Timok - the Lower zone

Some updates to correct for some inaccuracies, and to update the resource table to include additional information.

And now for something completely different...

I wasn't expecting the Spanish Inquisition over Nickel Mountain.

Back to reality, Nevsun have been releasing some great results from the Lower Timok Zone (link), we can see on the accompanying plan maps and sections that this zone is large, but deep.

Figure 1 - The Plan Map

You can clearly see the footprint of the Lower Zone, with approximate dimensions of 1.5km wide by ~1km. To the south, we can see the smaller, but very high-grade Upper Zone.

Figure 2: The Section....

So we can see that the Lower zone extends from 800m to ~2000m below surface. I've added some annotations.

Figure 3: The horse chestnut---hurrah!

We can see that there is potential to extend the known mineralization to depth, and maybe to the West, where no deep drilling appear to have has occurred beneath the Upper Zone.

However, I commented in previous posts that one of the problems at Alpala was its depth. The initial drilling didn't appear to outline a resource that was sufficiently large or high grade to support the development of a stand alone, large-scale, underground operation. Do we have the same issues at Lower Timok?

I've compiled as much data that I can find for Lower Timok, and I've also included the recent (2016-17) drilling from the high-grade Upper Zone as well, just to allow you to compare their location, depths and relative sizes.

You can download the 3D viewer file from here (link).

The first step was to evaluate the size and grade for the Lower Zone. I created a series of grade shells for Au, Cu and CuEq (I used Nevsun's CuEq calculation 1g/t = 0.7% Cu). These are all included in the Leapfrog viewer file as well as all the sections from the December 4th PR.

Disclosure:

• I haven't factored in any recoveries for Au and Cu when calculating the CuEq values
• I have not been able to find any assays for holes TC150073 and TC160073B
• These holes go through the center of the Lower Zone, and therefore my Bad Estimates (TM) are likely to be slightly low. I'll keep looking for this data,and when I find it, i'll update the model.

Here are the assumptions I used to create the grade shells in Leapfrog Geo:

• Base range = 400m - the holes are widely spaced (they may even be too wide to determine an initial inferred resource)
• Interpolant = Spheroidal
• Drift = None
• Specific Gravity = 2.7 (assuming the rocks are granitic in composition with minor sulfides)
• I applied a filter so that the Upper Zone drill-holes would not be used to create the various grade shells.

Here is an updated "officially bad estimates" (TM) for the Lower Zone:

Just a couple of observations:

• There appears to be a lot of contained metal at Lower Timok, 
• the majority is too low grade for an underground operation and should be considered as 'mathematical' resources.
• The overall gold content is low
• Will the concentrates contain payable amounts of gold?

At the bottom of each table I've given a tonnage and grade at various cut-off limits. I'm going to use a 1% CuEq in the following section.

If we compare my 'resource' CuEq grades and plot them against the Macquarie Reseach report on large-scale underground porphyry projects.

Red dashed line = average grade for Lower Timok (using a 1% CuEq cut-off) = 1.28% CuEq

Blue star = cut-off value for a underground block cave operation for a brownfield operation

Green star = cut-off value for a greenfield block cave operation

Lower Timok grade vs other Block cave operations/development projects 

We can see that Lower Timok isn't quite good as a stand alone greenfield development project, but as it is adjacent to Upper Timok, with a quite robust PEA, we can considered Lower Timok to be a brownfield project, and now we see that it is high enough grade to pass the Brownfield hurdle grade.

However it isn't quite as simple as that. If we look at the recently released PEA from the Upper zone (link), and we are told:

• Initial Capex ~$US615M
• Mine Life ~15 yeears
• Mining rate ~8,900 tonnes per day
• NAV = $1.5B

If we compare this to Stage 1 for Wafi-Golpu project (link), which I think could be a good analogue to the hypothetical costs to develop Lower Timok.


You can see that I've highlighted some important values.

• Initial Capex = US$2.6B
• Ore mined and milled = 149Mt (approximately similar to Lower Timok)
• Mine life = 28 years or approximately 15,000 tonnes per day
• First ore milled = project development time line = 60 months or 5 years
• Steady-state production = time taken to reach full capacity = 90 months or 7.5 years

So, if Nevsun were looking to develop the and mine the Lower Zone, it will require significant additional CAPEX, larger milling and surface facilities (tailings and waste dumps) than proposed for the Upper Zone mine. This means that Lower Zone is a half-greenfield half-brownfield project - I'll call it an Olive Project, and that Nevsun have a couple of options:

1. Mine the Upper Zone, make lots of money and 'keep' the lower zone on their books as a large resource, but don't develop it.
2. Mine the Upper Zone, and after 5 years start the permitting and development of the Lower Zone, and slowly increase the size of the surface facilities (Mill, tailings, waste dumps etc.), and bring the Lower Zone into production towards the end of mining the Upper Zone.

This is my hypothetical scenario for Lower Timok

• Initial Capex = US$1.5B (the topography is significantly easier around Timok so less earth moving, and assuming that they will use and expand on the Upper Timok surface facilities)
• Ore mined and milled = 200Mt
• Mining rate = ~15,000 tonnes per day
• Need to expand surface milling facilities by 5000-6000 tonnes per day
• Expand the flotation circuits
• I don't know how feasible this is, but it is something that Nevsun may need to consider to include as part of the development of the Upper Timok project, especially permits for expansion of tailings facilities as these may taken several years to obtain.
• Development period = 3-5 years
• Time taken to reach full capacity = 5-7 years (including development period).
• The idea is that the project would need to be developed while the Upper Zone is being mined and then Nevsun can extend the infrastructure from the Upper Zone development into the Lower Zone.

At the moment, there aren't a huge number of drill-holes into Lower Timok, and the drill hole density is still quite low (approx. 300-400m between drill-holes), but the initial data shows a robust porphyry system, that is open in a number of directions.

The initial (i.e. very bad) review suggests that it could support a medium-sized underground operation, but its development is dependent on the economics of the Upper Zone and how Nevsun/Freeport decide to develop the Lower Zone.

Will Nevsun just focus on the Upper Zone or will they factor in the development of the Lower Zone into their future decisions for the project? 

For investors, the upside could be, that if the Lower zones becomes significantly larger (e.g.>500Mt at similar CuEq grades), would Freeport step in and take out Nevsun to consolidate their ownership of a large porphyry Cu-Au deposit not owned by a major mining company?