PEA on Open Pits

In consideration of the near surface nature for part of the gold mineralization on Lexam's projects, a preliminary economic assessment (PEA) testing the economics of open pit mining was completed in 2014 by RPA on the four Timmins projects (Technical Report on the PEA of the Buffalo Ankerite, Fuller, Paymaster and Davidson Tisdale Gold Deposits, 14 MB PDF).

The results below are presented on a 100% ownership basis. All dollar amounts are considered Canadian unless otherwise specified.

Highlights of PEA on Open Pits Assumptions

- Open pit optimization designed at US$1,200/oz Au price;
- Net Present Value (NPV) calculated at 7.5% discount rate;
- Factored in: 9.6:1 strip ratio, 95% mining extraction, up to 27.5% mining dilution;
- Toll milling for all mineralization, contract mining for a portion of the waste stripping;
- 25% contingency priced in, with potential for further cost reduction through additional project optimization studies;

The base case was set at US$ 1,300/ oz Au, with sensitivites ranging from US$ 1,250/ oz Au to US$ 1,400/ oz Au.

Base Case And Sensitivities

  Description Scenario 1A
Base Case
Scenario 1B
Low Gold Price
Sensitivity
Scenario 1C
High Gold Price
Sensitivity
Scenario 2
Production Rate
Sensitivity
  Gold Price (US$/oz) 1,300 1,250 1,400 1,400
  Exchange Rate (C$:US$) 0.9 0.9 0.9 0.9
  Production Profile
  LoM (years) 6.5 6.5 6.5 9.2
  Mineralized Production Rate (thousand tonnes/day) 2 2 2 3.5
  LoM Annual Gold Production (thousand oz) 45 45 45 62
  Strip Ratio (waste:ore) 9.6 9.6 9.6 9.9
  Cash Operating Cost (US$/oz) 865 860 875 944
  Processing
  Gold Grade (gpt) 2.23 2.23 2.23 1.74
  Recovered Gold (thousand oz) 293 293 293 571
  Capital Costs
  Initial Capital (million C$) 58 58 58 95
  After-Tax Economic Performance
  Net After-Tax Cash Flow (million C$) 61 50 84 137
  IRR 32% 27% 41% 35%
  NPV at Discount Rate of 7.5% (million C$) 33 26 49 70
  Payback (years) 2.1 2.3 1.8 2.4

In RPA's view the PEA indicates a viable project, with a reasonable return on capital and with mineral resources of sufficient quantity and quality to warrant and recommend additional investigation at the level of prefeasibility studies. Future exploration drilling to upgrade and augment the resource classification was also recommended.

Further from the PEA's focus on mineral resources amenable to economic extraction by open pit mining methods, consideration is due to the underground mineralization (see the resource summary for Lexam's underground resources). The potential for production of the underground resource is considered high in view of the history of the area - Goldcorp's profitable production from Porcupine, North America’s longest continually operating gold mine operation, was sourced in latest years on underground and stockpiles mining at average production grade of 2.22 gpt Au.

Cautionary Note

The 2014 PEA on open pits is a NI 43-101 compliant technical report. The economic analysis contained in the PEA is based in part on Inferred Resources and is preliminary in nature. Inferred Resources are considered too geologically speculative to have mining and economic considerations applied to them and to be categorized as Mineral Reserves. There is no certainty that economic forecasts on which the PEA is based will be realized or that higher level of study will result in a decision to put the open pit projects into production.

Projects

Timmins Gold Camp
        Buffalo Ankerite
        Davidson Tisdale
        Fuller
        Paymaster
        PEA
Baca

   

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