Auzex Resources Limited

Located 20km east of Glen Innes, the Kingsgate Mine was the second largest producer of molybdenum in Australia. Much of the ore was mined from high grade quartz pipes between the 1880's and 1920's. No modern exploration had been completed prior to Auzex acquiring the project. Detailed exploration commenced in late 2004 culminating in a Feasibility Study completed in December 2008.

Key Points

• Trial Mining was successfully completed in December 2006 with results forming part of the Scoping Study.
• Drilling of the quartz pipe which was the subject of trial mining revealed an average grade of 0.34% Mo and 0.64% Bi. The amount and grade of bismuth was unexpected and, if maintained, will add significant value to the project.
• A Scoping Study for development of the project (based on an annual processing rate of 250,000tpa at an average grade of 0.23% Mo and 0.23% Bi) was completed in June 2007. This study was based on production of separate Mo and Bi concentrates.
• Best results from the resource drilling program include 5m at 1.35% Mo and 0.69% Bi from 42m and 7m at 0.70% Mo and 0.52% Bi from 43m. Drilling was successful in identifying individual mineralised zones (quartz pipes) with the results revealing a much larger scale of mineralisation than had been modelled.
• A feasibility study for development of the project was completed in December 2008, based on downstream processing of high purity silica, ammonium molybdate (or molybdenum trioxide), and bismuth metal or fusible Bi-Pb alloy.
• In late February 2009, Auzex appointed consultants to assist in the marketing of the project internationally to seek participation from interested parties in development of the Kingsgate Project, which may involve mining companies, product end-users or private equity.

Geology

Kingsgate can be classified as Permian – Carboniferous granite hosted molybdenum-bismuth quartz pipe deposit. The Kingsgate granite has a fine grained (“aplite”) contact phase which has been eroded from the eastern margin of the granite pluton exposing the pipes along a 4km x 1km zone. The contact phase dips shallowly to the east on the eastern side of the intrusive and is flat on the western side of the project area.
Exploration

Exploration work completed by Auzex between October 2004 and October 2008 includes:

• Detailed geological mapping of the Project area
• Surface rock chip sampling (n= 258)
• Grid based soil sampling (n= 4095)
• Ground radiometric surveys
• Gradient array resistivity geophysical surveys
• 3D modelling of the Mo-Bi pipes and aplite carapace
• 12 diamond drill holes (totalling 541.1m) and 318 reverse circulation (RC) drill holes (totalling 14,490m)
• Petrological studies
• Trial mining and bulk sampling program
• Survey of mullock dumps, tailings and alluvial deposits
• Aerial photography and development of a Digital Elevation Model (DEM)
• Airborne radiometric – magnetic survey

Trial Mining

Trial mining of the Wolfram pipe (one of 109 known pipes) in the central Kingsgate area where high grade mineralisation was intersected in drilling and highlighted by chargeability and resistivity highs was completed in December 2006. The aim of the exercise was to provide a better understanding of the distribution of mineralisation in 3D than can be gained from drilling, and provide a bulk sample of mineralisation (approximately 800kg) for metallurgical testwork and process design. Trial mining provided Auzex with the added advantage of exposing a large area for geological mapping as well as valuable information on mining costs.
Scoping Study

A scoping study for development of the project based on production of separate molybdenum and bismuth concentrates was completed in June 2007. Auzex co-ordinated the services of twelve separate consulting groups, as well as in-house involvement to provide key inputs for the study. Much of the work was inter-dependant with process design being the critical path. The trial mining program proved invaluable for understanding mining design and cost inputs.
Feasibility Study

A feasibility study to determine the viability of the Kingsgate Project commenced in September 2007 and was completed in late 2008. The scope of the Project was increased to include the production of high purity silica as well value-added molybdenum and bismuth products.

The Kingsgate Molybdenum-Silica-Bismuth (Mo-SiO2-Bi) Project feasibility study demonstrated this project is economic and financially very robust. Despite metal prices falling dramatically over the second half of 2008, the study indicated the Project remains highly attractive for development in the current market, with a relatively low initial capital cost, high operating margin, and short payback period.
Production

Mining will be a combination of open-cut and underground operations, although it is assumed that only open-cut mining from a number of separate pits will be undertaken during the first five years of operations. Production will be at a rate of 250,000 tonnes per year, with an assumed average overall grade of 0.18% Mo and 0.16% Bi.

The processing of Kingsgate’s unique mineralisation aims to optimise the project providing value-added products to end-users in diverse markets with the production of:

• Ammonium molybdate at a rate of 800 tonnes per year for chemical and fertiliser markets within Australia and offshore.
• High purity silica at a rate of 100,000 tonnes per year for the thin film transistor and liquid crystal display sector of the electronics industry.
• Bismuth at an annual rate of 260 tonnes per year as a high purity metal for the pharmaceutical and cosmetic industry.
  

Financial Analysis 

(using 15th December 2008 spot prices of US$10.25lb Mo, US$$8.40lb Bi and US$350t silica and an exchange rate of AU$=US$0.6625)

It is estimated that over an initial five year operating period

• Projected Net Present Value is A$87.7m using a discount rate of 10%; with an Internal Rate of Return of 45.8%.
• Total revenues amount to A$445 million, creating $283.2 million in cash flow after operating costs, and $138.8million after capital expenditure, royalties and tax.
• Initial start-up capital expenditure has been estimated at $80.9 million, of which the process plant is $69.1million; with a Capital expenditure payback period of 22 months.

Future

Based upon this study, the Company is actively seeking investment from interested parties to participate in the Kingsgate Project, and may involve mining companies, product end-users or private equity. The unique suite of metals produced at Kingsgate is considered a positive for raising development capital.

The preferred option for the Company is the injection of development capital for project equity, and a contribution to development and operational management. Subject to a suitable outcome regarding financing of the project, the approvals path (culminating in the grant of a Mining Lease and the right to commence operations), could commence immediately and is estimated to take six to twelve months.