TSX: DIAM
SASKATOON, April 16, 2018 /CNW/ - Star Diamond
Corporation ("Star Diamond" or the "Corporation"), is pleased to
announce the positive results of the independent Preliminary
Economic Assessment ("PEA") on the Star and Orion South Kimberlites
(the "Star - Orion South Diamond Project", or "Project"), situated
in the Fort à la Corne diamond district of central Saskatchewan, Canada, on mineral dispositions
held 100% by Star Diamond. The PEA estimates that 66 million carats
of diamonds could be recovered in a surface mine over a 38-year
Project life, with a Net Present Value ("NPV") (7%) of $2.0 billion after tax, an Internal Rate of
Return ("IRR") of 19% and an after-tax payback period of 3.4 years
after the commencement of diamond production.
The PEA Highlights Include 1.:
- Total potential plant feed of 470 million tonnes at a weighted
average grade of 14 carats per hundred tonnes ("cpht"), containing
66 million carats over the 34 year Life of Mine
2. ("LOM");
- The Base Case scenario (Model diamond price) has an NPV (7%) of
$3.3 billion and an IRR of 22% before
taxes and royalties, and an after-taxes and royalties NPV (7%) of
$2.0 billion with an IRR of 19%;
- The Case 1 scenario (High Model diamond price) has an NPV (7%)
of $5.4 billion for an IRR of 32%
before taxes and royalties;
- Pre-production capital cost of $1.41
billion with a total capital cost of $1.87 billion (including direct, indirect costs
and contingency) over the LOM and an initial capital cost payback
period of 3.4 years.
1.
|
Cautionary note: The
PEA was prepared in accordance with National Instrument 43-101
Standards of Disclosure for Mineral Projects ("NI 43-101"). Readers
are cautioned that the PEA is preliminary in nature and includes
the use of Inferred Mineral Resources that 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 results of the PEA
will be realized.
|
2.
|
Diamond-bearing
kimberlite is produced from the mine and diamonds are recovered in
the processing plant for 34 years. The overall project life is 38
years, which includes just over four years of pre-stripping
activities.
|
The PEA was led by independent mining, processing and design
consultants, with support from the Star Diamond technical team. The
principal consultants include: SGS Canada Inc. - Geostat ("SGS");
DRA Americas Inc. ("DRA") and ENGCOMP Engineering and Computing
Professionals Inc. ("ENGCOMP"). A number of other independent
consulting firms and potential vendors also provided their study
results to Star Diamond for use in developing the PEA. All currency
amounts are quoted in Canadian Dollars, unless otherwise
stated.
President and CEO, Kenneth
MacNeill, states: "The Corporation is very pleased with the
positive results of the PEA. On the shoulders of more detailed
drilling and the Revised Resource Estimate of 2015, the Corporation
has taken a fresh look at the Project and has refined the mining
and processing plans with exciting and positive results. The PEA
describes a lean, profitable, industry-leading plan. The
Corporation's Management and Directors acknowledge the extensive
and diligent work that has been performed by Star Diamond's
technical team and associated consultants to reach this important
milestone in the evaluation of the Star and Orion South
Kimberlites."
Senior Vice President Exploration and Development, George Read, states: "The positive results of
the PEA show that the Star and Orion South Kimberlites have the
potential to be economically developed as a world class diamond
mine. The PEA takes advantage of improved economics using Bucket
Wheel Excavators ("BWEs") and state-of-the-art diamond recovery
processes."
PEA Results
The PEA cash flow model is based on developing two open pits,
initially on Orion South and
subsequently on Star. The cash flow model assumes one processing
plant and infrastructure that will serve both open pits and assumes
the Project has a four-year pre-production development period
followed by a 34 year production period. The economic criteria
used in the cash flow model are listed in Table 1.
Table 1. Economic criteria used in PEA cash flow
model
Area
|
Criterion
|
Value
|
Production
Parameters
|
No. of operating days
per year
|
350 days per
year
|
Process plant
availability
|
87%
|
Processing
rate
|
45,000 tpd
kimberlite
|
Estimated LOM total
plant feed
|
470 Mt mill feed at a
weighted
average 14 cpht grade
|
Diamond Price
Escalation
|
Projected diamond
price escalation
|
2%
|
Cost
Assumptions
|
Exchange
rate
|
$1.00=US$0.80
|
Marketing
costs
|
Average 1% of
Revenue
|
Royalties
|
Based on
Saskatchewan
royalty
regime
|
Operating
Costs
|
Mining (includes
waste removal cost)
|
$4.37 / tonne
processed
|
Mill Feed
processing
|
$2.30 / tonne
processed
|
General and
Administration
|
$2.47 / tonne
processed
|
Contingency
|
Initial capital cost
contingency
|
7% of Initial Capital
Cost
|
Abbreviations:
Mt – Million metric tonnes; tpd – metric tonnes per day.
|
Pre-production Capital Expenditure
The pre-production capital of $1.4
billion is detailed in Table 2.
Table 2. Pre-production Capital
Area
|
Amount
|
Processing
Plant
|
$350
million
|
Site
Facilities
|
$250
million
|
Overburden
Stripping
|
$74
million
|
Overburden Stripping
Equipment
|
$410
million
|
Kimberlite Mining
Equipment
|
$64
million
|
Other
Costs
|
$156
million
|
Contingency
|
$106
million
|
Total
|
$1,410
million
|
Economic Analysis
The Base Case scenario uses the Model diamond price and 2%
diamond price escalation, while Case 1 uses the High Model diamond
price and 2% diamond price escalation. The economic model includes
a $106 million capital contingency.
Pre-tax and after-tax results of the economic analysis are shown in
Table 3 for comparison.
Table 3. Economic analysis results of discounted cash flow
model for Base Case and Case 1.
Item
|
Base Case
(Model Price)
Pre-Tax & Royalty
|
Case 1
(High Model Price)
Pre-Tax & Royalty
|
Base Case
(Model Price)
Post-Tax & Royalty
|
Undiscounted Net
Cash Flow
|
$18.0
Billion
|
$26.1
Billion
|
$11.4
Billion
|
NPV
(5.5%)
|
$4.6
Billion
|
$7.3
Billion
|
$2.9
Billion
|
NPV
(6.0%)
|
$4.1
Billion
|
$6.6
Billion
|
$2.6
Billion
|
NPV
(6.5%)
|
$3.7
Billion
|
$6.0
Billion
|
$2.3
Billion
|
NPV
(7%)
|
$3.3
Billion
|
$5.4
Billion
|
$2.0
Billion
|
NPV
(7.5%)
|
$3.0
Billion
|
$4.9
Billion
|
$1.8
Billion
|
NPV
(8.0%)
|
$2.7
Billion
|
$4.5
Billion
|
$1.6
Billion
|
NPV
(8.5%)
|
$2.4
Billion
|
$4.1
Billion
|
$1.4
Billion
|
IRR
|
22%
|
32%
|
19%
|
Simple Payback
(years)*
|
3 years 3
months
|
2 years 4
months
|
3 years 5
months
|
* After start of
processing.
|
Sensitivity Analysis
Economic risks were assessed using base case cash flow
sensitivities to recovered grade, diamond prices, CDN$/US$ exchange
rate, capital costs and operating costs. Each of the sensitivity
items were independently adjusted up and down by 10%, 20% and 30%
to project the impact on NPV (7%). The NPV (7%) value after each
sensitivity item was adjusted are presented in Table 4. The
sensitivity analysis shows that the PEA is most sensitive to
CDN$/US$ exchange rate fluctuations on the positive side while
grade and diamond price have the most significant negative
effect.
Table 4. Base Case Sensitivity Analysis Results
(pre-tax & royalty basis, NPV (7%))
Sensitivity
Parameter
|
70%
|
80%
|
90%
|
100%
|
110%
|
120%
|
130%
|
Grade
|
$1.6 B
|
$2.2 B
|
$2.7 B
|
$3.3 B
|
$3.9 B
|
$4.5 B
|
$5.1 B
|
Diamond
Price
|
$1.6 B
|
$2.2 B
|
$2.7 B
|
$3.3 B
|
$3.9 B
|
$4.5 B
|
$5.1 B
|
CDN$/US$ Exchange
Rate
|
$4.7 B
|
$4.1 B
|
$3.7 B
|
$3.3 B
|
$3.0 B
|
$2.7 B
|
$2.4 B
|
Capital
Costs
|
$3.6 B
|
$3.5 B
|
$3.4 B
|
$3.3 B
|
$3.2 B
|
$3.1 B
|
$3.0 B
|
Operating
Costs
|
$3.6 B
|
$3.5 B
|
$3.4 B
|
$3.3 B
|
$3.2 B
|
$3.1 B
|
$3.1 B
|
Mineral Resource Estimate
The PEA is based on the Revised Mineral Resource Estimate as
documented in the NI 43-101 Technical Report: Technical Report
and Revised Resource Estimate for the Star – Orion South Diamond
Project Fort a La Corne area,
Saskatchewan, Canada December 21, 2015. This report is available on
the Corporation's website (www.stardiamondcorp.com) and on SEDAR
(www.sedar.com).
Diamond Prices
Diamond prices used in the PEA are based on price applications
by WWW International Diamond Consultants Ltd ("WWW") in
mid-April 2018 using their
March 31, 2018 price book. The Base
Case scenario uses the Model prices for each kimberlite unit within
Star and Orion South. The Case 1 scenario uses High Model prices
for comparative purposes. WWW has stated that per annum rough
diamond price escalation of 2.5 per cent is a reasonable figure,
given the future outlook for the rough diamond market over the next
ten years. For the purpose of the PEA Star Diamond has elected to
use a more conservative diamond price escalation of 2%. The details
of the April 2018 valuation of the
Star and Orion South diamond parcels are listed in Tables 5 and
6.
Table 5. The Parcel and Model Price Details for the
Star Kimberlite (March 31,
2018)
Star
Kimberlite
Unit
|
Carats
|
Parcel Price
(US$/carat)
|
Model Price (US$/carat)
|
Minimum Model Price (US$/carat)
|
High Model Price (US$/carat)
|
Cantuar
|
1,667.96
|
281
|
303
|
253
|
438
|
Pense
|
1,410.47
|
141
|
162
|
126
|
203
|
EJF
|
7,124.74
|
162
|
207
|
172
|
265
|
MJF-LJF
|
91.28
|
170
|
173
|
131
|
249
|
Table 6. The Parcel and Model Price Details for the Orion
South Kimberlite (March 31,
2018)
Orion
South Kimberlite
Unit
|
Carats
|
Parcel Price (US$/carat)
|
Model Price (US$/carat)
|
Minimum Model Price (US$/carat)
|
High Model Price (US$/carat)
|
EJF
|
1,400.01
|
126
|
173
|
118
|
242
|
Pense
|
581.47
|
81
|
144
|
101
|
199
|
Mining
Mine plan optimization determined that the optimal economic
approach to the mining of the combined Star - Orion South resources is to commence with mining
Orion South, followed by mining on
Star, for a total LOM of 34 years. The pit plans incorporate the
geotechnical and hydrogeological design criteria developed prior to
2011.
Mining of the kimberlite is by conventional open pit.
Conventional hydraulic excavators and haul trucks create a starting
"key" for three BWEs to remove the sand and clay overburden from
the kimberlite. Conveyor belts transfer the sand and clay from the
BWEs to the nearby overburden waste area. The exposed kimberlite is
lightly blasted and conventional hydraulic shovels load the rock
into trucks. These trucks transfer the rock to an in-pit feeder and
the kimberlite is delivered to the processing plant via conveyor
belt.
Processing Plant and Infrastructure
The processing facility is favourably located near the Star and
Orion South pit edges. The processing rate is 45,000 tonnes of
kimberlite per day employing autogenous milling followed by
screening, X-ray Transmission ("XRT") diamond recovery and dense
media separation of heavy mineral concentrate. The recovery section
employs X-ray technology with grease as the scavenging technology
to recover the low-luminescence diamonds. The diamonds would be
sorted into parcels within the on-site sorting facility.
Environment Assessment
The Environmental Impact Statement ("EIS"), which describes the
potential environmental and socio-economic effects of the Project,
was previously submitted to provincial and federal regulators. In
December 2014, the Canadian
Environment Assessment Agency announced an Environmental Assessment
Decision for the proposed Project (See News Release dated
December 3, 2014). The Federal
Environment Minister announced that the Project "is not likely to
cause significant adverse environmental effects when the mitigation
measures described in the Comprehensive Study Report are taken into
account." The Corporation is presently awaiting a decision on the
EIS from the province.
Final site reclamation and closure, including the removal of
site facilities, will be performed at the end of the LOM in
accordance with regulatory requirements. The conceptual closure
plan will be based on a target end land use of self-sustaining
forest.
Community Relations
Since 2007, the Corporation has engaged with local communities
and provided information updates at meetings of the Diamond
Development Advisory Committee ("DDAC"). The DDAC is a
community-based committee comprised of approximately two dozen
representatives of cities, towns, villages, rural municipalities
and Indigenous parties in the vicinity of the Fort à la Corne
forest. Additionally, the general public has been widely
consulted through forums such as community open house meetings
conducted by the Corporation, with local communities showing
overwhelming support for the Project. A description of extensive
community engagement activities forms part of the EIS. Development
of a mine will bring substantial economic development to
communities in the surrounding region. The proposed Project is
expected to provide direct employment for hundreds of people
throughout the construction phase and in excess of 500 people
continuously over its 38 year life.
Technical Report
For readers to fully understand the information in this news
release, they should read the PEA technical report in its entirety.
The Corporation expects to file the report on SEDAR (www.sedar.com)
in accordance with NI 43-101, within 45 days from the date of this
news release. The report will be available at that time on the
Corporation's website, including all qualifications, assumptions
and exclusions that relate to the PEA. The technical report is
intended to be read as a whole, and sections should not be read or
relied upon out of context.
Qualified People
The PEA was authored by the following independent qualified
people: W. Douglas Roy, Senior
Associate Mining Engineer for SGS, a registered Professional
Engineer in the Province of Nova
Scotia; Daniel Leroux, Global
Business Manager – Geological and Mining Services for SGS, a
registered Professional Geoscientist in the Provinces of
Ontario and Saskatchewan; Lehman
van Niekerk, Senior Process Engineer, DRA Projects SA (Pty)
Ltd, a registered Professional Engineer with the Engineering
Council of South Africa and member
of The Southern African Institute of Mining and Metallurgy; and
Geoffrey Wilkie, Senior Cost
Consultant ENGCOMP, a registered Professional Engineer in the
Province of Saskatchewan.
Risks and Opportunities
As with all mining ventures, a large number of risks and
opportunities can affect the outcome of the Project. Most of these
risks and opportunities are based on uncertainty, such as less
detailed scientific information (test results, drill results, etc.)
or the lack of control over external factors (diamond prices,
exchange rates, etc.). Subsequent higher-level engineering studies
would be required to further refine these risks and opportunities,
identify new risks and opportunities, and define strategies for
risk mitigation or opportunity implementation.
The PEA identified principal risks for the Project which are
summarized below:
- Geological interpretation and mineral resource classification
(17% of the mineral resources used in the mine plan are Inferred
mineral resources);
- Geotechnical and hydrogeological considerations;
- Construction management and cost containment during development
of the Project;
- Increased operating cost and/or capital cost; and
- Reduced diamond prices.
Several potential opportunities to improve the accuracy of the
results of the Project contemplated under the PEA have been
identified. Examples include, but may not be limited to:
- Expansion of the Star and Orion South resources through
drilling. Addition of further resources through drilling has the
potential to add resources and increase LOM and economics;
- More refined pit optimization parameters could result in better
optimized open pit limits than the pit shell selected for the
PEA;
- Improved hydrogeological and geotechnical understanding may
increase pit slope angles over those used in the PEA;
- Investigate other mining methods that would lead to a decreased
cost;
- Further metallurgical testing and refining milling processes
may result in improved recoveries;
- The potential to upgrade the mineral resource classification of
the deposit; and
- Improved diamond prices.
About Star Diamond Corporation
Star Diamond Corporation is a Canadian based corporation engaged
in the acquisition, exploration and development of mineral
properties. Shares of the Corporation trade on the TSX Exchange
under the trading symbol "DIAM." The Corporation's Star - Orion
South Diamond Project is located in central Saskatchewan some 60 kilometres east of the
city of Prince Albert. The Project is in close proximity to
established infrastructure, including paved highways and the
electrical power grid, which provide significant advantages for
future mine development.
All technical information in this press release has been
prepared under the supervision of George
Read, Senior Vice-President of Exploration and Development,
a registered Professional Geoscientist in the Provinces of
Saskatchewan and British Columbia; Mark
Shimell, Project Manager, a registered Professional
Geoscientist in the Province of Saskatchewan; and William van Breugel, Mine Project Engineer, a
registered Professional Engineer in the Province of Saskatchewan, who are the Corporation's
"Qualified Persons" under the definition of NI 43-101.
Star Diamond commissioned the PEA and related Technical Report
for the Star and Orion South Kimberlites and, as such, the PEA and
Technical Report are the sole responsibility of the Corporation.
The PEA is based on exploration and evaluation work conducted up to
and including March 2017.
Caution Regarding Forward-Looking Statements
This news release contains forward-looking statements as defined
by certain securities laws, including the "safe harbour" provisions
of Canadian securities legislation and the United States Private
Securities Litigation Reform Act of 1995. Forward-looking
information is often, but not always, identified by the use of
words such as "anticipate", "believe", "expect", "plan", "intend",
"forecast", "target", "project", "guidance", "may", "will",
"should", "could", "estimate", "predict" or similar words
suggesting future outcomes or language suggesting an outlook. In
particular, statements regarding the Corporation's future
operations, future exploration and development activities or other
development plans constitute forward-looking statements. By their
nature, statements referring to mineral reserves, mineral
resources, PEA or TFFE constitute forward-looking statements.
Forward-looking statements in this press release include, but
are not limited to, disclosure regarding the economics and project
parameters presented in the PEA, including, without limitation,
IRR, NPV and other costs and economic information, carats of
diamonds to be recovered, pre-tax payback period, tonnes of
kimberlite to be mined, carats per tonne to be recovered (grade),
diamond prices, life of mine, capital costs, length of
pre-production period and all data in Tables 1 through 6, possible
events, conditions or financial performance that is based on
assumptions about future economic conditions and courses of action;
the timing and costs of future development and exploration
activities on the Corporation's projects; success of development
and exploration activities; permitting time lines and requirements;
time lines for further studies; planned exploration and development
of properties and the results thereof; and planned expenditures and
budgets and the execution thereof as well as statements with
respect to the Corporation's objectives for the ensuing year.
These forward-looking statements are based on the Corporation's
current beliefs as well as assumptions made by and information
currently available to it and involve inherent risks and
uncertainties, both general and specific.
Risks exist that forward-looking statements will not be achieved
due to a number of factors including, but not limited to,
developments in world diamond markets, changes in diamond prices,
risks relating to fluctuations in the Canadian dollar and other
currencies relative to the US dollar, changes in exploration,
development or mining plans due to exploration results and changing
budget priorities of the Corporation or its partners, the effects
of competition in the markets in which the Corporation operates,
the impact of changes in the laws and regulations regulating mining
exploration, development, closure, judicial or regulatory judgments
and legal proceedings, operational and infrastructure risks and the
additional risks described in the Corporation's most recently filed
Annual Information Form, annual and interim MD&A. The
Corporation's anticipation of and success in managing the foregoing
risks could cause actual results to differ materially from what is
anticipated in such forward-looking statements.
Although management considers the assumptions contained in
forward-looking statements to be reasonable based on information
currently available to it, those assumptions may prove to be
incorrect. When making decisions with respect to the Corporation,
investors and others should not place undue reliance on these
statements and should carefully consider the foregoing factors and
other uncertainties and potential events. Unless required by
applicable securities law, the Corporation does not undertake to
update any forward-looking statement that is made herein.
SOURCE Star Diamond Corporation