VANCOUVER, BRITISH COLUMBIA--(Marketwired - April 19, 2016) - Reservoir Minerals Inc. ("Reservoir" or the "Company")(TSX VENTURE:RMC) (OTC PINK:RVRLF) (BERLIN:9RE) is pleased to announce the results of the Preliminary Economic Assessment ("PEA") undertaken by independent consultants on its 45% owned Timok JV Project and Cukaru Peki deposit in Serbia.
The PEA base case considers the potential economic merit of a Phase 1 starter mine, with access via a twin decline to the higher grade direct shipping ore material ("DSO") which requires crushing and grinding only before shipping. This would be followed by subsequent mining of the main Upper Zone mineralisation down to the 800m level, ("Phase 2 Main Mine"). The results of the PEA demonstrate the robust nature of the project at current and long term prices, with the base case project having a post-tax net present value ("NPV") at an 8% discount rate of US$1.55 billion (US$946 million at current metal prices of US$1,250 Au/oz and US$2.20/lb Cu) and post-tax internal rate of return ("IRR") of 106% (84% at current metal prices), on a 100% project basis.
The PEA was commissioned independently by Reservoir and has not been reviewed or approved by Freeport-McMoRan Exploration Corporation, the current Operator of the Timok project. The PEA is preliminary in nature and it includes 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. Mineral resources that are not mineral reserves do not have demonstrated economic viability. There is no certainty that the PEA will be realized.
The base case project (2.5% COG Case) comprises of the initial DSO mining phase starting in 2019 and the Phase 2 Main Mine starting in 2022 ramping up eventually to a 2 Mtpa maximum production rate, processing mineralisation with a diluted copper grade in excess of 2.5% Cu, with production ceasing in 2030.
An extended mining phase has also been considered comprising of the DSO mining phase and the Phase 2 Main Mine with a 2 Mtpa production rate, processing additional 13.8 Mt of mineralisation, primarily from the deeper portions of the deposit, with a diluted copper grade in excess of 1.0% Cu (the "1.0% COG Case"). Production in this case is extended to 2037. The project, based on the 1.0% COG Case has a post-tax NPV8 of US$1.63 billion (US$986 million at current metal prices) and post-tax IRR of 106% (84% at current metal prices), on a 100% project basis.
Highlights of the PEA:
- High quality resource: The deposit comprises a copper-gold epithermal mineralised body, preserved under ~400m of sedimentary and volcanic cover rocks. There is a zone of very high grade massive sulphide (HGMS) within a shell of lower grade, semi massive sulphide (SMS) mineralisation. The combined HGMS and SMS comprises and indicated resource of 1.7Mt @ 13.5% Cu and 10.4g/t Au and inferred resource of 35.0Mt @ 2.9% Cu and 1.7g/t, would support an initial mine life of 12 years at an initial projected extraction rate of 0.6 Mtpa during the DSO operation, ramping up to 2 Mtpa at the Phase 2 Main Mine.
- Demonstrable economic upside: The base case main mine production may be extended by a further 7 years by mining additional 13.8 Mt of material (average grade of 3.7% Cu and 2.3 g/t Au) providing economic upside to the project.
- Strategic development plan: This is designed to minimize development risk, generate higher up-front margins, and reduce initial capital funding requirements, by development of the high grade DSO starter mine, followed by the Phase 2 Main Mine.
- Robust project economics and access to early cash flows: Mining and selling the DSO from the starter mine, following a 3 year development period, results in significant operating cash flow which is used to fund the Phase 2 Main Mine. The initial establishment capex requirement of US$213m (100% basis) results in a rapid payback of 0.6 years and significant post-tax IRR of 106%.
- Existing infrastructure & reduced risk: Close proximity to the existing Bor mine smelter provides existing infrastructure including power, road, rail, water. Though not a requirement of the Mining Law in Serbia, there is also potential to treat, as yet undefined quantities of DSO material and concentrate, at the flash smelter at RTB Bor which currently has significant spare capacity.
- Cash operating costs: Low cash operating costs driven by high quality of resource base. Total payable Cu of 1.54 billion lbs and total payable Au of 744koz over life of mine. Base case C1 Costs(1) of US$0.55/lb. Fully allocated costs of US$0.97/lb.
- Supportive government and jurisdiction: Serbia is pro-foreign investment and the local mining community is strongly supported at all levels in government. Mining projects in Serbia benefit from competitive fiscal and legal regulations including a net smelter return (NSR) royalty of 5% and a corporate tax of 15%.
- Block Caving Opportunity: The underlying large scale Lower Zone (LZ) porphyry mineralisation, which has a current footprint of approximately 1,400m by 600m. The vertical extent of the mineralisation is unknown, as holes terminate in mineralisation. Mineralised intervals up to 900m have been reported. This presents a long term block caving opportunity.
Simon Ingram, President and CEO of Reservoir commented "The positive results of the PEA are very encouraging - particularly the fact that the project has the potential to generate extremely robust economics even at spot prices and can be fast-tracked towards early production through the starter mine and DSO operation, but with modest upfront capex. The current development plan enables Cukaru Peki to potentially emerge as one of the lowest cost high quality producing mines in the world. The Lower Zone Porphyry mineralisation presents the potential of a future long life world class development in the heart of Europe."
| (1) | Cash operating costs are defined as C1 Costs. Total Allocated Costs are defined as C1 cash cost plus depreciation and royalties. |
Addressing the next steps on the project, Dr. Ingram continued, "The PEA provides Reservoir with a solid foundation in confirming the economics of the Timok Project and targeting future development plans for this world class deposit. Reservoir continues to assess all its options with regards to Freeport's notice of sale to Lundin Mining as announced on 7 March 2016."
Cukaru Peki PEA Summary
Base Case Project Highlights
- Project post-tax NPV8 of US$1,552 m and IRR of 106%.
- DSO only processing rate of 0.6 Mtpa for 3.5 years resulting in total production of 248 kt Cu and 649 koz Au. Phase 2 Main Mine processing rate of 2 Mtpa resulting in an additional total production of 507 kt Cu and 184 koz Au (mine gate figures).
- Pre-production capital of US$213m for Phase 1 starter DSO mine.
- The following capital would be funded from operation cash flow: Phase 2, 1 Mtpa flotation start up capital of US$78m, further sustaining capital of US$149m to increase and maintain production of 2Mtpa (including contingencies at 25%).
- Total average LoM Total Allocated Costs of US$0.97/lb Cu.
- DSO material of 1.91 Mt, mined at an average grade of 13.0% Cu and 10.6g/t Au and Phase 2 Main Mine material mined at average grade of 4.6% Cu and 2.9 g/t Au.
- Base case commodity assumptions of US$1,200/oz Au and US$3.00/lb Cu.
- Post-tax NPV of US$986m and post-tax IRR of 84% at current metal prices (US$1,250/oz Au and US$2.20/lb Cu).