Anaconda Mining Announces Positive Preliminary Economic Assessment for the Goldboro Gold Project

 

TORONTO, Jan. 17, 2018 /CNW/ - Anaconda Mining Inc. ("Anaconda" or the "Company") (ANX: TSX) is pleased to announce the positive result of an independent Preliminary Economic Assessment study ("PEA") on the 100% owned Goldboro Gold Project ("Goldboro" or the "Project") located in the Eastern Goldfields of Guysborough County, Nova Scotia, Canada. The PEA provides a base case assessment of developing the Goldboro mineral resource by open pit and underground mining, on site concentration through gravity and flotation circuits and leaching of the concentrate and a gold recovery at Anaconda's Pine Cove Mill in Newfoundland.

Goldboro Project PEA Highlights*

The base case scenario utilizes a long-term gold price of $1,550 and all dollar figures are presented in Canadian dollars unless otherwise noted. A summary of the certain assumptions and results from the PEA are indicated below:

• Undiscounted cash flow before income and mining taxes of $189 million;
• Pre-tax Net Present Value ("NPV") at a 7% discount rate of $120 million and a pre-tax Internal Rate of Return ("IRR") of 38% implying a pre-tax payback period of 2.9 years;
• Total capital expenditures of $89 million, including pre-production capital expenditures of $47 million;
• Undiscounted cash flow after income and mining taxes of $106 million;
• After-tax NPV at a discount rate of 7% of $61 million and an after-tax IRR of 26%, implying an after-tax payback period of 3.4 years;
• Life of mine ("LOM") of 8.8 years, with 2.4 million tonnes of potential mill feed at an average grade of 5.13 grams per tonne ("g/t") and recovery rate of 93.6%, resulting in gold production of 375,900 ounces;
• Mining rate of 600 tonnes per day ("tpd") of mineralized material at an average open pit grade of 2.99 g/t and underground grade of 6.83 g/t; processing at 800 tpd (600 tpd of run-of-mine high-grade material and re-handle of 200 tpd of stockpiled open pit lower grade material);
• Average annual gold production of 41,770 ounces with up to 62,000 ounces in year 5;
• LOM average operating cash cost of $654 per ounce (~US$525 per ounce) and all-in sustaining cash cost of $797 per ounce (~US$640 per ounce) at an 0.80 USD:CAD exchange rate;
• Potential for up to 200 jobs at the peak of production.

(*) Cautionary statement NI 43-101: The PEA was prepared in accordance with National Instrument 43-101 Standards of Disclosure for Mineral Projects ("NI 43-101"). Readers are cautioned that the PEA is preliminary in nature. 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, and there is no certainty that the PEA will be realized. Mineral resources that are not mineral reserves do not have demonstrated economic viability.

"The positive Preliminary Economic Assessment marks another significant milestone for Anaconda. It validates our Goldboro investment thesis and illustrates the significant financial potential inherent in the Project. Of strategic importance, the base case scenario outlined in the study envisions the creation of our second center of operations while leveraging our existing infrastructure and operating experience in Atlantic Canada. We have a project generating high NPVs at various discount rates, a 2.9-year pre-tax payback period and a pre-tax IRR close to 40%. We will use the results of the Preliminary Economic Assessment to optimize the economics, expand the mineral resources and move closer to demonstrating the feasibility of building a mine at Goldboro. We believe this has the potential to be a tremendous project for all stakeholders."

~ Dustin Angelo, President and CEO

DESCRIPTION OF GOLDBORO PROJECT AND PEA:

The PEA has been developed by various independent consultants - WSP Canada Inc. ("WSP") was responsible for the open pit and underground mining, surface infrastructure, tailings facility, and project economics; Thibault and Associates Inc. ("Thibault") was responsible for all processing aspects of the Project; and Mercator Geological Services Ltd. ("Mercator") was responsible for the mineral resource estimate.

The base case scenario outlined in the PEA includes the development of the Goldboro mineral resource by open pit and underground mining, on-site concentration through gravity and flotation circuits and the leaching of the concentrate and recovery of gold at Anaconda's fully-permitted and operational Pine Cove Mill in Newfoundland.

Other development scenarios were considered during the evaluation process, including an underground mining only scenario as well as the shipping of whole ore to Pine Cove Mill, and will be documented in the upcoming NI 43-101 technical report for the PEA.

CASHFLOW ANALYSIS

The results of the discounted cash flow analysis are presented in Tables 1 and 2 below. NPV, IRR and payback values for the Project are estimated on a pre-tax and after-tax basis. The base case scenario assumes a long-term gold price of $1,550 and a discount rate of 7%. The gold price sensitivity on a pre-tax and after-tax basis as presented in Tables 1 and 2, respectively, demonstrate the significant potential increase in the NPV and IRR of the Project should the gold price continue to trade in a range of $1,600 to $1,700 per ounce.

Table 1 – Pre-tax discounted NPV- gold price sensitivity

 

Table 2 – After-tax discounted NPV- gold price sensitivity

 

After-tax cash flows reflect a combined Federal and Provincial tax rate of 31% and the Nova Scotia Mining Tax, calculated on the basis of the greater of 2% of net revenue or 15% of net income from the mine operation. 

The Company carries tax pools that have not been incorporated into the asset-level economic analysis, which have the potential to increase the after-tax value of the Project. The estimated tax loss pools available as at December 31, 2017 were as follows: Non-capital losses of $10.0 million, Cumulative Canadian Exploration Expense of $7.0 million and Cumulative Canadian Development Expenses of $4.5 million.

OPERATING COST

The PEA estimates that the Project will produce approximately 375,900 ounces of gold during the life of the Project, or an average of 41,770 ounces per year at an estimated 8.8 years LOM.  Maintenance, parts and repairs are estimated based on industry standard factors for these costs.  Mining costs are estimated, based on third-party contractor rates of $4.07 per tonne for open pit material mined at a strip ratio of 7.3, and $91.12 for underground plant feed. Processing costs are projected at $19.98 per tonne of material concentrated on site and $4.12 for processing activity at the Anaconda's Pine Cove Mill in Newfoundland. 

Details of the estimated operating costs, and other charges, are presented in Tables 3 and 4 below.

Table 3 – Operating Cost

 

Table 4 – Unit Operating Cost

 

CAPITAL COST

Mining capital costs, summarized in Table 5, were estimated based on a detailed equipment schedule matched to the mining production schedule. Total capital costs for the life of the Project were estimated at $74 million plus a 20% contingency for a total of $89 million, including pre-production capital expenditures of $47 million and $ 42 million during Years 1 and 2 for underground development. Sustaining capital thru the life of the project is estimated at $50 million and covers cost of underground development, tailings expansion, reclamation, and contingencies. Pre-production, production and total capital expenditures are shown in Table 5.

Table 5 – Capital Cost

 

MINING AND PROCESSING

The PEA is based on a conventional truck-and-shovel, 600 tpd open-pit mining operation at a single pit transitioning to underground mining in year 3.  

The base case scenario contemplates mining 600 tpd of mineralized material and concentrating at 800 tpd. Lower grade open pit material, not initially scheduled for processing, will be stockpiled and blended over the life of mine. The open pit production period is roughly 3 years and the entire production period, including underground mining is 8.8 years.

Goldboro run-of-mine mineralized material will be upgraded at the Goldboro mine site to a gravity and flotation concentrate using a conventional recovery methods consisting of crushing, grinding, gravity and flotation circuits. Concentrate produced at Goldboro would be transported to Anaconda's existing mill facility at Point Rousse, Newfoundland for final processing. At Point Rousse, the Company uses leaching, filtration and Merrill Crowe to recover gold in solution and makes doré bullion bars on site. A flow sheet was developed by Thibault based on a bench scale metallurgical testing program conducted in 2017. Based on bench scale assessment of gold recovery by gravity, flotation and cyanide leaching of the flotation concentrate and typical in-plant recovery of gold by Merrill Crowe and furnace operations, the overall potential recovery of gold from processing of Goldboro feedstock was established as 93.6%.

SENSITIVITIES

As indicated in the Table 6, Project cash flow is particularly sensitive to changes in the price of gold while relatively less sensitive to changes in recovery, operating costs and capital expenditures. The table below shows the effect on the pre-tax economics of increasing or decreasing the price of gold, capital expenditures, operating costs and recovery estimates for the Project by up to ± 20%.

Table 6 – Sensitivities, Pre-Tax

 

MINERAL RESOURCE

The mineral resource estimate which formed the basis of the PEA, is set out in Table 7 and was prepared by Mercator under the supervision of Michael Cullen, P. Geo., an "Independent Qualified Person", as defined in NI 43-101.  The effective date of this mineral resource estimate is January 1, 2018. The resource estimate is based on validated results of 272 surface drill holes and 119 underground drill holes, for a total of 66,743 meters of diamond drilling that was completed between 1984 and 2015. Modeling was performed using GEOVIA Surpac^® 6.8 software with gold grades estimated for Inferred and Indicated category mineral resources using inverse distance squared (ID2) interpolation methodology and capped 1.0 meter down hole assay composites. Measured category blocks are restricted to a metallurgical bulk composite digital solid within which grade was interpolated using Nearest Neighbour methodology. Indicated mineral resources are defined as all other interpolated blocks with at least 3 contributing drill holes having a maximum average distance of 50 m from the block centroid. Inferred mineral resources are defined as all remaining interpolated blocks that occur within the various belt model solids. Block size is 2 meters * by 2 meters (y) by 2 meters (z). Partial percentage volume assignment was used to estimate volume of solid models within the block model. The drilling-defined deposit is divided into three spatial domains for modeling purposes, these being (1) the Boston Richardson Zone, (2) the West Goldbrook Zone and (3) the East Goldbrook Zone.  At a long-term metal price of $1,550 per ounce, reasonable prospects are considered to exist for eventual economic extraction of mineral resources defined at a 0.5 g/t Au cut-off value within limits of the conceptual final pit shell prepared by WSP. Mineral resources defined external to this pit shell are reported at a 2.0 g/t Au cut-off value and are considered to have reasonable prospects for eventual economic extraction using underground mining methods at the same long-term gold price. Additional information about the mineral resource modeling methodology will be documented in the upcoming NI 43-101 technical report for the PEA.

Table 7 -  Goldboro Mineral Resource Estimate – Effective January 1, 2018

 

Mineral Resource Estimate Notes

1. Mineral resources were prepared in accordance with NI 43-101 and the CIM Definition Standards (2014). Mineral resources that are not mineral reserves do not have demonstrated economic viability; please see the PEA cautionary note (*) presented earlier in this news release.
2. Open pit mineral resources are reported at a cut-off grade of 0.5 g/t gold that is based on a gold price of CA$1,550/oz. and a gold processing recovery factor of 95%, these include PEA base case open pit resources that have an estimated life of mine strip ratio of 7.3:1 (waste TONNES:PEA tonne).
3. Appropriate mining costs, processing costs, metal recoveries and inter ramp pit slope angles were used by WSP to generate the pit design.
4. Rounding may result in apparent summation differences between tonnes, grade and contained metal content.
5. Tonnage and grade measurements are in metric units. Contained gold ounces are in troy ounces.
6. Contributing assay composites were capped at 80/g/t Au
7. A density factor of 2.7g/cm3 was applied to all blocks.

The Measured and Indicated mineral resource category gold inventories in Table 7 for combined open pit and underground resources total 525,400 ounces and the Inferred mineral resource category gold inventory for combined open pit and underground resources totals 347,300 ounces.

A version of this press release will be available in French on Anaconda's website (www.anacondamining.com) in two to three business days.

QUALIFIED PERSONS

This news release has been reviewed and approved by the below noted Qualified Persons. The Qualified Persons have reviewed or verified all information for which they are individually responsible, including sampling, analytical, and test results underlying the information or opinions contained herein.

• Gordana Slepcev. P.Eng., Chief Operating Officer and Paul McNeill, P. Geo., VP Exploration with Anaconda Mining Inc., "Qualified Persons".
  
  
• Michael Cullen, P. Geo., of Mercator Geological Services Ltd., an "Independent Qualified Person", under NI 43-101.
  
  
• Joanne Robinson, P.Eng., Principal Mine Engineer, of WSP, an "Independent Qualified Person", under NI 43-101.
  
  
• Garth Liukko, P.Eng., Senior Engineer, of WSP, an "Independent Qualified Person", under NI 43-101.
  
  
• Sebastian Bertelegni, ing., Director – Mining infrastructure, of WSP, an "Independent Qualified Person", under NI 43-101.
  
  
• J. Dean Thibault, P.Eng., Senior Process Chemical Engineer of Thibault & Associates Inc., a "Qualified Person" under NI 43-101.

TECHNICAL REPORT

For readers to fully understand the information in this news release, they should read the PEA technical report in its entirety which the Company expects to file in accordance with NI 43-101 within 45 days from the date of this news release on SEDAR (www.sedar.com) and it will be available at that time on the Anaconda Mining website, including all qualifications, assumptions and exclusions that relate to the PEA. The technical report is intended to be read as a whole, and sections should not be read or relied upon out of context.

RISKS AND OPPORTUNITIES

As with all mining ventures, a large number of risks and opportunities can affect the outcome of the Project. Most of these risks and opportunities are based on uncertainty, such as lack of scientific information (test results, drill results, etc.) or the lack of control over external factors (metal prices, exchange rates, etc.).

Subsequent higher-level engineering studies would be required to further refine these risks and opportunities, identify new risks and opportunities, and define strategies for risk mitigation or opportunity implementation

The PEA identified a number of principal risks for the Project which are summarized below:

• Geological interpretation and mineral resource classification (27% of the mineral resources used in the mine plan are Inferred mineral resources);
• Due to a relatively small number of metallurgical samples tested, larger variations in mineralogy and metal recovery may exist than have been observed to date;
• Geotechnical and hydrogeological considerations;
• No information on baseline groundwater quality;
• No physical characterization of the tailings material has been done;
• No waste rock characterization has been done;
• Construction management and cost containment during development of the Project;
• High exposure to potential escalation of costs associated with latent ground conditions due to need for dewatering dykes and large, shallow tailings management facility;
• Increased operating cost and/or capital cost; and
• Reduced metal prices.

Anaconda has completed environmental baseline studies for Goldboro during spring and summer of 2017 with hydrology and hydrogeology studies initiated late in the fall. Geotechnical investigation for underground mine, open pit and dump designs were completed up to the pre-feasibility study levels. This information will be available during the winter of 2018 and would be used in preparation of the Environmental Assessment registration and further engineering studies.

Several potential opportunities to improve the accuracy of the results of the Project contemplated under the PEA have been identified.  Examples include, but may not be limited to:

• Expansion of the Goldboro Deposit through drilling. The deposit is open at the depth and along strike and geological and geophysical studies indicate the structure hosting gold mineralization may continue both east and west of the current resource as well as down plunge. Addition of further resources through drilling has the potential to add resources and increase LOM and economics;
• More refined pit optimization parameters could result in better optimized open pit limits than the pit shell selected for the PEA;
• Improved hydrogeological and geotechnical understanding may increase pit slope angles or underground design inputs over those used in the PEA;
• Investigate other mining methods that would lead to a decrease in the underground mine development cost;
• Geotechnical construction fill materials may be sourced locally from the site and will be confirmed with a site investigation geotechnical laboratory program;
• Further metallurgical testing and refining milling processes may result in improved recoveries;
• The potential to upgrade the mineral resource classification of the deposit;
• Tax credits transferred from Orex; and
• Improved metal prices (see table 6).

ABOUT ANACONDA MINING INC.

Anaconda is a TSX-listed gold mining, exploration and development company, focused in the prospective Atlantic Canadian jurisdictions of Newfoundland and Nova Scotia. The Company operates the Point Rousse Project located in the Baie Verte Mining District in Newfoundland, comprised of the Pine Cove open pit mine, the fully-permitted Pine Cove Mill and tailings facility, the Stog'er Tight and Argyle deposits, and approximately 5,800 hectares of prospective gold-bearing property. Anaconda is also developing the recently acquired Goldboro Project in Nova Scotia, a high-grade Mineral Resource, with the potential to leverage existing infrastructure at the Company's Point Rousse Project.

The Company also has a pipeline of organic growth opportunities, including the Viking and Great Northern Projects on the Northern Peninsula and the Tilt Cove Property on the Baie Verte Peninsula. 

ABOUT WSP

WSP is one of the world's leading engineering professional services consulting firms. We bring together our 39,000 staff, based in more than 500 offices, across 40 countries to provide engineering and multidisciplinary services in a vast array of industry sectors, with a focus on technical excellence and client service.

FORWARD-LOOKING STATEMENTS

This news release contains "forward-looking information" within the meaning of applicable Canadian and United States securities legislation. Forward-looking information includes, but is not limited to, disclosure regarding the economics and project parameters presented in the PEA, including, without limitation, IRR, all-in sustaining costs, NPV and other costs and economic information, possible events, conditions or financial performance that is based on assumptions about future economic conditions and courses of action; the timing and costs of future development and exploration activities on the Company's projects; success of development and exploration activities; permitting time lines and requirements; time lines for further studies; planned exploration and development of properties and the results thereof; and planned expenditures and budgets and the execution thereof. Generally, forward-looking information can be identified by the use of forward-looking terminology such as "plans", "expects", or "does not expect", "is expected", "budget", "scheduled", "estimates", "forecasts", "intends", "anticipates", or "does not anticipate", or "believes" or variations of such words and phrases or state that certain actions, events or results "may", "could", "would", "might", or "will be taken", "occur", or "be achieved". Forward-looking information is based on the opinions and estimates of management at the date the information is made, and is based on a number of assumptions and is subject to known and unknown risks, uncertainties and other factors that may cause the actual results, level of activity, performance or achievements of Anaconda to be materially different from those expressed or implied by such forward-looking information, including the risks outlined in this news release, risks associated with the exploration, development and mining such as economic factors as they effect exploration, future commodity prices, changes in foreign exchange and interest rates, actual results of current production, development and exploration activities, government regulation, political or economic developments, environmental risks, permitting timelines, capital expenditures, operating or technical difficulties in connection with development activities, employee relations, the speculative nature of gold exploration and development, including the risks of diminishing quantities of grades of resources, contests over title to properties, and changes in project parameters as plans continue to be refined as well as those risk factors discussed in Anaconda's annual information form for the year ended May 31, 2017, available on www.sedar.com. Although Anaconda has attempted to identify important factors that could cause actual results to differ materially from those contained in forward-looking information, there may be other factors that cause results not to be as anticipated, estimated or intended. There can be no assurance that such information will prove to be accurate, as actual results and future events could differ materially from those anticipated in such information. Accordingly, readers should not place undue reliance on forward-looking information. Anaconda does not undertake to update any forward-looking information, except in accordance with applicable securities laws.

NON-IFRS MEASURES

Anaconda has included certain non-IFRS performance measures as detailed below. In the gold mining industry, these are common performance measures but may not be comparable to similar measures presented by other issuers. The Company believes that, in addition to conventional measures prepared in accordance with IFRS, certain investors use this information to evaluate the Company's performance and ability to generate cash flow. Accordingly, it is intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS.

Operating Cash Costs per Ounce of Gold – Anaconda calculates operating cash costs per ounce by dividing operating expenses per the consolidated statement of operations, net of silver sales by-product revenue, by the gold ounces sold during the applicable period. Operating expenses include mine site operating costs such as mining, processing and administration as well as royalties, however excludes depletion and depreciation and rehabilitation costs.

All-In Sustaining Costs per Ounce of Gold – Anaconda has adopted an all-in sustaining cost performance measure that reflects all of the expenditures that are required to produce an ounce of gold from current operations. While there is no standardized meaning of the measure across the industry, the Company's definition conforms to the all-in sustaining cost definition as set out by the World Gold Council in its guidance dated June 27, 2013. The World Gold Council is a non-regulatory, non-profit organization established in 1987 whose members include global senior mining companies. The Company believes that this measure will be useful to external users in assessing operating performance and the ability to generate free cash flow from current operations.

The Company defines all-in sustaining costs as the sum of operating cash costs (per above), sustaining capital (capital required to maintain current operations at existing levels), corporate administration costs, sustaining exploration, and rehabilitation accretion and amortization related to current operations. All-in sustaining costs excludes capital expenditures for significant improvements at existing operations deemed to be expansionary in nature, exploration and evaluation related to growth projects, financing costs, debt repayments, and taxes.  Canadian and US dollars are noted for realized gold price, operating cash costs per ounce of gold and all-in sustaining costs per ounce of gold. Both currencies are considered relevant and the Company uses the average foreign exchange rate for the period.

SOURCE Anaconda Mining Inc.

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