DNI METALS INC. (DNI : TSX-Ven)(DG7 : Frankfurt)

DNI REPORTS POSITIVE PRELIMINARY ECONOMIC ASSESSMENT FOR ITS BUCKTON POLYMETALLIC Ni-Co-Zn-Cu-U-REE-Y BLACK SHALE DEPOSIT, ALBERTA

DNI Metals Inc. (DNI:TSX-Ven)(DG7:FSE) announces a summary of results from an independent NI 43-101 Preliminary Economic Assessment Technical Report (the "PEA") for the Buckton Deposit on its 100% owned SBH Property, located 120 kilometres north of Fort McMurray in northeast Alberta. The polymetallic Buckton Deposit is hosted in black shales and is in one of six mineralized zones discovered on the Property. The PEA outlines a conceptual mining and metals recovery scenario relying on the NI 43-101 mineral resource estimate for the Buckton Deposit announced on August 27, 2013. The PEA relates to mining and processing operations for the production of Ni-U-Zn-Cu-Co and Rare Earth Elements (REE) including Yttrium from the Buckton Deposit.

This press release is a summary of the conclusions from the PEA technical report which will be filed to SEDAR within the next forty-five days and will be available from www.sedar.com. The technical report will also be available from DNI's website www.dnimetals.com once it has been filed.

The PEA demonstrates that the Buckton Deposit has the potential to be a significant supplier of uranium and REE.  The mining design is a low strip ratio, high tonnage co-production of Ni-U-Zn-Cu-Co-REE-Y from the Labiche and Second White Speckled formations. The metals extraction design basis is bio-heap leaching, followed by metals extraction from leach solution, and a process plant for separating purified individual REE oxides. The projected average annual production capacity is approximately 1 million pounds of uranium yellowcake and 5,500 tonnes of rare earth oxides, of which over 40% are made up of heavy rare earth elements. The PEA also identified a number of key opportunities which can significantly enhance economics through strategic cost reductions and/or revenue enhancements, some of which can be achieved with minimal additional testwork.

The PEA indicates that the envisaged Buckton operation has a net present pre-tax value of $1.6 billion at a 6% discount rate, with an 8.7% internal rate of return (100% equity financed basis). The Buckton mining operations will cost an estimated $3.76 billion in pre-production capital to construct with a 10.5 year payback. The mining operations would generate an average of $349 million in pre-tax net cash flow annually from the production of Ni-U-Zn-Cu-Co-REE-Y over the 64 year mine life, with life of mine revenues of $75 billion. The PEA is based on mineral resources consisting mostly of Inferred resources that are too speculative geologically to have economic conditions applied to them that would enable them to be characterized as mineral reserves, and there is no certainty that the conclusions of the PEA will be realized.

The PEA was prepared by P&E Mining Consultants Inc. with assistance from others. The mineral resource estimate for the Buckton Deposit was prepared by Apex Geoscience Ltd. Hatch Ltd. was retained to review DNI's metals recovery testwork to formulate process engineering design criteria and metals recovery flow sheets, and to develop related capital and operating cost estimates. The Hatch process engineering was reviewed and reported by Mr. Bruce Cron P.Eng. of Cron Metallurgical Ltd. The foregoing parties are independent of DNI and are the Qualified Persons in connection with preparation of the PEA. All currency in this announcement is in Canadian dollars, unless stated otherwise.

This PEA is the initial economic assessment of the potential of the Buckton Deposit and is preliminary in nature. It is based on the collective of information from all exploration, mineral resource and metal extraction studies completed by DNI during the past five years, augmented by extrapolations from other similar projects. This assessment was initiated early in the Deposit's development history to better focus DNI's next stage of work, given the array of recoverable metals from the deposit, the differing leaching parameters required for economic recoveries of the various metals, and the geometry of the deposit being hosted in two layered (stacked) sedimentary formations of differing head grade and slightly different compositions.

The PEA achieved its principal objective of evaluating viability of producing metals from the Buckton Deposit, and formulated a conceptual plan for high throughput open pit mining and metals recovery flowsheets for the production of Ni-U-Zn-Cu-Co-REE-Y. It was particularly successful in identifying the critical mining and processing parameters which can have a significant impact on economics at Buckton. Whereas mineral resource studies for the Buckton Deposit estimated recoverable Ni-Mo-U-V-Zn-Cu-Co-Li-REE-Y, certain metals were provisionally omitted from the PEA based on economic considerations (Mo-Li-V) or due to uncertainties in their markets (Sc-Th). As such, the PEA contemplates production of saleable final products of Ni-Co and Zn-Cu as sulfides, U as oxide "yellowcake", and REE-Y as separated oxides.

DNI has been exploring and evaluating the Buckton Deposit during the past five years as a long term future source of numerous metals. The Buckton mineralization is hosted in two flat-lying "stacked" shale formations beneath overburden cover. The lower formation is the higher grading Second White Speckled Shale Formation which lies beneath the Labiche Formation shale. The PEA, accordingly, evaluated two separate scenarios. The Base Case scenario  focuses on mining and processing of both formations on a blended basis, whereas the Alternate Case contemplates mining and processing of only the lower formation (the Second White Speckled Shale Formation) with a considerably higher strip ratio over a shorter mine life while treating all overlying material as waste. In general terms, with the exception of different mine and plant capacities, both scenarios contemplate the same mining and metal processing methods. The Base Case yielded more favorable economics than the Alternate Case and therefore is the preferred development approach.

This announcement concerns itself with details relating to the Base Case scenario, although salient aspects of the Alternate Case are also summarized for reference.

The PEA identified a number of key parameters which can significantly enhance economics through strategic cost reductions or revenue enhancements some of which DNI believes can be achieved with minimal additional testwork. These are discussed in detail later in this announcement to highlight potential realistic upside to be assessed in a future update of the PEA. Highlights from the two mining scenarios are tabulated below.

Cautionary Note: The PEA study is based on a conceptual mining plan and metals recovery flowsheets to support estimation of cost parameters to serve as the basis for assessing the Buckton Deposit. As such, the PEA is intended to provide the necessary technical disclosure in prescribed regulatory format to enable a reasonable person to form a reasonable opinion of the potential of the Buckton Deposit based on economic sensitivity to key operational criteria. The PEA is not intended as a study of definitive economic viability as it is preliminary in nature and is based on technical and economic assumptions or extrapolations to be refined in future studies. The PEA is, furthermore, based on mineral resources consisting mostly of Inferred resources that, despite uniformity of grade and continuity, are too speculative geologically to have economic conditions applied to them that would enable them to be characterized as mineral reserves, and there is no certainty that conclusions of the PEA will be realized.

Buckton Polymetallic Deposit

The PEA relies on the Buckton mineral resource as outlined in the Updated and Expanded Buckton Mineral Resource Study (the "Buckton resource study") prepared by Apex Geoscience Ltd ("Apex"), Edmonton, which complies with National Instrument 43-101 and CIM resource estimation guidelines and was announced on August 27, 2013.

The Buckton mineral resources are hosted in two near-surface stacked black shale horizons which are mineralized with recoverable Mo-Ni-U-V-Zn-Co-Cu-Li-REEs-Y-Th-Sc. The mineral resources consist of an upper mineralized portion hosted in the Labiche Formation which directly overlies a higher grade black shale hosted in the Second White Speckled Shale Formation beneath it. The two formations together comprise an approximately 13m-140m thick wedge of mineralized black shale, extending westward from the eastern erosional edge of the Birch Mountains where they are exposed on surface but are under progressively thicker overburden cover westwards. Due to differing head grades and slight lithogeochemical contrasts, the two formations offer two mining targets which were discussed separately in previous resource studies for the Buckton Deposit and reported on a segregated basis as well as on a combined (blended) basis.

The Buckton mineral resource represents an aggregate of 4.7 billion tonnes of mineralized material consisting of 4.4 billion tonnes classified as an Inferred resource and 271 million tonnes classified as an Indicated resource. The Buckton Inferred and Indicated resources together extend over 21.9 square kilometres, 20.4 square kilometres of which represents the aerial extent of the Inferred resource. The Buckton Inferred resource is open to the north, northeast and south, and eastward to the erosional edge of the Birch Mountains over a large area with thin overburden cover where mineralization intermittently outcrops at surface or is intermittently exposed throughout several kilometres of valley walls. The Inferred resource is open to the south over the approximately seven kilometres separating it from the Buckton South Zone mineral resource (announced January 11, 2013). Stratigraphic and surface exploration information suggests that the Buckton and Buckton South Zones may well be connected. The Buckton Indicated resource is located in the middle of the deposit surrounded by the Inferred resource which may be upgraded into the Indicated class subject to minimal infill drilling.

The PEA is based on mineralized material consisting of the aggregate of Inferred and Indicated resources, comprising mineralized material 94% of which consists of an Inferred resource. The PEA mineral resource can, accordingly, be deemed to consist entirely of an Inferred resource for disclosure purposes.

Polymetallic black shale is an emerging deposit type which has gained recognition over the past decade mainly due to advances in application of bulk bioleaching procedures to extract low grade metals from the shale. There is currently only one active mining operation extracting polymetals via bio-heapleaching (Talvivaara Mine, Finland) and two other scoping stage projects that are exploring/developing polymetallic deposits in Swedish black shale. These operations provide some resource estimation and operating cost guidelines that are relevant to evaluating the Buckton Deposit.

The resource block model from the Buckton resource study was utilized by P&E Mining Consultants Inc. to delineate a mining pit shell using pit optimization software, relying on various constraining design, operating and processing cost parameters collectively comprising threshold cut-offs of $12.5/tonne and $10/tonne for the Second White Speckled Shale and Labiche formations, respectively. The recoverable in-situ value for each resource block was tested against the cut-offs to determine its inclusion into the optimized pit shell. A portion of the optimized pit shell was further revised to reduce pre-stripping costs during the initial years of production. The final designed open pit outlined by the PEA, accordingly, delineates that portion of the mineralized material which meets economic threshold criteria and represents tonnages that are economically extractable by open pit method.

The PEA reports that 4.5 billion tonnes (roughly 96%) of the total resources can be mined by open pit at a 0.5:1 strip ratio for Base Case (both the Labiche Shale and the Second White Speckled Shale are mined together and processed on a blended basis). This material would be overlain by 2.3 billion tonnes of overburden waste (for comparison, under the Alternate Case scenario 976 million tonnes, or 99%, of the total resources hosted in the Second White Speckled Shale can be mined by open pit at a 6.27:1 strip ratio, this tonnage is overlain by 6.1 billion tonnes of waste material consisting of the Labiche Formation Shale and till overburden above it). Details of the various tonnages are tabulated below.

Mineral resources are not mineral reserves and do not have demonstrated economic viability. There is no guarantee that all or any part of the mineral resources reported herein will be converted into a mineral reserve. An 'Inferred Mineral Resource' is that part of a Mineral Resource for which quantity and grade or quality can be estimated on the basis of geological evidence and limited sampling and reasonably assumed, but not verified, geological and grade continuity. The estimate is based on limited information and sampling gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings and drill holes. An 'Indicated Mineral Resource' is that part of a Mineral Resource for which quantity, grade or quality, densities, shape and physical characteristics can be estimated with a level of confidence sufficient to allow the appropriate application of technical and economic parameters, to support mine planning and evaluation of the economic viability of the deposit. The estimate is based on detailed and reliable exploration and testing information gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings and drill holes that are spaced closely enough for geological and grade continuity to be reasonably assumed. The metal recoveries reported represent preliminary mineral recovery testing results collated from the collective bench scale laboratory testwork completed by DNI to date and may not reflect actual process recoverability that might be achieved in a mineral production operation, all of which is the subject of ongoing studies.

Metal Grades & Recoveries

Whereas the mineral resource study for the Buckton Deposit estimated resources for recoverable Ni-Mo-U-V-Zn-Cu-Co-Li-REE-Y-Th-Sc, some of these metals were provisionally omitted from the PEA based on economic considerations (Mo-Li-V) or due to uncertainties in their markets (Sc-Th). As such, the PEA contemplates production of saleable final products of Ni-Co and Zn-Cu as sulfides, U as oxide "yellowcake", and REEs as separated REE oxides. Should markets for Sc-Th be better defined in the future, they can be expected to present additional economic value which might be captured into subsequent updates of the PEA. Similarly, should future testwork achieve higher recoveries for Mo-Li-V to outweigh costs of their respective recoveries, they too can be expected to present additional future value.

The PEA relies on metal recoveries after applying estimated leaching, entrainment and processing circuit losses as tabulated below. The metal recoveries reported represent preliminary mineral recovery testing results from the collective bench scale laboratory testwork completed by DNI to date and may not reflect actual process recovery achievable in a mineral production operation. Metal recoveries are the focus of ongoing studies by DNI to be more definitively established during a future pilot plant demonstration leaching test for a bulk sample from the deposit. The recoveries are, however, consistent with initial results from column leaching testwork currently in progress thereby providing guidance for extrapolation and suggesting that column leaching might achieve metal recoveries similar to those documented from the benchscale stirred tank testwork.

The PEA utilizes metals recoveries per the Buckton resource study which are more conservative than those used in prior resource studies for the Buckton Deposit. These recoveries are believed to represent bioheapleaching field conditions, relying on benchscale bioleaching testwork results from work in progress at Canmet conducted under moderately acidic conditions (ie: lower recoveries than tests from more aggressive acidic conditions). This view was guided by extrapolations from the Talvivaara bioheapleaching operation in central Finland which is the only mining operation worldwide relying on bioheapleaching to concurrently recover a suite of metals from its mineralized black shale. The conditions for leaching of metals from the Buckton black shales is subject to further optimization via additional testwork..

In the absence of advanced metals processing testwork and data from a hydrometallurgical plant pilot test, there is some uncertainty in estimates of ultimate metal recoveries in the downstream hydrometallurgical plant envisaged for the Buckton Deposit. Anticipated recovery losses related to hydrometallurgical processing were, accordingly, established by Hatch based on extrapolations from other projects and estimates based on experience. Solution entrainment, precipitation efficiency, and re-dissolution efficiency estimates were built into the mass balance framework. Aggregate metals leaching and processing costs were estimated separately for the Labiche and the Second White Speckled Shale formations by relying on two separate mass balances to determine processing losses and reagent consumption for each. This enables evaluation of various mining scenarios whereby the two formations are blended in different proportions during mining.

Mineral resources, metal grades, recoveries and average quantities of projected annual metal production are tabulated below including adjustments for entrainment and processing efficiencies. Total recoverable metals per the Buckton resource study and per the PEA production plan are shown for comparison, in addition to average quantities of projected annual metal production as projected by the PEA production schedule.

Metal Prices

The PEA economics are based on the Buckton resource study announced August 27, 2013, which relied on the two-year (three-years for Tm2O3) trailing average metal/oxide prices to May 31, 2013, without forecasting the future nor extrapolating forward from current market trends over the long anticipated mine life spanning several decades. Metal/oxide prices used are as quoted by Metal-pages.com, Asianmetal.com; and USGS. Metal prices vary among various commodity information sources and, in all conflicting instances, the lower pricing was used. The prices used are shown in the table above along with grades and recoveries. For the purposes of the PEA, REEs are valued per their respective price quotes as separated final saleable products given that the Buckton metal processing contemplated by the PEA provide for REE separation facilities.

It is of note that, based on the price scheme used, recoverable REEs currently represent majority of the per tonne value represented by the two shales, whereas five years ago at the outset of DNI's launch of exploration of the Buckton Zone (and the SBH Property) the bulk of the gross in situ value of the shales was related to their base metals and Uranium content. This is a typical characteristic of polymetallic deposits, whose value is the aggregate of the individual recoverable values represented by each of the contained recoverable metals which do not necessarily follow the same commodity market trends at any given time.

Since REEs account for a significant proportion of the recoverable gross value of the resource, ultimate economics of the Buckton Deposit are subject to uncertainties of long term REE pricing, viability of REE demand and the unknown effect of new production on future REE markets.

Current demand for REEs is robust considering they are critical to a wide spectrum of high tech and electronics based products, as well as magnets and greening industries, and they are generally predicted to remain in high demand well into the future. As critical metals in short supply, however, their future demand can realistically be expected to be subject to unpredictable unknowns including technological innovation which can likely have a more significant affect on pricing fluctuations than simple traditional supply demand dynamics. Considering the multiplicity of metals that the Buckton Deposit can produce, a detailed predictive marketing study was not completed as part of the PEA, especially given the long mine life of contemplated operations at Buckton.

Mining Operations Overview

The PEA envisages a large shallow open pit mine with 30 degree pit slopes to extract a tabular and nearly horizontal shale package over a 64 year mine life at a production rate of 72 million tonnes of mineralized feed per year at an average strip ratio of 0.5:1. The mining scenario contemplates extracting and processing the Second White Speckled Shale Formation as well as the overlying Labiche Formation by stripping away the overlying till overburden to be backfilled behind the advancing open pit face. To extract the foregoing tonnage of mineralized feed, an average of 105 million total tonnes will be mined annually including overburden and mineralized feed.

Due to the poorly consolidated nature of the shales, the PEA contemplates that all material can be excavated by free-digging without any drilling and blasting. The run-of-mine feed material to be leached will be mechanically stacked on a multi-compartment 2km x 3km leach pad after screening/sizing and agglomeration with sulfuric acid. The overburden waste material will be will be mined similarly and backfilled into the open pit (except during the initial few years when it is stacked outside the pit).

The leach pad will be stacked up to a height of 8m and irrigated with bioleaching solution in a traditional heap leaching procedure whereby the leach solution (PLS) carrying dissolved metals is collected at the bottom of the heaps once it is percolated through the heap, and is fed to a metal processing plant through a series of pipes. The heap will be equipped with aeration piping and blowers to supply the necessary oxygen for the well being of the bio-organisms, which will be harvested from the shale itself and cultured as was done during DNI's prior testwork. Only a single heap leaching cycle is envisaged given the relatively rapid metal dissolution rates observed during the testwork completed to date suggesting that a six month leaching gestation would be more than adequate for extraction of the metals. The barren leach material will be reclaimed, neutralized and conveyed as backfill into the previously mined out portions of the open pit.

The mining development schedule envisages a two year construction period ahead of the initial six month mining and heap stacking period followed by six months of leaching. As such, only partial revenues are recognized during the first year of production.

Mineralized feed and overburden waste will be excavated by large capacity cable shovels and dumped into mobile sizers which feed a network of dedicated conveyors either transporting material to the waste dump or the leach pad area.  Barren leach material will be conveyed from the leach pad area and placed upon the backfilled overburden waste material using large capacity stackers.

Metals Leaching, Recovery and Processing Overview

The PEA relies on a process engineering framework formulated by Hatch Ltd. for the extraction, recovery and processing of metal products from the Buckton Deposit. The process engineering was reviewed by Mr. Bruce Cron P.Eng. who is the independent Qualified Person for the metals leaching and processing design portion of the PEA.

Considering the multiplicity of potential final metal products, Hatch completed an initial evaluation to identify the metals which have potential of economic viability to guide further process design development and the PEA. The screening study identified Cu-Zn-U-Ni-Co-Li-REE-Y as the metals which have potential economic viability. The screening study recommended omitting Mo-V-Li from final products since the costs of their recovery outweighed revenues they might contribute, and also recommended omitting Sc-Th based on uncertainties in their market demand (to some extent V is also subject to a concern about potential market oversupply).

Hatch subsequently formulated a block flow diagram and process description entailing extraction by low reagent dosage bio-heap-leaching which minimizes operating costs while providing reasonable metals recoveries. Bio-heap leaching is a form of acid heap leaching. The keys to low cost operation lie in the minimal amount of required size reduction (ie: crushing), as well as utilization of sulfide components in the feed, with the help of microbial activity, to generate some or all of the acid required to overcome the acid consuming components in the rock. Although both the Labiche Formation and the Second White Speckled Shale Formation contain acid generating sulfide minerals, they are both net acid consuming given their carbonate contents.

The metals recovery procedures envisaged are similar to other shale bio-heapleaching processes which use hydrometallurgical selective base metal precipitation by addition of hydrogen sulfide to the pregnant leaching solution.  Next, ion exchange is used to recover Uranium from the leach solution.  The main stream is then neutralized with lime and mildly re-acidified to concentrate the rare earths and some base metals into a smaller stream. Ni-Co are precipitated as sulfides by treatment with H₂S, and finally, REEs are precipitated from the solution as a mixed REE-oxide chemical concentrate using oxalate reagent. The final metal recovery products are: a mixed Copper-Zinc sulfide concentrate; a mixed Nickel-Cobalt sulfide; dry Uranium oxide (yellowcake) and a REE-Y bulk concentrate. which is further refined at a separation plant to produce final separated individual oxides (+/- carbonates) for sale.

The majority of leaching solution is re-circulated to the heaps during the leaching process. Residues consisting predominantly of inert gypsum are separated out during the neutralization/re-acidification process. Final leached tailings from the heaps are neutralized with lime and backfilled into the pit, and effluent solutions are similarly treated prior to discharge.

Ancillary to the mining and leaching operations are the operation of several plants for producing the necessary processing reagents, namely; an H₂S plant, sulfuric acid plant with capacity for 9,600 tonnes per day, and a calcining plant for the production of quicklime. These reagents are further discussed later in this announcement.

Opportunities identified by Hatch for improvement include possibility for selective pre-concentration of the pregnant leaching solution prior to its treatment in the metal recovery circuits (eg: membrane separation by nano-filtration) to enhance metals concentrations leading to potential for better recovery or lower reagent consumption.

Hatch relied on the available test data to establish reasonable estimates of operating conditions and metal extraction rates, to prepare process design criteria to construct a mass balance model for the determination of equipment throughputs as a basis for equipment sizing, reagents consumption, production rates, chemical compositions, and energy usage. Hatch prepared capital and operating cost estimates for the Base Case annual leaching throughput rate of 72 million tonnes as well as the Alternative Case scenario for a 36 million tonnes annual rate.

Reagent Consumption

The contemplated leaching and metals processing system will consume a variety of reagents. Natural gas, lime and sulfuric acid represent the critical reagents required in relatively large quantities and have by far the greatest impact on overall operating costs, and low-cost feed-stocks were identified for each of these. Reasonably priced natural gas is available throughout Alberta. The contemplated operations entail on-site calcining of locally sourced limestone to produce quicklime. On-site production of sulfuric acid relies on large local supplies of sulfur which is one of the principal waste products from oil sands operations in the region and is currently stockpiled on surface with no foreseeable economic use. Lime and sulfuric acid production costs are capital intensive and sensitive to transportation cost. Reduction of their consumption is an opportunity for improvement that would also reduce acid/lime plant sizing and thereby reduce capital as well as operating costs. This is discussed in a later section of this announcement.

The PEA estimates that leaching and metals processing will consume on average approximately 40kg of sulfuric acid per tonne of mineralized feed processed. Lime consumption for processing of the two shale formations is different and on average requires 31kg of limestone per tonne of blended mineralized feed. These figures are based on preliminary stirred tank and column leaching testwork results as at July/2013 (results from additional work completed since then suggest that sulfur consumption might be lowered without significantly sacrificing metals recoveries).

The PEA uses a sulfuric acid cost of $59 per tonne of acid, consisting of the cost of producing sulfuric acid at the onsite acid generation plant and an allowance of $10 per tonne for transportation of sulfur to the plant from nearby oil sands operations. A collateral benefit of the sulfuric acid generation plant is the excess electricity produced from its operation, which is reflected in operating costs as a power credit of $0.15 per tonne. The PEA assumes that the excess power would be fed back into the local electrical grid.

The PEA uses a cost for limestone delivered to the on-site calcining plant of $35 per tonne of limestone, nearly half of which ($16 per tonne) is the cost of transporting the limestone from a nearby operating quarry. Although a number of outcroppings of limestone exist nearer the Buckton Deposit, none is currently in production. The proximity of possible sources for limestone nearer the Buckton Deposit offer future opportunities for reducing costs.

Effluents and Tailings

The majority of effluent volume is from a bleed stream of partially neutralized leach solution which is further neutralized by the addition of lime to a pH of 10 for removal of residual contaminants, then adjusted to a final release pH. The clarified solution is temporarily held in an effluent pond before discharge. Solid residues from effluent treatment consist largely of very fine gypsum and various iron precipitates which are held in a gypsum pond for dewatering.

Tailings consist of leached residue which is unloaded from the leach pads by shovel and conveyor system.  The barren material is stored on surface in the initial few years but subsequently backfilled in the open pit. The tailings may be blended with lime if additional neutralization is required.

DNI has not yet completed the necessary pilot testwork to establish definitive parameters relating to treatment of effluents and tailings from the contemplated operations.

Rare Earth Element Oxides Bulk Concentrate and Separation Plant

The Buckton black shales have similarities with Chinese ionic clays in that REEs from Buckton are readily extracted from the shale with reasonably high recoveries by a mild leaching solution. One of the final products of the conceptual flow sheet for the envisaged Buckton hydrometallurgical plant is precipitation of a relatively pure mixed rare earth element oxide (REO) concentrate that is calcined as an intermediate product. This becomes the feed for a separation plant to produce respective final saleable products (oxides +/- carbonates) of individual REEs. Expected chemistry of the Buckton REO bulk concentrate is in contrast to concentrates produced from most other REE projects many of which are hosted in hard rocks and typically produce mineral concentrates which are relatively impure and potentially require aggressive leaching and purification before they are fed into a separation plant.

Appropriate pricing of REE final products is highly dependant on their purity; namely, on whether they are 99%+ pure or have purities as high as 99.99% commanding a large sale price differential between the two. DNI has not yet completed the necessary REE precipitation and separation testwork to establish definitive guidelines to prepare estimates of capital and operating costs for separation of the REE concentrate contemplated as the final products from the Buckton Deposit. To provide an interim guide, the PEA relies on recent third party public information to prepare an extrapolated estimate, assuming that all referenced separation plants can achieve separation of products with 99%+ purity, and further assuming that a separation facility constructed by DNI would be designed to specification capable of achieving similar purity.

Considering that little, if any, spare REE separation capacity is presently available outside of China which dominates current world REE supply, the PEA recommends that DNI would benefit from including a REE separation plant of its own into its plans for developing the Buckton deposit. Since no meaningful cost data is published by Chinese REE producers, the PEA's cost estimates for Buckton rely on NI 43-101 publicly available information from selected public companies which are advancing their projects toward construction. Notably, the Thor Lake project (Avalon Rare Metals Inc) Pre-Feasibility studies include information for a REE separation plant in Geismar, Louisiana.  This plant is designed to process a  REO hydrometallurgical plant precipitate bulk concentrate, presenting the best technology and processing benchmark for the expected high purity REO mixed concentrate that is envisaged to be produced from the Buckton Deposit.

Public information for the Geismar plant consist of a summary from its Pre-Feasibility study (Avalon press April 2012) which reported a capital cost of US$302 million and an operating cost of US$5.6 per kg of REE oxide product for this plant, with an annual capacity to process/produce approximately 10,000 tonnes of final product. These figures were revised by Avalon's pre-feasibility study but disclosed (Avalon press April 2013) on a blended basis along with other overall operating costs. Relying on the foregoing and benchmarking from other REE projects in the upper range of operating cost estimates (eg: approximately US$14/kg of product for Lynas Corporation's Mount Weld operations), the PEA uses an operating cost of US$10 per kg of final product as a conservative estimate for separation of REEs from Buckton. The PEA estimates a capital cost of US$269 million for the construction of the separation plant capable of processing up to 7,200 tonnes of REO mixed concentrate annually.

The contemplated Buckton mining operations have a projected capacity for the annual production of an average of 5,600 tonnes of mixed REO bulk concentrate (ranging 4,100-7,200 tonnes as a function of grade fluctuations). Any excess processing capacity of the separation plant may offer opportunities for additional revenue through toll-milling of third party REO concentrates.

The PEA notes that although the basic metrics of feeding an REO concentrate to a purification and separation facility apply equally well to all REE separation plants in general terms, the plants are ultimately custom designed to feed characteristics. But as purity is progressively improved by intermediate processing steps, the final separation processes tend to look progressively more like standardized combinations of solvent extraction, final precipitation, drying and calcining to produce oxides or carbonates. Accordingly, even though the projected REE production rate for Buckton is similar to those from other REE projects in the Western world such that interpolation from these provides a reasonable benchmarks to guide an early stage PEA, the need for strategic testwork by DNI to establish physical and chemical characteristics of contemplated REO bulk concentrate from Buckton is self evident.

The PEA further notes that location of the contemplated separation plant on-site or off-site is predominantly a function of evaluating synergies provided by the envisaged Buckton on-site infrastructure against benefits provided by an off-site location with easy access to infrastructure and highly skilled operating staff. These considerations are beyond the scope of the PEA and are best assessed in the context of a future Pre-Feasibility study.

While the PEA prepared estimates of capital and operating costs for the construction and operation of a stand-alone separation plant customized to the Buckton concentrates, consideration of third party toll-milling is an alternative worthy of future investigation if such capacity becomes available.

Capital Costs

The PEA covers all aspects of organizing, constructing and conducting mining and processing operations at the Buckton Deposit including mining, metals extraction from the shales by heap leaching, metals recovery from the pregnant leach solution and REE separation into saleable final products, as well infrastructure and maintenance thereof. The PEA capital cost estimates rely on quotations and estimates from suppliers and contractors, augmented by estimates from experience from other comparable operations. The PEA contemplates a two year pre-production construction and pre-stripping period, during which pre-production capital expenditures are incurred.

Estimates of capital costs were prepared generally consistent with an AACE Class 5 estimate with an accuracy of -20%/+50%, in-line with guidelines for an order of magnitude study at the level of engineering and method employed to develop the cost estimates for Buckton. A 30% contingency was, accordingly, applied to direct installed costs of all metals leaching and processing equipment except the REE separation plant, 5% applied to the acid plant costs, and an overall 20% applied to mining equipment costs and infrastructure. The benchmark capital cost estimate for the REE separation plant includes a contingency.

The PEA estimates a pre-production capital cost on a constant (undiscounted) dollar basis of $3,766 million, which includes $55 million of indirect owner costs and $474 million of contingencies. In addition, annual sustaining capital requirements during the mine life are estimated to $38 million per year (equivalent to approximately 1.25% of pre-production capital costs) representing an aggregate of $2,445 million over the 64 year mine life ($547 million if discounted at 6%). Sustaining capital represents the aggregate cost of mining and processing equipment replacement, capitalized infrastructure and facility upgrades over the 64 year mine life, as well as ongoing capitalized repairs and maintenance to leaching pads.

Details of capital costs are tabulated below, showing costs of mining and processing equipment and facilities.

Metals leaching and processing capital costs comprise by far the largest component of overall capital costs for both mining scenarios evaluated. They represent, excluding sustaining capital, an estimated $2,983 million for direct and indirect costs, including a $344 million contingency. Sustaining capital requirements relating to metals leaching and processing also comprise the bulk of the sustaining capital requirements representing approximately $37 million annually or the aggregate of $2,361 million over the 64 year mine life ($534 million if discounted at 6%). Contingencies related to metals leaching and processing make up 72% of the aggregate $474 million of contingencies. Details of leaching and processing costs are tabulated below.

The acid plant, with an estimated $790 million installed direct cost, makes up nearly half of the $1,839 million total processing equipment direct installed cost. This figure represents $1,075 million when its pro-rata share of indirect costs are included, and makes up 36% of the overall $2,983 million capital cost for metals leaching and processing equipment and 28% of the total pre-production capital cost. The capacity (size), hence cost, of the acid plant is a function of the amount of sulfuric acid required during operations and may be downsized should acid consumption be reduced (possible capital and operating cost savings are described in a later section of this announcement).

The heap leach pads ($380 million) and the REE separation plant ($282 million) represent the second and third highest installed metals processing equipment direct costs.

Capital costs of mining equipment represent an estimated $575 million including a $99 million contingency. The bulk of the foregoing costs are related to conveyors ($113 million), sizers ($122 million) and shovels ($100 million).

Capital costs for the mine provide an estimated $187 million for basic site facilities and infrastructure which include costs of construction of a 50km main access road to the mine, a 30km power-line, a 30km gas line and a 30km raw water system. Infrastructure costs also include provision for camp, office facilities, air strip and a 20% contingency.

Operating Costs

The PEA estimates overall operating costs to be $10.34 per tonne of mineralized shale mined and processed, including $0.29 per tonne for G&A. Metals leaching and processing costs make up bulk of the overall operating costs representing $8.07 per tonne (78%) in addition to an average of $0.78 per tonne for REE separation. The cost of REO separation is calculated as a cost per kg of REO produced and processed, its per tonne cost fluctuates from one year to the next due to REO grade variations in the tonnes of mineralized shale mined. Operating Costs are tabulated below.

Details of costs for the leaching and processing of metals are tabulated below, reiterating the significance of reagent consumption costs, consisting mostly of the costs for upstream acidification of heaps during leaching, their subsequent neutralization during remediation, and similar costs related to downstream processing of metals extracted into solution from the shale. Cost relating to leaching and processing of the Second White Speckled Shale Formation and the Labiche Formation are shown separately alongside a cost blended in the proportion of their respective relative tonnages per the Buckton production plan. Due to minor local variations in the relative thickness of the two formations throughout the Buckton Deposit, the blended operating cost will vary from one year to the next based on the relative proportion of material mined and processed from each Formation.

Taxes and Royalties

The PEA reports various economic parameters such as cash flows, Net Present Value and Internal Rate of Return on a pre-tax as well as after-tax basis, calculated based on a Canada Federal tax rate of 15% and an Alberta Provincial tax rate of 10% levied on net operating revenues after deducting capital property amortization and the Alberta Provincial Mining Royalty.

The Buckton Deposit (and the SBH Property) is held 100% by DNI, and there are no royalties due to any third parties other than the Provincial Mining Royalty due to the Province of Alberta levied against production revenues. This royalty is equivalent to a 1% royalty levied on gross revenues until all development and capital expenditures are recouped, but which converts thereafter to the greater of a 1% royalty levied on gross revenues or 12% royalty levied on net operating revenues.

Economic Discussion & Sensitivity Analysis

The PEA financial model assumes 100% equity financing although DNI envisages that the Buckton operations might more likely be financed through a combination of debt, equity and offtake arrangements.

On an undiscounted basis, the contemplated mining operations for the Buckton Deposit are projected to yield an estimated $75 billion in gross operating revenues over the 64 year mine life (average $1.15 billion per year), from material with a gross in situ recoverable average value of $16.5 per tonne.

Metals production profile is tabulated below showing also the relative contribution of the respective metals to gross value.

On average, the Buckton Deposit will yield an estimated $349 million of pre-tax annual net operating income ($276 million after-tax) after payment of the Alberta Provincial Mineral Royalty, from material with an in-situ recoverable value of $16.5 per tonne which is mined and processed at a $6.2 per tonne operating margin. On an undiscounted basis, during its 64 year mine life, the deposit will yield an aggregate of $18.9 billion of pre-tax net operating income ($14.1 billion after-tax) after paying an aggregate of $3 billion in Alberta Provincial Mineral royalties. There are no additional royalties to be paid since DNI holds a 100% interest in the deposit.

On a discounted basis, the foregoing net revenues represent a pre-tax net present value (NPV) of $1.6 billion at a discount rate of 6% ($904 million after-tax), and a pre-tax IRR of 8.7% assuming 100% equity financing (7.7% after-tax). Based on the foregoing, payback period is estimated to be 10.5 years pre-tax (10.6 years after-tax). Net aggregate revenues, NPV and IRR are tabulated below showing also comparative figures for various discount rates.

As a large deposit with long mine life, most of the revenues that can be generated from the Buckton Deposit beyond the initial 20 years do not make a material contribution to the discounted cash flow figures given the vagaries of discounting cash flows over a long term.

As a high mining throughput operation, economics of the contemplated mining scenario are more sensitive to fluctuations in operating costs and revenues than to changes in capital costs. Changes in NPV-IRR-Payback in response to fluctuations in capital cost are tabulated below.

Aside from fluctuations in capital costs due to changes in equipment costs and mining scheme modifications, some fluctuations in capital costs can be attributed to changes in reagent consumption (notably acid and lime consumption) given that capacity (size) of the contemplated on-site acid generation and the calcining plants are scaled to annual reagent requirements. This is particularly true for acid consumption when considering that capital cost of the acid plant represents 28% of the total pre-production capital cost.

Changes in NPV-IRR-Payback in response to fluctuations in gross recoverable per tonne value are tabulated below. While the foregoing value is dependant on commodity price fluctuations which are outside DNI's control, it is noteworthy that a 5% relative change in metal recovery (equivalent to a 1%-3% absolute change depending on the respective metal) represents approximately a $1 change in gross recoverable per tonne value. Optimized enhancement of recoveries is a significant focus of DNI's ongoing testwork. Fluctuations in revenues can also be achieved by increasing or decreasing the proportion of the lower grading Labiche Shale material blended with the higher grading Second White Speckled Shale (under the PEA mining scheme and cash flow model, all tonnages of the two shales are mined and processed with no attempt to optimize economics through disproportionate blending).

Changes in NPV-IRR-Payback in response to fluctuations in per tonne operating cost are tabulated below.

While the most aggressive operating cost reductions might be achieved through reductions in reagent consumption, notably the consumption of lime and sulfuric acid, reduction of acid consumption would also reduce capital costs.

A significant portion of the cost of limestone is the cost of its trucking to the Buckton Deposit. Changes in NPV-IRR-Payback in response to fluctuations in cost of limestone (for lime) are tabulated below showing the PEA cost of $35 per tonne of limestone delivered to Buckton from an operating quarry 100km away from the Deposit, and variations related to the lowest cost of $25 per tonne which might reflect a limestone source nearer the property and the highest cost of $105 per tonne for limestone from greater distances (south-central Alberta). Several outcroppings of limestone exist near the Buckton Deposit, none of which are currently being quarried.

Changes in NPV-IRR-Payback in response to fluctuations in sulfuric acid dosage (consumption) are tabulated below, showing operating and capital costs savings which can be achieved by reducing acid consumption. The table shows reductions in acid dosage from the PEA baseline of 40kg of acid per tonne of feed processed toward 20kg per tonne representing preliminary results from agglomerated column testwork which has not yet been confirmed by duplication.

Changes in NPV-IRR-Payback in response to fluctuations in operating cost of REE separation are tabulated below, showing the benchmark cost suggested by the PEA for Buckton relative to the industry benchmark maximum and minimum costs identified. Operating costs tabulated are per kilogram of final saleable products produced from the separation plant consisting of REEs as oxide/carbonate.

PEA Conclusions Recommendations