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 Cyclone Zircon Project      

Western Australia

Overview

The Cyclone Zircon Project lies around 300km north of Eucla, 25km west from the WA / SA border on the northern margin of the Eucla Basin within the Great Victoria Desert. The project lies within the traditional lands of the Pila Ngaru Spinifex People, and is held under Mining Lease M69/141 (within Exploration License E69/1920) and Retention Licence R69/1.

The Cyclone deposit was discovered in 2007 during reconnaissance exploration of a subtle SW facing elongate topographic feature with a prominent high on its southern edge, interpreted as the Tertiary Barton shoreline with a headland forming a classic J-Bay entrapment site. An extensive exploration drilling and geological investigation program has been undertaken, with a Pre-Feasibility Study (PFS) completed in March 2012 and a Definitive Feasibility Study (DFS) underway.

Exploration

As the Cyclone mineralisation occurs within a preserved Tertiary (ca 35 Ma) beach shoreline environment overlain by a thin unit of red Quaternary aeolian dune sands, all exploration has been completed using  NQ Air Core drilling.

The Cyclone Deposit was discovered by DRX in 2007, with a widely spaced resource delineation program subsequently completed. A small program of check drilling was carried out in 2008 which highlighted that lower grade mineralisation in the weathered profile was not recognised during the 2007 drilling program. A follow-up drilling and sampling program was completed in 2009 to provide complete coverage across the mineralisation. Infill drilling was carried out in December 2010, focussing on the proposed start-up area. Additional infill drilling was carried out in 2011 in conjunction with drilling for bulk sample collection. Several small programs were completed in the second half of 2011 for infill and edge definition purposes, including southern extensions of the nearshore resource. A final program of infill drilling was completed in 2012 for edge definition of strand mineralisation and further bulk sample collection. A total of 1,379 holes for 55,834m of drilling have now been completed over the Cyclone Deposit within DRX tenure. The majority of Cyclone has been drilled at 50m hole spacing and drill lines are generally 150m apart with some lines spaced at 300-500m.

All drill holes are vertical and all samples collected at 1.5m intervals. The majority of samples were collected through rotary splitter with some whole samples collected and used in bulk sample test work.

The grade of heavy minerals for each sample was initially estimated by panning and visual estimation. All samples were submitted to Regional Exploration Management Pty Ltd preparation laboratory for sample preparation, drying, wet sieving at 2mm and 53 micron and later to Diamantina Laboratories for heavy mineral separation by TBE (2.92 2.96 sg).

Mineralogical assemblage determined by QEMSCAN® (with routine XRF confirmation) over selected sample composite intervals and incorporated in to the geological database.

Geology

The Cyclone Deposit is made up of a number of mineralised strand systems which are interpreted to represent Tertiary beach placer deposits with associated overlying dunal and underlying near shore deposits. Quaternary cover overlies the deposit, and a shallow weathering profile with calcrete and ferruginous induration has developed in the overburden material, with the mineralised sands being free flowing with very little induration (rock) and low slimes contents which are favourable to conventional mining techniques.

Mineralisation occurs within bimodal near-shore fine sands, higher grade beach strandlines, homogenous beach sands, and overlying aeolian dune sands. A schematic stratigraphic column for Cyclone is presented below.

The mineralisation displays a very high value mineral assemblage and is dominated by zircon (31% of the HM) and a range of weathered / altered titanium bearing minerals (42% of the HM), with HiTi (70 85% TiO2) being the most abundant. Siliceous Ti-oxides (>10% SiO2) make up around 22% of the HM, but levels of other "trash" (i.e. low value) HM are very low.

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 Mineral Resource

The Cyclone Mineral Resource is reported as 211 Mt at 2.3% HM, containing 4.8 Mt of HM (see ASX release 9 Apr 2015). More than 75% of the resource is classified as Measured.

 
 
 The estimate highlights the low levels of slimes (-53um) at 4.2% and oversize (>2mm) at 4.9% within the Cyclone mineralisation, both characteristics are conducive to simple and efficient (i.e. low cost) mining, processing and tailing operations.

For the resource estimate the mineralisation at Cyclone was modelled using three separate, but adjoining, geological domains "Beach", "Strand" and "Nearshore". Although these domains display some distinctive geological characteristics, they are expected to be extracted as a combined body of mineralisation. Refer to diagrams below for plan and section views of the Cyclone Mineral Resource.

 

 

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Metallurgy

 The Company's primary objectives in undertaking metallurgical testwork were to:

1.     Produce a very high grade Heavy Mineral ("HM") concentrate through a wet concentrator process (WCP).

2.     Maximise the recovery of Zircon (the major valuable mineral component of the Cyclone Resource), and

3.     Develop process flowsheets to be used in engineering designs for the wet and dry HM processing plants (WCP and MSP).

Testwork on a seven (7) tonne bulk sample composited from drilling throughout the Cyclone Resource was conducted by CPG Resources - Mineral Technologies during 2011. Key outcomes from the metallurgical testing included:

·         The wet concentrator testwork produced a high grade HM concentrate (97.8% HM) utilizing conventional mineral sand separation technology.

·         The estimated distribution of zircon from the bulk sample to the WCP HMC is 95.3%.

·         The estimated distribution of zircon from the HMC to the MSP final Zircon product is 85.0%.

·         A mineral separation process was designed to produce Zircon and two titanium products, HiTi87 (86.6% TiO2) and HiTi67 (67.3% TiO2).

·         The testwork identified that conventional "off the shelf" technology can be used in the mineral processing at Cyclone.

Refer to ASX Release 30 Jan 2012 for further details.

Testwork on a twelve (12) tonne bulk sample composited from drilling within the first two years of the proposed Cyclone mine path was conducted by CPG Resources - Mineral Technologies during 2012/13. This work generated results that generally confirmed the outcomes of the 2011 program, with minor variations and additions to the processing flowsheet undertaken to optimise the mineral product recovery and quality.

Ore Reserve

Diatreme Resources Limited announced an ore reserve estimate for the Cyclone Zircon project in February 2012 following an extensive resource drilling program at Cyclone, metallurgical testwork and process flowsheet development by CPG Resources Mineral Technologies, open pit design, and capital and operating cost estimates completed as part of the Prefeasibility Study. The Cyclone PFS pit design contained a Probable Ore Reserve of 97 million tonnes (Mt) at 2.5% HM, including 0.79% Zircon, containing 2.4Mt HM, including 770kt of Zircon. The Ore Reserve was sufficient for 9.7 years of operations at the planned 10Mtpa mining rate. With a life of mine strip ratio of 1.1:1, low clay content, and the free dig nature of the ore, a relatively low operating cash cost is anticipated. 

 

With the acquisition of the Cyclone Extended deposit in early 2015 and the completion of revised mine design to incorporate this mineralisation in to the mine plan the Cyclone Ore Reserve is reported as 140 Mt at 2.5% HM, containing 3.5 Mt of HM (see ASX release 14 Dec 2015).

 

The Ore Reserve is classified as Probable to reflect the preliminary nature of some parameters relating to mine planning and mineral processing.

The Ore Reserve represents a 75% conversion from the Mineral Resource estimate.

  

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PFS Summary

A preliminary mine plan has been developed for the Cyclone Prefeasibility Study ("PFS").  Capital and operating costs associated with the mine plan, mineral processing, infrastructure, logistics, personnel, permitting, royalties, and corporate overheads have been included in the PFS financial studies.  Studies to date have concluded that the Cyclone Deposit could be developed as a viable mining operation.  Market studies have provided forecast product pricing for revenue estimates.  Costs for water supply to the mine and finalising the transport route are the risks with the greatest potential impact on the financial results.

The Prefeasibility study shows potential for the Cyclone Zircon Project to mine ore at a rate of 10 million tonnes per annum for 10 years, yielding approximately 147,000 tonnes per annum heavy mineral concentrate. Key parameters from the PFS include:

·         Capital investment of $223 million, with average annual sales revenue of $191 million and annual NPAT of $78 million.

·         Net present value of $194 million and internal rate of return of 32%, with payback period of 2.1 years.

·         Strong fundamentals for main mine products of zircon (66% ZrO2) and titanium products HiTi87 (86.6% TiO2) and HiTi67 (67.3% TiO2), with forecast constrained global supply.

MINING

The area planned to be mined is lightly vegetated and diesel powered earthmoving equipment will be used to clear the vegetation prior to mining.  Bulldozers will then push topsoil into stockpiles which will be loaded into trucks by an excavator for transport from the mining area to the rehabilitation area.  Overburden will be removed by excavator and trucks to expose the high grade ore zone for mining.  The average overburden to ore ratio is 1.13 to 1 and the equipment selected has the capability for excavating the expected zones of indurated overburden.

A bulldozer and dozer trap method will be used to mine the ore.  There will be two separate 650 tonnes per hour (tph) mining units at different face locations to ensure blending of higher and lower grade ore to produce a controlled grade to the Wet Concentrator Plant ("WCP").  Bulldozers will push ore for a distance up to 100m into the traps which will convey the ore at a consistent feed rate to a screener and slurry bin.  The screen will remove coarse particles larger than 3mm from the ore and water will be mixed with the finer particles to form a slurry.  Slurry pumps will pump the screened ore from the slurry bin to a surge bin at the WCP.  The mining rate will be 1,300 tph for 7,700 hours per year giving an annual mining rate of 10 million tonnes.

The water supply for the project has not been finalised and hydrogeological studies are continuing to evaluate alternatives.  Water supply for the project is expected to be sourced from a deep aquifer in the Officer Basin, a large sedimentary basin underlying the project area.  A high quality aquifer, known to exist in two test wells drilled by another company 80km to the east of Cyclone, is expected to extend westward beneath Cyclone.  A reliable supply of 250 litres per second from bores will be required for the mine, supporting infrastructure, and mine village.  The PFS has identified water supply as a risk which will not be adequately mitigated until a water bore is drilled and tested.

PROCESSING

The WCP has been designed by CPG - Mineral Technologies ("CPG") based on metallurgical testwork completed on a seven (7) tonne bulk sample.  The bulk sample was collected from holes drilled across the entire Ore Reserve to produce a representative sample.  The WCP will be located on the western side of the mine and one kilometre north of the initial mining area.  This WCP location will be fixed for the life of the mine and has been selected to ensure the pumping distances for both feed and tailings are not excessive.  Tailings storage facilities will be located north and south of the WCP to provide short tailings pumping distances during the early years of the mine. The WCP process will be a totally wet slurry process and will include screening and several stages of gravity separation including spirals, classifier, and shaking tables to concentrate the valuable heavy minerals.

The majority of silica minerals, low grade titanium minerals, and trash minerals will be rejected to tailings from the WCP.  A high grade mineral concentrate (98% HM) will be produced containing zircon and valuable titanium minerals.  Metallurgical testwork has demonstrated good recovery of zircon in a conventional gravity separation process.  The average rate of HM concentrate (HMC) production from the WCP is estimated to be 25 tph.

The sample used for flowsheet development testwork did not need to be deslimed due to the low level of slimes in the orebody.  The low grade non-valuable titanium minerals were not recovered and generally reported to the tailings.  These minerals are not included as products in this evaluation but do have potential for recovery if they can be demonstrated to show economic potential in the future.  The ore contains approximately 4% slimes which is relatively low and provides confidence that tailings management will be a conventional procedure.  A thickener has been included in the process for water conservation and tailings control.  Normal rehabilitation procedures will be applied to a stable sand tailings surface.

TRANSPORT

The WCP will produce a moist HM concentrate that will be loaded into trucks for transport by road to an existing rail siding on the Trans Australian Rail Line. The mine and WCP will be located 220km north of the rail line and current planning assumes a road licence can be obtained for the preferred route through a nature reserve.  Contingency planning has identified two alternative routes including a longer route around the nature reserve.

The trucks will dump the concentrate on a stockpile at the siding and a front end loader will load the concentrate into containers for rail transport.  A rail service provider has provided budget pricing for several options to transport the concentrate in containers or in bulk to ports in WA and SA.  The current preferred option is rail transport in containers from Forrest to Port Adelaide.

MINERAL SEPARATION PROCESS

A Mineral Separation Plant ("MSP") will be constructed in Australia or China close to an existing port.  CPG has designed the MSP from testwork on the HM concentrate sample that was produced during testwork for development of the WCP flowsheet.  The MSP includes a Hot Acid Leach ("HAL") process to clean surface coatings from the non-conductor mineral grains for improved mineral separation and product quality.

Electrostatic and magnetic separation processes were used to produce a HiTi87 product (87% TiO2) and a HiTi67 product (67% TiO2).  The non-conductor stream from the feed was subjected to HAL treatment, wet gravity separation, electrostatic and magnetic separation to produce a Zircon product.

MINERAL PRODUCTION

The metallurgical testwork reports by CPG provide estimates for recovery of minerals from the bulk sample to the three mineral products.  The production estimate for zircon is obtained by applying a recovery factor to the zircon reserve, and production estimates for the two HiTi products use recovery factors applied to several titanium minerals in the Ore Reserve as shown in the following table.

Annual mineral production estimates for the project include 65,000 tonnes of zircon, 10,000 tonnes of HiTi 87, and 46,000 tonnes of HiTi67.  Market studies have provided estimated values for these mineral products for use in financial modelling.

FINANCIAL EVALUATION

PFS studies to date have developed capital and operating cost estimates for financial modelling.  CPG has completed PFS quality design for the WCP and MSP including capital and operating cost estimates for these two processing plants to an accuracy of +/-25%.  Mining and transportation costs are based on contractor budget estimates.  Other less significant costs are based on vendor estimates.  Market studies and discussions with mineral product end users have provided forecast product pricing for revenue estimates.

Cyclone has a capital investment of $223 million, with average annual sales revenue of $191 million and annual NPAT of $78 million.

The Cyclone Project has a net present value of $194 million and internal rate of return of 32%, with a payback period of 2.1 years.

Environmental Studies

An Environmental Scoping Document was issued by the EPA and Level 2 environmental (flora and fauna) studies completed in 2014 over the general Cyclone mine area and proposed access road to Forrest. In conjunction with the 2012 Level 1 study, these studies form part of the formal process requirements for the preparation of a Public Environment Report (PER), which was lodged in October 2014.

Between September and November 2013 experienced zoologists from Outback Ecology, a division of MWH Australia Pty Ltd, designed and conducted field surveys for terrestrial fauna in the Cyclone project area.  The surveys were designed in close consultation with assessors and scientists from the WA Office of the Environmental Protection Authority and the WA Department of Parks and Wildlife.  Traditional owner representatives from the Pila Nguru were also involved in the planning and conduct of the surveys. Several fauna habitat types were identified, over 140 species of vertebrate fauna were identified and several invertebrate specimens were collected for laboratory-based identification.  Assessment of the field survey dataset is ongoing.  Outback Ecology and the Company continue to liaise closely with relevant stakeholders to ensure that terrestrial fauna survey work for the project is robust and comprehensive.

During October 2013 a vegetation survey over the proposed Cyclone mining area and haul route to Forrest on the transcontinental rail line was performed. The consultant team surveyed over 30 vegetation associations over two bioregions (and three sub regions).

The baseline soil assessment and waste (overburden) characterisation program for the Cyclone Project was also undertaken during this period and involved a site based soil survey and sampling program, identification of drill samples for assessment of mine waste characteristics and laboratory analysis of the physical and chemical properties of collected samples.  The objectives of the work program have been to assess the characteristics and suitability of topsoil, subsoil and waste material resources within the project area for use as a rehabilitation resource, to identify any potentially problematic soil and mine waste materials, and to facilitate recommendations for soil stripping, handling and stockpiling, soil profile reconstruction and associated rehabilitation / mine closure parameters.

In March and April 2014 a team of scientists from Outback Ecology completed follow-up field surveys for terrestrial fauna and vegetation in the Cyclone Project Area and along the proposed haul route to Forrest. 

Water Supply

An investigation production water bore, "Cyclone #1", was drilled in December 2013, resulting in the successful discovery of excellent deep water flows. A series of high yielding sandstone aquifers were encountered within Cyclone #1 between 530 and 812 metres. The main aquifer commencing at 530 metres is sub artesian with its pressure surface at around 87 metres below ground level. A 12 hour airlift test yielded a water flow estimated to be 40 litres per second.

Field water quality tests indicate the salinity of the groundwater from the main aquifers is around 22,000 milligrams per litre total dissolved salts i.e. approximately two thirds the salinity of sea water.  Following completion of development of the bore, the field conductivity was 33,150 uS/cm at the end of 12 hour airlift testing

Pump tests will be required to establish the long term maximum sustainable bore yield, pump settings, the hydraulic characteristics of the aquifers and siting of future mine water production bores.

Based on extrapolation of data from distant oil exploration bores in the Officer Basin approximately 80 kilometres to the east, interpretation of regional geology by the Western Australia Department Industry and Resources and Geoscience Australia, the aquifers encountered in Cyclone #1 are part of an extensive aquifer system.


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