Wolfden gets positive numbers on Arctic projects (July 17, 2006)

Preliminary economic assessments of the Izok, Ulu and High Lake deposits in Nunavut’s western mainland, prepared for owner Wolfden Resources (WLF-V, WFDNF-O), indicate positive economics when the three projects share infrastructure and the Lupin mill.

The three deposits have languished without development — in High Lake’s case, since 1956, and in Izok’s, since 1975 — because there are no roads in the area. The new assessment’s capital cost estimates include an all-weather road connecting Izok and Lupin to Gray’s Bay, on Coronation Gulf, passing by both Ulu and High Lake. It also costs out a port at Gray’s Bay.

Developing the Izok deposit would cost about $539 million. But at conservatively estimated metal prices, the project would have an internal rate of return of 17% and a net present value of $351 million based on a 5% discount rate.

Cash production costs at Izok are calculated at US27 per lb. (US$600 per tonne) of zinc.

In early June, Wolfden reported that its consultants, Wardrop Engineering, had calculated an indicated resource of 14.4 million tonnes grading 12.94% zinc, 2.52% copper, 1.28% lead and 71 grams silver per tonne for Izok, based on a 2% zinc-equivalent cutoff grade. Another 370,000 tonnes of inferred resources graded 6.4% zinc, 3.79% copper, 0.27% lead, and 54 grams silver per tonne.

The cutoff grade was calculated from summing the grades, weighted by assumed recoveries and the base-case prices used in the scoping study. Those prices were US$1,323 per tonne (US60 per lb.) for zinc, US$2,645 per tonne (US$1.20 per lb.) for copper, US$992 per tonne (US45 per lb.) for lead, and US$7.50 per oz. for silver.

At a “high price” case, still with prices lower than current ones, the net present value rises to $1.6 billion and the rate of return to 45%. The price assumptions in that analysis were US$2,200 per tonne (US$1 per lb.) for zinc, US$3,640 per tonne (US$1.65 per lb.) for copper, US$1,100 per tonne (US50 per lb.) for lead, US$550 per oz. for gold and US$8 per oz. for silver.

The mine would be an open pit exploiting the two cone-shaped zones of the main Izok deposit. Ore from Izok would be trucked to the Lupin mine, where it would be processed in a conventional flotation mill. The existing Lupin mill, which Wardrop believes could handle 4,000 tonnes per day, would need separate copper, zinc and lead flotation circuits added to it, in parallel to the existing gold recovery plant.

Kept out of the analysis was a second deposit on the Izok property, Inukshuk, which has an indicated resource of 1.3 million tonnes grading 7.38% zinc and 3.01% copper. An underground mine with decline access is under study for Inukshuk.

High Lake has weaker economics than Izok; it suffers from higher fuel and transportation costs and lacks Izok’s grade. The deposit, which has an indicated resource of 17.3 million tonnes grading 3.35% zinc, 2.25% copper, 0.31% lead, 0.95 gram gold and 69.7 grams silver per tonne, is in four zones, A, B, D and the West zone.

A mine there would have an internal rate of return of 11% and a net present value of $99 million in the base case. High Lake is very sensitive to metal prices; the high-price assumptions move its net present value to $936 million and its rate of return to 51%.

Building a mine would cost $333 million and its cash cost of production would be US50 per lb. (US$1,110 per tonne) of copper. The design consists of an open pit on the A, B and D zones, with decline-access underground mines on those zones and on the separate West Zone.

High Lake is subject to a 1.5% net smelter return to Rio Tinto (RTP-N, RIO-L) subsidiary Kennecott Canada; Wolfden bought the deposit from Kennecott and Aber Diamond (ABZ-T, ABER-Q) in 2001.

Ulu, a gold deposit with an indicated resource of 720,000 tonnes grading 11.7 grams gold per tonne and an inferred resource of 410,000 at 10.7 grams per tonne, would produce gold at about US$210 per oz. Its capital cost is estimated at $61 million and the base-case cash flow analysis puts its return at 20.9% and its net present value at $33 million. Wolfden bought Ulu from Kinross Gold (K-T, KGC-N) in 2004.

T.N.M. Nugget

AMAQQUT PROJECT

OWNERSHIP

Wolfden Resources

RESOURCE — IZOK LAKE

14 Mt, 12.9% zinc, 2.5% copper, 1.3% lead, 71 g/t silver

RESOURCE — HIGH LAKE

17 Mt, 3.4% zinc, 2.3% copper, 0.3% lead, 70 g/t silver, 1 g/t gold

RESOURCE — ULU

0.7 Mt, 11.7 g/t gold

MINE

Open pits at Izok, High Lake; underground at High Lake, Ulu

PLANT

Conventional flotation, 4,000 tonnes/day, producing zinc, copper and lead concentrates; conventional cyanidation for Ulu ore

CAPITAL COST

$933M, including all-weather road and port

PRODUCTION COST

Izok, US$600/t zinc; High Lake, US$1,100/t copper; Ulu, US$210/oz. gold

ECONOMICS

IRR 15%, NPV $483M (discount rate 7%)