Positive Results of Scoping Study

Anglesey Mining plc

24 July 2017        LSE:AYM

Anglesey Mining Reports Positive Results of
Scoping Study on Parys Mountain Mine

Viable mining project demonstrated with initial eight-year mine life

Anglesey Mining plc (“Anglesey” or the “Company”) is pleased to report, in summary, the results of its recently completed 2017 Scoping Study on its wholly owned Parys Mountain copper-lead-zinc project in North Wales.

The Scoping Study was prepared by Micon International Limited (Micon) and Fairport Engineering Ltd (Fairport).

The selected base case envisages a mining rate of 1,000 tonnes per day, to produce an average annual output of 14,000 tonnes of zinc concentrate at 57% Zn, 7,200 tonnes of lead concentrate at 52% Pb and 4,000 tonnes of copper concentrate at 25% Cu, annually, over an initial mine life of eight years.

The overall net smelter return (NSR) for the three concentrates, including the silver and gold precious metals contributions, is expected to total more than $270 million at the forecast metal prices used for the base case models.

The base case yields a pre-tax net present value of $33.2 million, or £26.6 million, at a conservative 10 per cent discount rate, using present day metal prices of $1.25 per pound for zinc, $1.00 per pound for lead, $2.50/pound for copper, $17.50 per ounce for silver and $1,275 per ounce for gold and at an exchange rate of £1.00 = $US1.25.  With an estimated pre-production capital cost of $53 million, or £42 million, this results in an indicated internal rate of return (IRR) of 28.3%.

Using longer term metal price projections of $1.35 per pound for zinc and $3.00 per pound for copper the NPV10 would be $43.2 million, or £34.6 million.  At an 8% discount rate, used to reflect the relatively low risks of the project given its advanced level of development and low political risk in the UK, the NPV8 would be enhanced to $41 million, or £32.8 million, for the base case metal price scenario and to $53 million, or £42 million for the higher long-term metal prices, with an IRR of 33%

To illustrate the comparison and put the results of the Scoping Study into context, the market capitalisation of the Company at the close of trading on 21st July was £8.9 million.

Importantly, the study was based on only the 2.1 million tonnes of indicated resources reported by Micon in 2012.  Micon had also reported a further 4.1 million tonnes of inferred resources which were not incorporated into the Scoping Study.  It is expected that a high proportion of these inferred resources will be converted to indicated resources once exploration drilling from underground takes place.  These additional resources would be processed through the same concentrator plant and would significantly increase the projected life of the mine, to perhaps double the mine-life to 15 or 18 years, and enhance the NPV.

Bill Hooley, Chief Executive commented “We are very pleased with the results of the Scoping Study which demonstrate a viable mine development at Parys Mountain and a healthy financial internal rate of return. The base case economic model at 1,000 tonnes per day indicates a robust project at consensus forecasts for the long-term prices of zinc and copper. This is the first detailed economic study of the Parys Mountain project for a number of years and, based on the current availability of reconditioned process plant, the estimated pre-production capital cost for the project is at a level that could be financeable.”

The pre-tax net present values, at 10% and 8% discount rates, and internal rates of return, are illustrated in the table below, all at a Sterling:US dollar exchange rate of £1.00 = $US1.25. The table also demonstrates the sensitivities of the Parys Mountain Project to zinc and copper prices.

Metal Prices					Pre-Tax
Zinc $/lb	Lead $/lb	Copper $/lb	Silver $/oz	Gold $/0z	Undiscounted $M	NPV (10%) $M	NPV (8%) $M	IRR %
1.25	1.00	2.50	17.50	1,275	91.2	33.2	41.0	28.3
1.35	1.00	3.00	17.5	1,275	110.8	43.2	52.4	33.1
Foreign Exchange assumed to be £1.00: $US1.25

Summary of 2017 Scoping Study

Mine Development Plan

The original feasibility studies conducted on the Parys Mountain project in the 1990s envisaged production at a rate of 1,000 tpd being mined at depth through the 300-metre-deep Morris Shaft.  During the period 2006-2010 Anglesey Mining carried out a detailed drilling programme on the White Rock Zone which lies adjacent to the Morris Shaft and largely overlies the deeper Engine Zone deposits, but which extends to surface.  As a result of this drilling the 2012 resource estimate carried out by Micon included both the White Rock Zone and the Engine Zone.

A new mining plan based on a surface decline to access the White Rock zone was prepared.  The proposed decline would be developed by mining contractors and would be used as the initial means of access to the resource for development and mining. Mined ore would be trucked up the decline to the proposed surface processing plant. During the initial production phase from White Rock the decline would continue to be driven to reach the current bottom of the Morris Shaft and beyond.  The shaft would then be dewatered and deepened by approximately 150 metres and would be recommissioned as a hoisting shaft for the remnant White Rock ore and for the deeper Engine Zone ore.

Production Alternatives

The initial work on the Scoping Study was designed on a throughput of 500 tonnes per day using conventional processing.  As the first results became available it became apparent that a higher daily production throughput would be financially more attractive to potential financiers.  Accordingly, assessment of increased throughput alternatives of 700 tpd and 1,000 tpd were added to the initial scope of the study.  This extra work necessitated additional time and resulted in finalisation of the study being delayed beyond its originally expected completion date.

In addition, the concept of adding a dense media separation plant ahead of the main concentrator was reviewed.  Dense media separation (DMS) is a process technology to remove largely non-metal bearing material from the mine feed ahead of the concentrator.  This results in a substantial reduction in the tonnage of ore to be treated by the concentrator.  Obviously, there are additional costs associated with building and operating a DMS plant, and there is some loss of metal associated with the DMS tailings, but overall inclusion of a DMS plant improves the financial performance.

Concurrent with evaluation of these processing options, mine planning at 700 tpd and 1,000 tpd was also studied.  Mining would be carried out initially from the main decline using rubber-tyred equipment including drill jumbos, load-haul-dump machines and trucks to remove development waste to surface and production ore to the processing plant.  It was concluded that after an initial ramp-up period, the higher production level can be maintained.  In due course, the lower level of the shaft will be accessed from the decline and deepened as originally planned. The existing hoist and headframe will be refurbished and used to bring ore to the surface for delivery to the adjacent processing plant.

The planned processing plant was initially designed in a modular form with an initial capacity of 500 tpd throughput expandable to 1,000 tpd to minimise up-front capital costs.  The plant will consist of crushing and grinding followed by conventional three stage flotation to produce copper, zinc and lead concentrates to be shipped to smelters in Europe.

The study clearly showed that the best financial results can be obtained with the higher throughputs.  There is relatively little additional capital cost required for the higher throughput options and this increase is rapidly offset by lower unit operating costs and increased revenue.

Based on these outcomes it was concluded that the preferred development option for the Parys Mountain Mine is a 1,000 tpd mine and plant with a DMS section ahead off the main concentrator.  This will generate a mine life of approximately eight years.

Mineral Resources and Exploration Potential

The 2017 Scoping Study utilises the Micon 2012 JORC Code compliant resource estimate of 2.1 million tonnes at 6.9% combined base metals in the indicated category.  Micon had also reported a further 4.1 million tonnes at 5.0% combined base metals in the inferred category. These inferred mineral resources were not included in the current study but would have significantly extended the projected operating life of the mine with a consequential increase in the resultant estimated valuation.

As reported in 2012, the resource estimate was made using a gross metal product value cut-off of $80 per tonne.  It is noted that the cash operating cost of the project, prior to royalties and taxes, is forecast at $47 per tonne.  This will enable some further review of the resource to be undertaken.  A lower cut of-grade would increase the tonnes in the indicated category at the same time as reducing the grade.  The larger tonnage would increase the mine life but would reduce the annual revenue due to the lower feed grade to the plant.  An optimisation study will be required to determine the optimum cut-off grade that would provide the maximum increased return over that currently reported.

It is also noted that in addition to the indicated and inferred resources reported by Micon, the Parys Mountain area, over which the Company holds the mineral rights, contains numerous indications of mineralisation across several kilometres many of which have been disclosed in earlier releases and reports.  The Company has recognised that as most of these indications have been encountered in drilling at some depth, further exploration would be more effective from underground locations once mining operations commence.  Should any of these exploration efforts prove successful an increased throughput and a further extended mine life would be the likely outcome.

Scoping Study Results

Capital Costs:

The pre-production capital cost of the preferred option base case including mining, DMS, concentrator and infrastructure is estimated at $53 million.  The initial capital cost for mine development is estimated to be $13 million, the concentrator $29.5 million including $3 million for the DMS plant and infrastructure $10 million, for a total of $53 million.  Included within these figures is a $4 million contingency provision.

The major component of capital costs is initially associated with the processing plant and surface infrastructure.    Capital costs have been estimated based on quotes provided by equipment suppliers together with construction costs forecast by Fairport. Capital costs for the processing plant and infrastructure includes, when suitable, some used and reconditioned plant which has been identified as readily available.  The remainder would be new equipment.

Despite the quite wide spread in throughputs studied it became apparent that the lower throughput options did not present significant savings in capital cost.  This is largely due to minimum equipment sizes required for several units that could also accomplish the duty for the higher throughputs and with the fixed items for work required for buildings, construction etc that do not change materially across the throughput range.

Mine development capital costs are based on all new equipment and on mine contractor development costs.

Operating Costs:

Operating costs have been developed by Micon and Fairport based on current knowledge and experience. Cash operating costs at the higher levels of production are forecast at around $47 per tonne of ore treated. Whilst capital costs were fairly constant across the throughput spectrum, operating cash costs per tonne of ore mined and milled varied significantly with the higher throughputs benefitting from much lower costs.  This led to the clear conclusion that the higher the throughput the better the financial result.

The following table shows the key outcomes derived for each of the options studied.

	500 tpd no DMS	700 tpd no DMS	700 tpd with DMS	1,000 tpd with DMS
Life of Mine (Years)	16	12	12	8
Initial Capital Cost $m	48	50	52	53
Operating cash cost $/t	63	55	53	47
NPV10 $m *	9.0	21.6	19.3	33.2
IRR % *	13.8	20.3	18.8	28.3
Payback (Years) *	7	5	5	4

Pre-Tax Based on Cu $2.50/lb, Zn $1.25/lb, Pb $1.00/lb, Ag $17.50/oz, Au $1,275/oz

Selected Base Case Option - 1,000 tpd

The 1,000 tpd option is clearly the most favourable financial outcome.  The additional capital cost required is only $5 million higher than the lowest cost option and at these levels that is not considered critical.

The inclusion of the DMS plant results in the rejection of approximately 37% of mined material ahead of the concentrator.  Included within this is approximately 4.5% of the metal in feed that will be permanently lost to tailings.  As a result of the application of the DMS the net concentrator feed to the floatation circuits will be approximately 700 tpd.

The NPV and IRR generated are significantly better at 1,000 tpd than the lower throughput options.  Therefore the 1,000 tpd option has been chosen as the base case for further consideration.

No detailed study was carried out on a 1,000 tpd throughput without the DMS.  However, a short study indicated that it is likely that DMS will be far more favourable when the plant capacity is expanded to around 1500 tpd, which should occur when the inferred resources are upgraded to the indicated category.  The incorporation of DMS is therefore considered advisable and prudent.

Metal Production

Metallurgical performance and recovery is based on the large volume of information available from test work on Parys Mountain ores over the years.

Total base metal recovery in the concentrator to each of the three copper, zinc and lead concentrates is forecast to be 89.8% and taking into account the DMS losses overall recovery will be approximately 85.7%.  Significant amounts of silver and gold will report to each of the concentrates.  Some free gold will be recovered by gravity methods ahead of the concentrates and will be sold as Welsh gold.

It is expected that each of the three base metal concentrates will be sold to smelters in Europe.  Smelter payment terms and penalties have been based on treatment charges currently prevailing from these smelters.  It is possible that better terms could be obtained from Chinese smelters from time to time but the cost of shipping to the Far East compared to the proximity of shipping to continental Europe is likely to make such options less viable.

On average 14,000 tonnes of zinc concentrate at 57% Zn, 7,200 tonnes of lead concentrate at 52% Pb and 4,000 tonnes of copper concentrate at 25% Cu, will be produced annually.  These figures will vary somewhat during the life of the mine as mine feed varies depending upon the particular ore bodies being mined at any time. This will result in average annual metal production into concentrates of 17.6 million pounds of zinc, 8.3 million pounds of lead and 2.2 million pounds of copper.

Taking into account shipping costs, smelter terms and penalties, the overall net smelter return (NSR) for the three concentrates, including the precious metals contribution, is expected to total in excess of $270 million at the metal prices used for the base case calculations.  This would represent a net smelter return of approximately 72% of the metal value in concentrates sold to the smelters.

Further work

Both Micon and Fairport have recommended that further work be carried out, including more detailed mine and stope design, underground geotechnical studies, additional infill drilling in some locations, more detailed engineering studies, additional metallurgical test work, including work to improve recovery of specific metals to their own concentrate, and review of tailings management and paste processes. Several opportunities for cost reduction or productivity improvement have been identified for further study.

It is planned to carry out these and other activities as suitable funds are available.  This will then lead to the generation of more detailed production and costing feasibility reviews to support project financing.

John Kearney, Chairman stated, “I have been involved with this Company and the Parys Mountain project for many years, and I am encouraged that that many of the variables and moving parts, including metal prices, treatment charges and used plant availability, have now moved in our favour and present a real and realisable opportunity for Parys Mountain.  There is of course still much to be do but we now have a clear path forward.  We will need to expand the management team to make this happen and I look forward to being involved with the future financings and the path to development, construction and eventual mine production.”

Based on the positive results of the Scoping Study, the company now plans to engage in discussions with potential financiers or partners for the development of the Parys Mountain project.  It is expected that this financing will occur in a stepped progression.  A number of recommendations have been made by Micon and Fairport regarding further work to optimise and enhance the project as the next step ahead of mine development.  It is hoped that financing for this work can be arranged as speedily as possible and will be followed by subsequent financings to move towards mine construction.

About Anglesey Mining plc

Anglesey is carrying out feasibility and development work at its 100% owned Parys Mountain zinc-copper-lead deposit in North Wales, UK with a reported resource of 2.1 million tonnes at 6.9% combined base metals in the indicated category and 4.1 million tonnes at 5.0% combined base metals in the inferred category.

Anglesey holds a 6% interest and management rights to the Grangesberg Iron project in Sweden, together with a right of first refusal to increase its interest by a further 51%. Anglesey also holds 11.8% of Labrador Iron Mines Holdings Limited which holds direct shipping iron ore deposits in Labrador and Quebec.
 
For further information, please contact:
 
Bill Hooley, Chief Executive [phone]
Danesh Varma, Finance Director [phone]
Elliot Hance, Beaufort Securities [phone]