CALGARY, Feb. 25 /CNW/ - Birch Mountain Resources Ltd. (BMD:TSX Venture Exchange and BHMNF:OTC BB) ("Birch Mountain") reports the completion of an independent prefeasibility report by AMEC Americas Limited ("AMEC") on our wholly owned Hammerstone project ("Hammerstone") in the Athabasca oil sands region, northeast Alberta. Hammerstone is an industrial minerals project targeting limestone for the production of aggregate, quicklime and other industrial products needed to grow Alberta's oil sands industry and regional infrastructure.
Prefeasibility Report Highlights
--------------------------------
- Hammerstone limestone reserves total 1.19 billion tonnes comprising
571 million tonnes ("Mt") of proven limestone reserves and 620 Mt of
probable limestone reserves
- The ultimate quarry life could be up to 70 years, with additional
resources remaining in place after that time
- The initial capital estimate for aggregate and quicklime production
totals C$130 million and future increases in quicklime plant capacity
will require C$70 million in 2011 and C$91 million in 2021
- Over the life of the quarry, unit operating costs for quarrying,
aggregate production, site operations and administration average
C$3.58 per tonne and unit operating costs for quicklime average
C$47.50 per tonne
- The combined pre-tax net present value ("NPV") of the aggregate and
quicklime components of Hammerstone is C$698 million at a 7.5%
discount rate, with an internal rate of return ("IRR") of 30%, in
constant Q4 2004 Canadian dollars and unescalated prices and costs
BACKGROUND
Hammerstone is located approximately 60 kilometres north of Fort McMurray in the heart of current and planned oil sands mining and in-situ recovery operations. The oil sands industry is a long-term market with sustained upside growth potential as a secure source of oil for North American markets. Hammerstone will supply base aggregates for construction purposes, as well as high-quality limestone aggregate for use in manufacturing concrete and calcinable limestone for production of quicklime. Quicklime is used to treat fresh and recycled waters in oil sands processing and to purify air and water emissions. Hammerstone enjoys a number of competitive advantages. Through exploration permits and mineral leases, Birch Mountain controls most of the surface accessible limestone in the Fort McMurray region. Competing local aggregate supplies are in decline and the nearest competing source of quicklime is approximately 900 kilometres (560 miles) distant.
PREFEASIBILITY REPORT
The scope of the Hammerstone project considered in the prefeasibility report includes the original Muskeg Valley Quarry ("MVQ") and its southern expansion (see news release of November 6, 2003), an aggregate plant, and a quicklime plant. The prefeasibility report builds on the initial resource estimate done under a scoping study undertaken by AMEC and released as a National Instrument 43-101 ("NI 43-101") technical report in February 2004 (see news release of February 2, 2004). It also includes: results from Birch Mountain's Q1 2004 winter drill program, additional surface sampling and mapping carried out in 2004 including a 300 tonne bulk sample, prior work done by AMEC as part of the Muskeg Valley Quarry Environmental Impact Assessment ("MVQ EIA"), a long-term market demand survey by the Canadian Energy Research Institute ("CERI"; see news release of August 10, 2004), new aggregate and quicklime test results, and new quarry planning, preliminary engineering design, costing and financial analysis by AMEC.
The prefeasibility report covers site infrastructure and the three main components of Hammerstone: the quarry, the aggregate plant, and the quicklime plant. The quarry plan and the aggregate and quicklime plant preliminary engineering designs were done by AMEC based upon yearly forecasts of sales volumes derived by Birch Mountain from CERI's independent, long-term assessment of the demand for aggregate and quicklime in the Fort McMurray region. CERI defined low, base and high demand scenarios; the prefeasibility report considers only the CERI base case demand scenario. Birch Mountain provided estimates of future market share in deriving sales tonnages from CERI's base case aggregate and quicklime demand scenarios.
Geology
-------
Limestone of the Devonian age Moberly Member of the Waterways Formation underlies the majority of the Hammerstone project area and includes high- calcium limestone, nodular to massive limestone and calcareous shale. The Moberly Member is up to approximately 45 m thick and has been subdivided into four units (Table 1).
Table 1. Moberly Member Limestone Units, Base to Top
-------------------------------------------------------------------------
Unit Name Rock type
-------------------------------------------------------------------------
1 Unnamed Nodular limestone
2 Middle Quarry Unit ("MQU") High calcium limestone
3 Unnamed Nodular limestone & calcareous shale
4 Upper Quarry Unit ("UQU") Nodular and massive limestone
-------------------------------------------------------------------------
At Hammerstone, strata are generally flat lying with a slight dip to the
west-southwest and exhibit only minor structural disturbances resulting from
basement faulting, salt dissolution, karsting and erosion. Geological
modelling of the Hammerstone area was done by Birch Mountain using Surpac
Minex Group Quarry software. Guided be the CIM resource definitions, AMEC and
Birch Mountain developed a resource definition protocol that takes into
account the geological continuity of rock units at Hammerstone.
Quarrying and Aggregate Plant
-----------------------------
The Hammerstone quarry pit designed by AMEC is constrained to the north
and east by increasing thicknesses of overlying oil sands and in the northeast
by the "Quarry of the Ancestors", an archaeological site discovered during
field studies for the MVQ EIA. The western boundary of the Hammerstone project
area is defined by a 200 m setback from the Muskeg River. Hammerstone is open
to the south and there is an opportunity in the future to expand the quarry
into this area.
The prefeasibility quarry plan was designed to supply the various types
of limestone products required by the 66-year sales model for the period
2005-2070. Our strategy for aggregate production will be to take advantage
of economies of scale by producing several products from the four distinct
limestone units in the deposit (Table 1). Planned aggregate production rates,
including calcinable limestone, grow from less than 1 Mt per year ("Mt/yr") in
2005 to more than 10 Mt/yr by 2016. From 2031-2050 planned production rates
exceed 15 Mt/yr and decline thereafter to 13 Mt/yr from 2051-2060 and 10 Mt/yr
from 2061-2070. The final phase of quarry development leaves significant
resources in place to permit continuing quarry activities beyond 2070.
Quicklime Plant
---------------
Quicklime production is planned to begin in 2008, ramping up to
225,000 t/yr by 2012. To meet the projected demand, a 225,000 t/yr lime kiln
will be commissioned in early 2008 using limestone from the Middle Quarry
Unit, followed by planned installation of a second kiln of identical size
in 2012. A third lime kiln with planned 350,000 t/yr capacity will be
commissioned in 2022. The kilns will be fired with a mixture of coke and
natural gas. Kiln off-gases will be cooled and passed through a lime scrubber
to remove sulphur, a regenerative thermal oxidizer to remove residual
hydrocarbons and a bag-house to remove fly-ash and fine dust particles.
Maximum quicklime production rates of approximately 775,000 t/yr are forecast
over the period 2041-2050.
Limestone Reserves
------------------
Limestone reserves defined in the Hammerstone prefeasibility report
include both proven and probable limestone reserves. Following definitions of
the Canadian Institute of Mining, Metallurgy and Petroleum ("CIM") adopted by
the CIM Council on August 20, 2000, a proven reserve is the economically
quarriable part of a measured resource and a probable reserve is the
economically quarriable part of an indicated resource; both proven and
probable reserves fall within the economic pit design. The prefeasibility
report concludes that there is a reasonable expectation of economic recovery
of all limestone within the prefeasibility quarry pit design given the
processes described and estimated pricing of the saleable products.
A grade of 100% is assumed for all units; process recoveries for each
unit are listed in Table 2. A loss of 5% at the footwall contact between
Unit 1 and the underlying Christina Member was included to reduce the
likelihood of diluting the limestone with footwall calcareous shale. No
dilution or losses were applied to the contacts between the limestone units
because they are gradations of similar materials. No loss was applied to the
upper surface of Unit 4 because a layer of weathered surface rock was
accounted for in the modelled limestone volumes.
Table 2: Hammerstone Process Recoveries
-------------------------------------------------------------------------
Loss to Other Process
Unit Fines (%) Losses (%) Comment Recovery (%)
-------------------------------------------------------------------------
1 9.1 - 90.9
2 29.6 31.9 Calcining losses 38.6
3 9.1 - 90.9
4 19.4 0.1 Washing 80.5
-------------------------------------------------------------------------
The quarry pit design includes all unconstrained areas within the
Hammerstone project area. Highwall angles over the shallow deposit are set at
45 in limestone; overburden will be removed 10m outside the highwall crest.
Over the planned 66-year life of the Hammerstone quarry, an estimated 32.4 Mt
of topsoil, muskeg and overburden will be removed and reclaimed and 11.4 Mt of
process fines will be reclaimed within the quarry. The limestone reserves
listed in Table 3 (in thousands of tonnes, "Kt") exceed the forecast sales
requirements over the planned 66-year life-of-quarry.
Table 3: Hammerstone Limestone Reserves
-------------------------------------------------------------------------
Proven Probable Total Secondary
Unit (Kt) (Kt) (Kt) Primary Product Product
-------------------------------------------------------------------------
1 197,550 170,913 368,463 A-grade aggregate B-grade aggregate
2 66,121 57,601 123,722 Quicklime
3 271,301 322,469 593,770 B-grade aggregate
4 35,967 69,423 105,390 Concrete rock A-grade aggregate
---------------------------
Total 570,939 620,406 1,191,345
-------------------------------------------------------------------------
Capital and Operating Costs
---------------------------
The capital estimate supplied by AMEC for the direct field costs of
bringing the quarry, the aggregate plant and the first quicklime plant into
production, plus indirect costs associated with the design, construction and
commissioning is C$130 million, which includes a C$21.8 million contingency.
This estimate is categorized by AMEC as prefeasibility level with an expected
accuracy of +/- 25%. The base pricing is Q4 2004 Canadian dollars with no
escalation, no interest or financing charges. Owner's costs and working
capital have not been included. Additional capital expenditures needed to
increase quicklime plant capacities in 2012 and 2022 are listed in Table 4.
Table 4: Capital Cost Estimate
-------------------------------------------------------------------------
Year Capital item Cost (C$ million)
-------------------------------------------------------------------------
2005-2007 Quarry, aggregate plant, lime plant 130
2011 2nd lime kiln 70
2021 3rd lime kiln 91
-------------------------------------------------------------------------
Operating costs over the 66-year life-of-quarry have been estimated on
an owner-operated basis. Costs were calculated in the areas of quarrying,
aggregate processing, quicklime processing and site administration based
on data for the Fort McMurray region. The operating cost estimates assume
all equipment is owned and operated by Birch Mountain, maintenance is
performed in-house, labour costs are consistent with nearby operations, job
classifications are flexible, and the labour burden is 35%. Average unit
operating costs over the life-of-quarry are shown in Table 5.
Table 5: Average Life-of-Quarry Operating Costs
-------------------------------------------------------------------------
Cost Area Operating Costs (C$ per tonne)
-------------------------------------------------------------------------
Quarrying and haulage 1.89
Aggregate processing 1.45
Site operating 0.01
Administration 0.23
Quicklime processing 47.50
-------------------------------------------------------------------------
Quarry operating costs cover all activities from clearing the property to
delivery of rock to the aggregate plant to placing of process fines in storage
piles or directly as reclamation material. Aggregate plant operating costs
cover all costs from delivery of rock to the aggregate plant to the load-out
of stockpiled material. Quicklime processing costs include all administrative
personnel, operators, mechanics, operating consumables, natural gas and
maintenance parts for quicklime plant operations; coke costs are excluded.
Site operating costs include 24-hour supervision of the scale and related
equipment, as well as on-going site services. Administration costs include
administrative personnel, head office support, office and training supplies
and other costs not directly chargeable to the quarry or plant areas. A 15%
contingency has been applied to administration costs only.
Financial Analysis
------------------
Hammerstone was analyzed by AMEC using the discounted cash flow ("DCF")
method assuming 50% equity / 50% debt in Q4 2004 Canadian dollars. Projections
of annual revenues and costs are based on estimated capital expenditures and
operating costs presented in the prefeasibility study for the quarry, the
aggregate plant and the quicklime plant. Estimated cash flows were used to
determine the pre-tax NPV and IRR for the base case 66-year quarry life.
Prices for A-grade and B-grade aggregates, concrete rock and quicklime are
$8.00, $6.00, $14.50 and $195.00 per tonne respectively, and are constant
over the life of the quarry.
Results of the base case analysis indicate that the project has a
potential pre-tax IRR of 30.0% and a pre-tax NPV of $697,843,000 at a discount
rate of 7.5% (see Table 6). The payback period is estimated at 8.8 years from
first production. Sensitivity analysis indicates that the NPV is most
sensitive to changes in product price, less sensitive to changes in processing
costs, and least sensitive to changes in quarrying costs and capital
expenditures.
Table 6: Financial Analysis Results
-------------------------------------------------------------------------
Discount Rate 0% 7.5% 10% 15% 25%
-------------------------------------------------------------------------
NPV (C$000) $7,171,884 $697,843 $396,131 $147,291 $18,493
IRR (%) 30.0
-------------------------------------------------------------------------
ONGOING DEVELOPMENT
Birch Mountain expects to begin constructing and operating the MVQ
limestone quarry as an aggregate operation prior to the end of Q2 2005,
once all necessary regulatory approvals and permits under the original
MVQ EIA/Application are in place. Start-up and production of aggregate in
years 1-2 will be by a contract operator. Additional bulk samples are planned
for both aggregate and quicklime testing purposes and an application to clear
the MVQ access road during the remaining winter months currently is being
prepared for submission to Alberta Sustainable Resource Development.
Birch Mountain will hold an Open House in Fort McKay on March 1, 2005,
to introduce Hammerstone to local stakeholders. The Hammerstone EIA will be
based on the quarry plan and the aggregate and quicklime processing facilities
described in the prefeasibility report. Environmental field studies for
Hammerstone have been completed and it is anticipated that the Hammerstone
EIA/Application will be submitted to Alberta Environment and the Alberta
Natural Resources Conservation Board in the first half of Q3 2005.
Birch Mountain intends to undertake an optimization study of Hammerstone
and a preliminary assessment of related business opportunities as a follow-up
to the prefeasibility report. Processing tests are planned to assess the
possibility of upgrading B-grade aggregate limestone of Unit 3 to produce
higher quality A-grade aggregate. Pilot scale rotary kiln tests are planned
for both the UQU and MQU to evaluate processing conditions, product quality
and blending opportunities. Birch Mountain also intends to refine its quarry
plan by using the real options approach to assess long-term demand for
limestone products and to incorporate management flexibility into the
financial model.
Birch Mountain's technical divisions operate under the direction
of Hugh J. Abercrombie, Ph.D., P.Geol., Vice President, Exploration,
who is identified as the qualified person in accordance with Section 1.2 of
NI 43-101. An independent qualified person's technical report based upon the
Hammerstone prefeasibility report and conforming to NI 43-101 will be filed
within 30 days of this news release.
Birch Mountain currently has 66,982,082 common shares issued and
outstanding, and 77,108,057 common shares, fully diluted. Birch Mountain's
Annual General and Special Meeting is set for Thursday May 12, 2005, at
3:30 pm in the Angus/Northcote Room, Plus 30 Level Conference Center,
Bow Valley Square II, 205 5th Avenue SW, Calgary, Alberta.
Cautionary Note to US Investors: The terms "reserve", "proven reserve"
and "probable reserve" used in this news release are defined in accordance
with NI 43-101, "Standards of Disclosure for Mineral Projects", under the
guidelines set out by the CIM in, "Standards on Mineral Resources and Mineral
Reserves", adopted by the CIM Council on August 20, 2000. In the US,
Securities and Exchange Commission ("SEC") Industry Guide 7 defines a mineral
reserve as, "That part of a mineral deposit which could be economically and
legally extracted or produced at the time of the reserve determination."
According to interpretations by SEC staff of mining industry disclosure
standards, such terms may not be used by SEC registrants unless the registrant
has completed a "bankable" feasibility study and all applicable permits are in
place or expected imminently. US investors are cautioned not to place undue
reliance on disclosure that is not issued in accordance with SEC regulations.
Forward Looking Statements: This news release contains certain forward-
looking statements. All statements, other than statements of historical fact,
included herein, including without limitation, statements regarding potential
mineralization, resources and reserves, exploration results, research and
development results, and the future plans and objectives of Birch Mountain are
forward-looking statements that involve various risks and uncertainties. There
can be no assurance that such statements will prove to be accurate and actual
results and future events could differ materially from those anticipated in
such statements. Important factors that could cause actual results to differ
materially from Birch Mountain's expectations are disclosed elsewhere in
documents that are available to the public at www.sedar.com and www.sec.gov.
The TSX Venture Exchange does not accept responsibility for the adequacy
or accuracy of this news release.
/For further information: please contact Birch Mountain Resources Ltd., Douglas Rowe, President & CEO; or Don Dabbs, Vice President & CFO, Tel: (403) 262-1838, Fax: (403) 263-9888, www.birchmountain.com; Equity Communications, LLC Steve Chizzik, Regional Vice President, Tel: (973) 912-0980, Fax: (973) 912-0973; To request a free copy of this organization's annual report, please go to http://www.newswire.ca and click on reports(at)cnw./
