Avala Announces Positive Preliminary Economic Assessment and
Updated Mineral Resource for Timok Gold Project, Serbia
LONGUEUIL, QUEBEC--(Marketwired - Jun 20, 2014) - Avala
Resources Ltd. (TSX-VENTURE:AVZ) (the "Company" or "Avala") is
pleased to announce the results of an independent preliminary
economic assessment ("PEA") and an updated mineral resource
estimate for its 100% owned Timok Gold Project located in Eastern
Serbia.
Highlights of the Timok Gold Project PEA
- Open pit gold mine with an initial life of mine ("LOM") of 8.4
years.
- Average annual gold production LOM of approximately 81,000
ounces at US$788 cash cost per ounce.
- Average annual gold production of approximately 92,000 ounces
for the first three years of production.
- LOM gold production of 680,000 ounces.
- Average LOM operating costs (including royalties, selling
costs, closure/environmental costs and sustaining capital) of U$843
per ounce of gold.
- Annual processing rate of 1.68 million tonnes per year.
- Average LOM gold recovery of 75% from milling and flotation to
produce a gold-rich concentrate.
- Estimated pre-production capital cost of US$177 million,
including working capital.
- LOM net cash flow of US$127.6 million at a gold price of
US$1300 per ounce.
- Net present value ("NPV") of US$65 million at a 5% discount
rate and a gold price of US$1300 per ounce generating an internal
rate of return ("IRR") of 14.3%.
- Project payback of 4.0 years.
- All economic outcomes presented in the PEA are the same on a
pre- and after-tax basis as it is expected that the proposed level
of investment and employment associated with the implementation of
the proposed mine would qualify for a 10 year tax holiday under
current Serbian tax legislation.
- Over 99.5% of the resources within the PEA pit designs are
categorized as indicated resources.
Purpose of the Study
The purpose of the PEA was to (a) provide a preliminary concept
for the scale and type of mining project that the Timok Gold
Project could support, (b) identify areas where additional work is
required before a pre-feasibility study can be completed and (c)
demonstrate potential for positive economic returns that would
justify continued investment in the Timok Gold Project.
The PEA is preliminary in nature, based on mineral resources,
and provides an indication of potential viability of the Timok Gold
Project. 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.
The PEA includes inferred mineral resources that are 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 the measured and indicated categories through
further drilling, or into mineral reserves, once economic
considerations are applied.
Additional details will be provided in a NI 43-101 technical
report to be filed on SEDAR within 45 days.
Project Throughput Trade-Off Study
Prior to initiating the PEA, Avala carried out an internal,
preliminary trade-off study to determine the optimum throughput
rate for the Timok Gold Project. Throughput rates of 5,000 tonnes
per day (1.68 million tonnes per annum) to 10,000 tonnes per day
(3.36 million tonnes per annum) were evaluated at gold prices from
US$1250 per ounce to US$1500 per ounce. The results of the study
indicated that 5,000 tonnes per day provides the best project
economics relative to other operating and financial parameters.
Summary of Base Case Results
The base case assumptions included revenues using a gold price
of US$1300 per ounce and current prices for fuel, reagents, labor,
power and other consumables in Serbia. The key results are as
follows:
Preliminary Economic Analysis Base Case Summary |
Item |
Value |
LOM average gold recovery (%) |
75 |
Gold ounces produced (koz) |
680 |
Average annual gold production (koz) |
81 |
Ore mined (Mt) |
14.1 |
LOM head grade (g/t Au) |
2.0 |
Waste material mined (Mt) (including capitalized pre-strip) |
63.6 |
Waste to ore strip ratio |
4.5 |
Construction capital, including working capital (US$M) |
177.0 |
Sustaining capital (US$M) |
10.6 |
Gross gold revenue (US$M) |
839.5 |
Net income (US$M) (1) |
127.6 |
Net present value at 5% discount rate (US$M) (1) |
64.9 |
IRR (%) (1) |
14.3 |
Mine life (years) |
8.4 |
Payback (years) (1) |
4.0 |
LOM direct cost (mining, processing and G&A) (US$/oz) |
567 |
LOM cash cost (direct cost + royalties and selling costs)
(US$/oz) |
788 |
LOM operating cost (cash cost + closure/environmental costs &
sustaining capital) (US$/oz) |
843 |
LOM total cost (operating cost + implementation capital)
(US$/oz) |
1104 |
Average LOM mining cost (US$/t mined) |
14.92 |
Average LOM processing cost (US$/t processed) |
11.69 |
Average LOM cost of sales (US$/t processed) |
7.96 |
Annual G&A costs (US$M) |
1.24 |
|
|
(1)
Same result on a pre- and after-tax basis due to the expected
qualification to a 10-year tax holiday under current tax
legislation in Serbia. |
The PEA is subject to a number of assumptions, including amongst
others, that an environmental impact assessment will be completed
within the required timeline, that all required permits will be
obtained in a timely manner, that the Timok Gold Project will have
the support of the local government and community, that the
regulatory environment will remain consistent and that estimated
costs will not increase materially. The table below summarizes key
assumptions in the PEA.
|
|
Preliminary Economic Analysis Key Assumptions |
|
Costs and Recoveries |
|
|
|
Capital Estimate |
|
|
Fuel cost (US$/liter) |
1.22 |
|
|
Mining (US$M) |
27.24 |
|
Electricity cost (US$/kWh) |
0.07 |
|
|
Process plant (US$M) |
66.64 |
|
Mill power usage (kWh/t) |
35 |
|
|
Plant infrastructure (US$M) |
16.72 |
|
Mining (US$/t) - unit cost (ore) |
2.36-2.55 |
|
|
Area infrastructure (US$M) |
7.29 |
|
Mining (US$/t) - overall cost (waste+ore) |
14.92 |
|
|
Regional infrastructure (US$M) |
1.86 |
|
Grade control (US$/t) |
0.45 |
|
|
Miscellaneous |
7.62 |
|
Rehabilitation (US$/t) |
0.09 |
|
|
Sub-Total Direct Cost (US$M) |
127.37 |
|
Stockpile re-handling (US$/t) |
1.50 |
|
|
Indirect cost (US$M) |
19.14 |
|
Plant feed at ROM pad (US$/t) |
0.25 |
|
|
Accuracy provision (US$M) |
22.22 |
|
Ore haulage (US$/t) (Kraku Pester) |
3.50 |
|
|
Sub-Total Initial Capital (US$M) |
168.73 |
|
Processing (US$/t) - full production year |
11.55 |
|
|
Owner's costs (US$M) |
8.29 |
|
Concentrate costs (TC/RC, transport etc.) (US$/dry t
concentrate) |
200.0-203.8 |
|
|
Total Initial Capital (US$M) - including working capital |
177.02 |
|
General services (US$/t) |
0.74 |
|
|
|
|
|
CAT mining equipment financing cost (US$/t) |
1.15 |
|
|
State royalty |
5 |
% |
Total operating cost (US$/t) |
37.99 |
|
|
|
|
|
Plant recoveries: Bigar Hill |
80 |
% |
|
Plant recoveries: Kraku Pester |
56 |
% |
Plant recoveries: Korkan |
68 |
% |
|
Overall plant recoveries: LOM |
75 |
% |
A full list of the assumptions will be set out in the NI 43-101
technical report for the PEA.
Project Sensitivities
The Timok Gold Project PEA is based on producing a gold-rich
sulphide concentrate for sale to smelters. A small positive
increase in gold price and/or gold recovery has a marked effect on
the project economics, as illustrated in the table below (with the
pit designs and schedules unchanged). The optimum pit shells, which
form the basis of the PEA pit designs, are most sensitive to plant
recovery and the gold price. The Company believes that the
metallurgical testwork recommended in the PEA may result in higher
overall plant recoveries, which would result in a higher conversion
ratio. Independently, an increase in the gold price will also
increase the conversion ratio, as larger pits are developed. As
noted below, Avala also intends to assess the potential for
underground extraction of gold mineralisation beneath the open pit
designs.
Preliminary Economic Analysis Sensitivity Summary
(1) |
Sensitivity |
Gold Price (US$/oz) |
NPV@0% (US$M) |
NPV@5% (US$M) |
IRR (%) |
Gold Price Sensitivity |
Gold price +US$150 |
1450 |
219.2 |
132.1 |
22.4 |
Gold price +US$100 |
1400 |
188.7 |
109.7 |
19.8 |
Gold price +US$50 |
1350 |
158.1 |
87.3 |
17.2 |
Base case gold price |
1300 |
127.6 |
64.9 |
14.3 |
Gold price -US$50 |
1250 |
97.0 |
42.6 |
11.4 |
Gold price -US$100 |
1200 |
66.5 |
20.2 |
8.2 |
Recovery Sensitivity |
Recovery +6% |
1300 |
191.0 |
111.0 |
19.9 |
Recovery +4% |
1300 |
169.9 |
96.6 |
18.1 |
Recovery +2% |
1300 |
148.7 |
80.3 |
16.3 |
Recovery -2% |
1300 |
106.4 |
49.6 |
12.3 |
Recovery -4% |
1300 |
85.2 |
34.3 |
10.2 |
Combined Sensitivities |
Recovery +4% & gold price +US50 |
1350 |
202.1 |
119.2 |
20.8 |
Recovery +6% & gold price +US$100 |
1400 |
257.0 |
159.3 |
25.2 |
|
|
|
|
|
(1)
Same result on a pre- and after-tax basis due to the expected
qualification to a 10-year tax holiday under current tax
legislation in Serbia. |
Mineral Resources
In conjunction with the preparation of the PEA, the mineral
resource estimates for the Bigar Hill and Korkan deposits (Oct
2013) and Kraku Pester deposit (Jan 2013) have been updated to
constrain the deposits within pit shells for the purposes of the
PEA, based on the assumptions, parameters and methodology that are
summarised below. At this stage the Korkan East deposit has not
been subject to preliminary economic assessment. The Bigar Hill,
Korkan and Kraku Pester estimates are supported by 271,420.2 metres
of drilling. The average drill spacing is 40 meters by 40 meters
for indicated resources and 80 meters by 80 meters for inferred
resources. The mineral resources for Bigar Hill, Korkan and Kraku
Pester, which were used in the PEA, are listed in the table
below.
TIMOK GOLD PROJECT |
INDICATED AND INFERRED RESOURCES USED IN THE PEA |
|
|
|
Indicated |
|
Inferred |
Deposit |
Cut Off Grade (Au g/t) |
Million Tonnes |
|
Au (g/t) |
|
Million Ounces (Au) |
|
Million Tonnes |
|
Au (g/t) |
|
Million Ounces (Au) |
|
|
Bigar Hill |
0.3 |
|
38.62 |
|
1.19 |
|
1.48 |
|
1.3 |
|
1.3 |
|
0.1 |
Korkan |
0.3 |
|
22.35 |
|
1.07 |
|
0.77 |
|
2.7 |
|
0.9 |
|
0.1 |
Kraku Pester |
0.3 |
|
6.45 |
|
1.05 |
|
0.22 |
|
0.3 |
|
0.8 |
|
0.0 |
Total |
|
|
67.42 |
|
1.14 |
|
2.48 |
|
4.3 |
|
1.0 |
|
0.2 |
Notes: |
(1) |
The effective date of the updated mineral resource estimate is
May 1, 2014. |
|
(2) |
The resource estimation was prepared by Chris Arnold MAusIMM
CP(Geo) of AMC Consultants Limited using the Canadian Institute of
Mining, Metallurgy and Petroleum (CIM), CIM Standards on Mineral
Resources and Reserves, Definitions and Guidelines prepared by the
CIM Standing Committee on Reserve Definitions and adopted by the
CIM Council. |
|
(3) |
The resources are constrained within pit shells returning the
maximum undiscounted values, based on the following assumptions:
NSR gold price of $1500/oz ($1700/oz spot price less $200/oz for
off-site concentrate costs), 85% gold recovery for Bigar Hill and
Korkan, 80% recovery for Kraku Pester, 55 degree pit slopes,
US$2.00/t ore and waste mining costs (including rehabilitation
costs) andUS$12.70/t processing and other costs, resulting in cut
off grades of 0.32g/t for Bigar Hill and Korkan and 0.34g/t for
Kraku Pester. Both cut off grades have been rounded to 0.3g/t for
the reporting of resources within the designated pit
shells. |
|
(4) |
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. |
|
(5) |
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 indicated or
measured mineral resources. |
|
(6) |
Totals and average grades are subject to rounding to the
appropriate precision. |
|
(7) |
The key changes between the previous mineral resource estimate
for the Bigar Hill, Korkan and Kraku Pester deposits (news release
of October 16, 2013) and this updated mineral resource are that the
updated resource estimate is constrained within a pit shell and has
been reported at a lower cut-off, commensurate with the gold price
and costs parameters used to defined the constrained pit. |
The NI 43-101 technical report to be filed for the PEA will
include the technical and scientific data to support the updated
mineral resource estimate.
Next Steps
Subject to the availability of funds, Avala plans to do the
following work to advance the Timok Gold Project.
Several metallurgical testwork programs have been undertaken
since 2011 on samples selected from the Timok Gold Project
deposits. Initial work investigated the potential for gold recovery
from several processing options, including cyanidation techniques.
During 2012 and 2013, the metallurgical testwork focus changed to
the assessment of ultra-fine grinding and flotation to produce a
gold-rich sulphide concentrate for treatment by others. In
addition, the potential for upgrading via attritioning/scrubbing
(pre-concentration) was evaluated, which showed promise but was not
taken further in the PEA design. Testwork was successful in using
primary grinding, ultra-fine grinding and flotation to produce a
gold bearing pyritic concentrate. Metallurgical recoveries adopted
for the design were 80%, 68% and 56% for Bigar Hill, Korkan and
Kraku Pester deposits respectively; into a design concentrate mass
pull of 4%. Testwork to support pre-feasibility study activities
would include:
- Detailed mineralogical evaluation to improve understanding of
gold associations with gangue and sulphide minerals;
- SAG milling characterization;
- Further evaluation of scrubbing/attritioning
(pre-concentration) potential;
- Evaluation of finer grind sizes to improve flotation
recovery;
- Larger scale ultra-fine grinding testwork to confirm specific
energy requirements and to prepare flotation feed;
- Staged Flotation Reactor circuit testing;
- Production of concentrate for marketing purposes; and
- Liquid-solid separation testwork (concentrate and
tailings).
Avala has developed an extensive geo-metallurgical database for
the Timok Gold Project and plans to produce detailed three
dimensional geometallurgical models of the deposits to assist with
effective targeting of further metallurgical testwork.
Review of the Bigar Hill and Korkan resource models suggests
there may be potential for underground extraction of gold
mineralization beneath the current open pit designs. Avala plans to
assess this potential, along with preliminary assessment of the
recently announced Korkan East deposit.
During Q1 2014 Avala was granted the right to explore on the
Bigar Istok license (15 square kilometers) which is located
immediately due east of the Potoj Cuka Tisnica exploration license,
which hosts the currently defined deposits. Previous exploration in
this area has highlighted various gold-in-soil anomalies together
with evidence of historic gold and base metal mineralization as
defined by previous Serbian State exploration drilling. Avala
believes that the exploration potential of the Bigar Istok license
area, together with the various prospects located proximal to the
currently defined deposits, remains high.
Qualified Persons
The PEA was completed by AMEC Australia Pty Ltd. under the
supervision of Peter Nofal, FAusIMM, with participation of AMEC
Growth Regions Mining Services Group UK and Gary Jobson, MAusIMM,
of Macromet Pty Ltd. (metallurgy), Nick Journet, ARSM, FAusIMM, of
Dumpsolver Pty Ltd.(mining), Chris Arnold MAusIMM CP(Geo), AMC UK,
(geology and resource modeling), Fergus Anckorn, FAusIMM
CP(Environmental), of AMEC Earth and Environmental (UK) Ltd
(Environmental, Social and Permitting), Ciaran Molloy, MIMMM ICE QP
of AMEC Growth Regions Specialty Mining Services Group
(Geotechnical & Civil Engineering), and Rod Cameron,
F.Geol.Soc.London Chartered Geologist, of AMEC Growth Regions
Speciality Mining Services Group (Tailings and Water Management).
The Bigar Hill, Korkan and Kraku Pester updated mineral resource
estimate was undertaken by independent qualified person Chris
Arnold MAusIMM CP(Geo) of AMC. Mr. Arnold has reviewed and approved
the contents of this press release insofar as mineral resource
estimates are concerned. Dr. Julian F. H. Barnes, FAusIMM, MAIG, a
director of the Company and special consultant, is the Company's
designated qualified person for purposes of the PEA. All qualified
persons have reviewed and approved the disclosure in this press
release related to their respective areas of expertise.
About Avala Resources Ltd.: Avala Resources is a mineral
exploration company focused on the exploration and development of
the Timok Gold Project in Eastern Serbia. The Timok Gold Project
comprises several targets, including the Korkan, Bigar Hill, Kraku
Pester, and Korkan East deposits. Avala controls 100% of this
recently identified sediment-hosted gold belt which totals
approximately 250 square kilometers. The common shares of Avala
trade on the TSX Venture Exchange under the symbol AVZ.
Avala had approximately $1.1 million in its treasury at March
31, 2014. Avala's issued and outstanding share capital totals
254,492,223 common shares, of which approximately 53.1% is held by
Dundee Precious Metals Inc. (TSX:DPM).
Additional information about the Company is available on Avala's
website (www.avalaresources.com) and on SEDAR (www.sedar.com).
Cautionary Statement Regarding Forward-Looking
Information
This press release contains 'forward-looking information'
within the meaning of Canadian securities legislation. Forward
looking information in this press release includes information
about the results of a Preliminary Economic Assessment (PEA). This
PEA is the first in a series of development studies for the project
assessing the potential viability of a potential mining operation
on the Timok Gold Project. The operating and capital costs
estimated in the PEA were developed to be reasonable estimates
within industry benchmarks. The PEA is intended to quantify the
project's cost parameters which will, in turn, be used to guide
ongoing exploration and engineering work and to define the optimal
scale of the operation for a feasibility study. Forward looking
information in this press release also includes information about
planned metallurgical testwork and the ability to increase metal
recoveries through additional work, completion of a pre-feasibility
study, the potential to incorporate an underground operation into
the open pit plans for the Timok Gold Project, and the exploration
potential of the Bigar Istok license and the target areas nearby
Bigar Hill, Korkan, Kraku Pester, and Korkan East. This press
release also includes an updated mineral resource estimate. Mineral
resources are not mineral reserves and do not have demonstrated
economic viability. Inferred resources have a great amount of
uncertainty as to their existence, and economic and legal
feasibility. Since forward-looking information is based on
assumptions and addresses future events and conditions, by its very
nature it involves risks and uncertainties. Certain assumptions
used in the PEA and the resource estimate are summarized in this
press release. Actual results could differ materially from those
anticipated in the forward looking information for many reasons
including, but not limited to: changes in general economic
conditions and conditions in the financial markets; changes in
demand and prices for gold; changes in prices of inputs and other
assumptions in the PEA and the resource estimate; unavailability of
the 10-year tax holiday; legislative, environmental and other
regulatory, political and competitive developments; operational
difficulties encountered in connection with the activities of the
Company; and the Company's financial condition and financial
resources to execute its business plans. These and other factors
referred to in public disclosures and filings by the Company should
be considered carefully, and readers should not place undue
reliance on the Company's forward-looking information. The Company
does not undertake to update any forward-looking information,
except as required by applicable securities laws.
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 press release.
Avala Resources Ltd.James CrombiePresident and Chief Executive
Officer+1.450.640.0810info@avalaresources.comwww.avalaresources.com