Fortune Minerals Announces Preliminary Economic Assessment Report for the Revenue Silver Mine in Colorado
Issued Capital: 190,244,847
First concentrate delivered to Teck’s Trail Smelter in British Columbia for processing while mine & mill commissioning progress toward 400 ton per day ramp up
As a result of a review by staff of the Ontario Securities Commission, we are issuing the following news release regarding our disclosure on the Revenue Silver Mine property.
Fortune Minerals Limited (TSX: FT) (OTCQX: FTMDF) (“Fortune” or the “Company”) (www.fortuneminerals.com) announces the results of a Preliminary Economic Assessment (“PEA”) report for the Revenue Silver Mine in southwest Colorado, U.S.A. The PEA prepared by SRK Consulting (“SRK”) demonstrates an attractive 73.2% After Tax Internal Rate of Return (“IRR”) and US$ 58.8 million 6% discounted After Tax Net Present Value (“NPV”) for the project. A Technical Report with respect to the PEA (‘the SRK Technical Report”) will be filed on the SEDAR website (www.sedar.com) and the Company’s website today. Fortune can acquire a 100% interest in the Revenue Silver Mine pursuant to an agreement with staged acquisition terms. The Company has already completed the purchase of a minimum 12% interest and is Operator of the mine. The purchase of the Revenue Silver Mine accomplishes Fortune’s goal to become a producer, while also positioning the Company for further growth in the prolific Sneffels Silver Mining District of Colorado.
Highlights of the PEA:
— Fully permitted and constructed mine, mill and surface
facilities in the commissioning for a ramp up to 400 tons per
day
— Pre Tax IRR of 76.4% and After Tax IRR of 73.2%
— Pre Tax 6% discounted NPV of US$ 69.6 million and After Tax NPV
of US$ 58.8 million
— Resources of 215,300 tons classified as Measured, 586,300 tons
as Indicated and 684,200 tons as Inferred, containing 16.3
million ounces of silver in the Measured and Indicated
Resources and 10.1 million ounces of silver in the Inferred
Resources
— Mine Plan Resource of 888,283 tons (diluted) with an average
grade of 14.6 ounces of silver per ton, 0.02 ounces of gold per
ton, 2.26 percent lead, and 0.90 percent zinc used as a basis
for the economic analysis
— Life of mine (“LOM”) average annual mined production of 1.86
million ounces of silver
— Cash cost of US$ 6.62 per ounce of silver net of by-product
credits, excluding freight, treatment and refining charges
(“TC/RC”), and US$ 10.28 per ounce C1 cash cost including TC/RC
charges
— 8-year mine life based only on the Mine Plan Resource including
ramp up and ramp down
— Upside from potential expansion of the Mine Plan Resource where
widespread drilling indicates continuity of the mineralization,
extension of the 2 main veins systems beyond the current
Mineral Resource Estimate, identification of resources in the 6
other mineralized veins intersected by the main access tunnel,
and expansion of production to other mines in an historic
silver mining district
Introduction:
The Revenue Silver Mine is a fully constructed and permitted, high-grade, underground silver mine that is in commissioning. The mine is situated on 147 patented and unpatented mining claims, totaling approximately 1,079.9 acres in southwest Colorado, 11 km southwest of the town of Ouray and 490 km southwest of Denver. The Revenue Silver Mine is an historic producer in the late 1800’s and early 1900’s operated by Caroline Mining Co. and had production estimated at up to 15 million ounces of silver before the mill burned in 1912 and the mine closed. The underground workings have been rehabilitated and new surface facilities and an underground mill have been constructed. The mine is ramping up to a 400 ton per day production rate, and delivered its first shipment of concentrate to Teck Resources’ Trail Smelter in British Columbia last week for treatment further to an off-take agreement to generate the mine’s first revenues.
The Revenue Silver Mine is currently in commissioning. The Company advises that when the mine enters commercial production, that decision will not be based on a feasibility study of Mineral Reserves demonstrating economic and technical viability. As a result, there may be increased uncertainty of achieving any particular level of production or the cost of such production. Historically, such projects have a much higher risk of economic and technical failure.
Fortune, through its wholly-owned subsidiary, Fortune Revenue Silver Mines Inc. (“Fortune Revenue”) entered into an agreement to acquire the Revenue Silver Mine and related assets from Silver Star Resources LLC, Star Mine Operations LLC and Revenue-Virginius Mines Corporation (collectively, “the Vendors”). Fortune Revenue has purchased a 12% participating interest in the mine and can purchase a 100% interest by paying the Vendors an additional US$ 14 million and by issuing a promissory note to pay US$ 34.5 to US$ 36.8 million in deferred quarterly installments over 3.5 to 5.75 years commencing in August, 2015. The amount of the quarterly payments and rate under which the promissory note is paid are determined by revenue targets for each respective quarter. Two deferred payments totaling US$ 4.5 million and a 2% net smelter return royalty – capped at US$ 9 million, are also payable to former owners of the mine. The acquisition of the remaining interest in the mine is subject to Fortune arranging financing.
Preliminary Economic Assessment:
Fortune and the Vendors contracted SRK to update the resources for the Revenue Silver Mine, which was completed in April, 2014, and disclosed in a news release, dated May 9, 2014. This release also announced the agreement under which Fortune Revenue can purchase the mine. Following the release, the mandate for the SRK Technical Report was changed to include a PEA so that Fortune could publicly disclose economic information for the mine. The SRK Technical Report will be filed on the SEDAR website (www.sedar.com) today and was authored by Dorinda Bair, BSc Geology, CPG, Principal Consultant (Geology), James M. Beck, Bsc Mining Engineering, PE, SRK Associate Consultant (Environmental), Mark K Jorgensen, BSc Chemical Engineering, SRK Associate Consultant (Metallurgy), and Joanna Poeck, BEng Mining, Senior Consultant (Mining Engineer) who are Qualified Persons for the purposes of National Instrument 43-101. The report was also subject to peer review as part of SRK’s own internal process by Bret Swanson, BEng Mining, Principal Consultant (Mining Engineer).
The PEA is preliminary in nature and includes 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. There is no certainty that the preliminary economic assessment will be realized.
Economic Results:
The economics for the Revenue Silver Mine were determined on a “Project Basis” using a 6% discounted cash flow model that was considered appropriate for a precious metal mine in commissioning. The financial model does not include financing costs or the capital that was previously spent on mine development. Ongoing capital improvements and sustaining capital totaling US$ 26.144 million LOM are included in the financial model and are summarized in the table below – see wire source for complete release.