Stingray receives El Pilar feasibility study, 25.3% IRR

2009-04-27 10:41 ET - News Release

Mr. Peter Mordaunt reports

STINGRAY UNVEILS POSITIVE FEASIBILITY STUDY FOR EL PILAR COPPER PROJECT, SONORA, MEXICO

Stingray Copper Inc. has released the results of the definitive feasibility study on the corporation's 100-per-cent-owned El Pilar oxide copper project, located in Sonora, Mexico. Based on the positive results of the study, the board of directors of the corporation has approved the project for development as a low-cost, open-pit mine, with a solvent extraction and electrowinning plant to treat oxide mineral reserves, subject to financing. M3 Engineering & Technology Corp. (M3) of Tucson, Ariz., has prepared the study, and related NI 43-101 technical report.

Peter Mordaunt, chairman and chief executive officer of Stingray, states: "Our objectives, milestones and timetable, established two years ago, have been realized, both on time and on budget. The results of this feasibility study are in line with our conceptual ideas, both technically and economically, from the start of this detailed work. Oxide copper projects of this size are indeed rare today, and the positive conclusions from the study demonstrate the economics of the project quite clearly. Specifically, low capital and operating costs are characteristic of oxide copper deposits, and El Pilar is no exception. Although the financial landscape of the copper industry has changed significantly since the start of work at El Pilar, the demand for copper has remained strong. Stingray's ultimate objective of becoming a mid-tier copper producer in North America, with excellent operating infrastructure at El Pilar, has not changed."

The basis of the M3 feasibility study is the use of a mining contractor in the open pit and owner-operated primary crushing, conveying and stacking of ore onto a heap-leach pad, followed by solvent extraction and electrowinning (SX-EW) to produce cathode copper. As estimated by Independent Mining Consultants Inc. of Tucson (IMC), measured and indicated mineral resources are calculated at 276.3 million tonnes averaging 0.31 per cent total copper (TCu), calculated at a cut-off of 0.20 per cent TCu, or 344.9 million tonnes averaging 0.28 per cent TCu, calculated at a cut-off of 0.15 per cent TCu. Copper mineralization remains open and continues to the south. Within this resource, proven and probable mineral reserves, planned for mining over a period of 14 years, are calculated by IMC to be 229.7 million tonnes averaging 0.31 per cent TCu, calculated at a cut-off of 0.15 per cent TCu. The mine life waste-to-ore stripping ratio is estimated at 1.61:1.

For this study, IMC developed a 14-year mine plan and schedule. At the process plant design criteria, the project is expected to produce 35,000 tonnes of copper cathode per year, or 77 million pounds of copper per year, which is achieved during the first three years of the project. For economic and practical reasons, the maximum mine and crushing/conveying ore capacity was designed at 17 million tonnes per year. At this capacity, the average copper cathode production would be 68.3 million pounds per year over 14 years. This production schedule forms the basis for the financial model.

The project's primary crushing plant reaches maximum design, able to deliver 17 million tonnes of ore per year to the heap-leach facility designed by Golder Associates Inc., or approximately 48,000 tonnes per day in year three. The project is expected to produce 956 million pounds of copper cathode over the 14-year life of mine. The cathode product should meet LME, Grade A, copper cathode specifications (99.99-plus per cent copper).

Stingray determined that a copper price of $2.25 per pound was to be used by M3 for the study. This price is less than the 60:40 formula price that was determined by M3, and was deemed more appropriate and conservative (all dollar figures referenced are in United States dollars, unless otherwise indicated).

Feasibility study summary

The initial capital cost (plus or minus 15 per cent) for the base case at El Pilar is estimated to be $209-million. This includes a cogeneration acid/power plant and the use of a mining contractor. Sustaining capital of $30.9-million is estimated over the life of mine. A cash reserve of $12.8-million is also included in the financial model. The operating cash cost for the project is calculated at $1.20 per pound of copper.

Before taxes, the El Pilar project has an internal rate of return (IRR) of 33.6 per cent, and the estimated payback of capital is 2.8 years. After taxes, the IRR is 25.3 per cent and payback is 3.7 years.

                FINANCIAL SUMMARY EL PILAR

                                After taxes       Before taxes

Cash unit operating cost    $1.20/lb copper   $1.20 /lb copper

NPV at 8%                            $230 M             $348 M
IRR                                    25.3%              33.6%
Direct payback                    3.7 years          2.8 years

Mineral reserves and resources, mining, and production

The table named El Pilar mineral reserve summarizes the mineral reserves. At a 0.15-per-cent total copper cut-off grade, the proven and probable mineral reserves are 229.7 million tonnes at 0.31-per-cent total copper for 1.55 billion pounds of contained copper. The table called El Pilar mineral resources (exclusive of reserve) summarizes additional mineral resource, exclusive of the mineral reserves. Measured and indicated mineral resource adds 115.2 million tonnes at 0.24-per-cent total copper or 606 million pounds of contained copper. Inferred mineral resource adds an additional 72.8 million tonnes at 0.24-per-cent total copper or 385 million pounds of contained copper.

                   EL PILAR MINERAL RESERVE

                                0.15% total copper cut-off
                               Ore   Total Cu               Cu
Mineral reserve class           kt         (%)    (million lbs)

Proven mineral reserve      88,434       0.32            629.7
Probable mineral reserve   141,290       0.30            927.3
                           -------       ----          -------
Proven/probable reserve    229,724       0.31          1,557.0
                           -------       ----          -------
Total pit material   599,455 kt       Waste:   ore 1.61

      EL PILAR MINERAL RESOURCE (EXCLUSIVE OF RESERVE)

                               0.15% total copper cut-off
                                 Ore   Total Cu             Cu
Mineral resource class            kt         (%)  (million lbs)

Measured mineral resource     15,385       0.24           82.1
Indicated mineral resource    99,798       0.24          523.7
Measured/indicated resource  115,183       0.24          605.8
Inferred mineral resource     72,848       0.24          385.4

The copper mineralization remains open at its southern limit. The mineral resource at El Pilar exceeds the mining reserve scheduled for mining in the study, and additional mineral resources and mining reserves may be available at El Pilar, subject to appropriate programs of drilling and confirmation.

IMC performed a trade-off study of owner operation of the mining equipment compared with contract mining. The table called mining trade-off study shows the results of the study. Based on this information, it was decided to use a contract miner and eliminate additional capital costs.

                   MINING TRADE-OFF STUDY

                                 Owner mining   Contract mining

Capital cost                         $150.9 M            $2.5 M
Operating cost                       $0.870/t          $1.109/t

Metallurgy and recovery estimates

M3 estimated the recoveries and acid consumptions for ore crushed at minus-six inches that will be placed on the leach heap, based on test results from METCON Research Inc. The estimates were based on locked cycle columns with material at 19 millimetres and 37.5 mm, after 120 days of leaching. The size distribution for the minus-six-inch ore was calculated by one of the main vendors of crushing equipment. The results show that copper recovery will be 62.9 per cent for year one, including the preproduction period, 68.4 per cent for year two, 60.4 per cent for year three, 59.8 per cent for years four to six, 60.9 per cent for years seven to nine, 60.9 per cent for years 10 to 12, and 61.5 per cent for years 13 and 14. These estimated recoveries and acid consumptions are shown in the table called El Pilar copper recovery and acid consumption summary.

           EL PILAR COPPER RECOVERY AND ACID CONSUMPTION SUMMARY

El Pilar copper      Recovery summary (i)                Acid   Consumption
                                                         kg/t       kg/kg Cu

Year 1                              62.9%                19.7            7.3
Year 2                              68.4%                20.6            8.2
Year 3                              60.4%                21.7           11.6
Years 4 to 6                        59.8%                16.2            8.7
Years 7 to 9                        60.9%                17.9           10.1
Years 10 to 12                      60.9%                14.8            8.7
Years 13 and 14                     61.5%                15.2            8.8

(i) As determined by M3 and extrapolated from column-leach test results.

Initial capital costs

The initial capital cost for the El Pilar project is estimated to be $209-million, including a cogeneration acid/power plant and the use of a mining contractor. See the table called initial capital cost estimate for detailed information. Sustaining capital of $30.9-million is estimated over the life of mine, plus a cash reserve of $12.8-million. These are all included in the financial model.

                    Initial capital cost estimate

General site plan                                       $3,860,118
Mine                                                   $20,499,509
Crushing                                                $9,843,309
Heap leaching                                          $34,792,621
Solvent extraction                                     $11,629,528
Tank farm                                               $3,995,576
Electrowinning                                         $18,016,427
Water systems                                           $2,169,964
Power substation and power distribution                 $2,416,447
115 KV transmission line                                $3,293,224
Acid plant, turbine, storage and reagents              $58,253,780
Ancillaries and buildings                               $5,405,234
                                                       ----------- 
                                                      $174,175,736
                                                       ===========
Total direct field cost                               $174,175,736
                                                       ===========
Management and accounting                                 $715,700
Engineering                                             $4,485,600
Project services                                          $954,200
Project control                                           $715,700
Construction management                                 $4,771,100
EPCM fee                                                  $582,115
                                                        ---------- 
EPCM subtotal                                          $12,224,415
                                                       ===========
Total contracted cost                                 $186,400,151
                                                       ===========
Commissioning and capital spare parts                   $2,111,670
Added owner's cost                                      $4,283,456
Contingency (15%) (i)                                  $16,463,780
                                                       ----------- 
Total contracted and owner's cost                     $209,259,057
                                                       ===========
Total                                                 $209,259,057
                                                       ===========

(i) Excludes acid plant, turbine, storage and reagents.

Operating costs

The El Pilar project base-case operating and maintenance costs are shown in the table called operating cash cost -- contract mine site cost summary. These costs include the use of a mining contractor, and all other cost areas that include mine department, crushing, conveying, stacking, heap leach and the SX-EW plant.

      OPERATING CASH COST - CONTRACT MINE SITE COST SUMMARY

Operating cost component LOM                               $/Cu lb.
Mining operations
Contract mining                                            $0.65
                                                            ---- 
Subtotal mining                                            $0.65
                                                            ---- 
SXEW operations
Crushing                                                   $0.02
Heap leach                                                 $0.30
SXEW plant                                                 $0.14
Ancillary services                                         $0.02
                                                            ----
Subtotal processing                                        $0.48
                                                            ----
Supporting facilities
General, administrative and laboratory                     $0.07
Subtotal supporting facilities                             $0.07
                                                            ---- 
Total operating cost                                       $1.20
                                                            ----

Acid plant trade-off study

An internal comparative study indicated that a captive, cogeneration, sulphur-burning, acid plant, with a turbine, waste-heat, electric, power-generating unit installed at El Pillar, would reduce sulphuric acid costs and power costs. It is estimated that the 600-tonne-per-day acid plant will generate eight megawatts of power, of which 1.8 megawatts will be required to run the acid plant. A final net production cost of sulphuric acid, using sulphur at $40 per tonne as the base case, and including the power credit, is sulphuric acid at a cost of $24.63 per tonne, or 10 cents per pound copper. The acid-component operating costs for the El Pilar project, if an acid plant was not included, would be based on the purchase of all sulphuric acid at the study base-case price for sulphuric acid at $100 per tonne, and results in an average operating component per pound of copper of 42 cents, as shown in the acid cost comparison table.

                            ACID COST COMPARISON

                                      Acid plant (i)           No acid plant

Sulphuric acid cost                $24.63 per tonne           $100 per tonne
Sulfuric acid operating
cost component               $0.10 per pound copper   $0.42 per pound copper

(i) Based on a captive acid plant producing 80 per cent of the project 
sulphuric acid requirement, with the balance of acid purchased at $100 per 
tonne. Assumes a base-case cost of sulphur for feed to the acid plant of 
$40 per tonne. Assumes a 1.8-megawatt power credit to operate the acid 
plant.

Stingray intends to continue with basic engineering on the cogeneration plant, and review additional capacity to 700 to 800 tonnes per day, to avoid any makeup acid requirement and improve the economics of the project. Specific early goals of defining items that could be procured and constructed in Mexico for cost savings will also be determined during this work.

Environmental

Patricia Aguayo, an expert independent environmental consultant based in Hermosillo, Sonora, was engaged to conduct the environmental baseline study (EBS) at the El Pilar project site, including an extensive socio-economic study in the area. Ms. Aguayo will be assisting Stingray with its submissions and applications to the appropriate government authorities for the requisite approvals and permits. The EBS will serve as the foundation for and will form part of the environmental documents to be presented to the Secretaria de Medio Ambiente y Recursos Naturales (SEMARNAT) (Natural Resources and Environment Ministry), in order to obtain the permits required to develop this project. An environmental impact study (MIA) is in preparation and will be presented to the Mexican authorities by Ms. Aguayo on Stingray's behalf.

The socio-economic report concludes that the project will have welcomed benefits to the local community. The socio-economic influence area of the El Pilar project was considered to be a 20-kilometre radius, in which a total of 16 communities were canvassed, consisting of 3,314 inhabitants; the closest one to the project is Miguel Hidalgo (San Lazaro), with a population of 520 people. The general opinion of all people living in the area of influence is in favour of the El Pilar project. Within the local community, 95 per cent of the people in Miguel Hidalgo (San Lazaro) were in favour of the project. The main concerns of the people locally are lack of employment, education and services. The El Pilar mine, once constructed, will help the local community address these concerns.

Financial highlights

The financial evaluation presents the determination of the net present value (NPV), payback period (time in years to recapture the initial capital investment) and the IRR for the project, as presented earlier. Annual cash flow projections were estimated over the life of the mine, based on the estimates of capital expenditures, and production cost and sales revenue. The sales revenue is based on the production of copper cathode. The estimates of capital expenditures and site production costs have been developed specifically for this project.

The economic analysis for the base case, which evaluates a contract mining option, indicates that the project has an IRR of 25.3 per cent after tax, with a payback period of 3.7 years after tax, or 33.6-per-cent IRR before tax with a payback of 2.8 years before tax. Graphs of IRR before taxes and IRR after taxes, available on-line, reflect sensitivities for copper price and owner, as opposed to contract miner, both before and after tax.

Project execution

The overall project execution program, as determined in the study, will take 20 months from detail engineering to commissioning.

Corporate strategy

Stingray had a working capital position of $17.2-million, as presented in the corporation's audited consolidated financial statements for the year ended Jan. 31, 2009.

The corporation will be working toward project financing, while continuing with basic and detail engineering on specific areas of the project. Costs associated with many of the capital cost items included in the study have been declining in recent months. Stingray and M3 feel there is the potential to reduce the capital cost of the project.

Qualified persons

Qualified persons responsible for the technical content of this news release are Doug Austin, PE, of M3; Mike Hester, FAusIMM, of IMC; David Kidd, PE, of Golder; and Mr. Mordaunt, PGeo, of Stingray, who is also responsible for the corporate content of this release.

Filing of 43-101

The corporation intends on filing the corresponding NI 43-101 technical report, El Pilar project, executive summary, Sonora, Mexico, on the SEDAR database and on the corporation's website