Grassy Mountain: ENGINEERING STUDIES
Technical Studies
Since the Project’s discovery by Atlas in 1988, significant technical work has been completed by independent third parties on open-pit and underground scenarios. All of this work has assumed gold prices ranging from US$350 to US$400 per ounce. Of primary interest are:
(1) The Kilborn Study “Grassy Mountain Property Final Feasibility Study”, April, 1990, describes open pit mining with heap leach and CIL processing;
(2) Grassy Mountain Conceptual Development Review, November 1997, prepared by John Rozelle, a Registered Geologist in the state of Wyoming on behalf of Pincock, Allen & Holt (“PAH”) to compare alternate project development scenarios.
In light of the improved gold market, Seabridge plans to review historical technical work performed on Grassy Mountain during 2004 to ascertain whether any of the gold resources can be reclassified as reserves.
Open Pit Scenarios
As part of a detailed feasibility study conducted by Kilborn in 1990, an open-pit mine model was developed by PAH. Pit limits were developed using a net realizable gold price of US$350, mining costs estimated by PAH, and processing costs and recoveries estimated by Kilborn. Manual refinements were made to the pit to accommodate haul road access, designed catch benches, and geotechnical recommendations by Seegmiller International and Golder & Associates. The 1990 feasibility study resulted in a measured and indicated reserve at a US$350 gold price of 996,000 ounces from 16 million tons grading 0.062 opt Au of mill and heap leach ores. Neither the recovered silver nor low grade leach ores were considered. The contained silver is approximately 2,467,000 ounces. The stripping ratio, excluding the low grade material, was 5.4 to 1. Total recoverable gold was estimated at over 800,000 ounces. The feasibility study forecasted life of mine cash operating costs of US$127 per ounce, and total costs of US$241, before financing costs.
In its 1997 study, PAH re-examined the open-pit scenario and concluded that at gold prices ranging from US$350 to US$400, the project as an open-pit was not economically viable. In its analysis, PAH re-estimated the measured and indicated geologic resource using a 0.020 opt lower cutoff, and high-grade cut to 0.30 opt at 17,376,000 tons grading 0.052 opt Au for total contained gold of 901,785 ounces. As a test of the sensitivity of the resource model to the capped grade, PAH examined the impact of removing the 0.30 ounce gold per ton cap from the open-pit resource model and determined that removing the cap would add approximately 150,000 ounces to the resource estimate.
Underground Scenarios
The 1997 PAH Conceptual Review analyzed five development scenarios for the project: a pure open-pit, a combined open-pit and small underground mine, and three underground options with either (1) onsite processing, (2) offsite processing in a facility owned by the operator, or (3) toll milling in an existing plant operated by a non-related owner. Each of the scenarios was analyzed at US$350 and US$400 gold and assumed new equipment for all mining and processing facilities. At US$350 gold, only the underground mining scenario with onsite processing yielded a positive after-tax internal rate of return of 5.5%. At US$400 gold, all three underground scenarios yielded positive after-tax internal rates of return ranging from 7.9% to 13.3%.
The PAH study suggested that at gold prices above US$350 per ounce, an underground operation with on-site processing facilities at Grassy Mountain could be economically attractive. Based on an high grade cut of 1.5 opt Au, PAH estimated the present high-grade diluted measured and indicated resource at Grassy Mountain to be 1.56 million tons @ 0.265 opt Au, or 414,000 ounces. The most economically attractive scenario analyzed by PAH included a 1,400 tpd underground mine with onsite processing facilities. This scenario yielded a 5-year mine life averaging 77,426 ounces of gold production per year at an average cash operating cost of US$173 per ounce, and total costs, including capital, of approximately US$325 per ounce. The PAH study also concluded that due to the high-grade gold assay capping imposed in the model, an additional 100,000 to 200,000 ounces of gold could be added to resources. PAH recommended that additional exploration be undertaken to better define and to confirm the nature of the high-grade core of the deposit.
The profitability estimates of the Open-Pit and Underground scenarios presented above are based on numerous assumptions which, while perhaps reasonable and appropriate at the time, are presently out of date. Accordingly, the scenario presented should not be relied upon at this time, in particular reliance should not be placed on estimates of profitability at a particular gold price.
Environmental/Regulatory
The Bureau of Land Management (BLM) through its Vale District office is the lead agency responsible for the Grassy Mountain area. The BLM retained an independent third party to prepare an Environmental Impact Statement (EIS) for the Grassy Mountain Property. Geological, geochemical, geotechnical and related physical resource information has been obtained throughout the property's development.
As part of the EIS, independent consultants supervised the drilling and installation of seven monitor and water wells. They also performed material testing on soils, tailings and heap-leach materials, as well as surface water impacts. Other independent consultants also (1) conducted various tests associated with the hydraulic evaluation of the property area; (2) evaluated the surface water flows and produced conceptual reclamation plans; (3) performed the static and dynamic tests for potential acid generation; and (4) coordinated the analysis of the physical and hydraulic resources. An additional eleven monitor wells were drilled in 1993. Additionally, extensive biological and socioeconomic studies were completed by the consultants as part of the EIS.
Public hearings were held by Atlas in Portland and Ontario as part of the EIS scoping process in 1991 and 1992. Newmont held additional public hearings in Portland and Ontario in late 1993.
Based upon the extensive environmental work already completed, the 1997 PAH study examined the likelihood of obtaining the necessary permits for each of the five operating scenarios. The PAH study concluded that although each of the five operating scenarios were permitable under current Oregon law, permitting the open-pit scenario would take 5 years, while the underground scenarios would require 2-3 years.
To further study the permitting issues at Grassy Mountain, the Issuer retained Gochnour & Associates of Parker, Colorodo ("Gochnour") to undertake an environmental review and regulatory permitting due diligence on Grassy Mountain. The report of Gochnour, prepared by Lee “Pat” Gochnour, is entitled "Grassy Mountain Project Permitting/Environmental Report" (the "P/E Report") and dated June 27, 2000. The following material summarizes information from the P/E Report. The Gochnour study examined three potential development scenarios: (1) open-pit mining with a combination of heap-leach and milling processing; (2) underground mining with on-site milling; and (3) underground mining with off-site milling. Gochnour concluded that each of the development scenarios are permittable under current federal and state law. To complete the permitting process, Gochnour estimates that the open-pit scenario would take 3-5 years to permit once a Plan of Operations (“POO”) had been submitted. Gochnour estimated the permitting time frame for the underground scenarios at 2-3 years after the POO was submitted. As part of its mandate, Gochnour also reviewed the extensive database of all previous environmental and baseline work and estimated the cost and time-frame associated with bringing the work up to date. In aggregate, Gochnour estimated a minimum of one year to bring the base-line work up to date at a cost of approximately US$500,000. Gochnour recommended that this work be performed concurrently with the development of a final feasibility study.
