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KORAB RESOURCES LIMITED — Management Reports 2015
Mar 9, 2015
65198_rns_2015-03-09_2d0c6312-15a1-4177-8844-8df8ef122525.pdf
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FPO SHARES Issued: 150 mln Market Cap: $6 mln
ASX: KOR Last Price: AU¢ 3.8 BERLIN: C6S.BE Last Price: € 0.02
KORAB RESOURCES LIMITED KORAB HOUSE
www.korab.com.au
10 March 2015
WINCHESTER MAGNESITE – EARNINGS, COSTS, NPV ESTIMATES
KEY POINTS
-
QUARRY LIFE OF 14 YEARS BASED ON INDICATED RESOURCE OF 12.2 MLN TONNES
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AGGREGATE EBITDA OF $395 MLN OVER QUARRY LIFE
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ATTRACTIVE LONG-RUN ANNUAL EBITDA OF $32 MLN/YEAR (AT 800KT/YEAR SALES)
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HIGH FREE CASH FLOW (FCF) OF $274 MLN OVER QUARRY LIFE
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FCF NET PRESENT VALUE OF $116 MLN AT 12% DISCOUNT
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SUBSTANTIAL ROYALTIES INCOME FOR THE NORTHERN TERRITORY GOVERNMENT OF $ 103 MLN OVER QUARRY LIFE
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EXCEPTIONALLY LOW CAPEX OF $ 4 MLN
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MARKETING AND OFFTAKE AGREEMENT EXECUTED WITH RESCAP INVESTMENTS FOR 25% OF ANNUAL PRODUCTION
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RESCAP INVESTMENTS TO PROVIDE COMPREHENSIVE FINANCING PACKAGE FOR THE DEVELOPMENT OF WINCHESTER (SUBJECT TO DUE DILIGENCE)
Korab Resources Ltd (“Korab”, or “Company”) (ASX: KOR) and its subsidiaries are pleased to provide the results of the expanded pre-feasibility study for Winchester magnesite quarry located 85km south of Darwin in the Northern Territory of Australia. See Figure 1 and Figure 7 for details. This expanded study which included the estimates of revenues and various additional material costs such as haulage, port charges, interest, debt repayment, royalties, overheads, etc. evaluated the economics of Winchester quarry assuming its development as a direct shipping ore (DSO) operation. Inclusion of additional information allowed estimation of earnings and net present value of the project.
The results of the pre-feasibility study without inclusion of the above additional factors were first announced to the market on 13 January 2015. The Company confirms that all material assumptions underpinning the production target in that announcement continue to apply and have not materially changed.
Results of the expanded study show that the project has very attractive economics combined with ability to potentially generate significant pre-tax earnings of $395 million over project life starting with the first year of operations. Estimates of potential earnings before interest, tax and amortisation but after payments for royalties, overheads etc. are shown in the following table:
| Table 1 EBITDA(in$ '000) at US$80/T magnesite price and US$0.82 exchange rate YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEARS 5-14 TOTAL 6,235 14,185 31,997 32,251 310,378 395,046 |
Table 1 EBITDA(in$ '000) at US$80/T magnesite price and US$0.82 exchange rate YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEARS 5-14 TOTAL 6,235 14,185 31,997 32,251 310,378 395,046 |
Table 1 EBITDA(in$ '000) at US$80/T magnesite price and US$0.82 exchange rate YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEARS 5-14 TOTAL 6,235 14,185 31,997 32,251 310,378 395,046 |
Table 1 EBITDA(in$ '000) at US$80/T magnesite price and US$0.82 exchange rate YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEARS 5-14 TOTAL 6,235 14,185 31,997 32,251 310,378 395,046 |
Table 1 EBITDA(in$ '000) at US$80/T magnesite price and US$0.82 exchange rate YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEARS 5-14 TOTAL 6,235 14,185 31,997 32,251 310,378 395,046 |
Table 1 EBITDA(in$ '000) at US$80/T magnesite price and US$0.82 exchange rate YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEARS 5-14 TOTAL 6,235 14,185 31,997 32,251 310,378 395,046 |
Table 1 EBITDA(in$ '000) at US$80/T magnesite price and US$0.82 exchange rate YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEARS 5-14 TOTAL 6,235 14,185 31,997 32,251 310,378 395,046 |
|---|---|---|---|---|---|---|
| YEAR 1 | YEAR 2 | YEAR 3 | YEAR 4 | YEARS 5-14 | TOTAL | |
| 6,235 | 14,185 | 31,997 | 32,251 | 310,378 | 395,046 |
To put these estimates into perspective, market capitalisation of Korab is currently under $6 million. At EBITDA of $6.2 million, the quarry has a potential to generate in its first year of operation annual earnings exceeding Korab’s current market capitalisation. Furthermore, with the EBITDA potentially
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20 PROWSE STREET, WEST PERTH, WA, 6005, AUSTRALIA PO BOX 1958, WEST PERTH, WA, 6872, AUSTRALIA TEL (08) 9474 6166 FAX (08) 9322 6333 ACN 082 140 252
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FPO SHARES Issued: 150 mln Market Cap: $6 mln ASX: KOR Last Price: AU¢ 3.8 BERLIN: C6S.BE Last Price: € 0.02
KORAB RESOURCES LIMITED KORAB HOUSE
www.korab.com.au
increasing to around $32 million/year, the quarry has a potential to generate in its third year of operation annual earnings which might be approximately 5 times greater than Korab’s current market capitalisation.
Importantly, in addition to having high EBITDA, Winchester quarry has a potential to generate very significant Free Cash Flow of $274 million after providing for interest, income tax, repayments of debt, royalties, overheads etc.. Estimate of Free Cash Flow from the quarry after payments for interest, income tax, repayments of debt, royalties, overheads etc. is shown in the following table:
Table 2 Free Cash Flow (in $ ‘000) after tax, interest and debt repayments at US$80/T magnesite price and US$0.82 exchange rate
| YEAR 1 | YEAR 2 | YEAR 3 | YEAR 4 | YEARS 5-14 | TOTAL |
| 3,050 | 8,041 | 22,519 | 22,697 | 217,992 | 274,298 |
Sensitivity study shows that Winchester quarry is very robust, with EBITDA and free cash flow remaining positive even at US$50/T magnesite price and the quarry operating at only 25% of its nominal capacity. With the quarry operating at 100% capacity, the potential earnings and free cash flow remain positive even at US$40/T which is half of the current market price. Sensitivity of the estimated earnings (EBITDA) to variations in the magnesite sale price is shown in the table below:
Table 3 EBITDA (in $ '000) Sensitivity to magnesite selling price
| Year/Volume Mag price |
YEAR 1 @200KT |
YEAR 2 @400KT |
YEAR 3 @800KT |
YEAR 4 @800KT |
YEARS 5-14 @800KT |
TOTAL |
|---|---|---|---|---|---|---|
| US$40/T | (1,263) | (168) | 3,524 | 3,779 | 41,316 | 47,189 |
| US$50/T | 897 | 3,508 | 10,642 | 10,897 | 108,582 | 134,526 |
| US$60/T | 2,676 | 7,067 | 17,760 | 18,015 | 175,847 | 221,366 |
| US$70/T | 4,456 | 10,626 | 24,879 | 25,133 | 243,113 | 308,206 |
| US$80/T | 6,235 | 14,185 | 31,997 | 32,251 | 310,378 | 395,046 |
| US$90/T | 8,015 | 17,744 | 39,115 | 39,369 | 377,644 | 481,886 |
| US$100/T | 9,794 | 21,303 | 46,233 | 46,487 | 444,909 | 568,727 |
| US$110/T | 11,574 | 24,862 | 53,351 | 53,605 | 512,175 | 655,567 |
| US$120/T | 13,353 | 28,421 | 60,469 | 60,723 | 579,440 | 742,407 |
Study has also shown that the potential Free Cash Flow from Winchester quarry after provisions for tax, interest and debt repayments has a high Net Present Value (NPV) of $116 million. This high NPV and a very low CAPEX of $4 million make Winchester exceptionally robust project. Importantly, the NPV of Free Cash Flow remains positive even after a 50% drop in the magnesite sale price from current market levels. Sensitivity of the Free Cash Flow NPV to variations in the magnesite price is shown in the following table:
Table 4 Free Cash Flow Net Present Value (in $ '000) after tax, interest and debt repayments at various magnesite prices
| US$40/T 8,233 |
US$50/T | US$60/T | US$70/T | US$80/T | US$90/T | US$100/T | US$110/T | US$120/T |
|---|---|---|---|---|---|---|---|---|
| 33,427 | 61,828 | 87,919 | 115,512 | 143,106 | 170,699 | 198,292 | 222,615 |
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20 PROWSE STREET, WEST PERTH, WA, 6005, AUSTRALIA PO BOX 1958, WEST PERTH, WA, 6872, AUSTRALIA TEL (08) 9474 6166 FAX (08) 9322 6333 ACN 082 140 252
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www.korab.com.au
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FPO SHARES Issued: 150 mln Market Cap: $6 mln ASX: KOR Last Price: AU¢ 3.8 BERLIN: C6S.BE Last Price: € 0.02
KORAB RESOURCES LIMITED KORAB HOUSE
Study assumed a 14 year quarry life based on indicated mineral resource estimate of 12.2 million tonnes of magnesite rock (see Table 7 for detailed mineral resources estimate). Production was assumed to start at 200,000 tonnes/year of saleable magnesite rock in Year 1 and increase to 800,000 tonnes/year of saleable magnesite rock in Year 3. The study assumed a selling price of magnesite rock of US$80 per tonne FOB basis and a US$/AU$ exchange rate of US$0.82. Current market prices for magnesite rock range from US$80 to US$140 per tonne on FOB basis. Exchange rate at the time of writing of this report was approximately US$0.77. To calculate the potential royalties’ income of the Northern Territory government, the study used current royalty rate of 20% (after allowable deductions). Company tax rate used was 30%. Study assumed that debt funding will be provided at an interest rate of 12% pa with repayments spread over 3 years. Material modifying factors concerning this project are provided in Table 8.
This study was completed by the Company using information collated and prepared by Golder Associates Pty Ltd, the Company, URS, Bateman Tenova and Devmin Consultants. Assumptions and inputs (mining work rates, labour costs, maintenance costs, selling prices, haulage and port loading costs, royalties, tax rates, interest costs as well as other input variables) underpinning this study which generated the estimates of revenue, capital and operating costs and the NPV were sourced from appropriate consultants and contractors and publicly available data. This is a prefeasibility level study with estimated accuracy of +/-30% and consequently 30% contingency has been added to all capital and operating costs other than taxes, royalties and interest.
This study assessed estimated potential revenue, capital and operating costs of Winchester project supplying a direct shipping ore crushed on site to 25mm and screened to separate fines (minus 6mm). No additional processing of magnesite rock is planned. The output from the quarry would consist of crushed magnesite rock with a waste stream consisting of waste rock and fines which would be stored on site. The estimated ratio of coarse saleable magnesite rock to fines was 80%. This study showed that there may be a market for magnesite fines in agriculture and feedstock production; however any potential revenue from sale of fines has not been included in this study.
Deposit is located approximately 85km south of Darwin, capital of the Northern Territory, less than a hundred meters from sealed road, and less than 5km from railway line. For location of the project please see Figure 1. The deposit is a shallow, flat laying body covered by up to 5 meters of soil overburden. It can be quarried at a low cost by open cut method.
MARKETING AND OFFTAKE ARRANGEMENT FOR 25% OF ANNUAL PRODUCTION
AusMag P/L (“AusMag”), the wholly owned subsidiary of Korab Resources Ltd and the owner of the Winchester magnesite project has entered into an off-take arrangement for 25% of production from Winchester with Rescap Investments P/L (Rescap), a resources focussed investment and off-take company.
The deal was introduced by Tennant Metals P/L (Tennant), one of the oldest commodities trading houses in Australia. Off-take arrangement allows Rescap to transact 25% of quarry output for 7 years. AusMag will receive the full sale price on a fully transparent basis less the fee payable to Rescap. Under the agreement the fee is a percentage of sale price received by AusMag consistent with industry standards. Rescap and/or its partners will also provide operational, technical, managerial and transactional support to Korab and AusMag in relation to Winchester magnesite project.
COMPREHENSIVE FINANCING PACKAGE FOR WINCHESTER DEVELOPMENT
AusMag has also entered into an agreement with Rescap where Rescap will provide AusMag with a comprehensive financing package acceptable to AusMag for the development of Winchester project subject to due diligence.
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20 PROWSE STREET, WEST PERTH, WA, 6005, AUSTRALIA PO BOX 1958, WEST PERTH, WA, 6872, AUSTRALIA TEL (08) 9474 6166 FAX (08) 9322 6333 ACN 082 140 252
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FPO SHARES Issued: 150 mln Market Cap: $6 mln ASX: KOR Last Price: AU¢ 3.8 BERLIN: C6S.BE Last Price: € 0.02
KORAB RESOURCES LIMITED KORAB HOUSE
www.korab.com.au
SUPPORT FOR LOCAL ECONOMY AND BUSINESS
Winchester magnesite quarry has a potential to bring substantial economic and social benefits. Once operational, the quarry will generate significant royalties’ income of over $100 million for the Northern Territory government (over 14-year life and at current estimates of revenue and costs). In addition to providing revenue stream for the government, the quarry would also directly benefit Territorians by supporting local businesses and providing jobs.
Whilst there is no legal requirement to utilise local contractors and labour, local businesses and labour would be given preference as long as this would not have negative impact on the viability of the project. The project will aim to utilise local contractors operating on a campaign basis. Other than contractor’s staff, there would also be a number of local personnel involved in establishing and operating the quarry
CAPITAL COST ESTIMATES
Capital costs of the Winchester project have been estimated at approximately $4 million (including 30% contingency). Components of the capital costs of the project are shown in Table 5. Results of the study show that main components of capital expenditure are not sensitive to output capacity and that the capacity is primarily the function of demand for the magnesite rock. Production from the quarry would therefore ultimately depend on off-take and/or long term sale agreements in place at the time. The study assumed that contractors would be used for majority of project operating tasks thus reducing capital costs by limiting the need for owner operated equipment. Capital cost has been estimated for the development of open pit operations with required access roads, diversion channels, waste and water management and site infrastructure etc.
Two variants were evaluated, bench-bench and staged development. The study was based on a conceptual quarry that could operate at various capacity levels, 250,000T/y ROM capacity, 500,000T/y ROM capacity and 1,000,000T/y ROM capacity. Capital cost estimates shown in Table 5 assume bench-by-bench development scenario.
Under the staged development variant the capital costs will be slightly reduced but the operating costs will not change. The difference in capital costs estimates between the two development variants (bench-by-bench and staged development) is negligible and can be disregarded for the purposes of this study.
Layout of the project under bench-by-bench operating scenario with quarry and dewatering infrastructure is shown in Figure 2 and 3. Layout of the project under staged development scenario including quarry and dewatering infrastructure is shown in Figure 5. Open pit cross section under staged development variant is shown in Figure 6.
Table 5 Project estimated capital costs
| SUMMARY | |
|---|---|
| WATER MANAGEMENT | 626,810 |
| SITE INFRASTRUCTURE | 1,079,310 |
| WASTE DUMPS | 108,925 |
| QUARRY | 1,293,290 |
| SUBTOTAL | 3,108,335 |
| CONTlNGENCY | 932,501 |
| TOTAL ESTIMATE | 4,040,836 |
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20 PROWSE STREET, WEST PERTH, WA, 6005, AUSTRALIA PO BOX 1958, WEST PERTH, WA, 6872, AUSTRALIA TEL (08) 9474 6166 FAX (08) 9322 6333 ACN 082 140 252
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www.korab.com.au
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FPO SHARES Issued: 150 mln Market Cap: $6 mln ASX: KOR Last Price: AU¢ 3.8 BERLIN: C6S.BE Last Price: € 0.02
KORAB RESOURCES LIMITED KORAB HOUSE
OPERATING COST ESTIMATES
Operating cost at 1,000,000T/y ROM output capacity (800,000T/y of saleable rock) is estimated at $21/T of saleable coarse magnesite (including 30% contingency). Estimated project operating costs at various output capacities are shown in Table 6.
| **Table ** | **Table ** | **6 ** | **Project ** | **estimated ** | operating costs (shovel and truck, drilland blast) | ||||
|---|---|---|---|---|---|---|---|---|---|
| Description 250KT/Y |
500KT/Y | 1,000KT/Y |
| able 6 Project estimated operating costs (shovel and truck, drilland blast) | able 6 Project estimated operating costs (shovel and truck, drilland blast) | able 6 Project estimated operating costs (shovel and truck, drilland blast) | able 6 Project estimated operating costs (shovel and truck, drilland blast) | able 6 Project estimated operating costs (shovel and truck, drilland blast) | |||
|---|---|---|---|---|---|---|---|
| Description | 250KT/Y | 500KT/Y | 1,000KT/Y | ||||
| WATER MANAGEMENT($/YR.) | 440,000 | 440,000 | 440,000 | ||||
| WASTE DUMPS($/YR.) | 180,000 | 180,000 | 180,000 | ||||
| QUARRY AND CRUSHING ($/YR.) | 3,906,452 | 7,137,186 | 12,421,015 | ||||
| SUBTOTAL ($/YR.) | 4,526,452 | 7,757,186 | 13,041,015 | ||||
| CONTINGENCY (30%) | 1,357,935 | 2,327,156 | 3,912,304 | ||||
| TOTAL ESTIMATE | 5,884,387 | 10,084,342 | 16,953,319 | ||||
| CAPACITY OUTPUT ROM MAGNESITE(T/YR.) | 250,000 | 500,000 | 1,000,000 | ||||
| SALEABLE COARSE MAGNESITE COST ($/T) | 29 | 25 | 21 | ||||
| COARSE MAGNESITE/FINES | 80% | 80% | 80% | ||||
| CAPACITY OUTPUT COARSE SALEABLE MAGNESITE(T/YR.) | 200,000 | 400,000 | 800,000 | ||||
| CAPACITY OUTPUT FINES (T/YR.) | 50,000 | 100,000 | 200,000 |
Above variant shown in Table 6 assumed standard shovel and truck mining method with limited drill and blasting.
The Company also undertook high level assessment of alternative method relying on continuous surface miners and ancillary equipment for moving the in-situ crushed ore and for direct loading onto trucks. This option reduces the handling costs, drilling and blasting and eliminates the need for primary crushing (and potentially secondary crushing). Preliminary assessment of the alternative method suggests that the use of continuous miners with either an integrated loading system, or a wheel loader and conveyor would yield 20%-30% operating cost savings compared to the shovel and truck method. Consequently, the Company will undertake more detailed assessment of this method.
MINING PLAN
Results of the study show that average waste rock to ore ratio for the entire mining operation is 0.5 to 1 T/T, though the actual ratio will fluctuate over the life of the project. Initially, the waste rock to ore ratio would be about 1 to 1, while towards the end of quarry -life the ratio would be less than 0.2 to 1. The average ratio of all waste (overburden plus waste rock) to ore for the entire mining operation was 0.6 to 1 T/T.
The study shows that variable costs of mining and the waste:ore ratio would have little impact upon the size and shape of the open pit excavation over the quarry life examined in this study. The design criteria for the open pit and slope design parameters used in this study are summarised in the ASX report released on 13 January 2015. Link to this report appears below:
http://www.asx.com.au/asx/statistics/displayAnnouncement.do?display=pdf&idsId=01590863
A thin layer (up to 5m) of unconsolidated soil and unconsolidated alluvium overlies the massive magnesite at the Winchester deposit. This overburden would require progressive removal to expose the hard, consolidated magnesite. It is expected that the unconsolidated, overburden could be removed by tractor scraper.
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20 PROWSE STREET, WEST PERTH, WA, 6005, AUSTRALIA PO BOX 1958, WEST PERTH, WA, 6872, AUSTRALIA TEL (08) 9474 6166 FAX (08) 9322 6333 ACN 082 140 252
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FPO SHARES Issued: 150 mln Market Cap: $6 mln ASX: KOR Last Price: AU¢ 3.8 BERLIN: C6S.BE Last Price: € 0.02
KORAB RESOURCES LIMITED KORAB HOUSE
www.korab.com.au
Under shovel and drill/blast option, conventional open pit mining methods using rubber-tyred trucks and either a hydraulic excavator or rubber-tyred, front end loader were proposed for excavation of the open pit materials.
The second alternative is to use continuous miners with wheel loaders and/or conveyors. This option would reduce the mining costs by removing the need for blasting and possibly crushing of ore as well. Preliminary assessment based on quotations from contractors suggests a 20%-30% reduction in mining/crushing costs per tonne over the life of quarry.
MINERAL RESOURCES ESTIMATES FOR WINCHESTER MAGNESITE DEPOSIT
This pre-feasibility study was based on the indicated mineral resource only. Current estimated mineral resources at Winchester, including both indicated and inferred categories, are shown in the following table:
Table 7 Mineral resources estimates
| At 40% MgO Cut-Off | MgCO Mass | MgO grade |
|---|---|---|
| ‘000 Tonnes | % | |
| Indicated Resources | 12,200 | 43.1 |
| Inferred Resources | 4,400 | 43.6 |
| Total | 16,600 | 43.2 |
There has been no change to the Winchester mineral resource estimate since it was last reported in the Annual Report 2014.
This information was prepared and first disclosed under the JORC Code 2004 on 17 July 2007. It has not been updated since to comply with the JORC Code 2012 on the basis that the information has not materially changed since it was last reported.
The author of this Report is not aware of any new information or data that materially affects the information included in the report released on 17 July 2007 and, in the case of mineral resources that all the material assumptions and technical parameters underpinning the estimates in the report released on 17 July 2007 continue to apply and have not materially changed. The form and context in which the findings of the report released on 17 July 2007 are presented have not been materially modified.
BACKGROUND INFORMATION
Winchester magnesite deposit is located within the Batchelor project which consists of exploration licence EL29550 (100% Korab Resources Ltd) and a Mineral Lease application ML30587 (100% AusMag Pty Ltd, a wholly owned subsidiary of Korab Resources Ltd). Batchelor project is located near town of Batchelor, some 85km south of Darwin. See Figure 1 and Figure 7 for details.
COMPETENT PERSON STATEMENT
The information in this report that relates to Mineral Resources underpinning the pre-feasibility study reported in this report is based on information compiled by the Company and reviewed by Malcolm Castle, a competent person who is a Member of the Australasian Institute of Mining and Metallurgy (“AusIMM”). Malcolm Castle is a consultant geologist employed by Agricola Mining Consultants Pty Ltd. Mr Castle has sufficient experience that is relevant to the style of mineralisation and type of deposits under consideration and to the activity being undertaken to qualify as a Competent Person as defined in the 2004 edition of the “Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves” (“JORC Code”). Malcolm Castle consents to the inclusion in this
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20 PROWSE STREET, WEST PERTH, WA, 6005, AUSTRALIA PO BOX 1958, WEST PERTH, WA, 6872, AUSTRALIA TEL (08) 9474 6166 FAX (08) 9322 6333 ACN 082 140 252
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www.korab.com.au
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FPO SHARES Issued: 150 mln Market Cap: $6 mln ASX: KOR Last Price: AU¢ 3.8 BERLIN: C6S.BE Last Price: € 0.02
KORAB RESOURCES LIMITED KORAB HOUSE
report of the matters based on his information in the form and context in which it appears. This information was prepared and first disclosed under the JORC Code 2004. It has not been updated since to comply with the JORC Code 2012 on the basis that the information has not materially changed since it was last reported.
CONTACT
Andrej K Karpinski, Executive Chairman - Australia: (08) 9474 6166, International: +61 8 9474 6166
ABOUT KORAB RESOURCES
Korab Resources Ltd is an international mining and exploration company with operations in Australia and Europe. Korab’s projects include gold and silver deposit at Bobrikovo in eastern Ukraine, Geolsec phosphate rock deposit and Winchester magnesite deposit at Batchelor in the Northern Territory of Australia. The Company also explores for gold and copper at Ashburton Downs in Western Australia and for polymetallic deposits at Batchelor in the Northern Territory. More information about Korab’s projects can be sourced from Korab’s website at www.korab.com.au. Korab’s shares are traded on Australian Securities Exchange (ASX) and on the Berlin Stock Exchange (Berliner Börse) through Equiduct electronic trading platform.
LIST OF TABLES
Table 1 EBITDA (in $ '000) at US$80/T magnesite price and US$0.82 exchange rate ......................... 1
Table 2 Free Cash Flow (in $ ‘000) after tax, interest and debt repayments at US$80/T magnesite price and US$0.82 exchange rate ............................................................................................................. 2 Table 3 EBITDA (in $ '000) Sensitivity to magnesite selling price .......................................................... 2 Table 4 Free Cash Flow Net Present Value (in $ '000) after tax, interest and debt repayments at various magnesite prices ............................................................................................................................ 2 Table 5 Project estimated capital costs ..................................................................................................... 4 Table 6 Project estimated operating costs (shovel and truck, drill and blast) ......................................... 5 Table 7 Mineral resources estimates ......................................................................................................... 6 Table 8 Material modifying factors ............................................................................................................. 8
LIST OF FIGURES
Figure 1 Site locality plan ......................................................................................................................... 10 Figure 2 Conceptual layout at end of year 3 – bench-by-bench development variant ......................... 10 Figure 3 Conceptual layout at end of mine life – bench-by-bench development variant ...................... 11 Figure 4 Open pit outlines – bench-by-bench development variant ...................................................... 11 Figure 5 Conceptual layout – staged development variant .................................................................... 12 Figure 6 Open pit cross section – staged development variant ............................................................. 12 Figure 7 Winchester Magnesite deposit relative to Darwin and transportation ..................................... 13
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20 PROWSE STREET, WEST PERTH, WA, 6005, AUSTRALIA PO BOX 1958, WEST PERTH, WA, 6872, AUSTRALIA TEL (08) 9474 6166 FAX (08) 9322 6333 ACN 082 140 252
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FPO SHARES Issued: 150 mln Market Cap: $6 mln ASX: KOR Last Price: AU¢ 3.8 BERLIN: C6S.BE Last Price: € 0.02
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KORAB RESOURCES LIMITED KORAB HOUSE
www.korab.com.au
| Table 8 Material modifying factors | Table 8 Material modifying factors |
|---|---|
| **MODIFYING FACTOR ** | COMMENTS |
| Legal | Winchester deposit is located within exploration licence EL29550 held by Korab. The exploration licence has an area of 171,172 ha. Korab established a wholly owned subsidiary AusMag Pty Ltd which has applied for a Mineral Lease (mining licence) MLN30587 over approximately 2% of the area of EL29550. The mineral lease application has an area of 349 ha. East Africa Resources Limited (ASX: EAF) is entitled to a royalty of 5% of net profits achieved after deduction of all operating costs, transportation and sales costs and all taxes, government charges, royalties and fees on sales of magnesite rock mined from Winchester deposit. |
| Infrastructure | The deposit is located 2km east from the town of Batchelor along Batchelor road and 93km from Port of Darwin along Stuart Highway. Darwin to Adelaide rail line runs approximately 5km from the deposit. High voltage power runs along the Batchelor road next to the deposit. Additional high voltage power lines run across the project 2 km to the east of the deposit. Gas pipeline runs approximately 3 km east of the deposit. Potable water is available on site. Accommodation is available at Batchelor with alternative accommodation available in Darwin. |
| Transportation | Sea transport is available from Darwin Port’s East Arm which is located 93km to the north of the project. Bulk materials handling facility at East Arm includes a 850m rail spur, 1,500T/H�rail bottom dump station, stockpiles, haul roads and a 2,000T/H travelling gantry shiploader. The shiploader is designed for Panamax class ships. Road transport by haulage trucks is available to the Darwin port and to South Australia, Victoria, New South Wales and Queensland via Batchelor road and then via Stuart Highway. Darwin to Adelaide railway line runs along Stuart Highway and is transected by Batchelor road approximately 5km from the deposit. Currently there are no rail loading facilities either at Batchelor or near the point where Batchelor road transects the railway line. |
| Mineral Resources Classification | The mineral resources estimates that were used to underpin this report are classified as indicated mineral resources. |
| Marketing (Off-take or Sale Agreements) |
Development of Winchester depends on one or more long-term sale, or off-take agreements being completed. AusMag P/L (“AusMag”), the wholly owned subsidiary of Korab Resources Ltd and the owner of the Winchester magnesite project has entered into an off-take arrangement for 25% of production from Winchester with Rescap Investments P/L (“Rescap”), a resources focussed investment and off-take company. |
| Mine Permitting | Winchester deposit is located on exploration licence EL29550. Before quarrying of magnesite from the deposit can commence, the project will require a grant of a Mineral Lease (which is currently under application). Furthermore, before the quarry can be established, an appropriate Mine Management Plan (MMP) will need to be submitted to the Northern Territory Department of Mines and Energy and approved. |
| Environmental studies | Environmental impact studies have been undertaken for the Winchester magnesite project and the assessment shows that the magnesite quarry will have a minimal impact. This is primarily because the project would be developed as a magnesite rock quarry with no processing of the rock other than crushing and screening. The quarry and associated infrastructure will have a very small footprint. Mobile equipment,includingcrusherswill |
20 PROWSE STREET, WEST PERTH, WA, 6005, AUSTRALIA PO BOX 1958, WEST PERTH, WA, 6872, AUSTRALIA TEL (08) 9474 6166 FAX (08) 9322 6333 ACN 082 140 252
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FPO SHARES Issued: 150 mln Market Cap: $6 mln ASX: KOR Last Price: AU¢ 3.8 BERLIN: C6S.BE Last Price: € 0.02
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KORAB RESOURCES LIMITED KORAB HOUSE
www.korab.com.au
| utilised were possible. There are several rock quarries in the vicinity of the town of Batchelor, some abandoned and some in operation. |
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|---|---|
| Native Title | Winchester deposit and the mineral lease application are located wholly on freehold land and no native title approvals would be required to establish a quarry. However, any sacred sites and sites of anthropological or historical significance that are located within the project area will be protected. |
| Social | Winchester magnesite quarry has a potential to generate significant royalties income for the Northern Territory government over the 14-year life of the project. In addition to providing revenue stream for the government, the quarry would also directly benefit Territorians by supporting local businesses and providing jobs. Whilst there is no legal requirement to utilise local contractors and labour, local businesses and labour would be given preference as long as this would not have negative impact on the viability of the project. The project will aim to utilise local contractors operating on a campaign basis. Other than contractor’s staff, there would be a number of local staff involved in establishing and operating the quarry. |
20 PROWSE STREET, WEST PERTH, WA, 6005, AUSTRALIA PO BOX 1958, WEST PERTH, WA, 6872, AUSTRALIA TEL (08) 9474 6166 FAX (08) 9322 6333 ACN 082 140 252
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FPO SHARES Issued: 150 mln Market Cap: $6 mln ASX: KOR Last Price: AU¢ 3.8 BERLIN: C6S.BE Last Price: € 0.02
KORAB RESOURCES LIMITED KORAB HOUSE
www.korab.com.au
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Figure 1 Site locality plan
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Figure 2 Conceptual layout at end of year 3 – bench-by-bench development variant
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20 PROWSE STREET, WEST PERTH, WA, 6005, AUSTRALIA PO BOX 1958, WEST PERTH, WA, 6872, AUSTRALIA TEL (08) 9474 6166 FAX (08) 9322 6333 ACN 082 140 252
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FPO SHARES
Issued: 150 mln Market Cap: $6 mln
ASX: KOR Last Price: AU¢ 3.8 BERLIN: C6S.BE Last Price: € 0.02
KORAB RESOURCES LIMITED KORAB HOUSE
www.korab.com.au
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Figure 3 Conceptual layout at end of mine life – bench-by-bench development variant
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Figure 4 Open pit outlines – bench-by-bench development variant
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20 PROWSE STREET, WEST PERTH, WA, 6005, AUSTRALIA PO BOX 1958, WEST PERTH, WA, 6872, AUSTRALIA TEL (08) 9474 6166 FAX (08) 9322 6333 ACN 082 140 252
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FPO SHARES Issued: 150 mln Market Cap: $6 mln ASX: KOR Last Price: AU¢ 3.8 BERLIN: C6S.BE Last Price: € 0.02
KORAB RESOURCES LIMITED KORAB HOUSE
www.korab.com.au
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Figure 5 Conceptual layout – staged development variant
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Figure 6 Open pit cross section – staged development variant
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20 PROWSE STREET, WEST PERTH, WA, 6005, AUSTRALIA PO BOX 1958, WEST PERTH, WA, 6872, AUSTRALIA TEL (08) 9474 6166 FAX (08) 9322 6333 ACN 082 140 252
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FPO SHARES
Issued: 150 mln Market Cap: $6 mln ASX: KOR Last Price: AU¢ 3.8 BERLIN: C6S.BE Last Price: € 0.02
KORAB RESOURCES LIMITED KORAB HOUSE
www.korab.com.au
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Figure 7 Winchester Magnesite deposit relative to Darwin and transportation
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20 PROWSE STREET, WEST PERTH, WA, 6005, AUSTRALIA PO BOX 1958, WEST PERTH, WA, 6872, AUSTRALIA TEL (08) 9474 6166 FAX (08) 9322 6333 ACN 082 140 252
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