Kalia Iron Ore BFS

 

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Positive BFS supported by 124.2Mt high grade oxide mineral resources with first production planned in H2 2015

Bellzone (AIM:BZM), is pleased to announce the results of an independent Bankable Feasibility Study (“BFS”) at its wholly owned Kalia Project in the Republic of Guinea.

Highlights

  • KP1 is a highly attractive development opportunity
  • Full production expected to be 7 million dry tonnes per annum (“mtpa”) of a 58% iron (“Fe”) <6mm fines product for the first 10 years
  • KP1 has an IRR of 37.5% and NPV10 of US$1,387m based on the average TSI 58% fines CFR North China price over 30 days to 16 September 2013 of US$127.70/t and assuming shipping costs of US$20/t. If the FOB sales price achieved for the KP1 product over the life of mine reduced by 25% from the current equivalent price, the NPV10 would be US$566m and the IRR 23.0%
  • Total capital cost of US$865 million (capital intensity of US$14.49 per total reserve tonne and US$123.57 per annual tonne of production). The value engineering studies currently underway are expected to reduce the total capital cost, including the new road route and investigating the upgrade of existing port facilities
  • Free On Board (“FOB”) cost of US$34.39/t, including all in-country fixed and variable operating costs. The break-even Fe price is US$51.71/t FOB
  • Kalia Phase 2 (“Kalia Project 2” or “KP2”), planned to be funded by KP1 cash flows, requires additional process facilities to treat the lower grade oxide and is expected to extend the current life of mine by 15 years.

Kalia Phase 2 (“Kalia Project 2” or “KP2”), planned to be funded by KP1 cash flows, requires additional process facilities to treat the lower grade oxide and is expected to extend the current life of mine by 15 years.

The KP1 production profile is supported by the high grade oxide JORC resource of 124.2 million tonnes (“mt”) at 53.5% Fe that includes the recently announced maiden JORC reserve of 59.8mt at 54.1% Fe which provides reserve level confidence for at least the first six years of production of the estimated 10 year life of mine of KP1.

The BFS capital cost of US$865 million yields strong economic returns for the first phase of Bellzone’s flagship Kalia project. Furthermore, the study provides for an infrastructure solution that is not reliant on a third-party controlled Trans-Guinea railway. However, the defined Mineral Resources at Kalia demonstrates that production can be significantly scaled-up on completion of the multi-user bulk haulage railway network.

Bellzone management is in discussions to secure the funding for KP1.

Introduction

The KP1 BFS shows the first phase of Kalia's development can deliver a positive return on investment on a standalone basis without the need for rail infrastructure.

KP1 provides the platform for future expansion of the lower grade oxide from KP2 and the large magnetite resources contained within KP3. Kalia Phase 3 (“Kalia Project 3” or “KP3”), which requires a bulk transport solution, is planned to be developed once a bulk transport solution including railway and deep water port is secured.

The KP1 study is a fully-costed mine to export operation with all supporting on-site and off-site services and transport along with all export infrastructure.

Independent third-party management of the BFS

The BFS has been conducted by respected, independent third party consultants and managed and compiled by Fluor.

Increase in JORC resource at Kalia

Independent geological expert CSA Global Pty Ltd has signed-off the Mineral Resources as being compliant with the JORC guidelines. As announced on 16 August 2013, the resources have been significantly increased over the December 2012 announcement to 124.2mt at 53.5% Fe containing 72.8mt of indicated resource at an average grade of 53.7% Fe.

The Kalia oxide and magnetite resources have been defined through more than 274,000 metres of drilling. This included a specifically designed drilling programme of over 42,000 metres of reverse circulation (“RC”) and diamond drilling in 2013, producing over 23,200 assays, to support the increase in the indicated classification component of the JORC resource. This indicated resource of 72.8mt underpinned the maiden JORC reserve estimation for Kalia, announced on 13 September 2013.

Robust Mining plan

The BFS mining scope, completed by Coffey Mining Pty Ltd, included geotechnical analysis (31 test pits excavated and 31 diamond core holes for 797 metres), mine plan development, mining reserve statement, mining fleet and mine-site infrastructure selection, mining capex and mining opex

  • A JORC-compliant probable reserve containing 59.8mt at 54.1% Fe underpins the mining plan.
  • At full production, it is expected that KP1 will deliver 7mtpa of a (typical specification) 57.8% Fe, 4.95% Al2O3, 2.11%SiO2, 0.09%P and 9.1% LOI product over the initial 10 year life of mine.
  • The proposed method of mining is a conventional open pit, drill and blast, load and haul operation. Low strip ratio mining (life of mine average is 0.8 tonnes of waste per tonne of ore mined) will commence at Kalia Central until Year 3 when mining will commence in Kalia North West.
  • Drill and blast operation is planned assuming five metre benches and only 50% of waste and ore expected to need blasting. An owner-operator fleet has been assumed with a vendor-provided maintenance and repair contract to maintain the mine fleet.
  • Marginal grade and waste stockpiles have been designed with future expansion potential considered.

Processing Facilities

Consulmet Projects Pty Ltd designed the process plant and mine site power infrastructure using a module-based strategy with equiptment and services selected for simple modular installation. The design allows for the expansion and retrofit of additional equipment and plant to facilitate the processing of the KP2 low grade oxide material. KP1 forms the starting project for the potential development of all the Kalia resources.

Transport and Export

The product will be transported from Kalia to Konta Port by way of the rail access road (“RAR”). This will require the construction of 285km of new road which will join an existing 76km haul road to Konta Port. The RAR is positioned to support the development of the Trans-Guinea railway line that may be developed from the west coast of Guinea to, ultimately, access the country’s vast iron ore resources at Kalia and further to the east.

The RAR design was completed by Jeffares and Green Pty Ltd using detailed satellite imagery and on-ground survey points. The RAR implementation strategy and capital estimates were prepared by Wilson Bayly Holmes Ovcon (“WBHO”). Dynamic simulation, conducted by TSG Consulting, determined the size of the export haul fleet, road capacity and the operational strategy.

The new road will be sealed and constructed to accommodate dual trailer, 150t truck payloads of the initial iron ore production from Kalia to a new trans-shipping facility to be constructed adjacent to the existing Konta port. The trans-shipment and capacity modelling study, incorporating the current sea conditions from Konta to the off-shore load point, were conducted by Seabulk Inc. as a joint venture with Smit Lamnalco Ltd. The proposed solution provides for the loading of 12,000t barges which will transport the material to an offshore, high capacity cape-size vessel trans-shipping system, specifically designed for the loading of Cape Size bulk carriers in Guinea marine conditions.

The BFS estimate includes the cost of a new dedicated bulk-handling port at Konta, designed and costed by Fluor. However, the potential exists to upgrade the current Konta Port at a reduced capital cost.

Risk Assessment and Modelling

Fluor’s Risk Group completed the BFS project risk assessment and contingency modelling using the @Risk Monte Carlo simulation software package. Fluor concluded to an 85% level of probability that the capital estimate will not be exceeded.

The financial modelling was undertaken by Ernst & Young using the inputs from the independent consultants.

Project Implementation

The KP1 implementation plan has been estimated on the basis of a reputable top-tier contracting company delivering the project under an EPCM style contract. The KP1 development schedule indicates the operations can be designed and constructed in 33 months from project start approval, with first export scheduled for H1, 2016. The critical path in the development timeline is the road construction.

Cost Summary

The KP1 capital cost estimate including all contingencies is US$865 million.

The capital intensity is US$124 per annual production tonne or US$14.49 per total reserve tonne.

Capex US$ Million
Mine, plant and mine site infrastructure 184
Rail access road 379
Road-truck fleet and infrastructure 49
New port facilities 140
Working capital, EPCM and Owner’s costs 113
Total 865

The average FOB operating cost is US$34.39/t product, which includes all in-country costs from the point of mining, through processing and to transport of product over the ship’s rail at the offshore trans-shipment loading point.

The Company continues to work with its consultants on further optimisation opportunities, including the possibility of upgrading Konta Port, to reduce the capital expenditure required.

Financial outcomes

The financial analysis of the project indicates that the project is viable and is expected to provide a robust path to positive cash flow under a range of sensitivities applied to the key impact criteria. Bellzone estimates that the free cash flow will be sufficient to develop KP2.

KP1 generates a NPV10 of US$1,387m with an IRR of 37.5%, based on the average TSI 58% fines CFR North China price over 30 days up to 16 September 2013 of US$127.70/t and assumed shipping cost of US$20/dmt. This is equivalent to a US$107.70/t FOB Konta 58% fines price.

In terms of project sensitivity, if there was a 25% reduction in the FOB sales price achieved for the KP1 product over the life of mine compared to the current equivalent price, that is, from US$107.70/t to US$80.80/t, the NPV10 would be US$566m and the IRR 23.0%. This study demonstrates that the project is economically robust.

The breakeven Fe price is US$51.71/t FOB Konta.

The value engineering process has already commenced and potential improvements to key components of the project are being identified with a view to further improving the project’s financial returns.

Funding

Bellzone management is in discussions to secure the funding for KP1 and will update shareholders and the market in due course.

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