otjihase and matchless mines - rns submit · both otjihase and matchless mines were closed at the...

WEATHERLY INTERNATIONAL PLC

Otjihase and Matchless Mines Summary of Five Year Plan For the Recommencement of Operations

14 December 2009

1. Introduction Both Otjihase and Matchless mines were closed at the end of December 2008 due to the drastic fall in the copper price to below the cost of production. Both mines were placed on care and maintenance and a small six-member team has kept the assets in good condition, their main tasks being to keep the mines dry and to secure the assets. A five-year plan has been compiled for both mines based on resources/reserves at closure, recently compiled development and production forecasts, operating and capital budgets, and cash flow models. Currently the detailed project plan for the startup of both operations is being compiled/refined, and will be implemented once project funding has been finalized. A summarized timeline is provided in Figure 1. A portion of the mining equipment fleet was sold during the first half of 2009, to fund care and maintenance, retrenchment pay for the 650 former employees, and to settle outstanding debts with creditors. Once project funds are available, replacement equipment will have to be ordered and the delivery times will ultimately determine/dictate when development and production operations can commence. It is estimated that this lead-time could amount to 6-8 months. During this time recruitment of employees will occur and contracts will be negotiated with suppliers and service providers. It is Weatherly’s intention to spend adequate time on testing, selecting and training new employees, since the success of the plan will ultimately depend on an efficient and productive workforce. The employment contracts of the employees will commence shortly before the scheduled delivery time of the mining equipment, although a small number of temporary personnel (25-30) will be contracted earlier to perform repairs, maintenance and clean-ups prior to the startup. It must be emphasized that production and development activities will only commence once all technical, legal and human resource requirements have been satisfied. 2. Otjihase Mine Of the more than 10 million ton total resource, some 5 million tons grading 2.14% Cu occurs between surface and the Kuruma West Fault over a plunge distance of some six kilometers. Beyond the Kuruma West Fault, downthrown by 250m, and at a depth below surface averaging 1100m, is an additional 5 million ton resource. This resource has not been included in this plan since a comprehensive feasibility study is required on the development and extraction of this mineralization. The total available resource as at 30 June 2009, and the estimated ore to be extracted for each of the mining areas during this five-year plan, is shown in Table 1. The majority of this ore will be extracted from pillars (secondary extraction phase). The only primary ore available lies in the Kuruma West Compartment, but some 300m of waste development must first be undertaken to access this ore. Production will commence from pillars in the Kuruma East and Central Compartments and the Kuruma West primary ore will be incorporated on completion of the necessary development. These mining areas are located six kilometers (decline distance) from surface. Pillar ore mined from these areas is first trucked 1.5 km to a underground primary crusher and then conveyed to near surface on a 5.5km long conveyor system comprising 10 individual conveyors. A railway system transfers the ore over a distance of 1.2km from the head of the conveyor to the concentrator.

Long traveling distances for personnel and materials, long conveying distances for ore and the length of the infrastructure that must be maintained (roads, conveyors, pump columns etc.) contribute significantly to the operating costs. Various measures have, of necessity, been introduced in this plan to increase productivity and to reduce costs. At closure the mine was operated on a 3 x 8 hour shift basis, 6 days per week. This system only allowed for 5.5 hours productive time per shift at the face. This is generally inadequate for completing a pillar blasting operation (making safe, drilling and blasting) and work started on one shift would frequently have to be completed on the subsequent shift by another mining team. The new system to be introduced will be 2 x 10 hour shifts per day on a continuous roster. There will be a two-hour gap between mining shifts that will allow engineering staff to check and service the mining fleet before the mining staff commence their shift. Previously these tasks were completed at the commencement of each shift, often resulting in delays. The 10-hour mining shift will yield a productive time of 7.5 hours which is adequate to complete the mining cycle. The concentrator will remain on a 3 x 8 hour shift system to ensure that there is continuous operation/supervision at the plant. Electrical power is a significant contributor to the total operating costs. Previously the mining activities on the afternoon shift occurred during peak tariff times. The new shift system ensures that all mining activities consuming power will occur outside peak times. Additional cost savings will be realized through a reduction in the workforce, which will be achieved by multi-skilling the workforce as much as possible, and by utilizing employees more efficiently than previously, for example, by conveying ore in two stages the number of conveyor operators can be halved. The planned labour complement is 236 employees and 66 contractor employees. During the first three years while production is being sourced from the Kuruma Compartment, preparations for pillar extraction in the Otjihase Compartment will take place. Most of the preparation works involves constructing a backfill and return water infrastructure, but some hangingwall support will also be required. Ore mined from this area will be trucked 1.5 km (on average) to a recently commissioned primary crusher on surface. Once ore in the Kuruma Compartment is depleted all production will be sourced from the Otjihase Compartment. This will result in a significant reduction in costs. Travelling distances will be shortened by 75 percent, the conveyor system will not have to be operated or maintained and the railway system will not be utilized. Ventilation and pumping costs will also be significantly reduced. Upon startup, production commences at a low rate of 10000 ore tons per month and ramps up to 25000 tons per month over a period of 10 months. This represents the maximum sustainable production level from the Kuruma East and Central pillar ore. Thereafter, once the Kuruma West primary ore becomes available, the production levels ramp up over a period of 18 months to a maximum of 35000 tons per month. This production level will then be maintained for the remaining two years of the five-year plan (See Table 2a). The average monthly metal production is expected to amount to 443t copper, 162kg silver and 6kg gold contained in concentrates. Planned on-mine costs are shown in Table 2a. The largest expenditure is on supplies (46.1%), followed by labour (25.6%) and power (14.5%). Contract costs and sundry costs constitute a relatively minor proportion of the on-mine costs being 7.8% and 6.0% respectively. Unit operating costs are predicted to average US$45 per ton of ore milled over the five year period. These costs will however be significantly higher during the first 15 months while

production is ramping up. The total cost of production including all smelting and refining costs is expected to average US$3712 per ton of copper produced (LME). Refer to Table 2a. Planned capital expenditure at Otjihase for the duration of the five year plan is provided in Table 2a. During the first year the majority of capital expenditure of approximately US$4.7 million, will be expended on the mobile mining equipment fleet. Table 3a lists available equipment and the equipment that must be acquired before operations commence. The concentrator will be upgraded, mainly in respect to measuring and control equipment, and the underground pumping system will also be upgraded. A leaky feeder underground communications system will also be installed. This is considered an essential productivity enhancer since it will improve management/control of the underground mining and engineering operations significantly. The most significant expenditure during the second year is the development cost of US$0.6 million to access the Kuruma West primary ore. Concentrator upgrades will also be completed. During the third year, capital expenditure of US$0.7 million will be expended on underground backfill infrastructure in the Otjihase Compartment and the construction of fly ash storage and handling facilities at the backfill plant. It is planned to introduce fly ash into the backfill as a cement substitute. This will reduce cement consumption by up to 65% which translates into a very significant cost saving. 3. Matchless Mine Matchless Mine is a much smaller operation than Otjihase (resource and infrastructure) but will produce 40-50% of Otjihase’s output. It has been developed to 11-Level and production has commenced on 9- and 10-Levels. The optimum monthly production rate is 15000 tons to ensure that production does not catch up with development. Prior to commencement of production the decline shaft will be developed from 11-Level to 14-Level over a period of five months. This will create a more flexible mining environment since there will be five levels available from which to produce. During the production phase, development of this decline and associated infrastructure including ventilation raises will continue to 24-Level. Ore mined at Matchless is transported 85km by road to the Otjihase Concentrator. Ore transport costs comprise 35% of the projected operating costs and the key to a successful project is reducing the per-ton transport cost and ensuring that only quality tons are transported. Strict attention to grade control will be essential to eliminate unnecessary costs associated with transport of low grade/ “waste” material. Previously, the Matchless Mine was operated successfully by a mining contractor and it is planned to follow this route again. A total complement of 129 personnel is envisaged. Initially all production will be sourced from the Western Extension orebody. The resources quoted in Table 1 extend down to 24-Level. The orebody is still open below this level and exploratory drilling from underground platforms will have to be carried out in due course. As mining progresses from 10-Level to 24-Level tramming distances for both ore and waste will be increasing, resulting in longer cycle times. It is anticipated that achievable production rates will be dropping as a result. It is therefore planned to access the River Shoot at the old Matchless Mine (last mined in 1983) where Tsumeb Corporation Limited geologists

estimated a non-JORC historical resource of 1 million tons grading 2.5% Cu. A ramp up in the production from the River Shoot will compensate for the decrease in production from the Western Extension orebody and will ensure that a steady production rate of 15000 tons per month is maintained (beyond the 5-year plan). Production at Matchless is scheduled to ramp up from 10000 to 15000 tons ore tons per month over a four-month period. This production rate will then be maintained for the remainder of the five year plan and will yield an average monthly production of 245t copper, 75kg silver and 3kg gold contained in concentrates. Forecasted operating costs for the Matchless Western Extension orebody are provided in Table 2b. On-mine costs at US$29.00 per ton ore mined are lower than those at Otjihase, but the ore transport costs from Matchless to the Otjihase concentrator are high at US$18 per ton. The total cost of production including all smelting and refining costs is expected to average US$4094 per ton of copper produced (LME). Matchless will require capital amounting to US$5.15 million during the first year (Refer to Table 2b). Approximately 64% of this amount will be expended on the mobile mining equipment fleet. Table 3b lists the available equipment at Matchless and the equipment that must be acquired before operations can commence. Underground diamond drilling to better delineate the ore and to confirm the metal grades, together with the pre-production development costs, amount to US$1.6 million. 4. Combined Production Combined ore production from Otjihase and Matchless will ramp up from a Year 1 average of 26071 tons per month to an average of 50000 tons per month by the end of Year 3. The average run of mine ore production from both mines is scheduled to average 43873 tons per month, yielding concentrates containing 688t copper, 237kg silver and 9kg gold. This production will be achieved with 327 employees and 80 contractor personnel. Unit operating costs are projected to average US$40 per ton of ore milled and US$3848 per ton of (LME) copper produced over the five-year period. A total of US$12.5 million capital expenditure is required over the first three years, of which US$10.5 million is required during the first year. A summary of the combined production data, operating costs and capital expenditure requirements is provided in Table 2c. The plan for the recommencement of operations at Otjihase and Matchless set out above was prepared by Andrew Thomson B.Sc.(Hons) Geology, Pr.Sci.Nat 400052/86. Until February 2009, Mr Thomson was employed by the Company in the position of General Manager - Technical Services. Since this time he has been retained by the Company as an independent technical consultant. Mr Thomson meets the definition of a “qualified person” as set out in the AIM Note for Mining and Oil and Gas Companies, June 2009. Mr Thomson has provided his consent to this document’s release.

Mining Area Ore (t) Cu (%) Millfeed Ore (t) MF Cu (%)

Kuruma East & Central ‐ Pillars 1,575,600 2.36 925,000 1.68 Kuruma West ‐ Primary 1,011,128 1.79 432,500 1.48 Kuruma Shoot 2 ‐ Pillars 304,663 1.35 71,000 1.20 Otjihase ‐ TCL Pillars) 1,926,844 2.37 166,000 1.51 Otjihase ‐ JCI Pillars) 393,048 1.66 10,000 1.48

Subtotal : Otjihase 5,211,283 2.14 1,604,500 1.65

Matchless Western Extension 822,120 2.19 734,996 1.80 Matchless River Shoot (Old Mine) 1,060,000 2.50 0 0.00

Subtotal : Matchless 1,882,120 2.36 734,996 1.80

Otjihase + Matchless 7,093,403 2.20 2,339,496 1.70

Excluded Otjihase Resources (Possible future project)

West of Kuruma (Tigerschlucht) 5,031,064 1.69 0 0.00

Table 1 : Resource Tonnage vs Planned Extraction Tonnage

Total Resource (30/06/2009)

Planned Extraction Five Year Plan

Undiluted Diluted

Year 1 2 3 4 5 Average Production Months 7 12 12 12 12 n=55

Base Information Avg. ROM Ore (t/month) 16,071 24,750 30,042 35,042 34,500 29,173 Avg. Cu in Concentrate (t/month) 218 387 450 552 514 443 Avg. Ag in Concentrate (kg/month) 80 142 173 210 172 162 Avg. Au in Concentrate (kg/month) 3 5 6 8 7 6

Employees 215 215 236 236 236 228 Contractors 54 66 66 66 54 61

Opex (N$ 000s) Supplies 2,328 3,805 4,714 5,533 5,450 4,551 Contract 660 773 756 756 856 769 Power 1,293 1,442 1,450 1,450 1,450 1,428 Sundry 570 599 601 601 601 596 Labour 2,198 2,386 2,580 2,580 2,580 2,529 Subtotal : On‐mine 7,049 9,005 10,101 10,920 10,937 9,873

Ore Transport Ore Processing Concentrate Transport 213 379 441 540 504 434 Smelting & Refining 816 1,451 1,688 2,069 1,931 1,661 Royalties 108 329 382 469 437 366

Total Otjihase Opex 8,186 11,164 12,612 13,998 13,809 12,334

Unit Operating Costs Cost per Ore Ton Milled (N$) 439 364 336 312 317 338 Cost per Ore Ton Milled (US$) 58 49 45 42 42 45

Cost per Cu Ton (N$) 37,550 28,848 28,027 25,359 26,866 27,842 Cost per Cu Ton (US$) 5,007 3,846 3,737 3,381 3,582 3,712 (US$1 = N$7.5)

Capex (N$ 000s)1 2 3 4 5 Total

Mining Fleet 35,150 35,150 Development (Kuruma West) 4,200 4,200 Infrastructure 2,000 650 2,650 Concentrator 5,445 1,900 7,345 Other 350 350 Backfill Infrastructure 5,450 5,450

Total Otjihase Capex (N$ 000s) 42,945 6,750 5,450 0 0 55,145 Total Otjihase Capex (US$ 000s) 5,726 900 727 0 0 7,353 (US$1 = N$7.5)

Table 2a : Five Year Plan for Otjihase Mine




Opex (N$ 000s) Supplies 1,548 1,872 1,872 1,872 1,872 1,859 Contract 390 390 390 390 390 390 Power Sundry 86 112 112 112 112 111 Labour 802 817 817 817 817 817 Subtotal : On‐mine 2,826 3,191 3,191 3,191 3,191 3,177

Ore Transport 1,417 2,066 2,125 2,125 2,125 2,096 Ore Processing 450 656 675 675 675 662 Concentrate Transport 147 246 273 273 273 261 Smelting & Refining 565 942 1,044 1,044 1,044 1,001 Royalties 184 307 339 339 339 325

Total Matchless Opex 5,589 7,408 7,647 7,647 7,647 7,522



Capex (N$ 000s)1 2 3 4 5 Total

U/G Diamond Drilling 2,700 2,700 Mining Fleet 24,850 24,850 Development (11‐14 Level) 9,294 9,294 Infrastructure 1,450 1,450 Other 525 525

Total Matchless Capex (N$ 000s) 38,819 0 0 0 0 38,819 Total Matchless Capex (US$ 000s) 5,176 0 0 0 0 5,176 (US$1 = N$7.5)

Table 2b : Five Year Plan for Matchless Mine




Opex (N$ 000s) Supplies 3,876 5,677 6,586 7,405 7,322 6,410 Contract 1,050 1,163 1,146 1,146 1,246 1,159 Power 1,293 1,442 1,450 1,450 1,450 1,428 Sundry 656 711 713 713 713 707 Labour 3,000 3,203 3,397 3,397 3,397 3,346 Subtotal : On‐mine 9,875 12,196 13,292 14,111 14,128 13,050

Ore Transport 1,417 2,066 2,125 2,125 2,125 2,096 Ore Processing 450 656 675 675 675 662 Concentrate Transport 360 625 714 813 777 695 Smelting & Refining 1,381 3,774 2,732 3,113 2,975 2,662 Royalties 292 636 721 808 776 691

Total Combined Opex 13,775 19,953 20,259 21,645 21,456 19,856



Capex (N$ 000s) Year 1 2 3 4 5 Total

U/G Diamond Drilling 2,700 2,700 Mining Fleet 60,000 60,000 Development (Kuruma West) 9,294 4,200 13,494 Infrastructure 3,450 650 4,100 Concentrator 5,445 1,900 7,345 Other 875 875 Backfill Infrastructure 5,450 5,450

Total Combined Capex (N$ 000s) 79,064 6,750 5,450 0 0 93,964 Total Combined Capex (US$ 000s) 10,542 900 727 0 0 12,529 (US$1 = N$7.5)

Table 2c : Combined Five Year Plan for Otjihase and Matchless Mines

Description Currently Available Need to Purchase Capex Required (N$) 35 Ton Dump Truck Yes 6,000,000 35 Ton Dump Truck Yes 6,000,000 35 Ton Dump Truck Yes 6,000,000 Wagner ST8B LHD (1) Yes Wagner ST8B LHD (2) Yes Wagner ST8B LHD (3) Yes Wagner ST3.5 LHD Yes Atlas Copco L2D Twin-boom Drill Rig Yes Atlas Copco Single-boom Drill Rig Yes Atlas Copco Single-boom Drill Rig Requires Repairs 600,000 Manitou Telehandler (1) Yes Manitou Telehandler (2) Yes Manitou Telehandler (3) Yes 1,850,000 Manitou Telehandler (4) Yes 1,850,000 CAT 120H Low Profile Grader Yes 2,100,000 Atlas Copco Scaletec (Scaler) Yes 4,500,000 Cable Bolter (Use Solo 5-7C) Yes Diesel 4x4 LDV (1) Yes Diesel 4x4 LDV (2) Yes Diesel 4x4 LDV (3) Yes 225,000 Diesel 4x4 LDV (4) Yes 225,000 Diesel 4x4 LDV (5) Yes 225,000 Diesel 4x4 LDV (6) Yes 225,000 Diesel 4x4 LDV (7) Yes 225,000 Diesel 4x4 LDV (8) Yes 225,000 Diesel 4x4 LDV (9) Yes 225,000 Diesel Landcruiser (1) Yes 275,000 Diesel Landcruiser (2) Yes 275,000 Diesel Landcruiser (3) Yes 275,000 CAT D5K Bulldozer Yes 2,200,000 CAT Front End Loader Yes 1,250,000 Forklift Yes 400,000 Total Capex for Otjihase Equipment : 35,150,000

Table 3a : Otjihase Mine Mobile Equipment Requirements

Description Currently Available Need to Purchase Capex Required (N$) 35 Ton Dump Truck Yes 6,000,000 35 Ton Dump Truck Yes 6,000,000 35 Ton Dump Truck Yes 6,000,000 Wagner ST8B LHD (1) Yes Wagner ST8B LHD (2) Yes Twin-boom Drill Rig (Use DO-6) Yes Twin-boom Drill Rig (Use LP Rig) Yes Manitou Telehandler (1) Yes 1,850,000 CAT 120H Low Profile Grader Yes 2,100,000 Volvo Scaler Yes 1,425,000 Cable Bolter (Use Solo 5-7C) Yes Raise Borer (Use Robins R61) Yes Diesel 4x4 LDV (1) Yes 225,000 Diesel 4x4 LDV (2) Yes 225,000 Diesel 4x4 LDV (3) Yes 225,000 Diesel 4x4 LDV (4) Yes 225,000 Diesel 4x4 LDV (5) Yes 225,000 24-Seater Staff Bus Yes 350,000 Total Capex for Matchless Equipment : 24,850,000

Table 3b : Matchless Mine Mobile Equipment Requirements

Week 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48

Otjihase :

Recruitment of repair team for Otjihase

Repairs to underground infrastructure

Recruitment ‐ Advertising

Repairs to surface infrastructure

Otjihase in production

Matchless :

Figure 1 : Summary Project Plan for Otjihase and Matchless Mines

U/G Diamond Drilling

Development 11‐Level to 14‐Level

Matchless in production

Task

Project Funding Released

Orders place for mobile mining equipment

Recruitment ‐ Testing and selection

Employment contracts commence

Delivery of mobile mining equipment

Conclusion of supplier contracts

Conclusion of service provider contracts

Month 7 Month 8 Month 9 Month 10 Month 11 Month 12Month 1 Month 2 Month 3 Month 4 Month 5 Month 6

otjihase and matchless mines - rns submit · both otjihase and matchless mines were closed at the...

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