Defiance advances Tasiast (May 10, 2004)

Defiance Mining (DM-T) has completed a bankable feasibility study of its Tasiast gold project in Mauritania, West Africa.

The study, completed by SNC-Lavalin (SNC-T), envisages a 4-pit operation capable of producing 110,000 oz. gold from 1.2 million tonnes of oxide ore in each of the first three years. In subsequent years, the operation is expected to produce around 102,000 oz. gold from 1.1 million tonnes.

The removal of some 983,000 tonnes of waste during preproduction is expected to reduce the stripping ratio of the pits to 4.6-to-1 during operations. The waste material will be used in the construction of a crusher ramp and tailings dam.

Tasiast’s four pits — Piment South-South Extension (Pit S1), Piment South-North Extension (Pit S2), Piment Central (Pit S3), and Piment North-South Extension (Pit S4) — contain proven and probable reserves of 9 million tonnes grading 3.1 grams gold per tonne, or 886,000 contained ounces. Most of the reserves are in pits S1 (46%) and S3 (43%). The reserve estimate is based on a gold price of US$370 per oz.

The pits are also home to 1 million tonnes of inferred resources, which are considered waste in the feasibility study. Still, the material will be excavated as part of the mine plan, and Defiance figures a significant portion could be sent through the mill.

Also, Tasiast’s mineralized zones extend deeper than the current pit bottoms, suggesting potential for future underground mining.

Processing at Tasiast will involve single-stage crushing, semi-autogenous grinding, and ball-mill wet grinding followed by gravity concentration, thickening, carbon-in-leach gold recovery and cyanide destruction. Overall, gold recovery is pegged at 95%.

The estimated 4,000 cubic metres of water required by the project each day will be piped in from eight wells sunk 60 km west of Tasiast. A reverse-osmosis filter system will provide the 160 cubic metres of fresh water needed daily. The project will be powered by five diesel-driven generator sets.

An environmental study concludes that Tasiast poses no major negative environmental threat, as only industrial-grade saline water will be employed, and the project includes a cyanide destruction circuit and a tailings pond design that will maximize process water evaporation and minimize the risk of seepage. Moreover, the project is in an isolated desert area.

Capital costs are pegged at US$48.4 million, based on contractor mining. The operation will generate total after-tax net free cash flow of US$117 million (before deducting construction capital) over its 8-year life, based on a gold price of US$400 per oz. Life-of-mine cash costs are expected to average US$226 per oz.

Assuming 100% equity financing, the project generates an internal rate of return of 22.5% at a gold price of US$400 per oz. That rate climbs to 32% at a gold price of US$450 per oz., and falls to 12.7% at US$350 per oz.

Up to 250 people will be employed during the 18-month construction period; 235 full-time employees will staff the operation during production. A production decision will come once financing is secured.

Defiance recently posted a net loss of US$9.6 million (or 17 per share) for 2003, compared with a year-earlier loss of US$4.6 million (30 per share). Revenue between the two periods climbed 61% to US$15.6 million on a 39% increase in gold sales to 42,656 oz. Those ounces sold for US$362 apiece, US$48 per oz. higher than in 2002.

At the end of 2003, the company had US$6.8 million in cash; total debt was $5.2 million.