Sherwood Copper Corporation
TSX VENTURE : SWC

Sherwood Copper Corporation

August 28, 2006 07:03 ET

Sherwood Announces Update to Feasibility Study on Minto Copper-Gold Project, Yukon

First Round of Project Optimization Improves Already Robust Project Returns

VANCOUVER, BRITISH COLUMBIA--(CCNMatthews - Aug. 28, 2006) - Sherwood Copper Corporation (TSX VENTURE:SWC) today announced the results of the first round of several anticipated optimizations to the feasibility study on its high-grade Minto copper-gold project in the Yukon. The changes incorporated to date include an optimized mine plan, adjustments to the handling of the proposed capital cost for the refurbishment of the port of Skagway and the results of recent changes in Federal tax rates. These changes improve project economics over the already robust returns announced July 10, 2006. Additional optimizations to the feasibility study are being examined and will be announced as results become available. In the meantime, the rapid pace of mine construction continues at Minto and Sherwood is on track to meet its accelerated production start during the second quarter of 2007. Sherwood has also filed a technical report on the feasibility study, including the changes reported herein, as required under National Instrument 43-101.

"We continue to work on several opportunities to enhance the already robust returns from the Minto Project," said Stephen Quin, President & CEO of Sherwood Copper Corp. "The changes reported today are but the first round in what is anticipated to be several such optimizations to be assessed and, if warranted, incorporated into the project before and after production commences. The largest potential impact opportunities still being worked on include inclusion of additional high grade reserves from Area 2, where resource definition drilling is currently being completed, switching to grid power, and optimizing processing parameters, including a coarser grind and changes to the tailings handling approach," said Mr. Quin. "We hope to make significant progress in each of these areas over the next several months."

Project Optimization

As announced July 10, 2006, a number of opportunities were identified in the feasibility study whereby improvements could be made to the planned project. The changes reported below are just the first round of such optimizations, and result in enhanced project returns. The only three optimizations incorporated to date, as compared to the feasibility study results announced July 10, 2006, are set out below.

1. Optimized Mine Plan -- The amended mine plan removes the majority of the low grade stock pile processing from the tail end of the mine life, improving project returns. This low grade material will still be stockpiled and would be available for processing should economics warrant in Year 8 of operations or beyond, but the costs of processing and related items have been removed from the feasibility study, improving the overall project economics. This approach also simplifies the anticipated development of additional high grade reserves at Area 2, where resource definition drilling is currently being completed.

2. Port of Skagway - In the July 10 announcement, the capital cost for the refurbishment of the Skagway Ore Terminal was treated as an up front capital cost in the financial analysis but this amount was excluded from the total capital cost. However, Sherwood has signed a memorandum of understanding (MOU) with the Alaska Industrial Development and Export Agency (AIDEA) whereby these capital costs will be paid over the life of the project, as announced June 15, 2006. The current financial model incorporates the approach contemplated in the MOU.

3. Federal Tax Changes -- Recent changes in Federal tax rates have reduced the overall taxes payable on the Minto project, and these changes have been incorporated into the current financial analysis.

Updated Project Highlights

The following sets out the updated highlights of the Feasibility Study for the Minto Project prepared by Hatch Ltd. and certain other consultants, as set out in the technical report, with changes in brackets:

- Head grade of 3.3% copper & 0.94g/t gold in first year of operation, and averaging 2.4% copper and (0.89g/t) gold over first six years, essentially the same as previously reported;

- Production averaging (41.0) million pounds of copper, (17,295) oz gold and 0.25 million oz of silver per year for first six years of operations versus 40.7 million pounds of copper and 17,150 oz of gold previously reported;

- Cash costs of (US$0.57/lb), net of by product credits, over first six years of operations and (US$0.60/lb) over the life of mine, reduced from US$0.60/lb and US$0.73/lb previously;

- Operating cash flow of (C$49 million) and (C$61 million) in Years 1 and 2 of operations, respectively, on an all equity basis versus C$51 million and C$61 million previously as a result of the conversion of Skagway costs to sustaining capital and changes to the mine plan;

- The study still uses the same 5-year average metal price assumptions, comprised of 3-year historic and 2-year forward prices, that average to US$2.00 per pound for copper, US$550 per oz for gold and US$9.00 per oz for silver, and an exchange rate of C$1.192 per US dollar;

- Life of mine production of (269 million pounds of copper, 113 thousand oz of gold and 1.6 million oz of silver) versus 300 million pounds of copper, 122 thousand oz gold and 1.8 million oz of silver previously reported, based on excluding the low grade material removed from the mine plan in this update;

- Total project pre-production direct and indirect capital cost of C$86.7 million, plus a contingency allowance of C$8.2 million and owner's costs of C$3.3 million, which is unchanged;

- Of the pre-production capital budget, (C$8 million) already been spent and paid for on mine development up to the end of July 2006 versus $4.4 million at the end of June 2006, with additional expenditures incurred but not yet paid for;

- Rate of return of (37.1%), pre-tax assuming 100% equity financing versus 34.6% previously;

- Pre-tax net present value of (C$126.9 million) at a 7.5% discount rate, or (C$152.1 million) at a 5% discount rate, assuming 100% equity financing versus C$119.1 million and C$144.6 million previously reported;

- Payback in (2.4 years) versus 2.5 years previously;

- Mine Life of (7.2 years) versus 10.6 years previously;

- Optimization process continues, focused on project improvements.

Unless otherwise stated, all reporting is in Canadian dollars and metric units.

Updated Mineral Resources and Reserves

Mineral resources remain unchanged from the previous announcement on July 10, 2006 while the new mine plan results in updated reserves using a 0.62% copper cut-off versus the 0.5% copper cut-off used previously, excluding any oxide material but including dilution, as set out below.



Updated Proven & Probable Sulphide Mineral Reserves

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Mineral Reserve Tonnes Average Grade
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Category (000's) Copper (%) Gold (g/t) Silver (g/t)
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Proven 5,574.2 2.24 0.81 9.2
Probable 295.2 1.49 0.71 7.2
Proven + Probable 5,869.4 2.02 0.80 9.1
-----------------------------------------------------------------


This mineral reserve estimate excludes additional low grade material that will be mined and stockpiled over the life of the mine in order to gain access to higher grade reserves, but is now assumed not to be processed.

The life of mine strip ratio is estimated at 6.7:1 waste:ore (including capitalized pre-strip) and 5.2:1 during operations (excluding capitalized pre-strip), versus 4.4:1 and 3.5:1 reported previously as a result of treating the low grade material as waste in the updated mine plan.

These mineral reserve estimates are based on the April 1, 2006 mineral resource estimate reported on July 10, 2006. The effective cut-off grade for mine planning was calculated based on the breakeven grade of material within the ultimate pit to decide whether the material is processed in the mill, assuming US$2.00 per pound copper price, a US$550 per oz gold price, a US$9 per oz silver price, C$26.74 per tonne of ore milling costs, C$6.44 per tonne of ore for concentrate transportation cost and C$7.25 per tonne of ore for treatment charges; and equates to approximately a 0.62% copper cut-off grade. However, as previously reported, an internal cut-off grade of 1.0% copper was used for the first six years of operation, with material between the effective cut-off and internal cut-off grade stockpiled for processing later. Mineral resources which are not mineral reserves do not have demonstrated economic viability.

Production Profile

The updated mine plan results in minor modifications during the first six years of operations and still contemplates aggressive pre-stripping to access higher grade material sooner, resulting in grades averaging approximately 3.3% copper and 0.94g/t gold in the first year of operation and 2.4% copper and 0.88g/t gold over the first six years, plus additional silver values. This accelerated pre-strip, combined with stockpiling of low grade material and the mill expansion during Year 1, significantly increases metal production in the first six years of operation versus previous plans, as illustrated in the chart below. Sherwood's objective is that resource definition drilling currently underway at Area 2 on the Minto property would result in the deferral of stock pile processing in Year 7, and continued processing of high grade material for several more years at grades similar to those projected for the first six years of operations.

To see the Updated Copper and Gold production diagram, please click the following link: http://www.ccnmatthews.com/docs/sher828.jpg

Processing

There are no changes in the processing area from those announced July 10, 2006.

Capital Costs

Capital costs remain unchanged from those announced July 10, 2006, except that the capital cost for the refurbishment of the Skagway ore terminal have been removed from sustaining capital incurred in the pre-production period in the financial analysis and distributed over the life-of-mine as per the MOU with AIDEA.

Operating Costs

The optimized mine plan and changes to the treatment of the costs for the Skagway ore terminal result in some changes to operating costs. Updated operating costs are summarized below.



Updated Summary of Minto Operating Costs

Life of Mine Average C$/tonne
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- Mining $ 14.74
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- Cost/tonne moved (C$2.38/t)
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- Mill consumables 3.13
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- Power 9.25
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- Other Energy Costs 1.16
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- Camp & catering 1.99
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- Mobile equipment 1.90
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- Labour, G&A & Other 13.28
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- 0.5% NSR royalty 0.38
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Total Costs $ 45.96
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Cash costs (US$/lb net of by-products) US$0.61
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These compare to the previously announced life-of-mine operating costs of US$0.72 per pound of copper, net of byproducts.

Updated Financial Analysis

The updated mineral reserve, capital and operating costs have been used to prepare an updated financial model to assess the return on investment for the Minto project. See the following link to access a summary of the updated financial model: http://www.ccnmatthews.com/docs/Minto828.pdf

The feasibility study uses a 5-year average of historic and forecast metal prices (three years historic and two years forward). As previously announced, Sherwood may elect to enter into price protection arrangements in respect of portions of its copper, gold and silver production. The metal price scenarios for copper and gold are detailed in the July 10, 2006 news release. A summary of the financial analysis is presented below and details are attached.



Financial Analysis
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Updated 5-Year Previous 5-Year
Average Case Average Case
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Assumptions:
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- Copper Price (US$/lb) US$2.00
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- Gold Price (US$/oz) US$550
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- Silver Price (US$/oz US$9.00
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- Exchange Rate (C$/US) 1.192
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----------------------------------------------------------------------
Internal Rate of Return (pre-tax) 37.1% 34.6%
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Pre-tax NPV @ 0% discount rate (C$
millions) C$217.4 C$212.5
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Pre-tax NPV @ 5% discount rate (C$
millions) C$152.1 C$145.6
----------------------------------------------------------------------
Pre-tax NPV @ 7.5% discount rate (C$
millions) C$126.9 C$119.1
----------------------------------------------------------------------
Pre-tax payback period 2.4 2.5
----------------------------------------------------------------------


Sensitivity Analysis

In order to assess the project risk, the Feasibility Study includes a sensitivity analysis that evaluates the affect changing certain input parameters have on the overall project economics. This analysis shows that the Minto Project is most sensitive to copper prices and operating cost, moderately sensitive to capital cost and relatively insensitive to fuel prices and gold prices. Sherwood has made significant progress towards mitigating these risks by (a) entering into contracts for major project components prior to completion of the feasibility study in order to lock in costs and (b) electing to lock in a portion of its metal production at prices higher than used in the 5-year Average Case. These sensitivities are summarized in the table below by evaluating the pre-tax net present value (NPV) at a 7.5% discount rate.



Updated Sensitivity Analysis (NPV at 7.5% discount rate in C$ millions)
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5-Year
-20% -10% Average Case +10% +20%
----------------------------------------------------------------------
Copper Price 42.2 211.6
------------------------------ ----------------
Gold Price 116.9 136.9
------------------------------ ----------------
126.9
Capital Cost 136.0 117.7
------------------------------ ----------------
Operating Cost 146.1 107.6
----------------------------------------------------------------------


Pending Project Opportunities

Several opportunities were reported in the July 10, 2006 news release that offer further potential improvements to capital and/or operating costs post-feasibility. Sherwood continues to work on bringing all of these areas to account and will report progress as material developments occur. Some of the more significant pending opportunities are summarized below and additional details are provided in the July 10, 2006 news release.

1. Access lower cost hydro-electric power to replace on site diesel generation;

2. Improved processing, including use of a coarser grind, a modified approach to tailings deposition and potential incorporation of a gravity circuit to improve gold recoveries;

3. Reserve additions from on-going drilling in Area 2 and other targets within the Minto property.


Development Schedule

As previously announced, Sherwood commenced development of the Minto Project in April 2006 and has completed a significant portion of the civil works required, has doubled the camp size to 110 person capacity and is fully occupied, and commenced pre-production waste stripping, moving more than 2.5 million tonnes to date. Development expenditures incurred and paid for up to July 30, 2006 total C$8 million, significant additional work has been completed but not yet invoiced.

The feasibility study anticipates completing development and being in commercial production during the third quarter of 2007. However, Sherwood is working closely with its engineering, procurement and construction management contractors to accelerate the development schedule to have production at the earliest possible date, potentially during the second quarter of 2007.

Sources of Information

In compiling the feasibility study, Hatch used and relied on information provided by Minto Exploration and a variety of consultants, as disclosed on July 10, 2006. Mr. Keith Watson P.Eng. of Hatch is the Qualified Person under National Instrument 43-101 responsible for the updated mineral reserve estimate used in the feasibility study. Mr. Watson has reviewed the reserve sections of this news release at the request of Sherwood.


Technical Report

As required by National Instrument 43-101, Sherwood has filed a technical report detailing the results of the feasibility study and the amendments discussed herein. This technical report is available on SEDAR at www.sedar.com or on Sherwood's website by following the link set out below. This press release sets out a summary of information contained in the Technical Report and, for investors to fully understand the information in this press release, they should read the Technical Report in its entirety, including all qualifications, assumptions and exclusions that relate to the information set out in this press release. http://www.sherwoodcopper.com/investors/filings

Sherwood & the Minto Project

The Minto Project is a high-grade copper-gold deposit located in the Yukon Territory of Canada that Sherwood is developing toward production. Sherwood's successful consolidation of the ownership of the Minto Project provides a unique investment opportunity -- participation in an already permitted, high-grade, open pit copper-gold project located in Canada that will be in production in less than 12 months, with significant exploration potential on the property currently being drilled to reserve standards. Sherwood's objective is to minimize risks and maximize near term production and cash flow to provide a spring board for the growth of a new, low cost, low risk intermediate copper producer.

Additional Information

Additional information on Sherwood and its Minto Project can be obtained on Sherwood's website at http://www.sherwoodcopper.com.

On behalf of the Board of Directors

SHERWOOD COPPER CORPORATION

Stephen P. Quin, President & CEO

This news release contains "forward-looking statements". Forward-looking statements include, but are not limited to, statements with respect to the estimation of mineral reserves and resources, the realization of mineral reserve estimates, the timing and amount of estimated future production, costs of production, capital expenditures, success of mining operations, environmental risks, unanticipated reclamation expenses, title disputes or claims and limitations on insurance coverage. In certain cases, forward-looking statements can be identified by the use of words such as "plans", "expects" or "does not expect", "is expected", "budget", "scheduled", "estimates", "forecasts", "intends", "anticipates" or "does not anticipate", or "believes", or variations of such words and phrases or statements that certain actions, events or results "may", "could", "would", "might" or "will be taken", "occur" or "be achieved". Forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Such factors include, among others, risks related to actual results of current exploration activities; changes in project parameters as plans continue to be refined; future prices of resources; possible variations in ore reserves, grade or recovery rates; accidents, labour disputes and other risks of the mining industry; delays in obtaining governmental approvals or financing or in the completion of development or construction activities; as well as those factors discussed under "Describe the Business -- Risk Factors". Although the Company has attempted to identify important factors that could cause actual actions, events or results to differ materially from those described in forward-looking statements, there may be other factors that cause actions, events or results not to be as anticipated, estimated or intended. There can be no assurance that forward-looking statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking statements.

Mineral Resources that are not Mineral Reserves do not have demonstrated economic viability. Mineral Resource estimates do not account for mineability, selectivity, mining loss and dilution. These Mineral Resource estimates include Inferred Mineral Resources that are normally considered too speculative geologically to have economic considerations applied to them that would enable them to be categorized as mineral reserves. There is also no certainty that these Inferred Mineral Resources will be converted to Measured and Indicated categories through further drilling, or into Mineral Reserves once economic considerations are applied.

The TSX Venture Exchange has not reviewed and does not accept responsibility for the adequacy or accuracy of this press release.

Contact Information

  • Sherwood Copper Corporation
    Stephen Quin
    President
    (604) 687-7545 or Toll Free: 1-888-338-2200
    or
    Sherwood Copper Corporation
    Investor Relations
    (604) 687-7545 or Toll Free: 1-888-338-2200
    (604) 689-5041 (FAX)
    www.sherwoodcopper.com