VMS Ventures Inc.
TSX VENTURE : VMS

VMS Ventures Inc.

December 19, 2011 06:30 ET

VMS Ventures Inc.: Reed Copper Project Mine Construction Decision Made

VANCOUVER, BRITISH COLUMBIA--(Marketwire - Dec. 19, 2011) - VMS Ventures Inc. (TSX VENTURE:VMS) ("VMS" or the "Company") is pleased to announce that HudBay Minerals Inc. (TSX:HBM)(NYSE:HBM) ("HudBay") has informed the Company that the HudBay Board of Directors has approved the necessary capital expenditures required to begin construction of the Reed Copper project. VMS owns 30% of the Reed Copper project joint venture, which is operated by HudBay and is located 120 km from Flin Flon, Manitoba. According to HudBay, first production is expected by late 2013. HudBay's decision to approve a $71 million capital investment and proceed with construction of the Reed Copper project was based on the positive economics outlined in a NI 43-101 compliant Preliminary Economic Assessment ("PEA") authored by HudBay. A summary of the project's economics follows (100% basis):

  • Approximate daily ore production of 1,300 tonnes at Reed is expected by late 2013, subject to receipt of required permits.
  • Average expected production grades of 3.78% copper, 0.45 g/t gold and 5.77 g/t silver.
  • Assumed metal recoveries in HudBay's Flin Flon Concentrator of 94% copper, 58% gold and 62% silver.
  • Average production in concentrate of approximately 17,000 tonnes per year of copper metal.
  • Total operating costs estimated to average approximately $91 per tonne milled ($67 per tonne mining, $16 per tonne milling and $8 per tonne administration) over a five year mine life.
  • Sustaining capital expenditures are expected to total approximately $55 million over the five year mine life.
  • PEA base-case pre-tax NPV (8%) of $64.9 million assuming average weighted metal prices of US$2.78 lb Cu, US$1,059 oz Au, US$24.14 oz Ag and USD/CDN$ exchange rate of $0.92 over the five year mine life. All dollar values are Canadian (CDN$) unless specified.

The high-grade nature of the Reed Copper deposit gives the project substantial leverage to copper prices. The following table outlines a copper price sensitivity analysis based on the operating parameters set out in the PEA.

-15% Change to
Base Case1
PEA
Base Case2
3 Year Historical
Average Price Case3
Price and Exchange Averages
Copper (US$/lb) $ 2.36 $ 2.78 $ 3.20
Gold (US$/oz) $ 900 $ 1,059 $ 1,235
Silver (US$/oz) $ 17.97 $ 21.14 $ 22.85
US$/CDN$ 0.92 0.92 0.94
Pre-tax
Cash Flow $ 29,578,000 $ 112,283,000 $ 182,975,000
NPV8 $ 3,203,000 $ 64,917,000 $ 109,904,000
IRR 9.4% 36.7% 46.6%
1 15% reduction applies to gold, silver and copper. US$/CDN$ exchange rate remained constant to the PEA Base Case.
2 PEA Base Case metal price projections compiled by HudBay based on 11 well-known financial institutions.
3 Bloomberg three year historical average (December 1, 2008 to December 1, 2011).

VMS Ventures CEO, Rick Mark, remarked: "We are very pleased that HudBay has elected to move forward with construction of the Reed Copper project mine, while only having completed a preliminary economic analysis on the project. This demonstrates the robust nature of the Reed deposit. Production in late 2013 is good news for VMS shareholders. With the highly prospective targets generated by the JV's exploration work recently, we are optimistic that the deposit will grow over time. The potential for additional deposits within the JV ground remains strong as is discussed in our concurrent release concerning upcoming drill targets for this winter. For those bullish on the copper price in 2014 and beyond, the cash flow projections are most encouraging."

The preliminary economic assessment prepared by HudBay in respect of the Reed deposit is preliminary in nature, includes inferred resources that are considered too speculative geologically to have the economic considerations applied to them that would enable them to be categorized as mineral reserves, and there is no certainty the preliminary economic assessment will be realized. The VMS PEA Technical Report on the Reed Copper Project dated December 16, 2011 will be filed shortly for public disclosure (www.SEDAR.com).

Reed Copper Project Assumptions and Qualifications

  • The portion of the indicated mineral resources and inferred mineral resources for evaluation purposes in the PEA were determined after applying dilution and recovery assumptions based on an assumed mining production schedule from the three zones of mineralization.
  • Production at Reed is scheduled to begin at the 260 metre level from Zones 10 and 20 and in Zone 30 from the 135 metre level. Mining at Reed is expected to finish in Zone 30 from the 85 metre level, in Zone 20 from the 110 metre level and in Zone 10 on the 285 metre level.
  • Capital and operating costs are based on historical costs from operating HudBay Minerals Inc. mines in the Flin Flon and Snow Lake area of Manitoba of similar deposit size, production levels and workforce.
  • Run of mine material will be transported by truck directly to Flin Flon where it will be crushed to less than 150 millimetres. The Reed ore will be batched independently through the Flin Flon concentrator with assumed metal recoveries of 94% copper, 58% gold and 62% silver producing a copper concentrate.
  • Access to the underground Reed mineral resources will be via a trench, portal and decline located near the center of the surface site. The decline will be excavated 6 metres wide and 5 metres high to a depth of 510 metres from surface and be able to accommodate a 60 tonne truck. Ore and development waste will be hauled to surface via the decline. Each mining level, spaced 25 metres vertically, will be accessed from the decline and will be 5.5 metres wide by 4.5 metres high to accommodate a 10 yard load, haul and dump scooptram.
  • The mineral resources will be extracted using longhole open stope mining method, and the stopes will be backfilled with unconsolidated waste.
  • Proposed infrastructure required at site to support mining operation include an employee camp, mine office and changehouse dry, mechanical shop, warehouse, core shack, explosive magazine, electrical generator and fuel storage area, electrical distribution room, electrical office, ventilation downcast building, and compressor building.
  • The project will be powered by diesel generators and power distributed to surface buildings and underground.
  • During the preproduction development phase a total of 44 employees are required and increased to a total of approximately 77 employees once full production commences.
  • An environmental baseline assessment draft completed by AECOM was based on collection of field data from the fall of 2010 and spring of 2011 concluded that there were no major negative environmental or socio-economic impacts expected from the development of the project. The project will be constructed within the Grass River Provincial Park, which will accommodate commercial resource use, such as mining, where such activities do not compromise the other park purposes.
  • An application for the Advanced Exploration Project (AEP) plan at Reed was submitted to the Manitoba Government on September 16, 2011. Approval of the AEP is expected before the end of 2011, which will allow early site construction and commencement of underground development to extract a 10,000 tonne bulk sample of the mineralization. An Environmental Act License is required before production starts at Reed and no federal permits will be sought, or are anticipated.

Qualified Person

Neil W. Richardson, P.Geo, Chief Operating Officer of VMS Ventures Inc., a Qualified Person in accordance of Canadian Regulatory requirements as set out in NI 43-101, is responsible for the information in this release.

About VMS Ventures Inc.

VMS Ventures Inc. is focused primarily on acquiring, exploring and developing copper-zinc-gold-silver massive sulphide deposits in the Flin Flon-Snow Lake VMS Belt of Manitoba. The Company's VMS project property portfolio consists of the Reed Lake Project, Copper Project, McClarty Lake Project, Sails Lake Project, Puella Bay Project and Morton Lake Project. Outside of the Snow Lake camp, the Company holds massive sulphide prospective properties near the past producing Fox Lake and Ruttan copper-zinc mines, near the communities of Lynn Lake and Leaf Rapids in northern Manitoba. These properties are located in the mining friendly province of Manitoba, Canada. The Company also has optioned three properties in the Sudbury mining camp. They are Terra Incognita, Golden Pine and Black Creek.

Forward-Looking Statement

Some of the statements contained herein may be forward-looking statements which involve known and unknown risks and uncertainties. Without limitation, statements regarding potential mineralization and resources, exploration results, and future plans and objectives of the Company are forward-looking statements that involve various risks. The following are important factors that could cause the Company's actual results to differ materially from those expressed or implied by such forward-looking statements: changes in the world wide price of mineral commodities, general market conditions, risks inherent in mineral exploration, risks associated with development, construction and mining operations, the uncertainty of future profitability and the uncertainty of access to additional capital. There can be no assurance that forward-looking statements will prove to be accurate as actual results and future events may differ materially from those anticipated in such statements. VMS Ventures Inc. undertakes no obligation to update such forward-looking statements if circumstances or management's estimates or opinions should change. The reader is cautioned not to place undue reliance on such forward-looking statements.

ON BEHALF OF THE BOARD OF DIRECTORS

Rick Mark, CEO

VMS Ventures Inc.

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 release.

Contact Information

  • VMS Ventures Inc.
    John Roozendaal
    President
    (604) 986-2020 or Toll Free: 1-866-816-0118
    www.vmsventures.com

    Launch IR
    Matt Harrington or Dean Hanisch
    (613) 882-7467