TORONTO, ONTARIO--(Marketwire - Jan. 10, 2012) - Virgin Metals Inc. (TSX VENTURE:VGM) today released the results of a Preliminary Economic Assessment on its 100% owned Los Verdes Project in Sonora Mexico including a financial analysis of the impact of Virgin's recent Potreritos acquisition.
"Over the past year we have been able to re-cast our resource estimate, successfully optimize the metal processing recoveries, complete a detailed metallurgical simulation and re-engineer the operational plant and facilities at the Los Verdes project" said Chris Frostad, President & CEO. "These results not only demonstrate significant economic improvement and clarity over the 2008 Pre-Feasibility, but new opportunity for additional cost savings and significant project growth. We are especially excited to see that the Potreritos acquisition has added the potential for 10's of millions of dollars to the value of the project."
| PEA Economic Highlights | ||||||||
| PEA Los Verdes |
Sensitivity Analysis (based on change in resources) |
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| Base Model1 | +25% increase | +50% increase | ||||||
| Mineable Resources | 7,000,000 t | 8,750,000 t | 10,500,000 t | |||||
| Pre-tax Net Cash Flow | $ | 163,000,000 | $ | 212,000,000 | $ | 265,000,000 | ||
| Net Present Value (5%) | $ | 113,000,000 | $ | 144,000,000 | $ | 174,000,000 | ||
| Internal Rate of Return | 34% | 35% | 36% | |||||
| Mine Life (years) | 7 | 9 | 11 | |||||
| Payback (years) | 2.7 | 2.7 | 2.7 | |||||
| Note: The PEA is preliminary in nature. It includes indicated and inferred mineral resources, which are not mineral reserves and do not have demonstrated economic viability; there is no certainty that the preliminary economic assessment will be realized. |
| 1. | Due to the location of the tungsten mineralization within the deposit, the economic model assumes it will be processed commencing in year 3 of the operation. Additional metallurgical analysis and process flow work remains outstanding in order to confirm the viability of tungsten recovery opportunities at the Los Verdes deposit. In the current model a recovery rate of 50% was assumed. The positive impact of tungsten recovery on the overall model pre-tax net cash flow equals $25.6 million. Removing the tungsten component from the economic model results in an internal rate of return of 32%. |
In September 2011, Virgin Metals acquired the Potreritos projects area which is located approximately 2 km north of the Los Verdes property limits. Historic estimates for the Potreritos deposit include 1.4 MM tonnes of indicated resources (0.47% Cu / 0.12% Mo) and 0.8 MM tonnes of inferred resources (0.22% Cu / 0.033% Mo) - see Virgin Metals news release dated October 27, 2011. As the historic resource estimates are not NI 43-101 compliant they have been excluded from the current Los Verdes PEA study. Management considers that should the historic estimates be upgraded to current resources the close proximity of the two projects would allow for the Potreritos resources to be incorporated into the mining plans for the Los Verdes deposit. As part of the PEA economic model sensitivity analysis the impact of increased resources on the overall Los Verdes project are illustrated in the PEA Economic Highlights summary. The remainder of the sensitivity analysis results are summarized later in the news release.
Exploration Potential at Potreritos
In addition to the mineralization already identified, the geology of the Potreritos deposit is such that it allows for the existence of similar bodies in areas not yet explored. Exploration work completed in 2007/8 in conjunction with the SGM (Servico Geologico Mexicano) has identified a number of other occurrences within the Potreritos claim area with indications of copper/molybdenum mineralization.
- A significant IP anomaly in the south of the property (El Moro - Los Tajos area) corresponding to a zone of intense pyritization and surface geochemical samples that are anomalous in copper and molybdenum. A historic diamond drill hole completed in this area encountered a 3 cm long molybdenite crystal at a depth of 126 m.
- An IP anomaly in the east of the property (Algarrobos area) coinciding with the presence of quartz-tourmaline breccias and tungsten anomalies such as those located at the Los Verdes deposit.
- A fumarolic epithermal zone in the northwest of the property characterized by a strong anomaly with the presence of arsenic, tellurium and selenium. A historic borehole drilled in this zone intercepted an intrusive body which was highly fractured and altered, containing traces of copper and molybdenum below the volcanic rock. It is believed that the alteration found at surface in the volcanic rocks could be owed to this intrusion and at greater depths may form a mineralized copper-molybdenum deposit.
Los Verdes Deposit PEA
The Los Verdes deposit PEA is based on an updated resource estimate completed by Golder Associates which contains a total resource (measured + indicated) of 7.7MM tonnes - 0.64% copper, 0.12% molybdenum, 0.07% tungsten, 4.75 g/t silver (see Los Verdes Resource Estimate section for details). The study envisions the construction of a new mine and processing facility with an average annual production rate of approximately 1 MM tonnes over a 7-year mine life. Highlights from the study are as follows:
| Mineable Resources:1 | 7 MM tonnes (0.67% Cu, 0.13% Mo, 0.07% W, 4.85 g/t Ag) | |
| Metal Prices: | Copper $2.50/lb; Molybdenum $15.00/lb; Silver $20.00/oz; Tungsten $7.20/lb(W) | |
| Initial Capital Costs: | $92 MM (additional $18 MM sustaining capital over life of mine) | |
| Mine Production Rate: | 3,000 tonnes per day | |
| Cash Costs: | -$0.73 /lb of copper after byproduct credits (-$0.32/lb excluding tungsten) | |
| Metallurgical Recovery: | 85% for copper/molybdenum/silver | |
| 1. | Estimate of mineable resources was prepared by the production of a preliminary Whittle™ pit outline using economic parameters from current PEA.No dilution factor was applied to recovered grades due to the fact that essentially all (+95%) of the resource blocks were mineable. |
The initial capital cost estimate of $92 MM includes the construction of a stand-alone processing facility, mine pre-stripping, phase 1 of the tailings storage facilities and all necessary site infrastructure to bring the mine into production. A conservative 30% contingency has been included with the process facility estimate to account for requirements that are not detailed in the current study. The largest components of the sustaining capital estimate of $18 MM is the construction of a tungsten processing facility in the second year of production and a phase 2 expansion of the tailings facilities in year 4. In order to conserve capital a decision was made to utilize contractors for all mining and crushing activities.
The average life-of-mine (LOM) unit operating costs for the project are estimated at $35/ tonne. This figure is broken down as follows:
- $1.70/ tonne mining ($3.40/ tonne ore with LOM stripping ratio of 1/1)
- $0.80/ tonne Virgin Metals mine services
- $18.70/ tonne milling process costs (including $3.00/ tonne crushing)
- $2.00/ tonne G&A costs (including external contractors/consultants)
- approx. $10/ tonne related to concentrate transportation, smelting and refining charges
Based on metallurgical testwork completed to date a conservative metal recovery of 85% to concentrates has been assumed for copper, molybdenum and silver. The current metallurgical flowsheet has been able to demonstrate that salable quality concentrates can be produced for all of these components (note - silver reports to copper concentrate). A preliminary allowance of 50% for tungsten recovery has been included in the current study. Additional metallurgical work is required to determine whether the recovery of tungsten to a salable concentrate is a viable option for the Los Verdes deposit. "Typical" concentrate treatment terms and conditions have been utilized for all economic analyses.
A number of opportunities were identified in the PEA study to further enhance the Los Verdes project development plan and economics. These include:
- Optimization studies aimed at improving overall metal recoveries;
- Inclusion of used equipment for plant facilities;
- Evaluation of alternatives for tailings containment facilities;
- Discussions with purchasers of metal concentrates to maximize payable metal values; and
- Metallurgical work on oxide resources to determine if additional cash flows can be generated from material currently classified as "waste".
Sensitivity Analyses
The results of a sensitivity analysis performed on the Los Verdes deposit base case economic model are shown in the table below. The sensitivity modeling demonstrates that the project economics are most impacted by variations in metal prices and mined grades and least impacted by capital requirements and operating costs.
| Los Verdes PEA Sensitivity Analysis | |||||||||||||||
| Project NPV: ($ MM) | |||||||||||||||
| Sensitivity | Variances | Value | 0% | 5% | IRR | ||||||||||
| Metal Prices | -15 | % | -- | $ | 94 | $ | 58 | 20 | % | ||||||
| ($/lb for Cu/Mo) | Base Case | -- | $ | 163 | $ | 113 | 34 | % | |||||||
| +15 | % | -- | $ | 233 | $ | 168 | 46 | % | |||||||
| Resource Grade | -15 | % | -- | $ | 104 | $ | 66 | 22 | % | ||||||
| (%Cu, %Mo) | Base Case | -- | $ | 163 | $ | 113 | 34 | % | |||||||
| +15 | % | -- | $ | 223 | $ | 160 | 44 | % | |||||||
| Total LOM Capital | -15 | % | $ | 93 | $ | 180 | $ | 128 | 42 | % | |||||
| ($ MM) | Base Case | $ | 110 | $ | 163 | $ | 113 | 34 | % | ||||||
| +15 | % | $ | 126 | $ | 147 | $ | 97 | 27 | % | ||||||
| Mining Cost | -15 | % | $ | 2.90/ tonne | $ | 167 | $ | 115 | 34 | % | |||||
| (per tonne of ore) | Base Case | $ | 3.40/ tonne | $ | 163 | $ | 113 | 34 | % | ||||||
| +15 | % | $ | 3.90/ tonne | $ | 160 | $ | 110 | 33 | % | ||||||
| Milling Cost | -15 | % | $ | 15.90/ tonne | $ | 183 | $ | 128 | 37 | % | |||||
| (per tonne of ore) | Base Case | $ | 18.70/ tonne | $ | 163 | $ | 113 | 34 | % | ||||||
| +15 | % | $ | 21.50/ tonne | $ | 144 | $ | 97 | 30 | % | ||||||
The Company acquired the Potreritos deposit in September 2011 with a view towards providing the potential for increased resources at the overall Los Verdes project. The sensitivity analysis in the following table examines the impact of potential increases in resources on the base case PEA results. Other parameters utilized in the economic model to calculate the NPV and IRR remain the same as the base case with the following exceptions:
- $2 MM in added resource definition drilling costs in year 3 (+50% case only)
- $5 MM in pre-production mine development costs at Potreritos in year 6 (+25% and +50% cases)
- $5 MM allowance for a second tailings containment expansion in year 7 ($3 MM in +25% case)
| Los Verdes Sensitivity Analysis (Increase in Resources) | ||||||||||||||
| Project NPV ($ MM) | ||||||||||||||
| Sensitivity | Total LOM Capital | Mine Life | 0% | 5% | IRR | |||||||||
| +25% Resources | $ | 119 | 9 | $ | 212 | $ | 144 | 35 | % | |||||
| +50% Resources | $ | 125 | 11 | $ | 265 | $ | 174 | 36 | % | |||||
| 1. | No increase in the tungsten resources (beyond that contained in current Los Verdes resource) has been considered in the sensitivity analysis cases. Only copper, molybdenum and silver resources have been expanded. |
Los Verdes Resource Estimate
The Los Verdes deposit PEA is based on an updated resource estimate completed by Greg Greenough, P.Geo. of Golder Associates, using block model estimation techniques.
Wire frame domains of Supergene and Oxide zones noted in the drill data were constructed and used as constraints throughout the resource estimation process. An unfolding technique was used to provide a more robust estimate which takes into account undulations and irregularities in the deposit shape. With drill spacing at approximately 50 m, a block size of 15 x 15 x 5 m was chosen. Variogram analysis of Cu, Mo, W, and Ag on the 1 m composites (in unfolded space) provided the variogram models used in Ordinary Kriged estimates, and also for determining the estimation search volumes. Validation of the Kriged estimate included visual checks and global comparisons to Nearest Neighbour (de-clustered data) estimates. Reported resources are restricted to the Supergene domain.
The new estimates (see below) are not significantly different with respect to copper and molybdenum versus those utilized for the previous pre-feasibility study completed by MQES (September 3, 2008). The main difference in the current estimates is the inclusion of silver and tungsten which were excluded from the previous figures. A summary of the current resources is shown in the table below.
| Los Verdes Resource Estimates | ||||||||||||
| Cut-off ($)2 | Tonnes |
Cu (%) |
Mo (%) |
W (%) |
Ag (oz/t) |
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| Measured | 30 25 |
6,036,000 6,279,000 |
0.69 0.67 |
0.14 0.13 |
0.08 0.07 |
4.98 4.91 |
||||||
| Indicated | 30 25 |
1,263,000 1,427,000 |
0.55 0.51 |
0.11 0.10 |
0.06 0.05 |
4.23 4.02 |
||||||
| Measured + Indicated | 30 25 |
7,299,000 7,705,000 |
0.67 0.64 |
0.13 0.12 |
0.08 0.07 |
4.85 4.75 |
||||||
| Inferred | 30 25 |
173,000 208,000 |
0.07 0.07 |
0.13 0.12 |
0.02 0.02 |
-- -- |
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| Notes: | |
| 1. | Value of tungsten was excluded from calculation of resource block values |
| 2. | Resource block values calculated using the following metal prices -- $2.50/lb copper, $15/lb molybdenum, $20/oz silver |
| 3. | $25/ tonne utilized for base case resource estimates. |
| 4. | Estimates shown are for sulphide resources only. Oxide components in upper part of deposit are currently classified as "waste". |
Los Verdes
The Los Verdes property is a historic molybdenum producer, which was extensively drilled in the 1970s. Repetition and expansion of that drilling by Virgin in 2006 and 2007 resulted in the completion of a pre-feasibility study in 2008. That pre-feasibility study demonstrated, in considerable detail, a robust project based on molybdenum and copper recovery only; with upside existing in tungsten and silver recovery as well as improvements in copper and molybdenum recoveries. The Los Verdes resource comprises a modest sized, compact zone of molybdenum, copper and tungsten mineralization located at the crest of a steep ridge. The geometry of the deposit is ideal for low cost open pit mining.
In September 2011, the neighbouring Potreritos property was acquired and added to the project. Potreritos contains the workings of two historic mining operations (Buenavista and La Providencia) and is in close proximity to Virgin Metals Los Verdes project. During the 1960's and 1970's the Buenavista and Tres Piedras (now La Providencia) deposits were operated by Minera Galaviz, SA de CV which constructed a flotation plant in the area to recover copper and molybdenum. The two deposits are located in close proximity to each other (approx. 200 m) and may be part of the same geological system. Historical copper and molybdenum concentrations in the rock from the deposits at Potreritos are similar to those expected at Los Verdes.
The Los Verdes/Potreritos project is made up of 17 titled exploration concessions, covering 6,629 hectares. It lies within what could be considered the southerly extension of the Basin and Range province of the southwestern USA, near the boundary with the Sierra Madre Occidental province.
PEA Study Development Methodology
The general methodology utilized for the development of the PEA study was:
- A complete metallurgical processing model was completed using the Metsim® software package and utilizing the testwork data completed primarily at SGS Lakefield Research.
- Mass and energy flows were taken directly from the process model and then utilized to identify and size all major process equipment items.
- Capital costs were estimated for individual equipment then applied to account for additional requirements such as foundations, piping, electrical, buildings and engineering.
- A conservative 30% contingency was added to all process plant capital cost estimates to account for items that were not specifically identified at this stage of the study.
- Conceptual capital costs were prepared for tailings containment facilities. A study is currently underway in conjunction with Golder Associates to better define the optimal tailings containment strategy and costs.
- Infrastructure were developed based on a plant site location within approximately 2 km of the mine site. Infrastructure requirements included road construction and upgrades, power lines and site preparations. An allowance was made for the construction of a new road from the plant to the main highway in order to ensure that mine traffic bypasses the local town.
- Owner's costs include allowances for permitting requirements, freight, first fill of consumables, spare parts and plant commissioning. Excluded from owner's costs are corporate overheads and working capital requirements.
- Operating costs were developed based on estimated staffing levels, consumables (from testwork and modeling) and expenditures required to support the mine and its associated processing, maintenance and administrative activities. Power requirements were estimated based on equipment motor sizings and assuming a conservative delivered charge of $0.13/kWh.
- An overall contingency of 20% was applied to the operating cost totals (excluding labour) to account for additional cost items such as outside contractors, laboratory consumables, vehicle fuel requirements, etc.
- All mine operating activities are assumed to be the responsibility of a third party mine contractor. Contractor rates include drilling, blasting and transportation of the waste/ore. Costs for the Company mine services group were prepared separately and included separately.
- Crushing was assumed to be the responsibility of a third party contractor using portable crushing equipment (two stage crushing circuit). Contractor rates include crushing, handling and transport of crushed ore to plant facilities.
- A conceptual Whittle™ open pit model was prepared in conjunction with Golder Associates using economic parameters from the current PEA study. Results from the modeling demonstrate that almost all of the current Los Verdes resource blocks (+95%) are "mineable". Life-of-mine strip ratio is approximately 1.1 (waste) to 1 (ore). More detailed mine development plans will be prepared as part of future feasibility study efforts.
About Virgin Metals
Virgin Metals is a junior exploration and development company; its projects include two copper-molybdenum porphyry properties in Sonora, northern Mexico. One of these, Los Verdes, is currently the subject of a pre-feasibility study while the other, Cuatro Hermanos, is the focus of ongoing exploration efforts.
The PEA has been prepared by the Virgin Metals technical group in accordance with Canadian Securities Administration National Instrument 43-101 ("NI 43-101") requirements and CIM standards. Technical information related to the PEA and this news release has been reviewed and approved by Darren Koningen, P. Eng., a Qualified Person as defined by NI 43-101, with the ability and authority to verify the authenticity and validity of this data. Greg Greenough, P.Geo., of Golder Associates Ltd., has also reviewed and approved this press release, and is the Qualified Person responsible for the preparation of the resource estimates.
The NI 43-101 Technical Report on the PEA for the Los Verdes Deposit will be filed on SEDAR within 45 days of this news release.
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:
Chris Frostad
(416) 306-0990
www.virginmetals.com