mining group signs production agreement over p, page-39

Zedcorp,

The report that i constructed was some background information for people who have some questions regarding El Roble. It will be quite a long post if i add it all so just warning you.

Background Information
I have had a few questions regarding Mining Group’s El Roble Project in Chile which I will to try answer in this quick update. Many of those questions revolved around costings, potential revenue and next steps of the project after these drilling results have been released.

Q: How much will MNE be getting for their ore?

A: I have constructed a table to help guide investors on what it is potentially worth given a certain grade and quality.

Q: What makes up the costs/tonne?

A: I have allowed mining costs(which include royalties and taxes) at $50/tonne, trucking at $15/tonne and admin at $3/tonne giving $68/tonne. These are conservative figures so they should come down over time. Costings can be variable depending on what activity you are focused on at the time as well. Development costs when miners are strike driving can be between $40-$60/tonne but when miners are stoping between levels mining costs are down as low as $15-$18/tonne.

The Bigger Picture
The upside to El Roble is impressive. El Roble hosts 6 major known structures, which are very continuous and express thmselves at surface at various points allong the known 4-6km stike length. 4 structures are currently being drilled at a few locations with diamond drilling rigs for the first time ever. The current strike at one of the structures known as Descobridora is 6km by itself and additional potential strike in the tenement areas is covered by sand dunes. Just one structure alone could have between 10-12km of strike assuming mineralization continues under the sand. Indications are that these structures do (because structures have been mapped on the other side of the sand dunes). In addition to these high grade veins, we must assume that they are being driven by something even larger again at depth. El Roble has the technical hallmarks of a very large system.

What is the Option Agreement with the local vendor?

MNE has an option to earn 68% of the project for US$8 million over a 48 month period. Under the agreement, the company may elect to pay an additional US$8 million to the vendor at the completion of a feasibility study, or within two years of exercising of the option to acquire a further 10% of the project. MNE has no further option payments to make on the property until August 2014, when is must pay a further $250,000.
An additional 12% of the project can be acquired at a price calculated at 12% of the 70% value of the NPV of the project calculated at the feasibility stage.
The vendor’s final 10% of the Project will be free carried by Mining Group until the Project has been declared bankable. Upon declaration of bankability the vendor will be required to contribute or dilute as per an industry standard formula.

So far $500,000 has been paid to the vendor and another $250,000 will be payable in August 2014. So in effect there is a $500,000 option fee payable to the vendor every year for 4 years. In that time Mining Group can mine and truck the ore for treatment, and generate revenue even though they don’t have any ownership of the mine as yet. This is over areas that they place a production or rental agreement with. The payments that they are currently making come off the $8 million price at the end of the 4 years. The idea being that the work they will have carried out over that 4 year period will more than pay for the $8 million that they are required to pay to the vendor to earn their 68% of the project.