J & L Precious and Polymetallic (Au-Ag-Zn-Pb) Project, BC

 

"The J&L property is one of the largest undeveloped precious and polymetallic deposits in British Columbia, Canada."

On April 13, 2007, Huakan International Mining entered into an option agreement whereby it could acquire a 100% undivided interest in the J&L property in consideration for share issuances and cash payments totalling $10.79 million over a seven year period. In August 2010, in advance of stated terms in the agreement, the Company completed its acquisition of the J&L property and now retains 100% undivided interest. There are no NSR royalties owing to other parties.

The J&L property is located 35 kilometres north of Revelstoke, British Columbia. The 2,325 hectare property has two known and significant precious and polymetallic base metal deposits: the Main Zone and the Yellowknife Zone.

The Main Zone

The Main Zone is a precious (Au-Ag) and base metal (Zn-Pb) shear hosted replacement sheeted massive sulfide deposit. Surface exploration has traced the Main Zone for 3 kilometres and drilling and tunnelling has identified the Main Zone for 1.4 kilometres in strikelength and a down dip extent of 800 metres (refer to the longitudinal section below for more detail).

Underground development on Main Zone is comprised of 3.0 kilometres of drifting, crosscuts, and raises, with the Main Zone exposed for a distance of 0.85 kilometres along the drift. The deposit is open along strike and down dip. The Main Zone averages 2.5 metres thick. Main Zone mineralization consists of sheeted bands of massive sulphide mineralization and lesser mineralized sections hosted in phyllite and limestone.

The Yellowjacket Zone

The Yellowjacket Zone is a Zn-Pb-Ag structural replacement deposit that sub parallels the Main Zone and is in the immediate hangingwall of the zone. The Yellowjacket Zone is composed of 8 stacked zones each with an average width of 2.0 metres.

Phase I - Drilling Program

In November 2010, the Company commenced a Phase I 2,000 metre underground drill program to verify historic drilling results of the Main Zone and pave the way to a National Instrument 43-101 compliant resource estimate. The Phase 1 program was focused on the Main Zone and by its completion in early February 2011 had expanded to 60 holes in 8,000 metres.

The program was followed by a resource calculation by P&E Mining Consultants in May 2011 shown below at a $110/tonne in-situ NSR cut-off value:

Resource Estimate May 2011- Phase I Drilling Program (superseded by Sept 2012 resource)

Notes:

  1. Mineral resources which are not mineral reserves do not have demonstrated economic viability. The estimate of mineral resources may be materially affected by environmental, permitting, legal, title, taxation, socio-political, marketing, or other relevant issues.
  2. Confidence in the estimate of Inferred Mineral Resources is insufficient to allow the meaningful application of technical and economic parameters. There is no guarantee that all or any part of a mineral resource can or will be converted into a mineral reserve.
  3. The mineral resources in this estimate were calculated using the Canadian Institute of Mining, Metallurgy and Petroleum (CIM), CIM Standards on Mineral Resources and Reserves, Definitions and Guidelines prepared by the CIM Standing Committee on Reserve Definitions and adopted by CIM Council.
  4. The following parameters were used to derive the NSR block model values:
    • April 30/11 US$ two year trailing av'g. metal prices of Au $1,183/oz, Ag $21/oz, Pb $0.99/lb, Zn $0.95/lb
    • Exchange rate of US$0.95US = $1.00CDN
    • Process recoveries of Au 92%, Ag 88%, Pb 80%, Zn 72%
    • Smelter payables of Au 96%, Ag 91%, Pb 95%, Zn 85%
    • Refining charges of Au US$15/oz, Ag US$0.50/oz
    • Concentrate freight charges of C$65/t and Smelter treatment charge of US185/t
    • Mass pull of 5% and 8% concentrate moisture content.
  5. The NSR cut-off of CDN$110 per tonne was derived from $75/t mining, $25/t processing and $10/t G&A

The technical report with resource estimate on the J&L project is available on SEDAR. Please click here to see the full report.

Preliminary Economic Assessment (PEA)

Following the completion of the Resource Estimate in May 2011, the project was submitted to Micon International to conduct a Preliminary Economic Assessment (PEA).

In April 2012, Micon International completed a positive PEA for the Main Zone of the J&L Project.

Highlights of the Base Case J&L PEA

  • Net Cash Flow of $ 751 million, Net Present Value (“NPV”) discounted at 8% of $ 202 million; Internal Rate of Return (“IRR”) of 21% after tax or 26% pre-tax – at metal prices of US$1320/oz gold, US$22/oz silver, US$0.98/lb zinc, and US$0.94/lb lead
  • Mine Life – 9 years
  • Mine Production Rate – 1,500 tonnes per day (“tpd”) or 540,000 t/y
  • Capital Expenditures – $ 264 million (Initial) and $ 35 million (Sustaining)
  • Average Life of Mine Operating Costs – $113 per tonne
  • Payback is 4.6 years (undiscounted) or 5.9 years (discounted at 8%)
  • Sales of dore (727,000 oz gold, 1.0 million oz silver) account for 61% of net revenue. Lead concentrate sales (containing 188,000 oz payable gold, 7,789,000 oz payable silver and 176.2 million lbs lead) contribute 31% of revenue, with the balance of 6% attributable to the sale of zinc by-products.

This PEA is preliminary in nature and includes inferred mineral resources that are considered too speculative geologically to have the economic considerations applied to them that would enable them to be categorized as mineral reserves; there is no certainty that the results of the PEA will be realized. Resources that are not reserves do not demonstrate economic viability.

 

The technical report entitled "A Preliminary Economic Assessment of the Main Zone, J&L Deposit, Revelstoke, B.C. Canada" has been SEDAR filed. Please click here to see the full report.

Phase II - Drilling Program

In June 2012, Huakan completed its Phase II underground tunneling and diamond drilling program aimed at increasing the indicated resource category for the Main Zone deposit.

The Phase II Drilling Program was comprised of 45 holes in 9,725 metres.

Upon completion of the Phase II Drilling Program, P&E Mining Consultants conducted an updated resource calculation. The September 2012 updated mineral resource estimate replaces the 2011 mineral resource estimate for the gold-silver-lead-zinc bearing Main Zone and includes the zinc-silver-lead bearing Yellowjacket Zone for the first time. The updated Sept 2012 resource postdates the PEA. The Company has not updated the PEA with the Sept 2012 resource. The PEA still remains current and valid.

Resource Estimate - September 2012

Notes:

1) Mineral resources which are not mineral reserves do not have demonstrated economic viability. The estimate of mineral resources may be materially affected by environmental, permitting, legal, title, taxation, socio-political, marketing, or other relevant issues.

2) Confidence in the estimate of Inferred Mineral Resources is insufficient to allow the meaningful application of technical and economic parameters. There is no guarantee that all or any part of a mineral resource can or will be converted into a mineral reserve.

3) The mineral resources in this estimate were calculated using the Canadian Institute of Mining, Metallurgy and Petroleum (CIM), CIM Standards on Mineral Resources and Reserves, Definitions and Guidelines prepared by the CIM Standing Committee on Reserve Definitions and adopted by CIM Council.

4) The following parameters were used to derive the NSR block model values and gold equivalent (AuEq) grade:
-July 31/12 US$ two year trailing av'g. metal prices of Au $1,538/oz, Ag $31.38/oz, Pb $1.02/lb, Zn $0.97/lb
-Exchange rate of US$0.95US = $1.00CDN
-Main Zone Process recoveries of Au 92%, Ag 88%, Pb 80%, Zn 72%;
Yellowjacket Process recoveries of Au 92%, Ag 70%, Pb 80%, Zn 85%
-Smelter payables of Au 96%, Ag 91%, Pb 95%, Zn 85%
-Refining charges of Au US$15/oz, Ag US$0.50/oz

-Gold Equivalent grade (g/t) takes into account the above specified metal prices, process recoveries, smelter payable, refining charges and exchange rate
-Concentrate freight charges of C$65/t and Smelter treatment charge of US185/t (for NSR calc only)
-Mass pull of 5% and 8% concentrate moisture content (for NSR calc only).

5) The NSR cut-off of CDN$110 per tonne was derived from $75/t mining, $25/t processing and $10/t G&A

An updated Inclined Longitudinal Section of the Main Zone with drillhole piecement points and NSR $value x True Thickness follows. The drilling defines the Main Zone for 1.4 kilometres in strikelength and a down dip extent of 800 metres.

Paul Cowley, P.Geo. VP Exploration of the Company is the Qualified Person under NI 43-101 who has reviewed and approved the technical material contained in this page.