Sutton evaluates Kabanga

A preliminary economic evaluation on the Kabanga nickel-cobalt sulphide deposit in Tanzania has returned positive results for Sutton Resources (VSE) and BHP Minerals.

BHP can earn a 58% working interest in the project by funding all work prior to a positive production decision. Sutton will hold a 42% working interest at that point, while the Tanzanian government will retain a 10% carried interest.

Kilborn Engineering Pacific completed the study for Sutton, and it does not constitute any part of BHP’s work on the project.

Sutton President Michael Kenyon stresses that the study provides only a snapshot of the project and that a great deal of engineering and exploration work has yet to be done.

Kilborn estimates the indicated resource at Kabanga is 28.1 million tons grading 1.36% nickel, 0.2% copper and 0.11% cobalt. Based on a 2.8 million ton-per-year throughput (with mill recoveries in the mid-80% range for nickel, copper and cobalt), annual output is projected at 63.6 million lb. of nickel, 10.6 million lb. of copper and 4.4 million lb. of cobalt.

The study is based on metal prices of US$4 per lb. for nickel, US$1 per lb. for copper and US$18 per lb. for cobalt. Combined mining, milling and smelting costs total US$35.38 per ton, and annual cash flow for the first 10 years is estimated at US$155 million (after taxes). Kenyon says the all-in cash cost works out to about US$1.55 per lb. of nickel (not including cobalt or copper credits).

The capital cost of the mining and smelting facility is estimated at US$321 million (plus or minus 25%), giving the project an internal rate of return of 30.7% and a capital payback of 2.5 years.

The study assumes power will be generated on site. The project is within 20 miles of a paved highway, and metal matte produced from the smelter would be trucked the 200 miles to rail head, which, in turn, is about 550 miles from port.

Sutton has 10.6 million shares outstanding and US$4.8 million in working capital.

The company is not required to fund any work on Kabanga until a production decision is made, and Kenyon expects to spend US$2.3 million on its Bulyanhulu gold project in Tanzania this year.

Engineering work is also planned for the company’s Marudi gold project in Guyana where the resource, consisting of two open-pit deposits, is estimated at 9.6 million tons grading 0.07 oz. per ton at a stripping ratio of 2.5-to-1.