Savannah Feasibility Study Optimisation

Savannah Nickel Project – Flyover Video

Savannah Feasibility Study Optimisation Presentation July 2017

Cautionary Statement

There is a low level of geological confidence associated with Inferred Mineral Resources and there is no certainty that further exploration work will result in the determination of Indicated Mineral Resources or that the production target itself will be realised.

Project Background

The Savannah Nickel Project is located 240km south of Kununurra in the East Kimberley region of Western Australia, and consists of a nickel sulphide orebody, underground mine, process plant and associated infrastructure. Panoramic was formed in 2001 for the purpose of developing Savannah. Panoramic successfully commissioned the Savannah Project in late 2004, and over a twelve year period, Savannah milled 8.5 million tonnes at an average grade of 1.29% nickel, 0.65% copper and 0.06% cobalt to produce 1.22 million tonnes of concentrate containing 94,600 tonnes nickel, 53,000 tonnes copper and 5,000 tonnes cobalt. In FY2016, Savannah achieved a record year with 9,845 tonnes nickel, 6,011 tonnes copper and 476 tonnes cobalt in concentrate produced.  The Savannah Project was placed on care and maintenance in May 2016 pending a sustained recovery in the US$ nickel price and confirmation that Savannah North was a viable project.

Savannah North was discovered in February 2014, when drill-hole KUD1525, targeting the interpreted fault offset of the main Savannah orebody, intersected 89.3m @ 1.60% Ni, 0.76% Cu and 0.12% Co (refer to the Company’s ASX announcement of 18 February 2014).  Resource drilling commenced in early 2015, and in October 2015 the Company released the maiden Savannah North Mineral Resource estimate of 6.88 million tonnes at 1.59% Ni for 109,600t Ni (refer to the Company’s ASX announcement of 1 October 2015).

In January 2016, the Company released the results of a Scoping Study on the maiden Savannah North Mineral Resource estimate, which indicated a positive economic outcome given the production, revenue and cost assumptions modelled (refer to the Company’s ASX announcement of 27 January 2016).

In February 2016, the Company resumed underground drilling at Savannah North with the purpose of infilling and converting areas of Inferred Resource to Indicated category, while also testing for extensions to the Resource both up dip to the east and down dip to the west and north.  The program was completed in July 2016 and culminated in the release of an upgraded Savannah North Mineral Resource estimate of 10.27 million tonnes at 1.70% Ni for 175,100t Ni, 74,400t copper and 12,700t cobalt in August 2016 (refer to the Company’s ASX announcement of 24 August 2016).

On 2 February 2017, the Company announced the results of the Savannah Feasibility Study.  The scope of the Study was to evaluate the technical and financial viability of recommencing operations at Savannah, based on mining the remaining Savannah orebody plus the Savannah North deposit.  The Base Case for the Study assumed no material changes to recent Savannah mining and processing practices and that the operation would continue to produce a bulk Ni-Cu-Co concentrate sold under similar terms as the current contract with Sino/Jinchuan, which expires in April 2020.  Based on the results of the Savannah Feasibility Study, a maiden Ore Reserve for Savannah North, of 6.65Mt @ 1.42% Ni, 0.61% Cu and 0.10% Co for contained metal of 94,500t nickel, 40,900t copper and 6,700t cobalt, was declared.  The Savannah Feasibility Study demonstrated a 10 year mine life, producing approximately 99,200t Ni, 51,500t Cu and 6,900t Co in concentrate over LOM, with initial (pre-production) capital requirements of $20M, and payable operating cash costs of US$3.30/lb (refer to the Company’s ASX announcement of 2 February 2017).

Optimisation Study Scope

Optimisation of the February 2017 Savannah Feasibility Study commenced on completion of the Feasibility Study, and is continuing.  The initial focus of the Savannah FS Optimisation was to address the following key areas:

  • Mining productivity – identify opportunities to increase production rate and mined nickel grade;
  • Product optimisation – additional metallurgical testwork to confirm the processing characteristics of Savannah North and the feasibility of producing a bulk concentrate with a higher Ni grade;
  • Cost reduction – review of major cost centres, particularly regarding power and contractor services;
  • Marketing – engage with potential off-take partners to receive indicative terms for offtake and project financing; and
  • Financing – seek indicative term sheets from potential financiers on style and quantum of financing available for the project.

Summary – Savannah Feasibility Study Optimisation

The Company provided the results of the optimisation of the February 2017 Savannah Feasibility Study (refer to the Company’s ASX announcement of 2 February 2017). The Savannah FS Optimisation demonstrates that through a combination of modifications to the mine schedule, a range of cost initiatives, and favourable by-product credits, the Savannah Operation is financially viable at current US$ commodity prices and US$:A$ FX rate. The key physicals from the Savannah FS Optimisation and comparison with the February 2017 Savannah Feasibility Study (“Feasibility Study”) are summarised in Table 1.

The Mineral Resources quoted in Table 1 are for the entire Savannah Project (Savannah, Savannah North and Copernicus), and have been previously reported by Panoramic (refer to the Company’s ASX announcement of 24 August 2016). As with the Feasibility Study, the Savannah FS Optimisation is based on mining the remaining Ore Reserve at Savannah, whilst developing across to the Savannah North deposit.  The proposed access method and development timeframe for Savannah North are unchanged from the Feasibility Study, i.e. via decline from the existing Savannah decline at the 1440 Level, with access development from Savannah to first ore at Savannah North scheduled to take approximately nine months.

Optimisation of the mine plan has focused on increasing both the mining rate and the mined nickel grade, resulting in the following amendments:

  • Bogging rates in Savannah North have been increased from 1,000t per day to 1,200t per day by utilising remote technology to bog over shift change;
  • Accelerated production in the early years, via the inclusion of a vertical pillar in the upper portion of Savannah North, which facilitates the development of a 2nd mining front; and
  • Removal from the mine plan of lower grade stopes (0.8 – 1.0% Ni) on the western side of the Upper Zone. This results in approximately 750,000t of material grading 0.9% Ni being removed from the mine plan. It is important to note that this material is not sterilised and remains accessible for mining at higher nickel prices.

The above changes to the mine plan result in a shorter mine life of 8.5 years compared to the Feasibility Study, but with an ore mining rate over LOM averaging 0.9Mtpa (Feasibility Study LOM average 0.8Mtpa).

The recent and on-going mineralogical and metallurgical testwork programs on Savannah North samples, simulating existing Savannah process plant conditions, is confirming that Savannah North has similar processing properties to the Savannah ore treated over the past 12 years.  For the Savannah FS Optimisation, a bulk Ni-Cu-Co concentrate targeting a higher grade of 9% Ni is assumed (Feasibility Study assumed 8% Ni). Processing metal in feed recoveries over life of mine are expected to average 87% Ni, 96% Cu and 90% Co, based on historic Savannah plant performance for the targeted concentrate grade.  Metal in concentrate production is forecast to average 11,000t Ni, 5,800t Cu and 760t Co per year with 93,800t Ni, 49,100t Cu and 6,500t Co in concentrate produced over life of mine.

The Savannah FS Optimisation forecasts a low up-front capital investment of only $20 million to resume production, unchanged from the Feasibility Study estimate.  The low restart cost is due to the mine development already in place to access existing Savannah ore and the existing mobile equipment fleet, processing plant and supporting infrastructure at Savannah being kept in good condition under care and maintenance since the suspension of mining operations in May 2016.  Maximum funding requirement is estimated to be under $40M (inclusive of working capital requirements and no contingency), peaking 14 months after recommencement of production.  Indicative term sheets provided by potential financiers have demonstrated that a range of funding options is available for the project.

Forecast average operating cash costs of US$2.40/lb Ni (payable nickel basis after by-product credits) over the life of the project derived from the Savannah FS Optimisation are significantly lower than the Feasibility Study estimate of $US3.30/lb.  The major contributions to the reduction in payable cash costs are:

  • Higher mill throughput and average head grade;
  • Owner-operated concentrate transport fleet;
  • Improved village catering terms;
  • Hybrid solar-diesel power; and
  • Uplift in by-product credits due to the strong appreciation in the US$ cobalt price.

Panoramic is in discussions with a number of potential offtake partners who have expressed an interest in securing Savannah concentrate.  The Savannah FS Optimisation incorporates revised offtake terms based on indicative term sheets received to date.

Table 2 summarises the financial outcomes of the Savannah FS Optimisation, reported at the spot US$ commodity prices and US$:A$ FX rate prevailing on 30 June 2017, compared to the Feasibility Study.

Panoramic is continuing with assessment of other initiatives which could add significant additional value to the Project, including:

  • Ore passes – shorter loader tramming distances to increase productivity;
  • Battery loaders – reduces heat generation and diesel particulate emissions, resulting in lower ventilation and cooling requirements;
  • Surface-operated remote bogging – reduces manning requirements, continuous bogging;
  • Alternative truck technology – smaller, lighter units, faster travel times, lower capital and operating costs;
  • Small drive sizes – reduces waste moved, therefore lower development costs; and
  • Drilling automation – increases utilisation, improved quality resulting in less rework.

These opportunities will be assessed as part of the next phase of optimisation work due to be completed during the December 2017 quarter.  Marketing and financing will also be advanced in the same timeframe.

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