deposits which will utilize different mining methods such as sub-level caving and sub-level stopping. These additional eight mining zones will require additional drilling and engineering work to increase the confidence level. The PEA Case illustrates the property-wide production potential for the Project.
The PEA Case mine plan is partly based on inferred mineral resources that are considered too speculative geologically to have the economic considerations applied to them that would enable them to be categorized as mineral reserves, and there is no certainty that the PEA Case based on these mineral resources will be realized. Mineral resources that are not mineral reserves do not have demonstrated economic viability. The Technical Report will be filed within 45 days of this release.
ENAMI and Third Party Material Treatment
As part of MTV’s toll processing strategy, MTV purchases mineralized material from third-party miners that operate near and on the MTV property and toll treat mineralized material from Empresa Nacional de Minería (“ENAMI”), the Chilean state owned enterprise that supports small and artisanal miners under the provisions of a long-term contract (the “ENAMI Tolling Contract”). This strategy is expected to continue going forward. Since 2014, MTV has purchased an average of 14,500 tonnes per month of mineralized material with a copper grade of 1.44%. Since SRHI’s acquisition in October 2017, MTV has purchased an average of 16,500 tonnes per month at a grade of 1.13% copper. Since 2014, ENAMI has delivered an average of 8,000 tonnes per month of mineralized material with a copper grade of 2.30%. Since SRHI’s acquisition in October 2017, ENAMI has delivered an average of 4,300 tonnes per month of copper at the same grade. The mineralized material from ENAMI and the small scale third-party miners has not been subject to any technical study, and is therefore not included in the Base Case and PEA Case mine plan and economic analysis contained in the Technical Studies, apart from the toll treatment revenue which serves to reduce the processing and general and administrative (“G&A”) unit cost. The economic analysis described in this press release also includes operating costs for the toll treatment.
In 2017, MTV produced 11.3 million pounds of copper cathode which comprised 8.6 million pounds from MTV’s own Project and 2.7 million pounds from small scale third party miners and the excess recovery of mineralized material delivered under the ENAMI tolling arrangements.
Next Steps
- With the results of the Technical Studies and of the Technical Report, SRHI will be working with MTV to secure the necessary expansion capital. Several parties have submitted term sheets, and the Technical Report is expected to assist in the technical diligence to secure the best terms for financing.
- MTV has already commenced the Don Gabriel open pit expansion, and the mining contractor, Vecchiola S.A., and the haulage contractor, Tiex, have brought substantially all of the heavy equipment for the pre-strip and ore movement on site.
- MTV have also firmed up quotations for the long-lead time equipment required for the salt-leach project.
- With the work completed by Wood on the Papomono Masivo, MTV will advance to detailed engineering based on the PFS study, and have quotations for the required underground equipment in the nearterm.
- MTV will commence an infill drill campaign on the PEA Case additional deposits to increase the confidence level of the mineral resources, determine and define any additional mineral resources, and also advance geotechnical work on these deposits adjacent to the current operations.
Consolidated Mine Plan
Figure 1 illustrates the Base Case mine plan using mineral reserves from the Papomono and Don Gabriel deposits.
Figure 1. Base Case Forecast Mine and Process Plan
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140,000
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80,000
40,000
20,000
Month Don Gabriel PPM Masivo PPM-FC Tolling
Notes: Figure prepared by Wood, 2018. Don Gabriel Manto open pit is the main mine zone from Don Gabriel deposit. Papomono Masivo IBC and Papomono Masivo FC are the zones that will be mined from the Papomono deposit. Dark grey shading indicates additional processing capacity for material anticipated to be delivered under the ENAMI Tolling Contract that could be toll treated. Dark grey shading indicates additional processing capacity for material anticipated to be delivered under the ENAMI Tolling Contract that could be toll-treated.
Figure 2 illustrates the property-wide mine plan based on the PEA Case.
Figure 2. PEA Case Forecast Mine Production Plan
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180,000
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120,000
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20,000
Don Gabriel OP PPM Masivo Papomono Norte PPM Sur Mantos Conexión Manto Norte Epitermal Papomono Cumbres Don Gabriel Vetas PPM-FC Tolling
Notes: Figure prepared by Wood, 2018. The PEA Case is preliminary in nature and includes inferred mineral resources that are too speculative geologically to have the economic considerations applied to them. There is no certainty that the PEA Case will be realized. Dark grey shading indicates additional processing capacity for material anticipated to be delivered under the ENAMI Tolling Contract that could be toll-treated.
Table 2 and 3 below summarizes the cash flow analysis for the Base Case and PEA Case. The Technical Studies economic evaluation considers cash flows starting in July 2018 (month one). This is consistent with the use of fiscal years (July to June).
Table 2. Economic Results for Base Case
| Year | Total Mine Plant / Total Cathode Capex Opex G&A Opex Opex Revenue Production Cu (US$ (US$ (US$ (US$ (US$ (kt) (t) 000s) 000s) 000s) 000s) 000s) | Pre-tax Cash Flow (US$ 000s) | After-tax Cash Flow (US$ 000s) | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2018 2019 2020 2021 2022 2023 2024 2025 2026 | 502 4,291 7,312 8,639 13,381 22,020 22,097 1,185 7,932 7,968 19,600 27,777 47,377 42,022 1,426 13,418 2,320 20,844 30,482 51,326 76,169 1,593 13,224 4,464 17,876 31,288 49,164 74,983 1,781 16,585 1,312 15,742 33,155 48,897 95,582 1,775 15,407 497 12,432 32,807 45,239 88,358 894 8,958 512 6,733 20,302 27,035 48,836 0 301 7,522 204 1,845 2,048 379 0 0 0 0 0 0 0 | -7,236 -13,322 22,522 21,355 45,373 42,622 21,289 -9,192 0 | -7,236 -13,322 22,510 21,342 45,289 42,564 21,289 -9,192 0 | ||||||||||
| Total | 9,156 | 80,116 | 31,907 | 102,070 | 191,036 | 293,106 | 448,425 | 123,412 | 123,244 |
Notes:
1. Assumes a long-term flat copper price of US$2.75/lb
2. Analysis assumes cash flows starting in July 2018. Results were obtained on the bases of a monthly mine plan and cash flows discounted on the same monthly basis.
3. Processing recovery is based on the salt leach process, for all years, except for 2018. Assumptions for 2018 are based on acid leaching without salt.
4. Revenues and operating costs for the ENAMI toll treatment is based on a minimum of 15,000 t/month of feed material and a tolling rate of US$27.50/t of material received. MTV delivers copper cathodes produced from supplied feed material to ENAMI, on the basis of a contractual metallurgical recovery of 78% based on the oxide grade as per the terms of the ENAMI Tolling Contract. Revenue from excess recovery is not included in this analysis.
5. MTV has tax losses available to apply that will shelter any tax payable on operating profits, due to capital costs and operating losses sustained by prior operators. MTV is subject to a sliding scale copper royalty payable to the Chilean government.
Table 3. Economic Results for PEA Case
| Year | Total Mine Plant G&A Total Cathode Capex Opex Opex Opex Opex Revenue Production Cu (US$ (US$ (US$ (US$ (US$ (US$ (kt) (t) 000s) 000s) 000s) 000s 000s) 000s) | Pre-tax Cash Flow (US$ 000s) | After- tax Cash Flow (US$ 000s) | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2018 2019 2020 2021 2022 2023 2024 2025 2026 | 612 4,709 8,628 10,613 9,456 4,613 24,682 24,661 1,831 12,235 13,362 30,053 23,075 9,226 62,354 68,395 2,119 17,684 6,483 26,198 25,984 9,226 61,408 102,316 2,079 17,406 4,950 24,145 25,668 9,226 59,040 100,615 2,129 18,477 4,300 22,408 26,205 9,226 57,840 107,178 2,136 16,501 2,002 19,301 25,711 9,226 54,239 95,065 2,032 16,819 2,619 21,488 25,264 9,226 55,978 97,014 897 8,239 2,664 10,128 13,816 6,882 30,827 44,519 74 1,176 7,266 887 1,915 2,114 4,916 4,860 | -8,649 -7,321 34,425 36,626 45,038 38,824 38,416 11,028 -7,322 | -8,649 -7,321 34,344 36,542 44,919 38,755 38,342 11,028 -7,322 | |||||||||||
| Total | 13,909 | 113,246 | 52,273 | 165,222 | 177,094 | 68,968 | 411,284 | 644,623 | 181,067 | 180,638 |
Notes:
1. The PEA Case is preliminary in nature and includes inferred resources that are too speculative geologically to have the economic considerations applied to them. There is no certainty that the PEA Case will be realized.
2. Assumes a long-term flat copper price of US$2.75/lb
3. Analysis assumes cash flows starting in July 2018. Results were obtained on the bases of a monthly mine plan and cash flows discounted on the same monthly basis.
4. Processing recovery is based on the salt leach process, for all years, except for 2018. Assumptions for 2018 are based on acid leaching without salt.
5. Revenues and operating costs for the ENAMI toll treatment is based on a minimum of 15,000 t/month of feed material and a tolling rate of US$27.50/t of material received. MTV delivers copper cathodes produced from supplied feed material to ENAMI, on the basis of a contractual metallurgical recovery of 78% based on the oxide grade as per the terms of the ENAMI Tolling Contract. Revenue from excess recovery is not included in this analysis.
6. MTV has tax losses available to apply that will shelter any tax payable on operating profits, due to capital costs and operating losses sustained by prior operators. MTV is subject to a sliding scale copper royalty payable to the Chilean government.
Capital Costs
The total initial capital cost for the PEA Case is estimated to be approximately US$21 million. The total capital cost for the project over the entire life of mine is US$52 million.
A breakdown of the PEA Case capital costs estimate is provided below:
Table 4. Capex Estimates for PEA Case (US$ 000s)
| Sustaining / Upfront Capital Development Category Costs Capital Costs | Total Capital Costs | Expected Year of Expenditure | ||||
|---|---|---|---|---|---|---|
| Salt Leach Implementation 7,000 0 Don Gabriel Manto 0 0 Papomono Masivo 7,783 6,665 Additional Eight Mining Zones 4,622 11,772 Infill Drilling Campaign 2,088 1,884 Plant Sustaining Capex 0 3,494 Closure Costs 0 6,965 | 7,000 0 14,448 16,394 3,972 3,494 6,965 | 2018 - 2019 2018 - 2019 2018 - 2022 2018 - 2026 2018 - 2021 2019 - 2025 2026 | ||||
| Total Capital | 21,493 | 30,780 | 52,273 |
Notes:
1. Don Gabriel capital costs are associated with pre-stripping which has been included in operating cash costs.
2. Additional Eight Mining Zones includes the mining zones within the Don Gabriel and Papomono deposits which include: Don Gabriel Vetas, Papomono Norte, Manto Norte, Epitermal, Papomono Cumbre, Papomono Mantos Conexión and Papomono Sur.
3. The PEA Case is preliminary in nature and includes inferred mineral resources that are too speculative geologically to have the economic considerations applied to them. There is no certainty that the PEA Case will be realized PEA Case capital costs completed at an accuracy of +/- 50%.
Sensitivity Analysis3
A sensitivity analysis on varying cash costs, copper price and capex was completed on the pre-tax and aftertax NPV (8%) and IRR. Results are summarized below.
3 See “Notes on Preliminary Economic Assessments”.
Figure 3. Sensitivity Analysis (Base Case Pre-tax NPV; US$ millions)
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Figure 4. Sensitivity Analysis (PEA Mine Plan Pre-Tax NPV; US$ millions)
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Figure 5. Sensitivity Analysis (Base Case Pre-Tax IRR)
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Cash Cost Cu Price CAPEX