robust scoping study supports open pit mine

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May 16, 2008 ASX & TSX: WSA
News Release
ROBUST SCOPING STUDY SUPPORTS OPEN PIT MINE AT SPOTTED QUOLL
The Board of Western Areas is pleased to announce outstanding results from a scoping study
for an open pit mine based on the current mineral resource at Spotted Quoll. The results of the
scoping study have been estimated for an optimised pit which would extend to approximately
160m depth. Assuming industry standard mining costs, conservative ore dilution factors and
metallurgical recoveries based on test work to date, the conceptual open pit at Spotted Quoll
has the potential to generate the following net cash flow over a four year mine life:
Assumed nickel price Potential net cash flow
US$8/lb nickel A$220M
US$10/lb nickel A$300M
US$12/lb nickel A$380M
Notes:
• The estimated C1 cash costs is less than US$1.50/lb
• The estimated average diluted mine grade for the life of mine is 5.1% nickel
• The potential cash flow does not include any by product credits (copper, cobalt)
• Assumed smelter/refinery charges are based on Western Areas current offtake terms
• The study includes A$25M for pre strip and A$5M for other infrastructure capital
• No royalty payments or discount rate have been applied to the cash flow estimates
Importantly, the scoping study indicates an annualised production rate of approximately
8,000 tpa nickel, compared with the previously announced target of 5,000 tpa nickel.
Western Areas is taking all steps to fast track Spotted Quoll into production in 2009. Minimal
additional capital expenditure is required to develop the mine with ore expected to be
treated at the Cosmic Boy concentrator due to be commissioned in the March quarter 2009.
The optimised pit shell used in the scoping study excludes several significant recent drill hole
intersections. For example, WBD 064 intersected 18.3m @ 10.4% nickel approximately
50m below the pit shell. Three drill rigs are currently on site drilling between 200m and
400m depth and an updated mineral resource is expected to be announced within the next three
months. The first drill hole to test 200m below the mineral resource (WDB 68) intersected
1.5m of stringer/disseminated sulphides confirming excellent continuity of the mineralisation.
Discussion
As a result of the very robust returns indicated by the initial scoping study, the preferred
development plan at Spotted Quoll is likely to comprise two stages:
1. High grade, low cost open pit mine which will extend to approximately 160m depth
over a four year period. The pit is expected to provide decline access to a:
2. High grade underground mine with an as yet unknown depth or mine life.
Underground mining is expected to use standard underground mining methods.
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The underground mine is expected to be developed concurrently with the completion of the
open pit to enable production to move seamlessly into underground ore.
Managing Director, Mr Julian Hanna, said “Spotted Quoll was discovered exactly seven
months ago on 16 October 2007. In that short time, Western Areas has announced an initial
bonanza grade mineral resource containing 34,500t nickel and has completed a scoping study
which demonstrates potential cash flow of around A$300 million from an open pit mine alone.
This is a credit to the Newexco exploration team and our in house mine development team.”
Mr Hanna added, “Spotted Quoll provides an excellent opportunity to generate major cash
flow from a low cost open pit mine and highlights the speed at which that these shallow
deposits can be advanced towards production. We also think that potential remains for further
discoveries of this type and have stepped up our exploration program to find another one.”
Metallurgical test work of the primary nickel sulphide at Spotted Quoll is already well
advanced and indicates that a high grade 16% nickel concentrate can be produced and that
locally elevated arsenic values should be relatively easily suppressed to acceptable levels.
Permitting for a range of surface activities at Spotted Quoll is already underway and a declared
rare flora previously identified in the area is located well outside the scoping study pit shell.
Figure 1: Interpreted Long Section (plane of vein) of Spotted Quoll showing approximate outline of
optimised pit shell referred to in release. (Note: drill hole intersections are down hole widths)
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Scoping Study Results:
The final pit used in the scoping study was selected using a combination of maximised pit
value and minimised waste stripping. The following table is based on the preferred optimised
US$8 pit shell assuming a range of nickel prices.
Assumed
Ni Price
Mineral
Resource
Category in Pit
Tonnes Mined
Grade Ni
Waste:
Ore
Approx.
Pit Depth
Net cashflow
estimate
US$8/lb Indicated &
Inferred
515,000 5.1 % 26:1 160m A$ 220M
US10/lb Indicated &
Inferred
515,000 5.1 % 26:1 160m A$ 300M
US$12/lb Indicated &
Inferred
515,000 5.1 % 26:1 160m A$ 380M
Note: The implied cash value does not include any by product credits.
Pit Optimisation Assumptions:
A range of pit optimisations were generated using a multi-element process with the Lerch
Grossman algorithm. Optimised sets of nested pits were generated for each of the commodity
price scenarios.
This work was carried using the following assumptions:
Costs:
• Milling costs based on current forecast rates for the Cosmic Boy Concentrator.
• Concentrate transport costs inline with current off-take rates
• Mining costs based on estimates provided by a local open pit mining contractor
• Ore haulage costs based on current transport costs at Forrestania
• Arsenic penalties applied are based on Western Areas offtake agreement
Revenue:
• Nickel price: US$ 8/lb, US$ 10/lb and US$12/lb
• Copper price: US$ 1.50lb
• Cobalt price: US$ 20/lb
• Exchange rate: 0.90 Flat
Metallurgy:
Based on recent petrology and metallurgical test work the following assumptions were applied:
• No revenue assumed from the high grade, near surface oxide material
• No revenue assumed from mineralisation where sulphur to nickel ratio less than 0.5
• Supergene ore recovery fixed at 50%
• Transitional ore recovery fixed at 82%
• Primary ore recovery fixed at 86%
• All recoveries based on production of a 16% nickel grade concentrate.
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Mining Factors:
• 95% recovery of the in-pit resource
• 20% dilution at zero grade
• Drill & blast of the complete pre-strip
• Pit slope angles as follows:
Surface to 30m = 40 degrees
30m to 50m = 42 degrees
50m to pit bottom (footwall) = 54 degrees
50m to pit bottom (hangingwall) = 45 degrees
• Hangingwall slope allocated a 4 degree reduction for placement of the pit ramp.
On 18 April 2008, Western Areas announced the first mineral resource at Spotted Quoll which
comprises a total of 545,600t at an average grade of 6.3% nickel for 34,500t contained nickel
to 200m depth. The majority (87%) is in the high confidence Indicated Mineral Resource
category. The following table summarises the current Mineral Resource:
Mineral Resource Statement 17 April 2008
Spotted Quoll Deposit above lower cut-off of 2% Ni
Measured Indicated Inferred
Tonnes Ni (%) Ni (t) Tonnes Ni (%) Ni (t) Tonnes Ni
(%) Ni (t)
TOTAL - - - 473,600 6.4 30,140 72,000 6.1 4,370
Mineral Resource Parameters: The Mineral Resource estimate was completed by Mr John Haywood who is a
full-time employee of Western Areas NL. The Mineral Resource estimate at Spotted Quoll and the data and
parameters used in estimating the Mineral Resource were then reviewed by a group of senior geologists employed
by independent geological consultants Newexco.
Massive and matrix sulphide mineralisation was modelled as 3D solids, and a block model was created using
“Datamine Studio” software, filling the solids with cells and sub-cells; with Ni estimated by Ordinary Kriging. The
mineralisation at Spotted Quoll exhibits good continuity of width and grade.
Item Details Comments
Cells Size 5m (X) by 10m (Y) by 5m (Z) Sub-celled to match solids
Interpolation Method Ordinary Kriging Validated by ID2 estimate
Search Radii Variable by domain Nominal 50m by 50m by 7m
Nominal Drill hole spacing 40m by 20m to 40m by 40m
Surface diamond drillhole collar surveys used differential GPS; downhole surveys used a gyroscopic instrument; a
comprehensive density database was utilised; there is high assay confidence with systematic QA/QC procedures; a
validated acQuire database. An alternate inverse distance squared estimate was made to validate the ordinary kriged
resource. A validation of drillholes against block model grades was made.
-ENDSTHIS
NEWS RELEASE IS NOT FOR DISTRIBUTION TO U.S. NEWSWIRE SERVICES OR FOR
DISSEMINATION IN THE U.S.
For further details, please contact:
Julian Hanna Craig Oliver
Managing Director – Western Areas NL Finance Director – Western Areas NL
Telephone +61 8 9486 7855 Telephone +61 8 9486 7855
Email: [email protected] Email: [email protected]
Ann Nahajski
Investor Relations – Porter Novelli
Telephone +61 8 9386 1233
Email: [email protected] Or visit: www.westernareas.com.au
QA-QC STATEMENT:
Mr Adrian Black from geological consultants Newexco Services Pty Ltd (“Newexco”) is responsible for the verification and quality
assurance of the Company’s exploration data and analytical results from the Forrestania Nickel Project. Surface diamond drill
hole collar surveys used differential GPS, down hole surveys employed a north seeking gyroscopic instrument; comprehensive
density database; high assay confidence with systematic QA/QC procedures; and validated database. Samples of quarter core
from the drill holes described in this release are prepared and analysed by ALS Chemex Ltd laboratory in Perth for nickel, copper,
cobalt and other elements. Core samples are crushed and pulverised to 90% passing 75 microns then analysed for nickel by ore
grade determination using the ALS OG–62 method. Assays standards are routinely inserted in the sample stream by Newexco
for quality control.
The information within this report as it relates to the scoping study, including the pit optimisation studies referred to in this release
was prepared by Mr Tim Peters. The information as it relates to exploration results is based on information compiled by Mr Julian
Hanna and the information as it relates to mineral resources was prepared by Mr John Haywood. Mr Peters is a mining
engineering consultant from Piran Mining Pty Ltd employed by Western Areas and Mr Hanna and Mr Haywood are full time
employees of Western Areas.
Mr Hanna, Mr Peters and Mr Haywood are members of AusIMM and have sufficient experience which is relevant to the style of
mineralisation and type of deposit under consideration and to the activity which they are undertaking to qualify as Competent
Persons as defined in the 2004 Edition of the ‘Australasian Code for Reporting of Exploration Results, Mineral Resources and
Ore Reserves.’ Mr Hanna, Mr Peters and Mr Haywood consent to the inclusion in the report of the matters based on the
information in the form and context in which it appears.
FORWARD LOOKING STATEMENT:
This release contains certain forward-looking statements. Examples of forward looking statements used in this release are:
‘scoping study indicates an annualised production rate of approximately 8,000 tpa nickel’, and ‘underground mine is expected to
be developed concurrently with the completion of the open pit’, and ‘a scoping study which demonstrates potential cash flow of
around A$300 million from an open pit mine alone’ and ‘excellent potential remains for further discoveries of this type’. Forwardlooking
statements are subject to a variety of risks and uncertainties beyond the Company's ability to control or predict which
could cause actual events or results to differ materially from those anticipated in such forward-looking statements.
This announcement does not include reference to all available information on the Company or the Forrestania Nickel Project or
the Spotted Quoll deposit and should not be used in isolation as a basis to invest in Western Areas. Any potential investors
should refer to Western Area’s other public releases and statutory reports and consult their professional advisers before
considering investing in the Company.
For Purposes of Clause 3.4 (e) in Canadian instrument 43-101, the Company warrants that Mineral Resources which are not
Mineral Reserves do not have demonstrated economic viability.