Canadian Royalties Inc.

Canadian Royalties Inc.

June 04, 2007 10:03 ET

Canadian Royalties Inc.: Raglan South Nickel Project-Feasibility Study Completed by SNC-Lavalin

MONTREAL, QUEBEC--(Marketwire - June 4, 2007) - Canadian Royalties Inc. (TSX:CZZ) announces the results of the Bankable Feasibility Study ("BFS" (i), the "Study") on the Raglan South Nickel Project, located in Nunavik, Quebec. The lead engineer for the Study was SNC-Lavalin Inc. ("SLI"). The purpose of the Study is to provide a report suitable for project financing in the form of a technical report consistent with National Instrument 43-101 Standards of Disclosure for Mineral Projects ("NI 43-101"), Form 43-101F1 and Companion Policy 43-101CP.

The Study demonstrates robust project economics with a rapid payback of the capital investment (1.9 to 2.9 years at US$10/lb Ni and US$6/lb Ni, respectively). Significant cash flow could be generated by annual metal production that would average over the first four years:

- 11,800 tonnes per year (26,014,000 lb) of nickel in concentrate;

- 17,600 tonnes per year (38,800,000 lb) of copper in concentrate;

- 14,500 oz per year of platinum in concentrate; and

- 78,600 oz per year of palladium in concentrate.

Richard Faucher, President and CEO of Canadian Royalties comments, "Our commitment is to advance this project as quickly as possible so as to benefit from expected high nickel prices over the next several years. We look forward to an exciting future and achieving the first phase of development in becoming a mid-tier nickel producer".


The Study considered the Mesamax, Expo and Ivakkak deposits. Substantial resources at Mequillon were not included in the Study at this time. The Mesamax and Expo deposits are subject to a joint-venture agreement (80% Canadian Royalties / 20% Ungava Minerals Corp. upon delivery of the Bankable Feasibility Study). The Ivakkak deposit is 100% Canadian Royalties owned. Details on project ownership follow later in this release.

Contained Metal in Mineral Reserves (Proven and Probable)
228 million lbs nickel
267 million lbs copper
156,000 thousand ozs platinum
640,200 thousand ozs palladium

Mine Throughput 1.28 million tonnes/year
3,500 tonnes per day

Mine Life 9 years

Base assumptions include a long term nickel price of US$6.00/lb. and an
exchange rate of US$0.89 per Cdn$1.00.

Pre-production Capital (2007 dollars) Cdn$438 million (not escalated)

Total Operating Cost / tonne of ore (excluding transportation of
Years 1 to 4 (Mesamax, Expo, Ivakkak) Cdn$58.87
Years 5 to 6 (Expo and
Ivakkak Underground) Cdn$66.28
Years 7 to 9 (Expo) Cdn$53.65

Economic Analysis
Base Scenarios
Case 1 2 3
Internal Rate of Return
(@ US$/lb Ni) $6.00 $8.00 $10.00 $15.00
Pre-tax IRR 11.3% 19.9% 30.7% 50.0%
Payback Period (yrs) 2.9 2.4 1.9 1.4
Net Present Value (@ 8%) $0.4M $115.1M $285.3M $680.2M


The Study includes only those resources in the indicated category converted to mineral reserves for the Mesamax, Expo and Ivakkak deposits. Substantial indicated and inferred resources occur at Mequillon.

Conventional open pit mining methods would be used to exploit 98% of the reserves of the project. Mesamax and Ivakkak ores would be blended with Expo ores for the first four years of the project. Reserves from the Ivakkak underground zones A and C would be mined in years 5 and 6, and blended with Expo ore. Canadian Royalties continues to evaluate the Mequillon deposit, with work underway to update an underground resource estimate that will take into account 2005 and 2006 deep drilling, and an underground mining scoping study.

Open pit designs incorporate appropriate access ramps, wall slope angles, catchment berms and minimum mining widths for selected equipment using the following long term metal prices: US$6.00/lb nickel, US$1.50/lb copper, US$900/oz platinum and US$300/oz palladium at an exchange rate of US$0.80 per Cdn$1.00. Reserve determinations include allowances for dilution which vary with each resource. Mining losses (not included in the table below) were assumed to be 5%, and factor in the mining plan and financial analysis. The average strip ratio for open pit mining is 3.37:1 over the life of mine excluding the waste material extracted during the underground mine development.

The proven and probable open pit reserve estimate for the three pits on the project excluding the ore losses are as follows:

Ore Ni Cu Co Au Pt Pd Waste / Ore)
Tonnes % % % g/t g/t g/t tonnes t/t
Mesamax 2,186,155 1.85 2.49 0.07 0.19 0.95 3.46 5,594,258 2.56
Expo 8,255,282 0.68 0.69 0.04 0.07 0.29 1.25 29,420,820 3.56
Ivakkak Pit 635,897 1.22 1.53 0.05 0.16 0.67 3.22 3,103,809 4.88
Underground 218,994 2.29 2.73 0.10 0.21 1.04 4.90
Total 11,296,328 0.97 1.13 0.05 0.10 0.45 1.86 38,118,887 3.37

P&E completed an open pit / underground mining tradeoff study for the Ivakkak deposit. As a result, a smaller open pit with a significantly reduced strip ratio was developed to exploit 75% of the Ivakkak reserves. P&E developed an underground mining scenario and preliminary plans. Underground mining costs were prepared by mining contractor Ross-Finlay 2000 Inc.

Production Overview

The nominal production rate is 3,500 tonnes of ore per day for a total annual throughput of 1,277,500 tonnes of ore. Separate nickel and copper concentrates would be produced. Both concentrates are anticipated to be sold through off-take agreements which are likely to facilitate project/debt financing once permits are in place.

Capital Costs

The project has been structured as an independent, stand-alone mining and milling operation with all infrastructures necessary to support the project. The capital cost is spent during the development period from July 2007 to February 2008 and then during the 2 year construction period from March 2008 to March 2010. Operations are scheduled to commence in April 2010. The construction cost (direct and indirect costs) of $438 million has been escalated in the financial model, using an annual inflation rate of 3.5%, for a total capital cost of $466 million. The inflation rate takes into account the construction labour and the materials inflation rates.

Additions and improvements to the estimate from the Preliminary Economic Assessment completed in May 2006 include a wharf and related infrastructure at Deception Bay (estimated at $52 million plus contingencies), a disposal concept for potentially acid generating waste rock and tailings which has been improved to address climate change, impact on permafrost, and updated environmental regulations (estimated at $40 million), expansion of mill capacity from 2,500 t/d to 3,500 t/d, and general increases in construction indirect costs and equipment costs.

Direct Costs: Cdn$ (2007)

Airport Facilities 797,978
Buildings, Utilities and Infrastructures 69,241,546
Port Facilities (Wharf, warehouse, fuel and shiploading) 51,793,300
Power and cogeneration facilities 22,480,175
Subtotal 144,312,999

Prestripping - Expo and Mesamax 14,087,165
Expo and Mesamax Mines 2,014,065
Expo Co-disposal Site (Golder) 2,569,423
Mining and Administrative Mobile Equipment Fleet 21,474,964
Subtotal 40,145,617

Mineral Processing Facility (SLI, less tailings) 75,043,586
Paste tailings plant and pipeline (Golder) 8,158,934
Subtotal 83,202,520

Indirect Costs
Construction Indirects 47,246,345
Contingency (10%) 39,025,756
Engineering, Procurement, Construction
Management ("EPCM") 44,873,130
Owners Costs 39,463,632

Subtotal 170,608,864

Subtotal of Direct and Indirect Costs 438,270,000

Construction Escalation (3.5% annually) 27,430,000

Escalated Total Capital Costs 465,700,000

Economic Analysis

The following table summarizes the economic parameters of the project and the Study conclusions on the basis of 100% equity financing:

Long-term Long-term
Nickel Copper Pre-tax Payback NPV @
Price Price Project Period 8%(post-tax)
(US$) (US$) IRR(%) (years) (million Cdn$)
Base Case $6.00 $1.50 11.3% 2.9 years 0.41
Scenario 1 $8.00 $1.75 19.9% 2.4 years 115.12
Scenario 2 $10.00 $2.00 30.7% 1.9 years 285.28
Scenario 3 $15.00 $2.50 50.0% 1.4 years 680.17

The Base Case uses metal prices based on a market outlook study while scenarios 1, 2 and 3 are based on long term metal prices established by Canadian Royalties. The economic analysis was performed with a $0.89 USD/CAD exchange rate, a 3.5% annual inflation rate during construction and a 2% annual inflation rate throughout the operation period. The Project estimated returns presented above are based on substantially lower prices than current market prices. On June 1, 2007 the closing price of nickel was US$22.89/lb, and averaged US$ 20.56/lb for the year to date in 2007.

Analyses were carried out for a 100% equity financed project and the financial model does not include any financing up-front fee or equity underwriting fee.


Discussions with authorities have begun for the Environmental permit covering both mine and port facilities. The Company expects to receive agreement in principle from the Kativik Environmental Quality Commission ("KEQC Decree") at year end 2007, will all mining permits and authorizations to follow early in 2008. Genivar is assisting the Company with permitting activities.

Preparations for detailed engineering and procurement of long lead equipment are underway so as to meet the 2010 production start date. While this represents certain risks with the commitment of funds, these major items are also considered of recoverable value. The potential of beginning production as early as during the first half of 2010 provides a significant incentive for the project value and return. Canadian Royalties expects to award the detailed engineering contract for the mill and process design in the next few weeks.

Off-take agreement discussions are ongoing with various interested parties and the Company is currently evaluating those proposals with a view to providing additional benefits that may have the potential to enhance the project's value and the Company's growth. It is anticipated that subsequent to the Company entering into an agreement for the sale of concentrate, and following the execution of the KEQC Decree, it shall complete discussions pertaining to project/debt financing. Additionally, with the receipt of the Study, the Company is moving into another stage of the joint-venture in respect of the Expo-Ungava Property as operator in order to move the project forward and take advantage of the current commodities market.

Jobs and Impact Benefit Agreement

The project would create an estimated 270 permanent jobs in direct employment, whereby a large portion may be occupied by the local Inuit population of Nunavik. An Impact Benefit Agreement (IBA) is under discussion with Makivik Corporation representing the local Inuit communities.


Canadian Royalties continues to pursue potential improvements in capital cost reductions which could result from significant synergies with existing operations in the Nunavik region and which may enhance the future development of this region.


Canadian Royalties intends to maintain an aggressive program of exploration while construction is in progress. The objective is to add quality resources for inclusion to the current mining schedule, and to extend mine life. A deep-penetrating electromagnetic MegaTEM® geophysical survey has commenced on the property, and will be completed in early June providing significant new information for drilling of potential deeper-seated targets.

Exploration Tribute

Exploration in the Nunavik Region (Raglan -- Cape Smith fold belt) dates back to the late 1800's when early geological reconnaissance was conducted by Dr. R. Bell (1875 -- 1915) and Dr. A.P. Low (1885 -- 1904). Additional early prospecting (1931-32) was directed by Dr. Cyril Knight, and included his exceptional student, Murray Watt who embarked from the Hudson Bay coast and gradually prospected easterly towards Ungava Bay. Mr. Watts returned intermittently through the 1950's. Many of the early discoveries of nickel sulphides today form significant portions of the Xstrata Nickel "Raglan Division", and helped define the early limits of the Raglan Horizon. Intermittent exploration was subsequently concentrated between 1956 -- 1963 and 1967-1972 when much of the early work was conducted on the South Trend ultramafics near the Expo Deposit (Amax Exploration). Early efforts were hampered by the lack of infrastructure in this area together with the relatively short seasons for exploration due to permafrost and extended Arctic weather conditions. Asbestos mining at Purtiniq and the opening of the Raglan Division by Falconbridge Ltd. in 1998 resulted in significant investments in infrastructure (ports at Douglas Harbour and Deception Bay, airstrips, and a road network in addition to a complete mining and milling facility) together with the cooperation of the Quebec Government through incentives and a positive regulatory climate, helped stimulate renewed exploration interest following the nickel discoveries at Voisey's Bay, Newfoundland in 1993-1994. Canadian Royalties staked its first properties in the area in 2000 and signed an option/joint venture agreement with Ungava Minerals Corp. in 2001.

Exploration success is typically the result of a collective effort, encompassing the benefit of historical work, ongoing exploration and advances in exploration technology principally. All members of our exploration team deserve special mention, their dedication and commitment in often difficult conditions are great sources of pride and characterize not only the early exploration effort, but also assist in developing our positive relations in local communities with all stakeholders and interested parties. At this moment, the Company wishes to extend a special acknowledgement to Mr. Todd Keast, the Senior Project Geologist and Manager of Exploration from 2001 -- 2005 for his dedication, commitment to the RSNP's development, and for the positive working conditions he helped establish in our Nunavik camps and which continue to characterize our operations.

Ownership of the Raglan South Nickel Project

The Ivakkak deposit is 100% owned by Canadian Royalties subject to a net smelter royalty ("NSR", refer to press release dated September 21, 2005). Canadian Royalties currently holds a 70% interest and a 2% NSR in the Expo-Ungava property (which hosts the Mesamax, Mequillon and Expo deposits); its interest therein will increase to 80% and a 2% NSR upon delivery of a Bankable Feasibility Study on the related properties.

Engineers and Consultants:

The scope of work of the Study, and the mandates of the contributing engineers and consultants, are described below.

P&E Mining Consultants Inc. ("P&E") completed updated resource estimates for the Mesamax, Expo and Ivakkak deposits and developed the pit optimization, pit design and reserve estimates for the Ivakkak open pit and underground mines (the resource estimates have been previously filed by the Company and are available for public viewing at

SNC-Lavalin Inc. developed the pit optimization, pit design, reserve estimates for Mesamax and Expo deposits and prepared the mine scheduling and mine operating costs. SLI designed the on-site concentrating facility that comprises crushing, ball milling, flotation and concentrate dewatering. In addition, SLI was responsible for the design of site services and infrastructure, less the wharf at Deception Bay.

Golder Associates ("Golder") prepared pit wall slope recommendations for the Expo and Mesamax deposits, based on field studies, review of drill core and drilling of specific geotechnical holes. The average stripping ratio for the project is 3.37:1. Golder was also responsible for geochemical studies, waste rock and tailings management concepts, and the paste tailings pumping component of the concentrating facility. In order to minimize acid generation, potentially acid generating tailings will be disposed of within lined cells constructed of Expo waste rock within the co-disposal area.

SGS Lakefield Research Limited ("SGS") completed the metallurgical testing for Mesamax, Expo and Ivakkak ores, and environmental testing of Mesamax tailings and waste rock from each of the four deposits.

Genivar Consulting Group ("Genivar") conducted the 2006 environmental baseline studies, and completed the Environmental and Social Impact Study which was submitted to federal and provincial regulatory authorities for permitting in April, 2007. Genivar also completed the design concept for a wharf at Deception Bay, for the receipt of general cargo and fuel, and the dispatch of nickel and copper concentrates. The wharf was conceived for 25,000 tonne vessels. A geotechnical drilling program was completed in March 2007 by Laboratoires D'Expertises De Quebec Ltee to determine seabed stability characteristics for the wharf.

Qualified Persons and Consultants

Eugene Puritch, P.Eng. of P&E Mining Consultants Inc. is an Independent Qualified Person in accordance with NI 43-101, and is responsible for the resource and Ivakkak reserve estimates referred to in this news release.

Martial Cote, ing. of SNC-Lavalin Inc. is an Independent Qualified Person in accordance with NI 43-101, and is responsible for the Mesamax and Expo reserve estimates referred to in this news release.

All assaying was completed by ALS Chemex with sample preparation completed in Val-d'Or, Quebec and analyses completed at ALS Chemex in Vancouver, BC. Base metal values were determined by sodium peroxide fusion with ICP-AES analysis. Platinum, palladium and gold values were determined by 30 gram fire assay with ICP-AES finish.

About Canadian Royalties and the Raglan South Nickel Project

Canadian Royalties is currently in the process of initiating the development of the Raglan South Nickel Project which is anticipated to be an independent, stand-alone Ni-Cu-PGE mining and milling operation in the general vicinity of Xstrata Nickel's Raglan Mine in Nunavik, Quebec. Canadian Royalties is currently proceeding with permitting applications, as well as with exploration for additional resources near existing Ni-Cu-PGE deposits and new areas of mineralization.

Forward-looking Statement

This news release contains certain forward-looking statements or forward looking-information. These forward-looking statements are subject to a variety of risks and uncertainties beyond the Company's ability to control or predict which could cause actual events or results to differ materially from those anticipated in such forward-looking statements. Such risks and uncertainties are disclosed under the heading "Risk Factors" in the Company's Annual Information Form dated March 31, 2007. Further, forward-looking information is in addition based on various assumptions, including, without limitation, the expectation and beliefs of management, the assumed long term price of nickel, that the Study will confirm that a technical viable and economic operation exists, that the Company will receive the required permits and access to surface rights, that the Company can access financing, appropriate equipment and sufficient labor. Should one or more of these risks and uncertainties materialize, or should the underlying assumption prove incorrect or different, actual results may vary materially from those described in the forward-looking statements. All forward looking statements speak only as of the date of this news release and the Company does not undertake any obligation to update or publicly release any revisions to such forward-looking statements to reflect events, circumstances, or changes in expectations after the date hereof. Accordingly, readers should not place undue reliance on forward-looking statements.

(i) A bankable (full) feasibility study is a comprehensive analysis of a projects economics (+/- 15% precision) and is used by the banking industry for financing purposes.

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