SOURCE: Avanti Mining Inc.

Avanti Mining Inc.

December 20, 2010 08:30 ET

Avanti Mining Announces Kitsault NPV Increases to US$798 Million (After Tax) in Final Feasibility Study

VANCOUVER, BC--(Marketwire - December 20, 2010) - Avanti Mining Inc. (TSX-V: AVT) ("Avanti") is pleased to release the results of the NI 43-101 Feasibility Study ("FS") prepared by AMEC on its 100% owned Kitsault Molybdenum property in northwest British Columbia, Canada. The complete report will be filed on SEDAR and Avanti's web site, www.avantimining.com, within 45 days of the issue of this press release. All figures are in US dollars and were derived assuming 100% equity funding.

Highlights include:

  • The base case after-tax NPV (8%) is $798 million, with an IRR of 26.8%;
  • Projected undiscounted net cash flow (after-tax) is $2.0 billion;
  • Cash operating costs (mine gate) are estimated to be $4.76/lb of molybdenum;
  • Annual metal production for the mine life averages 23.4 million pounds of molybdenum, with the first five years averaging 29.6 million pounds per year;
  • Initial capital costs are estimated at $770 million and LOM sustaining capital at $78 million (+/- 15% accuracy estimated in C$ at $837 million and C$ 85 million respectively);
  • The average annual price of molybdenum for the base case scenario over the mine life as forecast by the CPM Group ranges from $13.75/lb to $18.25/lb based upon their June 2010 Molybdenum Market Outlook. The average over the Kitsault mine life is $16.76 per pound of molybdenum. Forecasts were also prepared for a low and a high price scenario.
  • A long term exchange rate of .92 has been used to convert CDN$ to US$;
  • There is a life of mine roasting agreement in place with Molymet that assures roasting capacity for the project;
  • The mine plan calls for a total of 232.5 million tonnes of proven and probable reserves grading 0.081% molybdenum to be mined over a 16-year mine life, producing 373.9 million pounds of molybdenum. The first five years of production averages 0.101% Mo;
  • An increased resource estimate containing Measured and Indicated mineral resources totaling 298.8 million tonnes grading 0.072% molybdenum and 4.20 g/t Ag containing 472.5 million pounds of Mo and 40.3 million ounces of Ag. This represents a 9.7% increase of contained molybdenum and an 18% increase of contained silver over our prior estimate for measured plus indicated mineral resources. In addition, the Inferred category totals 157.1 million tonnes grading 0.050% Mo and 3.65 g/t Ag containing 172.2 million pounds of molybdenum and 18.4 million ounces of silver, an increase of 330% of contained molybdenum and 360% of contained silver over our previous resource estimate for inferred mineral resources.
  • The mine has certain infrastructure in place with road and ocean freight access to the mine site and will be serviced by the existing BC Hydro transmission grid;
  • The reopening of the mine is projected to create over 350 high paying local jobs during its 16 year life, and at the peak of construction, over 650 jobs. The construction period is estimated at 25 months;
  • The project is progressing through the environmental assessment process under the BC and federal legislation, as well as the Nisga'a Final Agreement, and expects to submit its Application in April 2011.

"We are delighted with the plan developed in this Feasibility Study by AMEC and other contributors," stated Craig J. Nelsen, Avanti's President and CEO. "We are pleased with the projects robust economics and plan to utilize this study as the basis for negotiating strategic partnerships to assist with the financing plan for Kitsault. The principal reason for the approximately $250 million improvement in the NPV over our Prefeasibility study is the decrease in initial and sustaining capital of almost $200 million and a long term improved outlook for molybdenum prices. We also expect to add by-product silver recovery after we complete additional metallurgical test that should enhance further the projects economics. Our schedule anticipates receipt of permits toward the end of 2011 and construction to follow in early 2012 with initial production in 2014."

Project Description

The Kitsault property is located about 140 km north of Prince Rupert, British Columbia, and south of the head of Alice Arm, an inlet of the Pacific Ocean. The property includes three known molybdenum deposits: Kitsault, Bell Moly, and Roundy Creek. The Kitsault mine was a producer of molybdenum between 1967 and 1972 and from 1981 to 1982 with total production on the property during both periods being approximately 31 million pounds of molybdenum.

Kitsault has road access to the mine site, which is approximately 12 km from ocean transport routes and is serviced by the BC Hydro transmission grid. The Feasibility Study estimates that the Kitsault Mine would operate at an annual resource throughput rate of 14.6 million tonnes, or 40,000 tpd, with a strip ratio of 0.77:1 during a mine life of 16 years. The ore mined will be crushed in a gyratory primary crusher, then ground using a SAG-ball mill configuration. Conventional flotation and five stages of cleaning will produce molybdenum concentrate that will be dried and packaged into bags for shipment. The life-of-mine molybdenum production is estimated at 373.9 million pounds of molybdenum contained in 326,150 tonnes of molybdenum concentrate produced from the processing of 232.7 million tonnes of reserves grading 0.081% Mo plus planned dilution. Total molybdenum recovery varies depending on mill head grade but is estimated to average 89.9%.

Mineral Resource/Reserves Statement

The mineral resources are reported in accordance with Canadian Institute of Mining, Metallurgy and Petroleum (CIM) Definition Standards for Mineral Resources Mineral Reserves and their Guidelines, and are compliant with National Instrument 43-101 ("NI 43-101"). The resource estimate was prepared under the supervision of Greg Kulla, P.Geo, an independent Qualified Person (QP), as this term is defined in NI 43-101. The mineral resource statement for the Kitsault molybdenum project is presented in Table 1 below:

Table 1. Kitsault Mineral Resources, Effective Date 8 November, 2010,
Greg Kulla, P. Geo. (cut-off 0.021% Mo)

Category                  Volume  Density Tonnage   Mo     Mo    Ag    Ag
                           Mm(3)  g/cm(3)    Mt      %     MLb   Ppm   Moz
                          ------- ------- ------- ------- ----- ----- -----
Measured                     27.6    2.65      73   0.093 150.3  4.28    10
Indicated                    84.9    2.66   225.8   0.065 322.2  4.17  30.3
                          ------- ------- ------- ------- ----- ----- -----
Measured + Indicated        112.4    2.66   298.8   0.072 472.5   4.2  40.3
                          ------- ------- ------- ------- ----- ----- -----
Inferred                     58.8    2.66   157.1    0.05 172.2  3.65  18.4
                          ------- ------- ------- ------- ----- ----- -----

Notes:
1.  Mineral Resources are inclusive of Mineral Reserves
2.  Mineral Resources that are not Mineral Reserves do not have
    demonstrated economic viability
3.  Mineral Resources are defined with a Lerchs-Grossmann pit shell, and
    reported at a 0.021% Mo cut-off grade
4.  Mineral Resources are reported using a commodity price of
    Can$15.62/lb Mo, an average process recovery of 89%, a process cost of
    Can$5.84/t and selling cost of $1.24/lb of Mo sold. No revenue was
    assumed for Ag
5.  Tonnages are rounded to the nearest 1,000 tonnes, grades are rounded to
    three decimal places for Mo and two decimals for Ag
6.  Rounding as required by reporting guidelines may result in apparent
    summation differences between tonnes, grade and contained metal content
7.  Tonnage and grade measurements are in metric units; contained
    molybdenum is in imperial pounds.
8.  There is potential for a 30% to 50% recovery of the silver reporting to
    a saleable concentrate. As of December 1, 2010, the metallurgical work
    in support of this is indicative only, suggesting that although there
    may be a reasonable prospect to extract this silver resource, there is
    insufficient work to define the level of benefit that would support
    inclusion of silver in a reserve estimate. No dedicated silver recovery
    circuit has been included in the process design, but there are
    reasonable expectations that this can be added in the future.

The mineral resources are reported at a cut-off grade to reflect the "reasonable prospects" for economic extraction. This estimate of the Kitsault molybdenum deposit is based open pit extraction and Avanti and AMEC has not considered underground mining methods for deeper portions of the deposit. Although silver has been reported in the mineral resource, it has not been included in the economic analysis or the reserve statement below. There is sufficient metallurgical testwork to suggest it could be an economic contributor, but this work has not yet reached the feasibility level of confidence. The recovery of silver remains a potential project upside contributor, as well as the opportunity of conversion of Inferred to higher confidence categories through additional drilling. Additional drilling will continue through the 2011 field season in parallel with Basic and Advanced Engineering studies.

The following Table 2 reflects the sensitivity of the resource estimate to various cut-off grades.

Table 2. Mo Cut-off Grade Sensitivity Analyses within Resource Pit - Measured and Indicated Resources

                      MEASURED & INDICATED RESOURCES

Cut-off     Tonnes       Mo         Ag         Mo         Ag
Mo %         (kt)        (%)       (ppm)      (Mlbs)     (Moz)
          ---------- ---------- ---------- ---------- ----------
0.010        348,203      0.064       4.09      489.7       45.8
0.015        328,421      0.067       4.13      484.2       43.6
0.021        298,835      0.072        4.2      472.5       40.3
0.025        278,316      0.075       4.26      462.1       38.1
0.030        249,895      0.081       4.34      444.8       34.8
0.035        224,460      0.086        4.4      426.7       31.8
0.040        204,924      0.091       4.47      410.6       29.4
          ---------- ---------- ---------- ---------- ----------

AMEC conducted a complete re-evaluation of all old historic and recent drilling information and recalculated the mineral resources from first principals. 10 holes from the previous database were not used in the calculation because of inability to verify core quality (recoveries) and assay methods.

The Kitsault mine Mineral Reserves have been prepared in accordance with NI 43-101 standards and CIM Definition Standard (2010). This statement has been prepared by Mr. Ryan W. Ulansky (P.Eng.) of AMEC, a QP as defined in NI 43-101. These reserves are sufficient for 16 years of operation at an annual production rate of 40,000 t/d. Mineral Reserves are summarized by category in Table 3. The notes accompanying Table 3 are an integral part of the Mineral Reserves and should be read in conjunction with the Mineral Reserve statement.

Table 3. Kitsault Mineral Reserves, Effective Date 8 November, 2010,
Ryan Ulansky, P. Eng. (cut-off 0.026% Mo)

                                                     Contained Mo
Category                   Tonnage (Mt)    Mo (%)       (MLb)
                           ------------ ------------ ------------
Proven                             69.7        0.097        148.5
Probable                          162.8        0.075        267.3
Total Proven and Probable         232.5        0.081        415.8
                           ------------ ------------ ------------

Notes:
1.  Mineral Reserves are defined within a mine plan, with pit phase designs
    guided by Lerchs-Grossmann (LG) pit shells, and reported at a 0.026% Mo
    cut-off grade, after dilution and mining loss adjustments. The LG shell
    generation was performed on measured and indicated materials only,
    using a molybdenum price of Cdn$13.58/lb, an average mining cost of
    Cdn$1.94/t mined a combined ore based cost of Cdn$5.84/t milled, and a
    selling cost of $1.24/lb of Mo sold. Metallurgical recovery used was a
    function of the head grade, defined as Recovery=7.5808*Ln (Mo %)
    +108.63 with a cap applied at 95%. Overall pit slopes varied from
    42 to 48 degrees.
2.  Dilution and Mining loss have been accounted for based on a waste
    neighbour analysis. 1.5Mt of measured and indicated material above
    cut-off was routed as waste. 1.9Mt of measured and indicated material
    below cut-off has been included as dilution material. An additional
    0.2Mt of inferred dilution material with grades set to zero is
    included in the mine plan as millfeed.
3.  Tonnages are rounded to the nearest 1,000 tonnes, grades are rounded
    to three decimal places for Mo.
4.  Rounding as required by reporting guidelines may result in apparent
    summation differences between tonnes, grade and contained metal content
5.  Tonnage and grade measurements are in metric units; contained
    molybdenum is in imperial pounds.
6.  The life of mine strip ratio is 0.77

Mining

The single ultimate pit will be mined in six phases, with elevated cut-offs in the early years and low grade stockpiling. A bulk mining approach has been selected, mining on 10m benches. The selected mining fleet features one 26 m(3) rope shovel, one 28 m(3) electric hydraulic shovel, one 18 m(3) front end loader, and up to ten 218-tonne haul trucks with related support equipment. Benches will be drilled with 8 m by 8 m production drill patterns and wall control patterns as required. The holes will be loaded and shot with a 70% emulsion / 30% ANFO blend blasting agent. Ore control will be based on blasthole samples assayed for molybdenum.

Waste rock will be stored in an expansion to the existing Patsy Waste Management Facility. Low grade ore will be stockpiled throughout the mine life on the top of the existing Clary Waste Management Facility. This ore stockpile will be reclaimed and processed during the last two years of the operation.

The mining production schedule is presented in Table 4.

Table 4. Summarized Production Schedule

                 Ore to
          Ore     Low
         Direct  Grade     Waste
Mining  to Mill Stockpile  Mined             Strip      Mill    Mo Grade
Period   (kt)     (kt)      (kt)    Total    Ratio   Production   (%)
       -------- --------- -------- -------- -------- ---------- --------
  -2          -         -        -                            -        -
  -1                  362    8,500             23.48
   1     13,836     3,801   19,910   37,547     1.13     14,029    0.104
   2     14,600     4,126   22,940   41,666     1.23     14,600    0.106
   3     14,600     3,088   21,375   39,063     1.21     14,600    0.114
   4     14,600     5,969   13,315   33,884     0.65     14,600    0.088
   5     14,600     2,833   15,349   32,782     0.88     14,600    0.096
   6     14,600     2,581   14,136   31,317     0.82     14,600    0.096
   7     14,600     2,087   12,675   29,362     0.76     14,600    0.089
   8     14,600     1,043   12,725   28,368     0.81     14,600    0.082
   9     14,600     1,024   11,061   26,685     0.71     14,600     0.08
   10    14,600       291    8,125   23,016     0.55     14,600    0.074
   11    14,600         -    6,523   21,123     0.45     14,600    0.072
   12    14,600         -    5,360   19,960     0.37     14,600    0.068
   13    14,600         -    3,657   18,257     0.25     14,600    0.079
   14    14,600         -    2,103   16,703     0.14     14,600    0.081
   15     1,833         -      475    2,308     0.26     14,600    0.037
   16         -         -        -        -              14,245    0.031

       -------- --------- -------- -------- -------- ---------- --------
Totals  205,469    27,205  178,229  410,903     0.77    232,674    0.081
       -------- --------- -------- -------- -------- ---------- --------

Note: As part of the dilution / mining loss adjustments, an additional 202
kt of inferred dilution material with grades set to zero is routed to the
mill

Processing

The proposed concentrator in this study is based on an annual resource throughput rate of 14.6 Mt, or 40,000 tpd at 92% plant availability, for the production of a molybdenum concentrate. The processing plant is expected to operate 24 hours/day, 365 days/year. Over the life of mine, the processing plant will produce an estimated 326,150 t of molybdenite concentrate grading 52% Mo. The molybdenum recovery is variable with the average estimated at 89.9%.

The proposed process design is based on historical testwork results, the results from a recent (2009 and 2010) test program and utilizing plant data from the previous Kitsault concentrator operations. Plant design, principally the crushing-grinding circuit, has been revised to reflect current technologies using a primary crusher-SAG-ball mill configuration. The process design is composed of the following unit processes:

  • Primary crushing using a gyratory crusher;
  • Grinding using a SAG-ball mill-pebble crusher configuration with cyclones for flotation feed size classification;
  • Rougher and scavenger flotation;
  • Five stages of cleaner flotation with three stages of regrinding;
  • Final molybdenum concentrate thickening, leaching for the removal of contaminants, and the filtering, drying and packaging of the final concentrate; and
  • Flotation to produce desulfidized tailings which will have a portion cycloned for dam construction and the remainder will be deposited by gravity into an on-site Tailings Management Facility (TMF). Pyritic tailings will be deposited in a separate submerged cell in the TMF to prevent oxidation.

Capital Costs

Initial capital costs are estimated at $770 million, which includes $50 million for mobile mining equipment. Preproduction stripping costs of $13 million are reflected in the initial operating costs. Life of Mine sustaining mine capital was estimated to be $50 million, which is comprised mainly of mobile equipment and TMF embankment ongoing construction. All capital costs are [+/-15%] in this estimate.

The capital costs for the mine, plant and TMF are given in Table 5 below.

Table 5. Capital Cost Summary

Area                      Description                (US$M)
           --------------------------------------- ----------
     1000  Mining                                        83.8
     2000  Site preparation and roads                    35.5
     3000  Process facilities                           195.1
     4000  Tailings management and reclaim systems       89.8
     5000  Utilities ties                                39.7
     6000  Ancillary buildings and facilities            38.4
           --------------------------------------- ----------
           Total Direct Costs                           482.3
           --------------------------------------- ----------
     8000  Owner's costs                                 21.1
     9000  Indirects                                    266.7
           --------------------------------------- ----------
           Total Indirect Costs                         287.8
           --------------------------------------- ----------
           Contingency                             Incl above
           --------------------------------------- ----------
           Total Capital Costs                            770
           --------------------------------------- ----------

Operating Costs

LOM unit cash operating costs are US$7.64/t milled and operating costs for the processing plant are estimated at $4.36/t milled (+/-15% accuracy). General and administrative costs have been estimated at $1.00/t milled. The Life of Mine unit cash operating costs are also summarized in Table 6 below:

Table 6. Unit Cash Operating Costs (LOM average - US$)

                             Total
Area                       LOM ($000)  US$/t Milled  US$/lb Mo
                          ------------ ------------ ------------
Mine Operations                528,038         2.27         1.42
Processing Operations        1,014,030         4.36         2.71
Administration                 232,745         1.00         0.63
                          ------------ ------------ ------------
Total                        1,774,813         7.64         4.76
                          ------------ ------------ ------------

Project Economics

The Feasibility Study economic results utilized assumptions summarized in Table 7 below:

Table 7. Financial Analysis Parameters

                         Parameters                               Inputs
                                                                ----------
General Assumptions
                                                                ----------
        Mine Life                                                 16 years
                                                                ----------
        Available mill operating days per year                  365 days/y
                                                                ----------
        Production Rate (average)                                40,000tpd
                                                                ----------
        Average Process Recovery                                      89.9%
                                                                ----------
        Molybdenum Concentrate - LOM                              326,150t
                                                                ----------
        CDN$:US$ exchange rate                                         .92
                                                                ----------
Market
                                                                ----------
        Discount Rate                                                    8%
                                                                ----------
        Base Case LOM average molybdenum price                  $ 16.76/lb
                                                                ----------
Royalty
                                                                ----------
        Amax Zinc (Newfoundland) Ltd Net profits Interest             9.22%
                                                                ----------
        Alcoa Royalty                                                  1.0%
                                                                ==========

The FS economic model for the base case in this study assumes a LOM average molybdenum price of $16.76/lb for revenue purposes, as projected by CPM Group.

The after-tax NPV at an 8% discount rate over the estimated mine life is $798 million. The after-tax IRR is 26.8%. Payback of the initial capital investment is estimated to occur in 2.6 years after the start of production

Sensitivity

Sensitivity analysis for key economic parameters is shown in Table 8 prior to tax effects. This analysis suggests that the project is most sensitive to exchange rates followed by commodity prices. The Project is least sensitive to operating and capital costs.

Table 8. Base Case Sensitivity to Pre-Tax NPV at 8% Discount Rate

SENSITIVITY OF PRE-TAX NPV @ 8%               Change in Factor
                                  -30%  -20%  -10%   0%   10%   20%   30%
Factor                            ----- ----- ----- ----- ----- ----- -----
        Exchange rate             2,424 1,922 1,531 1,219   963   749   569
        Capital expenditure       1,426 1,357 1,288 1,219 1,150 1,080 1,011
        Operating expenditure     1,485 1,396 1,307 1,219 1,130 1,041   953
        Metal price                 365   650   934 1,219 1,503 1,787 2,071
                                  ----- ----- ----- ----- ----- ----- -----

Development Timetable

A construction schedule has been established that is contingent on the following milestones to be realized:

Table 9. Project Milestones

Milestone                                                           Date
                                                                  ---------
Notice to proceed                                                  1-Jan-12
Begin crushing and screening at pit site                           1-Jan-12
Begin earthworks at plant site                                     2-Mar-12
Begin work at south embankment                                     1-Apr-12
Construction camp ready for partial occupancy                      1-Jun-12
Construction power and communications at plant site compete       30-Jun-12
Commence concrete at plant site                                   1-July-12
Construction camp ready for full occupancy                        30-Sep-12
Truckshop construction complete                                   30-Oct-13
Complete installation of power and distribution                   31-Oct-13
Complete north embankment                                         31-Oct-13
Begin commissioning                                                1-Dec-13
Plant ready for start-up                                          29-Jan-14
Complete south embankment                                         30-Jan-14
                                                                  ---------

The NI 43-101 Preliminary Feasibility Study, Avanti Mining Inc., Kitsault Molybdenum Property, British Columbia, Canada, was prepared by industry consultants, all of whom are independent of Avanti Mining Inc. and are QPs under National Instrument 43-101. The QPs have reviewed and approved this news release. The consultants (QPs) with their responsibilities are as follows:

AMEC Inc. under the direction of Mr. Greg Kulla (P. Geo.) for matters relating to geology and mineral resource reporting.

AMEC Inc. under the direction of Mr. Ryan W. Ulansky (P.Eng.) for matters and costs relating to mineral reserve statements, mining, mining capital, and mine operating costs.

AMEC Inc. under the direction of Mr. Tony Lipiec (P.Eng.) for matters relating to the metallurgical testing review, mineral processing, and process operating costs.

SRK Consulting (Canada) Inc. (SRK Canada) under the direction of Mr. Peter Healey (P.Eng) for matters and costs relating to mine closure and reclamation.

SRK US under the direction of Mr. Michael Levy (P.E., P.G.) for matters relating to the pit slopes.

Knight Piésold Ltd. (KP) under the direction of Mr. Bruno Borntraeger (P.Eng.) for matters and costs relating to plant site geotechnical conditions, surface water diversions and the Tailings Management Facility (TMF).

Avanti Mining Inc. is focused on the development of the past producing Kitsault molybdenum mine located north of Prince Rupert in British Columbia. Mr. Kenneth Collison, Senior Vice President of Project Development for the Company and a Qualified Person as defined in NI 43-101, has reviewed and approved the scientific or technical information in this press release.

Neither the 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.

Forward-Looking Statements: This news release contains certain forward-looking information concerning the business of Avanti Mining Inc. (the "Corporation"). All statements, other than statements of historical fact, included herein including, without limitation; statements about the recoverability of molybdenum at the Kitsault property, the results of the feasibility study, operating cost, capital cost, cash flow, the anticipated dates of commencement of construction and production, production schedule, molybdenum products meeting the specifications of the London Metals Exchange and other matters related to the development of the Kitsault molybdenum mine, are forward-looking statements. These forward-looking statements are based on the opinions of management at the date the statements are made and are based on assumptions and subject to a variety of risks and uncertainties and other factors that could cause actual events to differ materially from those projected in forward-looking statements. Important factors that could cause actual results to differ materially from the Corporation's expectations include fluctuations in commodity prices and currency exchange rates; uncertainties relating to interpretation of drill results and the geology, continuity and grade of mineral deposits; uncertainty of estimates of capital and operating costs, recovery rates, production estimates and estimated economic return; the need for cooperation of government agencies and native groups in the exploration and development of properties and the issuance of required permits; the need to obtain additional financing to develop properties and uncertainty as to the availability and terms of future financing; the possibility of delay in exploration or development programs or in construction projects and uncertainty of meeting anticipated program milestones; uncertainty as to timely availability of permits and other governmental approvals; and other risks and uncertainties disclosed in the Corporation's Annual Information Form for the year ended December 31, 2009, which is available at www. Sedar.com. The Corporation is under no obligation to update forward-looking statements if circumstances or management's opinions should change, except as required by applicable securities laws. The reader is cautioned not to place undue reliance on forward-looking statements.

Contact Information

  • For further information, please visit www.avantimining.com, or contact:

    Craig J. Nelsen
    Chief Executive Officer
    303-565-5491, extension 4471

    A.J. Ali
    Chief Financial Officer
    303-565-5491, extension 4472