TORONTO, ONTARIO–(Marketwired – April 18, 2017) – Darnley Bay Resources Limited (TSX VENTURE:DBL) (“Darnley Bay” or the “Company”) is pleased to announce the results of an independent Preliminary Economic Assessment (“PEA”) of the 100% owned Pine Point Project (“Pine Point” or the “Project”) located near Hay River, Northwest Territories.
The PEA shows a robust economic return with a relatively low capital cost compared to similar projects and an after-tax payback of only 1.8 years. The PEA was prepared under the direction of JDS Energy & Mining Inc. (“JDS”), an industry-leading, international engineering firm, with extensive experience in planning, construction and operation of mining projects in the Canadian north. The study is being summarized into a Technical Report (the “Darnley Technical Report”) to be filed on SEDAR in accordance with National Instrument 43-101 (“NI 43-101”) within 45 days. The PEA examined several development scenarios and settled on a mining plan where a number of open pit deposits would be developed using dense media separation plants followed by traditional grinding and flotation to upgrade mineralized material into lead & zinc concentrates, similar to the methods employed by Cominco when the mine was in production in the past. The study confirms that the Project has robust economics at the assumed parameters.
Darnley Bay President and Chief Executive Officer Jamie Levy remarked that, “This Preliminary Economic Assessment supports that management’s confidence in this project was well-placed when it was purchased this past December. What is also very encouraging is that there are multiple opportunities, including underground mining, to enhance the economics and extend the project life. The Company plans to initiate a feasibility study in the near future while drilling to add additional resources to the mine plan.”
Darnley Bay Chief Operating Officer John Key adds, “We had faith that the project would demonstrate healthy economic potential which this very thorough study by JDS supports. Darnley Bay looks forward to working closely with the stakeholders in the South Slave region to advance Pine Point to the benefit of the region.”
PEA Study Highlights – Base Case
- Pre-Tax Net Present Value (NPV) of $340.8 million at a discount rate of 8%, and Internal Rate of Return (IRR) of 47.8%, with a payback period of 1.4 years;
- After-Tax Net Present Value of $210.5 million and Internal Rate of Return of 34.5%, with a payback of 1.8 years. Sensitivity analyses are included in Tables 5 and 6;
- Pre-production capital costs of $153.8 million, including a 15% contingency, with sustaining capex of $117.5 million over the life of the mine. It is assumed that sustaining capex will be entirely funded out of cash flow;
- The Pine Point project is envisioned as a series of 10 open pit deposits mined in sequence. Total mineral resources included in the PEA mine plan are 25.8 million tonnes of measured and indicated resources grading 2.94% zinc and 1.12% lead, and an additional 3.7 million tonnes of inferred resources grading 2.90% zinc and 0.77% lead;
- A 13-year mine life with total life-of-mine production of 1.35 billion pounds of zinc and 536 million pounds of lead. Total shipments of 1.23 million tonnes (dry) of zinc concentrate grading 58.9% zinc, and 394,000 tonnes (dry) of lead concentrate grading 65% lead. Net of by-products, the average cash cost to produce zinc is US$0.60 per pound;
- The assessment estimates net smelter return over the life of the mine at $2,020 million, with gross pre-tax income of $908 million (Table 8);
- Total on-site operating costs of $37.64 per tonne processed, and total transport and refining costs of $23.07 per tonne material mined and processed; and
- A LOM average manpower of 321 persons including staff and contractors at full production.
Table 1: Summary of Economic Results
| Parameter | Unit | Value |
| Pre-Tax NPV @ 8% | C$M | 340.8 |
| Pre-Tax IRR | % | 47.8 |
| Pre-Tax Payback | Years | 1.4 |
| After-Tax NPV @ 8% | C$M | 210.5 |
| After-Tax IRR | % | 34.5 |
| After-Tax Payback | Years | 1.8 |
Table 2: Sensitivity Analysis: Pre-Tax NPV @ 8% (C$M)
| Parameter | -20% | -10% | Base | +10% | +20% | ||||
| Price | 29 | 185 | 341 | 496 | 652 | ||||
| CAD:US FX | 730 | 514 | 341 | 199 | 81 | ||||
| Mill Feed Grade | 100 | 220 | 341 | 461 | 582 | ||||
| Recovery | 7 | 181 | 341 | 497 | 652 | ||||
| OPEX | 469 | 405 | 341 | 276 | 212 | ||||
| CAPEX | 385 | 363 | 341 | 319 | 297 |
Table 3: Sensitivity Analysis: Pre-Tax IRR (%)
| Parameter | -20% | -10% | Base | +10% | +20% | |||||
| Price | 13 | % | 32 | % | 48 | % | 62 | % | 75 | % |
| CAD:US FX | 81 | % | 63 | % | 48 | % | 34 | % | 20 | % |
| Mill Feed Grade | 22 | % | 36 | % | 48 | % | 59 | % | 69 | % |
| Recovery | 9 | % | 32 | % | 48 | % | 62 | % | 75 | % |
| OPEX | 59 | % | 53 | % | 48 | % | 42 | % | 36 | % |
| CAPEX | 62 | % | 54 | % | 48 | % | 42 | % | 38 | % |
Table 4: Sensitivity Analysis: Discount Rate
| Discount Rate | 0% | 5% | 8% | 10% | 12% | ||||
| Pre-Tax NPV (C$M) | 637 | 428 | 341 | 294 | 254 |
Table 5: Sensitivity Analysis: After-Tax NPV @ 8% (C$M)
| Parameter | -20% | -10% | Base | +10% | +20% | ||||
| Price | 6 | 111 | 211 | 310 | 410 | ||||
| CAD:US FX | 459 | 321 | 211 | 120 | 41 | ||||
| Mill Feed Grade | 54 | 133 | 211 | 287 | 364 | ||||
| Recovery | -11 | 108 | 211 | 210 | 410 | ||||
| OPEX | 294 | 252 | 211 | 169 | 127 | ||||
| CAPEX | 254 | 233 | 211 | 189 | 167 |
Table 6: Sensitivity Analysis: After-Tax IRR (%)
| Parameter | -20% | -10% | Base | +10% | +20% | |||||
| Price | 9 | % | 23 | % | 35 | % | 45 | % | 55 | % |
| CAD:US FX | 60 | % | 46 | % | 35 | % | 24 | % | 14 | % |
| Mill Feed Grade | 16 | % | 26 | % | 35 | % | 43 | % | 51 | % |
| Recovery | 6 | % | 23 | % | 35 | % | 45 | % | 55 | % |
| OPEX | 43 | % | 39 | % | 35 | % | 30 | % | 25 | % |
| CAPEX | 47 | % | 40 | % | 35 | % | 30 | % | 26 | % |
Table 7: Sensitivity Analysis: Discount Rate
| Discount Rate | 0% | 5% | 8% | 10% | 12% | ||||
| Post-Tax NPV (C$M) | 423 | 273 | 211 | 177 | 149 |
Table 8: Pre-Tax and After-Tax Cash Flows
| Parameter | Unit | Value | |
| Revenue (net of treatment charges and transportation) | C$M | 2,020.8 | |
| Operating Costs | C$M | 1,112.1 | |
| Capital Costs | C$M | 271.3 | |
| Pre-Tax Cash Flow | C$M | 637.5 | |
| Income Taxes | C$M | 214.3 | |
| After-Tax Cash Flow | C$M | 423.2 |
Note: All dollar amounts other than metal prices are quoted in Canadian dollars (“$”). The study assumes a zinc price US$1.10 per pound and a lead price of US$1.00 per pound, and a US$-C$ exchange rate of $0.75-$1.00.
PEA DETAILS
Mineral Resources
Table 9: Summary of Open Pit Resources
| Pit | Measured & Indicated | Inferred | |||||||||||||||||
| Feed (kt) | Pb (%) |
Zn (%) |
Pb (M Lb) |
Zn (M Lb) |
Feed (kt) | Pb (%) |
Zn (%) |
Pb (M Lb) |
Zn (M Lb) |
||||||||||
| J68 | 304 | 2.25 | 4.90 | 15 | 33 | – | – | – | – | – | |||||||||
| HZ | 1,549 | 2.76 | 3.58 | 94 | 122 | – | – | – | – | – | |||||||||
| W85 | 3,983 | 1.98 | 3.46 | 174 | 304 | – | – | – | – | – | |||||||||
| X65 | 5,430 | 0.80 | 2.41 | 95 | 288 | 56 | 0.00 | 3.67 | 0 | 5 | |||||||||
| O533 | 81 | 0.91 | 2.90 | 2 | 5 | 121 | 0.83 | 2.79 | 2 | 7 | |||||||||
| N204 | 10,005 | 0.80 | 2.98 | 177 | 657 | 3,527 | 0.78 | 2.89 | 61 | 224 | |||||||||
| M67 | 1,365 | 0.84 | 3.55 | 25 | 107 | – | – | – | – | – | |||||||||
| K68 | 1,193 | 0.81 | 2.77 | 21 | 73 | – | – | – | – | – | |||||||||
| L65 | 1,578 | 0.70 | 1.95 | 25 | 68 | – | – | – | – | – | |||||||||
| M6263 | 352 | 1.42 | 2.13 | 11 | 16 | – | – | – | – | – | |||||||||
| Total | 25,841 | 1.12 | 2.94 | 640 | 1674 | 3,703 | 0.77 | 2.90 | 63 | 236 | |||||||||
Notes to Table:
- The effective date for the open pit mineral Resource is March 27, 2017.
- Mineral Resources which 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, marketing, or other relevant issues.
- The quantity and grade of reported Inferred Resources in this estimation are uncertain in nature and there has been insufficient exploration to define these Inferred Resources as an Indicated or Measured Mineral Resource and it is uncertain if further exploration will result in upgrading them to an Indicated or Measured Mineral Resource category.
The Pine Point Project, located 65 kilometres east of Hay River, N.W.T., was purchased in late December 2016 by Darnley Bay. It was operated as a successful zinc mine for several decades by Cominco Ltd., producing from 49 separate open pit and two underground mines lying along a 35-kilometre trend. Approximately 64 million tonnes of ore at a grade of 7.1% zinc and 3.1% lead were mined between 1964 and 1987. Previous drilling on the property totals approximately 1.3 million metres in 18,422 holes by previous operators.
The PEA envisions the use of conventional open pit mining and processing methods. Mining rates will range from 4,000 to 6,800 tonnes per day of mineralized material for processing over the life of the mine using a fleet of 90-tonne trucks, 8.0 m3 shovels and 8.0 m3 front end loaders.
Mineral processing will include a combination of portable and fixed crushers and dense media separation plants located near each deposit which will concentrate the mineralized material from the initial head grades of 2.93% and 1.08% lead-zinc, and a pre-concentrate will then be trucked to a central 1,800 tonne-per-day milling facility where it will be subject to standard grinding and flotation methods to produce a final concentrate. The concentrate will then be trucked to the Hay River railway facility approximately 65 km west, from which it will be shipped to markets.
JDS engaged Knight Piésold Ltd. (KP) to develop tailings and water management plans for the Project. Tailings will be conveyed from the centralized milling facility and deposited within historic and new open pits. There will be no need to construct a new on-surface tailings facility. Dewatering of the open pits was an important component of the historic mining at Pine Point. The substantial historic site-specific data set related to pit dewatering and pumping tests provided a unique opportunity to calibrate an appropriate pit dewatering and management system for the Project, such that inflow estimates are based on past site experience rather than models. The Project includes $19.7 million in pre-production and sustaining capital costs for water management equipment, and an additional $32.2 million over the life of the project in operating costs directly related to dewatering.
Currently, the company is working with local First Nations groups to identify opportunities of local employment and business opportunities.
The next steps for the project include the launch of a feasibility study and the initiation of permitting. Provided the feasibility study supports the results of the PEA, and subject to financing and permitting, construction of a mine at Pine Point would be expected to take 12-18 months.
Opportunities for Enhancement of the Project
The Company believes there are several potential opportunities to further improve the economics of the Pine Point Project through:
- The addition of underground resources into the mine plan. Pine Point has two significant underground deposits, R190 and X25, that have potential to contribute higher grade feed to the process plant. Further evaluation of these deposits is planned during the Feasibility Study, planned to commence in H2 2017. Resources at these two deposits include:
- R190: 1.0 Mt (Measured & Indicated) grading 5.28% Pb and 10.98% Zn
- X25: 2.1 Mt (Indicated) grading 2.32% Pb and 6.73% Zn
- Conversion of historical resources into Measured and Indicated Resources, through confirmation drilling. Historically there are 46 undeveloped deposits on the Pine Point Project and of these, 10 are included in the PEA. Darnley Bay intends to evaluate the remaining deposits and, where considered appropriate, initiate confirmation drilling programs in an effort to add additional deposits to the mine plan prior to the feasibility study.
- Explore for additional deposits. Although more than 100 distinct deposits have been outlined historically in the Pine Point area, there are several portions of the mineralized trends that remain under-explored and Darnley Bay intends to begin exploring this spring to identify additional deposits.
- Additional metallurgical testing planned for 2017 could increase either recoveries, concentrate grades, or both.
- Additional surface and groundwater studies to determine ways to lower the costs of water handling.
- The PEA envisages the use of electric power sourced from a combination of local grid power and natural gas generators on the property. The Company intends to initiate a dialogue with the Northwest Territories Power Corporation to discuss the potential of obtaining more or all of Pine Point’s power needs from the grid through upgrades to the Taltson River hydroelectric dam, which would reduce capital and operating costs significantly.
Cautionary Statement
Readers are cautioned that the Pine Point 2017 PEA is preliminary in nature and includes the use of Inferred Mineral 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. There is no certainty that the PEA will be realised. There is no certainty that the Inferred Resources will be converted to the Indicated or Measured categories, or that the potential Measured or Indicated Resources would be converted to the Proven or Probable Mineral Reserve categories. Mineral Resources that are not Mineral Reserves do not have demonstrated economic viability.
The estimates of Mineral Resources in the PEA and the Mineral Resource statement may be materially affected by environmental, permitting, legal, title, taxation, socio-political, marketing, or other relevant issues. The Pine Point 2017 PEA recommends that the Project be advanced to a Feasibility level study in order to increase confidence in the estimates.
Darnley will be filing a National Instrument (NI) 43-101 Technical Report on the Pine Point PEA within 45 days of this news release.
Conference Call Details
PEA Study Conference Call
A conference call will be held on April 19, 2016 at 4:15pm EST to discuss the PEA Study.
Dial-In Number: 647-478-7145
Code: 437077
Qualified Persons
The Pine Point 2017 PEA was prepared by JDS and is based on a Mineral Resource estimate for the Pine Point Project published as a NI 43-101 Technical Report with an effective date of March 4, 2017. JDS has a long and successful track record of delivering high-quality technical engineering and economic studies for a wide range of mineral resource companies, both in Canada and internationally. JDS is a specialized, private mineral engineering, consulting and construction company focused on adding value to mineral projects with fit-for-purpose designs and exceptional execution. The JDS team has a long history of northern Canadian and diamond experience including the construction of the Gahcho Kué diamond mine and the Silvertip silver and base-metals mine.
The following Qualified Persons have participated in the development of the PEA, or are responsible for specific inputs into the PEA.
- Garett Macdonald, P.Eng. – JDS Energy & Mining
- Dino Pilotto, P.Eng. – JDS Energy & Mining
- Kelly McLeod, P.Eng. – JDS Energy & Mining
- Ken Embree, P.Eng. – Knight Piésold
- Albert Daniel Siega, P.Eng.
- Paul Gann, P.Geo.
Forward-Looking Information
This release includes certain statements that may be deemed “forward-looking statements”. All statements in this release, other than statements of historical facts, that address future production, reserve potential, exploration drilling, exploitation activities and events or developments that Darnley Bay expects are forward-looking statements. Although Darnley Bay believes the expectations expressed in such statements are based on reasonable assumptions, such statements are not guarantees of future performance and actual results or developments may differ materially from those in the statements. There are certain factors that could cause actual results to differ materially from those in forward-looking statements. These include market prices, exploitation and exploration successes, continued availability of capital and financing, and general economic, market or business conditions. Investors are cautioned that any such statements are not guarantees of future performance and actual results or developments may differ materially from those projected in the forward-looking statements. For more information on Darnley Bay, investors should review registered filings at www.sedar.com.
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.
Jamie Levy
President and Chief Executive Officer
(416) 567-2440
jlevy@darnleybay.com
www.darnleybay.com
Renmark Financial Communications Inc.
Steve Hosein
(416) 644-2020 or (514) 939-3989
shosein@renmarkfinancial.com
www.renmarkfinancial.com