Avanti Mining boosts Kitsault’s NPV (December 20, 2010)

A better long-term outlook for molybdenum prices and a nearly US$200 million decrease in initial and sustaining capital has improved the net present value of Avanti Mining‘s (AVT-V) Kitsault project by about US$250 million, boosting it to US$798 million in the final feasibility study.

The base case after-tax NPV of the Kitsault molybdenum property in northwestern British Columbia, 140 km north of Prince Rupert, was calculated at an 8% discount rate. Initial capital costs are estimated at US$770 million and life-of-mine sustaining capital at US$78 million. Payback of the initial capital investment is estimated to be 2.6 years.

Based on the Molybdenum Market Outlook, published by CPM Group in June, the average annual price of molybdenum for the base case scenario over the proposed life of the mine ranges from US$13.75 per lb molybdenum to US$18.25 per lb with an average of US$16.76 per lb.

Avanti expects by-product silver recovery — after it completes additional metallurgical test-work — will enhance the project’s economics.

Permits are anticipated toward the end of 2011 with construction starting in early 2012 and initial production in 2014.

Kitsault includes three known molybdenum deposits: Kitsault, Bell Moly, and Roundy Creek. The Kitsault mine produced 31 million pounds of molybdenum between 1967 and 1972 and from 1981 to 1982.

A single ultimate pit will be mined in six phases, with elevated cut-offs in the early years and low grade stockpiling.

Highlights from the final feasibility study include an internal rate of return of 26.8% and undiscounted net cash flow (after-tax) of about US$2 billion.

Cash operating costs are estimated at $4.76 per lb molybdenum.

Annual metal production averages 23.4 million pounds of molybdenum with the first five years averaging 29.6 million pounds per year.

The mine plan calls for a total of 232.5 million tonnes of proven and probable reserves grading 0.081% molybdenum to be mined over a 16-year mine life, producing 373.9 million pounds of molybdenum. The first five years of production averages 0.101% molybdenum.

The feasibility study estimates that the Kitsault mine would operate at an annual resource throughput rate of 14.6 million tonnes, or 40,000 tonnes per day, with a strip ratio of 0.77:1.

Total molybdenum recovery will vary depending on the mill head grade but Avanti estimates it will average 89.9%.

Kitsault has measured and indicated resources of 298.8 million tonnes grading 0.072% molybdenum for 472.5 million pounds of molybdenum and 4.20 grams silver per tonne for contained silver of 40.3 million ounces.

Inferred resources add 157.1 million tonnes grading 0.050% molybdenum and 3.65 grams silver for 172.2 million pounds of contained molybdenum and 18.4 million ounces of silver.

Roasting capacity for the project has been taken care of in a life-of-mine roasting agreement with Moymet.

The mine has some infrastructure with road and ocean freight access to the mine site and will be serviced by the existing BC Hydro transmission grid.

The project is progressing through the environmental assessment process.

Kitsault has road access to the mine site, which is about 12 km from ocean transport routes and is serviced by the BC Hydro transmission grid. (The property is south of the head of Alice Arm, an inlet of the Pacific Ocean.)

Over the last year Avanti has traded in a range of 9¢ and 35¢ per share.

At presstime it was trading near its 52-week high at 31¢ apiece.