asx release asx code: cxx, cxxo for personal use only · us$19.86 / $16.17 27yrs 4.5yrs us$125m...

Cradle Resources Limited

Level 7 1008 Hay Street

Perth WA 6000

T +61 8 9389 2000 F +61 8 9389 2099 E [email protected]

www.cradleresources.com.au

30 January 2014

ASX Release ASX Code: CXX, CXXO

Panda Hill Project – Highly Positive Scoping Study Results

Highlights

The scoping study results indicate potential for a highly economic Project generating substantial cash flow at current Niobium prices for a relatively low capital outlay

Option Mill Throughput

Average Niobium

Production

Average Cash Cost ($/kg Nb)1

Mine Life

Payback Initial Capital

EBITDA (life of mine)

Base Case 2Mtpa 4.80M kg pa US$16.67 28yrs 2.8yrs US$185M US$2,620M

Staged Case

1 to 2.3Mtpa 2.65M / 5.46M kg pa

US$19.86 / $16.17

27yrs 4.5yrs US$125M US$2,690M

Payback is under three years for the base case

Open cut mine with strip ratio of only 0.37 to 1

Total initial capital expenditure for the base case (2Mtpa) is US$185M (Q4 2013) at an accuracy of ±30% with 20% contingency

A staged option (production commencing at 1 Mtpa and later increasing to 2.3 Mtpa) enabling reduced upfront capital with similar life of mine economics

Significant opportunity to expand the resource through additional exploration activities

Opportunity to further enhance the Project economics through further optimisation, particularly in the areas of mine scheduling and reagent use

Pre-feasibility Study is planned to start in Q2 2014 and be completed by Q4 2014.

Cautionary Statement concerning Scoping Study Results including Inferred Resources Cradle Resources Limited (ASX: CXX, CXXO) advises the Scoping Study results and production targets reflected in this announcement are preliminary in nature as conclusions are drawn from partly from Indicated Mineral Resources and partly from Inferred Mineral Resources. The Scoping Study is based on lower level technical and economic assessments and is insufficient to support estimation of Ore Reserves or to provide assurance of an economic development case at this stage, or to provide certainty that the conclusions of the Scoping Study will be realised. There is a low level of geological confidence associated with Inferred Mineral Resources and there is no certainty that further exploration work will result in the determination of Indicated Mineral Resources or that the production target itself will be realised.

1 Cash cost at mine gate

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Grant Davey, the Managing Director of Cradle, commented ”This scoping study exceeded management expectations and confirms the solid potential economics of the Panda Hill project. The next phase of the study will focus on reducing operating costs, optimising capital and de- risking and growing the niobium resource. As the study progresses I gain confidence that Panda Hill will be the first highly profitable world class niobium mine in Africa.”

Scoping Study Summary

Cradle Resources Limited is pleased to announce that it has received positive results from its recently completed Scoping Study on the Panda Hill Niobium Project (Project) located in south western Tanzania.

The Scoping Study (Study) results indicate potential for a highly economic project generating substantial cash flow at current niobium prices for a relatively low capital outlay, subject to completion of a formal feasibility study.

The Study was undertaken by Lycopodium Minerals Pty Ltd (Lycopodium) and Coffey Mining Pty Ltd (Coffey Mining) with metallurgical testing by SGS Lakefield and additional support from a variety of independent specialist consultants.

The Mineral Resource estimate (Resource) used for the Study totals 81.8Mt at 0.52% Nb2O5 for 423kt of contained Nb2O5 with 76.4Mt at 0.51% Nb2O5 of Inferred material and 5.4Mt at 0.62% Nb2O5 of Indicated material. The Resource was reported in accordance with the JORC Code (2012) (See Table 3). The final conceptual optimised pit consists of approximately 9% Indicated Resource and 91% Inferred Resource; however over the 3 year payback period considered in the base case study approximately 55% of the material is Indicated and 45% of the material is Inferred.

The base case considered a 2Mtpa operation based on a mine schedule that prioritised the Indicated Resource for plant feed. A staged case starting with 1Mtpa and ramping up to 2.3Mtpa after the first 3 years of production was investigated at a high level. The summary financials for the two options are shown below in Table 1. The base case processing and G&A operating cost estimates were generated by Lycopodium to an accuracy of ±30% and a niobium price of US$44/kg used in the analysis. .

Table 1: Summary Financial KPIs (100% Project Basis).

Option Mill Throughput

Average Niobium Production

Average Site Cash Cost

(US$/kg Nb)2

Mine Life

Payback EBITDA (US$)

Base Case 2Mtpa 4.80M kg pa $16.67 28yrs 2.8yrs $2,600M

Staged Case 1 to 2.3Mtpa 2.65M / 5.46M kg pa $19.86 / $16.17 27yrs 4.5yrs $2,700M

The current Resource is open at depth and the project area offers substantial potential to expand the current Mineral Resource inventory. The intention of the next phase of site work is to continue with the exploration program, while at the same time carrying out an infill drilling program for the area currently contained within the conceptual pit shell limits.

In addition, the technical studies in the next work phase will focus on the selection of a preferred mining option and the optimisation of the flotation process through a comprehensive testwork program and targeted studies including mining and infrastructure requirements.

The Pre-feasibility Study, which incorporates the activities described above, is planned to start in Q2 2014 and is estimated to take approximately 7 months to complete.

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Scoping Study Results

The Study for the Project in south western Tanzania (see Figure 1) has recently been completed with positive results across all areas and no major technical risks identified.

The Study was started in July 2013 with the work split in various programs. Lycopodium acted as the Lead Study Consultant, with the other specialist consultants used in the Study described below in Table 2.

Table 2: Scoping Study Consultants

Consultant Study Input

Lycopodium Minerals Pty Ltd Study Manager / Process Plant / Infrastructure / Capital & Operating Costs (exc. Mining)

Bamboo Rock Ltd Exploration Drilling Program

Coffey Mining Pty Ltd Mineral Resource / Mining / Mining Costs

SGS Canada Inc. Metallurgical Testwork

MTL Consulting Co. Ltd Environmental

Knight Piesold Pty Ltd Tailings Storage Facility

Penrita Pty Ltd Financial Model

CAMET Metallurgy Inc. Marketing

Figure 1: Location of Panda Hill Niobium Project

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Tenure

The Project is located on three Mining Leases (ML237/2006, 238/206 and 239/2006) granted to Panda Hills Mines Ltd on 16th November 2006 and covering a total area of approximately 21km2 (see Figure 2). Title of these leases was transferred to RECB Limited (RECB) on 18th December 2012. The three mining leases are current until 15 November 2016 and will be subject to renewal after that date.

Cradle Resources (through a wholly owned subsidiary) obtained an option to acquire the properties in May 2012 and subsequently purchased a 50% shareholding in RECB with an option to purchase the remaining 50% of RECB on or before March 2017.

Figure 2: Panda Hill Tenements

Mineral Resource

The Resource used in the Study was prepared by Coffey Mining and was reported in accordance with the JORC Code (2012). The Resource was based upon the results of historical diamond drilling and 13 NQ and HQ confirmatory diamond holes drilled by Cradle in 2013. The Resource was estimated using Ordinary Kriging based upon cut 2m composites. The Resource totals 81.8Mt at 0.52% Nb2O5 for 423kt of contained Nb2O5 and is outlined in Table 3.

The Company believes there is significant potential to expand the current resource with new drilling both in terms of size and in the targeting of high-grade positions. Any potential resource upgrade will be investigated in future feasibility studies.

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Table 3: In Situ Mineral Resource (October 2013) using Preferred Cut-off (0.3%)

Combined Carbonatite

Classification Mt Nb2O5% Nb2O5 Content (kt)

Inferred 76.4 0.51 390

Indicated 5.4 0.62 33

Total 81.8 0.52 423

Weathered Carbonatite (Secondary)


Inferred 8.6 0.81 69


Total 10.7 0.80 86

Primary Carbonatite


Inferred 67.8 0.47 319


Total 71.1 0.47 336

Notes:

The Panda Hill project is located in south-western Tanzania, approximated 26km south-west of the town of Mbeya.

Niobium mineralisation occurs in pyrochlore (and minor columbite) and is hosted by the Panda Hill carbonatite complex.

The deposit is covered by diamond drill holes on a nominal 100m x 100m NE-SW oriented grid. The majority of the drill holes are vertical, with a small percentage being horizontal, drilled into the side of the hill, and the remaining holes ranging in dip from -45° to -75°. Most of the drilling was carried out in the 1950s and 1970s. Cradle Resources have drilled 13 new diamond drill holes to verify the thickness and tenor of niobium mineralisation in the historic drill holes.

Validated data from 92 diamond drill holes has been used in the resource estimate.

Drill-hole data was used to create wireframes of the mineralisation utilising a 0.2% Nb2O5 lower cut-off. The mineralisation

was divided into a zone of weathered carbonatite material and a zone of primary carbonatite material. The distinction between weathered and primary material was based on drill hole logging data.

Nb2O5 assays obtained from XRF Borate fusion were used in the estimation.

QAQC consists of the insertion of certified standards and blanks into the sampling stream. A comparison was also conducted between XFR Borate fusion method and ICPMS method for 145 samples. Both methods were done by SGS Johannesburg. There is a very tight correlation between the two methods below 1% Nb2O5 (the upper detection limit of the ICPMS method). No potential problems were highlighted by the QAQC and the data is considered to be of sufficient standard for use in the Resource estimation.

Recent drilling was sampled on a nominal 1m length based on geological units, though samples may be up to 3m in length in consistent non-mineralised material. Historic drilling was also sampled on geological units, with sample intervals commonly being 3 feet (0.9m) or 5m in length. The database contained several drill holes with exceedingly long intervals/one interval assigned to the entire drill hole. These were removed from the database for the Resource estimation. The raw assay data have been composited to 2m intervals for the resource estimate.

Statistical analyses were completed on the raw sample data and the 2m composite data. A top cut of 2.5% Nb2O5 was applied to the weathered carbonatite material and a top cut of 2.0% Nb2O5 was applied to the primary carbonatite material.

Due to the long sample intervals in the historic data, a down hole correlogram was modelled using only the 2013 drill holes to obtain the nugget variance. This was used in conjunction with directional correlograms to create the correlogram model for the primary carbonatite. An omnidirectional model was applied to the weathered zone.

Grade estimates were generated for parent blocks of size 25m (X) by 25m (Y) by 5m (Z) with sub-blocks of size 5m x 5m x 1m. The estimation method used was Ordinary Kriging (OK).

In situ dry bulk densities were assigned on the basis of measurements collected from the 2013 drill core using the calliper method. 667 measurements were collected from primary carbonatite material, with a mean value of 2.77 t/m3 and 189 measurements were collected from weathered carbonatite material, with a mean value of 2.24 t/m3. These average values were multiplied by a factor of 96.3% to account for the 3.7% volume of voids/cavities intersected in drilling. The factored bulk density values applied to the primary and weathered zones of the block model are 2.67t/m3 and 2.16t/m3 for primary and weathered material respectively.

Resource classification was developed from the confidence levels of key criteria including drilling methods, geological understanding and interpretation, sampling, data density and location, grade estimation and quality of the estimates.

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Mining

Coffey Mining undertook the mining portion of the Study. Key mining and mining opex assumptions were based upon experience with projects in the region. The pit wall angles were based upon geotechnical studies undertaken by Coffey Mining. The mining study assumed development of the Panda Hill deposit by conventional open cut mining methods comprising drill, blast, load and haul. In the early stages of the project it is anticipated that mining will be undertaken via contract mining; this option would be reviewed over the life of mine. The conceptual mine design was based on a Whittle optimised shell derived from the Resource block model using the following initial inputs:

Niobium current price US$40/kg

Discount rate 10%

Mining Recovery 100%

Mining dilution 0%

Pit Slopes 45°

Process Recovery Primary ore - 65% Secondary ore – 50%

Total Opex Primary ore - US$36.84/t ore Secondary ore - US$38.29/t ore

Figure 3 shows a schematic of the optimised 23 Mt pit shell (Blue outline) and the final conceptual 58Mt pit shell (red outline). The conceptual final pit is approximately 900m long (N-S) and 1000m wide (E-W) with a maximum depth of approximately 130m.

Figure 3: Schematic of Panda Hill Pit Shell

The same optimisation was used for all options investigated, with the difference being the rate of mining and/or the sequence of mining. The mining schedule used in the base case is sub-optimal as it is designed to access the indicated mineral resource category material during the initial stages of the operation. This constraint artificially reduces the mill feed niobium grade in the first few years. Work will be carried out in subsequent exploration programs to convert in-pit mineralisation to at least an Indicated classification allowing re-optimisation of the mine schedule with high levels of confidence.

Total material movement over the conceptual life of mine is estimated to be 79.4Mt of which 55.8Mt is mill feed for an approximate strip ratio of 0.37:1.

Mining costs are in line with comparable scale open pit operations in Africa, the small scale operation being compensated for by a shallow pit and short haulage distances.

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Processing

The Study assumed that the mill feed material will be treated via a standard flotation process incorporating a concentrate leach step on the final flotation product to clean the concentrate and a pyrometallurgical converter to produce the final product, ferroniobium. The plant design has been based upon treating the two main material types (primary carbonatite and secondary weathered carbonatite) within the same flowsheet under similar process conditions.

The process has been based on the flowsheet reported in the literature for the Niobec Mine in Quebec Canada, given the similar geology and mineralogy to the Panda Hill primary material. This was the basis for the testwork program which confirmed the applicability of the flowsheet for treating Panda Hill material and further to this provided some preliminary design data which was used for the process mass balance, major equipment selection and reagent requirements.

Flotation testwork was undertaken by SGS Canada on both primary carbonatite and secondary weathered material types. The majority of the testwork was undertaken on the primary carbonatite material with predicted flotation recoveries ranging from 60% to 70%. An average of 65% recovery was used for this material in the study. Based on the mineralogy work and some preliminary batch flotation tests on the secondary weathered material a lower recovery of around 50% was determined, albeit with a material that has a higher head grade. Further testwork planned for the next phase will confirm these values.

Further to this a metallurgical recovery of 97% niobium has also been assumed for the conversion of the flotation concentrate to ferroniobium.

The same process flowsheet was used for all options considered. The proposed flowsheet is shown schematically in Figure 4.

Figure 4: Schematic of Panda Hill Process Flowsheet

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Summary metallurgical information derived from process design and the Resource model for the various options is shown in Table 4.

Table 4: Summary LOM Metallurgical Data

Option Mill Throughput Primary Grind / Regrind Ave Feed Grade Ave LOM Nb Recovery (Prim & Sec Feed)

Base Case 2Mtpa P80 150µm / P80 75µm 0.56% Nb2O5 62%

Staged Case

1-2.3Mpta P80 150µm / P80 75µm 0.58% Nb2O5 62%

For the base case the relative proportion of mill feed over the first 5 years of production is shown in Table 5. Approximately 39% of the feed in the first five years is in the Indicated category. For the payback period of ~ 3 years this increases further to around 56%.

Table 5: Mill Feed by Mineral Resource Category for First 5 Years of Production

Mill Feed by Mineral Resource Category

Tonnes (Mt)

Grade (%Nb2O5)

Contained Nb2O5 (kt)

Indicated 3.95 0.66 2.61

Inferred 6.11 0.63 3.85

Total 10.1 0.64 6.46

Infrastructure

Infrastructure within the local area of the project is already well established and as such the project development will only require significant investment in a tailings storage facility, an onsite power plant and some expenditure on water supply, road upgrades and camp/accommodation. The conceptual site layout is shown in Figure 5.

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Figure 5: Panda Hill Conceptual Site Layout

Access – The Project site is accessible via the Dar es Salaam – Tunduma Highway which runs to within approximately 7km of the site. An existing unsealed road accesses the project area and surrounding villages. A new 6.6km mine road will be built from the highway to the plant for exclusive use of mine vehicles. In addition a new 6km diversion road around the perimeter of the mine will be built to allow continued public travel between the villages in the south and the highway.

Tailings storage facility (TSF) - Knight Piesold undertook the work associated with the tailings storage facility. The TSF will be constructed in stages with the embankment height raised by downstream lifts over the life of mine. The initial embankment height will be 10m to allow storage for the first year of operation. The TSF will consist of three confining embankments with the preferred location approximately 1km north of the proposed plant site where the local topography minimises the total embankment height over the life of mine.

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Water - Water demand for the project is anticipated to range from 1.9Mm3 (year one) to 1.5Mm3 per annum over the life of mine. Previous studies in the area have identified both the local Songwe River and ground water as possible options for water for the project. The opportunity for early construction of the TSF prior to the wet season may allow it to act as a water collection area for the start of operations. All three water sources; the Songwe River, boreholes and water harvesting from the TSF, are likely to be used to supply water during various phases of the Project.

Power - Power will be provided to plant and other infrastructure by an onsite power plant (OPP). The power plant will consist of four heavy fuel oil engines driving four 11kV alternators each rated at 3240kW. Total installed capacity for the plant is anticipated to be 12MW with a peak active demand of 8.4MW. Energy costs have been estimated at US$0.24/kWh based on a local benchmarking exercise.

Capital Costs

The capital cost estimate for the base case project option is shown n Table 5. The costs are presented in US dollars as at the fourth quarter 2013 (Q4 2013) to an accuracy of ±30%. The base case estimate was prepared by Lycopodium and includes a 20% contingency allowance. Mining costs and sustaining capital have been excluded from this estimate. All costs associated with the mine have been included as an operating cost as mining will be with a contract miner.

Table 5: Base Case Capital Cost Estimate (Q4, 2013)*

Main Area US$’000

Construction Indirect 14,500

Treatment Plant 57,400

Reagents & Plant Services 13,700

Infrastructure 35,200

Management Costs 15,600

Owners Project Costs 13,300

Prison Relocation 5,000

Subtotal 154,700

Project Contingency 30,000

Project Escalation -

Subtotal 30,000

Grand Total 185,000

* Note: figures have been rounded

The capital costs for the staged case were factored from the base case estimate by Cradle Resources, and are shown in Table 6.

Table 6: Capital Cost Estimate for Staged Case (factored)*

Main Area Staged Case (US$’000)

Phase 1 (1Mtpa) Expansion Capital

Plant & Infrastructure 79,000 52,000

Management / Owners 26,000 6,000

Contingency 20,000 12,000

Total 125,000 71,000


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Operating Costs

The cash costs, assuming a plant feed of either primary carbonatite or secondary weathered carbonatite, are shown in Table 7 and Table 8. The higher head grade of the weathered carbonatite (~0.8% Nb2O5 vs. ~0.5% Nb2O5), results in the lower $/kg Nb costs when compared to the primary material. The cost estimates were prepared by Lycopodium, and used prices obtained during the fourth quarter of 2013, and is to an accuracy of ±35%.

Table 7: LOM Cost Estimate Summary (Q4, 2013)*

Primary Carbonatite Secondary Weathered Carbonatite

Cost Centre $M/y $/t Ore $/kg Nb $M/y $/t Ore $/kg Nb

Mining 12.10 6.10 2.60 12.10 6.10 2.30

Processing & Maintenance 60.60 30.30 13.20 62.80 31.40 12.00

General & Administration 7.10 3.60 1.50 7.10 3.60 1.30

Total Mine Site Cash Costs 79.80 40.00 17.30 82.6 44.10 15.60

Product Transport 1.80 0.90 0.40 2.10 1.10 0.40

Marketing & Insurance 5.70 2.80 1.20 5.70 3.10 1.20

Royalty 6.20 3.00 1.30 6.20 3.50 1.30

Total Cash Cost 93.50 46.70 20.20 96.6 48.80 18.50


The operating cost estimate for the base case was determined from the operating costs for each material type applied to the ratio of feed materials derived from the mine schedule. Further to this the operating costs for the staged case option investigated was determined by Cradle from the fixed and variable cost breakdown of each material type, again applied to the feed material ratio from the specific mine schedule applied. The base case and the staged option operating costs are shown in Table 8.

Table 8: LOM Operating Cost Estimates for Options (factored)

Operating Cost Item Base Case

(US$/t Mill Feed)

Staged Case

(US$/t Mill Feed)

Mining $6.10 $5.90

Processing & Maintenance $30.70 $30.60

General & Admin Costs $3.80 $3.70

Total Mine Site Cash Cost $40.60 $40.20

Other (transport, marketing, royalties etc.) $6.90 $6.40

Total Cash Cost $47.50 $46.60


Project Payback

The results of the Study indicate a short payback period for the Project (2.6 to 4.5yrs). The short payback period reflects a mine schedule that targets the high grade mineralisation in the early years, low capex and high margins. The amount of Indicated material processed during these payback periods ranges from 39 to 56% of the total material processed.

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Forward Work Plan

A drilling program is planned for the Pre-feasibility Study which will test for extensions of mineralisation and initiate an infill drilling campaign to a spacing suitable for Indicated classification.

In addition to the drilling program Cradle will undertake a number of technical studies to optimise the mining schedule and processing flow sheet. A comprehensive metallurgical testwork program will support these activities and optimise recovery and reagent consumptions for primary and secondary weathered ore types. This work will also further assess the variability in metallurgical responses for the full range of material types present in the ore body.

Studies will also be undertaken to look at options and alternatives for infrastructure and how best to manage these from a project perspective.

Cradle has already commenced activities for the Environmental & Social Impact Assessment (ESIA), with the ESIA Terms of Reference (ToR) submitted to the Tanzanian Environmental Ministry. The baseline studies are planned for the next phase with full ESIA approval expected prior to completion of the Feasibility Study in 2015.

For further information, please visit www.cradleresources.com.au or contact:

Grant Davey Managing Director Tel: +61 8 9389 2000

Competent Person’s Statement The information in this document that relates to Exploration Results is based on information compiled or reviewed by Mr Neil Inwood who is a Fellow of The Australasian Institute of Mining and Metallurgy and a Member of the Australian Institute of Geoscientists. Mr Inwood is a full time employee of Verona. Mr Inwood has sufficient experience which is relevant to the style of mineralisation and type of deposit under consideration and to the activity which he is undertaking to qualify as a Competent Person as defined in the 2004 Edition of the ‘Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves’. Mr Inwood consents to the inclusion in this document of the matters based on his information in the form and context in which it appears.

The information relating to the Panda Hill Resource Estimate is extracted from the news release entitled ‘Substantial Upgrade to Panda Hill Resources” dated 8 November 2013”and is available to view on http://www.cradleresources.com.au. The information in this document that relates to interpretation of metallurgical test-work and process design for a scoping study level assessment is based on information compiled or reviewed by Brian Putland who is a Member of the Australian Institute of Mining and Metallurgy (AUSIMM) and the Canadian Institute of Mining, Metallurgy and Petroleum (CIM). Brian Putland holds the position of Principal Metallurgist as a full time employee of Orway Mineral Consultants (part of the Lycopodium group), and has sufficient experience for the activity which he is undertaking to qualify as a Competent Person as defined in the 2012 Edition of the ‘Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves’ as it relates to mineral processing. Brian Putland consents to the inclusion in this document of the matters based on his information in the form and context in which it appears.

Lycopodium Minerals Pty Ltd (Lycopodium) provided Capital Cost and Operating Cost estimates for the mineral processing plant and associated infrastructure (but not mining) for the Cradle Resources financial model. The information in this document that relates to these inputs is based on information compiled or reviewed by Chris Waller, Manager of Studies and a full time employee of Lycopodium, who is a Member and Chartered Professional of the Australian Institute of Mining and Metallurgy (MAusIMM(CP)). Chris Waller has extensive experience in the preparation of capital and operating cost estimates for mineral processing plants. Chris Waller consents to the inclusion in this document of the matters based on his information in the form and context in which it appears.

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