Lumwana Project
Summary
Situated 220 km northwest of the Zambian Copperbelt, Lumwana hosts a proven and probable mineral reserve of 321 million tonnes of ore grading 0.73% copper. Lumwana is now a major copper mine which will establish Equinox as one of the World’s Top 20 copper producing companies.
At full capacity, mine production rates will process in excess of 20 million tonnes of ore per year, mined at an average LOM strip ratio of 4.2:1. Lumwana ore, which is predominantly sulphide, is treated through a large, yet conventional plant, producing a sulphide concentrate for sale to offtakers.
Target production for 2010 is 135,000 tonnes (300 M lbs) of copper in concentrate at a C1 cash cost of $1.35/lb Cu.
Project Location
Located in the North Western Province of Zambia, 220 km west of the Copperbelt and 65 km west of the town of Solwezi, Lumwana is easily accessed by the T-5 Northwest Highway.
The Copperbelt, one of the world's greatest concentrations of copper cobalt deposits, has been a centre of commercial copper production for over 80 years.
Mining License
The Lumwana Large Scale Mining License, LML-49, covers 1,355 km2, and includes two major copper deposits, Malundwe and Chimiwungo. Equinox owns 100% of LML-49.
Infrastructure
The recently refurbished T-5 Northwest Highway, which links the Lumwana region, Solwezi and the Copperbelt, passes within 3 km of the project.
ZESCO, the Zambian national power generation and distribution company, commissioned the 330kV power line from Solwezi to the Lumwana substation. Equinox has a long-term (15 year) power supply offtake agreement with ZESCO.
Mine Plan
The Company’s optimized mine plan (published in the June 2008 Technical Report) is based on the ‘Development Case’ which contemplates a mining schedule that contains 45% Measured and Indicated Resources and 55% Inferred Resources to be mined over a 37 year mine life on the basis of processing 20 million tones per year of ore at an average LOM strip ratio of 4.2:1.
The mine development of the Malundwe and Chimiwungo deposits, which are 7km apart, is by open-pit mining methods. The ore bodies are 95% sulphide (with only 5% oxide) and very consistent, so large scale bulk-mining methods are being employed utilizing equipment that includes a total of 27 x 240 tonne capacity diesel-electric drive hybrid haulage trucks and 7 x 518 tonne diesel and electric loaders (excavators and face shovels). The mining fleet utilizes “trolley assist” whereby the trucks switch from diesel operation to grid electricity as they make the run up the ramp from the pit to the ore and waste dumps. This trolley assist technology provides substantial fuel and operating cost savings for the Lumwana mining fleet.
Lumwana Construction and Operations
Sulphide ore is being processed on-site by conventional crushing, grinding and flotation to produce copper concentrates that are being delivered to offtakers, predominantly to local Zambian smelters. Metallurgical test work has indicated recoveries of greater than 95% copper, producing average concentrate grades of 43.3% Cu for Malundwe and 29.5% Cu for Chimiwungo and initial commissioning production figures indicate that these specifications will be achievable. The flotation plant has a design capacity to treat at least 20 million tonnes per year of ore and in the first 6 year period, should produce in concentrate, 172,000 tonnes of copper metal per year (380 million lbs per year).
Equinox accepted handover of the Lumwana Copper Plant and other associated infrastructure from the engineering contractor in November 2008. Mine commissioning and ramp-up is underway and commercial concentrate deliveries have commenced. During the year the following activities, in chronological order, contributed to this significant milestone:
- Commissioning of the Lumwana Copper Project commenced in April 2008 with the electrification of the main Lumwana 33 kV substation and subsequent reticulation of power around the site;
- Equinox secured long-term land title to approximately 35 thousand hectares (350 square kilometers) of township and mine operating areas at the Company’s Lumwana mining license. In May 2008, this grant permited the Company to manage and administer the Lumwana surface rights, in particular the planned Lumwana town sub-division, thus enabling the Company to deliver employee home ownership and other commercial developments within the township;
- In June the Lumwana SAG mill was fully energized and rotated by the engineering contractor using Siemens gearless mill drives and commissioning of the primary crusher also commenced;
- A fire on July 7, 2008 caused damage to a main transformer and adjacent substation, causing a four and a half month delay to project completion and handover;
- In September, crushing of material at the primary crusher commenced with the 4.5 kilometre conveying circuit commissioned transporting crushed material to the fine ore stockpile at the copper concentrator;
- In October 2008, Equinox secured an additional $80.0 million project debt facility to enable the Company to meet additional working capital requirements resulting from the transformer fire and subsequently delayed startup;
- The large scale Hitachi EX5500 electric face shovels were successfully commissioned and put into production commencing in October 2008;
- Equinox accepted handover of the Lumwana processing facilities and other associated infrastructure from the engineering contractor in November 2008;
- Equinox produced its first copper concentrate at Lumwana during December 2008. Wet commissioning of the final stage of the process plant filter-press commenced;
- First commercial quantities of copper concentrate deliveries were made to off-take customers during December 2008;
- Mine activities continued to ramp-up towards steady state commercial production;
- The Lumwana Property Development Company, a special purpose vehicle established to own and manage the new Lumwana town secured a $25 million debt facility with Nederlandse Financierings-Maatshappij voor Ontwikkelingslanden N.V., the Dutch development funding institution, to cover town infrastructure costs. Debt drawdown can commence once Equinox meets a number of conditions precedent; and
- The Lumwana Project achieved an excellent health and safety record, with over 5 million man hours without a lost time injury, producing a lost-time-injury frequency rate of 0.3 (per 200,000 hours).
Target production for 2010 is 135,000 tonnes (300 M lbs) of copper in concentrate at a C1 cash cost of $1.35/lb Cu. As can be expected, unit production costs are anticipated to be higher during ramp-up until steady state production activities are reached.
Copper Concentrate Offtake
The Company’s primary offtake contract is with Chambishi Copper Smelter Limited, a joint venture between China Nonferrous Metal Mining (Group) Co. Ltd. and Yunnan Copper Industry (Group) Co. Ltd. which has commissioned a new copper smelter at the Chambishi mine on the Zambian Copperbelt. Equinox is supplying this new smelter with concentrate under a 5-year ‘take and pay’ contract, with annual commitments to Chambishi of 100,000 tonnes of copper contained in concentrates or approximately 230,000 tonnes of Lumwana concentrates per year.
The Company has a five year concentrate offtake agreement (the “Agreement”) with Konkola Copper Mines Plc (“KCM”) for annual quantities of between 70,000 and 80,000 dry metric tonnes of concentrates from the Lumwana copper mine with an option by mutual agreement for additional annual quantities of Lumwana copper concentrates under the same terms as the Agreement.
The balance of Equinox’s concentrate production is currently being delivered under short term contracts to traders in Zambia.
Uranium Feasibility Study
In April 2008, Equinox published the Lumwana uranium feasibility study (“UFS”) on the design of a treatment facility for the uranium ore stockpile that will result from the selective mining of the discrete, high grade uranium zones within the Lumwana copper orebodies presently being mined. This facility would cost about $200 million and could recover approximately 2 million pounds of uranium oxide (U3O8) and 12,800 tonnes of copper concentrate per year.
Subsequent to the release of the UFS, the Government of the Republic of Zambia (“GRZ”) implemented its guidelines for uranium mining, processing and export that are consistent with International Atomic Energy Agency guidelines and the Nuclear Non-proliferation Treaty. The GRZ has recently approved the Lumwana Uranium Environmental Impact Assessment which was finalized and submitted to the Environmental Council of Zambia by Equinox in June 2008 as part of the required permitting process.
- Lumwana Uranium Project Environmental Impact Assessment (21mb .pdf)
- Lumwana Uranium Project Environmental Impact Assessment Appendices (53mb .pdf)
The decision to proceed with development of the Lumwana Uranium Project will depend, subject to board approval, on a number of factors including, improvements in the international project financing climate, as well as current market prices for uranium oxide. In the interim, high grade uranium ore will be stockpiled at Lumwana.
Potential Project Expansion
The Lumwana process plant is conservatively rated at 20 million tonnes per year throughput. By optimizing and ‘de-bottlenecking' the plant, Equinox engineers believe that throughput could potentially, at limited additional capital cost, be increased by 20% to about 24 million tonnes per year, increasing copper output to above 200,000 tonnes per year.
Given the very large resource and long mine life at Lumwana there is an opportunity to further expand throughput to about 35 million tonnes per year, increasing copper production to about 300,000 tonnes per year. Such a further expansion would require significant additional capital cost and be subject to the completion of a feasibility study.
Project Debt and Equity Financing
In December 2006, Equinox signed a US$582.7 million senior and subordinated Project finance facility for the completion of development and construction of the Lumwana Project. The facility is comprised of three tranches, $54.0 million subordinated debt facility, $364.0 million senior debt facility and $164.7 million asset backed facility. In response to the delay in commencement of commercial production caused by the fire incident at the Lumwana Project, the Company signed an $80.0 million extension to the above senior debt facility in September 2008.
As a requirement of the Lumwana Project financing facility, the Company also established a $45.0 million cost overrun facility for the Lumwana Project should any cost overrun occur, but in certain circumstances can also be utilized for debt repayment. The cost overrun facility is structured as letters of credit which convert to Equinox common shares at a 6.75% discount to the prevailing TSX share price at the time of draw down, should that be required. As at 31 December, 2008, this $45m facility has not been utilized and remains available.
On March 26, 2009 the Company reached agreement with its debt financiers to restructure its debt repayment schedule. The main terms of the agreement are to smooth the principal debt repayments more evenly over the life of the loans without changing the tenor of the various facilities. The effect on the 2009 calendar year repayments is a reduction of $99m to $125m the majority of which is payable in September 2009.
Development Agreement
The Lumwana Development Agreement between Equinox and the Government of the Republic of Zambia was signed on 16th December 2005 and provides a 10 year stability period for the key fiscal and taxation provisions related to the Lumwana Project.
Key issues defined in the Lumwana Development Agreement include a corporate tax rate of 25% and a mineral royalty of 0.6% of gross product. Capital expenditures are allowed to be deducted in the year incurred and losses can be carried forward for up to 10 years. There has also been permitted a deferral of payment of various customs and excise duties and imposts and a confirmation that there will be no withholding tax payable on the remission of profits or the repatriation of capital. Other provisions contained in the Lumwana Development Agreement deal with:
- Arbitration;
- Employment;
- Energy and supply;
- Exchange control;
- Export regulations and procedures;
- Regulations and management of companies;
- Mining operation, curtailment of production, resumption of production and closure;
- Waiver of Government’s sovereign immunity; and
- Investment agreements and enforcement of foreign awards.
Incorporated in the Lumwana Development Agreement is a Copper Price Participation Agreement (the “PPA”). The PPA is triggered upon the extinguishment of the Lumwana Project debt facilities and only if the margin between the copper price and Lumwana operating costs is above an agreed threshold. The total amount due in the event of the above occurring is capped at $50M with a further $50M potentially payable for a “windfall” margin between copper price and Lumwana operating costs.
The Government of the Republic of Zambia (“GRZ”) enacted in April 2008, a number of changes to the tax regime in the country that included an increase in the corporate tax rate to 30%, the mining royalty to 3%, a variable profits tax and a windfall tax. Further, in January 2009, GRZ announced a plan to withdraw some of these tax changes, including the controversial windfall tax, in order to protect foreign investment and Zambian mining industry jobs. In Equinox’s view the Development Agreement overrides these tax changes.
Reserves and Resources
The Lumwana Project includes the Malundwe and Chimiwungo deposits. The Lumwana resource, defined by Golder Associates Pty. Ltd. (‘Golder') in accordance with the JORC Code and CIM Standards NI43-101 and using a 0.2% copper cut-off, has been defined as follows:
Lumwana Resources: Measured + Indicated + Inferred
|
Class |
Tonnes |
Cu |
Co |
Au |
|---|---|---|---|---|
|
Measured |
129.5 |
0.89 |
238 |
0.03 |
|
Indicated |
228.7 |
0.68 |
153 |
0.02 |
|
Total (Measured and Indicated) |
358.2 |
0.76 |
184 |
0.02 |
|
Inferred |
564.4 |
0.63 |
46 |
0.01 |
Uranium within the Malundwe and Chimiwungo copper deposits occurs as discrete uranium-enriched zones that will be separately mined and stockpiled during the copper mining operation and as such, processing of the copper ore does not produce any uranium ‘contamination’ of resultant copper concentrate. The Lumwana uranium resource has been estimated using a 0.01% uranium cut-off grade as shown below:
Lumwana Uranium Mineral Resources (2003 BFS)
|
Class |
Tonnes |
Grade U3O8 % |
Contained
Metal U3O8 % lbs |
|---|---|---|---|
|
Indicated |
9.5 |
0.093 |
19 408 000 |
|
Inferred |
2.6 |
0.042 |
2 035 000 |
Lumwana Uranium Resources within the Copper Pits
|
Class |
Tonnes |
Grade U3O8 % |
Contained
Metal U3O8 % lbs |
|---|---|---|---|
|
Indicated |
7.2 |
0.083 |
13 094 000 |
|
Inferred |
0.5 |
0.051 |
545 000 |
Lumwana Sulphide Reserves and Resources within Designed Pits - Development Case
|
Class |
Tonnes |
Cu |
|---|---|---|
| Malundwe |
||
|
Proved |
42.9 |
1.09 |
|
Probable |
78.2 |
0.79 |
|
Total Mineral Reserves |
121.1 |
0.89 |
|
Inferred Resources |
4.2 |
0.77 |
|
|
||
| Chimiwungo |
||
|
Proved |
81.5 |
0.70 |
|
Probable |
118.7 |
0.57 |
|
Total Mineral Reserves |
200.2 |
0.62 |
|
Inferred Resources |
413.0 |
0.60 |
|
|
||
| Combined Malundwe + Chimiwungo |
||
|
Proved |
124.4 |
0.83 |
|
Probable |
196.9 |
0.66 |
|
Total Mineral Reserves |
321.3 |
0.73 |
|
|
||
|
Inferred Resources |
417.2 |
0.60 |
Notes to Resources & Reserves
Tables
The Mineral Reserve and Resource
within engineered pits were determined by Golder on the basis of
12.5mx12.5mx4m block models, including mining dilution and
recovery, and optimized by Whittle 4X software with associated pit
designs generated using Vulcan software. The cut-offs applied were
based on $1.20/lb Cu, resulting in sulphide cut-off grades of 0.16%
for Malundwe and 0.21% for Chimiwungo. These pit designs constitute
the Development Case. The Lumwana Uranium resource estimate was
carried out based on a 0.01% U3O8 cutoff, ordinary kriging on 2m
composite samples using 25mx25mx4m and 5mx5mx2m blocks, within a
$1.00/lb Cu pit design.
Competent Persons
The
estimates of mineral resources and ore reserves were prepared in
accordance with the standards set out in the Australasian Code for
Reporting of Identified Mineral Resources and Ore Reserves (The
JORC Code) and in accordance with CIM standards as prescribed by
National Instrument 43-101. Mineral resource and reserve data is
based on information compiled by persons who are members of the
Australasian Institute of Mining and Metallurgy or the Australian
Institute of Geoscientists and who have the relevant experience as
‘competent persons’ as defined in the JORC Code and as a ‘Qualified
Person’ in accordance with National Instrument 43-101 in relation
to the mineralization being reported on.
Technical information in this publication is summarized or extracted from the ‘Amended Technical Report on the Lumwana Copper Project, North West Province, Republic of Zambia’ dated October 2006, prepared by Michael Davis, Process Manager, Ausenco Ltd., Ross Bertinshaw, Principal of Golder Associates Pty Ltd., Tim Miller, Director, of Investor Resources Finance Pty Ltd, and Robert Hanbury, Associate Director, of Knight Piésold Pty Ltd., each of whom is a ‘Qualifed Person’ who is either a corporate member of the Australasian Institute of Mining and Metallurgy, Australian Institute of Geoscientists or the CIM.
Forward Looking
Statements
Statements within this
publication are forwardlooking, which are subject to various risks
and uncertainties that could cause actual results and future events
to differ materially from those expressed or implied by such
statements. Investors are cautioned that such statements are not
guarantees of future performance and results. Risks and
uncertainties about the Company’s business are more fully discussed
in the Company’s disclosure documents filed from time to time with
the Canadian and Australian securities authorities. See the October
2006 Technical Report and the last Annual Information Form on SEDAR
at www.sedar.com for further details.
As part of the mine planning process, the effect of changes in variables such as price, metallurgical recovery and process method were examined. There are no particular factors other than those covered in this report (June 2008 Technical Report) that should have a significant impact upon these estimates.
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