Feasibility Study Underestimates Costs, is Based on Optimistic Predictions and Questionable Assumptions
FOR IMMEDIATE RELEASE
April 3, 2013
Chris Zimmer, Zimmer@riverswithoutborders.org, 907/586/2166
(JUNEAU) An independent analysis of Chieftain Metals’ recent Feasibility Study for the proposed Tulsequah Chief mine demonstrates the project is far from “robust” as claimed by Chieftain and suffers from a number of questionable assumptions, unreasonably optimistic predictions, and an overall “best case” type analysis. The Feasibility Study also excludes normal capital costs like sales taxes and financing expenses, and ignores key information such as the strong opposition to the project from the Taku River Tlingit First Nation (TRTFN), unacknowledged environmental liabilities, and Chieftain management’s history of bankruptcies.
“When you read beyond Chieftain’s hype and vague promises to ‘optimize’ operations and costs, it is clear the Tulsequah Chief simply isn’t a viable mine. It is strongly opposed by the Taku River Tlingit First Nation and poses major risks to investors, Southeast Alaska’s most productive salmon fishery and the local community,” said Chris Zimmer of Rivers Without Borders. “The Feasibility Study is based on optimistic assumptions about metals prices, the ore deposit, and development schedules. Chieftain admits it has no smelters lined up and that contaminants in the ore will make it difficult to market the copper concentrates. In addition, the mine may require expensive long-term water treatment that Chieftain has not prepared for.”
On January 28, 2013 Chieftain released a Technical Report compiled by JDS Engineering, which summarizes the Feasibility Study recently completed for the Tulsequah Chief. The mine site is on the Tulsequah River, just upstream of its confluence with the Taku River and the Alaska/BC border. Today Rivers Without Borders (RWB) is releasing an assessment of the Tulsequah Chief project. This report, written by mining analyst Joan Kuyek, is based on reviews of publicly available documents, information not included in the JDS Technical Report, and an independent technical and economic analysis commissioned by RWB from James R. Kuipers, P.E., a registered professional mining engineer with over 30 years of experience.
“Chieftain’s Technical Report is based on a ‘best case’ analysis which simply isn’t a prudent way to analyze a complex project like the Tulsequah Chief,” said Zimmer. “The reliance upon ‘probable’ rather than more certain ‘proven’ mineral reserves suggests a lack of confidence in the ore reserves. This is a recipe for another bankruptcy and continued acid mine drainage pollution of the region’s most productive salmon river.”
Examples of significant problems with the mine proposal as announced in the JDS Technical Report include:
- The Technical Report does not disclose the November 18, 2012 Joint Clan Mandate (JCM) from the TRTFN which“opposes the currently proposed Tulsequah Chief Project” and “is directing the TRTFN Leadership to act on this JCM Mandate and take all necessary steps to ensure that the Tulsequah Chief project, as currently proposed, is not developed on Taku River Tlingit Territory.”
- It is not a robust project when the risks such as significantly decreased metals prices, decreases in projected reserves or recoveries, increased costs, and delays in revenue streams are more realistically portrayed.
- Independent sensitivity analyses show the relatively high risk that the Tulsequah Chief has of, at some point in its history, becoming uneconomic, resulting in premature project closure and bankruptcy of the owner.
- The Feasibility Study relies upon relatively optimistic metallurgical grades and recoveries. The reliance on “probable” rather than more certain “proven” mineral reserves indicates less than a high degree of confidence in the economic viability of the ore deposit.
- The estimated development and operating costs appear highly optimistic given the location, dependency on petroleum-based fuel, competition for labor and other factors. An increase in operating costs of as much as 25% over the life of this project would not be unreasonable were a more conservative case to be projected.
- The lack of an identifiable smelting facility and the Technical Report’s statement that the copper concentrates would be rejected by Chinese smelters suggests that marketing of this concentrate might be questionable and at the very least difficult.
- Potential environmental liabilities and reclamation costs are seriously underestimated. If the company’s reclamation measures fail, the long-term cost could be in excess of $100 million. The Technical Report notes that “If this [long-term] mitigation strategy is unsuccessful, there could be the need for the long‐term treatment of AMD [acid mine drainage] at this site.” However, no estimate of the costs of long-term treatment has been provided, although elsewhere Chieftain notes that annual operating costs for the Interim Water Treatment Plant (IWTP) were about $4 million. The company has not included costs in its economic analysis for operating the IWTP before the mine is in production.
- Schedule delays and additional associated costs, such as those caused by First Nation opposition, labour disputes, financing problems, weather conditions, barging challenges and other unexpected site conditions have not been accounted for. The Technical Report notes “The barging component of the logistics plan is critical to the project success,” but does not discuss the history of barging problems and delays experienced by both previous mine owner Redcorp in 2007 and 2008 and Chieftain in 2011.