Great Quest Metals Ltd.: PEA for Tilemsi Phosphate Indicates US$ 649m NPV at 10% Discount Rate
December 18 2012 - 8:30AM
Marketwired Canada
Great Quest Metals Ltd. (TSX VENTURE:GQ)(FRANKFURT:GQM) ("Great Quest" or the
"Company") announces the results of an initial NI 43-101 compliant Preliminary
Economic Assessment ("PEA" or the "Report"), the first step in the development
of its Tilemsi Phosphate Project, located in Mali, West Africa. The Report was
prepared by Gaya Resources Development Ltd and will be available on SEDAR within
45 days.
Tilemsi Project Background
The PEA is a scoping-level study on the development of the Tilemsi phosphate
resource and is based on an initial Inferred Mineral Resource of 50 million
tonnes ("Mt"), grading at 24.3% P2O5, over a surface area of 25.62 km2, as
reported on October 23, 2012. Given historical results, remote sensing work and
the company's total claim area (1,206 km2), there is evidence Tilemsi offers
significant upside potential that can be determined by further exploration.
PEA Development Description
The development plans of the Company encompass the production of two granulated
phosphate products: a high grade (35% P2O5) for mixture into standard NPK
blends, and a medium grade (27% P2O5) for simple direct application. Initial
production is assumed to begin in 2016, with staged production ramp-up from
200,000 tonnes to 1 million tonnes, based on conservative expectations for
market uptake. The Company targets landlocked markets in West Africa for product
delivery, displacing high cost imported fertilizers, and servicing emerging
commercial farming projects in the region.
PEA Highlights
The proposed project, mine and processing facility, would produce an annual
average of 700,000 tonnes of P2O5 concentrate over 20 years, at a Life of Mine
("LOM") strip ratio of 6.8 to 1 (overburden to process feed). This would
generate an NPV of US$ 649 million, at a discount rate of 10%, and a project IRR
of 34%. The PEA assumes the plant will be built to a 500,000 tonnes per year
capacity at start-up to take advantage of equipment sizing benefits, but will
slowly build to full capacity, assuming modest market penetration initially.
Pricing used in the study incorporates a 20% discount to equivalent products
currently available in the region. Given these pragmatic assumptions the project
generates a very respectable rate of return. It should be noted that continued
geological work indicates that drilling techniques in the preparation of the
resource estimate may have underestimated the resource grade. Any increase in
the resource grade will further enhance the profitability of the project.
Table 1: PEA Highlights
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Project Parameters Value
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Life of Mine ("LOM") based on the current 20 years
Inferred Mineral Resource estimate
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Maximum Rock Mined (at full capacity) 1 million tonnes per
annum
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Pre-Operational Cost US$ 13 million
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Initial Capital Cost US$ 143 million
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OPEX Phosphate Rock (powder average ex plant) US$ 59 per tonne
@35% P2O5
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OPEX Hyper Phosphate (granulated avg. ex plant) US$ 95 per tonne
@35% P2O5
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Fertilizer Products Supplied at Full Capacity 1.18 million tonnes per
annum
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Sales Mix: NPK / Direct Application 78% / 22%
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Table 2: Summary of the Project Economics
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Project Economics Value
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Project Net Present Value ("NPV") US$ 649 million
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Discount Rate 10%
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Project Internal Rate of Return ("IRR") 34%
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Equity Holder IRR (40% equity / 60% debt) 42%
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Payback Period 4 years
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Table 3: PEA Assumptions
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Assumptions Value
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Product Discount Rate against Cost of Moroccan 20%
Phosphate in Bamako, Mali
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Average Transport Cost Ratio US$ 0.082 per tonne per
kilometre
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Delivered Price of Diesel for Energy Production US$ 1.10 per litre
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Equity to Government on Mining 20%
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Royalties on Mine Production 3%
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Contingency in Initial Capital Cost (12%) US$ 14 million
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Political Risk Insurance Premium (12%) (incl. US$ 11 million
in CAPEX)
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Interest Rate (LIBOR + Premium) 7.8% per annum
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Table 4: NPV Sensitivity to Discount Rate
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Discount Rate NPV
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6% US$ 1,123 million
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8% US$ 851 million
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12% US$ 497 million
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CEO Comments
Commenting on the Technical Report, Great Quest's President and CEO, Joel
Jeangrand, said, "We are encouraged by the positive results of the PEA. Given
the results of the study, we are confident that this project can generate robust
economic and social returns. We have put together a full business strategy
quantifying costs and risks for transportation, market penetration and product
attributes. Developing this high quality resource to the benefit of the region
could revolutionize West African agriculture and help stimulate growth of
globally competitive commercial agriculture in the region."
The independent PEA was written and compiled by Gaya Resources Development Ltd
(Israel), a full-spectrum engineering management company, specialising in
fertilizer projects. The PEA includes sections provided by various international
consulting firms such as Coffey Mining (South Africa) for the mining, GBM
Engineering (UK) for the beneficiation process, CFI Holding (France) for the
granulation/NPK study, Bollore Africa Logistics (France) for the transportation
analysis, Balu & Associates (USA) for the West Africa fertilizer market research
and Mintek (South Africa) for the metallurgical testing.
Capital and operating cost estimates were prepared in mixed currencies and
converted to US dollars (USD). All revenues were estimated in various currencies
and converted to USD.
Great Quest cautions that the PEA is preliminary in nature, as 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". There is no certainty that the PEA will be
realized as Mineral Resources do not demonstrate economic viability.
Great Quest will file a NI 43-101 compliant Technical Report, which will include
the results of the PEA on SEDAR within 45 days, and investors are urged to
review the Report in its entirety.
Upcoming Milestones
The next steps for the project will be to increase the resource confidence and
estimates. The Company intends to complete the Pre-Feasibility Study, including
an extensive market study by early 2013 and a Feasibility Study during the
second half of 2013. Great Quest intends to take the following actions in order
to advance the project and create value for its shareholders:
-- Resume the drilling program, with a view to expand the resource and
upgrade the existing Inferred Resources into the measured or indicated
category, as soon as it is safe for its personnel to return to site,
-- Advance product development with pre-production and agronomical tests
with existing and new partnerships,
-- Develop distribution channels, ahead of the future production ramp up,
-- Develop partnerships to secure competitive sources of sulphur, nitrogen
and potash from the region, in order to produce in-house high quality
NPK fertilizers,
-- Secure the required capital to finance the Company's growth, from
traditional sources as well as from development agencies whose mandate
aligns with the goals of the Tilemsi project.
Qualified Person
The technical information in this press release has been reviewed and approved
by Jed Diner, M.Sc., P.Geol., a Qualified Person as defined by National
Instrument 43-101. Mr. Diner completed his M.Sc. in Applied Earth Science at
Stanford University in 1983 and works internationally on mineral exploration and
resource development projects. He has consulted on other phosphate projects in
Uzbekistan, Peru and Angola.
Mali Situation
While the current geo-political situation in Mali continues to be a concern,
Great Quest remains committed to its high grade phosphate project. "All of our
licenses are in good standing and we plan to go back to site as soon as the
situation permits. In the meantime, we continue to closely monitor the
developments, move the project forward and look forward to an early and peaceful
resolution to the crisis," says Joel Jeangrand, President and CEO of the
Company.
About Great Quest
Great Quest Metals Ltd. is a Canadian mineral exploration company with assets in
Mali, West Africa. The Company is focused on developing the Tilemsi Phosphate
Project, encompassing 1,206 km2 in eastern Mali. The Company also holds several
gold concessions in the productive Birimian gold belt, in western Mali. Great
Quest is listed on the TSX Venture Exchange under the symbol GQ, and the
Frankfurt Stock Exchange under the symbol GQM.
ON BEHALF OF THE BOARD OF DIRECTORS OF GREAT QUEST METALS LTD.
Joel Jeangrand, President, CEO & Director
The statements that are not historical facts and are forward-looking statements
involving known and unknown risks and uncertainties could cause actual results
to vary materially from the targeted results. We seek safe harbor.
FOR FURTHER INFORMATION PLEASE CONTACT:
Great Quest Metals Ltd.
Candice Font
Investor Relations
604-689-2882 or Toll Free: 1-877-325-3838
604-684-5854 (FAX)
www.greatquest.com