Donner Metals Ltd.
TSX VENTURE : DON
FRANKFURT : D4M

Donner Metals Ltd.

September 02, 2010 16:45 ET

Donner Metals Receives a Positive Feasibility Study for the Bracemac-McLeod Deposit in the Matagami Base Metal Camp in Central Quebec

VANCOUVER, BRITISH COLUMBIA--(Marketwire - Sept. 2, 2010) - Mr. Harvey Keats, Chief Executive Officer of Donner Metals Ltd. (TSX VENTURE:DON)(FRANKFURT:D4M) reports that the Company has received a positive feasibility study on the Bracemac-McLeod deposit from Xstrata Canada Corporation - Xstrata Zinc Canada Division ('Xstrata Zinc'). The study by Genivar Limited Partnership ('Genivar') was commissioned by Xstrata Zinc and prepared on the basis of a 65% Xstrata, 35% Donner joint venture. The scope of the feasibility study is focused on a threshold analysis of previously defined indicated resources and it does not assess the extension of this mineralization, potential of near-by inferred resources or resources defined in the new McLeod Deep discovery. Construction of the mine is underway and Donner has initiated its efforts to finance. 

Summary

  • Proven and probable mining reserve, including dilution, of 3.73 million tonnes grading 9.60% zinc, 1.26% copper, and 28.25g/t silver and 0.43g/t gold based on indicated and measured resources (massive and semi massive sulphides) of 3.39 million tonnes grading 11.31% zinc, 1.47% copper, 34.27g/t silver and 0.50g/t gold.
  • 4 year life of mine (LOM) at a 2500 tonnes per day production rate.
  • Potential to expand both reserve base and production rate.
  • Construction of the Bracemac-McLeod mine has commenced (see news release dated July 9, 2010) with production expected in late 2012 to early 2013 following the closure of Xstrata's Perseverance mine.
  • On current reserves, expected LOM production is 570,400 tonnes zinc, 39,755 tonnes copper, 46,973 Kg silver and 445 Kg gold.
  • Total capital cost on a 65%/35% joint venture basis will be US$163.7 million.
  • Capital requirements are split with approximately US$115.6 million (2010-2012) in preproduction development for the Bracemac zones followed by US$48.1 million (2012-2014) to be incurred concurrently with production and cash flow from Bracemac as the McLeod zone is developed.
  • LOM operating costs are estimated at an average of US$73.00 per tonne of ore mined and include a capital recovery charge of US$6.48 per tonne payable to Xstrata Zinc for use of the mill and tailings facility.
  • Economic threshold analysis of the project on a joint venture basis returns a 8.1% internal rate of return and an NPV7 of US$3.4 million using zinc: $0.80 $US/lb, copper $2.50 $US/lb, silver $12.00 $US/ounce and gold $1000 $US/ounce with an exchange rate of $CDN 1.04 to the US dollar.
  • The project is sensitive to metal prices, exchange rate and capital cost as primary impacts. For example, a 10% increase in metal prices translates to a 12 fold increase in NPV and a 2 fold increase in internal rate of return.
  • Exploration from underground will be conducted to evaluate inferred resources and to investigate the extent of sulphide mineralization intersected in drilling that is not currently included in any resource category.
  • Potential expansion of the mine with future development of McLeod Deep to be studied.

By providing this feasibility study, Xstrata Zinc has met its obligations under the Matagami Lake Option and Joint Venture Agreement towards its back-in right on the South Flank area which includes the Bracemac-McLeod mine. This area will become a 65%/35% joint venture while the remaining four project areas will become 50/50 joint ventures once Donner has exercised its option by spending CDN$25 million. Donner has currently provided CDN$24.1 million to Xstrata Zinc towards this requirement and has the remaining funds in its treasury. Donner may decide to vest in the project anytime up to May 31, 2011 and it is not required to contribute any capital until May 31, 2011. Donner will share in the project costs and revenue on a 35% interest basis in the joint venture and has until May 31, 2011 to arrange for its share of project financing.

Additional geological information, including maps and sections, is available at www.donnermetals.com.

Feasibility Results:

All figures are in current US dollars unless otherwise noted.

Mineral Resources

New indicated and measured resources were calculated on the results of definition drilling conducted under the feasibility study (Table 1). Drilling was focussed entirely on upgrading the previously reported, indicated resources to the measured resource category. The drill program did not attempt to investigate the maximum extent of sulphide mineralization beyond the boundary of the indicated resource outline and the extent of the mineralization remains poorly defined in the McLeod Zone. Average drill hole spacing was in the order of 25 metres within the three Bracemac zones and within the upper portion of the McLeod zone. The lower portion of McLeod Zone was not drilled as part of this program and remains in the indicated resource category with drill spacings at approximately 50 metres. This area is however included in the mining reserves and the mining study. The definition drilling did not focus on the previously reported inferred resources in the immediate vicinity of the McLeod zone or on the investigation of the McLeod Deep discovery. Definition drill holes drilled into the upper portion of the McLeod zone also intersected the Copper Stringer zone below the massive and semi-massive sulphides present at the Key Tuffite. These new data provided the basis for moving the Copper Stringer zone into the indicated resource category.

New inferred mineral resources for the recently discovered McLeod Deep Zone have been calculated on the basis of eight diamond drill holes with pierce point spacings of between 100 and 150 metres (Table 1). These resources are not incorporated in the feasibility study for Bracemac-McLeod and the possibility of developing McLeod Deep will be assessed under a separate feasibility study as it will entail additional capital costs. With the addition of these resources, the Bracemac-McLeod Deposit becomes the second largest concentration of sulphides in the Matagami Camp.

Calculation of the resource base for the Bracemac, McLeod and Copper Stringer zone was by inverse distance squared verified by krigging with variography. McLeod Deep was calculated by 3D polygonal method.

Development, Mining and Mining Reserves

Mining and development will proceed in two phases with a total of 30 kilometres of ramping and preproduction development. Phase 1 will consist of the establishment of a 2.3 kilometre ramp from Bell Allard Pit to the Bracemac zones and 11.4 kilometres of preproduction development followed by production beginning in late 2012 to early 2013. Phase 2 will be concurrent with production at Bracemac and will consist of dual ramps from Bracemac to McLeod totalling 3.6 kilometres and 12.7 kilometres of pre-production development with completion anticipated by late 2013. Production from the Bracemac zones and the McLeod zone will overlap by approximately one year and mine production will be at a rate of 2500 tonnes per day for the LOM.

Current mine planning is based on proven and probable mining reserves of 3.73 million tonnes grading 9.60% zinc, 1.26% copper, 28.25g/t silver and 0.43g/t gold and incorporated an average of 19% dilution (Table 2). Mining will be by long hole method with transverse or longitudinal access.

Milling and Refining

Sulphide mineralization from Bracemac-McLeod is typical of historical ore produced from Matagami and generally has less talc as a gangue mineral than historical deposits. Bracemac-McLeod ores are characterized as medium-grained and characterized as soft to medium hardness range. The Matagami mill is rated at 2600 tonnes per day, but produced at an average rate of 2800 tonnes per day in 2009. The mill utilizes ball mill grinding and is currently set up with a pre-float circuit followed by zinc and copper circuits. The pre-float circuit is used for the suppression of talc from Xstrata's Perseverance Mine ore. Throughput from Bracemac-McLeod is modeled at 2500 tonnes per day with grinding between 67 and 69um. The talc pre-float circuit will not be utilized for Bracemac-McLeod ores due to the lower concentrations of talc. Metallurgical results are provided in Table 3.

Zinc concentrate will be shipped via existing railroad to the Noranda Income Fund refinery in Valleyfield Quebec at a freight rate of US$51.21 per dry metric tonne and copper concentrate will be shipped to the Horne Smelter in Rouyn-Noranda at a rate of US$135.87 per dry metric tonne (Table 3). Average zinc treatment charge is estimated at $250.00 per dry metric tonne of concentrate and a base price contract of $2000 per tonne of zinc. Copper will be refined at the CCR copper refinery in Montreal. Smelting charges are estimated at $55.00 per dry metric tonne and refining charges are estimated at $0.055 per pound of copper (Table 3). Deleterious elements are anticipated to be below penalty limits.

On current reserves, expected LOM production is 570,400 tonnes zinc, 39,755 tonnes copper, 46,973 Kg silver and 445 Kg gold.

Operating costs

Operating costs per tonne of ore mined are estimated at $US73.00 on a joint venture basis. These operating costs included a US$6.48 per tonne capital recovery charge to Donner by Xstrata based on Donner's 35% share of a new mill and tailings facility amortized over 15 years (mill and tailings – capital cost recovery charge). The cost for this calculation was estimated by Genivar, at a conceptual level, for a total of CDN$92.4 million.

Capital Costs

Capital cost of US$163.7 million is estimated for the project on a fully costed joint venture basis (Table 4) which includes the addition of Xstrata owned equipment and buildings from Perseverance Mine to the project. These costs are also adjusted for Donner to reflect removal of capital items relating to the mill and tailings as these are reflected in Donner's capital cost recovery items.

Financial Analyses

Economic threshold analysis of the project on a fully costed joint venture basis returns an 8.1% internal rate of return and an NPV7 of $3.5 million using zinc: $0.80 $US/lb, copper $2.50 $US/lb, silver $12.00 $US/ounce and gold $1000 $US/ounce with and an exchange rate of $CDN 1.04 to the US dollar (Table 5). The project is sensitive to metal price, capital cost and exchange rate as the primary impacts. For example, a 10% increase in metal prices translates to a 12 fold increase in NPV and a 2 fold increase in internal rate of return.

Qualified Persons

The feasibility study for Bracemac-McLeod was conducted by Genivar, mainly from its Quebec City office, with input and support by Xstrata Zinc. Qualified Persons responsible for the technical information in the feasibility study are, for Genivar, Marc Lavigne, Yves Galarneau, Yves Bouchard, Gail Amyot, Luc Bourguignon and Jacques Gauthier, and, for Xstrata Zinc, Aline Côté, Christine Beausoleil, Gilles Roy and Pat Carr.

PROJECT OVERVIEW

Donner has the option to earn a 50% participating joint venture interest in the Matagami Project by incurring a total of $25 million of expenditures on exploration and related work on or before May 31, 2011. To date, Donner has provided $24.1 million towards exploration and has the balance of the funds required to exercise the option in its treasury. Following earn-in, Xstrata Zinc has a right in each of the five joint venture areas to earn-back a 15% interest by completing a feasibility study or incurring a maximum of CDN $20 million towards a feasibility study. Upon Donner receiving the feasibility study for Bracemac-McLeod, Xstrata Zinc will have met its earn-back right for the South Flank joint venture area that, upon Donner completing its earn-in requirements, will become an Xstrata (65%)-Donner (35%) joint venture. Under the JV, Donner is subject to costs adjustment related to the purchase of its share of any equipment Xstrata Zinc provides to the project and related to a per tonne capital cost recovery charge with respect to the use of the mill and tailings facility. Donner may decide to vest in the project anytime up to May 31, 2011. Following receipt of the feasibility study on Bracemac-McLeod Donner has until May 31, 2011 to arrange its share of project financing.

The Matagami Project has an area of mutual interest of 4,750 square kilometres and presently includes 2,986 mineral claims covering 644 square kilometres. The project covers the Matagami Mining Camp, a world-class mining district, with 18 known Volcanogenic Massive Sulphides (VMS) deposits including 10 past producers of varying sizes, including the giant Matagami Lake Deposit (25.64 million tonnes of 8.2% zinc, 0.56% copper, 20.91g/t silver and 0.41g/t gold) discovered in 1957 and mined from 1963 to 1988. The area is host to historical production of 8,600 million pounds of zinc and 853 million pounds of copper. The Matagami area is well serviced by established infrastructure including the town of Matagami, power, a permitted tailings facility, railway, airport and well-developed road and highway networks. Xstrata Zinc is currently producing from its low-cost and wholly-owned Perseverance Deposit which feeds its refurbished 2,600 tonnes per day Matagami mill complex. Any future development under the Donner-Xstrata agreement will benefit from the established infrastructure and facilities. Zinc concentrates produced at Matagami are refined at the Noranda Income Fund zinc refinery in Valleyfield, Québec. Copper concentrates are smelted at Xstrata's Horne smelter in Rouyn-Noranda and refined at Xstrata's Canadian Copper Refinery in Montréal, Québec. 

The Company's strategy is to explore for and discover zinc-copper deposits in the Matagami Camp and to leverage the general infrastructure and existing processing facilities within a known and well-established cost structure for developing VMS deposits. Donner's exploration objective is to investigate multiple stratigraphic horizons with potential for VMS mineralization including the prolific Key Tuffite horizon throughout the Matagami Camp. To date, Donner has discovered new mineralization at Bracemac-McLeod, Daniel1, Bell Channel and in the McLeod Deep Zone. Within the extensive project area there are numerous exploration targets with excellent potential for additional discoveries.

SUPPLEMENTARY INFORMATION

Xstrata Zinc is the project operator for the Matagami Project as well as for the development and operation of the Bracemac-McLeod mine. Xstrata Zinc is responsible for both fieldwork and resource evaluation including, but not limited to, sampling, submittal of samples for assay, assay verification, metallurgical evaluation and QA/QC. Sample preparation and assaying of samples that form the basis of the resource calculation were carried out and certified by ALS Chemex-Chimitec, of Val D'Or, Québec (zinc, copper and silver by atomic absorption, and gold by standard fire assay procedures).

Robin Adair (VP of Exploration) is the Qualified Person for Donner Metals Ltd. and is relying on the Qualified Persons from Genivar Limited Partnership and Xstrata Zinc, as noted above, for the technical information reported in this news release.

To view the tables accompanying this press release, please click on the following link: http://media3.marketwire.com/docs/don92.pdf

ON BEHALF OF THE BOARD OF DONNER METALS LTD.

Harvey Keats, Chief Executive Officer

Cautionary Statement:

Certain phrases in this news release are "forward-looking statements". Forward looking statements include wording such that a future context of performance is implied within the statement. Within the scope of this press release, this applies directly to future events and performances related to the development of, and production from, the Bracemac-McLeod mine. Forward-looking statements are also identified by specific wording such as "will", "is estimated" (future sense) and "planned", and apply specifically to the possible future completion of the Matagami Option, or potential future decisions related to the Bracemac-McLeod mine. With respect to Donner earning an interest in the Matagami Project, Donner's ability to meet the requirements of the Option and Joint Venture Agreement can be negatively affected by financial markets and Donner's ability to raise financing, among others. With respect to the feasibility study underway on Bracemac-McLeod, there is no certainty that the study will be positive and there are numerous factors that may impact the outcome of the study either positively or negatively. These factors are being evaluated as part of the feasibility study. "Forward-looking statements" involve known and unknown risks, uncertainties and other factors which may cause actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. This press release refers to information about Xstrata's Perseverance mine and mine property on which the Company has no right to explore or mine. This press release also refers to information about historical production from land covered by the Matagami Project. Investors are cautioned that mineral deposits on other properties and/or historical production on lands under option are not necessarily indicative of characteristics of new mineral deposits discovered on the Matagami Project. Further discussion of "forward looking statements" and the risks inherent to mineral exploration and development, in relation to Donner's activities, can be found on the Company's website at www.donnermetals.com. The reader is cautioned not to place any undue reliance on any forward-looking statement, reference to other properties or historical production from the Matagami Project area.

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 news release.

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