VALUATION OF THE XOLOBENI HEAVY
MINERAL SANDS PROSPECT,
TRANSKEI REGION,
EASTERN CAPE PROVINCE,
REPUBLIC OF SOUTH AFRICA
Prepared for
MINERALS COMMODITIES LTD
By
Dover Consultants Pty Ltd
ACN 059472007
April 2001
Mineral Commodities Ltd
1
2
Xolobeni HMS Prospect
Valuation Study
GENERAL INFORMATION ...............................................................................................................3
SUMMARY ............................................................................................................................................5
A.
Location and Resources ...............................................................................................................5
B.
Valuation of Methods and Results ...............................................................................................7
1. Methods ...........................................................................................................................................7
3
MINERAL RESOURCE CLASSIFICATION ....................................................................................9
4
AREA DRILLING ...............................................................................................................................11
5
INFORMATION SOURCES ..............................................................................................................14
5.1
Product Value Calculations .......................................................................................................14
5.2 Recovery of The Valuable Heavy Minerals (VHM) ........................................................................16
Percent Recovery .......................................................................................................................................16
6
DESCRIPTION OF THE MINING AND PROCESSING OPERATIONS ....................................17
7
VALUE OF HEAVY MINERAL DEPOSITS – IN SITU METHOD .............................................18
8
VALUE OF MINERAL DEPOSIT – NET PRESENT VALUE METHOD ...................................20
9
CAPITAL COST ESTIMATES .........................................................................................................24
9.1 Dry Mining, Feed Preparation and Gravity Concentration Capital Cost Estimate ...........................24
A.
Description of The Facilities......................................................................................................24
B.
Mining and Ore Sands Transport ...............................................................................................24
C.
Wet Mill Facilities .....................................................................................................................25
9.2 Mining Estimates .............................................................................................................................25
9.3 Feed Preparation Plant and Wet Mill Capital Cost Estimates ..........................................................27
10 OPERATING COST ESTIMATE .....................................................................................................28
10.1 Mining Costs..................................................................................................................................28
10.2 Feed Preparation and Wet Gravity Mill Estimate ..........................................................................28
10.3 Dry Mill Cost Estimate ..................................................................................................................28
10.4 Mine Waste and Stripping .............................................................................................................28
10.5 Environmental Considerations .......................................................................................................28
10.6 Recent Information Developed in December 2000 and January 2001 ...........................................29
REFERENCES ............................................................................................................................................30
Mineral Commodities Ltd
Xolobeni HMS Prospect
Valuation Study
1 GENERAL INFORMATION
Mineral Commodities Ltd, (MCL), has commissioned Dover Consultants Pty Ltd,
(Dover), to prepare a valuation of heavy mineral sand Prospecting Permit 7/2000, (the
Xolobeni Heavy Mineral Sands Prospect), in the Bizana District in the Transkei region of
the Eastern Cape Province of the Republic of South Africa. This document is the fourth
of a series that Dover has carried out over time on this prospect.
Dover has previously conducted studies of Exploration Lease 4/99, (as the property was
preliminarily known), for Transworld Energy and Minerals Resources (SA) (Proprietary)
Limited, (TEM), and Mineral Commodities. The first of these studies was published in
September 1999 and consisted of a status of the tenement, location, geology, exploration
chronology, mineralisation and future exploration plans. The second study provided a
valuation of the Xolobeni Heavy Minerals Prospect, based on the RGC 1996–97 drilling
program and was published in May 2000.
The third, published in February 2001, provided an updated valuation based on the
September 1999 report and May 2000 valuation, but was updated to include the drilling
which was carried out between July and October 2000 and the subsequent analytical work
performed by RBM’s commercial laboratory facility on those drilling samples in January
2001. This valuation also differed from that of May 2000 due to strengthening of heavy
mineral sands markets caused by forced plant closures and improved long term demand
forecasts, and the exchange rate of AUD$ 1.00 to US$0.56 which was used for that study.
Although the Australian dollar was being quoted at rates somewhat lower than the above
noted exchange rate at the time of the February study, the rate used was considered sound
based on long term exchange rate trends. In the meantime the Australian dollar has
plunged to record lows and it is now unclear whether the present rates of less than
US$0.50 signal a new exchange rate paradigm or whether this is only a short term fall
before returning to long term trend rates.
Dover knows of no authoritative agency which is providing reliable exchange rate
forecasts in the face of today’s volatility.
Dover also notes that with the project being located in South Africa, the owners located in
Australia and the product subject to US Dollar variations that the issue of exchange rates
needs to be approached with caution. For instance, capital costs, labour and fuel costs, all
major elements are costed in SA Rand, sales are in US Dollars and profits repatriated to
AUD. We also note that the Rand : AUD exchange rates have both been falling against
the USD.
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For these reasons, Dover has chosen use the exchange rate previously quoted in our
February report which was a rate of AUD$ 1.00 to US$0.56 for this study. However, we
recognise that the recent rate falls have a profound affect on valuations so from time to
time in this study we use this rate for reference and to allow readers to appreciate the
degree of conservatism that the higher rate provides should the lower rate prevail over
time.
The February 2001 study was noted as being based on 1988-1992 reports by Richards
Bay Minerals, (RBM), and the 1996/1997 works by Renison Goldfields Consolidated,
(RGC) and TEM’s 2000 work. The conclusions of those reports were accepted by Dover
based on the reputations of the authors but without recourse to the base data upon which
the conclusions were developed.
As a direct result enquires were made and extensive drill hole assays of THM and VHM
suites were found. This has enabled our independent analysis and review of the RBM
and RGC findings, which slightly alters our views from their previously accepted
findings. The effect of these reviews has been that the resource estimates contained
herein meet Australian JORC standards and the Valmin Code as set down by the
AusIMM.
The major author of this valuation is a fellow of the AusIMM and is a competent person
as defined by the AusIMM code, and the ASX guidelines, and is an Accredited Chartered
Professional in the classifications of “Geology” and “Management” and has extensive
experience in heavy mineral sand exploration, mining, processing, and marketing in
North America, South America, Australia, Southeast Asia, and Africa. He has visited the
area covered by this report while conducting and supervising exploration and
development work for another client.
Neither the authors nor any employee or associate of Dover Consultants have any
financial interest or equity in the project, and payment for this work is not dependant
upon the subsequent sale or development of this project for the client’s financial gain.
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2 SUMMARY
A. Location and Resources
The Xolobeni heavy mineral sand deposits are located on the southeast coast of
the Republic of South Africa in the Transkei region of the Eastern Cape Province,
approximately 200 km south of Durban.
The Xolobeni deposit consists of a series of coastal dune blocks dissected by
rivers and streams into five sub-deposits.
The area of interest is covered by Prospecting Permit 7/2000, which extends along
the coast some 22 km from the Mzamba River on the north, to the Mtentu River
on the southern boundary. The width varies from 11/2 km to 2 km from the high
tide line inland and covers some 3,300 HA. (See Map 1, Xolobeni Prospect
Location Plan, following on Page 6).
Intermittent exploration activities have been undertaken in this area since 1965
with the most recent drilling campaigns completed in October 2000.
As detailed later in this report we conclude that the area contains an Inferred
Resource of 88 million tonnes of sands at a grade of 10.0% heavy mineral,
(THM), content containing some 8.8 million in situ tonnes of heavy mineral
concentrate. This Inferred Resource has been determined using a cut off grade of
4 percent heavy mineral (+2.98 Sg) content. Details are illustrated in summary
table found on page 12 and 13 following.
We note that we have also assessed the property utilizing a cut off grade of 2
percent THM. This results in finding 149 million tonnes of sands containing 10.6
million tonnes of THM. While this resulted in increased quantity of valuable
heavy minerals, (THM), the grade of Valuable Heavy Minerals, (VHM), reduced
which results in higher operating costs per tonne of product sold.
We therefore have not chosen to use this tonnage as a basis of our valuation.
However, it is likely that the optimum cut off grade is between 2 and 4% THM.
In the future, after more in fill drilling has been carried out and mine optimisation
studies carried out we are confident that more than 8.8 million tonnes of THM
will be identified.
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Valuation Study
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B. Valuation of Methods and Results
1. Methods
Dover Consultants considers that there are two valuation methods suitable for
valuing the Xolobeni Heavy Minerals Prospect. The first of these is based on the
in situ value of the minerals in the ground using values recognised by major
international owners and operators of mines and processing plants in the industry.
The second is through calculation of Net Present Value (NPV), derived from
financial modeling using estimated operating and capital costs and financing
modeling inputs.
The client has nominated that Dover’s valuation should be for a mining and
processing operation through a wet mill producing a concentrate suitable for
further processing through a dry mill by others. Our evaluation is based on this
convention.
The in situ method is one employed by two large multinational heavy mineral
sand mining and TiO2 pigment producers and values the economic minerals in the
ground at US$0.45 per tonne of valuable heavy minerals (VHM).
1A. Valuation with US$0.56 Exchange Rate
When the in situ value of US$0.45 per tonne of VHM is converted to AUD$0.81,
an in situ evaluation of AUD$3.9 million results. The NPV method yields a value
of AUD$16.0 million. We believe that these values are suitable for valuing
Xolobeni on an international basis.
We note that the financial model valuation is based on conservative inputs and
methodology such as using 100% equity rather than some gearing through debt
vehicles. We are encouraged that the two methods provide valuations well within
the same order of magnitude.
If an optimised cut off grade were adopted it is certain that the in situ valuation
would rise while the NPV valuation would fall.
It has been pointed out to us that there have been several mineral sands
developments changing hands in Australia, which places a market value that
should be considered. In most cases these developments have changed hands at
values considerably higher than the in situ valuation prescribed above. The values
have been closer to the NPV valuation we have determined herein.
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We recognise several reasons that historical prices paid within Australia are higher than
the prices expected by the international producers.
We are confident that the value of the Xolobeni heavy minerals prospect is bracketed in
the range of AUD$3.9 to $16.0 million. Based on the historical prices paid within
Australia and the likelihood of additional THM being proved and a considerable up-side
if exchange rates remain as currently found, we endorse a mid value of AUD$10 million
as the most likely fair value of the prospect at this stage of the project development and
when the US$0.56 exchange rate is considered and for dealings between two Australian
companies.
1B. Valuation with US$0.50 Exchange Rate
When the in situ value of US$0.45 per tonne of VHM is converted to AUD$0.90, an in
situ evaluation of AUD$4.3 million results. Using the NPV method yields a value of
AUD$34 million.
The mid range of these two values without bias of the in situ value provides mid range
value of AUD$19 million when the US$0.50 exchange rate is considered.
Dover does not endorse such a valuation but provides the information so that readers can
benefit by the analysis and judge the degree of conservatism inherent in our endorsed
valuation.
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3 MINERAL RESOURCE CLASSIFICATION
In developing the in situ resource estimates Dover has taken due consideration of drill
hole spacing and the location of the drill holes relative to topography, drainage streams,
coastline shape and ocean currents. Assay information from over 150 drill holes was
assessed of which 146 holes were judged to contain suitable resource materials. Some
drill data was disregarded due to either heavy mineral grades being too low or slimes
content too high.
Heavy mineral cut off grades of 2 and 4 percent were considered as was a maximum
slimes content of 25 percent. Individual slimes assays of between 25 and 40 percent were
considered and included on a case by case basis depending on their either carrying very
high mineralisation and being able to be combined with lower slimes from adjacent
assays.
Intermediate drill hole data was weight averaged in order to find individual drill hole
mineralisation and isopachs developed linking drill holes with similar grades and
mineralisation depths. The isopachs showed good correlation with terrain, drainage,
coastal and current information and showed a logical pattern for the overlaying of the
mineral sands. This geological assessment lends good weight to the purely statistical
findings from which the resource was determined.
In addition, Dover took cognisance of industry standards for mineral resource
classification, which is reproduced in the table below. This information along with the
geological assessment was used to develop the area surrounding drill holes, which would
be ascribed as being influenced by the drill hole data.
RESOURCE CLASSIFICATION
Measured
Indicated
Inferred
Drill Line Spacing
100-200 m
300-700 m
800-1250 m
Hole Spacing
10-20 m
40-50 m
100-300 m
Mine Planning *
Line Spacing
100-200 m
Hole Spacing
10-20 m
* E I Dupont
* Iluka
33 m line spacing
5-10m hole spacing
10-20 m hole spacing
*Tiwest
10-20 hole spacing
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Terra Search, a Perth, WA based geological group was utilised to develop drill sections
and block plans. This data was then converted to spreadsheet format for determination of
the THM and VHM suites.
Based on this information a resource of 149 million tonnes containing 7.2% THM was
determined when a cut off grade of 2% was used.
However, the Inferred Resource reported herein is determined to be 88 million tonnes
containing 10.0% THM when the cut off grade of 4% is used. Details of this Inferred
Resource are shown as follows:
RESOURCE
AREA
Kwannana
TONNES ORE
SAND
51.73 million
GRADE IN % HM
TONNES HM
10.45
5.40 million
Sikombe
19.74 million
10.16
2.01 million
Mnyameni
15.0 million
8.92
1.33 million
Mpahlane
1.45 million
4.60
.07 million
87.88 million
10.03
8.81 million
Total
Recovered VHM is calculated as follows based on the mineralogy reported by
RGC and RBM and assessed by ourselves.
MINERALS
% OF H.M
IN SITU
TONNES
RECOVERY
%
RECOVERED
TONNES
ILMENITE
45.95
4.05 million
87.9
3.56 million
LEUCOXENE
3.60
.32 million
54.2
.17 million
RUTILE
2.57
.23 million
76.0
.17 million
ZIRCON
2.50
.22 million
73.9
.16 million
VHM
54.61
4.82 million
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4 AREA DRILLING
Details of the areas explored and their relationship to one another and to other land
features is shown in the map found on page 6.
Details of drill hole data used for our resource estimate and the assay data on both a hole
by hole basis and by areas is contained in the spreadsheets contained herein.
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5 INFORMATION SOURCES
5.1
Product Value Calculations
The value of the economic minerals, VHM, recoverable is based on current mineral prices
FOB mine site or port site for bulk shipments under existing contracts. Prices have
firmed up since September 1999 and have shown a marked increase in the price of
titanium minerals; ilmenite, rutile, and leucoxene, used as feed stock for titanium pigment
manufacturing. Spot prices for the economic mineral products are some 10-15% higher
than bulk contract prices but represent less than 20% of the total market volume.
The prices used in this report represent January 2001 prices for bulk shipments FOB mine
site. Price information was obtained from the December 2000 issue of the Mineral Sands
Report, the November 1999 Macquarie Equities Limited resources report “Mineral Sands
– Opportunity Beckons”, the November and December issues of Mineral Price Watch
2000 the Ord Minnett research report of May 1999 on “Global Mineral Sands
Fundamentals and Prospects”, Mineral Sands Price Watch Issues for December 2000 and
January and February 2001 and private discussions with two producers of mineral sands
products in February 2001.
The prices of final dry mill products used throughout this report are as follows, and
reflect current bulk contract prices.
Product
AUD$/t
(w/exchange rate of
US$0.50)
155.00
AUD$/t
(w/exchange of US$0.56)
200.00
180.00
Rutile
785.00
700.00
Zircon
615.00
550.00
Ilmenite and Altered
Ilmenite*
Leucoxene

140.00
In the following sections of this report the ilmenite and altered ilmenite product is
referred to as “ilmenite”.
The value of products used in the table above have increased since our May 2000 study
due to the following events:

The new BHP Beenup heavy mineral mining and processing operations in Western
Australia was closed down in 2000 and the plant has been dismantled. Output from
this operation had been included in earlier supply/demand and price forecasts.
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
Sierra Rutile, the largest single supplier of rutile in the world was scheduled to re
open in 2000 but continued strife and substantial damage to the plant has cast serious
doubt as to the future of the operation.

Strong demand for ilmenite and rutile as feed stock for the chloride and sulfate
pigment industry has continued to grow at 3-4% per annum.

Zircon demand has remained strong for premium grade and new sources of supply
have not kept up with demand.
Since our valuation is based on marketing a wet mill concentrate it is necessary that we
consider a suitable discount from dry mill products to apply to find the concentrate value.
In Dover’s May 2000 study we have used our financial model to determine similar levels
of financial return at the wet and dry mill stages and judged that the dry mill prices should
be discounted by 33% to find reasonable wet mill prices. This discount has been retained.
This results in a weighted average price for wet mill concentrate of $125 per tonne with
the US$0.56 exchange rate, ($139 @ US$0.50), being utilised for this study.
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5.2 Recovery of The Valuable Heavy Minerals (VHM)
Recovery of the VHM used is based on the following data and calculations:

Tonnes of heavy mineralbearing sands using a 4.0%
HM cut off grade (which is
approximately 2% TiO2 in
situ)
88 million

Tonnes of heavy minerals
(+2.9 Sg) at a grade of
10.0% weight percent heavy
minerals in place.
8.8 million

Recovery factors – recovery of the VHM, ie. ilmenite and altered ilmenite,
leucoxene, rutile, and zircon is based on an existing heavy mineral
operation which is currently mining and processing a similar tonnage of
sands with similar percentages of contained heavy minerals and economic
heavy minerals. The recovery factors used for this study are shown in the
following table.
Mining
Percent Recovery
Wet Mill
Dry Mill
Overall
VHM
97
N/A
N/A
N/A
Ilmenite
97
92.0
98.50
87.90
Leucoxene
97
82.0
68.10
54.17
Rutile
97
87.0
90.00
75.95
Zircon
97
96.5
78.95
73.90
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6
Xolobeni HMS Prospect
Valuation Study
DESCRIPTION OF THE MINING AND PROCESSING OPERATIONS
All existing heavy mineral operations are fully integrated from mining through to the
production of final economic mineral products. In several cases the degree of
integration extends beyond the mineral products to the manufacture of titanium
pigment, and even to paint manufacturing which is the largest consumer of TiO2
pigment.
In this study, the client has nominated the following conditions:

Transworld Energy & Minerals (TEM) is the owner of the mineral lease.

A mining contractor will be responsible for all of the mining and rehabilitation
activities and will deliver the ore bearing sands to the owner’s feed preparation
and wet mill plant.

The mining contractor will be responsible for supplying all of the mobile
equipment for dry mining, the screening and slurrying facility in the pit, and the
pumps and hoses or pipeline to deliver the ore sands to the feed preparation and
wet gravity concentration plant (wet mill). This requires the mining contractor to
provide the capital for all of the mining activities and facilities through to delivery
of the ore sands to the wet mill.

The mining contractor will recover all of these direct costs plus his capital costs in
the toll price per tonne, which he will charge the mine owner.

The mining contractor will be responsible for all rehabilitation and will use the
tailings from the wet mill for backfill of the mined-out areas and final grading and
rehabilitation.

The mine owner will own and operate the feed preparation plant and wet gravity
separation mill and be responsible for all capital and operating costs for those
facilities.

Tailings from the wet mill will be pumped back to stockpiles in the mined-out
areas for grading and rehabilitation by the mining contractor.

The wet mill tailing line, pumps, and sump will be owned and operated by the
mining contractor.

The mine owner will sell the wet mill concentrate to others who will then process
this concentrate in a dry mill to produce the VHM products: ilmenite, leucoxene,
rutile and zircon. The wet mill concentrate will be sold FOB the wet mill.
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7 VALUE OF HEAVY MINERAL DEPOSITS – IN SITU METHOD
One of the methods used by the two large multinational companies, Kerr McGee and
E.I. Dupont, to value an undeveloped heavy mineral prospect or deposit is to place a
value per tonne of VHM in the ground.
This method requires sufficient drilling, analytical, mineralogical, and basic
metallurgical data to define an inferred resource.
The data on Xolobeni heavy mineral deposits on the Transkei coast of the Republic of
South Africa is sufficient to meet the basic requirements for this type of estimate.
Those portions of the deposit which have been drilled on a reasonable exploration
grid indicates that the deposits contain 88 million tonnes of heavy mineral bearing
sands at a grade of 10.0% heavy mineral content. This yields some 8.81 million
tonnes of heavy mineral of which the VHM content is 4.8 million tonnes, as shown
below:
%
Tonnes
Ilmenite
45.95
4.05 million
Leucoxene
3.60
.32 million
Rutile
2.57
.23 million
Zircon
2.50
.22 million
4.8 million
In situ tones VHM
In situ VHM heavy minerals are recognised by Kerr McGee and Dupont as having a
value of US$0.45 per tonne. This resolves to AU$0.81 and AU$0.90 per tonne of
VHM when exchange rates of US$0.56 and US$0.50 to AU$1.00 are used.
On the basis of these two values, the Xolobeni prospect is valued at some AU$3.9
million when the USD 0.56 exchange rate is used. This is considered the
approximate value of what a knowledgeable integrated heavy mineral mining and
titanium pigment manufacturing company would be willing to pay for an undeveloped
prospect in a remote location lacking infrastructure and where the political and
economical risks are considered acceptable.
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Notwithstanding the value used by the two international companies noted above, Dover
acknowledges that higher values have been in recent vogue in Australia. Specifically,
Sons of Gwalia have recently acquired 10% equity in BeMax Resources NL on the value
of a Murray Basin mineral project. They effectively valued the project at AUD$1.80 per
tonne of in situ VHM.
We also note other recent experiences for the valuing of Australian mineral sands
opportunities that report prices in the order of AUD$2.00 and more per VHM tonne.
Dover ascribes these values as containing a premium for Australian share market
expectations that are greater than international historical experience would justify. There
are two major reasons for this.
In some cases the buyer has been an established company wishing to purchase additional
resources to extend the life of plants with dwindling raw materials. These circumstances
considerably raise the value of individual resources. Our experience also shows a
considerable tendency for local markets to sometimes bid share prices upwards on the
rumour and expectation and downwards on the reality and fact.
However, we note that our valuation should recognise to an extent the exigencies of the
present share market in which Mineral Commodities is listed. On this basis we recognise
that our in situ rate is presently conservative in the Australian context.
We judge that the present local context justifies a market premium of 50 percent or more
on the more conservative international experience when the valuation is for purposes of
dealings between two Australian companies. We revert to our more conservative
valuation when the purposes are for valuing a property in the international context.
This enables an in situ valuation of $6 million to be prescribed at this time with the
recognition that this valuation is subject to the vagaries of the local share market.
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8 VALUE OF MINERAL DEPOSIT – NET PRESENT VALUE METHOD
Dover consultants has developed its Dover Interactive Operating and Financial
Analysis Model, (DIOFAM), to use for analysing projects such as the Xolobeni
Prospect which have a close integration of mine and processing operations and
financial results. The model has been developed so that mining and operating data
can be altered in concert with economic factors such as discount rates, gearing ratios,
interest rates and loan terms so as to interactively yield major financial data.
One of DIOFAM’s outputs is a calculation of net present value (NPV), which is the
most widely used means of valuing assets by financial institutions.
Dover Consultants has used DIOFAM to determine the Net Present Value for the
Xolobeni Prospect using data described in other sections of this report and bases its
NPV derived value of the prospect there from.
We enclose a copy of the model, at the end of this section, with the data set preferred
by Dover Consultants for this valuation analysis.
We believe that the data used represents a conservative approach of the value of the
Xolobeni Prospect.
The three factors in the model, which most strongly affect the value of the prospect,
are gearing levels, NPV discount rate and the value of the wet mill concentrate to be
sold. Other factors such as capital costs, operating costs and interest have far less
affect on the NPV derived valuation within the levels of accuracy, which we believe
apply to our estimates for each.
We have chosen to base our valuation on basis of 100% equity (ie.; no debt, zero
gearing). We choose this method as it yields a NPV of $16.0 million and IRR of
34%. Using a conservative debt/equity ratio of 60/40 in place of 100% equity raises
the NPV to $21.9 million and the IRR to 58%.
Dover has chosen to determine NPV based on a discount rate of 20%. We believe
this to be realistically conservative for Xolobeni based on its current state of
development, its location and market potential.
Dover determines the discount rate based on its knowledge of risk factors such as:

Geology - The geology of Xolobeni is well documented with little downside
risk and some potential for upgrading as further knowledge is added.

Process - The processing route chosen is well known and usual to the
industry and has very little associated risk.
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
Location - South Africa has a well-developed mining legal system, which is
well regarded. There is somewhat greater sovereign risk than low risk
countries such as the US, Canada and Australia but lower sovereign risk than
many.

Social - As noted above, there is higher social risk than the most developed
countries but lower than many.

Costs Both capital and operating costs have been estimated on the basis
of well known real project information with associated risks normal for
projects at this state of development.
On the basis of the above we believe that the risk margin for this prospect warrants a
discount rate of 20%. To aid others with the effect of this factor on the NPV we
include a graph shown discount rate versus NPV on the next page.
The project as described and valued is somewhat unusual in that it is based on
marketing the wet mill concentrate. Most such projects carry the wet mill concentrate
through dry mill operations before reaching market. The proximity of Xolobeni to
existing dry mill operations renders this option possible.
However, virtually all product pricing information is based on dry mill product.
Dover has chosen to determine a likely price for wet mill product on the basis of
modeling Xolobeni in the first instance with the capital and operating costs of a dry
mill included. Using information developed for this report including well-recognised
dry mill product prices the model determines that the IRR of such a plant would be
23%.
Dover considers it reasonable to believe that wet mill concentrate from Xolobeni
should yield prices commensurate with maintaining an IRR of 23%. This provides a
purchaser of wet mill concentrate for processing through their own dry mill with the
same financial return as the owner of the wet mill who sell the wet mill concentrate.
This is also consistent with the alternative of installing a dry mill at Xolobeni if such
prices did not eventuate.
An equivalent IRR for the Xolobeni’s wet mill concentrate is derived when the
concentrate price is 67% of established and known dry mill market prices. Dover has
also judged the margins for a potential dry mill operator on such a pricing regime and
believes them realistic and likely to be suitable.
On the basis of the above, DIOFAM evolves an NPV of AUD$16.0 million and an
IRR of 27% for Xolobeni
Dover Consultants Pty Ltd
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Xolobeni HMS Prospect
Valuation Study
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Xolobeni HMS Prospect
Valuation Study
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9 CAPITAL COST ESTIMATES
9.1 Dry Mining, Feed Preparation and Gravity Concentration Capital Cost
Estimate
A. Description of The Facilities
This option includes dry mining of the ore sands by a contract miner who would
deliver the sands via scraper, self-loading pan, and/or truck to the portable preliminary
screening plant where the oversize would be screened out and the sands slurried and
pumped via a pipeline to the feed preparation plant and wet gravity separation mill.
B. Mining and Ore Sands Transport
The portable screen plant at the pit would include a grizzly screen to remove rocks,
heavily indurated lumps and roots, a large sump for slurrying the ore, and a pumping
station and pipeline to pump the ore sand to the feed preparation plant at the gravity
separation plant (wet mill) site.
Slimes overflow from the ore sands sumps will be pumped to a mined-out area of the
deposit where the slimes will be impounded and later recombined with tailings sands
during the land reclamation stage.
Water for the preliminary screen plant and slurry preparation would be pumped from
one of the adjacent rivers or salt water could be pumped from the ocean. High
voltage power would be supplied via a portable mine cable land line form a portable
sub-station owned or leased by the mining contractor.
The slurried sands would be pumped in a 75 cm (30”) line from the portable screen
plant at the mine to the feed preparation plant and wet gravity separation mill site.
The maximum pumping distance will be 10 km, which will require one booster
station.
The feed preparation plant and wet gravity mill will be located at the mid point of the
deposits, approximately 10 km from either end of the lease, and just off the deposit
between the Kwanyana and Mnyameni rivers. This central location will eliminate the
need to move the mill and the associated cost and down time required for a move.
The mine operator will be required to deliver 1250 tph of ore bearing sands to the wet
mill for 8000 hours per annum or for a two-shift operation of 1717 tph for 5850 hours
per annum.
The mining contractor will be responsible for all of the mining activities, ore
screening and pumping plant operations at the pit, including slimes disposal, supply
of water and electrical power, and the slurry line form the pit to the wet mill and the
Dover Consultants Pty Ltd
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Valuation Study
pipeline carrying tailing sands from the wet mill and subsequent rehabilitation
activities.
The capital and operating costs of these facilities will be the responsibility of the
mining contractor and will be covered in the toll charge per tonne of ore sands
delivered to the wet mill.
C. Wet Mill Facilities
Wet mill operations include screening the incoming slurried ore sands via trommel
screens to remove coarse sand, gravel, and fine roots and the undersize will be
discharged to the primary feed sump for the wet gravity separation mill.
The wet gravity mill consists of two parallel circuits, each of four stages of wet
gravity spiral concentration and a final cleaner stage which takes the recleaned
concentrate from both circuits to produce a final concentrate of heavy minerals which
will go to a hydrocyclone with the solids discharging to the concentrate stockpile for
further dewatering. A process flow diagram for a concentrate classification circuit
used for our capital cost estimates is enclosed overleaf. (Diagram 1).
Portable buildings will be used at the wet mill site for office, laboratory, change
house, first aid, lunchroom, and training.
9.2 Mining Estimates
The estimated capital costs for the contract miner are based on information provided
by an experienced industry contract operator who have extensive current experience
in contract mining heavy mineral sands in Australia.
Mining fleet consisting of scrapers,
self loading pans, dozer, front end
loader, haul trucks, road grader,
and water truck
$8.0 million
Screen plant, sump, pumps, one
transport pipeline, tailings line and
pump, booster station, water supply
and sub-station.
$7.5 million
Sub total
Dover Consultants Pty Ltd
$15.5 million
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Valuation Study
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9.3 Feed Preparation Plant and Wet Mill Capital Cost Estimates
The capital cost estimate for the feed preparation plant and wet gravity separation
plant is based on an existing plant recently commissioned.
AUD$(000)
Site preparation work
Owners project management costs
Feed preparation plant
Freight and shipping
Civil, structural, equipment
Attritioning and desliming
Rougher spiral circuits A&B
Mids spiral circuit A&B
Cleaner spiral circuits A&B
Tailings – pipeline
Recleaner spiral circuits A&B
Final concentrate circuit
Final product storage and handling
Process and potable water supply
Electrical equipment, MCC, distribution
Electric power supply and sub-station
Instrumentation
Portable buildings, office lab etc.
Staff housing and food services
Access road
Workshop and warehouse
Mobile equipment, crane and loader
Communication
Construction camp and offices
Spares and stores
90
160
3,160
1,100
3,416
280
1,530
908
319
1,250
230
279
1,111
1,131
1,829
992
246
546
817
1,029
271
465
142
1,800
300
23,399
Contingency @ 10%
Pre-development costs
EPCM cost @ 10%
Grand Total
2,215
420
2,500
28,534
Dover Consultants Pty Ltd
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Xolobeni HMS Prospect
Valuation Study
10 OPERATING COST ESTIMATE
10.1 Mining Costs
Based on data supplied by an experienced contractor, who currently conducts large scale
heavy mineral sand mining operations in Australia, the operating cost estimate for
mining, screening, slurrying, pumping ore sands, and handling wet mill tailings is
$2.20/tonne or $3.52/BCM.
10.2 Feed Preparation and Wet Gravity Mill Estimate
These costs are based on actual costs of a known operation over the past five years less
the above mining costs.
The costs have varied from a low of $30.60/tonne to a high of $46.20/tonne. We have
chosen to use a cost of $40.60 per tonne of VHM for purposes of this study.
10.3 Dry Mill Cost Estimate
Dry mill costs to produce a tonne of VHM product from a similar known operation have
varied from a low of AUD$19.90 to a high of AUD$26.25 for the same 5 plus year
period. The cost per tonne of final product for the period 1995 through the first quarter of
2000 has averaged $23.19 per tonne. While it is recognised that each VHM product, ie.
ilmenite, leucoxene, rutile and zircon, differ in process, the costs are not isolated by
process stages and the cost per tonne of each product is the same.
We have used $23.19 as the dry mill cost in our calculations.
10.4 Mine Waste and Stripping
While reviewing the drill hole data, Dover has taken care to minimise where possible the
need to remove and haul to waste mine interburden and stripped soils. Accordingly there
is a very low overall ratio of mine waste to resource. The mining costs used in our NPV
calculation reflect this situation.
10.5 Environmental Considerations
As part of the process of prospect development carried out by TEM , a preliminary
environmental assessment was commissioned. A formal report was presented to TEM in
June 2000 by GA Botha of the Council for Geoscience of Pietermaritzburg, SA.
The Botha report has been studied by Dover Consultants. In our opinion, there are no
unusual matters or matters for undue concern raised in the report.
Dover Consultants Pty Ltd
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Dover has taken care that the capital and operating costs used in our NPV determination
are adequate to address the usual issues of mineral sands development and operation
including the most important issue which is mine reclamation and soil re-planting.
10.6 Recent Information Developed in December 2000 and January 2001
Data from one existing operation and one new operation now commissioning indicates
that the above cost estimates are still valid and accurate to plus or minus 15%.
Dover Consultants Pty Ltd
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Valuation Study
REFERENCES

J.M.T. Barnes, Chief Geologist – 25 January 2001
Richards Bay Minerals
Second Progress Report on the Xolobeni Heavy Mineral Sand Project
Eastern Cape, Republic of South Africa

Dover Consultants Pty Ltd, May 2000
Valuation of the Xolobeni Heavy Mineral Sands Deposits in the
TRANSKEI
Region of the Eastern Cape, Province of the Republic of South Africa

Dover Consultants Pty Ltd September 1999
Report of the Xolobeni Heavy Mineral Sands Deposits in the TRANSKEI
Region of the Eastern Cape, Province of the Republic of South Africa

Working Report October 1997 RGC – Transworld JV.
Xolobeni –South Africa Project
Permit No. 6/99
Vol 1 of 1
By R Hunt October 1997 for RGC
- Technical Note RGC Subject Xolobeni Mineralogy
By P. McGoldrick November 1997 for RGC

Preliminary Report on the Xolobeni Heavy Mineral Sands Project
Eastern Cape, Province of the Republic of South Africa
By Ron Johnson – July 1996 for Simto
- Telefax for R Johnson - J. Caruso 14/06/96

Final Report on the Xolobeni Heavy Mineral Deposit District of Bizana Transkei

Plans

-
Location Maps 1 – 3
Xolobeni Project Drill Programmes 1:25,000
-
Dune Rehabilitation Brochure
General Information Brochure
Richards Bay Mineral in Brief
The Heavy Mineral Deposits North of Richards Bay
RBM Info
Dover Consultants Pty Ltd
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
Xolobeni HMS Prospect
Valuation Study
Xolobeni HMS Project – Oct 2000

Simto Australia Pre-Feasibility Study
Proposal for the Xolobeni Heavy Minerals separation Plant X9069

Simto Australia Xolobeni HM Project Budget Estimate on Pilot Processing Work
for 50 ton Bulk Sample X9069/1
By Bateman for Simto April 1999.

Correspondence
-
12 April
30 March 1999

Ord Minnett Securities Limited

Video by RGC
Dover Consultants Pty Ltd
Department of Minerals and Energy,
Republic South of Africa
Department of Justice Republic of South
Africa Advising Tribal Resolution for
Ongoing Prospecting and Mining.
Research Department – Other Metals
Sector- Titanium Minerals May 1999
September 1996 Excursion
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