Maggie Hays gets green light (January 27, 2003)

Vancouver – In a move that doubles its nickel production down under, LionOre Mining International (LIM-T) is moving ahead with the US$13 million development of the Maggie Hays nickel deposit in the Lake Johnston region of Western Australia.

Located only 3 km south of its wholly owned Emily Ann operation, the larger Maggie Hays deposit was given the green light based on the completion of a feasibility study on the main massive sulphide zone, which contains an indicated resource of 633,000 tonnes grading 3.55% nickel.

The company envisions mining the lower massive sulphide zone (probable reserve of 475,000 tonnes at 3.55% nickel), while evaluating a small high-grade section at the upper part of the massive sulphide zone by decline drilling. LionOre Mining believes that incremental production from the high-grade section could be achieved by the second half of the year, with production from the lower zone coming in the third quarter of 2004.

Using a nickel price of US$3.25 per lb., average cash operating costs ring in at US$170 per lb., generating some US$15 million in cash flow for LionOre. Underground development costs, expected to hit US$13 million, will be funded using existing cash. Nickel concentrates will be sold to Inco (N-T) under the life-of-mine off-take agreement covering the Emily Ann concentrates.

In anticipation of the go ahead, underground development at the Emily Ann mine has been ramped up with production rising to 350,000 tonnes per year by the second quarter of 2003, from the 250,000 tonnes currently.

The Emily Ann process plant will be upgraded in incremental stages to accommodate the Maggie Hays ore. By the third quarter of 2004, capacity is slated to hit 500,000 tonnes per year. Capital cost for the upgrade come in at a low US$4 million. Combined with the Emily Ann mine, nickel production from the Lake Johnston region is likely to increase to 7,000-to-8,000 tonnes per year in 2003, a 50% jump.

The high-grade section of the Maggie Hays deposit was discovered in 1993, and despite hosting an overall resource of 11 million tonnes grading 1.5% nickel, advancement of the project has been delayed by a complex ownership structure. In May of 2002, LionOre secured a 9-month exclusive option agreement with the BHP Billiton (BHP-N) group to acquire the latter’s 69% interest in Maggie Hays and its 67% interest in the surrounding exploration tenements. The price tag to move to 100% ownership of Maggie Hays would be A$6 million, plus subsequent payments totaling A$10.5 million over a 5-year period. The company has until March 7, 2003 to exercise the option.

Overall, the deposit is 1.4 km long and has a maximum down-dip extension of 500 metres. Mineralization comprises mainly pyrrhotite and pentlandite, with lesser amounts of pyrite and chalcopyrite. The Main zone hosts disseminated mineralization up to 40 metres thick, stratigraphically underlain by a massive sulphide zone up to 7 metres wide. The disseminated mineralization contains 15-20% sulphides, while the basal massive sulphide contains around 80% sulphides.

A complex tabular zone of stringer and massive sulphides hosted by felsic volcanics marks the Maggie Hays North zone. The mineralization ranges from 3 to 8 metres wide and is controlled by a shear zone that dips 60 to the east.

The combined indicated resource of the two zones is about 3 million tonnes grading 2.4% nickel.