:D
2008-03-31 07:36 ET - News Release
Mr. Sean Roosen reports
OSISKO TABLES PRELIMINARY ASSESSMENT STUDY ON CANADIAN MALARTIC PROJECT
Osisko Exploration Ltd. has released results of the preliminary assessment study of its 100-per-cent-owned Canadian Malartic gold project located in Malartic, Que. The study was compiled by BBA Inc., with the collaboration of RSG Global Consulting, G Mining Services, Genivar, Golder Associates and the Osisko Technical Group. Osisko released its current inferred resource of 8.4 million ounces of gold in mid-2007 (see July 5, 2007, news in Stockwatch). For the purposes of this preliminary assessment study, only in-pit inferred resources between surface and a vertical depth of 400 metres were considered. A gold price of $775 per ounce was assumed for the financial analysis, and current market prices for all materials were applied. All dollar amounts presented in this press release are expressed in United States dollars. An exchange rate of 1.10 was used with respect to Canadian expenditures.
Results of the study are highly encouraging and Osisko is continuing to work toward definitive feasibility on the Canadian Malartic project, expected to be delivered by year-end. The study shows that over the first three years of production, Canadian Malartic will average 572,000 ounces of gold per year at an average head grade of 1.05 grams per tonne (g/t) Au and with cash costs averaging $314 per ounce (including royalties). Over the first three years, the operation would generate pretax cash flow of $731-million. Over a projected 14-year mine life, the current deposit would produce an average of 457,800 ounces of gold per year at an average cash cost of $381 per ounce (including royalties), generating pretax operating cash flow of $2.58-billion, with over $1-billion pretax cash flow generated in the first five years of production. The study shows an internal rate of return (using a 5-per-cent discount rate) of 22.2 per cent and possible payback period of 39 months.
SUMMARY HIGHLIGHTS OF THE STUDY
Estimated mined gold (oz) 7,794,000 (Whittle pit constrained)
Estimated net
recoverable gold (oz) 6,547,000 (based on 84% recovery)
Average annual gold
production (oz) 457,800 (572,000 -- year 1 to 3)
Cash cost per ounce
Before royalties $369 ($301 -- year 1 to 3)
With royalties $381 ($314 -- year 1 to 3)
Initial investment (CAPEX) $760,000,000
CAPEX per ounce $116
Sustaining capital $59,000,000
Closure costs $52,000,000
Operating cash flow pretax $2,582,000,000
IRR -- pretax
(5 per cent discount) 22.2%
Payback 39 months
Mine life 14.3 years
Capital expenditures are estimated at $760-million (which includes contingency of $72.6-million), giving the project a capital expenditure per recoverable ounce of $116, within current industry norms for the best gold projects in the world. Osisko has already paid approximately $30-million toward capital expenditures in the form of capital equipment purchases (milling equipment) and the relocation plan (home and land purchases and initial sector 7 development), leaving remaining capital investment requirement of the project at approximately $733-million (including contingency of $72.6-million). It is also estimated that only 15 per cent of operating costs will be diesel purchases, limiting the project exposure to rising oil prices.
Sean Roosen, president and chief executive officer of Osisko, commented: "We are very pleased with the positive results of our preliminary assessment study. Canadian Malartic continues to demonstrate that it is a solid world-class gold project in what the 2007 Fraser Institute survey indicates is the best mining jurisdiction in the world. At $116 per ounce of construction and development costs, we are in line with other similar-sized projects globally. While our capital outlay estimate reflects the increased cost pressure that all new projects have been facing in the current market environment, we believe that our early call in procuring our SAG mill, initial two ball mills and other ancillary equipment minimizes the impact of the inflation experienced by our industry. We are now moving forward quickly toward our goal of making Osisko the next premium intermediate gold producer, with no legacy issues and very limited exposure to either geopolitical or energy cost volatility.
"The study shows that on its own, the main deposit provides strong returns in the current environment. It will be the foundation for further growth of the company through the drill definition of new resources on the company's current targets, potential new discoveries in other areas on its large land position, and the possibility of new acquisitions within trucking distance from its proposed mill site.
"Over the next 12 to 18 months, we will be drill defining several of its near-surface mineralized zones that have the potential to provide higher-grade resources for blending opportunities and increased early debt paydown, such as the South Barnat zone. We will also look at deeper targets as we have only really explored to depths of 400 metres to date."
Location
The Canadian Malartic project is located 25 kilometres west of Val d'Or in the rich gold mining district between Val d'Or and Cadillac. The project is easily accessible by road being located near highway 117 and is serviced by a railway. Electrical power is easily accessible with the project being located within nine kilometres from Hydro-Quebec's electrical power grid. The region also benefits from a strong contractor and supplier base to the mining industry and an experienced mining work force. The greater Malartic area produced some 8.7 million ounces of gold during the period ranging from 1938 to 1983.
The company has entered into commitments on many long lead items and has received firm quotations which it expects to execute within the next 30 days for total purchases of $200-million. Accordingly, no contingency has been applied to those purchases. A contingency provision of 15 per cent has been estimated on the remaining project outlays. The level of accuracy of the capital investment estimate is plus or minus 25 per cent.
The investment program is scheduled over a two-year period. Sustaining capital is estimated at $59-million and mainly for additional mining equipment. Closure cost provisions amount to $52-million.
Mining
The preliminary mining plan has been established using the inferred resources calculated by RSG Global Consulting Pty. Ltd. An open-pit optimization was performed using Whittle software, which is based on the Lerchs-Grossmann algorithm. The pit optimization resulted in an estimated mining resource conversion rate of 92 per cent relative to the published inferred resource.
SUMMARY OF THE ANNUAL MINING EXCAVATION PLAN
Period Ore mined Waste mined Total mined Stockpile reclaim Total moved
(kt) (kt) (kt) (kt) (kt)
-1 6,568 8,432 15,000 15,000
1 24,193 23,807 48,000 48,000
2 28,715 19,285 48,000 48,000
3 18,071 29,929 48,000 5,921 53,921
4 16,482 31,518 48,000 3,594 51,594
5 16,104 33,896 50,000 3,970 53,970
6 15,627 34,373 50,000 4,448 54,448
7 18,747 31,253 50,000 1,328 51,328
8 22,116 27,884 50,000 50,000
9 23,541 26,459 50,000 449 50,449
10 18,446 16,554 35,000 1,776 36,776
11 19,731 15,269 35,000 345 35,345
12 20,501 14,499 35,000 35,000
13 21,793 13,207 35,000 35,000
14 17,062 7,888 24,950 3,400 28,350
15 6,647 6,647
------- ------- ------- ------ -------
Total 287,697 334,253 621,950 31,878 653,828
------- ------- ------- ------ -------
The deposit will be mined by conventional open-pit mining methods using an initial fleet of 12- to 218-tonne haul trucks, two electric hydraulic shovels and various ancillary equipment to support the mining operations.
The mine production daily rate, including waste, is estimated at 120,000 tonnes per day. The ore-to-waste ratio is estimated at 1.16 to one. The pit design includes an interramp pit slope of 55 degrees.
Mining costs have been estimated at an average of $1.52 per tonne mined. Fuel price assumption is based on $83 per barrel of oil. The average annual fuel consumption is estimated at 28 million litres.
Mineral processing
The plant design is a conventional cyanidation and carbon-in-pulp plant with a nominal throughput capacity of 55,000 tonnes per day (20 million tonnes per year) based on 92-per-cent plant availability. Gold recovery is estimated at 84 per cent, based on an average head grade of 1.2 g/t Au for design criteria.
Grind is estimated at P80 equals 65 microns with an average leach time of 30 hours.
The design is based on numerous tests being conducted at various laboratories. Continuing optimization studies are currently under way.
In order to minimize the environmental impact of the project, the use of thickened tailings disposal technology has been selected. The actual proposed plan is to dispose of the tailings over the former East Malartic tailings area.
The mineral processing costs, including tailings operations and power, are estimated at $4.55 per tonne milled.
Operating costs
Total operating costs, including 60 cents per tonne for general and administration costs, are estimated at $8.43 per tonne milled or an average of $369 per ounce before royalties.
SUMMARY PER YEAR
(based on an average gold recovery of 84 per cent)
Year Tonnes Average Gold Cost/ounce Cost/ounce
milled grade production excluding including
(thousands) (g/t Au) (thousands royalties royalties
of ounces)
2011 20,075 1.02 556 311 325
2012 20,075 1.13 615 277 289
2013 20,075 1.00 544 319 331
2014 20,075 0.82 447 383 394
2015 20,075 0.74 403 436 448
2016 20,075 0.65 354 500 512
2017 20,075 0.76 414 428 440
2018 20,075 0.83 450 398 410
2019 20,075 0.90 486 374 385
2020 20,075 0.76 411 390 401
2021 20,075 0.76 413 390 402
2022 20,075 0.81 438 371 383
2023 20,075 0.87 474 347 359
2024 20,075 0.87 473 319 330
2025 6,647 0.39 70 530 542
------- ---- ----- --- ---
Total 287,697 0.84 6,547 369 381
Rate of return
Under the base-case scenario at a gold price at $775 per ounce, the internal rate of return (IRR) is estimated at 22.2 per cent before taxes and is unleveraged.
SENSITIVITIES UNDER VARIOUS PRICE SCENARIOS
Gold price($) IRR (%) NPV at 5% discount(M$) NPV at 0% discount(M$)
650 13.0 394.5 904.7
775 22.2 952.3 1,710.8
900 30.5 1,464.1 2,516.9
1,000 36.8 1,891.9 3,161.7
Financing
The company has initiated discussions with financial institutions with respect to financing the project. The company currently has cash resources of approximately $160-million, and has invested $30-million as progress payments on capital expenditures. In addition, the company has negotiated a $20-million unsecured financing with the Solidarity Fund QFL, which is expected to close in early April.
Path forward
The company is working to complete the feasibility study and the environmental impact assessment by the end of the third quarter/early fourth quarter 2008. The infill drilling program at the Canadian Malartic property is scheduled for completion at the end of March, 2008, with full assay results being available in May. The measured and indicated resource estimate on the entire deposit is to be released in July, 2008. Subsequently, upon final pit design, a probable reserve calculation will be completed for definitive feasibility purposes.
Mr. Roosen noted: "We have an aggressive plan to move the Canadian Malartic project to production by the end of 2010. During the next six months, we will be focused on completing the definitive feasibility study, optimizing the capital program, operating plans and securing project financing."
Detailed report
The entire preliminary assessment study will be available as of April 1, 2008, at SEDAR and on the company's corporate website.
This preliminary assessment study is conceptual in nature as it is based on the inferred resource, which at this stage does not have a high-enough geostatistical level of confidence to provide the economic basis for a production decision. The company is completing its infill drilling program and additional study, which if positive, may advance the project to the definitive feasibility level.
Qualified person
The preliminary assessment study was prepared by BBA under the supervision of David Runnels, a registered professional engineer, an independent qualified person under the standards set forth by National Instrument 43-101. Luc Lessard, vice-president of engineering and construction for Osisko and a registered professional engineer, is the company's designated qualified person for the purposes of the study. Mr. Runnels and Mr. Lessard have reviewed and approved the contents of this press release.
Conference call
Osisko will host a conference call on Monday, March 31, at 10 a.m. ET, where senior management, the Osisko Technical Group and BBA representatives will discuss the study and will be available to respond to questions from analysts and investors. Those interested in participating in the conference call should dial in at 416-850-9144 (Toronto local and international), or 1-866-400-3310 (North American toll-free). An operator will direct participants to the call.
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