Bear Creek Announces Corani Feasibility Study: Positive Economics Including Low Cash Costs

2011-11-09

TSX - Toronto Stock Exchange · Copper · Molybdenum · Gold · Silver · Sulfur · Zinc · Canada

VANCOUVER, Nov. 9, 2011 /CNW/ - Bear Creek Mining Corporation (TSX Venture: BCM / BVL: BCM) ("Bear Creek" or the "Company") is pleased to announce the results of a positive Feasibility Study (the "FS" or "Feasibility Study"), as defined by Canadian Securities Administrators National Instrument 43 - 101, for its 100%-owned Corani silver-lead-zinc deposit located in southern Peru. Highlights of the FS include (all figures in US dollars):

The study defines a significant undeveloped silver deposit containing proven and probable mineral reserves of 270 million ounces of silver, 3.1 billion pounds of lead and 1.7 billion pounds of zinc.

The base case after-tax net present value ("NPV") is $463 million at a 5% discount rate with an internal rate of return ("IRR") of 17.6% ($18/oz silver, $0.85/lb lead and $0.85/lb zinc). On a pre-tax basis, the base case NPV at a 5% discount rate is $907 million with an IRR of 29.7%.

At spot metals prices ($34.64/oz silver, $0.89/lb zinc, $0.90/lb lead on November 8, 2011, the date of the FS), Corani has an after-tax NPV of approximately $1.5 billion at a 5% discount rate and a 38% IRR ($2.7 billion NPV and 60% IRR on a pre-tax basis).

Average annual payable silver production is 13.4 million ounces per year for the first five years and 8 million ounces per year over the life-of-mine ("LOM"). On a silver equivalent ounce basis, average annual payable production is 23.0 million ounces per year for the first five years and 14.7 million ounces per year over the LOM.

Cash cost is a negative $(0.49) per ounce of silver for the first five years, with a LOM cash cost of $3.68 per ounce of silver (net of base metal credits at $0.85/lb lead and $0.85/lb zinc).

Project produces marketable Lead and Zinc concentrates. Metallurgical testing has established conventional flotation recoveries.

Initial capital cost is $574 million with capital payback of 3.8 years at base case metal prices, and 2.0 years at metal prices on November 8, 2011, the date of the FS.

Mine life is 20 years.

Mill capacity is 22,500 tonnes per day.

Stripping ratio is 1.69:1 (waste:ore).

89 million of measured and indicated silver resource ounces represent potential future reserve conversion. Additional new mineralization was intersected in recent drilling near perimeter of proposed tailings dam.

Conference Call and Webcast Information

Bear Creek will host a conference call and webcast on Thursday, November 10th, 2011 at 6:00 a.m. (Pacific) or 9:00 a.m. (Eastern) to discuss the results. Call-in and webcast information is provided at the bottom of this release.

_Project Summary -_Under the Feasibility Study, the Corani project has an after-tax IRR of 17.6% and a NPV of $463 million at a 5% discount rate based on metal prices of $18/oz silver, $0.85/lb lead and $0.85/lb zinc. The financial model incorporates the tax and royalty legislation recently approved by the Peruvian government.

Payable silver production in the first five years averages 13.4 million ounces per year. The project will produce an average of 8 million payable ounces of silver, 105 million payable pounds of lead and 37 million payable pounds of zinc annually over a 20 year mine life. Total cash cost for the first five years is a negative $(0.49)/oz silver, with a life-of-mine cash cost of $3.68/oz silver, net of base metals credits. The initial capital investment on the project is estimated to be $574 million with sustaining capital expenditures during mine operations averaging $7.2 million per year over the 20 year mine life. The project achieves payback of initial capital in 3.8 years using base case metal prices.

The Feasibility Study has been prepared using cost bids, estimates and production forecasts provided by qualified engineering consulting groups led by M3 Engineering, Tucson, Arizona. The economic analysis was performed by M3 Engineering.

Andrew Swarthout, CEO, states, "We are very pleased that the Feasibility Study confirms Corani as one of the world's largest undeveloped silver and base metals deposits. We intend to advance the project to development with permitting applications to be submitted in the first half of 2012 with production scheduled to start-up in early 2015. Using metals prices on November 8, 2011 the date of the FS, of $34.64/oz silver, $0.89/lb zinc and $0.90/lb lead, Corani has an after-tax NPV of $1.5 billion at a 5% discount rate reflecting robust economics with strong leverage to rising metals prices. The Feasibility Study establishes that the project can be built using conventional mining and processing technology. The Feasibility Study maximizes the value of the project by defining a very large primary silver mine that leverages the base metal credits resulting in very low cash costs per ounce of silver for the first five years. Additionally, the production of high-quality lead and zinc concentrates (126,000 tonnes per year) provides for excellent financing alternatives in the form of concentrate off-take agreements."

Mr. Swarthout continues, "Importantly, the feasibility engineering and metallurgical studies have resolved earlier issues regarding recoveries using conventional flotation. Corani will produce two high quality concentrates. Based upon final metallurgical test work and mine planning, we have established optimized, conventional flotation treatment options for all ores processed in the Feasibility Study mine plan. As a result of this optimization, there was a reduction in zinc recoveries in the lower grade zinc zones of the ore body and a corresponding reduction in silver contained in the zinc concentrate causing a decrease in payable silver of approximately 8% and payable zinc by 19% compared to the 2009 Prefeasibility Study. However, silver contained in the zinc concentrate is only 50% payable after deductions; therefore, the decrease in payable silver is only 4% on an economic basis. More importantly, the recoveries to the lead circuit, having far better terms for silver payment, remain unchanged. As is common in these ore bodies, we expect additional optimization regarding zinc and silver recoveries during commercial operation."

FEASIBILITY STUDY

The reserve and resource estimates were updated in the FS by Independent Mining Consultants the ("IMC"), Tucson, Arizona. M3 Engineering of Tucson, Arizona led the FS with support from Blue Coast Metallurgy and Global Resource Engineering (the "GRE") for tailings and geotechnical engineering. All are independent engineering and metallurgical testing firms with recent project development experience in Peru.

The FS is based upon assumptions derived from mine planning sequences completed by IMC and metallurgical test work performed by SGS Laboratories in Vancouver, BC and reviewed by Blue Coast Metallurgy. The mining sequence primarily derives ore from the higher-grade starter pits in the early years and moves to lower-grade areas in the later years of production. Operations are for 20 years based on current reserves. Only measured and indicated resources were used to establish the operations plan when converting resources to reserves.

In the mine sequence, only 270 million ounces contained within 156 million tonnes have been used as reserves in this plan. An additional 134 million tonnes of measured and indicated resource (containing 88.7 million ounces of silver at 20.5 g/t) and 49.8 million tonnes of inferred resource (containing 48.0 million ounces of silver at 30 g/t) remain that could be included in later plans of operations. About 89% of these resources are mixed sulfide and transition material peripheral to the reserve pit. About 11% are contained within oxide mineralization, which outcrops at surface.

Reserves are based on metal prices of $18.00/oz silver and $0.85 per pound for both lead and zinc. For the resources, metal prices of $30.00/oz for silver and $1.00/lb for both lead and zinc were used, representing the three-year backward and two-year forward metal prices weighted 60:40 from August 2011 which is consistent with the Company's policy and industry standards.

The positive Feasibility Study recommends proceeding with project development based on:

Robust economics at the base case assumptions with excellent exposure to up-side silver and base metals prices; Well-defined resources open to expansion and conversion to reserves; A solid metallurgical process producing highly marketable, separate lead and zinc concentrates; Favorable infrastructure for tailings storage, power and access, Available local water supply; Well-defined permitting process; and Local community acceptance and support

PROJECT ECONOMICS

Sensitivities to various parameters are summarized below for the after-tax case:

| Case | IRR | NPV @ 5% | NPV @ 0% | | Base Case | 17.6% | $463 M | $947 M | | Recovery +10% | 20.7% | $604 M | $1,176 M | | Recovery -10% | 14.2% | $319 M | $710 M | | Metal Price +10% | 21.7% | $658 M | $1,268 M | | Metal Price -10% | 12.9% | $261 M | $610 M | | Initial Capital Cost +10% | 15.6% | $424 M | $912 M | | Initial Capital Cost -10% | 20.0% | $502 M | $981 M | | Operating Cost +10% | 16.1% | $386 M | $809 M | | Operating Cost -10% | 19.0% | $537 M | $1,077 M | | Metal Prices November 8, 2011 | 37.7% | $1,497 M | $2,617M |

Note: Base case prices are $18.00/oz Silver, $0.85/lb Lead, $0.85/lb Zinc; Spot prices are from November 8, 2011 (the date of the FS) and were $34.64/oz Ag, $0.90/lb Pb and $0.89/lb Zn.

The financial analysis prepared for the Feasibility Study utilizes the tax regime recently enacted by the Peruvian government. For the base case assumptions, the project is expected to generate $636 million of income related taxes (including mandatory workers profit sharing). At metal prices on November 8, 2011 (the date of the FS), the project would generate $1.8 billion in taxes.

RESERVE and RESOURCE ESTIMATE

Bear Creek Mining, Corani Project Silver Zone Mineral Reserves and Resources November 8, 2011

| Mineral Reserves, $10.54 NSR cut-off | | | | | | | | | | | | Contained Metal | Equivalent Ounces | | | | | | | | | Category | Ktonnes | Silver G/t | Lead % | Zinc % | Silver Million Ozs | Lead Million Lbs | Zinc Million Lbs | Eq. Silver Million Ozs | Eq. Silver G/t | | | | | | | | | | | | | Proven Probable Proven + Probable | 30,083 126,047 156,130 | 66.6 50.7 53.8 | 1.04 0.87 0.90 | 0.60 0.47 0.49 | 64.4 205.6 270.0 | 690.4 2,422.6 3,113.0 | 399.9 1,297.7 1,697.6 | 115.7 381.5 497.2 | 119.6 94.1 99.1 | | | | | | | | | | | | | Mineral Resources in Addition to Reserves, $9.20 NSR cut-off | | | | | | | | | | | | Contained Metal | Equivalent Ounces | | | | | | | | | Category | Ktonnes | Silver G/t | Lead % | Zinc % | Silver Million Ozs | Lead Million Lbs | Zinc Million Lbs | Eq. Silver Million Ozs | Eq. Silver G/t | | | | | | | | | | | | | Measured Indicated Measured + Indicated | 10,878 123,583 134,461 | 17.5 20.8 20.5 | 0.38 0.38 0.38 | 0.33 0.29 0.29 | 6.1 82.6 88.7 | 91.1 1,035.3 1,126.4 | 79.1 790.1 869.2 | 13.9 166.7 180.6 | 39.6 42.0 41.8 | | | | | | | | | | | | | Inferred | 49,793 | 30.0 | 0.46 | 0.28 | 48.0 | 509.4 | 305.2 | 86.2 | 53.9 |

Note: See regulatory footnotes for calculation methods used for the reserve and resource and the silver equivalency calculation.

The FS incorporates an updated resource estimation and mine design performed in October 2011 by IMC based upon 93,577 meters of drilling and sampling in 544 diamond drill holes and trenches completed through May of 2009. The Company employs a Net Smelter Return (the "NSR") method to determine ore and waste, with the cutoff NSR being $10.54 per tonne. Measured and indicated resources contained within the Feasibility Study design pit were used to determine final pit limits and thus converted into proven and probable reserves, respectively. The additional resource material is mostly measured and indicated resource that occurs outside of the Feasibility Study pit but which meets the CIM definition of mineral resource.

Comparing the reserve and resource presented in the 2009 Pre-Feasibility Study (the "PFS")with the Feasibility Study, the silver reserve ounces have increased by 5%, the measured and indicated reserves have increased by 24% and the inferred resources have increased by 35%. While this is largely the result of higher metals prices, it is important to note that current drilling in the district is intersecting new mineralization indicating significant exploration upside that could potentially increase resources as well.

_Metallurgical Testing -_The Company has completed two phases of metallurgical optimization tests in order to define recoveries for the purposes of the FS reserve calculation. The results show that the Corani ore body can be divided into two types of ore; mixed sulfide and transitional ores. The mixed sulfide ore, which constitutes 84% of the mill feed, is a conventional polymetallic ore that uses standard processing methods and produces good quality concentrates. The remaining mill feed (16%) is transitional ore which is also treated using standard flotation but has reduced recovery of approximately 5% for silver and 15% for lead. The transitional ore also produces a lower grade concentrate; however, as it only constitutes 16% of the mill feed tonnes, the FS plan effectively blends the transitional ore to produce overall high quality concentrates.

_Variance From PFS -_The FS more accurately determines the recoveries into the zinc concentrate based upon final metallurgical test work. The recovery of zinc and silver varies with the feed grade of the ore, therefore reducing the recovered zinc and silver at lower zinc head grades (0.3% to 0.7% Zn) from those predicted in the PFS. Importantly, the lead portion of the recovery circuit and the recovery of silver in the lead circuit, where the best silver in concentrate commercial terms are obtained, is not affected by the reduced silver recoveries into the zinc concentrate. The Company believes that improved performance of the zinc circuit and continued improvement of silver recoveries into the lead concentrate at lower zinc feed grades represent opportunities during commercial operation.

Average Recoveries and Concentrate Grades of the Life of the Project

| Average Recovery And Con Grades LOM | | | | | | | Lead Con | Zinc Con | | | | | Pb | Ag | Zn | Ag | | Recovery | 71.70% | 60.30% | 51.60% | 3.90% | | Average Concentrate Grades | 56.60% | 2.9 kg/t | 53.00% | 437 g/t |

MINING AND MILLING

Mining will be performed using conventional open pit methods using 135 tonne trucks and a mixture of hydraulic excavators and wheel loaders mining on eight meter high benches. The mine requires minimal pre-production waste stripping of 16.2 million tonnes.

Processing of the ore will be by conventional flotation recovery methods. The ore will be crushed close to the mine and the material conveyed to the processing plant which will be approximately 500m from the mine. The ore will be ground to 80% passing 90 microns in a SAG/Ball mill circuit. The material will then be floated with the rougher concentrates being reground to 80% passing 30 microns prior to cleaning to produce high-value separate lead-silver and zinc concentrates. Concentrates will be trucked to the port of Maturani for ocean shipment to smelters.

CAPITAL COSTS

The project capital cost estimate has been prepared by three independent engineering companies. The mining costs were prepared by Independent Mining Consultants of Tucson, Arizona, the process and portions of the infrastructure capital cost have been prepared by M3 Engineering of Tucson, Arizona and the Tailings Storage Facility (the "TSF") and remaining infrastructure costs have been prepared by Global Resource Engineering (the "GRE"). The initial startup capital is estimated to be $574 million and the sustaining capital cost is estimated to be $7.2 million annually over the life of mine. The capital costs include detailed long-term plans for tailing dam expansions as well as ongoing capital (i.e. mine fleet replacement) and mine closure.

OPERATING COSTS

Mining costs were prepared on a year by year basis with costs varying mostly due to changing haulage distances. The life-of-mine average mining costs will be $1.42 per tonne of total waste and ore mined. The process costs are estimated to be $8.44 per tonne of processed ore and the G&A is estimated to be $1.40 per tonne of processed ore or $11 million per year.

INFRASTRUCTURE

The project has favorable infrastructure. Access will be via a new 63 km road to be built over flat topography resulting in low construction costs. The new road will connect to the Interoceanic Highway; a two-lane, paved highway connecting to the port of Matarani. The mine is 30 km from a new high-voltage power line with abundant capacity to meet the project needs. The project has an excellent low environmental impact site for tailings storage resulting in very low capital and operating costs, as the plant will be located immediately adjacent to the mine and the tailings will be pumped to the TSF. The site is also located in the upper part of drainages with ample surface water supply and as such there are several surface and underground water source alternatives. The FS provides for the construction of a small water storage dam and water capture in the TSF.

SOCIAL AND ENVIRONMENTAL

The Company has maintained very good working relationships with the local communities and has continued to operate exploration and development activities at Corani without interruption. The Company owns all the land in the area of the mine and plant and is currently negotiating the access rights for the ancillary facilities.The Company's commitment to the local communities has been further solidified with the recent agreement to provide $1 million in aid over the next three years.

The project is designed to meet and, in many ways exceed, international standards of environmental compliance. The TSF has been designed by GRE to the highest standards of containment and stability. Importantly, the latest design technology will facilitate the permitting process. In the TSF, the Feasibility Study calls for the operation of a sulfide flotation plant that will capture and segregate the sulfide material in the central part of the TSF. This will result in the sulfide material never being exposed to the atmosphere during operations and following mine closure. This will result in a very large reduction in the potential for the TSF to produce acid rock drainage and facilitate the sustainable closure of the TSF; major positive factors for the permitting process.

Furthermore, the waste rock storage facilities are designed to capture and manage any flows that may originate from the waste rock. A buffer layer of inert rock will be placed on the outside of the waste rock piles to mitigate the acid producing potential of the facilities. Additionally, the plan calls for partial backfilling of the mining pits so that long-term pit lakes will not form at closure. Finally, the closure plan provides for the covering of the tailing storage and waste rock facilities assuring safe and environmentally compliant closure of the mine.

OPPORTUNITIES

The FS defines significant resources (134 million tonnes of measured and indicated containing 88.7 million ounces averaging 20.5 g/t Ag and 49.8 million tonnes of inferred resources containing 48 million ounces of silver averaging 30.0 g/t Ag) that are not included in the current mine plan. Depending upon future silver prices, these resources may be converted into reserves and incorporated into the mine plan. Additionally, numerous opportunities exist to discover new mineralization by continuing district exploration. Recent engineering and condemnation drilling has intercepted mineralization up to five kilometers from the current ore body in previously unexplored areas (see news release dated October 11, 2011).