$1.05  even
NGEx Resources Inc.
The NGEx District

Chile's Biggest New Copper-Gold Camp

Projects

Project Constellation (PEA)

In January, 2016 NGEx announced the results of a Preliminary Economic Assessment ("PEA") that evaluated the development of two of the Company's large copper/gold/silver deposits, Los Helados and Josemaría, together as one integrated project. The integrated project has been named Project Constellation. The results of the PEA indicate positive economics and position Project Constellation amongst the largest and most exciting development projects in South America.

A National Instrument 43-101 Technical Report (the "Technical Report") dated February 22, 2016 and titled "Project Constellation Incorporating the Los Helados Deposit, Chile and the Josemaria Deposit, Argentina NI 43-101 Technical Report on Preliminary Economic Assessment" was prepared by Amec Foster Wheeler International Ingeniería y Construcción Limitada ("AMEC"). The Technical Report, which has an effective date of February 12, 2016, summarizes the results of the PEA that evaluates Project Constellation, is available for review under the Company's profile on SEDAR (www.sedar.com) and on the Company's website www.ngexresources.com.

The Project benefits from a Protocol "Proyecto de Prospección Minera Vicuña" (Vicuña Mining Prospection Project) under the "Tratado entre la República de Chile y la República Argentina sobre Integración y Complementación Minera" (Mining Integration and Complementation Treaty between Chile and Argentina), dated January 6, 2006. The Protocol provides a legal framework to facilitate the development of mining projects located in the border area of both countries.

In February 2016, the Argentine Government eliminated a tax on the export of concentrates- (see NGEx News Release dated February 22, 2016 and titled "NGEX financial model update based on new Argentina tax rules and files technical report for Project Constellation"). The Technical Report and the financial results presented below reflect the removal of this tax.

Updated Summary of Project Constellation Economic Results (Under New Argentine Tax Regime)
Pre-Tax NPV (8%) & IRR $4.43 billion NPV
20.7% IRR
After-Tax NPV (8%) & IRR $2.61 billion NPV
16.6% IRR
Payback Period
(undiscounted, after-tax cash flow)
3.6 Years
Metals Prices Assumed $3.00/lb Cu
$1,275/oz Au
$20.00/oz Ag
Initial Capital Expenditures $3.08 billion
LOM Sustaining Capital Expenditures $4.36 billion
LOM C-1 Cash Costs
(net of by-product credits)
$1.05/lb Cu payable
Nominal Mill Capacity 150,000 t/d
Mine Life 48 years
Average Annual Metal Production (rounded) Life of Mine First 5 years
150,000 t Cu
180,000 oz Au
1,180,000 oz Ag
185,000 t Cu
345,000 oz Au
1,310,000 oz Ag
LOM Average Process Recovery 88.3% Cu
72.7% Au
61.4% Ag

* All figures reported are in 2015 US dollars and on a 100% Project and 100% equity basis valuation.

The reader is advised that the PEA study results are only intended to provide an initial, high-level summary of the project. The PEA is preliminary in nature and includes the use of inferred mineral resources which are considered too speculative geologically to have the economic considerations applied to them that would enable them to be categorized as mineral reserves and there is no certainty that PEA results will be realized. Mineral resources are not mineral reserves and do not have demonstrated economic viability.

Project Description

Project Constellation contemplates sequential production from an open pit mine at Josemaría followed by a block cave, underground mine at Los Helados. The two deposits are located approximately 10 kilometres apart, and material from both deposits would be processed at a centralized facility. Los Helados is part of a joint venture in which the Company holds ~60% and Pan Pacific Copper Co., Ltd. holds ~40%. Josemaría is part of a joint venture in which the Company holds 60% and Japan Oil, Gas, and Metals National Corporation (JOGMEC) owns 40%. The PEA was completed by Amec Foster Wheeler, the mineral resource estimates were completed by Behre Dolbear, and the environmental studies were completed by MB Asesoria Ambiental and BGC Engineering.

Including pre-stripping, Project Constellation would be in operation for 50 years. Initial development would target the highest grade portion of the Josemaría deposit, which is a near surface zone of supergene enriched mineralization. As the higher grade material at Josemaría is depleted, production will transition to the high grade core of the Los Helados deposit. Compared to either deposit when considered as a stand-alone operation, Project Constellation's shared facilities help improve capital efficiency, reduce overall environmental impacts, and dramatically improve project economics.

Project Constellation PEA Highlights:
  • Large, robust resource, with most of the mine plan derived from Indicated Mineral Resources (86%);
  • A sequential mine plan that takes advantage of the early, higher grade material accessible at Josemaría followed by the higher grade core at Los Helados; many optimization opportunities exist;
  • Development capital costs for the Los Helados block cave would be paid for through operating cash flows from the Josemaría open pit, dramatically reducing the initial capital required;
  • Estimated 48-year mine life with potential for extension and/or throughput expansion (only 37% of the total Josemaría mineral resource is included in the PEA mine plan);
  • Life of mine production totals 7.1 million tonnes of copper (15.7 billion lbs), 8.5 million ounces of gold, and 55.6 million ounces of silver;
  • Forecast lowest quartile C-1 costs per pound of copper net of by-products;
  • Excellent metallurgy yielding a clean, 29% copper concentrate, with high precious metals content; and
  • Clear opportunities to improve project economics by realizing additional potential synergies with nearby deposits.
Project Opportunities
  • Optimizing the integrated mine plan and considering opportunities for both expansion and mine life extension as significant resources remain outside the current PEA production plan;
  • Recovery of gold from oxide cap at Josemaría;
  • Increasing metallurgical recoveries with further test work and optimization;
  • Delineating more or higher grade feed material for the process plant through continued exploration on the Company's extensive land package.
Project Economics

A cash flow valuation model for the project has been developed based on the PEA. The model was developed using a long term copper price of $3.00/lb. The following table shows the sensitivity of estimated NPV's for the Project's cash flows at various copper prices and discount rates (Au and Ag held flat at $1,275/oz and $20/oz respectively):

Sensitivity to Discount Rate & Copper Prices $2.50/lb Copper
(US$ billion)
$3.00/lb Copper
(US$ billion)
$3.50/lb Copper
(US$ billion)
  Pre-Tax After-Tax Pre-Tax After-Tax Pre-Tax After-Tax
Discounted at 5% 4.95 3.08 7.77 4.99 10.59 6.87
Discounted at 8% 2.57 1.36 4.43 2.61 6.28 3.84
Discounted at 10% 1.60 0.66 3.07 1.65 4.54 2.62


Capital & Operating Cost Estimates

Capital costs were derived from a variety of sources including comparative analysis of other operations, derivation from first principles, equipment quotes and factoring from other costs contained within the PEA study.

Estimated Capital Costs (US$ billion)
Open Pit Mine $0.20
Pre-Stripping $0.14
Underground Access Tunnel $0.09
Plant & Processing $0.87
Infrastructure $0.55
TOTAL DIRECT COSTS $1.85
Indirect Costs $0.48
Owner's Costs $0.13
Contingency $0.62
TOTAL INITIAL CAPEX $3.08
LOM Sustaining Capital $4.36


A key advantage for the Project is the deferral of the underground development costs at Los Helados beyond the initial capital period, placing these costs into sustaining capital which are paid for through cash flow from operations. Ongoing mine development ($2.4 billion) and equipment requirements ($1.4 billion) for the block cave at Los Helados make up the majority of the LOM Sustaining Capital required for the operation.

The PEA estimates that the C-1 cash costs (net of by-product credits) over the life of mine will average $1.05/lb Cu. C-1 cash costs include at-mine cash operating costs, treatment and refining charges, royalties, selling costs, transportation costs, and by-product credits.

Estimated Operating Costs Josemaría
(US$/t)
Los Helados
(US$/t)
Life of Mine
(US$/t)
Mining (mineralization processed) $3.91 $4.43 $4.23
Processing $3.60 $4.26 $4.09
General & Administration $0.80 $0.80 $0.80
Pumping $0.02 $0.02 $0.02
Tailings $0.07 $0.07 $0.07
Other (Roads, Port, Closure, etc.) $0.30 $0.06 $0.13
TOTAL $8.70 $9.64 $9.34


Mineral Resource

The Josemaría Mineral Resource has been updated from the previous September 27, 2013 estimate based on additional drill data collected. The estimate now includes data from 116 drill holes totalling 52,725 m of drilling, of which 34 holes (13,164 m) are reverse circulation (RC) and 82 holes (39,561 m) are core holes. The total length of assayed intervals is 51,092 m and there are 27,344 assays. The Updated Mineral Resource (Sulphide) was estimated by Behre Dolbear International Ltd. at a base case 0.20% copper equivalent (CuEq) cutoff, with an effective date of August 7, 2015, as follows:
  • 1,066 million tonnes at a grade of 0.31% copper, 0.22 g/t gold, and 1.0 g/t silver for a copper equivalent grade of 0.44% (7.4 billion pounds of copper, 7.4 million ounces of gold, and 34.5 million ounces of silver) in the Indicated Resource category; and,
  • 404 million tonnes at a grade of 0.24% copper, 0.15 g/t gold, and 0.8 g/t silver for a copper equivalent grade of 0.33% (2.0 billion pounds of copper, 2.0 million ounces of gold, and 10.8 million ounces of silver) in the Inferred Resource category.
The oxide resource estimate at Josemaría was not included in the PEA.

The Los Helados Mineral Resource is unchanged from the September 19, 2014 resource model. The Mineral Resource was estimated by Behre Dolbear International Ltd. at a base case 0.33% copper equivalent (CuEq) cutoff as follows:
  • 2,099 million tonnes at a grade of 0.38% copper, 0.15 g/t gold, and 1.37 g/t silver for a copper equivalent grade of 0.48% (17.6 billion pounds of copper, 10.1 million ounces of gold, and 92.5 million ounces of silver) in the Indicated Resource category; and,
  • 827 million tonnes at a grade of 0.32% copper, 0.10 g/t gold, and 1.32 g/t silver for a copper equivalent grade of 0.39% (5.8 billion pounds of copper, 2.7 million ounces of gold, and 35.1 million ounces of silver) in the Inferred Resource category.
Subset of Mineral Resources within the PEA Mine Plan
The PEA mine plan is based on a subset of the Mineral Resource as follows:

OPEN PIT Josemaría Mineral Resource Subset -- Included in PEA Mine Plan
Tonnes (millions) Cu (%) Au (g/t) Ag (g/t)
Indicated 529 0.36 0.26 1.08
Inferred 14 0.21 0.10 0.60
BLOCK CAVE Los Helados Mineral Resource Subset -- Included in PEA Mine Plan
Tonnes (millions) Cu (%) Au (g/t) Ag (g/t)
Indicated 1,280 0.40 0.15 1.44
Inferred 277 0.34 0.10 1.43


Mining & Processing

Project Constellation would begin with mining at Josemaría using conventional open pit methods. Mine planning focused on the early extraction of the highest-grade material while deferring waste stripping. Primary crushed material will be transported via a series of surface conveyors (totalling 4.9 kilometers) to a stockpile located near the process plant. A maximum mining rate of 115 Million tonnes per annum (including waste) is required to provide the nominal 150 thousand tonnes per day (kt/d) of concentrator feed.

Mine production will continue from the open pit exclusively for the first 7 years of operation. In year 8, a 6-year production ramp up period for the block cave underground mine at Los Helados will begin, and material from Los Helados will be blended with material from the open pit at Josemaría to fill the process plant. Primary crushed material from underground will be transported via an 8.1 km long underground conveyor tunnel and a 2.8 km long surface conveyor which will tie into the existing Josemaría surface conveyor system. Beginning in year 14, once the block cave has reached peak production, the process plant material will be sourced exclusively from Los Helados for the remainder of the mine life.

The open pit at Josemaría will have a mine life of 15 years, including pre-stripping, with a life of mine strip ratio of 0.98:1. The block cave at Los Helados will operate for 41 years, which overlaps with production from the open pit during the 6-year ramp up period. Including pre-stripping, Project Constellation will be in operation for 50 years.

The comminution circuit design considers the use of a high pressure grind roll (HPGR) crushing circuit followed by conventional ball mill grinding and sulphide flotation. Design throughput for Josemaría material is 150 kt/d. Due to the higher competency of the Los Helados material, the Project's throughput will gradually decrease to a rate of 120 kt/d when the block cave is in peak production. Water obtained from the concentrate thickener, tailings thickener and concentrate filter will be recovered and sent back to the process plant to be used as make-up water.

The proposed PEA production profile and metal production are shown in the figures below:





A two phase metallurgical test work program for each deposit was conducted at SGS Minerals S.A. laboratories in Santiago, Chile under the supervision of Amec Foster Wheeler. Multiple composite and variability samples were tested for mineralogy, physical characterization, gravity concentration, conventional sulphide flotation (open/locked cycle tests with different flowsheets), flotation tailings cyanidation and solids settling. Based on the testwork completed to date, life of mine metal recovery is expected to be 88.3% for copper, 72.7% for gold, and 61.4% for silver. Copper concentrate grades are expected to average 29% over the life of the mine. It is anticipated that the concentrate will be clean, precious metals rich, and likely to receive premium terms in the market.

Infrastructure

The major infrastructure items considered in the PEA are:
  • Water Supply: Water will be supplied from valley aquifers in Argentina, located approximately 8 km from the proposed plant site. The industrial water make-up requirement is estimated to be 500 L/s and is fully supported by the aquifers.
  • Power Supply: The site will be supplied with electricity through a 250 km long, 220 kV, single circuit power transmission line connected to the El Rodeo substation in San Juan province, Argentina. Average electrical demand is estimated to be 160 MW. A price of $0.078/kWh was used for long-term power supply. Power supply alternatives from Chile were also considered however, the lower power costs in Argentina led to significant operating costs savings over the Project life.
  • Concentrate Transport: Concentrate will be transported by truck from the filter plant to the port in Chile. The Project considers the possible use of a port near the city of Caldera which is located 77 km northwest of Copiapó. The approximate trucking distance from the plant site is 380 km.
  • Other: Site infrastructure includes items such as a tunnels, conveyors, tailings management facility, waste storage facilities, water diversion channels, process plant support facilities, stockpiles, workshops, camps, concentrate filter plants, access and site roads and potable & waste water.
Social & Environmental

The Company has retained the following consultants to assist in the preparation of the environmental work to support the ultimate preparation of the respective Environmental Impact Assessments ("EIA"):
  • MB Asesoria Ambiental based in San Juan, Argentina (Argentina -- Environmental Baseline);
  • BGC Engineering based in Santiago, Chile (Chile -- Environmental Baseline); and
  • BGC Engineering based in Vancouver, Canada (Glacial and Periglacial Regional Studies).
Baseline studies to date include: geosciences, air & water, terrestrial biota, the human environment, and natural & cultural heritage. The list of environmental components to be studied was derived from the Chilean national environmental assessment regulations, the Argentine national mining environmental law and from the International Finance Corporation's Sustainability Performance Standards (IFC 2012). Baseline studies are ongoing and will continue into the upcoming field season. Environmental studies carried out to date have been incorporated into environmental design criteria and siting criteria for the future project facilities.

Communication with the local community, private land owners, and other interested parties is also ongoing.  
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