Defiance advances Tasiast (April 30, 2004)

Defiance Mining (DM-T) has begun the quest for financing having recently completed a successful bankable feasibility study of its Tasiast gold project in Mauritania, West Africa.

The study, completed by SNC-Lavalin, envisages a four-pit operation producing an annual average of 110,000 oz. of gold from 1.22 million tonnes of oxide ore for the first three years. The mining rate would then slip to an average of 1.12 million tonnes per year to produce 102,000 oz. annually in subsequent years.

The removal of some 983,000 tonnes of waste during pre-production is expected to reduce the strip ratio of the pits to 4.6 to 1 during operations. The waste material will be used for crusher ramp and tailings dam construction.

Tasiast’s four pits — Piment South-South Extension (Pit S1), Piment South-North Extension (Pit S2), Piment Central (Pit S3), and Piment North-South Extension (Pit S4) – would target proven and probable reserves of 9 million tonnes running 3.1 grams gold per tonne, for 886,000 contained ounces. The bulk of the reserve is found in pits S1 (46%) and S3 (43%). The reserves are based on a gold price of US$370 per oz.

The pits are also home to 1 million tonnes of inferred resources, which have been considered as waste under the feasibility study. Still, the material will be excavated as part of the mine plan and Defiance figures a significant portion could be sent through the mill. The company also says that Tasiast’s mineralized extend deeper than the current pit bottoms suggesting the potential for future underground mining.

Processing at Tasiast will involve single-stage crushing, semi-autogenous grinding and ball mill wet grinding followed by gravity concentration, thickening, carbon-in-leach gold recovery and cyanide destruction. Overall gold recovery is pegged at 95%.

The estimated 4,000 cubic metres of water required by the project each day will be piped in from eight wells sunk about 60 km west of Tasiast; a reverse-osmosis filter system will provide 160 cubic metres of fresh water per day. The project will be powered by five diesel-driven generator sets each rated at 1,820 KW/2,500 kVA.

An environmental study at Tasiast concluded that the project poses no major negative environmental impact, as only industrial-grade saline water will be employed, and the project includes a cyanide destruction circuit and a tailings pond design that will maximize process water evaporation and minimize seepage risk. The project is also situated in an isolated desert area.

On the financial front, capital costs are pegged at US$48.4 million, based on contractor mining. The operation will generate total after-tax net free cash flow of US$117 million (before deducting construction capital) over its eight-year mine life, based on a gold price of US$400 per oz. Cash costs are expected to average US$226 per oz. over the mine’s lifetime.

Assuming 100% equity, the project generates an internal rate of return of 22.5%, at a gold price of US$400 per oz. That rate climbs to 32% at a gold price of US$450 per oz., and 12.7%, at US$350 per oz.

Up to 250 people will be employed during the 18-month construction period; 235 full-time employees will staff the operation during production. A production decision will come once financing is secured.

Defiance recently posted a net loss of US$9.6 million (or 17 per share) for all of 2003, compared with a year-ago loss of US$4.6 million (30 per share). Revenue between the two periods climbed by 61% to US$15.6 million on a 39% increase in gold sales to 42,656 oz. Thos ounces sold for US$362 apiece, US$48 per oz. higher than in 2002.

At the end of 2003, the company had US$6.8 million in cash; total debt was $5.2 million.