Parys Mountain Property

The Parys Mountain property hosts a significant polymetallic zinc, copper, lead, silver and gold deposit. The site has a head frame, a 300m deep production shaft and planning permission for operations. The group has freehold ownership of the minerals and surface land. Infrastructure is good, political risk is low and the project enjoys the support of local people and government. An independent JORC resource estimate completed in 2012 by Micon International Limited reported a resource of 2.1 million tonnes in the indicated category at 6.9% combined base metals and 4.1 million tonnes at 5.0% combined base metals in the inferred category, with substantial exploration potential. In July 2017 a new Scoping Study using the 2012 resource estimate was prepared by Micon International Limited and Fairport Engineering Ltd. The Scoping Study demonstrates a viable mine development mining 1000 tpd to produce lead, zinc and copper concentrates and yielding a healthy financial rate of return.

Development Plan – 2017 Scoping Study

During the period 2006-2010 Anglesey Mining carried out a detailed drilling programme on the White Rock Zone which lies adjacent to the existing 300m Morris Shaft and largely overlies the deeper Engine Zone deposits, but which extends to surface. As a result of this drilling the 2012 resource estimate by Micon included both the White Rock Zone and the Engine Zone. A new mining plan based on a surface decline to access the White Rock zone was prepared. It proposed that a decline would be developed by mining contractors and would be used as the initial means of access to the resource for development and mining. During the initial production phase from the White Rock zone the decline would continue to be driven to reach the current bottom of the Morris Shaft and beyond. The shaft would then be dewatered and deepened by approximately 150 metres and recommissioned as a hoisting shaft for the remnant White Rock ore and for the deeper and more valuable Engine Zone ore. Mining would be carried out initially from the main decline using rubber-tyred equipment including drill jumbos, load-haul-dump machines and trucks to remove development waste to surface and production ore to the planned adjacent processing plant. The existing hoist and headframe would be refurbished and used to bring ore to the surface for delivery to the processing plant through the deepened shaft. The 2017 Scoping Study concluded that the preferred development option for Parys Mountain is a 1,000 tpd mine and plant with a Dense Media Separation (DMS) section and that after an initial ramp-up period, the higher production level can be maintained. This would result in a mine life of approximately eight years based only on the indicated resources.

Decline2

3D Representation of proposed decline, Morris Shaft and resources


Metal Production

The processing plant proposed in the 2017 Scoping Study will consist of crushing and grinding followed by conventional three stage flotation to produce copper, zinc and lead concentrates to be shipped to smelters in Europe. Metallurgical performance and recovery is based on the large volume of information available from test work on Parys Mountain ores over the years. Total base metal recovery to each of the three copper, zinc and lead concentrates is forecast to be 89.8% and taking into account the DMS losses overall recovery will be approximately 85.7%. Significant amounts of silver and gold will report to each of the concentrates. Some free gold will be recovered by gravity methods and will be sold as Welsh gold. On average 14,000 tonnes of zinc concentrate at 57% Zn, 7,200 tonnes of lead concentrate at 52% Pb and 4,000 tonnes of copper concentrate at 25% Cu, will be produced annually. These figures will vary somewhat during the life of the mine as mine feed varies depending upon the particular ore bodies being mined at any time. Life of mine average annual metal production into concentrates is forecast at 17.6 million pounds of zinc, 8.3 million pounds of lead and 2.2 million pounds of copper. Using estimated shipping costs, smelter terms and penalties, the overall NSR for the three concentrates, including the precious metals, was projected to total in excess of $270 million at the metal prices used for the base case. This would represent net smelter revenue of approximately 72% of the metal value in concentrates delivered to the smelters.

Project Financial Results

The pre-production capital cost of the base case including mining, DMS, concentrator and infrastructure is estimated at $56 million, including a $4 million contingency. The initial capital cost for mine development is estimated to be $16 million, the concentrator $29.5 million including $3 million for the DMS plant, and infrastructure $10 million. Operating costs were developed by Micon and Fairport based on current knowledge and experience which at the higher levels of production are forecast at around $47 per tonne of ore treated. The base case yields a pre-tax net present value of $33 million, or £26 million, at a conservative 10% discount rate, using metal prices of $1.25 per pound for zinc, $1.00 per pound for lead, $2.50/pound for copper, $17.50 per ounce for silver and $1,275 per ounce for gold and at an exchange rate of £1.00 = $US1.25. With an estimated pre-production capital cost of $56 million, or £45 million, this results in an indicated internal rate of return (IRR) of 26%.At an 8% discount rate, used to reflect the relatively low risks of the project given its advanced level of development and low political risk in the UK, the NPV8 would be enhanced to $40 million, or £32 million, for the base case metal price scenario. The Parys Mountain project is sensitive to metal prices and exchange rates. Using metal price projections of $1.35 per pound for zinc and $3.00 per pound for copper the NPV10% would be $43.2 million, or £34.6 million and the NPV8% $52 million, or £42 million, with an IRR of 30%.The pre-tax net present values, at 10% and 8% discount rates, and internal rates of return, are illustrated in the table below, all at a sterling:US dollar exchange rate of £1.00 = $US1.25.

Metal Prices Pre-Tax Cash Flows
ZincUS $/lb Lead US$/lb Copper US$/lb Silver US$/oz Gold US$/oz Undiscounted $M NPV10% $M NPV8% $M IRR%
1.25 1.00 2.50 17.50 1,275 91.2 33.2 40.2 26
1.35 1.00 3.00 17.50 1,275 110.8 43.5 52.3 30

QME Optimization Studies

The 2017 Scoping Study recommended further work as interim steps towards undertaking a feasibility study, including more detailed mine planning and design, more detailed engineering studies, additional metallurgical test work and review of tailings management and environmental and planning permissions, all of which would normally require new and further financing. In late 2018 Anglesey announced that it had entered into a Project Development and Cooperation Agreement with QME Mining Technical Services, a division of QME Ltd, to carry out an agreed programme of engineering and optimisation studies relating to the future development of Parys Mountain.

Summary of QME Work to-date

QME has made significant progress including detailed reviews of mine development capital and mine operating costs of the basic mine plan using their extensive experience in mine development throughout Europe. In its preliminary work to date, QME has identified the potential for improvements in the development plans contained in the 2017 Scoping Study. The QME preliminary work has indicated that, based on the projected life-of-mine operating cost, the NSR cut-off for both the 2012 Mineral Resource Estimate and the 2017 Scoping Study was too high and that the optimum case can be improved if the potential mineable tonnage can be increased using a lower NSR cut-off.

QME developed a model to estimate the capital cost of contract mine development and also to estimate the mine operating costs for the life of mine during operations using either a contractor or direct hire labour with contractor management, as two separate cases. The purpose and benefit of using a contractor for initial mine development is to defer capital expenditure on mining equipment and also to ensure an efficient project start-up and mine ramp-up with trained and experienced mine development management and personnel.

The QME review work completed to date has generated revised mine development capital and operating costs for a number of cases that now enables support for a lower cut-off. The Micon 2012 Mineral Resource Estimate generated an indicated resource of 2.1 million tonnes using 2012 metal prices and a cut-off of $60/t. This was the resource used in the 2017 Scoping Study.By using a lower cut off and updated prices QME identified mineable material of approximately 5M tonnes at $48/t cut-off, with an indicated NSR of $93/t. This will then give an opportunity to develop a new mining plan by re-defining the mining shapes and the stoping plan, to be followed by a new development plan and schedule, which is expected to demonstrate a longer mine life. The 2017 Scoping Study was based on the initial development and production from the White Rock zone using a newly developed decline eventually leading to development of the deeper Engine Zone and then the rehabilitation and use of the Morris Shaft as a hoisting facility. The QME review examined whether different approaches to accessing the orebodies, particularly by early dewatering, rehabilitation and recommissioning of the Morris Shaft, could provide early access to the higher-grade Engine zone resources. QME estimated the cost of the shaft pump out and refurbishment in order to access the 280m level for exploration purposes. A similar exercise was carried out to estimate the cost of deepening the shaft from the current 300m level down to 450m to permit in-shaft hoisting of ore after initial production via the decline. It was confirmed that the shaft will need to be refurbished for ore hoisting purposes, but the potential utilisation of the shaft for early production would require additional tonnage above that contemplated in the original plan in the scoping study. It was originally envisaged that the QME Optimisation Study would be completed by the end of June 2019. The preliminary phase of the exercise has been completed. The QME studies have suggested that the project can be further improved if the mineable tonnage can be increased. QME has suggested that additional studies are carried out and this second stage of the process remains ongoing.

These additional studies will look at utilising some of the inferred resources into the mining plan, continuing review of cut-off grades and use of updated metal prices and it is expected that this will generate a significant increase of tonnage in the mineable tonnage in any future 2019 mining model. While the inclusion of inferred resources does not meet the strict criteria for feasibility studies used by banks for loan evaluation, given the detailed geological knowledge of Parys Mountain now available it is useful to include some of this inferred resource for comparative financial modelling. It is now expected that these additional studies will be completed by the end of 2019 and, subject to financing being available, would then form the basis for commissioning of an updated scoping study or preliminary feasibility study.

Agreement with QME

QME Limited is based in Navan, County Meath, Ireland from which it operates several divisions and provides a wide range of services in the fields of both mine development and mine operations to the local and international mining community. QME Mining Technical Services division undertakes contract mining projects and employs an ‘in-house’ team of highly experienced operations managers, underground supervisors, miners, fitters and electricians. QME has carried out both large- and small-scale underground mine development contracts, providing all technical evaluation and budgeting services, personnel, management, equipment and maintenance.

Under the Development Co-Operation Agreement with QME, the Company has agreed to grant QME various rights and options relating to the future development of Parys Mountain. On completion of the optimisation study and delivery to Anglesey of the results thereof: (i) the Company will award QME, on an exclusive basis, contracts for the development of the decline and underground mine development, including rehabilitation of the shaft. This will be done on terms to be agreed following a decision by Anglesey to proceed with the development of Parys Mountain; (ii) In the event Anglesey and QME are not able to agree terms the Company may offer such contracts to third parties, subject to a right of first refusal in favour of QME, and subject to a payment by the Company to QME, upon the award of such contracts to a third-party, of a break-fee; and (iii) In addition, the Company will grant to QME the right and option, upon completion of a Prefeasibility Study (“PFS”), to undertake at QME’s cost and investment, the mine development component of the Parys Mountain project, including decline and related underground development and shaft development, with a scope to be agreed, to the point of commencement of production, in consideration of which QME would earn a 30% undivided joint venture interest in the Parys Mountain project.

Mineral exploration potential at Parys Mountain

In addition to the indicated and inferred resources reported by Micon, the Parys Mountain area, over which the group holds the mineral rights, contains numerous indications of mineralisation across several kilometres many of which have been disclosed in earlier reports and releases.