Robust project economics confirmed
Fortune Minerals Limited (TSX-FT) (�Fortune� or the �Company�) is pleased to announce an
updated *bankable (definitive) feasibility study for the Lost Fox
deposit area at its 100% owned Mount Klappan anthracite coal project
in northwest British Columbia. This study was conducted by
Marston Canada Ltd. (Marston), a subsidiary of St. Louis-based
Marston & Marston Inc., and provides an update to the 2005
Marston definitive feasibility study for the project (see Fortune
Minerals news release, dated October 17, 2005). Fortune is
pleased to report that the Lost Fox deposit continues to show
attractive economics at current capital and operating costs, currency
exchange rates, and at coal prices significantly lower than the
current price for the metallurgical coal products that the Company
would produce.
Lost
Fox is one of four deposit areas within the Mount Klappan project and
this feasibility study update assesses only the initial pit in
the Lost Fox deposit. The study assesses the economics for an open pit coal
mine and process plant to be constructed at the site to produce 3
million tonnes of clean coal per annum (Mtpa), consisting of a
premium 10% ash ultra-low volatile pulverized coal injection (PCI)
product used in the manufacture of steel. The PCI product would
be transported by truck from the mine site to the port of Stewart for
loading and delivery to overseas steel customers. Alternative
transportation methods from the mine to the ports of Stewart and
Prince Rupert were also investigated.
HIGHLIGHTS
OF THE STUDY:
�
In-situ reserves of 102 million
tonnes for a minimum 20-year mine life at the planned production rate
of 3 Mtpa
�
Capital costs of C$617.2 million
to be incurred over the first 3 years
�
Cash costs FOB loading vessel
average C$ 107 / tonne of premium PCI
�
Base Case Pre-tax Internal Rate
of Return (IRR) of 28.9%, and 8% discounted Net Present Value (NPV)
of C$ 702.7 million at a price of US$ 175 per product tonne of
premium PCI in years 1-5, dropping to US$ 150 per product tonne for
the remainder of the mine life
�
Coal price sensitivities with
Pre-tax IRR up to 86.6% and 8% discounted NPV of C$ 3.8 billion at a
current approximate coal price of US$ 300 / product tonne of premium
PCI
�
Significant opportunities for
improvement of project economics
�
Significant engineering
completed for mine infrastructure and transportation routes
Fortune
Minerals has retained CIBC World Markets Inc. to act as the Company�s
financial advisor in pursuing strategic alternatives for the
advancement of Mount Klappan (see Fortune Minerals news release,
dated July 2, 2008). CIBC World Markets will assist Fortune in
identifying potential strategic partners and evaluating potential
transactions for the project, while Fortune pursues of strategy of
independent development of its 100% NICO Cobalt-Gold-Bismuth deposit
in the Northwest Territories.
GENERAL
INFORMATION:
Fortune
Minerals owns more than 15,000 hectares of contiguous coal licenses
located 150 km northeast of the port of Stewart and 330 km northeast
of the port of Prince Rupert in northwest British Columbia. The
property straddles the BC Railway right-of-way and roadbed, which
provides road access to the site from Highway 37. The Canadian
National Railway Company (CN) has trains operating on the portion of
the right-of-way between Prince George and Minaret, 150 km south of
the proposed minesite.
RESOURCES
AND RESERVES:
The
Mount Klappan project contains very large resources of high quality
anthracite, a hard coal with the highest rank, carbon and energy
content and lowest moisture and volatile content of all coals.
Unique properties make anthracite ideal for use in a broad range of
metallurgical and thermal applications, including reductants used in
metallurgical processing, blend coals for blast furnace coke
replacement, and charge carbon, sinter and PCI coals used in the
manufacture of steel. Only about 1% of world coal reserves are
anthracite grade, making the Mount Klappan coal a relatively uncommon
premium product. Notably, the two largest producers of
anthracite products in the world, China and Vietnam, have curtailed
exports in order to satisfy their domestic consumption, creating an
attractive development opportunity for Mount Klappan.
The
resources for the Mount Klappan project are identified in four
distinct deposit areas referred to as Lost Fox, Hobbit-Broatch,
Summit and Nass. Collectively, these contain Measured resources
of 107.9 million tonnes, Indicated resources of 123 million tonnes,
plus 2.572 billion tonnes in the Inferred and Speculative classes (see News Release, dated June
22, 2004). The in-situ and PCI product reserves were estimated for
the initial open pit mine at the Lost Fox deposit as part of the 2005
Marston feasibility study and are presented in the table below.
MINERAL RESERVES FOR THE LOST FOX DEPOSIT
AREA
IN-SITU COAL RESERVES (Mt)
|
10% ASH PRODUCT RESERVES (Mt)
|
PROVEN
|
PROBABLE
|
TOTAL
|
PROVEN
|
PROBABLE
|
TOTAL
|
85.6
|
16.1
|
101.7
|
51.6
|
9.2
|
60.8
|
The
Mount Klappan mineral resource and mineral reserve estimates were
prepared in 2002 and 2005, respectively by Marston in compliance with
National Instrument 43-101. Richard Marston, P.E. is the
Qualified Person responsible for the estimates. Further information
can be obtained regarding the Mount Klappan mineral resource and
mineral reserve estimates is available in the Company�s disclosures
under the Company�s profile on the SEDAR website at www. sedar.com.
MINING:
The
Proven and Probable mineral reserves in the Lost Fox deposit support
clean coal production of 3 Mtpa from an open pit mine over a minimum
mine life of 20 years. Conventional truck and shovel mining
methods will be employed using diesel hydraulic shovels. The
strip ratio averages 11.6 bank cubic metres (bcm) / product tonne
over the life of the mine.
PROCESS
PLANT:
The
current study contemplates a wash plant and supporting infrastructure
to be constructed at the Mount Klappan site. The plant would initially
process run of mine coal to produce a 10% ash, ultra-low volatile PCI
coal product for export to overseas steel manufacturers. The
plant would use standard processing methods of heavy media
separation, cyclones and froth floatation equipment to produce yields
averaging 57% from 14 coal seams. The plant would also be
configured to produce other premium anthracite products in the
future. Quality data for the 10% Ash PCI product is shown
below.
INFRASTRUCTURE:
The
2008 Marston study was focussed on truck transportation of product
from the mine to the port of Stewart. The site is currently
accessible by truck from Highway 37 using the BC Railway right-of-way
and roadbed. The feasibility study assumes a new 100-km
short-cut limited access road would be built to reduce the truck
haulage distance to Stewart to 250 km. Trucks with a capacity
for 110 tonnes of coal would be used on the new limited access road
with a transfer station at Highway 37 for re-load to 40-tonne highway
compliant trucks for the remaining 150 km to the port.
Additional infrastructure would be required for the port facility at
Stewart, including two new 60,000 tonne storage silos, a stacker -
reclaimer system, and a new 2,000 tonne / hour ship loader, all of
which are assumed to be paid for by the project.
Power
for the process plant and all other facilities will be supplied with
diesel generation, although there is a possibility of future
connection to the BC electrical grid. Electrical requirements
for the initial Lost Fox development total 6.3 Megawatts.
ECONOMIC
ANALYSIS:
The
base case economic analysis assumes a price of US$ 175 / tonne for
premium PCI coal for the first 5 years, and then US$ 150 / tonne for
the remainder of the mine life. A summary of the base economics
is shown in the table below. The current price for ultra-low
volatile PCI product is between US$ 275 and US$ 300 / tonne. A
sensitivity analysis to coal price in increments of US$ 25 / tonne is
shown in the second table below. In all cases the Canadian : US
dollar exchange rate is assumed to be C$ 1.03 = US$ 1.
BASE CASE
|
|
PRE-TAX
|
AFTER TAX
|
IRR
|
28.9%
|
21.5%
|
NPV (8% DISCOUNT)
|
C$ 702.7 M
|
C$ 376.4 M
|
CAPITAL (1ST 3
YEARS)
|
C$ 617.2 M
|
COAL PRICE SENSITIVITIES
|
FOBT PRICE (US$/t)
|
PRE-TAX IRR
|
PRE-TAX NPV (8%)
|
AFTER TAX IRR
|
AFTER TAX NPV (8%)
|
$150
|
20.6%
|
C$ 501 M
|
15.2%
|
C$ 237 M
|
$175
|
32.7%
|
C$ 1,058 M
|
25.3%
|
C$ 605 M
|
$200
|
43.8%
|
C$ 1,600 M
|
34.0%
|
C$ 957 M
|
$225
|
55.0%
|
C$ 2,161 M
|
42.4%
|
C$ 1,319 M
|
$250
|
65.7%
|
C$ 2,711 M
|
50.4%
|
C$ 1,673 M
|
$275
|
76.2%
|
C$ 3,266 M
|
58.4%
|
C$ 2,031 M
|
$300
|
86.6%
|
C$ 3,818 M
|
66.1%
|
C$ 2,387 M
|
A summary of the major capital cost items
for the proposed Lost Fox development is shown in the table
below.
CAPITAL COST SUMMARY
CAPITAL ITEM
|
COST
|
Mine & Equipment
|
C$ 206.5 M
|
Process Plant & Facilities
|
C$ 123.6 M
|
Off-site transportation
Roads & trucks
|
C$ 174.0 M
|
Port & Terminal
|
C$ 53.6 M
|
On-site Infrastructure
|
C$ 59.5 M
|
Total
|
C$ 617.2 M
|
OPPORTUNITIES:
A
number of opportunities exist to further improve the economics of the
Mount Klappan project and have been identified in the new Marston
feasibility study. They include:
- Drilling to Increase the
Resource � There is a significant opportunity to expand the
economic resource base for Mount Klappan. Marston has
recommended a four-phase drill program to increase and upgrade
the resources for the Lost Fox, Hobbit-Broatch, Summit and Nass
deposits from the Inferred and Speculative classes to Measured
and Indicated.
- Slurry Pipeline �
Preliminary feasibility level work has been done by Marston and
Pipeline Services Inc. of Concord, California, which indicates
potential cost efficiencies from using a 14-inch buried pipeline
to transport coal from the mine to the port of Stewart or Prince
Rupert (see Fortune Minerals news release, dated January 15,
2008). While such a pipeline would increase the initial
capital for the project, it would significantly reduce the
project�s exposure to increasing fuel and labour costs.
- Extension and Upgrading of
the Railway � Opportunities exist to extend the Dease Lake rail
line from its current terminus at Minaret to the minesite for
transportation of coal by unit train to the port of Prince
Rupert. In order to accommodate fully-loaded unit trains,
the existing railway facilities to Fort Saint James would need
to be upgraded or, a 200 km shortcut constructed to the main CN
Line at Hazelton. The expense of a rail line would be
justified in a larger project with a production rate greater
than the project currently envisioned by Fortune. Notably,
the governments of Alaska and the Yukon Territory announced the
results of a bi-lateral feasibility study initiative that
recommends the extension of this railway (see Fortune Minerals
news release, dated June 27, 2007).
- Access to Grid Power � The
current study is predicated on diesel-generated power and the
use of diesel hydraulic trucks and shovels. The B.C.
government is considering extending the provincial electrical
grid from Meziadin up the Highway 37 resource corridor.
Access to grid power would eliminate the need for on-site power
generation, allow for the use of more efficient electric cable
shovels and electric assisted haul trucks, and alleviate uncertainties
associated with fluctuations in the price of diesel.
- Lease�to-Purchase of Mobile
Equipment Fleet � Opportunities exist to finance mobile
equipment for both the mine site and coal haul through a
�lease-to-purchase� program. This would lower the up-front
capital for the mine and would result in a higher IRR for the
project.
CURRENT
ACTIVITIES:
In
addition to the engineering and feasibility work that has been
conducted for the Mount Klappan project, Fortune is also working on
environmental studies in support of the environmental assessment
process. Rescan Environmental Services Ltd. and Rescan Tahltan
Environmental Consultants have conducted most of this work. In
addition, Allnorth Consultants Limited have conducted alignment
studies and engineering for the proposed new limited access haul road
to be constructed between the mine and Highway 37.
About Fortune Minerals
Fortune Minerals is a
diversified natural resource company with several mineral deposits
and a number of exploration projects, all located in Canada.
They include the Mount Klappan anthracite coal deposits in British
Columbia, and the NICO cobalt-gold-bismuth deposit, the Sue-Dianne
copper-silver deposit and other base and precious metals exploration
projects in the Northwest Territories. Fortune Minerals is
focussed on outstanding performance and growth of shareholder value
through assembly and development of high quality mineral resource
projects.
For further information please
contact:
This
press release contains forward-looking information. This
forward-looking information includes, or may be based upon,
estimates, forecasts, and statements as to management�s expectations
with respect to, among other things, the size and quality of the
Company�s mineral resources, progress in development of mineral
properties, demand and market outlook for metals and future metal
prices. Forward-looking information is based on the opinions and
estimates of management at the date the information is given, and is
subject to a variety of risks and uncertainties and other factors
that could cause actual events or results to differ materially from
those projected in the forward-looking information. These
factors include the inherent risks involved in the exploration and
development of mineral properties, uncertainties with respect to the
receipt or timing of required permits and regulatory approvals, the
uncertainties involved in interpreting drilling results and other
geological data, fluctuating metal prices, the possibility of project
cost overruns or unanticipated costs and expenses, uncertainties
relating to the availability and costs of financing needed in the
future and other factors. Mineral resources that are not mineral
reserves do not have demonstrated economic viability. Inferred
mineral resources are considered too speculative geologically to have
economic considerations applied to them that would enable them to be
categorized as mineral reserves. There is no certainty that
mineral resources will be converted into mineral reserves. The
forward-looking information contained herein is given as of the date
hereof and the Company assumes no responsibility to update or revise
such information to reflect new events or circumstances, except as
required by law.
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