PANAUST LIMITED ABN 17 011 065 160 Level 2, 99 Melbourne Street PO Box 3468 South Brisbane QLD 4101 Australia T: +61 (0)7 3117 2000 F: +61 (0)7 3846 4899 E: info@panaust.com.au ASX ANNOUNCEMENT 20 October 2010 Copper production set to increase at the Phu Kham Operation, Laos PanAust Limited ( PanAust ) is pleased to announce that the Board of Directors has approved a US$110 million investment to increase ore processing rates and improve metal recoveries at the Phu Kham Copper Gold Operation (Figure 1). The investment will deliver an increase in copper in concentrate production to between 65,000tpa and 70,000tpa in mid 2012 from current design levels of between 60,000tpa and 65,000tpa and is timed to coincide with a scheduled decline in ore head grade. The Board approval was based on the results of a feasibility study. The scope of the study was to identify and evaluate the options and investment required to ensure copper gold production was maintained as mining operations were scheduled to move into predominantly primary and lower grade ore in 2012. The study concluded ore processing rates on primary ore would need to increase to a nominal 16 million tonnes per annum (Mtpa) from the current rate of 12Mtpa. In addition, the study report recommended an increase in flotation capacity. The study assumed a copper price of US$2.25/lb. A summary of the key fundamentals for the investment are presented below: Ore processing rates Average life of mine head grade Average concentrate production rate and specification Annual average production 16Mtpa on primary ore 0.55% copper to 0.60% copper, 0.23g/t gold and 2g/t silver 250,000dmt to 300,000dmt grading 25% copper, 7g/t gold and 65g/t silver 65,000t to 70,000t copper, 50,000oz gold and 275,000oz silver Copper recovery range 74% to 82% post phase two investment Strip ratio average 1.1:1 to 1.5:1 cut off grade dependent Mine life + 10 years (from 2011) Development capital US$110M including contingency Cash cost (C1) 1 after by product credits 2 US$1.04/lb to US$1.16/lb 1 Brook Hunt convention for reporting direct cash costs comprising: mine site, concentrate transportation and freight, treatment and refining charges and marketing costs. Based on payable copper in concentrate produced. 2 Assumes gold and silver prices of US$1,200/oz and US$16/oz respectively www.panaust.com.au
Commenting on the study results and investment decision, Gary Stafford, Managing Director of PanAust, said that since the Company had committed to the development of Phu Kham in 2006, on going resource drilling programs had led to a significant increase in the size of the Ore Reserve. We expect that current and future programs will continue this success. Our decision to increase our investment in Phu Kham will ensure that we optimise the value of our flagship asset and increase metal production at a time when head grades are scheduled to decline he said. Increased ore processing rates, more flotation capacity and improved recovery Nameplate throughput for the upgraded process plant will increase from 12Mtpa for the current configuration to 16Mtpa (33% increase). Up to 10% higher throughputs are possible on ore blends containing lower proportions of harder primary ore. Mill capacity will be augmented by a second 13MW ball mill (Figure 2), similar to the existing ball mill, thereby increasing installed mill power by 50% to 39MW. This extra milling power is expected to allow the nominal grind size to reduce from 106 microns (μm) to 75μm, and will deliver an additional one percentage point improvement in copper recovery from improved liberation. Flotation capacity will increase by 50%, thereby providing more residence time than in the existing plant configuration. This relatively bigger increase in flotation capacity compared to the increase in ore processing rates is expected to lead to a further one percentage point improvement in copper recovery. Collectively, the increased grinding capability coupled with the additional flotation capacity should allow copper recovery to range between 74% and 82% over the balance of the mine life, with recoveries of over 80% forecast when high grade skarn ores make a material contribution to the mill feed during the latter years of mine life. No improvement in precious metal recovery has been assumed from the investment at this time though finer grinding should liberate more gold and silver. Cash costs Some economies of scale will stem from the phase two investment; largely as a result of fixed costs being distributed over the larger ore production and processing tonnage rate. The combined unit operating cost savings are estimated to be approximately US$0.50 per tonne of ore. The collective benefits of the anticipated economies of scale and increased copper production (including the benefit of improved recoveries) should provide a C1 cash cost benefit of approximately US$0.07/lb of copper. However, the Company notes that, consistent with other producers, it is currently experiencing inflationary cost pressures on the price of steel and other consumable inputs. The Phu Kham Operation has a very low strip ratio that is sensitive to cut off grades derived by the application of different copper price assumptions. The current mine planning assesses the impact on strip ratio and mining fleet requirements at a range of copper prices of between US$2.25/lb and US$2.75/lb thereby deriving a corresponding range of cut off grades and mining strip ratios of 1.5:1 to 1.1:1 respectively. The cut off grade may vary each year, consistent with the prevailing outlook for copper price and determination of the optimum investment of mine fleet capital and return on the Ore Reserve. Additional mining equipment will be required to augment the existing fleet in order to meet the higher annual material movements required by the phase two investment. Studies continue to determine the optimal mining fleet configuration and leasing arrangements. Page 2
Primary crusher The existing primary gyratory crusher is rated at 16Mtpa. To augment this capacity a second smaller crusher a rolls crusher capable of handing finer sticky ore encountered particularly during the wet season will be installed in parallel as part of the upgrade. Upgrade Investment Schedule Front end engineering and design activities for the Upgrade Project are scheduled to commence during the current quarter. Commitments for long lead items will be placed before year end. Project implementation is expected to commence in earnest in the June quarter 2011 with project commissioning scheduled to start mid year 2012. Tie ins to the existing plant are scheduled to occur on a rolling basis during the first half of 2012 and should coincide with planned plant maintenance shutdowns. Project ramp up is planned to take six months and be completed by the end of 2012. Availability of the existing process plant and associated infrastructure is not expected to be materially affected by construction, commissioning or ramp up. The Upgrade Project capital budget is estimated to be US$110 million including contingency. However, there may be potential to defer some capital items to later in the mine life, depending on the economic cut off grade selected for mining and the scheduling of both hard and high grade ores. These opportunities will be the subject of further studies during the current quarter. PanAust will be able to fund the capital budget for the Upgrade Project and the Company s other capital commitments (including the remaining capital budget for the Ban Houaxyai Gold Silver Project) from current cash and Phu Kham Operations cash flow (assuming average copper prices of US$3/lb over the term of the investment schedule). Once documentation of the Phu Kham Upgrade Project feasibility study is complete, the feasibility studies for the Upgrade Project and the Ban Houayxai Project will be tabled with the banking syndicate for the Company s debt and leasing facilities with a view to extending and increasing those facilities. The current three year revolving facility was sized solely on the basis of the cashflows and economic parameters for the current 12Mtpa Phu Kham Operation. US$40 million of that facility is undrawn. For further information contact: Mr Gary Stafford Managing Director PanAust Limited Tel: +61 7 3117 2000 Email: info@panaust.com.au Website: www.panaust.com.au Mr Allan Ryan Investor Relations Manager Page 3
Table 1: Phu Kham Ore Reserve as at 1 January 2010 Category Tonnes (Mt) Copper (%) Gold (g/t) Silver (g/t) Copper (000 t) Gold (000 oz) Silver (000 oz) Proved 124 0.63 0.25 2.0 776 1,005 7,905 Probable 44 0.60 0.22 1.7 267 313 2,409 Total 168 0.62 0.24 1.9 1,043 1,318 10,314 Notes for the Ore Reserve estimate: 1. The Ore Reserve estimates are reported on a 100% ownership basis. PanAust has a 90% beneficial interest. 2. The Ore Reserve estimate is based on commodity price assumptions of US$2.25/lb copper, US$900/oz gold and US$13/oz silver. 3. Refer to the PanAust Limited announcement to the ASX, Increased Ore Reserve at the Phu Kham Copper Gold Operation, dated 30 June 2010 for additional information. Forward Looking Statements This announcement includes certain Forward Looking Statements. All statements, other than statements of historical fact, included herein, including without limitation, statements regarding forecast production performances, potential mineralisation, resources and reserves, and future expansion plans and development objectives of PanAust Limited 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. Competent Person Statement The data in this report that relates to Phu Kham Ore Reserves are based on information reviewed by Mr Rob Usher who is a Member of the Australasian Institute of Mining and Metallurgy. Mr Usher is a full time employee of PanAust Limited. Mr Usher has sufficient experience relevant to the styles of mineralisation and type of deposits under consideration and to the activity which he is undertaking to qualify as a Competent Person as defined in the 2004 Edition of the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves. Mr Usher consents to the inclusion in the report of the Phu Kham Ore Reserves in the form and context in which they appear. Page 4
Figure 1: Location Plan Phu Kham Copper Gold Operation Phu Kham Copper Gold Operation Figure 2: Process Plant Layout location of additional process circuits shown Page 5