Herald Resources reports Q3 Indonesian mining activities
Saturday, October 30 2004 - 02:34 AM WIB
HIGHLIGHTS FOR THE QUARTER
Dairi Project
? Bankable Feasibility Study work largely completed
? Strong financing interest in project from banks and offtake parties
? Significant strike length indications at Sinar Pagi Prospect
DAIRI ZINC/LEAD PROJECT
Herald 80%; PT Aneka Tambang (?Antam?) 20%
BANKABLE FEASIBILITY STUDY (BFS)
Overview
Work on the BFS for the development of a 1mt/pa operation at the high grade Anjing Hitam deposit continued at full scale during the quarter.
The design work for the concentrator plant and mine construction is now 90% complete. The various consultants comprising the BFS have been extremely thorough, although slower than we expected in presenting their findings.
Mine scheduling and costings are to hand, and indicate on a per tonne basis, a reduction of $4/tUS compared to the 2003 pre feasibility study.
Only preliminary capital cost figures are available at this stage. Based on these indications, capital costs be higher than those in the Pre Feasibility Study due to decision to use a slurry pipeline and new port facilities as opposed to trucking of concentrates (offset by reduced operating costs with the pipeline option), well-publicised industry-wide increases in construction costs, and changes in exchange rates over the last 12 months.
Once the consultants sign off on these capital costs, the financial model of the project can be finalised and announced.
We contemplate this to be in a matter of weeks rather than months.
Finance
The Company?s preferred strategy at this stage for financing the Dairi Project is a package comprising a majority proportion of senior bank debt, supplemented by a level of subordinated debt to be provided by offtake-type parties in exchange for entering agreements for the supply of concentrates. It is believed that this strategy if successful will keep shareholders equity dilution to a minimum.
The Company has received indicative offers for the senior debt finance from two separate banking syndicates, subject to the results of the BFS, final credit approvals etc.
In addition the Company has held discussions with various smelters and metal traders regarding provision of the aforementioned offtake agreements and associated subordinated debt funding. All major groups have expressed a desire to purchase the Dairi concentrates, and most have indicated a willingness to supply funding subordinated to the senior finance to ensure the development of the project. One written submission has already been received, with others expected to follow once project economics are confirmed by the BFS.
Although considerable negotiations will be required, these combined offers indicate that the Dairi project can be financed in a fairly conventional way in a relatively short time frame for a project of this size.
The Directors are overwhelmed with the apparent support received for the development of the Dairi project. In conjunction with JV partners PT Aneka Tambang, all options will be reviewed to ensure the best possible outcome is obtained for shareholders.
Drilling
Work on some aspects of the BFS was delayed awaiting completion of drilling at the northwestern extension, where significant mineralisation, albeit partly oxidised, was found to extend for a further 150m along strike. The extension of the drilling program has impacted on completion of resource modeling, mine planning and the other segments of the study. The status of progress in the various activities and independent consultant studies is summarized below.
Up to the completion of the BFS program by end September, a total of 12,660m had been drilled in 76 holes at the Anjing Hitam, including geotechnical holes.
The deposit has been largely drilled out at 50m along strike x 50m down dip at this stage, although with a 100m spaced fence on 10,300N at the north end. The contiguous Anjing Hitam Main Mineral Horizon extends through this line to the NW but as a 100-150m wide zone with limited cover and so it is largely oxidised or eroded. The next known sulphide, possibly on this trend, is on line 11,000N and well beyond the scope of the presently envisaged mining scheme. There is potential, though, in the undrilled gap from 10,700N to the latter and beyond ? in the Lae Jehe Deeps deposit area.
The NW extension has provided some significant intercepts in the September quarter drilling, eg:
On 10,000N SOP156D ? 7.2m @ 17.1%Zn, 10.7% Pb as sulphide
On 10,050N, SOP154D ? 42.3m @ 14.3% Zn, 8.7% Pb as sulphide
SOP155D ? 13.9m @ 10.4% Zn, 6.5% Pb as sulphide
On 10,200N, SOP159D ? 9.8m @ 8.8% Zn, 6.9% Pb as sulphide
SOP160D ? 13.7m @ 0.1% Zn,16.7% Pb as oxide
On 10,300N, SOP163D ? 5m @ 1.2% Zn,21.9% Pb as oxide
It is a characteristic of the oxidised ex-massive sulphide gossans to be have sections of much enhanced lead values ? present largely as cerrusite (lead carbonate) while being largely depleted of zinc.
Resource Estimation
Resource Evaluations Pty Ltd (Reseval), in conjunction with Consultant geologists CSA Australia Pty Ltd, have carried out a reassessment of the resources to incorporate further drillhole intercepts obtained since the June assessment. The two consultant groups have compiled the geological model and the block model has been recomputed by Reseval using kriging and checked by inverse distance squared methods.
The bounding geological surfaces of the MMH are used and a 5% zinc equivalent cutoff for marginal mineralisation. No allowance has been made for silver which largely reports in lead concentrates but is yet to be demonstrated to consistently exceed the likely pay threshold in concentrates.
The amended figures show total measured and indicated resources of: 7.7Mt @ 16.0% Zn, 9.8% Pb, 12g/t Ag or 23.8% Zn equivalent
This represents a 10% increase in tonnes with a slight decrease in grade compared to the June figures.
Mining
Australian Mining Consultants have addressed the new resource block model provided by Reseval and have produced a mining plan to extract, on preliminary estimates, about 6.64Mt of the resource. The mining plan involves a main decline to extract the majority of material and provide ventilation and a secondary upper incline to surface to provide additional haulage, ventilation and secondary egress.
The main part of the Main Mineral Horizon is extracted by primary open stoping of the footwall section of the lode, cemented paste tailings backfill and secondary cut and fill plus uphole retreat mining of the hangingwall section, followed by paste tailings backfill. Extensive cable bolting will be carried out from footwall drives in the orebody.
The preliminary schedule envisages gearing up to 1Mt /year production after the first year, continuing at this rate for 3 years and tailing off to about 800,000t/yr for the remaining 3.5 years of the deposit?s life. By this stage it would be hoped to delineate further resources to start mining and overlap mining and milling operations at a steady 1mt/pa rate after the initial 3 years above.
There is no proposal at this stage to mine any of the Upper Mineral Horizon at Anjing Hitam although underground drilling will be undertaken during the operation which might delineate suitable contiguous zones suitable for mining. In addition, a very conservative approach has been suggested to leave an effective crown pillar of 50m, and in places 75m, to surface.
Underground experience may lead to extraction of some of this upper material.
Metallurgical Testwork
AMMTEC Ltd?s Burnie Research Laboratory in Tasmania, have been carrying out a substantial program of flotation testwork, both on the main mineral types and a main composite representing a likely production blend. The main program during the quarter was a bulk flotation program on composite drill core sample of massive sulphide mineralisation diluted with wallrock material. It was deemed that a fullscale continuous pilot scale program was not essential, given the generally consistent results being produced using the evolving flotation routine.
The bulk / batch testwork was intended to produce amounts of concentrate and tailings for specific testwork and evaluation as well as to confirm the flotation routine. It was carried out in 25 x 20kg cycles and the results from composited cycles 20-25 indicated the following results:
Zinc concentrate ? 84.5% recovery into a 54.2% Zn grade concentrate
Lead concentrate ? 74.5% recovery into a 71.6% Pb grade concentrate
The higher than expected lead grade at lower recovery is possibly attributable to a coarser regrind size than originally intended.
In general, the overall testwork has demonstrated that acceptable grades and recoveries should be achievable with concentrates falling well within smelter acceptable specifications.
Composite tailings from the metallurgical testwork has been tested at a University of
Melbourne facility to determine the type and amount of cement binder necessary to produce the required strength of cemented paste tailings suitable for stope backfill. Several tests indicate that a 4% addition of ordinary Portland cement will be sufficient, although better results have been obtained with a steel slag pozzolanic binder if available.
Concentrator, Pasteplant & Infrastructure Design Ausenco Ltd have evaluated the metallurgical testwork results and designed a 1Mtpa concentrator which is proposed to be constructed about 500m NW of the main mine portal.
The plant design selected is basically as follows:
? Comminution at 125t/hr via primary jaw crusher/SAG mill/ball mill to produce a p80=40 micron primary grind;
? Lead rougher flotation followed by regrind in a SMD (Stirred Media Detritor) mill to about p80=18 micron in a SMD mill then zinc cleaner flotation and thickening;
? Main part of thickened tailings to paste plant for cemented paste mine backfill, balance to a surface tailings dam;
? Site power generation by diesel gensets for plant and mine electricity supply;
? Mine village to be constructed about 2km downstream from the plant;
? Concentrates pumped to agitated storage adjacent to the plant for staged pumping via slurry pipeline to port
Transportation Studies
Following scoping studies by CEIS Pty Ltd and PT Petrosea in the region, it has been decided to fast-track studies into a slurry pipeline for the concentrates from the site to the west coast port of Singkil Baru at a distance of 80-90km. The pipeline study has been conducted by Maunsell Ltd Engineers.
The scheme involves laying 125mm ID welded, anti-corrosion jacketed steel pipe in a shallow trench for most of the distance.
The scheme provides significant operating cost benefits over the trucking alternatives considered in the pre-feasibility study, albeit at a higher initial capital cost. Any extension of mine life would further increase operating cost savings. There is also a major sociological and logistical benefit in not having to truck ~1000t/day of concentrate.
A bathymetric survey has been conducted along areas of coastline adjacent to the port of
Singkil Baru and sites suitable for barge loading or direct shiploading jetties have been identified. On preliminary CAPEX indications, the barge loader jetty looks the most viable. The pipeline will discharge concentrates into a vacuum filtration based unit with moisture reduced to <10% and thence conveyed to a storage shed adjacent to the jetty.
Concentrates will be transferred by barge to a ship standing offshore every 3 ? 4 weeks.
EXPLORATION
Sinar Pagi
Following on from significant drilling results obtained in the June quarter (including 9.0m @11.0% Pb, 129g/t Ag in hole SPA1D and 15.4m @ 8.5% Pb, 64g/t Ag in hole SPA3D), a program of extension gridding, mapping and sampling was carried out at Sinar Pagi, about 20km NNW of Anjing Hitam and on an unrelated structure.
Attention was first drawn to this locality after infill stream sediment sampling in 1999, which led to the discovery of some high grade lead-silver mineralised float boulders. A Heliborne EM survey later that year pointed to a strong conductor in the locality. Follow up in 2003 led to delineation of a soil anomaly and a possible source of the galena (lead) rich boulders.
Mapping detail is not yet to hand but 2 x NW trending, parallel stratabound zones have been traced to date ? the Bagak Zone of strike length 1.6km, and including the drilled section originally traced over about 300m of strike; and the Maromas Zone of 1.2km strike, situated ~500m SW of the latter.
The mineralised zones are at the contacts of limestone units and a pelitic sequence and may represent fault repetitions. They are traceable as galena and cerrusite bearing quartz breccia and gossan rubble with little outcrop. They appear to reflect structurally emplaced hydrothermal deposits, possibly akin to the carbonate hosted Jehe Vein Type mineralisation at Sopokomil, rather than the Anjing Hitam type massive sulphide mineralisation.
The magnitude of the strike lengths has elevated these prospects in importance warranting considerably greater exploration effort once the BFS is finalised.
Basuki Lode
Since the end of the quarter, limited shallow diamond drilling has been carried out at the Basuki Lode oxide deposits, 1.5km NW of Anjing Hitam. Resuts are not yet to hand.
MELUAK GOLD PROJECT
Herald 26% via Corona Gold Ltd
ACTIVITIES
No activity took place during the quarter pending cessation of the State of Military Emergency in Aceh Province (NAD). This was lifted in May and replaced with a State of Civil Emergency, presently still in force.
While the Meluak district in Gayo Lues Regency, in the mountainous centre of the province, is geographically and politically removed from the centre of the GAM separatist movement and essentially free from trouble, groups of GAM separatists have been known to transit the area. It is intended to return, however, as soon as possible and ascertain whether the district is safe enough to resume activities.
Once this occurs, an initial program of diamond drilling at Merpunge ? Siongal Ongal will be conducted.
The target at Meluak is high sulphidation, epithermal gold-silver deposits in zones of massive silicification in Tertiary to recent volcanics adjacent to a major splay of the Sumatran Fault Zone.
BELITUNG TIN PROJECT
Herald beneficial interest 100%
PT Tambang Timah (Timah) net smelter royalty for tin and co-products
Activities
No activity took place on the project during the quarter. Herald is still in discussion with Timah about altering the MOU to a Formal Agreement. (end of report)