Majestic Gold Corp.

Published : January 20th, 2011

Wardrop Delivers Positive Preliminary Assessment for Songjiagou Gold Project

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Majestic Gold wardrop delivers positive preliminary assessment for songjiagou gold project

 

 

 

 

 

Majestic Gold Corp. (TSX-V:MJS - News)(Frankfurt:P5E - News) is pleased to announce that Wardrop, A Tetra Tech Company, ("Wardrop") has completed and delivered a positive Preliminary Assessment ("PA" or "Preliminary Assessment") for the Songjiagou Gold Project located in Shandong Province, People's Republic of China.

Highlights are as follows:

 

--  Net Present Value of US $525 million using a 10% discount rate

--  Internal Rate of Return of 78.6%

--  Payback in 1.4 years

--  Total gold production of 2.324 million ounces (average 105,645 oz/yr)
    for life-of-mine

--  Life-of-Mine strip ratio 1.87 : 1 (waste to ore)

--  Mine-Life of 22 years.

"The Preliminary Assessment provided by Wardrop has exceeded our expectations and will form the basis for our continued development of the Songjiagou project," stated Rod Husband, President and CEO of Majestic Gold Corp.

A summary of the main sections of the Preliminary Assessment are as follows:

Resource

In 2006, Wardrop prepared a National Instrument 43-101 (NI 43-101) compliant, resource estimate of the Songjiagou deposit. On the basis of additional data collected during 2006, Wardrop prepared an updated estimate in late 2007.

In April 2010 Wardrop completed an update of the 2007 resource estimate to take into account assay results from surface core drilling and trenching that were carried out during 2007, as well as depletion from surface mining since the time of the last estimate. Depletion attributable to underground mining during the same interval was negligible.

The April 2010 updated resource estimate was made using an un-rotated block model, which is to say the blocks in the model were oriented orthogonally east-west and north south. In October 2010, Majestic requested that the estimate be redone using a block model rotated parallel to the trend of the deposit as well as a lower cutoff (0.3 g/t versus 0.4 g/t gold).

The lower threshold grade (0.3 versus 0.4 g/t) is attributable to a lower cost for contract mining and milling that Majestic negotiated during the period between the two estimates.

The rotated orientation is consistent with previous estimates and also aligns the block model with cross-sections that are cut perpendicular to the strike of the deposit. The change in block model orientation as well as the decrease in cutoff grade resulted in an overall enhancement of both estimated tonnes and grade. This report incorporates those changes. There has been no change in the underlying data between the April 2010 estimate and the current estimate.

The resource used in preparation of the Preliminary Assessment is tabulated as follows:

 

----------------------------------------------------------------------------
                                           Au   (ii)Au     Ounces     Ounces
(i)Resource        Cut-off              Uncap      Cap         Au         Au
Category             (g/t)      Tonnes    g/t      g/t      Uncap        Cap
----------------------------------------------------------------------------
Indicated             0.30  33,739,586  1.384    1.147  1,501,298  1,244,211
----------------------------------------------------------------------------
Inferred              0.30  38,812,054  1.500    1.467  1,871,755  1,830,576
----------------------------------------------------------------------------

(i) The preliminary assessment 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, and there is no certainty that the preliminary assessment will be
realized. All figures have been rounded to reflect the relative accuracy of
the estimates.
(ii) gold grades were capped at 40.0 g/t

Open pit optimization was carried out using Whittle™ 4.3 which uses a series of Lerchs Grossman (LG) pit shells at different prices of gold to optimize the size of the pit while maximizing net present value (NVP) of the deposit. The resulting LG shells generated the highest discounted cash flow from the ore body at varying prices of gold. The LG shell used for optimization does not apply practical mining considerations and constraints.

The strategic planning using the generated LG pit resulted in the following potential mineable resources, which forms the basis of the preliminary Assessment:

 

----------------------------------------------------------------------------
(i)Potentially Mineable Resources
 Classification                                   Tonnes      Grade, Au(g/t)
----------------------------------------------------------------------------
Indicated                                     29,875,527               1.207
----------------------------------------------------------------------------
Inferred                                      22,806,473               1.936
----------------------------------------------------------------------------

(i)Potentially Mineable Resources include the inferred mineral resources and
are not mineral reserves.

Preliminary Production Schedule

The life-of-mine strip ratio is 1.87 to 1 (waste to ore). Total ounces contained in the resource are 3,074,787; of this 2,324,000 ounces are potentially recoverable as bullion during the mine operations at an average annual production of approximately 106,000 ounces per year.

The following table summarizes the information from the Preliminary Economic Assessment Production Schedule.

 

----------------------------------------------------------------------------
Preliminary Production Summary
                                Unit           Years 1-8                 LOM
                ------------------------------------------------------------
Process Feed
Gold                             g/t                2.12                1.52

Material Mined
Mill Feed                         kt              18,494              52,682
Waste                             kt              47,746             100,377
Ore Mined                         kt              18,494              52,682

Strip Ratio                                         2.33                1.87

Total Production
Gold                             koz               1,152               2,324
Average Production
Gold                             koz                 144                 106
----------------------------------------------------------------------------

The following table details the planned Production Schedule for the Life-of-Mine:

 

Preliminary Production Schedule
        (i)Tonnes           Tonnes  Stock-         Tonnes         Mill
            Mined            Moved   pile  Tonnes     ROM         feed
        Including   Total to Stock-    to   Waste     Ore  Strip  Gold  Gold
        Stockpile   Mined     pile   Mill   Mined  Milled  Ratio Grade  Rec.
               Kt      kt       kt     kt      kt      kt      #   g/t   koz
Year 1      1,400   4,472               -   3,072   1,400   2.19 0.742    31
Year 2      2,442   7,644      237      -   4,965   2,442   1.85 3.431   256
Year 3      2,442   7,173      332      -   4,399   2,442   1.59 2.881   215
Year 4      2,442  10,500      344      -   7,714   2,442   2.77 1.868   139
Year 5      2,442   9,574      284      -   6,848   2,442   2.51 2.201   164
Year 6      2,442  10,354      304      -   7,608   2,442   2.77 1.696   126
Year 7      2,442   9,343      262      -   6,639   2,442   2.46 1.760   131
Year 8      2,442   9,150      207      -   6,501   2,442   2.45 1.803   134
Year 9      2,442   9,302      212      -   6,648   2,442   2.50 1.635   122
Year 10     2,442   7,640      222      -   4,976   2,442   1.87 1.316    97
Year 11     2,442   7,115      211      -   4,462   2,442   1.68 1.270    94
Year 12     2,442   6,671      202      -   4,027   2,442   1.52 1.450   107
Year 13     2,442   6,274      182      -   3,650   2,442   1.39 1.554   116
Year 14     2,442   6,006      185      -   3,379   2,442   1.29 1.539   115
Year 15     2,442   6,493      264      -   3,787   2,442   1.40 1.422   105
Year 16     2,442   6,772      319      -   4,011   2,442   1.45 1.162    86
Year 17     2,442   5,918      251      -   3,225   2,442   1.20 1.256    93
Year 18     2,442   5,871      316      -   3,113   2,442   1.13 1.226    90
Year 19     2,405   8,354      455     37   5,494   2,442   1.92 1.270    94
Year 20       754   3,289       82  1,688   2,453   2,442   2.93 0.486    34
Year 21     1,662   5,417      585    780   3,170   2,442   1.41 0.720    52
Year 22       363     604        5  2,079     236   2,442   0.64 0.478    33
TOTAL/
 AVG       53,559 153,936    5,461  4,584 100,377  52,682   1.87 1.523 2,434
----------------------------------------------------------------------------
(i)Tonnes Mined Including Stockpile is Potentially Mineable Resources
category. The preliminary assessment 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, and there is no certainty that the preliminary assessment
will be realized.

Capital Costs

Total capital costs are estimated at $129.2 million including initial capital, initial working capital and sustaining capital. The majority of sustaining capital is required in years 4 and 5 and consists mainly of capital required to expand tailings storage facilities. A more detailed breakdown of the capital costs is provided in the following table.

 

----------------------------------------------------------
Capital Costs
                                                 000's US$
Pre-production (pre-strip)                               0
Initial Capital                                     64,377
Initial Working Capital                              7,120
Sustaining Capital                                  64,787
Total Capital Costs                                129,163
----------------------------------------------------------

Operation Costs

Life-of-mine ("LOM") operating costs are estimated at US$11.67 per tonne milled, including mining, process and transportation costs based on the current contract terms. The details of these costs are tabulated as follows:

 

---------------------------------------------
Operating Costs
                             US$/tonne milled
Mining, Process and Transport           10.72
G&A and Quality Control                  0.95
TOTAL OPERATING COSTS                   11.67
---------------------------------------------

Operating Cash Flows

Operating cash flows based on pit optimization parameters employed by Wardrop indicate that in years 1-8 the mine will approximately produce a total of 1,152,000 ounces of gold (144,000 ounces annually) and generate US$841 million (US$105 million annually) in operating cash flow compared with life-of mine production of 2.32 million ounces of gold in concentrate (106,000 ounces annually) and operating cash flow of US$1.516 billion (US$68.9 million annually).

The projected cash flows are tabulated below:

 

--------------------------------------------------
Operating Cash Flow
                                         000's US$
Years 1-8
  Total                                    841,334
  Average                                  105,167
LOM
  Total                                  1,515,927
  Average                                   68,906
--------------------------------------------------

Economic Returns

Wardrop evaluated the economic viability of the Songjiagou project using pre-tax discounted cash flow analysis based on the engineering work and cost estimates discussed in the Preliminary Assessment. Over the life of the mine, Songjiagou is estimated to produce on average 106,000 ounces gold in concentrate per year. Total gold produced for LOM will be 2.324 million ounces; with a gold price of $973 per ounce and total operating cash flow of US$1,516 million, the total cash cost is US$745 million or US$321 per ounce of gold. The pre-tax Net Present Value is US$525 million and the IRR is 78.6%.

The following table illustrates the project NPV's using various discount rates besides the 10% base case.

 

---------------------------------------------------------------------------
Economic Returns

Project NPV                                   Unit                  Pre-Tax
                         --------------------------------------------------
14.0% discount rate                    million US$                      381
12.0% discount rate                    million US$                      446
10.0% discount rate                    million US$                      525
8.0% discount rate                     million US$                      624

Project IRR                                                           78.6%

Payback                                      Years                      1.4
Mine Life                                    Years                       22
---------------------------------------------------------------------------

Sensitivity Analysis

Sensitivity analysis was conducted for gold price, exchange rate, gold feed grade, operating costs and initial capital costs over a +/- 30% range. The results are shown in following table and graph.

 

----------------------------------------------------------------------------
Sensitivity Analysis (in US$
 millions)
                                     NPV @ 10% discount rate
Variable                -30%    -20%    -10%      0%     10%     20%     30%
                    --------------------------------------------------------
Gold Price               276     359     442     525     608     691     774
Exchange Rate            553     544     534     525     516     507     497
Gold Feed Grade          277     360     442     525     608     691     774
Operating Cost           586     566     545     525     505     485     464
Initial Capital Cost     542     536     531     525     520     514     508
----------------------------------------------------------------------------

As the table shows and the following graph illustrates, the main factors impacting the NPV are gold price and gold feed grade, while exchange rate, operating costs and initial capital costs have a much smaller effect on NPVs.

To view the graph titled "Pre-tax NPV @ 10% Sensitivity Analysis", please visit: http://media3.marketwire.com/docs/mjs-graph.pdf.

Based on the estimates in the Preliminary Economic Assessment, Majestic plans to move ahead with continued development of the project, including more detailed engineering studies and applications for mining permits.

The Preliminary Economic Assessment was prepared by Wardrop consultants, all of whom are independent of Majestic and are Qualified Persons as defined by section 1.4 of National Instrument 43-101. The QP's have reviewed and approved the information in this news release. The consultants (QPs) with their responsibilities are as follows:

Wardrop, under the direction of Greg Mosher, P.Geo., for all matters relating to geology and mineral resource estimate.

Wardrop, under the direction of Nory Narciso, P.Eng., for all matters relating to mine planning, mine design and report coordination.

Wardrop, under the direction of John Huang, P.Eng., for all matters relating to mineral processing, metallurgical testing, infrastructure, tailings management facility, environmental impact considerations, license and permit, operating and capital cost estimates and smelting terms.

Wardrop, under the direction of Miloje Vicentijevic, P.Eng., M.Eng. for all matters relating to economic analysis.

Mike Hibbitts, P.Geo VP Development and Exploration, and a Director of Majestic, has read and approved the information in this news release.

On Behalf of the Board of Directors

MAJESTIC GOLD CORP.

Rod Husband, P.Geo, President

This news release may contain forward-looking statements including but not limited to comments regarding the timing and content of upcoming work programs, geological interpretations, receipt of property titles, potential mineral recovery processes, etc. Forward-looking statements address future events and conditions and therefore, involve inherent risks and uncertainties. Actual results may differ materially from those currently anticipated in such statements.

Neither TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.

 

 

Majestic Gold Corp.

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CODE : MJS.V
ISIN : CA5609121077
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Majestic Gold is a gold exploration company based in Canada.

Majestic Gold holds various exploration projects in China.

Its main asset in development is SONG JIAGOU in China and its main exploration property is SAWAYAERDUN in China.

Majestic Gold is listed in Canada, in Germany and in United States of America. Its market capitalisation is CA$ 41.1 millions as of today (US$ 32.8 millions, € 28.8 millions).

Its stock quote reached its highest recent level on March 14, 1997 at CA$ 2.00, and its lowest recent point on September 04, 2009 at CA$ 0.02.

Majestic Gold has 912 270 016 shares outstanding.

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2/16/2007RELEASES UNDERGROUND DRILL RESULTS AT SONG JIAGOU
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