Avanti Mining boosts Kitsault’s NPV (October 25, 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 (NPV) of Avanti Mining’s (avt-v) Kitsault molybdenum project by about US$250 million, bumping it up to US$798 million in the final feasibility study.
The base case after-tax NPV of the Kitsault 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 last 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. moly to US$18.25 per lb. with an average of US$16.76 per lb. moly.
Avanti expects byproduct silver recovery – after it completes additional metallurgical testwork – 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 lbs. 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 were estimated at $4.76 per lb. moly. Annual metal production averages 23.4 million lbs. moly with the first five years averaging 29.6 million lbs. per year.
The mine plan calls for a total of 232.5 million tonnes of reserves grading 0.081% molybdenum to be mined over a 16-year mine life, producing 373.9 million lbs. moly. The first five years of production averages 0.101% molybdenum.
The feasibility study estimates that the Kitsault mine will 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-to-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% moly for 472.5 million lbs. moly and 4.20 grams silver per tonne for contained silver of 40.3 million oz.
Inferred resources add 157.1 million tonnes grading 0.050% moly and 3.65 grams silver for 172.2 million lbs. of contained molybdenum and 18.4 million oz. silver.
Roasting capacity for the project has been taken care of with a life-of-mine roasting agreement with Molymet.
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 under the B.C. and federal legislation, as well as the Nisga’a Final Agreement.
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.)
In other news, Avanti announced on Dec. 22, 2010, that it intends to form an alliance with SeAH Holdings Corp., South Korea’s largest specialty steel producer. The first step in the alliance will be a private placement of 43.65 million shares at 25.2¢ per share for proceeds of about $11 million, or 10.7% of Avanti’s shares outstanding (8% on a fully diluted basis). The proceeds will be used to fund detailed design engineering, environmental assessment, and permitting for Kitsault.
The next step toward the alliance will be a letter of intent allowing SeAH to acquire up to a 30% partnership interest in the project. Avanti expects such an agreement will be concluded in early January.
Avanti also plans to raise about $4 million in a flow-through financing of 10.15 million shares at a price of 39.4¢ per share.
The funds raised from the offering also will be used for expenditures on Kitsault.
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.