cyclone zircon project - asx · diatreme resources limited exploration activities report for the...

ASX:DRX

DIATREME RESOURCES LIMITED

Exploration Activities Report

ABN 33 061 267 061 Level 2, 87 Wickham Terrace, Spring Hill, Qld, 4000 PO Box 10288 Brisbane Adelaide Street Qld 4000 Telephone : +61 7 3832 5666 Facsimile : +61 7 3832 5300

[email protected] www.diatreme.com.au

of 8

Quarter ended 31 March 2012

Highlights

CYCLONE ZIRCON PROJECT Upgrade of Heavy Mineral Resource estimate released as part of the Prefeasibility Study • Greater than 80% of resource now classified as “Measured”. • Current Mineral Resource estimate is 136Mt at 2.3% HM at a 1% HM

cut-off grade, containing 3.1Mt HM.

Maiden Ore Reserve estimate released • PFS pit design contains a Probable Ore Reserve of 97Mt at 2.5% HM,

including 0.79% Zircon, containing 2.4Mt HM, including 770kt of Zircon.

Positive results from PFS • potential for world-class project to mine 10Mt per annum ore for

10 years, yielding approximately 147,000t per annum HM concentrate • Capital investment of $223 million, with average annual sales revenue

of $191 million. • NPV of $194 million and IRR of 32%, with payback period of 2.1 years

(based on realistic base case). • Strong fundamentals for main mine products of zircon and titanium

products HiTi87 and HiTi67, with constrained global supply and upward pricing pressures.

• Estimated average annual production rates of 65,000t of Zircon, 10,000t of HiTi87 and 46,000t of HiTi67.

Board decision to proceed immediately to Definitive Feasibility Study, targeting completion in mid 2013 and production in 2015.

METALLIFEROUS PROJECTS Memorandum of Understanding signed with Antofagasta Minerals S.A. in respect of a proposed farm-in over the Clermont Copper Project in central Queensland hosting the Rosevale Porphyry Corridor.

CORPORATE Positive discussions continue with industry based players regarding investor partnerships and opportunities for corporate funding, either directly into the Cyclone Zircon Project and/or through equity interest in the Company.

Diatreme Resources is an Australian based diversified mineral explorer with significant projects in heavy mineral sands, copper, base metals and gold. The Company owns the world class Cyclone Zircon Deposit in Western Australia, situated within the recognised Eucla Basin province, along with extensive areas of underexplored ground prospective for heavy mineral sands. The Board and senior personnel exhibit wide experience, ranging through the exploration and development phases of resource management. Australian Securities Exchange Codes: DRX and DRXO Securities Ordinary shares (DRX): 354,597,423 Listed 15c options (30/09/13)(DRXO): 88,650,039 Board of Directors Executive: Tony Fawdon - Chairman/CEO David Hall - Operations Non-executive: George White Andrew Tsang William Wang Neil McIntyre Joint Company Secretaries: Leni Stanley Tuan Do Key Projects: • Eucla Basin Cyclone Zircon Project • Clermont Copper Project • Anabama Copper Project • Gilbert River Base Metals Project Diatreme Resources Contact: Tony Fawdon Executive Chairman/CEO Phone: +61 7 3832 5666 Fax: +61 7 3832 5300 Share Registry: Link Market Services Level 15, ANZ Building 324 Queen Street, Brisbane, Q4000

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Exploration Activities Report for the Quarter ended 31 March 2012 of 8

MINERAL SAND PROJECTS

Cyclone Zircon Project (WA) The Cyclone Project is located within the northern Eucla Basin, an emerging zircon province of global significance, being 25 kilometres west of the South Australian border and 230 kilometres north of the transcontinental railway. During the quarter, a number of significant milestones were achieved:

1 The release of an upgraded resource estimate statement 2 The release of a maiden ore reserve estimate statement 3 The release of positive Prefeasibility Study (“PFS”) resulting in a decision to proceed to a

Definitive Feasibility Study (“DFS”) 4 The signing of a Negotiation Protocol with the Native Title holders, the Pila Nguru People,

paving the way forward for the development of a future mining agreement. Updated Resource Estimate and Maiden Ore Reserve DRX upgraded its resource estimate in January (ASX release 23/01/12) to Measured and Indicated status (JORC). This was followed closely in February (ASX release 07/02/12) with Cyclone’s Maiden Ore Reserve (JORC). The Cyclone JORC Resource estimate (ASX release 23/01/12, including full technical details) comprised 136Mt at 2.3% heavy minerals (“HM”) at a 1% HM cut-off grade, containing 3.1Mt Heavy Minerals (“HM”). Greater than 80% of the resource is now classified as “Measured”. Figure 1 shows location outlines for DRX’s Cyclone HM resource and the neighbouring Cyclone Extended HM resource (owned by Image Resources NL). Following completion of pit designs as part of the Cyclone PFS, the Probable Ore Reserve (ASX release 07/02/12, including full technical details) has been estimated at 97Mt at 2.5% HM, including 0.79% Zircon in ground, containing 2.4Mt HM, including 770kt of Zircon. This represents a 70% conversion rate from resource to reserve. The pit design includes 109Mt of overburden and total Life of Mine material movement of 206Mt at a strip ratio of 1.1:1, with the strip ratio considerably lower in the early years of the mine operation. The low strip ratio, low clay content, and free dig nature of the ore will contribute to low operating cash costs. Extensive metallurgical testwork by CPG Resources – Mineral Technologies (“CPG”) has confirmed that a standard grade Zircon product and two high TiO2 content products can be produced from the Cyclone ore. The current Ore Reserve is forecast to produce 630kt of Zircon product, 90kt of HiTi87 titanium product and 440kt of HiTi67 titanium product. Internal and independent market analyses have indicated that all three products will find market acceptance and be readily saleable. This Ore Reserve is sufficient for 9.7 years of operations at the planned 10Mtpa mining rate. Further infill drilling and more detailed metallurgical testwork during 2012 is planned for the area comprising the first two years of a mining operation along with other parts of the deposit which display variability. Estimation of the Ore Reserve was completed following an extensive resource drilling program, metallurgical testwork and process flowsheet development, open pit design, and consideration of capital and operating cost estimates. The design parameters for the open pit were developed based on simultaneous assessment of a number of economic and mining factors.

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A summary of the Ore Reserves and Mineral Resources are set out in Table 1 below.

TABLE 1: CYLONE RESOURCE & RESERVE ESTIMATE MINERAL RESOURCE

Head Grade Resource Category

HM cut-off

% Material

Mt HM %

HM Mt

Slime %

OS % Zircon

% Rutile

% Leuc

% HiTi %

Alt Ilm %

Si TiOx %

Zircon Kt

MEASURED 1.0 107 2.4 2.63 4.1 5.6 0.77 0.08 0.17 0.52 0.26 0.55 830 INDICATED 1.0 29 1.6 0.47 3.6 6.1 0.44 0.06 0.06 0.50 0.11 0.31 130

TOTAL 1.0 136 2.3 3.10 4.0 5.7 0.70 0.08 0.14 0.51 0.23 0.50 950 Mineral Assemblage 31% 3% 6% 23% 10% 22%

ORE RESERVE Head Grade Reserve

Category Zircon cut-off

% Material

Mt HM %

HM Mt

Slime %

OS % Zircon

% Rutile

% Leuc

% HiTi %

Alt Ilm %

Si TiOx %

Zircon Kt

PROBABLE 0.4 97 2.5 2.41 4.0 5.1 0.79 0.08 0.17 0.52 0.26 0.56 770 TOTAL 0.4 97 2.5 2.41 4.0 5.1 0.79 0.08 0.17 0.52 0.26 0.56 770

Mineral Assemblage 32% 3% 7% 21% 10% 23%

Table Notes Rounding may generate differences in last decimal place A constant SG of 1.7 has been used to derive material tonnes Slime refers to material <53um OS refers to oversize material >2mm Mineral Assemblage derived from QEMSCAN® analysis Leucoxene (Leuc) – Ti-oxides containing 85 – 95% TiO2, HiTi - Ti-oxides containing 70 - 85% TiO2, Altered Ilmenite

(Alt Ilm) - Ti-oxides containing <70% TiO2, Si-bearing Ti-Oxide (Si TiOx) – Ti-oxides containing >10% silica rich Ti minerals.

Resources are inclusive of Reserves

Prefeasibility Study Results DRX released independent laboratory results for metallurgical studies and mineral processing designs in January (ASX release 30/01/12) followed by positive PFS results in March (ASX release 20/03/12). The primary objectives of the independent laboratory testwork covering metallurgical studies and mineral processing designs undertaken as part of the PFS (ASX release 30/01/12, including technical details) were to: •• Produce a very high grade Heavy Mineral (“HM”) concentrate through a wet concentrator process. •• Maximise the recovery of Zircon (the major valuable mineral component of the Cyclone Resource), and •• Develop process flowsheets to be used in engineering designs for the wet and dry HM processing plants. Extensive metallurgical testwork was conducted by CPG over the past year on a seven (7) tonne bulk sample, producing the following key outcomes: •• 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 wet concentrator process HM concentrate

is 95.3%. •• The estimated distribution of zircon from the HM concentrate to the mineral separation plant final Zircon

product is 85.0%. •• A mineral separation process has been designed to produce Zircon and two titanium products, HiTi87

(86.6% TiO2) and HiTi67 (67.3% TiO2). •• The testwork has identified that conventional “off the shelf” technology can be used in the mineral

processing at Cyclone.

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In March, positive PFS results for the project boosted the prospects for Cyclone as Western Australia’s biggest new zircon deposit. The PFS has indicated the potential for the project to mine 10 million tpa of ore for 10 years. Expected annual production of 147,000 tpa HM concentrate would yield an average of 65,000 tpa zircon, 46,000 tpa HiTi67 and 10,000 tpa HiTi87. On average, the project would generate annual sales revenue of $191 million with an operating cash flow of $78 million per annum, and would contribute $35 million per annum to government tax and royalties. Conventional technology will be used for the project, with concentrate proposed to be trucked 240 kilometres to Forrest, WA, where it would be loaded and transported by rail to an appropriate seaport. The concentrate would be stored in containers at the seaport before being loaded into vessels for bulk shipping to a mineral separation plant overseas, possibly China. 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 with known substantial aquifers. Based on estimates, the PFS financial forecasts include a base case net present value of $194 million and an internal rate of return of 32%, with a payback period of just 2.1 years. The PFS results are underpinned by strong fundamentals for the three proposed mine products comprising zircon, HiTi87 (86.6% TiO2) and HiTi67 (67.3% TiO2). These products would be sold into overseas markets, where current forecasts are for limited supply of zircon and titanium feedstocks and continued high prices. The forecasts are based on a strategy of building the proposed mineral separation plant in China and marketing the products in that country, resulting in estimated long-term prices of US$2,100 per tonne for zircon, US$1,200/t for HiTi87 and US$400/t for HiTi67. Definitive Feasibility Study Having successfully delivered a substantive and positive PFS, DRX has now commenced the DFS. The main activities to be undertaken over this period include: •• drilling to define the water supply for the mine and village and detailed design of the water supply system •• bulk sample preparation, metallurgical testwork, process design and mineral recovery analysis for the

WCP and MSP •• cultural and environmental studies for the access and haul road, and design and approval •• cultural and environmental studies for approval of the mining operation and including all site activities •• finalising a mining agreement with the Pila Nguru People •• approval of the mining lease and miscellaneous licences for site facilities and services •• detailed planning for site services and infrastructure including power station, airstrip and accommodation

village •• finalising MSP location and arrangements with the selected port authority for mineral export •• development of a logistics plan covering mineral transport and supplies for the mine by road and rail •• upgrades to mineralogy data, the mineral resource estimate, the ore reserve estimate and the mine plan

including the tailings plan •• operations planning including work rosters and fly-in fly-out details •• contracts where appropriate for project implementation and product sales as input for the financial

evaluation suitable for debt funding With completion of the DFS being targeted in 2013, and based upon HM demands, DRX aims to secure project financing in 2013 and undertake project construction and development over 2013/2014. Depending on receipt of necessary approvals, the Company is targeting first production by 2015.

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Figure 1: Location outlines for Cyclone and Cyclone Extended HM resources

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Eucla Basin Exploration (SA) No exploration was conducted during the quarter. Arckaringa Mineral Sands Project (SA) No further exploration was conducted during the quarter. However, as a result of exploration conducted in late 2011 which downgraded certain areas, EL 4112 (Oldburra), EL 4113 (Marla), EL 4136 (Mamalia) and EL 4137 (Ammaroodinna) totalling 2,625km2 were relinquished. Regional Exploration

Through project generation, DRX continues to study and review opportunities for quality HM exploration projects within Australia. METALLIFEROUS PROJECTS

Clermont Copper Gold Project (QLD) During the quarter, DRX, through its 100%-owned subsidiary, Chalcophile Resources Pty. Ltd. entered into a Memorandum of Understanding with Antofagasta Minerals S.A. (“Antofagasta”) in respect of a proposed farm-in over the Clermont Copper Project, hosting the Rosevale Porphyry Corridor (“RPC”) in central Queensland. Discovered by DRX in 2008, the RPC was identified as having potential for large buried porphyry copper - gold - molybdenum mineralised systems. Significant exploration has been conducted by DRX since this time, including geological mapping and sampling, ground geophysics and over 6,000 metres of diamond drilling. This effort was successful in discovering mineralisation at a number of individual prospects within the RPC, and many prospects require further drill testing. The project area extends over two granted tenements (EPM17968, Clermont; and EPM19189, Parapet) and one tenement application (EPMA19544, Expedition Creek) – see location plan, Figure 2. Within the Clermont tenements, Antofagasta will specifically target the highly prospective “Rosevale Porphyry Corridor”, a geological zone hosting copper, gold, silver and molybdenum porphyry-style mineralisation, along with adjacent geologically related mineralisation. Under the agreed terms, Antofagasta will commit US$400,000 over a six month period (nominated as the Initial Assessment Phase) to fund exploration mainly over the RPC, including geological mapping of outcrop, relogging of all DRX’s RPC diamond drill core and reprocessing and assessment of existing data. This Initial Phase of exploration is designed to define subsurface targets for further evaluation through drilling, and to improve upon the geological understanding of the Clermont tenements as a whole, from an exploration and resource perspective. On completion of the Initial Assessment Phase, to the satisfaction of Antofagasta, Antofagasta has the option of signing a Farm-in Agreement which will contain the following terms:

• Demarcate areas of the tenement deemed prospective for copper mineralisation.

• Antofagasta to earn a 51% interest in the defined area of interest by funding US$8 million in exploration expenditures over a four (4) year period.

• Antofagasta has the right to withdraw from the defined area of interest after spending a minimum of US$1.5 million within the first year, but without earning any equity.

• On earning its 51% interest in the defined area of interest, Antofagasta has the option to earn, at its sole expense, an additional 9% interest (total 60%) by delivering a JORC-compliant inferred resource and completing a scoping study on at least one mineral deposit.

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• The vested interests in the defined area of interest of the parties upon completion of a JORC-compliant inferred resource and scoping study would be Antofagasta 60% and DRX 40%.

• Forward expenditure at this stage would be prorata, with industry standard dilution practises being applied.

• Should Antofagasta decide to withdraw from the project after vesting at 51%, DRX will retain management control of the defined area of interest and will dilute Antofagasta’s interest in accordance with industry standard practice.

• If either party dilute to less than a 10% interest, then the diluted party shall relinquish its equity position and revert to a 1.5% net smelter return royalty.

• DRX will be the operator in the Initial Assessment and Farm-in Phases of the project.

• Under certain circumstances, DRX will have the right to reacquire a 100% interest in the defined area of interest by reimbursement to Antofagasta of 150% of all defined area of interest related exploration costs incurred during the farm-in period.

DRX considers the exploration funding and expertise that Antofagasta brings to the Clermont tenements to be of immense value in advancing the identification, delineation and development of a large polymetallic porphyry-style mining operation in the Clermont area. With Antofagasta recognising the high prospectivity of the Clermont tenements and in particular the Rosevale Porphyry Corridor, DRX believes its’ commitment to enter into a farm-in arrangement has added confidence to realizing the potential of this new Queensland porphyry copper/gold belt.

Figure 2: Clermont Project Location Plan showing prospects

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Tick Hill Gold Project (QLD) - DRX reducing to 50% The pre-conditions that form part of the farm-in agreement that DRX has with Superior Resources Limited (ASX:”SPQ”) at Tick Hill are still to be met, due partially to Queensland government processing delays. It is not certain when the pre-conditions will be met allowing SPQ to commence its planned exploration at Tick Hill. CORPORATE

Following the release of positive PFS results, the Board made the decision to commence a Definitive Feasibility Study over Cyclone Zircon Project. With considerable interest in the project being received from leading industry players, DRX continues to hold discussions regarding investor partnerships and opportunities for DFS funding, either directly into the project and/or through equity interest in the Company. Dated 30 April 2012

Anthony J Fawdon Executive Chairman/CEO

Company contact details: Tel : +61 7 3832 5666 Fax : +61 7 3832 5300 Email : [email protected]

For media queries: Anthony Fensom Bayly Willey Holt Tel: +61 7 3368 2355

Competent Person Statements The information in this report, insofar as it relates to Exploration Results and Mineral Resources is based on information compiled by company personnel under the supervision of Mr David Jelley, who is a full time employee of Diatreme Resources Limited and a Member of the Australasian Institute of Mining and Metallurgy. Mr Jelley has sufficient experience which is relevant to the style of mineralisation and type of deposit under consideration and to the activity which he has undertaken to qualify as a Competent Person as defined in the 2004 Edition of the ‘Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves’. Mr Jelley consents to the inclusion in the report of the matters based on the information in the form and context in which it appears. The information in this report that relates to Ore Reserves is based on information compiled by Mr Phil McMurtrie, who is a Member of the Australasian Institute of Mining and Metallurgy. Mr McMurtrie is a director of Tisana Pty Ltd, and is a consultant to Diatreme Resources Limited. Mr McMurtrie has sufficient experience which is relevant to the style of mineralisation and type of deposit under consideration and to the activity which he has undertaken to qualify as a Competent Person as defined in the 2004 Edition of the ‘Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves’. Mr McMurtrie consents to the inclusion in the report of the matters based on the information in the form and context in which it appears.

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