Hana Announces Positive Preliminary Economic Assessment for the Ghanzi Copper-Silver Project
VANCOUVER, BRITISH COLUMBIA -- (Marketwire) -- 05/14/12 -- Hana Mining Ltd. ("Hana" or the "Company") (TSX VENTURE: HMG)(FRANKFURT: 4LH) is pleased to announce the positive results of its initial independent National Instrument 43-101 compliant Preliminary Economic Assessment ("PEA") for the Banana Zone and Zone 5 at its 70-percent owned Ghanzi Copper-Silver Project ("Project") in northwestern Botswana. The PEA was prepared by independent consultants and DRA Mineral Projects ("DRA") of Johannesburg, South Africa and will be filed on SEDAR within 45 days of this news release. The results of the PEA describe the technical and economic viability of establishing a new copper-silver mine and mill complex for the Project. The base-case scenario utilizes a long-term copper price of US$3.40/lb. This copper price represents the current three-year trailing average LME price for reference purposes. As a result of the positive outcome of the PEA, Hana will now commence with a feasibility study on the Project.
The PEA is based on the mineral resources at the Banana Zone and Zone 5 that are detailed later in this press release. Drilling is continuing through 2012 to explore the potential to extend and upgrade the current planned in-pit and global resources. The results from these holes will be included in the feasibility study.
Key highlights of the PEA study are as follows:
-- Initial development capital expenditure of US$285.5 million and a total
capital expenditure of US$399.0 million
-- Pre-tax NPV(8%) of US$363.3 million and an IRR of 22.1% for the base
case, using prices of US$3.40/lb for copper, US$30/oz for silver and a
discount rate of 8%
-- After-tax NPV(8%) of US$262.5 million for the base case
-- After-tax IRR of 19.3% for the base case
-- Payback of capital in 5 years
-- Minimum 13-year mine life supporting a 10,000 tonne-per-day conventional
grinding mill and flotation circuit to produce a clean high-grade
(approximately 46% copper) copper-silver concentrate
-- Life-of-mine strip ratio of 6.8 to 1 to an average pit depth of 183m
from four pits with no more than two pits operating at any given time.
Mining operations will be carried out utilizing contract mining
-- Average production of 66.4 million pounds of copper and 878,000 ounces
of silver for life of mine
-- Cash costs utilizing heavy fuel oil ("HFO") generator power of
US$1.96/lb of payable copper (net of silver byproduct credits) for the
first five years and US$1.75/lb (power supplied by Botswana Power
Corporation ("BPC") from the national power grid for the remaining life
of mine (C1 costs include on-site mining and processing costs, transport
and TC/RC charges and is net of by-product credits)
-- Strongly leveraged for potential upside:
-- Adding an additional two years to the mine life increases the
NPV(8%) by 19% to US$313.7 million
-- Increasing the life-of-mine copper grade by 0.10% increases the
NPV(8%) by 44%
-- A 10% increase in copper prices or grades increases the NPV(8%) by
48%
-- Robust economic indicators justify immediate commencement of the
feasibility study
A PEA should not be considered to be a pre-feasibility or feasibility study, as the economics and technical viability of the Project has not been demonstrated at this time. A PEA is preliminary in nature and includes Inferred Mineral Resources that are considered too geologically speculative at this time to have the economic considerations applied to them to be categorized as Mineral Reserves. Furthermore, there is no certainty that the details outlined in the PEA will be realized.
Hana Mining's CEO and Chairman, Marek Kreczmer, commented as follows:
"The PEA is the culmination of many months of hard work by our highly-experienced technical team. This document represents a current snap shot and firmly demonstrates that the Project has robust economics and will be a long-lived copper-silver operation. Therefore, we have commenced activities for a feasibility study,
The initial capital cost of US$285.5 million will support a 31,000 tonne per year copper-silver mining operation, meaning that this project will have one of the lowest capital intensities among global copper development projects. While the PEA assumes contract mining, where a third party contract-mining firm would carry out the in-pit mining operations, lower cost owner-operated mining needs to be considered, and this will be done in the feasibility study. In addition, none of the holes drilled in 2012, including those with high copper and silver values from the Northeast Fold area were included in the PEA. However, the results from these holes and holes from other parts of the Banana Zone and Zone 5 will be included in the feasibility study. With the additional drilling planned for the next few months we also expect to get a better handle on pit optimization in order to potentially reduce the payback period and increase the NPV of the project.
There are many aspects of the PEA which I believe can be optimized during the feasibility study such as:
-- Upside potential at Zone 5, Zone 6, and the Banana Zone, specifically in
the Northeast Fold area where the high-grade copper-silver drilling
results from 2012 were not included in the PEA,
-- There is excellent potential for identification of additional
mineralization through infill and expansion drilling at the Project
which could support estimation of additional mineral resources, and be
incorporated into an updated mine plan,
-- A reduction in our projected mining and milling costs through further
optimization of our processes and the possible utilization of
alternative energy resources such as solar and wind power. Owner versus
contract mining will also be investigated,
-- A reduction in the estimated capital costs of the project through
further optimization in the costs of the plant and other equipment
needed to operate the mine and mill,
-- The economics of the project may also be significantly optimized with
more timely access to Botswana's national power grid,
-- Investigating the economics of establishing an underground mining
operation.
Our primary corporate focus is to work with the Botswana government to accelerate the extension of their national grid to the project site. As well, we will also investigate the use of alternative energy sources such as coal, solar and wind power to offset the higher cost HFO generated power that was used in the study.
The Project is uniquely positioned to secure low-cost financing given that it has a low capital cost, will produce a high-quality highly sought after concentrate and is located in one of the most stable mining jurisdictions in the world.
Given the positive outcome of the PEA we will now move forward with a feasibility study. We remain well financed with Cdn$20 million in cash in the treasury."
Preliminary Economic Assessment - Mining and Processing:
The PEA is based on a conventional truck and shovel, open-pit mine design at four pits with milling and sulphide concentration of both near-surface secondary/transition copper material and underlying primary sulphide mineralization.
Preliminary metallurgical work on the oxide/transitional material and sulphides show an average blended recovery of 87% for copper and 80% for silver. The two mineralization types will be processed simultaneously through conventional milling and flotation for a minimum mine life of 13 years. Total production is projected to be 10,000 tonnes per day.
Production will come from two pits, at any given time, at the Northeast Fold, New Discovery and South Limb areas of the Banana Zone and from Zone 5. Pit depths in the Banana Zone will have a maximum vertical extent up to 200 m, whereas the pit depth in Zone 5 is currently 150 m. Key parameters and assumptions used for the PEA study are discussed below and summarized in a series of tables on the following pages.
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Avg t/yr Total
Type of Mining Total Years (000's) Avg t/day (000's)
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Open pit mineralized material
(Years 0 - 13) 13 3,600 10,000 45,700
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Open pit waste (Years 0 - 13) 13 23,880 66,000 310,000
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Total material mined 355,700
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Average strip ratio for the life
of mine 6.8:1
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Table 1 - Mining rates and volumes of mined material
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Average
Annual Production
Metal Total Production Life of Mine
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lbs (000's) tonnes lbs (000's) Tonnes
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Copper in concentrate 863,000 392,000 68,000 31,000
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ounces Ounces
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Silver in concentrate 11,408,000 899,000
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Table 2 - Projected metal production
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Head Grades
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Copper % 1.02
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Silver g/t 12.13
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Metal Recoveries
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Copper - sulphides % 91
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Copper - oxides % 50
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Average copper recovery - sulphides and oxides % 87
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Smelter losses % 3
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Total payable copper % 84
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Average silver recovery - sulphides and oxides % 80
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Total payable silver % 64
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Copper concentrate grade % 46
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Silver concentrate grade g/t 414
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Metal Prices
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Copper US$/lb 3.40
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Silver US$/oz 30.00
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Other Parameters
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Life of mine Years 13
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Heavy fuel oil price US$/l 1.06
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Electrical power - HFO US$/kWhr 0.22
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Electrical power - national grid US$/kWhr 0.12
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Table 3 - The Base case head grades, recoveries, metal prices, and other
data used.
Preliminary Economic Assessment - Project Economics:
The results of a discounted cash flow analysis for the Project are presented in Table 4 below. Net Present Value (NPV), Internal Rate of Return (IRR) and Payback values are presented for both pre-tax and after-tax scenarios. The base-case scenario utilizes a long-term copper price of US$3.40/lb and a discount rate of 8%. IRR and NPV values are calculated for a range of copper prices from US$3.00 to US$4.00. The copper price of US$3.40/lb represents the current three-year trailing average LME price for reference purposes. The discount rate of 8% is indicative for a stable country like Botswana. Table 5 summarizes the key financial results for the project.
A Botswana net smelter return royalty of 3% for base metals and 5% for precious metals, and a corporate tax rate of 22.5%, have been used in the cash flow analysis.
Please note that as Mineral Resources (of the Indicated and Inferred categories) do not have economic viability and are geologically considered to be too speculative to have economic considerations applied to them, this PEA is entirely preliminary in nature.
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Copper Price
(US$/lb)
------------------------------
Base
Pre-tax NPV Case
(US$ million) 3.00 3.25 3.40 3.50 4.00
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Discount Rates 5% 289 431 516 573 857
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Base Case 8% 173 291 363 410 646
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10% 113 218 281 324 535
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IRR % 15.0 19.5 22.0 23.7 31.8
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Payback Years 7 6 5 5 4
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Copper Price
(US$/lb)
------------------------------
Base
After-tax NPV Case
(US$ million) 3.00 3.25 3.40 3.50 4.00
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Discount Rates 5% 209 320 387 431 652
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Base Case 8% 112 206 262 299 484
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10% 61 145 196 229 394
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IRR % 13.0 17.0 19.3 20.7 27.9
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Payback Years 7 6 5 5 4
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Table 4 - Pre-tax and after-tax discounted cash flow results for varying
copper prices
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Total Annual
Cash costs Life of Life of Annual Annual
(US$ million) Mine Mine Years 1-5 Years 6-10
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Royalties (Cu at 3%, Ag at 5%) 88 6.8 6.8 6.8
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Net pre-tax income 932 71.7 68.9 79.8
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Life of
Cash Costs (US$/lb Cu produced) Mine Years 1-5 Years 6-13
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Mine site (net of by-product credits) 1.48 1.62 1.40
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C1 (delivered metal - net of by-product
credits) 1.82 1.96 1.75
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Table 5 - Summary of cash costs
Capital Costs
The PEA estimates the initial development capital expenditure at US$285.5 million during the proposed 1.5-year construction period and the first year of partial production. With sustaining (deferred and working) capital over the life of the mine, the expected investment is US$399.0 million. All estimates are based on the consultant's experience with similar projects and are not definitive estimates based on vendor quotations.
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Capital Estimate
(US$ million)
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Mining infrastructure 31.1
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Concentrator plant 125.1
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Surface general infrastructure 17.6
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Power generation 19.3
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Tailings dam and piping 9.9
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Wellfield and piping 13.1
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Accommodation 15.3
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Indirect (managing contractor, owner's costs, spare, etc.) 54.0
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Initial development capital 285.5
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Pre-production costs 15.0
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Sustaining capital 82.1
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Deferred capital (tailing dam extensions) 16.4
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Total capital expenditure for the life of mine 399.0
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Table 6 - Capital estimate summary
Infrastructure
Power will be supplied by 20MW onsite heavy fuel oil ("HFO") generators, at a capital cost of US$19.3 million, for the first five years of commercial production. In year six of operations, which is projected to be the year 2021, BPC is expected to have connected the Project to the national power grid. Onsite power costs using HFO are estimated to be US$0.22/kWh, assuming a HFO of US$1.06/l. Power from the grid is expected to cost US$0.08/kWh. Water will be supplied from an aquifer located approximately 50 kilometers from the concentrator facility. Water will be transported to the processing plant by pipeline.
Operating Costs
The project produces approximately 863 million pounds of copper at an average C1 cash operating cost of US$1.82/lb Cu over the 13-year mine life. For the first five full years of production, utilizing HFO generators, C1 cash costs are estimated to be US$1.96/lb Cu. For the remaining eight years, with power sourced from the national grid, C1 cash costs are expected to decrease to US$1.75/lb Cu. These cash costs are net of silver byproducts and include transport and refining charges. Cash operating costs are based on prevailing wage rates, commodity prices, and power rates in southern Africa. Maintenance parts and repairs are estimated based on industry standard factors for these costs. Details of the operating costs are presented in Table 7 below.
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Operating Cost
(as indicated)
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Mining $/tonne processed 20.80
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Processing - HFO generated $/tonne processed 13.92
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Processing - Grid power $/tonne processed 9.92
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Overheads - Administration $/tonne processed 2.90
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Overheads - Marketing commission % of revenue 1.50
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Overheads - Transportation concentrate US$/tonne of concentrate 180.00
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Overheads - Toll treatment % of revenue 3.00
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Table 7 - Operating costs, freight, treatment and refinement charges
Mineral Resource Estimate
The mineral resource estimate upon which the PEA was based was completed by or under the direction of Ms. Susan N. Meister, SME, and an independent Qualified Person as set forth by NI 43-101. Drill results used in the mineral resource estimates include core and RC drilling from the 2011 drilling program, 2006-2011 drilling by Hana and drilling completed by previous owners that could be verified in the field. The drilling cutoff date for Banana Zone and Zone 5 was December 13, 2011 with assay results available on February 15, 2012. The drilling cutoff date for one sub-zone, NLN, was 28 August 2011 with assays finalized on October 18, 2011. The overall effective date of this resource is February 15, 2012. The mineral resource for Banana Zone is supported by 559 core holes (approximately 75,800 m) and 431 RC holes (approximately 51,400m) drilled by Hana and 21 core holes (approximately 4,250m) and 31 RC holes (approximately (3,600m) drilled by predecessors on the property. Zone 5 is supported by 69 RC drill holes (approximately 7,400m) and 2 core holes (approximately 370m) drilled by Hana. The geological and assay database have been reviewed and audited by Grant Geological Services. Included in this review was the analysis of assaying QA/QC measures implemented by Hana, a study of core to RC drill results and a review of pre-Hana drilling.
Mineral Resources are reported from six block models covering the Banana Zone and a separate one covering Zone 5. Three dimensional solids models were created of continuous mineralized zones at 0.1% Cu and 0.5% Cu grade thresholds that are tied to lithology. The block size (5x1.5x4m, 5x3x4m, 10x3x4m and 40x6x4m) in combination with partial block coding maintained control on mineralized zone volumes and boundary limits. Cu and Ag assays were variably capped by sub-zone prior to compositing and block grade estimation. Nearest neighbor (NN) and inverse distance to a power of 3 (ID3) estimates were run, with ID3 used for resource reporting and NN used for checking. Cu and Ag grades were interpolated for the different grade zones then combined into an overall grade for the mineralized portion of the block. Search distances ranged from 450x350x250m to 150x105x20m, depending upon the estimation pass number and drill spacing within the subzone. In general, blocks were categorized as Indicated within areas of 100 x 50m drill spacing, and Inferred in areas with approximate 200m spacing along strike.
Differences between the previously reported mineral resource estimate (as reported in the Technical Report dated February 3, 2011) are primarily related to additional drilling (292 drill holes, approximately 39,700m in Banana Zone and 33 drill holes, 3800m in Zone 5), a different resource modeling approach and a reduction in the projection distance for categorizing Inferred Mineral Resources.
An updated resource model is planned for Zone 6 following completion of additional drilling, assaying and geological interpretations.
Additional information about the resource modeling methodology and differences between previously issued resource statements will be documented in the upcoming 43-101 technical report.
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Banana Zone - Indicated Mineral Resource
New Discovery, North Limb North, Northeast Fold and South Limb Definition
Subzones
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Contained CU Metal Contained Ag Metal
Cutoff Cu ------------------- Ag -------------------
Cu Tonnes Grade Grade
(%) (M tonnes) (%) (K tonnes) (M lbs) (g/t) (tonnes) (M oz Ag)
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0.3 53.1 0.75 396 873 10.7 569 18.3
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0.4 40.9 0.87 354 780 12.5 510 16.4
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0.5 31.7 0.99 313 690 14.3 453 14.6
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0.6 24.7 1.11 275 605 16.3 402 13.0
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0.7 19.6 1.23 242 533 18.2 358 11.5
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0.8 15.9 1.35 214 472 20.2 320 10.3
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0.9 12.9 1.47 189 417 22.2 287 9.2
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1.0 10.5 1.58 166 366 24.3 254 8.2
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Banana Zone - Inferred Mineral Resource
(includes Chalcocite)
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Contained CU Metal Contained Ag Metal
Cutoff Cu ------------------- Ag -------------------
Cu Tonnes Grade Grade
(%) (M tonnes) (%) (K tonnes) (M lbs) (g/t) (tonnes) (M oz Ag)
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0.3 299.5 0.51 1,575 3,472 6.0 1,771 57.0
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0.4 191.6 0.60 1,207 2,662 7.1 1,392 44.7
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0.5 120.3 0.70 892 1,966 8.4 1,060 34.1
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0.6 76.0 0.80 652 1,438 9.8 797 25.6
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0.7 49.1 0.90 480 1,057 11.1 602 19.4
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0.8 31.8 1.00 351 775 12.5 453 14.6
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0.9 21.6 1.10 266 586 13.7 348 11.2
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1.0 14.3 1.22 197 435 14.9 263 8.5
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Zone 5 - Inferred Mineral Resource
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Contained CU Metal Contained Ag Metal
Cutoff Cu ------------------- Ag -------------------
Cu Tonnes Grade Grade
(%) (M tonnes) (%) (K tonnes) (M lbs) (g/t) (tonnes) (M oz Ag)
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0.3 16.9 1.41 239 526 12.6 213 6.8
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0.4 16.0 1.47 236 520 13.2 211 6.8
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0.5 16.0 1.47 236 520 13.2 211 6.8
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0.6 16.0 1.47 236 519 13.2 211 6.8
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0.7 15.5 1.50 232 512 13.2 205 6.6
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0.8 14.9 1.53 228 502 13.5 201 6.5
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0.9 14.1 1.57 221 488 13.8 195 6.3
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1.0 13.3 1.61 213 470 14.2 189 6.1
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Notes:
1. Mineral Resources are not Mineral Reserves and do not have demonstrated
economic viability.
2. Indicated Mineral Resources are supported by an approximate drill hole
spacing of 100 x 50m.
3. Inferred Mineral Resources are supported by an approximate drill hole
spacing of 200m along strike.
4. The Base Case Mineral Resources are reported above a 0.3% Cu cutoff,
based on commodity pricing of US$3.40/lb Cu and US$30.00/oz Ag,
additional cutoffs are shown as sensitivity cases.
Table 8 - Indicated and Inferred Resources at the Banana Zone and Zone 5
DRA carried out pit optimization using the Whittle Four-X software. The optimal shells for Indicated and Inferred Mineral Resources were selected through a combination of maximum NPV and optimum strip ratios.
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Copper Grade Silver Grade In-pit Material
(%) (g/t) (M tonnes)
------------------------------------------------ Waste
Indi- Indi- Indi- Strip (M
cated Inferred cated Inferred cated Inferred Ratio tonnes)
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New Discovery 0.88 0.87 14.26 13.30 10.131 0.025 5.74 53.340
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North East
Fold 0.84 1.16 11.16 12.18 12.168 1.624 7.15 98.586
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South Limb
Definition 0.79 0.98 10.95 15.14 3.262 1.066 10.07 43.562
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South Limb
South - 0.90 - 10.94 - 2.981 8.14 24.270
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Zone 5 - 1.33 - 11.75 - 14.437 5.93 85.624
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Total 0.85 1.23 12.36 11.85 25.560 20.132 6.79 310.382
(i)
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(i) Average
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Contained Copper Contained Copper Contained Silver
(k tonnes) (M lbs) (M ounces)
---------------------------------------------------------
Indicated Inferred Indicated Inferred Indicated Inferred
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New Discovery 89.397 0.216 197.087 0.476 4.644 0.011
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North East Fold 102.342 18.854 225.625 41.567 4.364 0.636
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South Limb
Definition 25.777 10.419 56.829 22.970 1.149 0.519
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South Limb South - 26.859 - 59.214 - 1.048
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Zone 5 - 191.708 - 422.644 - 5.456
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Total 217.516 248.056 479.541 546.871 10.157 7.670
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Note: No reserves can be declared in the PEA
Table 9 - Results of the pit optimization
Project Sensitivities
Project cash flow is highly sensitive to changes in the price of copper as indicated in Table 10. The project is also sensitive to variations in capital and operating costs as indicated in Table 11 below. These tables show the effect of increasing or decreasing the capital expenditure and operating expenditure estimates for the project by +/-10% and +/-20%.
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Capex Estimate Variance Opex Estimate Variance
NPV -------------------------------------------------
After-Tax Base Base
(US$ million) +10% Case -10% +10% Case -10%
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Discount Rates 5% 361 388 414 282 388 494
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Base Case 8% 236 263 289 174 263 351
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10% 169 196 196 116 196 276
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IRR% 17.5 19.3 19.3 10.0 19.3 22.8
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Table 10 - Project sensitivity to variations in capital and operating
expenditure
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Variance in Cu Head Grades
--------------------------------------------------------
1.02%
After-tax NPV (Base
(US$ Million) 0.90% 0.95% Case) 1.10% 1.20% 1.30% 1.40%
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Discount
Rates 5% 388 499 638 776 915
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Base Case 8% 263 355 472 587 702
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10% 196 $79 383 487 590
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IRR % 19.3 23.0 27.4 31.7 35.9
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Table 11 - Project sensitivity to variations in copper head grades
Project Information
All drilling for the Project, up to December 13, 2011 was incorporated into the PEA. In the preparation of the PEA, the Independent Consultants and DRA received written or verbal data from Hana's staff, metallurgical reports from G&T Metallurgical Services Ltd. of Kamloops, British Columbia and Mintek of Johannesburg, South Africa. The parties listed in Table 12 above independently confirmed the data utilized in the preparation of this PEA. The capital and operating data developed in the PEA came from review of the metallurgical test work, in-house DRA data and discussions with other consultants and copper mining operations in southern Africa and elsewhere. Hana provided the tax, royalty and legal information.
Qualified Persons and NI 43-101 Technical Report
The PEA summarized here for the Project was completed by the independent consultants and DRA (listed in Table 12); and will be incorporated in a NI 43-101 compliant, independent Technical Report which will be available on SEDAR and the Hana website within 45 days from the date of this news release.
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Area of Contributing Professional
Responsibility Company Qualified Person Qualification
----------------------------------------------------------------------------
Geology Farscape David Catterall Pr.Sci.Nat
Exploration
----------------------------------------------------------------------------
Database Validation Grant Geology Jerry Grant P.Geo
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Resource Estimate Independent Susan Meister SME
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Mining and DRA Thomas Obiri- Pr.Eng
Infrastructure Yeboah
----------------------------------------------------------------------------
Metallurgy and DRA Mark Cresswell Pr.Eng
Infrastructure
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Table 12 - PEA Contributors
All of Hana's exploration programs and pertinent disclosure of a technical or scientific nature are prepared by, or prepared under the direct supervision of Mr. Marek Kreczmer, Hana's CEO and Chairman, who serves as the Qualified Person (QP) under the definitions of National Instrument 43-101. Hana's security, chain of custody and quality control procedures are described on their website and are filed on the website and on SEDAR under the section on best practices - sampling methodologies. Mr. Kreczmer has reviewed and approved the information contained in this release.
The PEA is preliminary in nature and includes the use of Inferred Resources, which are considered too speculative to apply economic considerations that would enable them to be categorized as Mineral Reserves. Mineral Resources do not have demonstrated economic viability and future in-fill drilling and scoping, pre-feasibility and feasibility studies will determine what percentage of the inferred resource can be placed into the mineable category. Thus, there is no certainty that the production profile concluded in the PEA will be realized. Actual results may vary, perhaps materially. The Company is not aware of any environmental, permitting, legal, title, taxation, socio-political, marketing or other issue which may materially affect this estimate of mineral resources. The projections, forecasts and estimates presented in the scoping study and PEA constitute forward-looking statements and readers are urged not to place undue reliance on such forward-looking statements. Additional cautionary and forward-looking statement information is detailed at the end of this press release.
Statements in this press release, other than purely historical information, including statements relating to the Company's future plans and objectives or expected results, may include forward-looking statements. Forward-looking statements are based on numerous assumptions and are subject to all of the risks and uncertainties inherent in resource exploration and development. As a result, actual results may vary materially from those described in the forward-looking statements.
The TSX Venture Exchange has not reviewed and does not accept responsibility for the adequacy or accuracy of this release.
Contacts:
Hana Mining Ltd.
Marek Kreczmer
CEO
(604) 676-0824
info@hanamining.com
Hana Mining Ltd.
Patrick Donnelly
VP - Corporate Development
(604) 676-0824
patrick@hanamining.com
www.hanamining.com
