Canico Resource Corp.
TSX : CNI

Canico Resource Corp.

August 04, 2005 15:21 ET

Canico Resource Corp.: Onca Puma Nickel Project Feasibility Study

VANCOUVER, BRITISH COLUMBIA--(CCNMatthews - Aug. 4, 2005) - Canico Resource Corp. (TSX:CNI) has received the highlights set out below which are to be contained in the Executive Summary of a Feasibility Study for the development and operation of the Onca Puma Nickel Project in Para State, Brazil. The Project as envisioned in the Study comprises an open cut mine, a high productivity smelting facility based on the conventional Rotary Kiln Electric Furnace ("RKEF") pyrometallurgical smelting process and all related infrastructure and equipment necessary to produce and deliver ferronickel to market from the Onca Puma lateritic nickel deposits. The section of this news release entitled "Highlights from the Executive Summary" was prepared with input from Hatch Ltd., ("Hatch") which is independent of Canico. Hatch has committed to deliver the completed Executive Summary, which will summarize the material information and conclusions of the full Feasibility Study, within 5 business days and has further committed to deliver the balance of the documentation for the Feasibility Study before the end of August.

The highlights from the Executive Summary are set out in this news release; however, readers are cautioned that they should not rely solely on these highlights, but should read and review the Executive Summary in its entirety. In addition, readers are directed to the cautionary notices and the disclaimers and discussion below and in the Executive Summary. When received, the Executive Summary will be posted on Canico's website (www.canico.com) and filed on the SEDAR website (www.sedar.com).

Highlights from the Executive Summary

Construction Program and Capital Cost

The Study considers the construction of a two-line plant, to be built in two phases. Initially, a single line plant would be constructed over a 37 month period commencing with Basic Engineering(1) at a total capital cost estimated to be US$762 million. The first line would reach full throughput capacity of approximately 1.28 million tonnes of ore per year over an ensuing two year ramp-up period. Then the second line would be constructed over the next two years, at a total additional capital cost estimated at US$352 million. When both lines are in full service following ramp-up of the second line, the smelter facility would process approximately 2.56 million tonnes of ore per year.

A Summary of the Capital Cost Estimate is set out in the Tables which accompany this news release.

(1) Basic Engineering has been underway since February of 2005.

Nickel Production and Operating Costs

The Project as envisioned would produce nickel as a marketable, refined ferronickel product for direct sale to stainless steel mills. The product would contain about 25% nickel and 75% iron. Ferronickel is in high demand as supplies worldwide are limited.

Higher grade ore is scheduled for early production. In Year 3, when the first line has reached full capacity and is processing high grade ore, it would produce about 67 million pounds of nickel in ferronickel at a site cash operating cost of US$1.60 per pound of nickel. In the year that the second line reaches full capacity (Year 7), production is forecast to be approximately 116 million pounds of nickel in ferronickel at a site cash operating cost of US$1.54 per pound of nickel. A summary of the projected production and cash costs over various periods is set out in the Tables that accompany this news release.

Resources and Reserves

The resource estimates announced on February 28, 2005, which were the subject of a separate 43-101F Technical Report filed on SEDAR, were used in the Study. These estimates were based upon the data from 4,567 drill holes. At cut-off grades of 1.0% nickel and 1.25% nickel, resources were estimated to be:



Measured and Indicated Mineral Resources

------------------------------------------
Cut-Off Tonnes Ni Fe SiO2/
Ni (%) (x106) (%) (%) MgO
------------------------------------------
------------------------------------------
1.00 98.6 1.70 18.0 1.79
------------------------------------------
1.25 77.7 1.86 17.4 1.73
------------------------------------------

Inferred Mineral Resources

------------------------------------------
Cut-Off Tonnes Ni Fe SiO2/
Ni (%) (x106) (%) (%) MgO
------------------------------------------
------------------------------------------
1.00 137.2 1.48 23.7 2.14
------------------------------------------
1.25 91.2 1.67 22.1 1.95
------------------------------------------


These estimates must be read in conjunction with the description of the estimating method, the key assumptions and parameters, and other discussion set out in the related 43-101F Technical Report filed on SEDAR.

The Feasibility Study considers production from Proven and Probable Reserves which were derived from only the Measured and Indicated Resource categories in these estimates. At a cut-off grade of 1.10% nickel, the Proven and Probable Reserves are:



Proven & Probable Mineral Reserves
(1.10% Ni cut-off)

--------------------------------------------------
Tonnes Ni Fe SiO2/ Fe/
(x106) % % MgO Ni
--------------------------------------------------
--------------------------------------------------
Onca 28.5 1.87 15.1 1.65 8.1
--------------------------------------------------
Puma 49.2 1.77 19.7 1.89 11.1
--------------------------------------------------
Total 77.7 1.80 18.0 1.79 10.0
--------------------------------------------------
Waste 72.8
--------------------------------------------------


Financial Summary

The Feasibility Study has been prepared using a constant long term nickel price of US$3.75 per pound. At this nickel price and assuming an all equity basis, the Study shows an after tax Internal Rate of Return of 12.2% over a mine life of 34 years. At the US$3.75 nickel price, the entire estimated US$1,114 million capital cost of the double line would be recouped in the first 7.2 years of operation. At a US$5.00 per pound long-term nickel price the IRR increases to 19.4% and the double line capital cost would be recouped in 5.3 years.

Sensitivity Tables showing the impact of changes of nickel price, capital cost and operating cost accompany this news release. Graphs displaying these sensitivities are linked to the electronic version of this news release.

Opportunities

The Feasibility Study is considered by Canico to constitute a conservative "base case" and activities are continuing to maximize the value of the Project and to minimize risk.

An infill drilling and geological interpretation program has continued since the date of the resource estimates used in the Study and results of a further 2,729 drill holes are being compiled. Further refinement of the resource models and estimates is ongoing. There will be opportunities to improve the definition of high grade areas and facilitate the optimization of mine production schedules.

None of the Inferred Resources were included in the mine production schedules in the Study. Canico considers that, with the ongoing drilling program, there are ample opportunities to reclassify a significant portion of the Inferred Resources into higher categories to substantially extend the mine life of the smelting operation well beyond that projected in the Study and/or to support the commissioning of additional smelting capacity to raise annual production. In addition, a considerable quantity of nickel laterite which is not suitable for RKEF processing is also present and represents further upside potential for nickel and cobalt production using alternative technologies.

Ongoing Development Activities and Forecast Start-Up

Basic Engineering is underway by a major engineering firm. The target cost and target schedule to be established from this Basic Engineering will form the basis of a contract with that major engineering firm for development of the Project. The contract will include bonus and penalty clauses with respect to the target cost and the target schedule for completion.

Canico also has a number of activities underway in anticipation of a production decision. Canico's Brazilian subsidiary, Mineracao Onca Puma Ltda., is well advanced on construction of local access roads to the deposit area and on its programs with the State of Para to upgrade and repair the public highways which link the deposits to major trans-shipping sites. The contract for the construction of the 400 km power line from Maraba to the Project is in final negotiations with a major Brazilian constructor. As previously announced, contracts for the supply of electrical energy for mine operation have already been made. The programs to secure the final environmental and other permits required for the project are continuing on schedule, as are programs detailing sustainable development planning for local communities and indigenous peoples. Surface use arrangements for the areas of the deposits and the plant site are nearing completion. As at July 31, 2005 Canico has spent approximately US$15 million on these activities. Canico is working closely with its financial advisors to finalize a project loan facility and, within the next few months, intends to raise the additional equity required to develop the Project. Assuming no substantial delays in financing or in the contemplated delivery schedules for major pieces of equipment, Canico currently forecasts the commencement of initial production during the first half of 2008.

"The material conclusions from the Feasibility Study show that Onca Puma is a robust project with excellent economics even at prices of nickel well below current market prices. It promises an exceptional mine life. It will produce substantial quantities of high quality ferronickel, using proven, conventional RKEF smelting. It offers low risk, low capital costs, low operating costs and a rapid schedule to full production for a project of this magnitude," said Michael Kenyon, President & Chief Executive Officer of Canico. "We are optimistic that we will beat the schedule in the Feasibility Study because we have already commenced a number of the long lead time activities associated with development. We intend to tailor our project financing to enhance value for our shareholders. We expect to improve our definition of high grade laterite areas and to convert substantial amounts of the inferred resources to the measured and indicated categories over time. Onca Puma is moving forward at full pace."

Canico will schedule a conference call to discuss the results of the Feasibility Study as soon as the Executive Summary has been filed on SEDAR.

CANICO RESOURCE CORP.

J. Michael Kenyon, President & Chief Executive Officer

Cautionary Notices

This News Release includes certain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 of the United States. Other than statements of historical fact, all statements in this release, including, without limitation, statements regarding potential mineralization and resources, estimated or potential future production, potential ranking amongst nickel producers, and future plans and objectives of the Company, are forward-looking statements that involve various known and unknown risks, uncertainties and other factors. There can be no assurance that such statements will prove to be accurate.

Actual results and future events could differ materially from those anticipated in such statements. Readers are cautioned not to place undue reliance on these forward-looking statements that speak only as of the date of this announcement. Important factors that could cause actual results to differ materially from the Company's expectations include, among others, the ongoing results of current exploration activities, conclusions of any scoping studies, pre-feasibility or feasibility studies, changes in Project parameters, and future metal prices, as well as those factors discussed under the heading "Risk Factors" and elsewhere in the Company's documents filed from time to time with the Toronto Stock Exchange, the TSX Venture Exchange, Canadian securities regulators and other regulatory authorities. All subsequent written and oral forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by this notice.

The mineral resource estimates referenced in this news release were completed with an effective date of February 21, 2005, according to the requirements of National Instrument 43-101, for the Onca deposit under the supervision of Hatch Associates Ltd., Consulting Geologists and Engineers, of Vancouver, B.C. ("Hatch") and for the Puma West deposit under the supervision of GRD Minproc Limited of Perth, Australia, both of whom are independent of Canico. Details of the estimates and the calculation methods employed are set out in the relevant 43-101F Technical Report in respect of the estimates which was filed for Canico at www.sedar.com. The estimates are based on the assumptions and methods, and are subject to the limitations and qualifications, described in Canico's filings. The quality of the information, conclusions and estimates contained in the estimates are consistent with the intended level of accuracy as well as the circumstances and constraints under which the mandates were performed. Some of the information on which the estimates were based was generated or provided by other outside sources. Neither Hatch nor Minproc warrant the accuracy or completeness of data supplied by outside sources. The standards employed by Hatch and Minproc, respectively, in estimating these mineral resources differ significantly from the requirements of the United States Securities and Exchange Commission and the mineral resource information reported may not be comparable to similar information reported by United States companies. The term "resources" does not equate to "reserves" and normally may not be included in documents filed with the United States Securities and Exchange Commission. "Resources" are sometimes referred to as "mineralization" or "mineral deposits".

The estimates of reserves described in this news release qualify as reserves in accordance with Canadian National Instrument 43-101. However they do not necessarily qualify as reserves for United States reporting purposes. Readers should not assume that this is acceptable for United States reporting purposes.

Callum Grant, P.Eng and Ian Candy, P.Eng both of Hatch, are the qualified persons for the Executive Summary.

A description of Canico's assaying and analytical techniques and methodology and particulars of historical mineral resource estimates, and other relevant information may all be found on Canico's website at www.canico.ca.

The highlights, Executive Summary and Feasibility Study are intended to be used by Canico subject to the terms and conditions of its contract with Hatch. That contract permits Canico to file this news release and the Executive Summary, as well as a related Technical Report, with Canadian Securities Regulatory Authorities pursuant to provincial securities legislation. That contract also provides that any reliance by any third party shall be entirely at their own risk. However this does not affect statutory rights arising under provincial securities laws in connection with any distribution of securities under a prospectus.

To view the attached graphs, please click on the following link: http://www2.ccnmatthews.com/database/fax/2000/CNIGraphs.pdf



TABLES

Please See Disclaimers and Discussion at the Bottom of these Tables.


Capital Cost Estimate Summary

--------------------------------------------------------------------
First Line Second Line
Description Cost Cost
--------------------------------------------------------------------
Direct Costs
--------------------------------------------------------------------
Infrastructure 73,043,000 12,180,000
--------------------------------------------------------------------
Mine and Mine Facilities 37,991,000 1,357,000
--------------------------------------------------------------------
Site Preparation 27,117,000 101,000
--------------------------------------------------------------------
Yard and Plant Facilities 65,011,000 19,423,000
--------------------------------------------------------------------
Ore Preparation 21,229,000 6,501,000
--------------------------------------------------------------------
Coal Preparation 17,899,000 1,727,000
--------------------------------------------------------------------
Ore Drying 22,752,000 19,335,000
--------------------------------------------------------------------
Calcining 34,492,000 35,271,000
--------------------------------------------------------------------
Dust Agglomeration 7,352,000 6,987,000
--------------------------------------------------------------------
Smelting and Refining 134,693,000 107,196,000
--------------------------------------------------------------------
TOTAL DIRECT COSTS 441,579,000 210,078,000
--------------------------------------------------------------------
Indirect Costs
--------------------------------------------------------------------
Temporary Facilities, Services and
Communications 28,164,000 10,870,000
--------------------------------------------------------------------
EPCM Services 88,161,000 41,941,000
--------------------------------------------------------------------
Freight 13,740,000 6,537,000
--------------------------------------------------------------------
Vendor Reps, Spare Parts and
Initial Fills 12,523,000 6,526,000
--------------------------------------------------------------------
TOTAL INDIRECT COSTS 142,588,000 65,874,000
--------------------------------------------------------------------
Owner's Costs 48,857,000 14,856,000
--------------------------------------------------------------------
Additional Taxes 44,545,000 23,425,000
--------------------------------------------------------------------
Contingency 84,147,000 38,214,000
--------------------------------------------------------------------
TOTAL CAPITAL COSTS 761,716,000 352,447,000
--------------------------------------------------------------------
--------------------------------------------------------------------

Capital estimates are presented in October 2004 US dollars and are
subject to the other qualifications and assumptions in the Executive
Summary.


Production and Operating Cost Summary

----------------------------------------------------------------------
Mine/Process Plant Production
----------------------------------------------------------------------
Ni Product
Feed - dry ---------------------
tonnes/year Ni Grade tonnes/ Million
(thousands) % year lb/year
----------------------------------------------------------------------
Average - First 4
years of Operation 1,064 2.71 25,950 57.2
----------------------------------------------------------------------
Average - First
10 years of Operation 1,876 2.33 39,280 86.6
----------------------------------------------------------------------
Average - First
20 years of Operation 2,160 2.05 39,860 87.9
----------------------------------------------------------------------
Life-of-Mine Average 2,287 1.80 37,100 81.8
----------------------------------------------------------------------


-----------------------------------------------------------------
Site Cash Total Cash
Operating Costs Operating Costs
-----------------------------------------------------------------
US $/t US $/lb
dry feed Ni US $/lb Ni
-----------------------------------------------------------------
Average - First 4
years of Operation 91.90 1.71 1.72
-----------------------------------------------------------------
Average - First 10
years of Operation 75.47 1.63 1.65
-----------------------------------------------------------------
Average - First
20 years of Operation 71.98 1.77 1.78
-----------------------------------------------------------------
Life-of-Mine Average 68.77 1.92 1.93
-----------------------------------------------------------------


Site cash operating costs exclude realization costs including selling costs, inland and ocean transportation, 2% government assessment, by-product credits and recoverable taxes. Total cash operating costs include these items along with the site cash operating costs.

Operating costs estimates are presented in October 2004 US dollars and are subject to the other qualifications and assumptions in the Executive Summary.



Sensitivities

-------------------------------------
Sensitivity to Nickel Price

-------------------------------------
Nickel Price NPV (8%)
- US$/ lb US$ millions IRR %
-------------------------------------
3.25 46.4 8.7
-------------------------------------
3.50 182.6 10.5
-------------------------------------
3.75 314.8 12.2
-------------------------------------
4.00 444.8 13.7
-------------------------------------
4.25 573.4 15.2
-------------------------------------
4.50 704.1 16.6
-------------------------------------
4.75 837.2 18.0
-------------------------------------
5.00 970.3 19.4
-------------------------------------


-------------------------------------
Sensitivity to Site Cash Operating
Cost

-------------------------------------
NPV (8%)
% change US$ millions IRR %
-------------------------------------
-20 586.7 15.1
-------------------------------------
-15 518.7 14.4
-------------------------------------
-10 450.7 13.7
-------------------------------------
-5 382.8 13.0
-------------------------------------
0 314.8 12.2
-------------------------------------
5 246.8 11.4
-------------------------------------
10 178.9 10.6
-------------------------------------
15 110.9 9.7
-------------------------------------
20 42.9 8.7
-------------------------------------


-------------------------------------
Sensitivity to Project Capital Cost

-------------------------------------
NPV (8%)
% change US$ millions IRR %
-------------------------------------
-20 481.2 15.6
-------------------------------------
-15 439.6 14.6
-------------------------------------
-10 398.0 13.7
-------------------------------------
-5 356.4 12.9
-------------------------------------
0 314.8 12.2
-------------------------------------
5 273.2 11.5
-------------------------------------
10 231.6 10.9
-------------------------------------
15 190.0 10.3
-------------------------------------
20 148.4 9.8
-------------------------------------


Disclaimers and Discussion

The Executive Summary and the balance of the documentation for the Feasibility Study are in the final stages of completion. No material change to the information in the highlights is anticipated to arise as a result of the work underway to complete this documentation. The Executive Summary is intended to be read as a whole; excerpts and sections should not be read or relied upon out of context. In particular, Readers should not rely solely on the highlights but should read and review the Executive Summary in its entirety. The highlights and Executive Summary reflect of the professional opinions of Hatch, based upon information available at the time of preparation. The quality of the information, conclusions and estimates to be contained in the Executive Summary are consistent with the intended level of accuracy as set out in the Executive Summary, as well as the circumstances and constraints under which the Executive Summary was completed, as set out in therein.

The measured and indicated resources referenced in the highlights are taken from a Technical Report completed as of February 21, 2005 according to the requirements of Canadian National Instrument 43-101. This Technical Report may be found in Canico's filings at www.sedar.com. The estimates are based on the assumptions and methods, and are subject to the limitations and qualifications, described in the Technical Report. The standards employed in estimating the measured and indicated resources differ significantly from the requirements of the United States Securities and Exchange Commission and the resource information reported may not be comparable to similar information reported by United States companies. The term "resources" does not equate to "reserves" and normally may not be included in documents filed with the United States Securities and Exchange Commission. "Resources" are sometimes referred to as "mineralization" or "mineral deposits".

The estimates of reserves described in the highlights qualify as reserves in accordance with Canadian National Instrument 43-101. However they do not necessarily qualify as reserves for United States reporting purposes. Readers should not assume that this is acceptable for United States reporting purposes.

The Executive Summary and the Feasibility Study are being completed for Canico by Hatch, and these documents, as well as the highlights taken therefrom, are based, in part, upon information believed to be reliable from data supplied by other consultants engaged by Canico, which Hatch has not verified as to accuracy and completeness. Hatch has not made an analysis, verified or rendered an independent judgment as to the validity of the information provided by such other consultants. While it is believed that the information contained in these documents is reliable under the conditions and subject to the limitations set forth therein, Hatch cannot guarantee the accuracy thereof. Any reliance on the highlights by any third party shall be entirely at their own risk. Hatch takes no responsibility and accepts no liability whatsoever for any loss arising from any use of or reliance on the Executive Summary or the information therein by parties other than Canico.

To the full extent permitted by law, Hatch disclaims responsibility for any indirect or consequential loss arising from any use of the Executive Summary or the information contained therein. While the work results, estimates and projections therein may be considered to be generally indicative of the nature and quality of the OncaPuma project, they are not definitive. No representations or predictions are intended as to the results of future work, nor can there be any promises that the estimates and projections in the Executive Summary will be sustained in future work.

The highlights include, and the Executive Summary will include, certain forward-looking statements within the meaning of the US Private Securities Legislation Reform Act of 1995. Other than statements of historical fact, all statements in these documents, including without limitation, statements regarding potential mineralization and resources, reserves and estimated or potential future production potential, are forward-looking statements that involve various known and unknown risks, uncertainties and other factors. There can be no assurance that such statements will prove to be accurate. Results and future events could differ materially from those anticipated in such statements. Readers are cautioned not to place undue reliance on these forward-looking statements that speak only as of the date of the highlights and the Executive Summary.


Contact Information

  • Canico Resource Corp.
    J. Michael Kenyon
    President & Chief Executive Officer
    (604) 669-9446
    (604) 669-9447 (FAX)
    www.canico.com