Zincore Metals Inc.
TSX : ZNC

Zincore Metals Inc.

May 01, 2008 16:00 ET

Zincore Completes Positive Pre-Feasibility Study for Accha Concentrator Project

Project Technically Advanced and Economically Positive

VANCOUVER, BRITISH COLUMBIA--(Marketwire - May 1, 2008) - (all financial figures in this news release are in US dollars unless noted otherwise) -

Zincore Metals Inc. (TSX:ZNC) ("Zincore" or "the Company") has completed a pre-feasibility study ("PFS") for the Accha Concentrator Project (the "Project") at the Accha deposit in southern Peru. Accha is a high-grade oxide zinc deposit located at the north end of Zincore's 100% owned Accha-Yanque belt. The PFS was compiled by the prime consultant, SNC Lavalin Chile SA ("SNCL") with metallurgical process design supplied by Green Team International ("GTI"). Mine design and mineral reserve estimation were carried out by Pincock, Allen and Holt ("PAH").

The Accha Concentrator PFS had two objectives: to confirm the technical capability of producing a zinc oxide concentrate suitable for leaching at a dedicated zinc refinery, and to assess the economic merit of selling zinc oxide concentrate to third parties in advance of a dedicated refinery.

The PFS concluded that the Project is both technically and financially viable. The basis for the PFS is annual production of 130,000 tonnes of zinc oxide concentrate, containing 77 million pounds of zinc, over a seven-year mine life. Life-of-mine site operating costs are estimated at $0.28 per pound of contained zinc. Pre-production capital is estimated at approximately $65 million. PAH has compiled a probable mineral reserve estimate of 4.2 million tonnes grading 7.9% zinc and 0.8% lead. An updated technical report will be filed on SEDAR within 45 days.

Timo Jauristo, President and CEO, stated: "The completion of the Accha Concentrator PFS is another milestone for our rapidly evolving Accha-Yanque project. It demonstrates that Accha will be an efficient mining operation, producing a low-cost oxide concentrate. The PFS takes us an important step closer to achieving our vision of building a world class zinc operation with a dedicated refinery sourcing feed from mining at Accha, Yanque and other locations within the belt."

The PFS examined all technical aspects of the Project, including open pit and underground mine design, process facility design and layout, materials handling, support infrastructure and transportation.

Technical highlights of the PFS include:

- Conventional truck and shovel open pit mining.

- Underground mining utilizing mechanized underhand cut and fill.

- Compact plant site that includes plant, tailings and waste rock dump within limited footprint.

- Minimal infrastructure requirements - low-cost power, water and transportation routes are readily available and accessible.

- Nominal 1,650 tonnes per day processing plant employing proven technology to produce a zinc oxide concentrate. Plant design utilizes dense media separation followed by milling and flotation.

- High leachability of the concentrate by conventional acid leach with greater than 95% zinc extraction and acid consumption of less than 200 kg per tonne of concentrate.

- Probable mineral reserves of 4.2 million tonnes grading 7.9% zinc. Conversion of indicated resources to probable mineral reserves of 80% with grade dilution of only 12%.

Greg McCunn, Vice President, Project Development commented, "Our consultants, led by SNC Lavalin, did a commendable job in their design and engineering of the Project. Their diligence is reflected in the fact that current quotes were utilized for more than 65% of the capital equipment. That level of detail is unusual at the PFS level, but is important for our confidence with recent capital cost escalation across the industry."

Zincore's strategy is to define sufficient resources within the Accha-Yanque belt to support a dedicated zinc refinery. In addition to the Accha deposit, Zincore has an aggressive drilling program at the Yanque deposit that is an important component of this strategy. Zincore is also exploring numerous other targets on the 45,000 hectare Accha-Yanque belt. In total, the Accha-Yanque belt currently hosts 2.3 billion pounds of zinc and 1.3 billion pounds of lead resources(1), with both the Accha and Yanque deposits remaining open for resource expansion.

Mr. Jauristo added, "The Project provides an opportunity for generation of cash flow via a low-risk, low-capital investment with sound economics. However, our work continues to indicate that processing the Accha concentrate through a dedicated refinery is a superior economic proposition for our shareholders. Therefore, we intend to complete our 2008 exploration program at Yanque, Accha and on the Accha-Yanque belt before determining the preferred path and timing of moving Accha toward production."

The PFS also examined economic aspects of the Project. Using the three-year historical average price for zinc, highlights include:

- Project pre-tax IRR of 40% and NPV (10%) of $72 million.

- Payback of pre-production capital within 2.1 years.

- Average annual free cash flow of $33.4 million for the first five years of operations.

- Site operating costs of $0.23 per pound of zinc during the open pit mining stage.

Mr. Jauristo commented, "The positive results of the Accha Concentrator PFS are indicative of the quality of our assets on the Accha-Yanque belt and of our development team. With a net present value of more than $70 million for this Project alone, clearly there is substantial value in the Accha-Yanque belt that is not currently recognized in our market capitalization."

The PFS identified a number of opportunities to improve the Project. These issues will be addressed prior to or concurrent with a feasibility study. The opportunities include:

- Infill drilling to upgrade inferred mineral resources so that they can be considered in the mine plan.

- Exploration targeted at extending the north limb of the deposit, a portion of which would be mineable within the open pit.

- Exploration targeted at extending the underground portion of the deposit to the west and at depth where the deposit remains open.

- Locked-cycle and feasibility level metallurgical work targeted at improving the recovery to concentrate and grade of concentrate.

Vernon Arseneau, Vice President, Exploration observed, "We have a number of opportunities to expand the Accha resources and extend the mine life contemplated within the PFS. Further successful exploration would clearly improve the economics and add scope to our operations at the Accha deposit."

(1) For complete mineral resource estimates please see sections titled Mineral Reserves and Resources and About the Accha-Yanque Belt and refer to Zincore's press releases dated December 6, 2007 and March 3, 2008 and the respective technical reports on each deposit available on SEDAR or on Zincore's website at www.zincoremetals.com.

Mineral Reserves and Resources

PAH has reviewed the results of the PFS and compiled a mineral reserve estimate (Table 1). Indicated and Inferred mineral resources (Table 2) are unchanged from the technical report filed on SEDAR dated January 11, 2008.



Table 1 Accha Deposit Mineral Reserve Estimate (1)

-----------------------------------------------------------------------
Contained Contained
Tonnes(4) Average Average zinc(5) lead(5)
zinc grade lead grade (million (million
Category (000s) (%) (%) lbs) lbs)
-----------------------------------------------------------------------
Probable
Reserves 4,186 7.86 0.81 725 75
-----------------------------------------------------------------------

Table 2 Accha Deposit Mineral Resource Estimate(1,2,3,6) at 2% zinc cut-off

-----------------------------------------------------------------------
Contained Contained
Tonnes(4) Average Average zinc(5) lead(5)
zinc grade lead grade (million (million
Category (000s) (%) (%) lbs) lbs)
-----------------------------------------------------------------------
Indicated
Resources 5,068 8.15 0.87 911 97
Inferred
Resources 1,429 5.92 0.66 186 21
-----------------------------------------------------------------------

1. All mineral reserves and resources have been calculated in accordance
with the standards of the CIM Definition Standards on Mineral Resources
and Mineral Reserves, as required by NI 43-101.
2. Mineral resources that are not mineral reserves do not have demonstrated
economic viability. The estimate of mineral resources may be materially
affected by environmental, permitting, legal, title, taxation,
sociopolitical or other relevant issues.
3. Inferred mineral resources are that part of a mineral resource for which
quantity and grade can be estimated on the basis of geological evidence
and limited sampling and reasonably assumed. It is uncertain if further
exploration will result in upgrading them to an indicated or measured
mineral resource.
4. Density utilized in the mineral resource estimates was 2.5 tonnes per
cubic metre.
5. Contained zinc and contained lead represent estimated metal contained in
the ground and have not been adjusted for metallurgical or other
recovery factors.
6. Mineral resources include mineral reserves. For further details on the
mineral resource estimate refer to Zincore's news release dated December
6, 2007, available on the company's website at www.zincoremetals.com and
on the SEDAR website at www.sedar.com.


Mine Design

The initial development of the property will establish a conventional open pit mining operation transitioning to an underground operation utilizing cut-and-fill mining in the fourth year of the seven-year mine life. PAH completed both the underground and open pit mine design.

Approximately 2.3 million tonnes of ore grading 8.3% zinc will be mined from the open pit operation over a four-year period. The life-of-mine strip ratio for the open pit operation is 5.8:1. Approximately 1.9 million tonnes of ore grading 7.4% zinc will be mined from the underground operation over a 39-month period. The mine production schedule does not utilize inferred mineral resources. The cut-off grade is 1.4% and 5% zinc within the open pit and underground, respectively.

Concentrator Process Design

Process design for the PFS was conducted by GTI based on bench-scale metallurgical testwork. The process (Figure 1, please click on the following link: http://media3.marketwire.com/docs/zincore_figure1.pdf) consists of three stages of crushing, followed by dense media separation ("DMS"). The DMS process effectively eliminates the majority of the calcite gangue and upgrades the zinc content of the ore. Further upgrading is achieved by milling and flotation of the DMS product and fine ore fraction to produce a concentrate grading 27% zinc, 2-5% lead and 2-3% calcium. Overall recovery of zinc from ore to concentrate is approximately 75%.

The process plant is designed to treat a nominal rate of 1,650 tonnes per day of ore (600,000 tonnes per year) through crushing and DMS. Approximately 40% of the ore is rejected in the DMS stage, resulting in a nominal feed rate of about 1,000 tonnes per day to milling and flotation.

Infrastructure

The Project has modest infrastructure requirements including a tailings storage facility ("TSF"), waste rock facility ("WRF"), access road upgrade, power supply line, construction camp and operations camp.

- The TSF is a lined facility adjacent to the process plant designed to contain five years of tailings. Beginning in year four of operations, tailings will be used as backfill for the underground mine.

- The WRF is an unlined facility located approximately 500 metres from the open pit operation. Waste from the open pit mine and DMS rejects will be combined and stacked to a maximum of 30 metres height. The waste rock is predominantly limestone and, therefore, is not acid generating.

- Water supply for the project is from a river located 8 kilometres from the plant site. The water demand of approximately 30 m3/hr will be pumped to the process plant via a buried underground pipeline.

- Power will be supplied by a new 66kV line from the main Peruvian power grid located approximately 60 kilometers east of the Project. The maximum power demand is 3.5 MW.

- Access to the Project is from the provincial highway via a 23 kilometer gravel road that will be upgraded.

Capital and Operating Cost Estimates

The pre-production capital cost estimate was prepared by SNCL and it is considered to have an accuracy of +/- 25% (Table 3). Direct costs include all construction labour, construction support and construction equipment necessary to install the mechanical and electrical equipment. Approximately 32% of the major equipment pricing was based on preliminary budget quotations obtained for the PFS, while a further 36% was estimated using recent quotations from similar projects. SNCL considers the accuracy of this estimate to be superior to a typical PFS based on the relatively high percentage of the equipment costs obtained from budgetary quotations.

Indirect costs include all EPCM and owner's costs necessary to execute the Project. A 12% contingency of the direct and indirect costs is included. Mining pre-production costs are based on contract mining and, therefore, do not include open pit mining equipment.

In addition to pre-production capital, there are additional sustaining capital expenditures of $15.1 million throughout the life of the Project including $12.1 million for underground mining equipment and development in year three of operations.



Table 3 Pre-Production Capital Cost Estimate

-----------------------------------
Item Cost
($ 000s)
-----------------------------------
Direct costs 36,316
-----------------------------------
Indirect costs 8,715
-----------------------------------
Sub-total 45,031
-----------------------------------
Contingency 5,404
-----------------------------------
Total 50,435
-----------------------------------
Mining - contract open pit 4,160
-----------------------------------
Infrastructure 8,800
-----------------------------------
Grand total 63,395
-----------------------------------


Operating costs for the Project are based on contract mining for the open pit portion and owner mining for the underground portion of the mine life. Contract open pit mining costs of $1.85 per tonne mined were obtained based on the detailed mine plan prepared by PAH. PAH calculated underground mining costs of $26.75 per tonne mined. Processing costs were calculated to be $16.30 per tonne milled based on unit consumption provided by GTI and pricing obtained from various vendors by SNCL.

The local power rate obtained is $0.042 per kilowatt hour. Operating costs are summarized in Table 4.



Table 4 - Operating Cost Estimates for Open Pit and Underground Operations

--------------------------------------------------------------------------
Area Open pit - contract Underground - owner
--------------------------------------------------------------------------
$/tonne milled $/lb zinc $/tonne milled $/lb zinc
--------------------------------------------------------------------------
Open pit
mining $12.20 $0.10
--------------------------------------------------------------------------
Underground
mining $26.75 $0.22
--------------------------------------------------------------------------
Processing $16.30 $0.12 $16.30 $0.14
--------------------------------------------------------------------------
G&A $ 1.00 $0.01 $ 1.00 $0.01
--------------------------------------------------------------------------
Total site costs $29.50 $0.23 $44.05 $0.37
--------------------------------------------------------------------------


A project execution schedule was developed which indicates that the project could commence production on January 1, 2011 assuming commencement a feasibility study by January 2009.

Concentrate Marketing and Transportation

Zincore has held preliminary discussions with conventional refineries, existing oxide refineries, planned oxide refineries and concentrate trading groups. Based on these discussions, Zincore concluded that the Accha concentrate is suitable for treatment by a conventional refinery and, based on historical treatment charges, payment terms will average approximately 60% of the zinc and lead value contained in the concentrate.

For economic calculations, it is assumed that the concentrate is treated domestically. Concentrate transportation costs are included for trucking to the nearest port ($46/WMT), port storage and handling ($6.80/WMT) and ocean freight to Callao, Lima ($23.50/WMT).

Financial Analysis

The financial analysis is based on 100% equity financing for the calculation of net present value ("NPV"), internal rate of return ("IRR") and payback. Economic calculations are pre-tax and exclude the 1% tax-deductible Peruvian mining royalty. A discount rate of 10% is used for NPV calculations and the cumulative undiscounted free cash flow ("Cum FCF") is also calculated.

Table 5 provides the Project economics at a range of zinc metal prices, including the three-year average LME cash price of $1.23 per pound of zinc, at which average annual free cash flow from the Project over the first five years of operations is $33.4 million per year.



Table 5 Financial Analysis Results

-----------------------------------------------------------------
Zinc Price IRR NPV 10% Payback Cum FCF
($/pound) (%) ($ millions) (Years) ($millions)
-----------------------------------------------------------------
$0.90 10% $ 0 4.1 $ 29
-----------------------------------------------------------------
$1.00 20% $ 21 3.3 $ 67
-----------------------------------------------------------------
$1.23 40% $ 72 2.1 $154
-----------------------------------------------------------------
$1.50 58% $130 1.4 $256
-----------------------------------------------------------------
$2.00 88% $240 0.9 $445
-----------------------------------------------------------------


A sensitivity analysis showed that the Project is most sensitive to metal prices and slightly more sensitive to operating costs than to capital costs.

Environmental and Socioeconomic Studies

An environmental baseline study and impact assessment was completed, including a one year monitoring program of the physical, biological and cultural (archeology) environment in the Project area. From this baseline, environmental impacts were examined and an environmental management plan was developed. Similarly, baseline socioeconomic studies and an impact assessment were conducted.

Qualified Persons

The mineral reserve and resource estimates were prepared by PAH under the direction of Mr. Aaron McMahon, Geologist of PAH, a professional geologist and Mr. Hugo Miranda, Mining Engineer of PAH, a registered member of the Australasian Institute of Mining and Metallurgy (AusIMM). Process design and metallurgy were prepared by GTI under the direction of Dr. Kobus de Wet, Principal Metallurgist and professional engineer who is a registered member of the Southern African Institute of Mining and Metallurgy.

Messrs. Miranda, McMahon and de Wet are each an independent Qualified Person as defined by National Instrument 43-101 and each have reviewed this news release. A technical report detailing the mineral reserve estimate will be filed on SEDAR at www.sedar.com within 45 days.

About Zincore

Zincore's strategy is to become a leading, low-cost zinc producer with the immediate objective of advancing its 100% owned Accha-Yanque belt toward a development decision through a disciplined process of exploration, drilling and resource definition, and technical studies. Zincore holds a portfolio of other zinc exploration properties in southern Peru and intends to pursue additional zinc opportunities elsewhere in Latin America.

About the Accha-Yanque Belt

The Accha-Yanque belt consists of 56 concessions over a 30-kilometre distance in southern Peru. At the north end of the belt is the Accha deposit, the subject of this news release. At the south end of the belt is the Yanque deposit, which hosts inferred mineral resources of 10.2 million tonnes grading 5.3% zinc and 5.3% lead for 1.2 billion pounds of contained zinc and an additional 1.2 billion pounds of contained lead. A number of zinc prospects with limited exploration occur along the belt between the Accha and Yanque deposits.

Forward-looking Statements

Statements in this release that are forward looking are subject to various risks and uncertainties concerning the specific factors disclosed under the heading "Risk Factors" and elsewhere in the Annual Information Form of Zincore dated March 10, 2008 which is filed with Canadian securities regulatory authorities and available on SEDAR (www.sedar.com). Such information contained herein represents management's best judgment as of the date hereof based on information currently available. Zincore does not assume the obligation to update any forward-looking statements.

The PFS document referred to in this news release contains the expression of the professional opinion of SNCL as to the matters set out herein, using its professional judgment and reasonable care. The PFS document was written solely for the exclusive benefit of Zincore and was meant to be read as a whole, and sections or parts thereof should thus not be read or relied upon out of context. SNCL has, in preparing the cost estimates, followed methodology and procedures, and exercised due care consistent with the intended level of accuracy, using its professional judgment and reasonable care, and is thus of the opinion that there is a high probability that actual costs will fall within the specified error margin. However, no warranty should be implied as to the accuracy of estimates. SNCL disclaims any liability to third parties in respect of the publication, reference, quoting, or distribution of this PFS document or any of its contents to and reliance thereon by any third party.

Information Concerning Mineral Resource Estimates

This news release uses the term "inferred mineral resources". Zincore advises investors that although this term is required and recognized by Canadian regulations (under National Instrument 43-101 Standards of Disclosure for Mineral Projects), the U.S. Securities and Exchange Commission does not recognize it. Investors are cautioned not to assume that any part or all of the mineral deposits in this category will ever be converted into reserves. In addition, "inferred mineral resources" have a great amount of uncertainty as to their existence and economic feasibility. It cannot be assumed that any part of an inferred mineral resource will be upgraded to a higher category. Under Canadian rules, estimates of inferred mineral resources may not form the basis of pre-feasibility studies.

Contact Information