LionOre Mining International Ltd.
TSX : LIM
ASX : LIM
LSE : LOR
BOTSWANA : LIONORE

LionOre Mining International Ltd.

August 09, 2006 22:05 ET

LionOre Approves Activox'R' Refinery and DMS Plant at Tati Nickel for $620 million

Commercialization of Activox'R' delivers ultimate objective of vertical integration

TORONTO, ONTARIO--(CCNMatthews - Aug. 9, 2006) - LionOre Mining International Ltd.(TSX:LIM)(LSE:LOR)(ASX:LIM)(BSE:LIONORE)

Project Highlights

- Approval received for the Activox® Project comprising the construction of a base metals refinery and associated projects at Tati Nickel (85% LionOre, 15% Government of the Republic of Botswana) in Botswana for $620 million as follows:

- $482 million Activox® Base Metal Refinery

- $114 million Dense Media Separation plant upgrade to the Tati concentrator

- $24 million power infrastructure installation

- Activox® Project economics show an incremental IRR of 17% is achieved when compared against the current business plan, assuming a long-term nickel price of $4.35 per pound

- Vertical integration increases the economic net back of payable nickel from 73% to 94%

- Tati Nickel cash costs forecast to reduce significantly to $1.69 per pound of nickel over the life of the Activox® Project

- Ability to lower cut-off grade to 0.10% doubles Phoenix mine reserves to 111.6 million tonnes containing 331,000 tonnes of nickel

- Activox® Project nearly doubles annual nickel production from the Phoenix Mine to +/-22,000 tonnes and increases total payable nickel production over life of mine five-fold to a total of 236,000 tonnes

- Activox® Project capital cost per annual pound of nickel equivalents estimated at $11 -- $12 on an equivalent greenfield basis

- Project life of mine is 11 years, with the potential to increase to more than 20 years when the Selkirk resource is factored in

- Project funding will be split between internal cash flow and debt. Negotiations with banks in progress. The Company's cash balance at June 30, 2006 was $206 million

- Agreements reached with the Government of the Republic of Botswana in relation to fiscal structures, labour agreements, Environmental Social Impact Assessment, water and power provisions

Project Benefits

- Activox® Project will deliver LionOre vertical integration and unlock shareholder value

- Activox® Project secures five-fold increase in total nickel production over life of mine

- DMS and Activox® combination can unlock the full economic potential of the Selkirk deposit at Tati Nickel

LionOre Mining International Ltd. (TSX:LIM)(ASX:LIM)(LSE:LOR)(BSE:LIONORE) ("LionOre"), announces approval for the Activox® and Dense Media Separation (DMS) projects at Tati Nickel in Botswana, (collectively "the Activox® Project") following the positive results of the Bankable Feasibility Study (BFS), completed in June 2006. Tati Nickel is 85%-owned by LionOre and 15% by the Government of the Republic of Botswana (GRB).

The total capital cost for the Activox® Project is estimated at $620 million. This benchmarks competitively at a capital cost in the range of $11 - $12 per annual pound of nickel equivalents on a greenfield basis, factoring in the historical cost of the mining infrastructure at Tati Nickel. The incremental internal rate of return (IRR) for the Activox® Project is 17% when compared against the current business plan.

The Activox® Project will substantially enhance the economics of Tati Nickel. Annual nickel production will nearly double to 22,000 tonnes per annum, resulting in a five-fold increase in total nickel production of 236,000 tonnes over the course of the anticipated 11 years life of mine. Cash costs will be reduced substantially to $1.69 per pound of nickel, which will be highly competitive within the industry. Nickel reserves have been increased substantially to 331,000 tonnes of contained nickel securing longevity of production. Detailed engineering will commence immediately, with commissioning of the DMS plant to be completed in mid-2008 and the Activox® Base Metals Refinery in the third quarter of 2009. Full nickel metal production is expected in the third quarter of 2009.

Furthermore, the inclusion of the Activox® process in Tati Nickel's metal processing flowsheet removes the smelting step and enables LionOre to become a fully vertically integrated nickel producer: from ore to finished metal. This integrated Activox® processing route offers additional economic value by eliminating matte product transport costs, third party smelter and refining charges and price participation. It also increases the net back of payable nickel from 73% to 94%.

In addition to the Activox® refining operation, LionOre will continue to supply nickel concentrate to the BCL smelter.

Commenting on this landmark occasion, Colin Steyn, President and CEO of LionOre said, "Today marks an exciting and defining moment in LionOre's history as we embark on our transformation into a major vertically integrated nickel producer. The approval to construct a full-scale Activox® refinery, a world first, at Tati Nickel is confirmation of the commercial viability of the Activox® processing technology, which LionOre has been developing over the past nine years.

The power of the Activox® and DMS combination to unlock value in nickel sulphides is clearly demonstrated by the project economics, which offers a very competitive capital cost per annual pound of nickel equivalents.

In addition to delivering value to LionOre's shareholders, the Activox® Project will bring wide ranging benefits to Botswana and its mining industry. The Activox® refinery will enable Botswana to become a beneficiator of refined nickel and copper metal and develop a hydrometallurgical skill base."

Tati Activox® Bankable Feasibility Study Parameters

The parameters of the Tati Nickel Activox® BFS comprise two major components:

- Optimization of the Phoenix mine resource and balancing of feed grades to the Tati concentrator using a DMS plant

- Construction of an Activox® Base Metal Refinery

Metal and Exchange Rate Assumptions

The BFS used long-term planning prices of $4.35 for nickel, $1.25 for copper and a Botswana Pula:US dollar exchange rate of BP1.00 : US$0.148.

Activox® Project Economics

The BFS demonstrates that the Activox® Project is substantially value enhancing to Tati Nickel. The incremental net present value (NPV) of the project is $159 million at a discount rate of 8% when only the indicated resource of Phoenix mine is included. The annual capital cost per pound of nickel equivalents is in the range of $11 -- $12 after factoring in the historical cost of the mining infrastructure at Tati Nickel.

In line with the current high capital costs being experienced within the resources sector, the project's capital costs have exceeded the Company's June 2005 estimates and reflect a similar trend being experienced by other major capital projects in the mining industry. The capital estimate was compiled with a base date of June 2006. Most procurement items were priced based on a closed tender with validities of 90 -- 120 days. This will enable LionOre to secure key equipment and contracts to minimize the risk of further cost inflation and cost over-runs in the current tight market for equipment and services.

The cash operating costs included in the BFS for mining and processing are considered valid as they are based on current mining and concentrator operations at Tati. The table below demonstrates the positive impact of the Activox® Project on Tati Nickel over the current business plan.



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Selkirk
Positive Upside
Base Case BFS Impact Potential
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Activox®
Project Capital Nil $620 N/A N/A
Expenditure million
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Life of Mine 2011 / 2012 2016 +5 years +2026
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Nickel 11,360 22,458 97% 23,350
production tonnes tonnes increase tonnes
per annum
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Total nickel 54,703 235,808 331% 466,997
production tonnes tonnes increase tonnes
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Further Project Optimization Potential Including the Selkirk Indicated Resource

Further upside to the Activox® Project exists with the potential to include the recently announced Selkirk NI 43-101 compliant Indicated Resource to optimize annual production and extend the life of the project.

Metallurgical testwork, conducted by Mintek of South Africa, on low grade disseminated ores from the Selkirk deposit have demonstrated a 72% overall recovery using an integrated DMS and flotation circuit. The proximity of the Activox® refinery, combined with high metal recovery rates, suggest that this orebody could be economically mined.

It is planned to complete a pre-feasibility study by year end. However, screening economics show the potential to extend the life of the project until at least 2026, resulting in possible total production by Tati of approximately 470,000 tonnes of nickel.

In addition, the utilization of the inferred resources, based on current mining practice, from Phoenix such as the waste dump and the old magnetic separation dumps, together with the possibilities of further exploration success could substantially enhance the returns of this project.

Phoenix Resource

LionOre's Mineral Resources and Mineral Reserves are classified in accordance with the 2004 Edition of the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves (The JORC Code), which is in accordance with the Canadian Standards of Disclosure for Mineral Projects (National Instrument 43-101) and in accordance with the South African Code for Reporting Mineral Resources and Mineral Reserves (The SAMREC Code).

The resource and reserve statement for Phoenix has been updated using the modifying factors applicable to the DMS and Activox® technologies with an economic cut-off based on 0.1% nickel cut-off grade. This lowers the life of mine strip ratio to 1.54 from 3.2. The 2005 0.20% nickel cutoff resource and reserve statements are provided for clarity.



Tati Nickel Mineral Resources Summary

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2005 Tati - Phoenix (0.20% cut off)
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Tonnes Grade Grade Metal Metal
Kt Ni % Cu% Ni Kt Cu Kt
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Measured - - - - -
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Indicated 60,700 0.45 0.32 272.6 192.4
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Total 60,700 0.45 0.32 272.6 192.4
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Inferred 12,400 0.39 0.3 48.4 37.2
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2006 Tati - Phoenix (0.10% cut off)
---------------------------------------------------------------------
Tonnes Grade Grade Metal Metal
Kt Ni % Cu% Ni Kt Cu Kt
---------------------------------------------------------------------
Measured - - - - -
---------------------------------------------------------------------
Indicated 115,700 0.302 0.218 349.1 252.4
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Total 115,700 0.302 0.218 349.1 252.4
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Inferred 2,600 0.28 0.23 7.2 5.9
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Tati Nickel Mineral Reserves Summary

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2005 Tati - Phoenix (0.20% cut off)
---------------------------------------------------------------------
Tonnes Grade Grade Metal Metal
Kt Ni % Cu% Ni Kt Cu Kt
---------------------------------------------------------------------
Proven - - - - -
---------------------------------------------------------------------
Probable 32,300 0.52 0.35 167.8 112.9
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Total 32,300 0.52 0.35 167.8 112.9
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2006 Tati - Phoenix (0.10% cut off)
---------------------------------------------------------------------
Tonnes Grade Grade Metal Metal
Kt Ni % Cu% Ni Kt Cu Kt
---------------------------------------------------------------------
Proven - - - - -
---------------------------------------------------------------------
Probable 111,600 0.297 0.216 331.2 241.1
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Total 111,600 0.297 0.216 331.2 241.1
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Dense Media Separation Plant

The DMS plant has been designed to treat a nominal 12 million tonnes of run-of-mine ore per annum. This includes a primary gyratory crusher capable of processing up to 15 million tonnes per annum, which will be optimized into the existing crushing circuit.

The DMS technology has been extensively tested on Phoenix ore by both Mintek in South Africa and through the use, over the past eight weeks, of a 5 tonne per hour mobile DMS plant located at the mine.

The plant will be constructed on a schedule to complement the mining production build-up, with commissioning anticipated by the end of the second quarter 2008. This will enable a commissioning stockpile of concentrates to be built up before the Activox® refinery comes online.


The capital cost of the DMS Plant is estimated at $114 million. It is anticipated that, at full production, DMS will improve and smooth the ore feed grade by 73% to the plant from 0.3% to 0.52% nickel.

The Activox® Base Metals Refinery

The Activox® Base Metals Refinery has been designed to accommodate between 20,000 to 25,000 tonnes of payable nickel per annum and 12,000 -- 16,000 tonnes of copper per annum at a capital cost of $482 million.

While the Activox® technology has been demonstrated on a continuous basis for the past two years, to mitigate the risk of scale-up to a commercial size plant, LionOre has employed a conservative design philosophy for the Activox® Base Metals Refinery.

The materials of construction have been designed and specified for a chloride-based leach, but where appropriate, equipment has been sized to accommodate either a chloride or non-chloride leach. This will maximize the plant's flexibility and minimize the risk of down time.

With regard to the specific key elements of the refinery, the following design specifications have been included:

- The ultra-fine grinding circuit has been designed to include two stages of milling. This will ensure that the milled product meets the grading envelope requirements for the Activox® leach section.

- The dilution solution in the ultra-fine grinding circuits is copper raffinate. This will help to reduce the dependency of the plant on water resources and reduce equipment sizes in the downstream process areas.

- Two autoclave trains have been allowed. This results in an increase in residence time in the reactors and leads to increased base metal recoveries, as well as allowing for increased circuit availability and catch up capacity. The units have been sized at 65% throughput each.

- Surge capacity has been introduced by means of post-leach solutions and raffinate ponds. This effectively decouples the plant ensuring maximized overall circuit availability.

- Standby mixer settler units are included in the nickel solvent extraction section to allow for redundancy without compromising recoveries.

- The CCD thickeners have been conservatively sized for a non-chloride environment but constructed from materials suited to chloride operating conditions.

- Training of additional personnel required to run the full-scale plant and continuous operation of the Activox® Phase 1 Plant.

Activox® Metal Recovery Rates

The Activox® refinery designs have been based on the two years of campaigns conducted at the Activox® Phase 1 Plant. The average overall base metal recoveries (excluding start-up and shutdown periods) in a chloride leach were 94.2% nickel, 81.6% copper and 89.9% cobalt. The qualities of the nickel and copper cathodes have been consistently above target at 99.9% and 99.99% respectively. The Activox® refinery will produce London Metal Exchange "A" grade nickel and copper metal.

Recovery of Platinum Group Metals

As previously announced, the Platinum Group Metals (PGM) processing route is not included in this BFS. However, the costs of the PGM flotation plant and sulphur rich PGM concentrate impoundment facilities have been included in the Activox® capital costs, notwithstanding that no contribution from PGMs has been included in the Activox® BFS at this time.

Hatch Engineering has been engaged to conduct a pre-feasibility study, which is expected to be completed in Q1, 2007. It was always envisaged by LionOre that the PGM recovery plant would follow the Activox® Project by one year. This conforms to that timeline.

Project Infrastructure and Agreements with the Government of the Republic of Botswana (GRB)

Agreements have been reached with the GRB in relation to fiscal structures, labour agreements, Environmental Social Impact Assessment, water and power provisions.

Fiscal

LionOre has negotiated appropriate fiscal terms for the Activox® & DMS Projects with the GRB. The GRB will continue to maintain a 15% shareholding in the Activox® Project.

Power

The Activox® Project will require new power infrastructure, including the construction of an 80 km 220 kV transmission line at a cost of $24 million which will extend the Botswana Power Corporation (BPC) grid at Phokoje, near Selibe Phikwe to the Tati Mine site. A guaranteed supply arrangement and power tariff has been negotiated with BPC. The rate for the refinery represents a competitive unit power tariff of approximately $0.027 per kWh.

Water

The Water Use License has been negotiated and granted by the Water Utility Corporation of Botswana. Both parties have agreed an off-take arrangement for 17.4 million litres a day. This is in excess of the optimized requirement of 14.6 million litres a day. The water requirement for the plant will be supplied from the Shashe dam.

Location and Land

The Activox® refinery and associated tailings disposal facility will be located three kilometres from the main infrastructure at the Phoenix mine. The plant will be located on a stand of approximately 1,500 hectares, straddling the Francistown to Matsiloje road. This land has been granted under a 50 year State Grant.

ESIA

The Environmental and Social Impact Assessment (ESIA) has been approved by the Department of Environmental Affairs of Botswana. The ESIA was guided both by local Botswana legislation as well as the requirements of the Equator Principles and World Bank guidelines. The process for approval included numerous thorough public participation meetings.

Labour

LionOre has agreed a labour, work permit, training and localization strategy with the GRB for key professional skills associated with the Activox® & DMS projects. As part of this process LionOre has undertaken to continue with the Botswanan legislated local development plans for Botswana citizens and remains committed to developing the local mining skill base, particularly in respect of hydrometallurgical skills.

Outline of the Activox® Project Timetable



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Detailed Engineering Commences Third quarter 2006
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Site Establishment Commences Fourth quarter 2006
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Selkirk Mine PFS Completion First quarter 2007
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PGM recovery route PFS Completion First quarter 2007
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Bulk Water Supply Commissioning Fourth quarter 2007
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220kV Power Supply Commissioning First quarter 2008
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DMS Plant Commissioning Mid 2008
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Refinery production of Commissioning Third quarter 2009
copper metal Complete
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Refinery production of Commissioning Third quarter 2009
nickel metal Complete
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Competent Persons

The above stated Mineral Resource was compiled by Mr. A. Geldenhuys and reviewed by Mr. G. H. Gushee (both full time employees of MinRED, Anglo Technical Division, a division of the Anglo American Group) as the Qualified Persons. Mr. Geldenhuys and Mr. Gushee have sufficient experience which is relevant to the style of mineralization and type of deposit under consideration and to the activity undertaken to qualify as Competent Persons as defined in the 2004 Edition of the JORC "Australasian Code for Reporting of Exploration Results, Mineral Resource and Ore Reserves" and The SAMREC Code (South African Code for Reporting Mineral Resources and Mineral Reserves) and are Qualified Persons as defined in the Canadian National Instrument 43-101 (Standards of Disclosure for Mineral Projects).

The above Mineral Reserve was compiled by Mr. P. Fourie (a full time employee of LQS (Pty) Ltd.) as the Qualified Person. Mr. Fourie has sufficient experience which is relevant to the style of mineralization and type of deposit under consideration and to the activity undertaken to qualify as a Competent Person as defined in the 2004 Edition of the JORC "Australasian Code for Reporting of Exploration Results, Mineral Resource and Ore Reserves" and The SAMREC Code (South African Code for Reporting Mineral Resources and Mineral Reserves) and is a Qualified Person as defined in the Canadian National Instrument 43-101 (Standards of Disclosure for Mineral Projects).

Forward-Looking Statements

Certain statements contained herein are forward-looking statements. All statements, other than statements of historical fact, are forward-looking statements. Forward-looking statements are necessarily based upon a number of estimates and assumptions that, while considered reasonable by the Company, are inherently subject to significant uncertainties and contingencies. Many known and unknown factors could cause actual events or results to differ materially from estimated or anticipated events or results reflected in such forward-looking statements. Such factors include, but are not limited to: exploration, development and operating risks, uninsurable risks, ore reserve and resource estimates, additional funding requirements, foreign countries and regulatory requirements, and environmental regulation and liability. For further information concerning certain such factors, see the Company's most recent annual information form filed with Canadian securities regulatory authorities on SEDAR at www.sedar.com. The Company disclaims any intent or obligation to update any forward-looking statements. Investors are cautioned that forward-looking statements are not guarantees of future performance and, accordingly, not to put undue reliance on such statements.

For further information, please visit www.lionore.com.

Note to Editors

The Activox® Technology

Activox® is a proprietary hydrometallurgical technology developed by LionOre for the recovery of base metals from sulphide concentrate. The core of the Activox® process is the combination of ultra-fine grinding (UFG) and pressure oxidation. The ultra-fine grinding of nickel sulphide concentrates activates the sulphide minerals such that the low temperature (105C) and moderate pressure (1,000 kPa.g) Activox® leach extracts nickel, copper and cobalt from host sulphide minerals to solution where they can be concentrated and made into nickel and copper metal and cobalt carbonate using conventional processing technologies.

The Tati Activox® Phase 1 Plant has been operating continuously since mid-2004, producing LME grade nickel and copper cathodes. The plant has consistently exceeded design expectations, has facilitated training and added invaluable process and design information for the full-scale Activox® refinery.

Contact Information

  • UK / Europe
    LionOre Mining
    Colin Steyn
    President & CEO
    +44 (0) 20 7590 8888
    or
    Africa
    LionOre Africa
    Peter Breese
    Managing Director
    +27 (0) 11 463 4223
    or
    Canada
    LionOre Mining
    Ted Mayers
    Chief Financial Officer
    +1 (416) 777-1670
    or
    Media & Investors
    BuckBias
    Alex Buck
    +44 7932 740 452
    alex@buckbias.com