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RED ROCK RESOURCES PLC
Scoping Study Confirms Significant Value Creation Potential at
Macalder Tailings Retreatment Project
2 February 2012
Red Rock Resources plc ("Red Rock" or the "Company"), a mining and exploration company with a producing gold mine in Colombia, Kenyan gold and Greenland iron ore exploration projects, and interests in steel feed, uranium and rare earths, is pleased to announce the results of the Scoping Study for the Company's Macalder Tailings Retreatment Project ("the Project"), part of the Migori Project in Kenya. Based on the technical and economic parameters herein, the Company considers that the Project has potential to create significant value for Red Rock stakeholders.
The Macalder Tailings dam contains waste material from the operation of a mineral processing plant. Mining took place at Macalder between 1936 and 1975, consisting of both open pit and underground operations, with scavenging operations possibly extending beyond these dates. Artisanal activity continues in the present day, mostly concentrated on the old open pits, from which gold-rich gossans are extracted and processed by the local populace. The tailings contain between 1 and 2g/t of gold in addition to residual silver, copper and other base metals (mainly lead and zinc). The objective of this study was to produce a report and Discounted Cash Flow (DCF) estimation at the Scoping Study level of accuracy of the processing of the Macalder Tailings dam for gold recovery.
Using the current CSA Global Measured Mineral Resource estimate (MRE) announced on 14 October 2011 of 1.286 Mt @ 1.65 g/t Au and 33.5 g/t Ag as a base case scenario, the Project can support an average annual production of 10.5 kOz and a four year mine life.
Two versions of the base case scenario were modelled, with the principal difference in assumptions being the capital costs associated with using either new or used processing plant and mining equipment. At the assumed gold price of US$1,550 per ounce used in the Scoping Study, the two Project scenarios indicate the capacity to generate annual free cash flow of between US$5.6-6.8M during production, which indicates that the capital costs for the process plant and associated project infrastructure could be paid back in under three years from the commencement of operations.
The two scenarios produce a net present value (NPV) of approximately US$1.5-3.5m over the life of the project. This indicates that utilizing a 9% discount rate, the project should create future cash flows above 9% p.a. currently worth US$1.5-3.5m, and produce Internal Rates of Return (IRRs) of 12.5-18.7% for the new and used plant options respectively. Returns will be impacted by the cost/level of cyanide consumption (a 10% change in cyanide costs results in approximately 4% change in IRR/US$1m change in NPV) and by precious metal prices, with a zero NPV should the gold price fall to US$1,432/1,386 per ounce in the new and used plant scenarios respectively.
FIGURE 1: Summary DCF Results (US$000)
Source Saint Barbara LLP
The Company considers that a used plant option is likely to be the better one for the Macalder Tailings Retreatment Project, however the projections also show the potential for value creation in the new plant scenario should the Company be unable to identify and acquire a suitable used plant.
Under the new plant scenario the average operating cost is US$750 per ounce, net of by-product credits, whereas under the used plant scenario, the average cost is US$760/Oz over the life of the project.
The currently envisioned process facility is based on cyanide in leach, utilising proven technology. Total capital costs (determined to a nominal accuracy of +/-30%) are estimated at US$17.3m and US$14.1m respectively for the new and used plant scenarios, with 25% and 30% contingency costs being added to the DCF calculations of the new and used plant scenarios respectively. The Company is currently favouring an owner-operator production option.
There is potential to further enhance the Project economics prior to progressing towards construction through optimising the metallurgical process and investigating lower cost power alternatives.
Further metallurgical test planning is underway, and discussions have commenced with the Kenyan Government power authorities to arrange for adequate power supplies.
The Company believes that the positive results of the Scoping Study for the Macalder Tailings Retreatment Project reinforces the Company's strategy of boosting its exploration efforts with cash flow generative production projects, further demonstrating the potential of the Migori Greenstone Project to create value for Red Rock shareholders.
Red Rock is pleased to report the results of the Scoping Study ('the Study') conducted on the Measured Mineral Resource Estimate ('MRE') for the Company's Macalder Tailings Retreatment Project ("the Project"), part of the Migori Project ("Migori Project") in southern Kenya (Figure 2).
FIGURE 2: Migori Project Geology and Macalder Tailings Retreatment Project Location
The Study has been carried out by Saint Barbara LLP of London ("StB"), mineral resource estimation by CSA Global (UK) Ltd of London ("CSA"), and metallurgical testing has been completed by Amdel Ltd (a member of the Bureau Veritas Group) ("Amdel") of Perth, Australia. A team from Saint Barbara consisting of a mining engineer and process engineer, conducted a site visit to aid in the development of the Study.
Scoping Study Parameters
The Study was completed using the following parameters:
• Life of Mine of four years
• Average Production 10.5k Oz Au per annum
• Tailings Reclaim Rate up to 328,500 tonnes per annum
• Gold recovery of 61.5%
• Gold price of US$ 1,550 per ounce
The key considerations in the Study were preferred mining and processing routes, plant scale and costs, throughput rate, operating costs, project life, community and environmental impacts.
The MRE was previously prepared by independent consultants CSA and is reported in accordance with the JORC Code (2004). The measured MRE was announced on 14 October 2011.
FIGURE 3: Summary of Mineral Resource Estimate
Note: Apparent differences may occur due to rounding
Resource modelling has been undertaken on the Project which comprises one large and one small Tailings Dam at the old Macalder mine site. A robust 3D geological model was produced from drill hole data and sectional interpretations provided by the Company. Drill hole data was flagged according to material type. Top cuts were applied to data to reduce the effect of high grade outliers on the population mean grade. The 3D geological model was used to produce a volume block model. The block model validation demonstrated that the block Au and Ag grade honoured the composite Au and Ag grade. Expected smoothing of grade was observed.
QAQC (quality assurance/quality control) information for all assay and geophysical data types was reviewed and showed acceptable levels of precision and accuracy. QAQC from both laboratories utilized highlighted no significant problems.
The mining of tailings material is assumed to be a simple process requiring no drilling and blasting. Mining with excavator and trucks has been selected as the preferred method for the purposes of the Study due to the relative simplicity, ability to selectively mine the tailings deposit, and potential salvage or residual value of these assets.
Mining recovery of 100% and dilution at 0% has been assumed for the purposes of the Study.
Tailings reclaim designs, waste dump designs and mining schedules were then completed to determine the optimal mine plan.
The basic mining fleet will comprise standard trucking equipment, in the form of one 25t haul truck, one excavator, one wheel loader, and two light support vehicles. It is not intended to acquire a motor grader for the site, as road maintenance will be minimal.
The Company is currently contemplating the mining being undertaken on an owner-operator basis. The average mining cost on this basis is approximately US$1.88-2.19 per tonne mined equating to a total production cost of US$ 750-760 per ounce gold produced nett of Ag credits.
The process facility is based on a cyanide leach, utilising technology that has been in operation globally for over 40 years. The current consideration is to locate the process plant, new tailings storage facility (TSF) and associated infrastructure as close as practically possible to the first areas proposed to be mined. The final site selection for both the process plant and TSF will be subject to further engineering assessments during 2012.
The conceptual flow sheet has been designed for a throughput of 1000t/day and 90% plant utilisation, allowing for uncertainties relating to power supplies.
An overall gold recovery of 61.5% and 15% silver has been adopted for this study with 99.1% and 95% payable respectively in doré (Figure 4).
FIGURE 4: Conceptual Flow Sheet
Given the general sensitivity of short-life projects such as the Macalder tailings to capital costs, two principal scenarios were examined. These included a plant consisting of new equipment (New Plant) and a second scenario including second hand equipment (Used Plant). Capital costs (determined to a nominal accuracy of +/-30%, with a 20% discount utilized in the Used Plant option) for the process plant and all other project infrastructure are estimated at US$12.5m and US$4.8m for the New Plant scenario, and US$9.3m and US$4.8m for the Used Plant scenario.
This includes the 'first fill' of reagents and other estimated working capital requirements. The capital costs are summarised in Figure 5.
FIGURE 5: Summary of Mine and Plant Costs (+/- 30% nominal accuracy) US$000
Source Saint Barbara LLP
Infrastructure and Other Capital Costs
The total power requirements for the Project are relatively low at an estimated 2MW of installed power. Power will be supplied by the construction of a new power line from the national grid at Kisumu to the mine site. This is currently estimated to cost US$2.3m, with on-going power requirements costing US$68.6k monthly.
There is the potential to reduce this cost with a number of lower power alternatives being examined in discussion with the Kenyan Government power authorities. These may include other cost-effective options to link up with the Kenyan electric grid, including partnering with other potential consumers in the area, as well as further examination of the nearby Gogo hydroelectric power station, which is not currently operating at full capacity.
Water is available from the Gucha/Migori water system. Although alternate options exist, such as ground and rainwater, the river supply would likely be more than adequate, and 1,000m3/d per annum from the rivers is considered viable by the local authorities for the life of the project.
The total cost of infrastructure and other capital items for the Project is estimated at US$4.8m for both capex scenarios.
FIGURE 6 - Infrastructure and Other Capital Cost Summary (+/-30% nominal accuracy) US$000
Source Saint Barbara LLP
The total operating cost per ounce of gold is estimated to be US$750-760 Oz Au
FIGURE 7 - Summary of Operating Costs (+/- 30% nominal accuracy) (US$000)
Source Saint Barbara LLP
The tailings from the plant will consist of a slurry containing 1,000 dry tonnes of solids per day, which will be pumped to the TSF and permitted to settle. The tailings will consist of the retreated ground rock, water, and the residue of reagents, and once enclosed and sealed it should be environmentally harmless.
US$2.2M has been estimated for the new tailings dam, as part of the infrastructure capital costs. In addition, a further US$1.04m has been included in the operating costs for environment and tailings management through the current life of mine.
The proposed potential locations of the tailings dam are proximal to the current plant site. There are a number of potential sites within the Project area and the optimal site selection will be determined following completion of sterilisation drilling.
Community and Employment
The Company continues to work closely with all stakeholders, including the local communities and relevant authorities, in all aspects of the work completed on the Project and the wider Migori Greenstone Exploration Project to date. The Company currently estimates that a significant number of local and regional jobs will be created during the development and construction phase and an on-going workforce will also be required to manage and run the Operation. Employees will be largely sourced from the local community, Kenya and elsewhere within the region, with a small number of expatriates.
The Company currently holds a Special Prospecting Licence covering an area of approximately 300 square kilometres, including the Macalder Tailings Retreatment Project area. Environmental and Social baseline studies have been initiated and the Company shall be registering an Environmental Impact Assessment application with the relevant authorities in Kenya.
These activities will lead to the application for a Mining Licence to cover the Project area, which is expected to be lodged by the end of H1 2012.
Additional permitting to cover areas such as power, water and aggregate extractions, will progress as part of the Company's execution plan.
The Company has also engaged a specialist consultant to assist with the drafting of a Mining Development Agreement which will be presented to the appropriate authorities in Kenya upon the completion of design work.
The Company has been conducting interviews for a Project Manager for the Macalder Tailings Retreatment Project, and the larger Migori Greenstone Project, and an excellent candidate has been identified and terms are being negotiated pending a go-ahead decision on the Tailings Project on the basis of the recommended follow-up testing.
The Study has been carried out by Saint Barbara LLP of London with additional input by a number of industry-recognised consultants engaged by the Company.
The following team of consultants completed the Study:
Saint Barbara LLP Process Plant, Capital, Operating and Infrastructure Costs
CSA Global (UK) Ltd Geology, Mineral Resource Estimation and Mining
Amdel Ltd Metallurgical Testwork
Saint Barbara LLP have authorized the release of this statement.
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Forward Looking Statements
This report contains 'forward-looking information' that is based on the Company's expectations, estimates and projections as of the date on which the statements were made. This forward-looking information might include, among other things, statements with respect to the Company's business strategy, plans, objectives, performance, outlook, growth, shareholder value, projections, targets and expectations, Mineral Reserves and Resources, results of exploration and related expenses, property acquisitions, mine development, mine operations, drilling activity, sampling and other data, grade and recovery levels, future production, capital costs, expenditures for environmental matters, life of mine, completion dates, uranium prices, demand for uranium, and currency exchange rates. Generally, this forward-looking information can be identified by the use of forward-looking terminology such as 'outlook', 'anticipate', 'project', 'target', 'likely', 'believe', 'estimate', 'expect', 'intend', 'may', 'would', 'could', 'should', 'scheduled', 'will', 'plan', 'forecast' and similar expressions. Persons reading this report are cautioned that such statements are only predictions, and that the Company's actual future results or performance may be materially different.
Forward-looking information is subject to known and unknown risks, uncertainties and other factors that may cause the Company's actual results, level of activity, performance or achievements to be materially different from those expressed or implied by such forward-looking information. Forward-looking information is developed based on assumptions about such risks, uncertainties and other factors set out herein, including but not limited to the risk factors set out in the Company's Annual Report. This list is not exhaustive of the factors that may affect our forward-looking information. These and other factors should be considered carefully and readers should not place undue reliance on such forward-looking information. The Company disclaims any intent or obligations to update or revise any forward-looking statements whether as a result of new information, estimates or options, future events or results.
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