August 04, 2009 Yellowhead Mining Inc. Newsletter #25
Yellowhead Mining is pleased to provide this update on our activities:
Economic, Financing and Commodities Environment
Since the start of the credit crisis in mid-2008, equity markets have been effectively closed to development-stage base metal companies. From a copper price peak of US$4.10/lb in July 2008, a low of about $1.25/lb was reached in December 2008. The IPO market was essentially closed on the TSX in 2008. During the spring of 2009, mining equity risk capital started to return with the funding of several precious metal exploration and production companies and base metal producers. Copper has recently resurged to about US$2.76/lb or about CDN$2.97/lb at a Canadian/US exchange rate of 0.93. This has returned our Harper Creek project economics to an attractive range, with significant upside from further metal price improvements.
With current metal prices (copper US$2.76/lb, gold $965/oz and silver $14.50/oz) and a CDN/US exchange rate of 0.9296:1, our scoping model for the 70,000 tpd operation yields an Internal Rate of Return of over 21%, and Net Present Value of about CDN$829 million at an 8% discount rate or CDN$2.69 billion at a 0% discount rate, with a capital expenditure of about CDN$750 million.
We expect equity markets for base metal exploration and development companies to improve with the increased metals prices. In addition, many strategic buyers of metals and concentrates are looking to secure sources of supply, and many large international mining companies have stated an intention to make acquisitions in the sector. These developments should benefit Yellowhead Mining due to our favourable location, size of resource and favourable political risk compared to many other copper investment opportunities.
We are continuing to monitor financial and commodity markets and maintain our contacts with the investment community and potential development and off-take partners. We are maintaining a state of readiness for a financing, IPO, merger with a shell company with cash, or partnership transaction.
Recent Activities
We held our Annual General meeting on December 15, 2008 where we presented our October 31, 2008 annual audited financial statements.
We have maintained an active presence at industry trade shows with booths at the Mines and Money show in London UK and the Hard Asset Forum in San Francisco in December 2008, AMEBC Round Up in January 2009, PDAC in March 2009 and the Kamloops Exploration Group meeting in April 2009.
As part of the Environmental Assessment process, an initial Working Group meeting was held with Federal and Provincial government and First Nations representatives in Kamloops on December 11, 2008. Draft Terms of Reference has been prepared but has been put on hold pending reactivation of the feasibility process and significant field work.
Field work has continued, focussing on re-logging and sampling of historical drill core, and building the geological model needed for upgrade of the resource to Measured Category.
Klohn Crippen Berger delivered their final report in November 2008.
Environmental monitoring has continued with water sampling and climate station recording.
CME Consultants Inc. delivered their Phase V report in June 2009 and commenced the Phase VI exploration program.
Preliminary Economic Assessment and Feasibility Study
In response to the unstable economic environment last fall, the Company ceased work on the NI43-101 Preliminary Economic Assessment ("PEA"). We have a nearly completed draft PEA report which can be updated in a matter of weeks as funding permits. We believe certain elements of capital and operating costs may be lower than in mid-2008, and sensitivity tests will be required to evaluate the impact of volatile exchange rates and metal prices.
We have been planning for the feasibility study so that we can proceed rapidly when financing allows. A full feasibility including extensive infill drilling, metallurgical, engineering, waste management and geotechnical planning, environmental and First Nations review, and limited exploration away from the main ore body would require an expenditure of about CDN$20 million. Of this, $12 million has been allocated for in-fill drilling to upgrade the resource category to Measured from Indicated. Substantial milestones based on a reduced drilling program, could be achieved with a budget of $5 -- 7 million.
Klohn Crippen Berger's Report
This report included pre-feasibility assessment of pit slope stability (geotechnical), acid rock drainage and waste rock management (geochemical), structural geological mapping of the pit, and structural and surficial mapping of the Waste Management Facility ("WMF") area (geological) and availability of WMF borrow material and WMF and plant-site foundation conditions by test pitting (geotechnical). This information was used to assess feasibility of construction of a flooded WMF with capacity to contain all tailings and waste rock over the mine life. Summary of the report's findings were disclosed in YMI's newsletter #21.
CME Consultants Inc.'s Phase V Report
The Phase V exploration program was carried out between April 2008 and January 2009. This program consisted of relogging, sampling (1,610 samples pending) and analyzing 73 historical diamond drill holes representing 10,479.75 m of core, soil sampling, ground geophysical surveying, road construction, maintenance and reclamation.
Logging of historical drill core and surface mapping and sampling were undertaken to further define the geological model of the deposit. Historical diamond drill core resampling results, though not yet complete, have added multi-element data to the existing database. This will assist in incorporating other elements such as precious metals into the resource model. A map showing resampled drill hole locations is shown at the end of this section.
Geological mapping immediately outside of the Harper Creek deposit area has assisted in identification and understanding of lithologies seen in drill core. Integration and synthesis of the surface geological units and those based on drill core is ongoing.
The existing M Anomaly survey grid was extended westward to the south of the Harper Creek deposit. Both soil sampling and ground geophysics were conducted on all new grid lines. Analytical results from the soil sampling program are pending. Maps showing soil grids and geophysical survey results are shown below.
In addition to previously recommended diamond drilling, CME recommends further work to include:
compiling, processing and interpreting the available ground geophysical data;
completing all pending rock, soil and core sample analyses;
compiling a lithological library through the integration and synthesis of the surface geological units and those based on drill core into a single unified legend;
relogging of YMI and historical core;
further detailed geological mapping;
petrographic studies;
discriminate analysis of geochemical dataset to assist in identification of rock types; and
structural study of the deposit.
Current Exploration Program -- Phase VI
Yellowhead has contracted with CME to carry out the $230,000 Phase VI exploration program over the period January 16 - August 31, 2009, which includes the following elements:
petrographic studies on selected thin sections;
creation of a core logging manual and library;
relogging of Yellowhead drill core along a single cross section;
creation of a 3D wire frame model using a 0.1% copper cut-off; and
establishment of a central SQL database containing all Harper Creek data including geophysical and geochemical data
The Company had a net working capital position of $1,304,000 at July 31, 2009.
Current shares outstanding are 26,162,375. There are 48,913 share purchase warrants outstanding. With director and officer incentive options of 1,775,000 shares, the fully diluted share position is 27,986,288. Warrant and option exercise could generate an additional $1.25 million for the treasury.
Contact Information:
For further details on Yellowhead Mining Inc., please visit our website at www.yellowheadmining.com or contact:
No regulatory authority has approved or disapproved the information contained in this newsletter. This newsletter includes certain statements that may be deemed "forward-looking statements". All statements in this newsletter, other than statement of historical facts, that address future production, reserve potential, exploration drilling, exploitation activities and events or developments that the Company expects are forward-looking statements. Although the Company believes the expectations expressed in such forward-looking statements are based on reasonable assumptions, statements are not guarantees of future performance and actual results or developments may differ materially from the forward-looking statements. Factors that could cause actual results to differ materially from those in forward-looking statements include market prices, exploitation and exploration successes, continued availability of capital and financing, general economic, market or business conditions. Investors should be cautious that any such statements are not guarantees of future performance and that actual results or developments may differ materially from those projected in the forward-looking statements.
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