Pele Mountain Announces Preliminary Economic Assessment for Eco Ridge Mine Rare Earths and Uranium Project with $1.31-Billion Pre-Tax Cash Flow, $662-Million NPV (at 7.5% Discount Rate), 47% IRR
TORONTO, July 5, 2011 /CNW/ --
Trading Symbol: TSX Venture : GEM
OTCQX : GOLDF
Shares Outstanding: 133,918,746
TORONTO, July 5, 2011 /CNW/ - Pele Mountain Resources Inc. (TSXV: GEM) (OTCQX: GOLDF) ('Pele' or the 'Company') today announced results of a NI 43-101 Preliminary Economic
Assessment (the 'PEA') on its Eco Ridge Mine Rare Earths and Uranium Project ('Eco Ridge' or the 'Project'). The PEA was prepared by Roscoe Postle Associates ('RPA') and demonstrates that Eco Ridge has potential to become a profitable
producer of rare earth oxides ('REO') and uranium oxide ('U(3)O(8)').
The Project is located in Elliot Lake, Ontario, the only Canadian mining
camp to ever achieve commercial REO production and an historically
important source of 'Heavy' REO in North America. Recent extraordinary
REO market developments, sparked by China's reduction of export quotas,
have resulted in sharply higher prices, inciting a rush to find and
bring to production new sources outside of China. With well-understood
geology, excellent regional infrastructure, and strong local support,
Eco Ridge is an ideal location for a safe, secure, and reliable
long-term supply of REO and U(3)O(8). Pele is focused on transitioning Eco Ridge into the feasibility and
licensing stages as it advances the Project toward development and
production.
Highlights of the PEA include (all financial terms in US$):
-- 9,400-tonne per day operation with life-of-mine production of
10.7-million pounds of Total REO and 24.9-million pounds of U
(3)O(8) over a 14-year mine life.
-- Cumulative operating cash flow of US$1.72-billion; Cumulative
pre-tax cash flow of US$1.31-billion.
-- Positive NPV of $662-million (at a 7.5% discount rate); IRR of
47-percent.
-- Operating cash cost of $16 per pound U(3)O(8), net of REO
credits.
-- Start-up capital cost of $212-million; Sustaining capital cost
of $195-million.
-- Life-of-mine production includes 430,000 pounds of dysprosium
oxide (Dy(2)O(3)), 1.28-million pounds of neodymium oxide (Nd
(2)O(3)), 2.08-million pounds of yttrium oxide (Y(2)O(3)), and
67,000 pounds of scandium oxide (Sc(2)O(3)).
-- Two-thirds of REO revenue is from Heavy REO (including yttrium
and scandium oxides) many of which are forecast to be in
particularly short supply in the years ahead while demand
continues to rise sharply.
-- Opportunities for improvement of project economics include
improved REO and U(3)O(8) recoveries, and increased resources
and production rate.
Pele President and CEO Al Shefsky, stated: 'We are extremely pleased
with this PEA of our Eco Ridge Mine Project. The PEA confirms our
long-standing belief that Eco Ridge can be an important future source
of rare earths and uranium, perhaps most critically as a secure and
reliable long-term source of Heavy REO outside of China. Our project
economics are robust and compelling and we are already planning next
steps to rapidly advance towards development and production. The Eco
Ridge PEA forecasts pre-tax cash-flow exceeding $7.00 per fully diluted
Pele share. We do not believe that our stock price currently reflects
the value of this important asset.'
The 14-year production plan calls for a 9,400-tonne per day operation
with average annual production of 708,000 pounds of Total REO and
2.07-million pounds of U(3)O(8.) Underground development has been designed to be developed within the
mineralized beds. This development muck, plus approximately 40-percent
of the material broken in stopes will be brought to surface and
processed on the Heap Leach Facility ('HLF'). The remaining material
will be bioleached underground with leach solutions circulated in
closed systems within each stope. Leach solutions from both surface and
underground will go through a solvent extraction plant designed to recover U(3)O(8). The effluent from the U(3)O(8) recovery plant will go through a secondary solvent extraction plant to
recover the REO. The PEA is based on mining and processing plans
designed by engineers who have direct experience with commercial
production in the Elliot Lake camp. The mining and processing methods
utilized in the PEA have been successfully used in past commercial
production at other mines in the area.
Key operational and economic data are summarized in Tables 1 & 2 below.
Table 1: Key Operational Data
Forecast Mine Life: 14 years
Total Tonnage Mined(1): 37.0 million tonnes
U(3)O(8) Produced(2): 24.9 million pounds
Total REO Produced(2): 10.7 million pounds
Notes:
1. The PEA is based on a Mineral Resource estimate that was publicly
disclosed in Pele's press release dated February 24, 2011. See
Table 4 below.
2. See Tables 3A & 3B for more details, including forecast production
of each individual oxide.
Table 2: Base Case Economic Data (all financial terms in US$000)
Gross Revenue from U(3)O(8)(1): $ 2,119,000
Gross Revenue from REO(1): $ 1,470,000
Total Gross Revenue: $ 3,589,000
Total Realized Revenue(2): $ 3,428,000
Realized Revenue per Tonne: $ 93
Total Operating Costs(3): $ 1,707,000
Operating Cost per Tonne: $ 46
Operating Cash Flow: $ 1,721,000
Start-Up Capital Cost(4): $ 212,000
Sustaining Capital Cost: $ 195,000
Total Capital Cost: $ 407,000
Pre-Tax Cash Flow: $ 1,314,000
Pre-Tax IRR: 46.8%
Net Present Value: $ 826,000 (5.0% discount rate)
$ 662,000 (7.5% discount rate)
$ 533,000 (10.0% discount rate)
Notes:
1. See Tables 3A & 3B for more details.
2. Deductions from Gross Revenue were applied to account for royalty
payments as well as for an assessment of $30 per kg of oxide in
concentrate to account for offsite separation and upgrading costs
to produce high purity saleable REOs.
3. Operating costs include mining, processing and G&A costs.
4. Pre-production capital cost estimates includes a 25-percent
contingency.
5. The PEA assumes a C$:US$ exchange rate of 1.00:1.00.
Note: The PEA is preliminary in nature. It includes inferred mineral
resources which are considered too speculative geologically to have the
economic considerations applied to them that would enable them to be
categorized as mineral reserves and there is no certainty that the
preliminary economic assessment will be realized.
Mr. Shefsky continued, 'Light REO at Eco Ridge occur primarily in the
mineral monazite and would likely require a different processing
circuit to achieve significantly better recoveries than the range
reported today. Economic trade off studies will be undertaken to
determine if this approach is advisable. However, several of the Heavy
REO at Eco Ridge occur within uranium minerals together with U(3)O(8). Based on metallurgical and mineralogical studies to date, we believe
there are excellent prospects for improving Heavy REO recoveries from
the 34-percent average we are reporting today. Increased recoveries of
Heavy REO (and U(3)O(8)) present an important opportunity to enhance the economics at Eco
Ridge.'
Estimated mineral recoveries used in the PEA are based on historic
operations in Elliot Lake for underground recovery of U(3)O(8) and on extrapolations of time recovery curves from preliminary
metallurgical testing at SGS Canada Ltd. for REO. Assumed recoveries
of individual oxides, along with forecast production and revenue
contributions from each individual oxide are listed in Tables 3A & 3B
below.
Table 3A: Uranium Recovery & Revenue
_________________________________________________________________
|Uranium | |Estimated |Recovered |Base Case |Revenue |
|Oxide |Average Grade| Recovery |Oxide (000| Price |(US$000) |
| | | | lb) | (US$/lb) | |
|________|_____________|__________|__________|__________|_________|
|U(3)O(8)| 0.044 % | 70 % | 24,931 | 85|2,119,147|
|________|_____________|__________|__________|__________|_________|
Table 3B: Rare Earths Recovery & Revenue
___________________________________________________________________
|Individual | Average |Estimated |Recovered |Base Case |Revenue |
| REO |Grade (g/t)| Recovery |Oxides (000| Price |(US$000) |
| | | | kg) | (US$/kg) | |
|___________|___________|__________|___________|__________|_________|
|CeO(2) | 643.3| 7 % | 1,547 | 43| 66,954|
|___________|___________|__________|___________|__________|_________|
|La(2)O(3) | 338.1| 7 % | 813 | 45| 36,566|
|___________|___________|__________|___________|__________|_________|
|Nd(2)O(3) | 196.6| 8 % | 582 | 571| 332,135|
|___________|___________|__________|___________|__________|_________|
|Pr(6)O(11) | 60.1| 8 % | 178 | 142| 25,167|
|___________|___________|__________|___________|__________|_________|
|Sm(2)O(3) | 33.2| 14 % | 166 | 211| 35,002|
|___________|___________|__________|___________|__________|_________|
|Eu(2)O(3) | 1.9| 15 % | 10 | 2,445| 25,163|
|___________|___________|__________|___________|__________|_________|
|Gd(2)O(3) | 23.2| 19 % | 158 | 292| 46,294|
|___________|___________|__________|___________|__________|_________|
|Sc(2)O(3) | 5.1| 16 % | 30 | 5,308| 160,942|
|___________|___________|__________|___________|__________|_________|
|Y(2)O(3) | 64.4| 40 % | 942 | 209| 196,777|
|___________|___________|__________|___________|__________|_________|
|Yb(2)O(3) | 4.5| 41 % | 67 | 126| 8,441|
|___________|___________|__________|___________|__________|_________|
|Dy(2)O(3) | 14.1| 38 % | 195 | 1,744| 340,111|
|___________|___________|__________|___________|__________|_________|
|Er(2)O(3) | 5.9| 41 % | 88 | 492| 43,479|
|___________|___________|__________|___________|__________|_________|
|Ho(2)O(3) | 2.6| 38 % | 36 | 381| 13,797|
|___________|___________|__________|___________|__________|_________|
|Lu(2)O(3) | 0.7| 39 % | 10 | 1,151| 11,184|
|___________|___________|__________|___________|__________|_________|
|Tb(4)O(7) | 3.1| 28 % | 32 | 2,651| 85,478|
|___________|___________|__________|___________|__________|_________|
|Tm(2)O(3) | 0.9| 41 % | 13 | 3,182| 42,842|
|___________|___________|__________|___________|__________|_________|
| | | | | | |
|___________|___________|__________|___________|__________|_________|
|Total Light| 1,271.3| 7 % | 3,286 | | 495,824|
|REO(1) | | | | | |
|___________|___________|__________|___________|__________|_________|
|Total Heavy| 126.4| 34 % | 1,583 | | 974,508|
|REO(2) | | | | | |
|___________|___________|__________|___________|__________|_________|
| | | | | | |
|___________|___________|__________|___________|__________|_________|
|Total REO | 1,397.7| | 4,869 | |1,470,332|
|___________|___________|__________|___________|__________|_________|
Notes:
1. Light REO includes La(2)O(3), CeO(2), Pr(6)O(11), Nd(2)O(3), and
Sm(2)O(3).
2. Heavy REO includes Eu(2)O(3), Gd(2)O(3), Tb(4)O(7), Dy(2)O(3), Ho
(2)O(3), Er(2)O(3), Tm(2)O(3), Yb(2)O(3), and Lu(2)O(3). Y(2)O(3)
and Sc(2)O(3) are also included in Heavy REO.
The 'Base Case' U(3)O(8) price of $85 per pound is based on forecast price expectations by a
group of independent analysts. This compares to a current long-term
contract price of $68 per pound.
Base Case REO price calculations began with a 6-month trailing average
of daily prices from January 1, 2011 to June 30, 2011 as published by
Asian Metal, a market service whose price assessments serve as the
benchmark for contracts signed by major industry participants
worldwide. The trailing average was based on daily FOB China prices as
available. Otherwise, domestic China prices were used with an
escalation factor of 25-percent to account for duties and taxes
(scandium is the only significant contributor to which this escalation
applies).
The 6-month trailing average price of each individual REO (except
thulium oxide) was then adjusted by RPA according to a factor (the 'Adjustment Factor') provided in a June 7, 2011 report by Asian Metal (the 'REO Price Forecast') prepared for Pele to be used in the PEA. The Adjustment Factor is
based on the percentage change between the REO prices prevailing on
June 7, 2011 and Asian Metal's forecasted REO prices for 2015 and was
used by RPA to decrease or increase the 6-month trailing average prices
to determine Base Case prices for REO in the PEA. RPA chose to reduce
the 6-month trailing average price for thulium oxide from $22,000 per
kilogram to $2,000 per kilogram, because it is traded in a very low
volume market, before applying the Adjustment Factor to arrive at the
Base Case price of $3,182 per kilogram.
If the Asian Metal REO Price Forecast figures are applied to the PEA
model, it results in considerably stronger financial projections for
the Project, including a NPV (at a 7.5-percent discount rate) of
$1.48-billion and an IRR of 92-percent.
The Project has no known environmental liabilities and enjoys strong
local support. The Province of Ontario has recently granted two
renewable 21-year mining leases at Eco Ridge (the 'Mining Leases'), giving Pele the exclusive right to mine in the leased areas. The
Mining Leases also include surface rights except for an area covered by
surface patents owned by the City of Elliot Lake (the 'City'). The City has also granted Pele a renewable 21-year lease with a
conditional option to purchase the City's surface patents (the 'City Lease'). Both the Mining Leases and the City Lease allow for siting of
project infrastructure like mine portals and processing facilities.
Pele places great value on community relations and has maintained
friendly and productive dialogue with local First Nations and the City
of Elliot Lake since the inception of the Eco Ridge Mine project. The
Company's approach to sustainable development and operations at Eco
Ridge is set out in a Project Description, which was filed with the
Canadian Federal Government's Office of Major Projects Management and
the Canadian Nuclear Safety Commission in September 2008. Pele is
committed to sustainable development and seeks to provide long-term
benefits to local communities.
Pele intends to pursue the following potential opportunities to improve
project economics at Eco Ridge:
-- Increased recovery of REO and U(3)O(8) brought to surface.
Process efficiencies may be improved by crushing ore delivered
to the HLF.
-- Increased recovery of REO and U(3)O(8) from underground by
optimizing leaching conditions and the time recovery curve.
Metallurgical test work is underway at SGS Canada.
-- Adding to the mine life and/or production rate by drilling off
additional resources. A drill program is currently underway
with objectives to improve the classification and expand the
mineral resource as described below.
-- Participation in higher margin downstream REO value chain
through strategic alliances and/or vertical integration.
NI 43-101 Compliant Resource
___________________________________________________________________
| | | Total REO | U(3)O(8) |
|Classification|Tonnes of Resource|________________|________________|
| | | Pounds | (%) | Pounds | (%) |
|______________|__________________|__________|_____|__________|_____|
| Indicated | 14,312,000 |51,859,000|0.164|15,182,000|0.048|
|______________|__________________|__________|_____|__________|_____|
| Inferred | 33,121,000 |96,352,000|0.132|31,444,000|0.043|
|______________|__________________|__________|_____|__________|_____|
Notes:
1. CIM definitions were followed for Mineral Resources.
2. The Qualified Person for this Mineral Resource estimate is Tudorel
Ciuculescu, P.Geo.
3. Mineral Resources are estimated at a cut-off grade of 0.028% U
(3)O(8).
4. Mineral Resources are estimated using an average long-term uranium
price of US$60 per lb, and a C$:US$ exchange rate of 0.95:1.00.
5. Total Rare Earth Oxides include La(2)O(3), CeO(2), Pr(6)O(11), Nd
(2)O(3), Sm(2)O(3), Eu(2)O(3), Gd(2)O(3), Tb(4)O(7), Dy(2)O(3), Ho
(2)O(3), Er(2)O(3), Tm(2)O(3), Yb(2)O(3), and Lu(2)O(3). Y(2)O(3)
and Sc(2)O(3) are also included in TREO.
6. The resource wireframe at Eco Ridge contains both Indicated and
Inferred U(3)O(8) and TREO resources within the near surface
portion of the Main Conglomerate Bed.
7. The U(3)O(8) resource estimate is based on a total of 237 drill
holes. These comprise 152 recent drill holes drilled by Pele
Mountain between 2006 and 2009, and 85 historic drill holes
drilled between 1954 and 1974.
8. The REO resource estimate is based on a total of 123 recent drill
holes.
9. Mineral resources that are not mineral reserves do not have
demonstrated economic viability.
Pele recently announced the commencement of a 7,000-metre drill
program. As the mineralized reefs of the Elliot Lake mining camp are
well known for their consistency and size, the mineral resources at Eco
Ridge have excellent potential for improvement of classification and
expansion. The program will include in-fill drilling within the
existing Resource Wireframe with an objective of upgrading up to
5-million tonnes of Inferred Resources into the Indicated category.
Indicated Resources may be converted to Mineral Reserves during the
feasibility process, while Inferred Resources may not. The program will
also include step-out drilling to the north of the Resource Wireframe
with an objective of bringing up to 10-million additional tonnes of the
mineralized reef into the Inferred Resource category.
The technical and economic information relating to the PEA in this press
release has been reviewed and approved by Jason Cox, P.Eng., Director
of Mine Engineering for RPA, an independent qualified person under NI
43-101. The PEA technical report will be filed on SEDAR in due course.
About Pele
Pele Mountain Resources is focused on the sustainable development of its
100-percent owned Eco Ridge Mine Rare Earths and Uranium Project. Eco
Ridge is one of very few North American Rare Earths deposits that has
completed a NI 43-101 Preliminary Economic Assessment with robust
economics and is located in Elliot Lake, the only Canadian mining camp
to have ever achieved commercial REO production. With well-understood
geology, excellent regional infrastructure, and strong local support,
Eco Ridge is an ideal location for a safe, secure, and reliable
long-term supply of REO and U(3)O(8). Pele also holds interests in a portfolio of Northern Ontario gold
properties at Highland and Ardeen. Pele's shares are listed on the TSX
Venture Exchange under the symbol 'GEM' and on the OTCQX under the symbol 'GOLDF'.
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. Some of the statements contained in this release are forward-looking
statements, such as estimates and statements that describe Pele's
future plans, objectives or goals, including words to the effect that
Pele or management expects a stated condition or result to occur. Since
forward-looking statements address future events and conditions, by
their very nature, they involve inherent risks and uncertainties.
Actual results in each case could differ materially from those
currently anticipated in such statements. The economic viability of the
43-101 mineral resource at Pele's Elliot Lake Project has not yet been
demonstrated by a preliminary feasibility study.
To view this news release in HTML formatting, please use the following URL: http://www.newswire.ca/en/releases/archive/July2011/05/c3203.html
Al Shefsky, President, at (800) 315-7353, or visit the Pele website at www.pelemountain.com.