independent valuation of luapula processing facility … · 2019. 3. 19. · mets is regarded as a...

Winmar Resource Ltd 20 Kings Park Road West Perth WA 6010

P: (08) 6462 1421

www.winmarresources.com.au

19 March 2019

Australian Securities Exchange Limited 20 Bridge Street Sydney NSW 2000

INDEPENDENT VALUATION OF LUAPULA PROCESSING FACILITY COMPLETED

Winmar Resources Limited (“Winmar” or the “Company”) (ASX: WFE) is pleased to advise that the independent valuation of the Luapula Processing Facility has now been completed.

The independent valuation of the Luapula Processing Facility was determined using a number of valuation methodologies as follows:

ASSET VALUE CLASS VALUATION COMMENTS

“As is” basis US$33,353,000 Based on second hand plant as is and including all infrastructure

“Historical cost” basis US$46, 317,668 Purchased and installed

“Going concern” basis US$70,000,000 Assumes US$10m to get the project up and running

“New plant” basis US$85,000,000 All equipment new and clear site

The independent valuation strongly vindicates the decision by the Winmar Board of Directors to pursue the acquisition of a 50% interest in the Luapula Processing Facility.

The independent valuation was conducted by Mr Damian Connelly, Principal Consulting Engineer of METS Engineering Group Pty Ltd (METS); and the valuation was conducted in accordance with the written guidelines of the Australasian Institute of Mining and Metallurgy (AusIMM) Valmin Code (2016).

Mr Connelly is a licensed valuer and a Fellow of AusIMM and a member of various other industry bodies and associations including the Canadian Institute of Mining and Metallurgy (CIMM) and the South African Institute of Mining and Metallurgy (SAIMM).

METS is regarded as a specialist in the areas of mineral processing, engineering design and independent plant valuations having operated for over 30 years and completed over 6,000 individual work assignments.

The independent valuation further confirmed that “there are no fatal flaws with the project and the risks for the project can be managed” and furthermore that “there is power, water and good infrastructure to support the project including offices, workshops, stores and accommodation facilities on site.”

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The Company engaged METS (refer ASX Announcement dated 24 January 2019) to complete an independent valuation principally to address concerns raised by ASX following submission by the Company of an Application for In-Principle Advice.

Specifically, ASX was concerned that “the history of the Luapula Processing Facility, having been constructed over a period of approximately 4 years at an estimated cost of US$80 million, in operation for a period of 2 years, following which it was placed on care and maintenance with its written down value to nil but subsequently re-valued to approximately US$30 million.”

A copy of the independent valuation report is provided in its entirety as an attachment.

The Company’s securities currently remain suspended and this will continue to be the case until the Company has satisfied Listing Rules 11.1.2 and 11.1.3, and re-complied with Chapters 1 and 2 of the ASX Listing Rules in order to complete the proposed acquisitions of the 50% interest in the Luapula Processing Facility and the 100% interest in additional exploration licenses (refer ASX announcements of 23 July 2018 and 3 December 2018).

Based on the above, the Company will continue to seek to complete the proposed acquisitions and by extension the reinstatement of its securities to official quotation.

The Company notes however that admission to the official list (and by extension, reinstatement of securities to quotation pursuant to listing rule 11.1.3) is in ASX’s absolute discretion and ASX may grant or refuse admission without giving any reasons.

Please contact the undersigned if you require any further information in relation to this matter.

Mr Jason Brewer

Chairman

Winmar Resources Limited

Tel: +61 8 6462 1421

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METS Engineering Group Pty Ltd

Level 3, Parliament Place West Perth WA 6005 PO Box 1699, West Perth WA 6872

P: (+61 8) 9421 9000

ABN 92 625 467 674

W: www.metsengineering.com E: [email protected]

TESTWORK MANAGEMENT OPERATIONS PROCESS CONTROL ENGINEERING STUDIES MINERALS PROCESS INNOVATION TRAINING PROCESSING

WINMAR RESOURCES

LUAPULA PROCESS PLANT

VALUATION

CONFIDENTIAL

Project No: J5185

Date: 18/03/2019

Damian Connelly Principal Consulting Engineer Chartered Professional Engineer Email: [email protected]

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J5185 - WINMAR RESOURCES LTD.

REV DESCRIPTION ORIG REVIEW APPROVAL DATE CLIENT APPROVAL

DATE

A-F General revisions DC

D. Connelly

N/A

N/A

G Internal review DC

D. Connelly

JB

11/03/2019

CONFIDENTIALITY

This document and its contents, including work scope, methodology and commercial

terms will be treated in strict confidence by Winmar Resources and the contents will

be used by Winmar Resources only for their own use.

Passing of this document to a third party, duplication or re-use of this document, in

whole or part, electronically or otherwise, is not permitted without the expressed

written consent of METS Engineering Group Pty Ltd.

DISCLAIMER

With respect to all the information contained herein, neither METS Engineering

Group Pty Ltd, nor any officer, servant, employee, agent or consultant thereof make

any representations or give any warranties, expressed or implied, as to the accuracy,

reliability or completeness of the information contained herein, including but not

limited to opinions, information or advice which may be provided to users of the

document.

No responsibility is accepted to users of this document for any consequence of

relying on the contents hereof.

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Luapula Process Plant Valuation

J5185 – Luapula Process Plant Valuation Page i

TABLE OF CONTENTS

1. EXECUTIVE SUMMARY ........................................................................... 1

2. INTRODUCTION ....................................................................................... 4

2.1 Location and Access ..................................................................................................... 4

2.2 General DRC Map......................................................................................................... 5

2.3 Plant Aerial View ........................................................................................................... 6

2.4 Local Map Area ............................................................................................................. 7

2.5 Other Aspects ............................................................................................................... 7

3. SCOPE OF WORK .................................................................................... 9

3.1 Objectives ..................................................................................................................... 9

3.2 Site Visit ........................................................................................................................ 9

3.3 Valuation Report ......................................................................................................... 10

3.4 Valuation Types .......................................................................................................... 11

3.4.1 Historical Cost ........................................................................................................ 11

3.4.2 As Is Value ............................................................................................................. 11

3.4.3 New Cost Approach ............................................................................................... 11

3.4.4 Market (Comparable Sales) Approach .................................................................. 11

3.4.5 Going Concern Approach ...................................................................................... 12

3.5 Resources Utilised ...................................................................................................... 12

3.6 Project Management, Meetings and Reporting .......................................................... 12

4. PROCESS DESCRIPTION ...................................................................... 13

4.1 Process Description .................................................................................................... 13

4.2 Flowsheet Changes .................................................................................................... 14

5. FLOWSHEETS ........................................................................................ 15

5.1 Overall Flowsheet ....................................................................................................... 15

5.2 Key Metrics ................................................................................................................. 16

5.3 Overall Block Flow ...................................................................................................... 16

5.4 Crushing Plant............................................................................................................. 17

5.5 Grinding Flowsheet ..................................................................................................... 18

5.6 Leaching & Impurity Precipitation Flowsheet .............................................................. 19

5.7 Fume Treatment Removal .......................................................................................... 20

5.8 Copper Precipitation ................................................................................................... 21

5.9 Cobalt Precipitation ..................................................................................................... 22

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5.10 Copper Cobalt Drying & Packing ................................................................................ 23

5.11 Reagents ..................................................................................................................... 24

5.12 Tailings Disposal ......................................................................................................... 25

5.13 Process Control........................................................................................................... 25

5.13.1 Distributed Control System (DCS) ......................................................................... 25

5.13.2 Benefits .................................................................................................................. 26

5.13.3 Instrumentation ...................................................................................................... 27

5.13.4 Development .......................................................................................................... 27

5.13.5 The Benefits of Process Control ............................................................................ 27

6. INFRASTRUCTURE ................................................................................ 29

6.1 General Infrastructure ................................................................................................. 29

6.2 Power .......................................................................................................................... 29

6.3 Water ........................................................................................................................... 31

6.4 Climatic Environment .................................................................................................. 31

6.5 Accommodation .......................................................................................................... 32

6.6 Offices ......................................................................................................................... 33

6.7 Weighbridge ................................................................................................................ 33

6.8 Messing ....................................................................................................................... 34

6.9 Workshops & Stores Buildings .................................................................................... 35

6.10 Fuel Tanks .................................................................................................................. 35

6.11 Other Assets ............................................................................................................... 35

7. ASSET VALUATION ................................................................................ 36

7.1 Competent Person ...................................................................................................... 36

7.2 Valmin Code ................................................................................................................ 36

7.3 Summary of Asset Values ........................................................................................... 37

7.4 Historical Cost ............................................................................................................. 37

7.5 As Is Plant & Infrastructure Value ............................................................................... 38

7.6 New Plant & Infrastructure .......................................................................................... 39

7.7 Market (Comparable Sales) Approach ....................................................................... 39

7.7.1 Tiger Resources ..................................................................................................... 39

7.7.2 Kalongwe Copper Cobalt ....................................................................................... 40

7.7.3 MMG Kinserve ....................................................................................................... 42

7.7.4 Tenke Fungurume.................................................................................................. 42

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7.8 Kinsenda Copper ........................................................................................................ 42

7.9 Market Value ............................................................................................................... 43

7.10 Fire Sale Value............................................................................................................ 43

7.11 Income (Earnings) Approach ...................................................................................... 44

8. REFURBISHMENT .................................................................................. 46

8.1 Crushing Area ............................................................................................................. 46

8.2 Engineering and Installation of the Crushing Circuit ................................................... 48

8.3 Milling and Milled Ore Storage .................................................................................... 50

8.4 Classification Cyclones ............................................................................................... 51

8.5 Slurry Holding Tank Internals ...................................................................................... 53

8.6 Vibratory Feeders........................................................................................................ 53

8.7 Instruments – Milling (Process) ................................................................................... 54

8.8 Auxiliary Works – Milling Area .................................................................................... 55

8.9 Leaching and Impurity Precipitation ............................................................................ 56

8.10 Fabricate and Install Tank Covers .............................................................................. 57

8.11 Install Air Blowers and Air Sparging System .............................................................. 58

8.12 Fume Scrubbing System (SO2 Gas) .......................................................................... 59

8.13 Instrumentation – Leaching and Impurity Removal (Process) .................................... 61

8.14 Re-Engineering of the Sulphuric Acid Feed Tank Arrangement ................................. 61

8.15 Additional Leaching Tanks and Continuous Operation ............................................. 62

8.16 Install Bunding Around Leaching Tanks ..................................................................... 63

8.17 Check Integrity of Rubber Lining of Tanks .................................................................. 64

8.18 Leach Residue Filtration – Conveyor Extension ......................................................... 64

8.19 Relocation of Cu and Co Liquor Holding Tanks – Cu and Co Precipitation Feed ...... 65

8.20 Copper & Cobalt Precipitation ..................................................................................... 66

8.21 Copper and Cobalt Product Drying and Packaging .................................................... 67

8.22 Reagents Area ............................................................................................................ 67

8.23 Reagent Preparation Leaching and Precipitation Area (Hydrated Lime and SMBS) . 68

8.24 Additional Sulphuric Acid Tank to be Located in the Leaching Area .......................... 69

8.25 Lime Slaking Mill ......................................................................................................... 69

8.26 Tailings Storage Facility and Water Treatment ........................................................... 70

8.27 Design and Construction of Water Cleaning (Impurity Removal) Circuit .................... 71

8.28 Design and Construction of Expanded (off-site) New Tailings Storage Facility (TSF) 72

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8.29 Services and Infrastructure ......................................................................................... 72

8.30 Process Water Storage ............................................................................................... 73

8.31 Replenishment of Diesel Tank Genset ....................................................................... 73

8.32 Roofing Over Leaching Section .................................................................................. 74

9. PLANT CONDITION ................................................................................ 75

9.1 Battery Limits .............................................................................................................. 75

9.2 General ....................................................................................................................... 75

9.3 Civil ............................................................................................................................. 75

9.4 Mechanical .................................................................................................................. 75

9.5 Electrical ...................................................................................................................... 76

9.6 Structural ..................................................................................................................... 76

9.7 Piping .......................................................................................................................... 76

9.8 Technical Suitability .................................................................................................... 77

9.9 Copper Price Chart ..................................................................................................... 77

9.10 Cobalt Price Chart ....................................................................................................... 78

9.11 Mobile Plant ................................................................................................................ 78

9.12 First Fill ........................................................................................................................ 78

9.13 Crushing & Ore Storage Photos ................................................................................. 79

9.14 Milling & Ore Storage .................................................................................................. 80

9.15 Leaching & Impurity Precipitation ............................................................................... 81

9.16 Copper-Cobalt Precipitation ........................................................................................ 82

9.17 Product Drying & Packaging ....................................................................................... 83

9.18 Tailings ........................................................................................................................ 84

9.19 Reagents ..................................................................................................................... 86

9.20 Onsite Laboratory........................................................................................................ 86

9.21 Process Water Storage Dam ...................................................................................... 86

10. RISKS ...................................................................................................... 87

10.1 Luapula Risk Assessment Process............................................................................. 87

10.2 Establish the Context of the Review ........................................................................... 88

10.3 Identify the Risks ......................................................................................................... 88

10.4 Analyse the Risks........................................................................................................ 88

10.5 Prioritise the Risks ...................................................................................................... 88

10.6 Luapula Plant Risk Table ............................................................................................ 89

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10.7 Risks Identified ............................................................................................................ 89

11. FUTURE WORK ...................................................................................... 92

11.1 Marketing .................................................................................................................... 92

11.2 Project Execution Plan (PEP) ..................................................................................... 92

11.3 Project Schedule ......................................................................................................... 93

11.4 Project Budget............................................................................................................. 93

11.5 Mechanical Equipment List ......................................................................................... 93

11.6 Plant Drawings ............................................................................................................ 93

11.7 Commissioning & Ramp Up ........................................................................................ 93

11.8 Operating Manuals ...................................................................................................... 94

11.9 Flowsheet Optimisation ............................................................................................... 94

12. REFERENCES ........................................................................................ 95

APPENDIX A – MECHANICAL EQUIPMENT LIST .............................................. 96

APPENDIX B – HISTORICAL COST .................................................................... 99

APPENDIX C – AS IS VALUE ............................................................................ 100

APPENDIX D – NEW REPLACEMENT VALUE ................................................. 101

LIST OF FIGURES

Figure 2-1: General map of the DRC .................................................................................... 5

Figure 2-2: Aerial view of the process plant ......................................................................... 6

Figure 2-3: Breakdown of plant area by operating sections .................................................. 7

Figure 5-1: Overall process flowsheet ................................................................................ 15

Figure 5-2: Overall block flow diagram for the Luapula process plant .............................. 16

Figure 5-3: Process flow diagram for the Luapula crushing plant ...................................... 17

Figure 5-4: Process flowsheet for the Luapula grinding circuit .......................................... 18

Figure 5-5: Process flowsheet for the Luapula leaching circuit .......................................... 19

Figure 5-6: Process flowsheet for the Luapula impurity removal area ............................... 20

Figure 5-7: Process flowsheet for the Luapula Cu precipitation circuit ............................. 21

Figure 5-8: Process flowsheet for the Luapula Co precipitation flowsheet ........................ 22

Figure 5-9: Process flowsheet for Luapula drying and packaging area .............................. 23

Figure 5-10: Process flowsheet for the Luapula reagents area ............................................ 24

Figure 5-11: Process flowsheet for the Luapula tailings area ............................................. 25

Figure 5-12: Typical simple control room .......................................................................... 26

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Figure 6-1: Onsite generators .............................................................................................. 30

Figure 6-2: Onsite bores ...................................................................................................... 31

Figure 6-3: Yearly climate for the DRC .............................................................................. 32

Figure 6-4: Accommodation units ....................................................................................... 32

Figure 6-5: Office units ....................................................................................................... 33

Figure 6-6: Conference room .............................................................................................. 34

Figure 6-7: Mess facilities ................................................................................................... 34

Figure 6-8: Workshop & stores building............................................................................. 35

Figure 7-1: Spider chart for sensitivity analysis of the Luapula financial model ............... 45

Figure 9-1: Electrical switchboards currently installed ....................................................... 76

Figure 9-2: Historical copper price chart ............................................................................ 77

Figure 9-3: Historical cobalt price chart ............................................................................. 78

Figure 9-4: Jaw Crusher ...................................................................................................... 79

Figure 9-5: Ball mills .......................................................................................................... 80

Figure 9-6: Ground ore storage ........................................................................................... 80

Figure 9-7: Leach tanks ....................................................................................................... 81

Figure 9-8: Stainless steel tanks .......................................................................................... 81

Figure 9-9: Stainless steel tanks for precipitation ............................................................... 82

Figure 9-10: Diesel-fired dryer ........................................................................................... 83

Figure 9-11: Solar drying shed ............................................................................................ 83

Figure 9-12: Tailings filtration shed.................................................................................... 84

Figure 9-13: Tailings filters................................................................................................. 85

Figure 9-14: Tailings dry stacking ...................................................................................... 85

Figure 9-15: Sulphuric acid storage tanks ........................................................................... 86

LIST OF TABLES

Table 1-1: Summary of asset values ..................................................................................... 2

Table 5-1: Plant metrics ...................................................................................................... 16

Table 7-1: Summary of asset values ................................................................................... 37

Table 7-2: Project historical costs ....................................................................................... 37

Table 7-3: Kalongwe CAPEX cost ..................................................................................... 41

Table 10-1: Subjective risk ranking matrix ......................................................................... 89

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Table 10-2: Luapula process plant risk register .................................................................. 90

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J5185 – Luapula Process Plant Valuation Page 1

1. EXECUTIVE SUMMARY

Mr Jason Brewer, Chairman of Winmar Resources Ltd. requested Mr Damian

Connelly, Principal Consulting Engineer from METS Engineering Group Pty Ltd

(METS) to prepare a Valuation Report for the Luapula Process Plant at Likasi in the

Democratic Republic of Congo (DRC).

METS conducted a site visit to the Luapula Processing Facility to collect information,

photos, equipment lists, flowsheets and meet and discuss with key personnel from

Winmar Resources and the DRC JV Company. The condition of the plant is good but

will require refurbishment to get back into functional working order. The scope of

work for the asset valuation report to determine the plant value in detail was based

on the following groupings:

Crushing and stockpiling

Milling and storage

Leaching and precipitation

Drying and packing

Tailings

Civil structures

Infrastructure

Mechanical, piping and electrical installation

The basic mechanical equipment list was the basis of calculating an asset value

based on the following asset classes and a physical inspection on site.

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Table 1-1: Summary of asset values

Asset Value Class Value ($USD) Comment

1.Historical basis $46,317,668 Purchased and installed

2.As Is Value $33,353,500 Based on second hand plant as is

including infrastructure

3.New Plant Value $85,000,000 All new equipment and clean site

4.Market Sales No similar data available

5.Going Concern Value $70,000,000 Assumes $10M spent to get project up

and running, current estimates of income

and costs

There is power, water and good infrastructure to support the project including offices,

workshops, stores and accommodation facilities on site. The project is based on

processing 25 tph of copper cobalt ore. The ore can be purchased in the Likasi area

with typical feed grades of 1-2% cobalt and 2% copper. Purchase terms are 60 days

based on based on a percentage of London Metal Exchange (LME) prices and with a

healthy processing margin. Previously, acid was not recycled and this is one of the

largest cost inputs in the process.

There are no fatal flaws with the project and the risks for the project can be managed.

As a part of future project development work Winmar Resources needs to develop a

Project Execution Plan (PEP) outlining refurbishment, the project schedule, budget

and commissioning activities. The technical basis of the project is sound and

installation of a solvent extraction and electrowinning circuit (SX-EW) would add

significant value to the project.

A level of automation in the plant would be recommended.

A budget of US$10M is required to get the project operational which includes

refurbishment, first fill, working capital and commissioning.

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Competent Person

The information in this report that relates to the Processing and Metallurgy for the

Luapula Project in DRC and is based on a site visit and fairly represents, information

and supporting documentation compiled by Damian Connelly who is a Fellow of The

Australasian Institute of Mining and Metallurgy and a full time employee of METS

Engineering Group. Damian Connelly has sufficient experience relevant to the style

of mineralisation and process plant under consideration and to 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’. Damian Connelly consents to the inclusion in the report of the matters

based on his information in the form and context in which it appears.

Valmin Code

This Report has been prepared in accordance with the Australasian Institute of

Mining and Metallurgy (AusIMM) Valmin Code (2016) written guidelines.

The purpose of the Australasian Code for the Public Reporting of Technical

Assessments and Valuations of Mineral Assets (VALMIN Code) is to provide a set of

fundamental principles, minimum requirements and supporting recommendations to

assist in the preparation of relevant Public Reports on Mineral Assets. The VALMIN

Code is based on international good practice as currently employed in the Mineral

industry, but allows for professional judgement in certain instances. The resulting

Public Reports must be reliable and should be clear, concise, effective and include all

the Material information required by investors and their advisers when making

investment decisions. Subject to provisions in paragraph 1.3, AIG and AusIMM

Members must adhere to the VALMIN Code regardless of where or for whom the

Public Reports are prepared or the location of the Mineral Assets under

consideration.

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2. INTRODUCTION

Mr Jason Brewer, Managing Director of Winmar Resources requested Mr Damian

Connelly, Principal Consulting Engineer from METS Engineering Group Pty Ltd

(METS) to prepare a Valuation Report for the Luapula Process Plant at Likasi in the

Democratic Republic of Congo (DRC).

2.1 Location and Access

The Luapula Process plant is located in the heart of the Congolese Copperbelt, near

the town of Likasi, DRC. Likasi is accessible by sealed road from Lubumbashi (~120

km) or Kolwezi (~180 km). Both Lubumbashi and Kolwezi have airports that service

international flights. A regional map showing the location of Likasi relative to other

population centres is provided in Figure 2-1 below.

The Luapula process facility is located 400 m from the main Lubumbashi-Likasi road,

approximately 7 km from the Likasi town centre and 4 km on the Likasi-Lubumbashi

Copperbelt Road toll gate. Coordinates of the process plant are provided in an aerial

photograph of the plant facility in Figure 2-2. The facility covers an area of ~12.5 ha

(~30 acres) and is surrounded by a high brick-and-mortar wall with heavy duty gates

to restrict access. There are four similar processing plants in the area and a large

Chinese owned processing facility next door.

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2.2 General DRC Map

Figure 2-1 illustrates the general map of the DRC. The town of Likasi is located in the

south-east corner of the map.

Figure 2-1: General map of the DRC

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2.3 Plant Aerial View

Figure 2-2 shows an aerial view of the plot of land occupied by the existing process

plant. The area bordered in green is the Luapula Process Plant which is currently not

operating. The adjacent plant is the Chinese plant, which is currently operating.

Figure 2-2: Aerial view of the process plant

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2.4 Local Map Area

Figure 2-3 indicates the relative positions of the processing areas of the plant.

Figure 2-3: Breakdown of plant area by operating sections

2.5 Other Aspects

The following nearby features are noteworthy:

Winmar Resources will contribute the capital to get the project operational for

a 50% interest in the Joint Venture (JV).

The copper cobalt process plant is located 7 km from the centre of Likasi,

which hosts a skilled workforce

Winmar Resources will purchase copper cobalt ore from local mines in the

Likasi area similar to the other processors.

The Likasi Gecamines workshop in Likasi offers a heavy steel fabrication and

machinery repair services. Larger workshops are available in Lubumbashi.

There are a total of 4 similar process plants located within 5 kms

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A Chinese-owned plant is located adjacent, which processes artisanal-mined

materials

The other plants are larger, with conventional tailings storage facilities installed

The main Copperbelt road, which is sealed, is 400 m from the site gate,

Larger open pit resources and landholdings located nearby are available for

acquisition and expansion.

Winmar Resources have exploration tenements with cobalt resources which

could be possible feedstock for the plant in the future.

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3. SCOPE OF WORK

3.1 Objectives

The objective of this work is to perform a plant valuation based on replacement value

of existing facilities. The work will provide Winmar Resources with sufficient

information to progress to the next stage of acquisition.

The scope of work envisaged for the report is to determine the plant value in detail

based on the following groupings:

Crushing and stockpiling

Milling and storage

Leaching and precipitation

Drying and packing

Tailings

Civil structures

Infrastructure

Mechanical, piping and electrical installation

3.2 Site Visit

METS conducted a site visit to the Luapula Processing Facility in late February,

2019. This was to collect technical information, meet and discuss with key personnel

from Winmar Resources and the DRC JV company. In addition, photos were taken

and discussions held with personnel on site.

References to other projects in DRC were made.

Process Facility Valuation

It is assumed that Winmar Resources will provide documents and information

necessary to assist in valuation of the process facility. This should include, but not be

limited to the following:

Process flowsheets

Equipment list and details

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Facility building list and details

General arrangement drawings of the facility

Photographs of the plant and equipment

METS complied with the best-in-class cost estimating methodology to perform the

plant valuation to an accuracy of +/- 25% to 30%. The valuation will evaluate the

current cost value and replacement cost for all infrastructure and major equipment.

3.3 Valuation Report

METS generated a final valuation report for Winmar Resources to provide sufficient

details and accuracy to be acceptable by a regulatory body, i.e. ASX.

Several values were estimated for the project. Value refers to the desirability of

ownership of an asset and more particularly the market value.

Types of value:

Market Value

Replacement value new

Going concern value

Referenced value to other projects

The broad questions of “what is the value of the plant?” or “what is the plant worth?”

can be answered by investigating the Market Value or price realised in an open

market where both a willing and able buyer and seller can communicate price and

conditions of sale to execute the transaction. The value derived will be dependent on

the level of willingness of each party and by the conditions of the agreement.

Legal definition of “fair market value” as defined by the judicial courts is the amount of

cash or in terms reasonably equivalent to cash, for which in all probability the

property would be sold by a knowledgeable owner willing but not obligated to sell to a

knowledgeable purchaser who desired but is not obligated to buy.

The purpose of the report proposed would be to recommend an estimated market

value at a fixed point in time. Real market value is constantly changing with market

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conditions and expectations and can only be derived at the moment of contractual

agreement between buyer and seller.

There are three generally accepted approaches to market value estimation;

Historical Cost Approach

As Is Value

New Plant Value

Market (Comparable Sales) Approach

Going Concern Value

3.4 Valuation Types

3.4.1 Historical Cost

This is based on records of purchase of the original plant and equipment including

land and buildings.

3.4.2 As Is Value

This is based on the mechanical equipment list and a factored installed cost as is. It

includes civil, structural, piping and transport costs as installed.

3.4.3 New Cost Approach

This method calculates the value of the plant in terms of new replacement cost. This

means the cost of an asset which is identical in size, quality and state of repair. The

cost approach is rarely applicable in valuing mining properties and is generally the

least reliable method of valuation due to escalation and contingencies. Few projects

come in at their predicted cost.

3.4.4 Market (Comparable Sales) Approach

This approach is viewed by many as the best approximation of fair market value as it

incorporates the effects of supply and demand in the current market. This method

looks at the sales history for similar assets in the market place. The assumption is

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made that a buyer will not pay more than the cost of acquiring a suitable substitute

for the property in question.

However, there are limitations to this approach which include the difficulty in finding

similar assets due to the nature of most resources being unique in terms of size,

geographical location, degree of development and that there are only minimal

numbers of transactions. Even an actual previous sale of the property in question

may not be a reliable indicator of its value if market conditions such as commodity

price expectations, production costs and ore reserve information have changed.

3.4.5 Going Concern Approach

Future annual net earnings generated from the asset, discounted to the present day

using an appropriate interest rate. This method assumes that a buyer would not be

willing to pay more for an asset than the present value of the income it can derive.

This used a cash flow model developed by Winmar Resources.

3.5 Resources Utilised

Process flowsheets

Process description

Equipment list

Close out reports

Detailed assessment

Current plant values and changing trends in the market place

Recent DRC plant sales and throughput rating

METS database

3.6 Project Management, Meetings and Reporting

As part of METS ongoing quality assurance, regular internal project update meetings

were held to monitor progress and assess the way forward. At the completion of the

project, METS produced a detailed report encompassing the major findings from the

comprehensive study. The report also includes recommendations for the way

forward.

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4. PROCESS DESCRIPTION

4.1 Process Description

The process involves crushing the ore and then feeding into ore bins. The material is

withdrawn from ore bins into one of two ball mills that operate in closed circuit with

cyclones, with cyclone overflow being held in slurry storage tanks. Slurry is pumped

from the holding tanks to leaching tanks where sulphuric acid and SMBS are added

to solubilise metal and adjust the solution ORP to convert Co(III) into acid soluble

Co(II). The liquor is then neutralised to pH ~4 using hydrated lime and air blown into

the tanks to allow oxidation of Fe(II) to Fe(III) thereby allowing its precipitation from

solution.

The slurry from leaching/neutralisation is filtered in plate-and-frame filters, and

washed with water, with the liquor and wash water combined and directed to the Cu

precipitation storage tank. The solids dumped from the filter press are conveyed to

the tailings storage pad and dry-stacked. Liquor run-off from the dry-stack pad is

collected and returned to the process water tank.

Liquor in the Cu precipitation holding tank is pumped to copper precipitation tanks,

where the pH is adjusted to pH ~7 with slaked lime, thereby effecting the precipitation

of copper. The precipitated copper is recovered in plate-and-frame filter presses, and

the liquor is directed to the cobalt precipitation holding tanks. The copper product is

dried – if necessary – and then packaged and trucked to a nearby copper refinery for

dissolution and production of cathode copper.

Liquor from the cobalt precipitation holding tank is pumped to the cobalt precipitation

tanks, where the pH is adjusted to pH ~8.5 with magnesia. Precipitated cobalt is

recovered by filtration in a filter press, with liquor directed to the process water tank; a

portion of this water will likely need to be bled to an impurity removal circuit where

impurities such as Mn and MgO are removed. The cobalt hydroxide product is dried –

using a combination of solar drying and fuel drying – after which it is packaged,

loaded into sea containers and freighted to markets overseas.

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4.2 Flowsheet Changes

The old flowsheet did not recycle acid which is a major cost. Also the old flowsheet

did not produce separate copper and cobalt products.

The crushing plant will need to be installed using existing equipment and new

conveyors.

A weightometer on the mill feed belt would be better to control the feedrate

and for metallurgical accounting.

Future changes should include a high rate pre-leach thickener to increase the

leach density and reduce acid consumption. This would allow better control of

the grind size as well. Currently P80 150 µm is the desired grind size.

Future changes will also include solvent extraction electrowinning (SX-EW),

which will allow acid recycling and the production of very clean products. The

use of LIX 984N for copper and Cyanex 272 for cobalt is well established.

A process water pond would allow flexibility of operation and minimise water

consumption.

Using a sulphur burner would be more cost effective rather than buying

SMBS.

An acid fume scrubber is required to minimise environmental acid and

improve occupational health and safety.

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5. FLOWSHEETS

5.1 Overall Flowsheet

A high-level process flowsheet of the Luapula plant is shown in Figure 5-1. Parts of

the flowsheet – particularly the crushing area – are currently in varying stages of

completion.

Figure 5-1: Overall process flowsheet

The Luapula process plant is suitable for the recovery of copper and cobalt – as

intermediate products – from oxide mineralisation typical of the African Copperbelt.

The key metrics of the Luapula process plant are summarised in Table 5-1; these

have been derived from equipment sizes and process appraisals, and typical

metallurgical characteristics of CuCo ores in the region.

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5.2 Key Metrics

Table 5-1: Plant metrics

Unit Value Source

Plant Availability % 80 Estimate

Plant Throughput Tph 25 Design basis

Annual Throughput Tpa 175,000 Calculation

Products * Bagged Copper Hydroxide

Bagged Cobalt Hydroxide

*Quantity will depend on ore grade and recoveries.

5.3 Overall Block Flow

Figure 5-2: Overall block flow diagram for the Luapula process plant

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5.4 Crushing Plant

Figure 5-3: Process flow diagram for the Luapula crushing plant

The jaw crusher, impact crushers and screen are onsite but need to be relocated and

installed. The ore is soft oxidised ore so the impact crushers will be suitable.

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5.5 Grinding Flowsheet

Figure 5-4: Process flowsheet for the Luapula grinding circuit

The grinding flowsheet uses conventional ball mills in closed circuit with cyclones.

The use of a pre-leach thickener would be justified based on potential acid savings.

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5.6 Leaching & Impurity Precipitation Flowsheet

Figure 5-5: Process flowsheet for the Luapula leaching circuit

The leach circuit is a batch process and occurs very quickly on the oxidised ore.

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5.7 Fume Treatment Removal

Figure 5-6: Process flowsheet for the Luapula impurity removal area

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5.8 Copper Precipitation

Figure 5-7: Process flowsheet for the Luapula Cu precipitation circuit

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5.9 Cobalt Precipitation

Figure 5-8: Process flowsheet for the Luapula Co precipitation flowsheet

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5.10 Copper Cobalt Drying & Packing

Sun drying and a diesel fired dryer are used to dry the concentrates before packing

and shipping.

Figure 5-9: Process flowsheet for Luapula drying and packaging area

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5.11 Reagents

Figure 5-10: Process flowsheet for the Luapula reagents area

The biggest reagent is sulphuric acid which is shipped in from Zambia by road. Transport costs are high and VAT tax is 35%.

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5.12 Tailings Disposal

Figure 5-11: Process flowsheet for the Luapula tailings area

The tailings are filtered and conveyed to a dry stacking area.

5.13 Process Control

The plant has no process control and everything is manual. Whilst labour costs are

low and this was suitable in the past this is not the case now. A low costs DCS

system would be justified.

5.13.1 Distributed Control System (DCS)

The typical Citec process control system is very good. The hardware costs for such

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Figure 5-12: Typical simple control room

5.13.2 Benefits

The Simplicity of distributed control system works well and is normally used by the

operators. Calibration of field equipment is needed to fully utilise its potential-

weightometers, density meters, mag flow meters etc.

The page areas covered with the Distributed Control system would be Crushing,

Milling, Flotation, Leaching, Precipitation, Filtration, Drying, Reagents, Lime System,

Utilities, Alarms etc.

PLC’s are typically used for start-up and shutdown of the crushing circuit, milling

circuit, filtration circuits and alarms.

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5.13.3 Instrumentation

The crushing plant should use PLC start-up and shutdown with interlocks and trip

wires, under speed protection, level switches and blocked chute switches and

alarms. The impact crushers should be protected with metal detectors.

The DCS system would be beneficial for the crushing plant.

There is no ball mill instrumentation or PLC for alarms and lubrication sequencing

and control. There are no nucleonic density gauges installed on the cyclone feed line

nor a magnetic flowmeter which would allow mass flow control.

5.13.4 Development

The basic distributed control system can be enhanced by some of the following:

PLC for crushing circuit

Ball mill circuit optimisation

o Automatic control of mill discharge density using ore water ratio (hosing down the mill floor drops the cyclone overflow density)

o Cyclone mass flow measurement and control (mag flow and density)

Automation of filters

Continuous leaching and ORP measurement

Reagent control, i.e. acid stage addition

5.13.5 The Benefits of Process Control

For the Luapula process plant to achieve optimum performance the installation of

automatic control loops needs to be considered and additional auto loops utilised

around the distributed system.

One of the problems with process control is that management sees the cost and is

not convinced of the monetary benefits. The arguments used such as the plant only

has a short life are true however the payback is usually short. Some of the typical

benefits in a plant such as this are:

Increased mill throughput

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Savings in acid and better control

Savings in lime with automatic pH control

Increased copper and cobalt recovery by maximising throughput (milling

circuit mass flow control)

Reduction in manpower dependence

Instrumentation in the crushing plant such as a weightometers for plant

control

A metal detector protection in the crushing plant

Increase in management control

High return on investment

Simplification of management reporting

Consistent product quality

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6. INFRASTRUCTURE

6.1 General Infrastructure

The process plant is on the outskirts of Likasi township. Likasi is a city in Haut-

Katanga Province, in the south-east of the Democratic Republic of Congo.

Likasi has a population of 447,000 and remains a centre for industry, especially

mining, and is a transport hub for the surrounding region. There are mines and

refineries supplied by nearby deposits of copper and cobalt. There are excellent

workshops in both Likasi and Lubumbashi including service contractors. There is a

local workforce and support services in Likasi close by.

6.2 Power

The site has its own diesel fired generators which are suitable to run the process

plant. The site is not currently connected to the grid and would be subject to a

reconnection fee. The grid power is typically subjected to frequent outages. Diesel

fuel tanks are installed on site with a fuel truck.

The Democratic Republic of the Congo has reserves of petroleum, natural gas, coal,

and a potential hydroelectric power generating capacity of around 100,000 MW. The

Inga Dam, alone on the Congo River, has the potential capacity to generate 40,000

to 45,000 MW of electric power, sufficient to supply the electricity needs of the whole

Southern Africa region. An ongoing uncertainty in the political arena and a resulting

lack of interest from investors has meant that the Inga dam's potential has been

limited.

In 2001, the dam was estimated to have an installed generating capacity of 2,473

MW. It is estimated that the dam is capable of producing no more than 650–750 MW,

because two-thirds of the facility's turbines do not work. There were plans to raise the

Inga power station to 44,000 MW capacity by 2010. The African Development bank

agreed to supply $8 million towards it. The government also agreed to strengthen the

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Inga-Kolwezi and Inga-South Africa interconnections and to construct a second

power line to supply power to Kinshasa.

In 2007, the DROC had a gross production of public and self-produced electricity of

8,302 million kWh. The DROC imported 78 million kWh of electricity in 2007. The

DROC is also an exporter of electric power. In 2003, electric power exports came to

1.3 TWh, with power transmitted to the Republic of Congo and its capital, Brazzaville,

as well as to Zambia and South Africa. There were plans to build the Western Power

Corridor (Westcor) to supply electricity from Inga III hydroelectric power plant to the

Democratic Republic of the Congo, Angola, Namibia, Botswana and South Africa.

The national power company is Société nationale d'électricité (SNEL).

Only 6% of the country has access to electricity. As of 2003, 98.2% of electricity was

produced by hydroelectric power. The DRC is a member of three electrical power

pools. These are SAPP (Southern African Power Pool), EAPP (East African Power

Pool) and CAPP (Central African Power Pool).

Figure 6-1: Onsite generators

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6.3 Water

The site has four water bores which supply water for processing. There is also a

creek at the bottom of the property. Water supply is not an issue for the scale of the

project considered. The water is good quality.

Figure 6-2: Onsite bores

6.4 Climatic Environment

The climate is tropical with a typical wet and dry season. See Figure 6-3.

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Figure 6-3: Yearly climate for the DRC

6.5 Accommodation

There are a number of rooms on site for key management accommodation. The

operators would live locally in Likasi and commute to the plant each day.

Figure 6-4: Accommodation units

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6.6 Offices

There are solid brick rendered offices on site which would support the operation. This

would include administration, accounting, purchasing, management and support

shared services.

Figure 6-5: Office units

6.7 Weighbridge

There is a weighbridge on site which is used for weighing ore deliveries to the site.

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Figure 6-6: Conference room

6.8 Messing

There is a food preparation area and dining facilities for personnel living in the accommodation units.

Figure 6-7: Mess facilities

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6.9 Workshops & Stores Buildings

The site has a number of workshops where repairs and maintenance can be

undertaken. The workshops include typical equipment and a number of pump spares

electric motors etc.

Figure 6-8: Workshop & stores building

6.10 Fuel Tanks

There are two diesel fuel tanks on site to supply fuel to the site.

6.11 Other Assets

There are a number of earthmoving equipment trucks etc in various states of repair. A CAT excavator in good condition and a fuel truck. There is a stores area with equipment spares, valves, pipes and other items.

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7. ASSET VALUATION

The asset valuation is based on a site visit and inspection of the facilities. The

equipment list and infrastructure was used to build up the asset value based on

knowledge of the equipment and asset values.

7.1 Competent Person

The information in this report that relates to the Processing and Metallurgy for the

Luapula Project in DRC and is based on a site visit and fairly represents, information

and supporting documentation compiled by Damian Connelly who is a Fellow of The

Australasian Institute of Mining and Metallurgy and a full time employee of METS

Engineering Group. Damian Connelly has sufficient experience relevant to the style

of mineralisation and process plant under consideration and to 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’. Damian Connelly consents to the inclusion in the report of the matters

based on his information in the form and context in which it appears.

7.2 Valmin Code

This Report has been prepared in accordance with the Australasian Institute of

Mining and Metallurgy (AusIMM) Valmin Code (2016) written guidelines.

The purpose of the Australasian Code for the Public Reporting of Technical

Assessments and Valuations of Mineral Assets (VALMIN Code) is to provide a set of

fundamental principles, minimum requirements and supporting recommendations to

assist in the preparation of relevant Public Reports on Mineral Assets. The VALMIN

Code is based on international good practice as currently employed in the Mineral

industry, but allows for professional judgement in certain instances. The resulting

Public Reports must be reliable and should be clear, concise, effective and include all

the Material information required by investors and their advisers when making

investment decisions. Subject to provisions in paragraph 1.3, AIG and AusIMM

Members must adhere to the VALMIN Code regardless of where or for whom the

Public Reports are prepared or the location of the Mineral Assets under

consideration.

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7.3 Summary of Asset Values

Table 7-1: Summary of asset values

Asset Value Class Value ($USD) Comment

1.Historical basis $46,317,668 Purchased and installed

2.As Is Value $33,353,000 Based on second hand plant

3.New Plant Value $85,000,000 All new equipment

4.Market Sales No similar data available

5.Going Concern Value $70,000,000 Assumes $10M spent to get project up

and running, current estimates of income

and costs

Note: Asset values are an estimate based on an inspection, building up spreadsheets

based on the equipment list and infrastructure. Market conditions can change and

this will be reflected in the values estimated.

The worksheets used to develop the values are contained in the Appendices.

7.4 Historical Cost

The plant and facilities were established by a Lebanese company under the direction

of Mr Jalal Zahwe who is a Mechanical Engineer. He supervised the construction of

the plant and operated the plant for several years.

The plant equipment was sourced from South Africa and transported to DRC. Apart

from the transport cost there is a 15% VAT tax on goods imported into country.

These costs were supplied by Jalal Zahwe.

Table 7-2: Project historical costs

No. Description Original Cash Cost ($USD)

1 Acquisition of Land & Development 2,063,274

2 Housing 1 284,385

3 Housing 2 211,535

4 Restaurant 173,737

5 Administrative Building 1 265,588

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6 Warehouse 1 186,647

7 Warehouse 2 373,294

8 Staff Building 1 120,517

9 Staff Building 2 91,131

10 Under Construction 1 86,302

11 Under Construction 2 17,745

12 Gatehouses 82,302

13 Cement Block Fence Wall 1,428,099

14 Large Brick Fence Wall 41,958

15 Weighbridge 76,699

16 Prefabricated Buildings 13,584

17 SNEL Substation 19,548

18 Substation Under Construction 11,971

19 Basins 23,963

20 Storage Floor Tiles 34,850

21 Driveway Doors 16,500

22 Furniture 82,969

23 Drains 622,724

24 Tank – Septic 54,000

25 Hall 1 381,808

26 Hall 2 362,588

27 Hall 3 711,815

28 Hall 4 646,526

29 Hall 5 525,846

30 Hall 6 149,858

31 Factories Equipment 33,276,957

32 Electricity facilities 3,878,948

TOTAL US$46,317,668

The majority of the cost is in the process plant whereas the infrastructure and

buildings account for 29%.

7.5 As Is Plant & Infrastructure Value

This is based on the mechanical equipment list and a factored installed cost as is. It

includes civil, structural, piping and transport costs as installed. This means the cost

of an asset which is identical in size, quality and state of repair.

This assumes buying second hand equipment sourced from South Africa or

elsewhere and installed. The asset value of the Luapula plant and infrastructure

installed and ready to operate would be US$33,353,500. No first fill was included and

the infrastructure was left at cost which could be argued as conservative. There is

also mobile equipment on site which has not been included.

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7.6 New Plant & Infrastructure

This method determines to calculate the value of the plant in terms of new equipment

cost. This means the cost of an asset which is identical in size, quality and sourced

new.

The asset value of the Luapula plant and infrastructure installed and ready to operate

brand new would be approximately US$85,000,000.

7.7 Market (Comparable Sales) Approach

This approach is viewed by many as the best approximation of fair market value as it

incorporates the effects of supply and demand in the current market.

This method looks at the sales history for similar assets in the market place. The

assumption is made that a buyer will not pay more than the cost of acquiring a

suitable substitute for the property in question.

However, there are limitations to this approach which include the difficulty in finding

similar assets due to the nature of most resources being unique in terms of size,

geographical location, degree of development and that there are only minimal

numbers of transactions. Even an actual previous sale of the property in question

may not be a reliable indicator of its value if market conditions such as commodity

price expectations, production costs and ore reserve information have changed.

7.7.1 Tiger Resources

Tiger Resources will not be selling its Democratic Republic of the Congo mining and

exploration assets to Sinomine HK for $260M.

Tiger Resources that terms acceptable to the company were not achieved and it

issued a notice of termination to Sinomine HK.

The assets comprised of the Kipoi Project, Lupoto Project and La Patience permit.

Announcing the sale in January, Tiger said it was facing "operational and financial

headwinds".

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The Kipoi Copper Project is operated by Société d’Exploitation de Kipoi, a 95%-

owned subsidiary of Tiger. It is located 75km northwest of Lubumbashi, the capital of

Katanga Province, and in the central part of the Katanga Copper Belt. The Kipoi

Mining Licence covers an area of 55sq km and contains a 12km-long extensively

copper-cobalt mineralised segment. As of December 2014, mineral resources for the

Kipoi Copper Project were 938,000 tonnes of copper.

Sinomine is a geotechnical services company based in China with business lines in

mineral exploration, mining project investments and operations, as well as technical

and associated supporting services. Sinomine has an international network of

operations, including existing operations in the DRC and across Africa. The company

is listed on the Shenzhen Stock Exchange with a market capitalisation of over $530

million.

7.7.2 Kalongwe Copper Cobalt

The Kalongwe Copper Cobalt Project (Kalongwe or the Project) is owned by

Kalongwe Mining SA (KMSA) under a joint venture agreement between Nzuri Copper

Limited (Nzuri) (85%), La Generale Industrielle et Commerciale au Congo (GICC)

(10%) and the Democratic Republic of the Congo Government (5%). GICC is a

Congolese company which is 90%-owned by Theo Mahuku, a respected Congolese

businessman.

In March 2015, KMSA filed an application for the conversion of the Exploration Permit

to an Exploitation Permit based on a technical study and an approved

environmental/social assessment (EIE). Ministerial approval was received in October

2015 with an initial term of 30 years and renewal periods of 15 years.

The Kalongwe deposit is situated within an Exploitation Permit which covers an area

of ~8km² and includes the entire area proposed for mining and Project infrastructure.

This permit allows for mining and processing on site and for the transport and sale of

copper / cobalt concentrate product.

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Nzuri has successfully completed an updated +15% accuracy Feasibility study (FS)

in April of 2018 further reinforcing the technical and financial viability of the Project

from the previous October 2017 FS.

Updated Project FS highlights include:-

Updated Ore Reserve of 7.99Mt at 2.94% Cu and 0.34% Co for 234,868t of

contained Cu and 27,102t of contained Co. All production targets and forecast

financial outcomes underpinned 100% by Ore Reserves.

Kalongwe Stage 1 (“K1”) comprises an open pit mine and on-site 1Mtpa Dense

Media Separation (DMS) processing plant.

Table 7-3: Kalongwe CAPEX cost

Main Area US $’000 %

Construction Distributable/s 3,528 7

Treatment Plant Costs 10,896 21

Reagents and Plant Services 2,446 5

Infrastructure 11,188 21

Mining 7,155 13

Management Costs 1,611 3

KMSA Owner’s Project Costs 6,055 11

Subtotal 42,879 81

Contingency 4,968 9

Taxes and Duties 5,274 10

Total Project Build Cost US$ 53,121 100

Project fully-permitted with 12-month timeline to production post-funding and Board

approval.

Significant opportunities to improve project economics and mine life through future

staged project expansions, including leaching solutions for stockpiled cobalt-only ore/

mineralised rejects from the DMS plant plus improved product pricing terms at offtake

finalisation.

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7.7.3 MMG Kinserve

Kinsevere is a world-class copper mine located in the Democratic Republic of the

Congo (DRC). Kinsevere was acquired by MMG in 2012 and is an important part of

the company’s portfolio of high quality base metals assets.

Through a focus on operational excellence, Kinsevere continues to deliver above

nameplate capacity of 60,000 tonnes of copper cathode per annum.

In 2017, Kinsevere produced 80,186 tonnes of copper cathode. This was the third

consecutive year of stable and consistent production above 80,000 tonnes. The

strong production was supported by significantly improved mining performance with

total material movement increasing by 140% from 6.2 million tonnes in 2016 to 14.8

million tonnes in 2017.

7.7.4 Tenke Fungurume

Mining giant Freeport McMoRan finalized a deal with China Molybdenum Inc.

(CMOC) to sell the company’s controlling stake in the Tenke Fungurume copper mine

in Democratic Republic of Congo (DRC), the company’s largest copper mine in

Africa. Freeport sold their 56 percent stake in the Congolese project for $2.65 billion.

At a glance, it would seem that everybody wins in Tenke’s recent sale. Freeport

offloads the asset in an effort to reduce the company’s global $21 billion debt bill.

When asked about the government’s position on the transaction, Minister of Mines

Martin Kabwelulu questioned the opacity of the sale, adding that there must be a tax

on the sale of the Congolese asset and that they will push the tax authority to claim it.

But this tax may be more difficult to claim than they think. And while billions of dollars

transfer between the two companies’ bank accounts, the citizens of DRC may not

see a penny from the two billion dollar sale.

7.8 Kinsenda Copper

A feasibility study was completed by Metorex in 2013 which determined the viability

of the Kinsenda Project. The ore reserves at the Kinsenda Project are planned to be

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http://www.bloomberg.com/news/articles/2016-05-13/congo-plans-to-investigate-tax-freeport-sale-of-copper-mine



extracted in two phases. Phase 1 will involve the high grade extraction of copper

sulphides/oxides which is estimated to last for a period of ten years. Phase 2 which

will involve the lower grade extraction of copper sulphides/ oxides, if determined to be

economically feasible and undertaken, will allow the life of mine of the Kinsenda

Project to be further extended beyond the ten year period. The Kinsenda Project is

expected to produce, on average, approximately 24 ktpa of copper. The board of

Metorex approved the development of the Kinsenda Project in April 2013 and the

development has commenced since April 2013, and if the development were to

proceed as planned, the first production is expected to occur during the first quarter

of 2015. Total project capital expenditure is expected to be approximately US$ 319.4

million.

7.9 Market Value

The market value is based on what a company would pay to acquire the assets. This

can be based on the equipment discounted for age and condition plus the value of

the infrastructure.

Based on the above a likely comparative market value could be as follows.

The asset value of the equipment and infrastructure is US$40,253,500.

This would be on the basis of a company purchasing the whole plant. The exchange

rate, cobalt price and other factors also come into play arriving at a price. The

general condition of the Luapula equipment is very good which would assist

achieving the nominated price.

Selling the whole plant is better for the vendor and very attractive for the purchaser

who also saves on engineering and has certainty with this project going forward.

7.10 Fire Sale Value

This is not appropriate because because this is a highly unlikely situation. The asset is unencumbered. F

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7.11 Income (Earnings) Approach

Future annual net earnings generated from the asset, discounted to the present day

using an appropriate interest rate. This method assumes that a buyer would not be

willing to pay more for an asset than the present value of the income it can derive.

This requires a cash flow model which was supplied by Winmar Resources. The plant

would have a higher value based on a resource and cash flow. A value under this

scenario has been attempted at a high level and subject to a number of disclaimers

the financial model NPV value is US$108,000,000. It is expected that a buyer would

not pay the full NPV value but a discounted rate. On this basis US$70,000,000 might

be achievable at the metal prices used and operating costs assumed. As a going

concern the project has the highest value. This is however not the current value.

Assumptions and Model Construction:

It is unclear how OPEX and CAPEX figures are estimated.

Logistics costs and royalties appear to have been estimated reliably, although

there are no supporting calculations for other inputs to the financial model.

Likewise to the capital upgrade costs. These will have a notable impact on the

NPV as they will be required in the early stages of the project and are hence

not subject to inflation.

Inclusion of a 5% sustaining capital for an acquisition of an existing plant

decreases economic risk of the project.

No allowance for contingencies in financial model. This is possibly accounted

for in sustaining or ‘other’ cost areas. Inclusion of a contingency would further

reduce economic risk.

A number of assumed values are time-independent. Notably feed grade and

product recoveries. Some basic implementation of geometallurgy could

improve the accuracy of the financial model.

Notable Expenses:

Leaching and reagents costs contribute approximately 63% of the processing

OPEX.

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Government and other royalties make up 45% of the logistics, exports and

royalties expenses.

Processing costs are reasonable

Sensitivity:

Figure 7-1: Spider chart for sensitivity analysis of the Luapula financial model

The project is most sensitive to changes in cobalt feed grade, production and

pricing.

The difference in LME copper and cobalt pricing makes variations to the

copper grade and recovery less significant to cobalt.

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8. REFURBISHMENT

Winmar Resources has developed a refurbishment programme in detail which is

included hereafter.

8.1 Crushing Area

Background and Rationale

There are existing jaw crushers (2 x) and impact crushers (2 x) (aka sand making

machines) on the site, although they need to be refurbished and tested. There is also

a cone crusher (1 x) on the site that – in some senses – is preferable over the impact

crushers although discussions with the current owner of the cone crusher indicate

that the cone crusher is not available for this project as it belongs as part of another

plant being stored at the facility.

Specific Works Required

Specific items:

1. Procure and install teeth on impact crushers

2. Test mechanical functionality and operation of all crushers

3. Furnish with crusher motors (in storage) and test

4. Procure spare liners (jaw crushers) and teeth (impact crushers)

5. Refurbish and test functionality of existing vibrating screen

6. Furnish with motor

7. Furnish with wear liners in high abrasion areas

8. Furnish with screen panels

9. Service all mechanical equipmen

independent valuation of luapula processing facility … · 2019. 3. 19. · mets is regarded as a...

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