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TVI Pacific to begin drill program on Canatuan

2004-01-12 07:55 MT - News Release

Mr. Clifford James reports

TVI PACIFIC INC.: CANATUAN COPPER--GOLD PROJECT UPDATE

Highlights:

recently completed 43-101 compliant resource estimate shows good correlation with earlier studies;

30- to 40-hole infill diamond drill program to commence in January to upgrade sulphide resource and collect material for further metallurgical and geotechnical studies;

new feasibility study initiated on gossan/oxide and sulphide ore resource types;

11 months of continuously improving operations from current gold and silver oxide processing plant; and

production for the second half of the year is projected to almost double from that of the first half.

Mining operations to begin in early 2004:

oxide processing plant to be expanded substantially commencing in early 2004;

excellent potential for the discovery of additional sulphide/oxide deposits on TVI's district scale 371-square-kilometre land package; and

airborne electromagnetic survey and follow-up exploration program to be carried out in 2004.

TVI Pacific has made substantial progress on all aspects of the development of its Canatuan precious metals -- rich, polymetallic project in the Philippines: an updated resource estimate for both the gossan (oxide) and sulphide portions of the orebody has been completed, that confirms results from earlier studies; an infill drilling program will begin in January, mainly to upgrade the inferred portion of the sulphide resource to the measured or indicated classes, but also to collect sulphide material for additional metallurgical testing to refine the sulphide process flow sheet and for geotechnical studies; an updated feasibility study on both gossan/oxide and sulphide ore types has been initiated; gold and silver production have steadily increased since TVI's oxide pilot plant was recommissioned and upgraded early in 2003; mining of the deposit's gold and silver-rich oxide resource will begin in January; the present processing plant will undergo significant expansion in the next stage of a multistage program which will significantly increase capacity and performance in the new year; and a comprehensive exploration program is being planned for execution in early 2004 on the property to capitalize on its excellent potential to develop the overall project into a major mining camp through the discovery of additional polymetallic deposits.

TVI owns 100 per cent of the Canatuan copper-gold project

371-square-kilometre land position covers a district scale area

TVI's Canatuan property is located east of the town of Siocon, in the province of Zamboanga del Norte, on the island of Mindanao, approximately 800 kilometres south of Manila. The property comprises two exploration permit application areas totalling 324 square kilometres and three claim blocks totalling approximately 47 square kilometres. The main claim block, within which the main deposit is located, covers five square kilometres in the south-central portion of the property and is covered by a mineral production sharing agreement (MPSA). TVI has a 100-per-cent interest in the property subject to a 1-per-cent royalty to a former claim owner and a 12.5-per-cent back-in right by Benguet Corp., which is not expected to be exercised.

The Canatuan deposit is classified as a precious metals-rich vulcanogenic massive sulphide (VMS) deposit, a deposit type which is mined profitably in many places around the world.

The Canatuan property is located within a northeast-trending belt of Tungauan schists that host the massive sulphide and oxide (gossan) lenses comprising the Canatuan deposit. The deposit consists of an unoxidized copper-rich rich massive sulphide body, and a gold- and silver-bearing gossan deposit, formed by weathering of the up-dip and near surface portions of the massive sulphides. Contacts between the oxide and sulphide portions of the body are generally very sharp (less than 1.0 centimetre). In plan view, due to its shallow westward dip, and local topography, it forms an arcuate body approximately 800 metres in length and 200 metres in width -- narrowing at each end, convex to the east, with the gossan portion generally extending 50 to 200 metres to the east of and overlapping the somewhat smaller (in plan view) sulphide zone. The gossan generally subcrops along the eastern edge of the body and base of oxidation seldom exceeds 25 metres of depth. The sulphide body extends from the base of oxidation to a depth of up to 60 metres, but the bulk of the resource lies above 50 metres in depth. The Canatuan deposit is classified as a felsic volcanic associated VMS deposit type. Many profitably mined, economic examples of this type of deposit occur around the world. Well-known and very profitable Canadian examples include Noranda, Buchans, Flin Flon, Sturgeon Lake, Louvicourt and Myra Falls.

Two previous feasibility studies showed that the Canatuan project had robust economics

Since 1994 TVI has conducted a substantial amount of exploration at Canatuan, including an extensive program of geochemistry, geophysics, geological and topographical mapping, surface geological mapping, surface diamond drilling and test pitting. Underground mapping and sampling of small-scale mine workings were also carried out. A total of 147 diamond drill holes have been completed with a total length of 5,160 metres as well as 350 test pits totalling 907 metres.

In 1996, feasibility studies for the Canatuan project were conducted by Kilborn Engineering Pacific Ltd. and Proton International Engineering, both of which concluded that the deposit could be profitably exploited by open pit mining. The Proton study showed that the Canatuan project was economically robust. The base case financial summary gave an undiscounted net present value (NPV) of $41.4-million (U.S.), a discounted NPV of $31.3-million (U.S.) (using a 10-per-cent discount rate), and an internal rate of return of 39.3 per cent. This was based on an initial capital cost of $29.1-million (U.S.) and metal prices lower than those of today ($385.00 (U.S.) per ounce gold, $5.50 (U.S.) per ounce silver, 95 U.S. cents per pound copper and 55 U.S. cents per pound zinc).

Recently completed 43-101 compliant resource estimate for the Canatuan deposit shows good correlation with earlier studies

In September, 2003, TVI retained Norwest Corp. to complete an independent report on the project, compliant with National Instrument 43-101F1, which had as its main objective the updating of the gossan and sulphide resource estimates. This study was recently completed, using a 3-D geological model built from previously interpreted geology sections. An analysis of spatial continuity for the oxide and sulphide grade variables was completed using the assay composites and sectional geology. Assuming metal prices of $350.00 (U.S.) per ounce gold, $5 (U.S.) per ounce silver, 85 U.S. cents per pound copper, 45 U.S. cents per pound zinc, and using cutoff grades of 2.5 grams per tonne (g/t) Au equivalent for the oxides and 2.5 per cent Cu equivalent for the sulphides, the measured plus indicated resources are now estimated to be:


GOSSAN RESOURCE ESTIMATE
CANATUAN DEPOSIT GOSSAN RESOURCES
Gossan deposit at 2.5 g/t Au
equivalent cutoff

Au
Classif- Tonnes Au Ag equiv.
ication 000s g/t g/t g/t

Measured 155 4.59 121.4 6.33

Indicated 765 3.57 140.0 5.57

Inferred 41 3.19 157.1 5.44

Measured
and
indicated 920 3.74 136.9 5.69


There is also a significant volume of rubbly gossan material (gossan boulders and rubble in an overburden matrix) present on the fringes of the in situ gossan. While this has not been included in the oxide resource estimate, it does represent an inventory of lower grade material which may be economically treatable after the in situ resource is mined. A number of treatment solutions including heap leaching, and high pressure washing to remove the saprolite matrix, followed by conventional milling, remain under consideration. Gossan material already mined by small-scale artisanal miners has been estimated at between 70,000 tonnes and 100,000 tonnes, and this figure has not been subtracted from the resource numbers above.


SULPHIDE RESOURCE ESTIMATE
CANATUAN DEPOSIT SULPHIDE RESOURCES
Sulphide deposit at 2.5% copper
equivalent cutoff

Cu
Classif- Tonnes eq. Cu Zn Au Ag
ication 000s % % % g/t g/t

Measured 17 5.27 2.98 1.82 1.27 66.0

Indicated 627 5.01 2.91 1.79 1.08 58.9

Inferred 855 4.57 2.49 2.07 0.94 49.1

Measured
and
indicated 645 5.02 2.64 1.79 1.08 59.1


For the feasibility studies completed in 1996, reserves were computed, using a geostatistical block model for the main ore zone, using a $20 NSR block cutoff value. A comparison of the results from these earlier studies shows good agreement with the resource estimates obtained in the Norwest study.

30- to 40-hole infill diamond drill program to commence in January to upgrade sulphide resource and collect material for further metallurgical and geotechnical studies

An infill diamond drilling program will commence in January to upgrade the inferred portion of the sulphide resource to the measured or indicated classes, and also to collect sulphide material for additional metallurgical testing to refine the sulphide process flow sheet and for further geotechnical studies. It is anticipated that approximately 30 to 40 60-metre holes will be drilled and analyzed. Two EDCO drilling rigs are being mobilized to the Canatuan site for the program. The difference in confidence levels in the new resource estimate, which resulted in the classification of 95 per cent of the gossan resource as measured and indicated, whereas only 43 per cent of the sulphide resource falls into these classes, is due to the fact that the gossan was sampled by an extensive test pitting program in addition to the diamond drilling which tested both the gossan (upper zone) and the underlying sulphide zone of the Canatuan deposit.

New Canatuan project feasibility study initiated on gossan/oxide and sulphide ore resource types

TVI has retained Norwest Corp. to update the Canatuan project feasibility studies completed after extensive work in 1996 using current metal prices, capital costs and TVI's revised mining plans. The feasibility study will be done in two sequential parts: the first will examine the mining of the gossan/oxide resource and the second, as soon as the results are received from the infill drilling program, will examine the sulphide resource. The gossan/oxide phase of this study is expected to be completed by March 31, 2004, and the sulphide phase by May 31, 2004. As part of the study individual economic evaluations will be carried out on mining the gossan only, the gossan and the copper-rich massive sulphides only, and the gossan and all the massive sulphides. TVI's current philosophy of staged development, such that increasing cash flow from the oxide plant will allow the progressive expansion of the oxide plant, and offset the capital cost of the construction of the sulphide plant, will be followed as much as possible.

11 months of continuously improving operations from current processing plant

Production for the second half of the year is projected to almost double from that of the first half

The Canatuan mine development plan was originally conceived on the basis of mining the precious metal reserves (gossan/oxide) first, followed by the base metal reserves (sulphides). All major permits that were required to begin construction and production were awarded, and TVI constructed and operated a small-scale (50 pd) oxide pilot plant throughout 1997 for metallurgical testing purposes. The dramatic decline in the price of gold and other metals beginning in 1997, coupled with several industry scandals, resulted in a considerable reduction in investment in junior mining companies and, as a result, the amount required for the equity portion of project financing became unavailable to TVI, even though TVI was well into serious discussions with a consortium of banks, lead by Rothschild Australia, for substantial project finance. As a result, the company had to consider various alternative production scenarios.

In January, 2003, TVI proceeded with a project plan whereby the existing CIL/CIP pilot plant was rehabilitated, upgraded and put into operation treating small-scale miners' tailings as the first stage of a multiphase development plan. In addition to producing gold and silver dore, this process has provided an important environmental benefit to the area by extracting mercury and cyanide leaching agents from the tailings discarded by illegal small-scale miners before they could escape into the environment.

The first 11 months of operations at the company's Canatuan gold/silver oxide plant in the Philippines have been successfully completed. The plant continues to show improvements in throughput and performance. Highlights over the past 11 months include:

new general manager and operations manager join TVI, strengthening Canatuan project management team. Brent McFarlane joined the company at the beginning of the third quarter as general manager of the Canatuan operations. Mr. McFarlane brings a strong track record of production performance and substantial experience in new plant construction. Since his arrival, Mr. McFarlane has strengthened the Canatuan project team resulting in a significant effect on the performance at Canatuan. Results were immediate and dramatic with attention focused on increased plant and mobile equipment availability, availability of critical spares, improved plant feed and process controls, and staff training. Mr. McFarlane will be joined shortly by Dewayne Chambers, an individual with extensive senior mine management and construction experience, including Philippine experience, who will become Canatuan operations manager, reporting to Mr. McFarlane;

improved plant performance. The upgrade in plant infrastructure and improvement in overall management during the third quarter resulted in a notable reduction in downtime and a substantial improvement in throughput. Mechanical availability of the plant was 87 per cent in the month of November. This compares well with the North American standard of 92 per cent availability in fully mechanized plants. Production for the second half of the year is projected to essentially double from that of the first half. Production for the quarters has been: 37 tonnes per day in the first quarter, 51 tonnes per day in the second quarter and 68 tonnes per day for the third quarter. In October the rate increased to 92 tonnes per day and further in November to 101 tonnes per day. Fabrication and installation of a larger capacity elution column during October have improved the stripping capacity and metal production while reducing carbon costs;

gold and silver recoveries stable. Even though the plant throughput has virtually doubled since midyear, the recoveries of gold and silver have been held constant due to improvements in process control and operator training;

increased gold and silver dore production. From startup in January, approximately 20,000 tonnes of artisanal tailings have been processed, producing approximately 2,700 ounces of gold and 66,000 ounces of silver. There has been a continuous improvement quarter over quarter; and

higher than expected revenue. Gold and silver grades in the tailings feed of previous small-scale mining operations have been higher than expected, with values of approximately 6.2 g/t gold and 200 g/t, respectively. In addition, the project has benefited from higher gold and silver prices.

Mining operations to begin in early January

Part of the mandate given to Norwest, was to identify a "starter pit," which would serve to supply gossan ore to the plant during the first stage of mining at Canatuan. Such a pit has been identified, and using a 3.0 g/t gold cutoff grade, has the following characteristics: 81,000 tonnes of ore with grades of 5.2 g/t gold, 90 g/t silver for a 6.5 g/t gold equivalent grade; 139,000 tonnes of waste for a stripping ratio of 1.7:1. Mining will be by a local contractor under the supervision of a TVI site mining engineer.

Oxide processing plant to be expanded substantially commencing in early 2004

Plans are now being finalized to expand the capacity of the processing plant earlier than anticipated, in order to increase overall throughput levels and to replace current tailings material feedstock with oxide ore mined on a commercial scale. Mining of the oxide ore from the starter pit will begin in January at a nominal rate of 125 tonnes per day and then be increased to 250 tonnes per day and beyond once the process is stabilized. This would result in a mine life of about six to 10 years, depending on the final processing rate achieved. Initial plans are to install a new front end to the plant involving a crusher, ball mill and genset, which would have a throughput capacity of greater than 500 tonnes per day, while using the existing back end of CIL plant, including the leach and adsorption tanks as well as the electro-winning and smelting equipment, currently in place, to produce gold and silver. Shortly afterward, the back end of the plant will be expanded in two stages to accommodate production throughput of at least 250 tonnes per day and then at least 500 tonnes per day. Implementation of the plant expansion is expected to begin in early 2004. Initial details of TVI's mining and plant expansion plans will be released shortly.

Excellent potential for the discovery of additional sulphide/oxide deposits on TVI's district scale 371-square-kilometre land package

An analysis of exploration work previously performed by TVI on its 371-square-kilometre district scale land package has indicated that there is excellent potential to increase the project's resource base, through the discovery of additional sulphide/oxide deposits, similar to the Canatuan deposit, thereby extending the project's life significantly by processing any new discoveries in the plants that will already have been operating on the site.

The geological environment of the Canatuan deposit is typical of other felsic volcanic-associated massive sulphide (VMS) deposit areas worldwide. Mineralization occurs in discrete deposits in the acid phase of the volcanic sequence, a sequence that is extensively developed at Canatuan. The most important observation from other similar areas of the world is that this type of deposit commonly occurs in clusters, each often large enough to support an individual mining operation. Together, they may form a significant mining camp. Many of these deposits have formed the base deposits of significant mining companies. Well-known and very profitable Canadian examples include: Noranda, Buchans, Flin Flon, Sturgeon Lake, Louvicourt and Myra Falls.

Exploration efforts to date have been focused on the immediate area of the main Canatuan deposit. Geochemical and geophysical surveys indicate that the mineralized host horizon continues along strike both to the northeast and southwest. Two significant prospects, Malusok and SE Malusok, have already been identified on the property and have undergone very preliminary drilling. Other, largely unexplored prospects include Sukol, Lingcangot, S.W. Canatuan, Cusan, Palali-an, Matigdao and Duminatag, all of which are located along a 40-kilometre strike length of prospective stratigraphy.

Airborne electromagnetic survey and follow-up exploration program to be carried out in 2004

Plans are being made to conduct an exploration program in 2004 that is expected to add to the project's overall resource base, both within the MPSA and the other Canatuan claim blocks comprising TVI's land package. The forthcoming program will include a regional airborne electromagnetic study over the whole property, as well as mapping, sampling and exploration drilling, as required and justified.

Environmental, community and social development programs

TVI has also made substantial progress in the environmental, community and social development areas at Canatuan. Details on this progress will be released very soon.

"We are very pleased with the substantial progress made on all aspects of our Canatuan project," Clifford James, president and chief executive officer of TVI Pacific said. "This project is an increasingly valuable component of TVI's asset base and we are confident that it will contribute greatly to the future success of our company."

TVI has retained the services of Norwest of Calgary to assist in the development of a full technical report as defined by National Instrument 43-101. Ian Perry, PGeo, and Bruce Davis, FAusIMM of Norwest, are serving as qualified persons under these guidelines. Mr. Perry is the principal author of the report referred to in this release.