Fortune Minerals - Revenue Silver Mine Presentation May 2014

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  • 1. Revenue Silver Mine Presentation May 2014
  • 2. This document contains forward-looking information. This forward-looking information includes statements with respect to, among other things, the proposed acquisition of the 88% interest in the Revenue Silver Mine (the "RSM") not currently owned by the Company,the anticipated production from and economics of theRSM, includinganticipated cash costs, cash flows, earnings and internal rate of return, the potential to produce copper at the RSM and the potential to expand resources and production at the RSM. Forward-looking information is based on the opinions and estimates of management as well as certain assumptions at the date the information is given (including, in respect of the forward- looking information contained in this press release, the assumptions set forth below under "Financial Model Assumptions"). However, such forward-looking information is subject to a variety of risks and uncertainties and other factors that could cause actual events or results to differ materially from those projected in the forward-looking information. These factors include the inherent risks involved in the exploration and development of mineral properties, the risk that the Company may not be able to arrange the necessary financing to purchase the remaining interest in the RSM, the risk of cost overruns, the risk that future metal prices may be lower than anticipated, the risk that the Company may not be able to produce and sell copper from the RSM, the risk that the Company may be unable to expand resources or production at the RSM and other factors. Readers are cautioned to not place undue reliance on forward-looking information because it is possible that predictions, forecasts, projections and other forms of forward-looking information will not be achieved by the Company. Theforward-looking information contained herein ismade as of the date hereof and the Company assumes no responsibility to update or revise it to reflect new events or circumstances, except as required by law. 2
  • 3. Share Price $0.39 Shares Out – Basic 188.2 Shares Out – Fully Diluted 199.7 Market Cap – Basic $64.0 Working Capital (Q3 2013) $14.7 Total Assets (Q3 2013) $159.3 All amounts in M or CAD$M except per share amounts. Corporate Information Listings: TSX (Canada): FT OTC QX (USA): FTMDF Share Performance Analyst Coverage Dealer Date Rating Target Killian Charles Industrial Alliance Securities June 28, 2013 Spec Buy $3.30 David Davidson Paradigm Capital July 24, 2013 Spec Buy $1.00 Michael Fowler Loewen Ondaatje McCutcheon July 22, 2013 Spec Buy $2.65 Ownership Procon Resources Inc. 19% China Mining Resources Group Ltd. 10% Insiders 37% As of May 5, 2014 3 - 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 4,500 5,000 $0.00 $0.05 $0.10 $0.15 $0.20 $0.25 $0.30 $0.35 $0.40 $0.45 $0.50 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 Daily Volume Closing Price SharePrice(C$) TradingVolume(M)
  • 4. Fortune Minerals Limited  Canadian mineraldevelopment company  HeadquarteredinLondon,Ontario,Canada  Operatinginmining friendlyjurisdictions Acquisitionof Revenue Silver Mine  Historical14 millionozsilverproducerinsouthwest Colorado,U.S.A.  Producerin advanced stagesofcommissioning& rampingup to400 tons/day Two late-stageprojects  ArctosAnthracite Project,BC  PositiveFeasibilityStudy  InBC EnvironmentalAssessmentprocess  NICOGold-Cobalt-Bismuth-CopperProject,Northwest Territories(NT)&Saskatchewan(Sk):  PositiveFeasibility&FEEDStudies  EAapprovalsreceivedforNT&Sksites  CompletingPermitting Process 4
  • 5. 5  Staged transaction to acquire 100% of Revenue Silver Mine in southwest Colorado for up to US$ 64.4 million  US$ 13.6 million for a 12% interest already completed  Assume payments of US$ 4.5 million & 2% NSR  Fully permitted & constructed mine, mill & surface facilities currently ramping up to 400 tons /day  Fortune is the Operator during 90-day transition period  1st concentrate March, 2014 – Contracts in place to process at Teck Resources Trail Smelter  Projected 13-yr life of mine average annual production of 1.78 million ozs of silver, plus gold, lead & zinc byproduct credits (~30% of revenues)  Low cost producer with projected C1 cash cost silver price of US$ 8.02oz & breakeven free cash flow silver price of US$ 12.42/oz – both net of byproducts  Robust cash flow with estimated average annual life of mine EBITDA of US$ 15.5M  Measured & Indicated Resources contain 16.3 million ozs silver & Inferred Resources contain 10.1 million ozs silver, excluding byproducts  Additional upside from broken ore in stopes & unexplored veins Revenue Mine Historical Mill & Current Site
  • 6. Mining and production Annual Average Silver 1.78 million oz. Lead 5.29 million lb Zinc 1.33 million lb Gold 3,251 oz. Plant feed, ore (dry-basis) 134,000 tons 6  Mill & concentrator throughput being expanded from 300 to 400 tons / day or 134,000 tons / yr  Production of silver, gold, lead & zinc  Lead & Zinc concentrates to be sold under contract to Teck Resources smelter in Trail, B.C.  Gravity gold sold to Johnson Matthey  Potential to produce copper concentrate for sale to Asia to increase revenues payments  Potential to negotiate recovery of other metals Zinc, 2.41%Lead, 12.02% Silver, 75.53% Gold, 10.04% Revenue by Metal Type
  • 7. 7  Project Pre-tax 6% discounted NPV of US$ 121 M  Average cash cost of US$8.02/oz Life of Mine (LOM) while at full capacity  Breakeven free cash flow silver price of US$ 12.42 – Includes OPEX, royalty & capital costs  Projected average annual EBITDA of US$ 15.5 M/yr, US$ 202M LOM Average Annual Cash Cost* Mining $ 10,909,654 Milling $ 4,919,254 Surface $ 3,880,847 Other $ 4,437,873 Total Cash Costs $ 24,147,628 Revenue of By-Products $ 9,882,606 Net Cash Costs $ 14,265,022 Silver Production 1,778,892 Cash Cost per Ag Oz $ 8.02 *Average over the life of the mine at full production Source: Company reports Source: Metals Economics Group 8.02 8.1 10 11.72 12.98 17.26 17.5 18.63 18.98 19.67 20.29 20.89 0 5 10 15 20 25 CashcostperAgEq/oz Operation CashCost per Ag Eq Oz
  • 8. 8  Project financial model prepared using discounted cash flows  Metal price assumptions include: US$ 21.50 / oz Ag, US$ 1.00 / lb Pb, US$ 1.00 / lb Zn, US$ 1350 / oz gold & no revenue for copper  2% NSR capped at US$ 9 million paid from cash flow  Additional capital of US$ 5.75 million for mine & plant improvements paid from cash flow  Sustaining capital of US$ 5.5 million paid from cash flow  Reduction of resource by 15% for pillars & additional external dilution applied to SRK Consulting resources of 25% for Virginius Vein & 20% for Yellow Rose  Overhead & operating costs developed from mine experience  Mill recoveries & costs based on metallurgical studies  Smelter returns from existing contracts
  • 9.  Southwest Colorado, U.S.A.,11 km south of town of Ouray (pop. 1,000), 58 km from town of Montrose (pop. 19,000) & 490 km southwest of Denver  Mine has strong community support  Extensivehistoryof underground miningin area datingback to 19th century  Warehouse facilitiesin Ouray to service mine & stageworkers to site 9 Ouray, Colorado
  • 10.  Total landpackage of 147 claims, totalling1,079.9 acres, including110 patentedclaims, totalling736.89 acres  Apex down-dip right of ownership 10 Ouray, Colorado
  • 11.  Compact mine, plant,tailings& site services layout  Excellentinfrastructure near highwaywith county maintainedroad to mine site  Connection to Colorado electrical grid with excess capacityto allow for growth  Mineaccess from horizontal tracked & serviced portal & tunnel  Most mine equipment electric to reduce compressor & ventilationrequirements  Underground mill & flotationconcentrator  Externalcrushing plant for wasterock provided to County  Tailsfiltered & dry stacked in permitted area with capacityfor 600,000 tons or 1st 6 yrs of production & planfor expansion 11 Revenue Mine – Surface Infrastructure
  • 12. 12  Site includes office / dry, warehouse & surface shop facilities  Underground shop for mine  External crusher for waste rock sold to county Portal Shop Electrics Underground shop Tails Filter Dry
  • 13. Site Manager Safety and Environmental Manager Safety Training Environment Mine Manager Mine Engineering Development Mine Production Mine Capital Mill Manager Milling Production Planning Concentrate Quality Metallurgy Mill Capital Surface and Services Manager Maintenance Logistics and Transport Site Buildings Surface Utilities Warehouse Surface Capital Finance and Admin Manager Accounting Payroll Human Resources AP and AR IS and IT Procurement Legal TBD • Land Management • Exploration • Community  Decentralized model to manage operations  Currently ~90 employees & most senior positions filled  Full production will require ~100+ employees locally sourced from workers laid off in November 13
  • 14. 14  Tertiary age volcanics 35+ to 22.5 Ma, consisting primarily of andesite flows & breccias transitioning to rhyolite tuffs & basalt flows in large caldera structures  San Juan andesite is the dominant rock type in Revenue Mine area
  • 15. 15  Geological systems in mine well understood & consist of narrow, steeply dipping high grade epithermal quartz-carbonate veins with sulphide minerals  Mineralization consisting of tetrahedrite & freibergite (silver), gold, galena (lead), sphalerite (zinc), chalcopyrite (copper) & pyrite  Sharp contact with andesite tuff wall rock that does not contain mineralization  Initial mining in Yellow Rose Vein near portal & Virginius Vein 2.1 km further to southwest
  • 16. 16  Virginius vein trends northwesterly & dips 70 to 80 degrees southwest  Vein pinches & swells between 6 inches (0.15 m) & 10 feet (3.05 m), averaging 18 inches (0.46 m)  High-grade with sulphides diluted to 3 foot (0.91 m) minimum mining width by SRK Consulting  Fortune assumes 25% additional external dilution in financial model
  • 17. 17  Yellow Rose vein trends northwesterly with an average dip of 63 degrees to the southwest  High-grade vein with sulphides that pinches & swells between 1 foot (0.30 m) & 9 feet (2.74 m), averaging 4 feet (1.22 m)  Fortune applies 20% additional external dilution after diluting to 3 foot minimum mining width
  • 18. 18  Extensive geological database in Vulcan software includes historical & modern data 1880-2014  Virginius Vein has 257 drill holes, totalling 70,025.3 feet with 738 samples of vein & 2,225 chip samples of vein, totalling 2,785.9 feet  Yellow Rose Vein has 124 drill holes, totalling 42,037.5 feet with 680 samples of vein & 10 chip samples of vein, totalling 24.5 feet  Good continuity & alignment between historical workings with old & current drilling  Good ground conditions with no significant fracturing or faulting after vein emplacement Vulcan Plan & cross section of Yellow Rose Vein
  • 19. Resource estimate by SRK Mining Consultants (2014 report) to be reflected in NI-43-101 Technical Report 19 Area Category Tons Ag (opt) Au (opt) Pb (%) Cu (%) Zn (%) Contained Metal Ag (M oz) Au (oz) Pb (M lb) Cu (M lb) Zn (M lb) Virginius Indicated 485,600 26.95 0.044 4.30 0.25 1.37 13.1 21,000 41.8 2.4 13.3 Virginius Inferred 646,100 14.93 0.038 3.04 0.13 0.99 9.65 24,500 39.25 1.6 12.8  Mineral Resources are not Mineral Reserves and do not have demonstrated economic viability. There is no certainty that all or any part of the Mineral Resources estimatedwillbeconvertedintoMineralReserves.  The MineralResource estimates include Inferred Mineral Resources thatare normally considered too speculative geologically to have economic considerations applied to them that would enable them to be categorized as Mineral Reserves. There is also no certainty that Inferred Mineral Resources will be converted to Measured and Indicated categories through further drilling, or into Mineral Reserves, once economic considerations are applied. Mineral resource tonnage and contained metal have beenroundedtoreflecttheaccuracyoftheestimate,andnumbersmaynotaddduetorounding.  *Cut-off is based on a minimum total recovered metal based on a mining and milling cost provided by Silver Star Resources LLC of $150/t and diluted to a minimum miningwidthof3feet.  Recovered block model metal value = (Ag oz/t • Ag recovery • US$/oz Ag) + (Auoz/t • Au recovery • US$/oz Au)+ (2000 • Pb % / 100 • Pb recovery • US$/lbPb) + (2000 •Zn%/100 •Znrecovery •US$/lbZn).  The metal price and recovery assumptions include a silver (“Ag”) price of US$20/oz and recovery of 95%; gold (“Au”) price of US$1250/oz and recovery of 90%; a copper(“Cu”)priceofUS$3.15/lbandrecoveryof80%;alead(“Pb”)priceofUS$1/lbandrecoveryof90%;andazinc(“Zn”)priceofUS$1/lbandrecoveryof85%.  ResourcesbySRKConsultingwithDorindaBairB.S.(Geology),CPG,MarkJorgensen,B.S.(metallurgy),MMSA,andJamesBeckP.E.asQualifiedPersonsforthepurposes ofNationalInstrument43-101.
  • 20. 20 Resource estimate by SRK Mining Consultants (2014 report) to be reflected in NI-43-101 Technical Report Area Category Tons Ag (opt) Au (opt) Pb (%) Zn (%) Contained Metal Ag (M oz ) Au (oz) Pb (M lb) Zn (M lb) Yellow Rose Measured 215,300 10.08 0.034 1.71 1.69 2.17 6,400 7.37 7.28 Yellow Rose Indicated 100,700 10.92 0.036 1.96 1.74 1.10 4,000 3.95 3.5 Yellow Rose Measured & Indicated 316,100 10.35 0.035 1.79 1.71 3.27 10,490 11.31 10.78 Yellow Rose Inferred 38,100 11.01 0.025 1.69 0.92 0.49 700 1.28 0.701  Mineral Resources are not Mineral Reserves and do not have demonstrated economic viability. There is no certainty that all or any part of the Mineral Resources estimatedwillbeconvertedintoMineralReserves.  The Mineral Resource estimates include Inferred Mineral Resources that are normally considered too speculative geologically to have economic considerations applied to them that would enable them to be categorized as Mineral Reserves. There is also no certainty that Inferred Mineral Resources will be converted to Measured and Indicated categories through further drilling, or into Mineral Reserves, once economic considerations are applied. Mineral resource tonnage and containedmetalhavebeenroundedtoreflecttheaccuracyoftheestimate,andnumbersmaynotaddduetorounding.  *Cut-off is based on a minimum total recovered metal based on a mining and milling cost provided by Silver Star Resources LLC of $150/t and diluted to a minimum miningwidthof3feet.  Recovered blockmodelmetalvalue=(Agoz/t •Agrecovery •US$/ozAg)+(Auoz/t •Au recovery •US$/ozAu)+(2000•Pb%/100 •Pbrecovery •US$/lbPb)+ (2000 •Zn%/100 •Znrecovery •US$/lbZn).  The metalpriceandrecoveryassumptionsincludeasilver (“Ag”)price ofUS$20/oz andrecovery of 95%; gold(“Au”)price of US$1250/ozandrecoveryof90%; alead (“Pb”)priceofUS$1/lbandrecoveryof90%;andazinc(“Zn”)priceofUS$1/lband recoveryof 85%.  Resources by SRK Consulting with Dorinda Bair B.S. (Geology), CPG, Mark Jorgensen, B.S. (metallurgy), MMSA, and James Beck P.E. as Qualified Persons for the purposes of National Instrument43-101.
  • 21. 21 Existing Portal, Revenue Tunnel and Primary Veins Yellow Rose Vein Revenue Virginius Vein Mine Portal UG Mill  Virginius & Yellow Rose Veins accessed from Revenue Tunnel ~7500 foot 2.29 km) long crosscut, plus ~1100 feet (335 m) of drifting on 2 main veins  Virginius at terminus of crosscut  Yellow Rose is 600 feet (182.4 m) from portal  Internal winze ~600 feet deep (183 m) to access 700 & 550 Levels & dip extension of Virginius Vein
  • 22. 22  Extensive rehabilitation & development work completed, including underground & surface portions of the mine  Revenue Tunnel rehabilitated with track, piping, air & ventilation  3 Alimak systems for raise development in place – 5 required for full production  All necessary operating permits have been received  Initial production underway with mine production ramping up to 300 tons / day & then 400 tons /day from 2 shifts over the next few months Revenue Tunnel Raise Raise
  • 23. 23  Drift development using track mounted jumbo & muck machines, typically in waste  Mining with jack legs, stopers & slushers to prepared draw points  2 different mining methods will be used depending on vein width to limit dilution & maximize ore recovery - Stopes with width wider than 3 feet will be done by shrinkage stoping - Stopes with width less than 3 feet will be mined by sublevel stoping with split shooting technique  Development waste rock trammed to surface & provided to County for use as aggregate Drill Crew
  • 24. 24 Revenue Virginius Vein – Ore Production Zones
  • 25. 25 Yellow Rose Vein – Ore Production Zones
  • 26. 26  Underground crushing plant, mill & concentrator designed by CH2MHill  Built with primarily new equipment  Mill designed with oversized components for initial 300 tons / day rate & being expanded to 400 tons / day  Two flotation concentrates, including silver lead & silver zinc with contracts in place to sell to Teck Resources Trail Smelter  Potential to produce a copper concentrate  Gravity recovery of gold using Knelson concentrator & Gemini table  All tailings filtered & dry stacked to allow for water recirculation & elimination of tailings ponds
  • 27. 27 Underground Jaw & Cone Crushing gallery Raw ore Receiving
  • 28. 28 Concentrate Bagging Ball Mill & Flotation Lead – Zinc Flotation Bulk Flotation
  • 29.  Fullypermitted project  Wasterock has neutralizingpotential  Co-mingledtailingsfacility(20% waste rock / 80% tails)  After process (sulphideremoval) tails will be neutral  65% brownfield site  Water rightsto SneffelsCreek  Siteis not of archaeologicalsignificance  No contaminationfound to date  Baselinecollection is complete  No geotechnicalissues outstanding  Permitted leach field to potentiallyeliminatethe need for water treatment 29 Tailings Facility
  • 30.  Upsideto add tonnage from exploring & miningstrike & dip-projection of known workings  Process broken mineralized materialin stopes from historicalhand cobbing after upgradingwith jigs  5 additionalknown veins are intersected by main production tunnel,includingSilver Queen, Hard Cash / Two Step, Atlas& Terrible Veins are mineralized & have not been explored  Consolidationof surrounding properties & past producers to feed millwith additional high-gradeore  Mill beingexpanded to 400 tons / day to accelerate payback& improve project economics 30 Virginius Vein – Ore Production Zones Area of initial development and production Area of future exploration and development
  • 31. CONCLUSIONS  Accretive & transformationalacquisitiontransitioningFortune to a producer with cash flow  Measured & IndicatedResources containing16.3 millionozs & Inferred Resources containing10.1 millionozs with significantupside to identifynew resources  6% discounted pre-tax project NPV of US$ 121 million,US$ 15.5 millionof annualEBITDA & US$ 202 Millionof LOM EBITDA  C1 cash cost silver price of US$ 8.02 net of byproduct credits NEXT STEPS  Secure financingto fund the second stageof acquisition  Complete execution of transition planwith current owners & integratemanagement team  Advancemine development to ensure sufficientmillfeed  Complete transitionto 2 shifts  Develop minimumof 5 active stopes  Develop planfor winze & lower level rehabilitation  Complete millimprovements, including additionof jigs & regrind mill  After mine & millachieve throughput capacity,conduct exploration to identifynew resources in mine& surrounding area 31
  • 32.  Revenue Silver Mine acquisition  Fully permitted & constructed producing underground mine ramping up to 400 tons / day  Low cost producer of high grade silver, gold, lead & zinc  Two advanced Canadian development assets  One of world’s premier metallurgical coal developments, significant gold, cobalt & more than 12% of global bismuth reserves  $220 million combined expenditures  Positive Feasibility Studies, test mined, pilot plant processed  Environmental Assessments completed for NICO Mine & SMPP; Arctos advanced in EA process  Low cost production  Combined NPV’s approaching $1 billion  Experienced board & management team  Asian strategic partners to help advance NICO & Arctos projects  Deloitte engaged to secure additional partners for NICO & Arctos to minimize equity dilution 32
  • 33. Directors Mahendra Naik, B Comm, CA Chairman, Director CFO Fundeco - Founding director & former CFO, IAMGOLD George Doumet, MSc, MBA Honorary Chairman, Director Chemical Engineer – President & CEO, Federal White Cement Robin Goad, MSc, PGeo President & CEO, Director Geologist - 30 yrs mining & exploration experience David Knight, BA, LLB Secretary, Director Partner, Norton Rose Fulbright specializing in securities & mining law James Excell, BASc Director Metallurgical Engineer – 35 yrs mining experience BHP-Billiton William Breukelman, BASc, MBA, PEng Director Chemical Engineer – Former Chairman, Gedex James Currie, BSc (Hons), PEng Director Mining Engineer – COO, Elgin Mining The Honorable Carl L. Clouter Director Commercial pilot - Former owner of charter airline in NWT Shou Wu (Grant) Chen, MSc, MBA Director Geologist – Former Deputy Chairman & CEO, China Mining Resources Group Ed Yurkowski Director CEO Procon Mining & Tunneling Management Adam Jean, HBA, CPA, CA VP Finance & CFO Chartered Accountant previously with Ernst & Young Mike Romaniuk, BASc, PEng VP Operations & COO Geologist & Process Engineer – 25+ yrs engineering, mining & construction experience primarily with Xstrata Nickel & Falconbridge Bill Shepard Logistics Manager 15 yrs experience in procurement & logistics Richard Schryer, PhD Director Regulatory & Environmental Affairs Aquatic Scientist –20+ yrs experience in mine permitting & environmental assessments Mike Middaugh Project Controls Manager 20 yrs major construction & project management Keith Lee, BSc Senior Process Engineer 25 yrs operations, engineering & mineral processing experience Carl Kottmeier, BASc, MBA, PEng Project Manager Mining Engineer – 25 yrs engineering & operations experience Seok Joon Kim, MASc, PEng Senior Mining Engineer Mining Engineer – 10+ years operations & engineering experience Dianna Stoopnikoff Environmental Relations Manager 15 yrs environmental & health and safety experience 33