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Ezulwini Mine

The Ezulwini Mine is located approximately 40 kilometres from Johannesburg on the outskirts of the town of Westonaria in the Gauteng Province, South Africa. The Ezulwini Mine is an underground mine constructed in the 1960s with historical production of approximately 14 million pounds of uranium and 12 million ounces of gold until it was put on care-and maintenance in 2001, which was its status when the Corporation acquired it in 2006.

 

The mine has two separate tabular ore bodies about 400 metres apart. The Upper Elsburg ore body, where most of the mining has been done to date, is a gold only deposit. The Middle Elsburg ore body is a gold and uranium deposit and is relatively unexploited. The Ezulwini Mine forms part of the Ezulwini mining right, which includes certain surface and underground assets, acquired by the Ezulwini Mining Company (Proprietary) Limited (EMC). On April 22, 2010, the Ezulwini mining right, formerly held by Simmers, was registered in the name of EMC.

 

On November 5, 2009 First Uranium signed a definitive agreement with Gold Wheaton (GW), whereby GW acquired the right to receive 7% of the life-of-mine gold production from the Ezulwini Mine (the Ezulwini Gold Stream Transaction). Under the terms of the Ezulwini Gold Stream Transaction, GW paid the Ezulwini Mine $50 million upfront. In addition GW will make an ongoing payment equal to the lesser of $400 per ounce (the Fixed Price) (subject to an annual inflation adjustment of 1%, starting in the fourth year after the upfront payment) and the prevailing spot price at the time the gold is delivered under the contract.

 

The establishment of the Ezulwini Mine, which was substantially completed during Q4 FY 2009, included the rehabilitation and re-engineering of the main mine shaft through the installation of a floating steel tower and the construction of a 200,000 tonne per month gold plant and a 100,000 tonne per month uranium plant. With the capital intensive projects substantially completed, First Uranium turned its focus at the start of FY 2010 on the underground mine development to accelerate the amount of ore being fed to the gold and uranium plants.

 

The primary objective is to increase available face length to allow a higher rate of mining in the future. The Ezulwini Mine has yet to build up sufficient production to generate positive operating cash flow. The production build-up to date has progressed much slower than originally anticipated due to a number of factors including

 

  • The estimation of gold available compared to the gold accounted for was significantly below expectations, a relationship better known as the mine call factor. The planned mine call factor for the year was 87% whereas the mine achieved a factor of lower than 70% during the first nine months of the year.
  • The face length creation proceeded as planned but the start-up and conversion from development to stoping was slower than anticipated. Significant improvements are expected in FY 2011. The face length utilization was relatively low during the year due to the newly appointed mining teams as well as inadequate face equipping. Special attention is being paid to the training of crews and equipping of panels, thus mining readiness is expected to improve in the forthcoming year.
  • During the fiscal year, some seismic activity occurred in the shaft pillar which caused delays but more importantly required special attention to resolve it in a safe manner. The extra precautions and diligence paid to rock engineering issues resulted in slower than anticipated performance in FY 2010. The majority of the engineering issues are now resolved, thus improved mining performance is expected.

 

Due to the lower production achieved, First Uranium reviewed the actual mine call factors achieved by the mine during the first nine months of the year. One of the issues identified was in the primary evaluation of gold and uranium estimation as well as mining techniques resulting in cross mining of various stratigraphic units. Based on the results of the review, First Uranium changed its focus to extracting higher grade ore from the Middle Elsburg gold and uranium ore-body. Opening up and development work was reduced to a minimum while refinancing discussions were being held and the focus went on to maximizing the potential of the face length being mined by increasing the pay limit used for mining decisions. The mine call factor at the Ezulwini Mine proved to be problematic during Q2 FY 2010 and Q3 FY 2010 and necessitated an additional review of the valuation methods used. This resulted in lower grades being forecasted in the revised plan, but better mining efficiencies being achieved, thereby increasing the mine call factor from 64% in Q3 FY 2010 to 78% in Q4 FY 2010.

 

Although the Ezulwini gold plant is capable of working to design specification, the plant has not been utilized optimally during FY 2010. Utilization of the gold plant was on average approximately 25% to 50% of design capacity during the year. The under-utilisation of the plant is according to plan as the build-up of the Ezulwini Mine is only expected to reach peak production by 2019.

 

Underground production, however, has been less than originally planned, which resulted in lower mill utilization. As the underground development increases, the mine production and mill throughput will increase, and thus gold production will improve. It is expected that metallurgical processes will further improve when operations are running at design capacity.

 

During Q1 FY 2010 the Ezulwini Mine commissioned the first of two streams of its 100,000 tonne per month uranium plant. The mine calcined its first batch of yellowcake through a third-party calciner producing 23,760 pounds of uranium at the end of Q3 FY 2010. This first container of uranium was shipped to international converters on February 10, 2010. The Corporation sold 22,500 pounds of uranium to international converters on March 9, 2010. A second container of uranium was shipped abroad on April 2, 2010.

 

Outlook

 

The key elements that drive production and operating results at the Ezulwini Mine are: the creation of available face length, with gold and uranium grades within planned ranges; increasing available face length, training mining crews and equipping of panels thereby increasing production build-up; reducing dilution and improving its mine call factor, including gold and uranium recoveries; favourable ZAR prices for gold and uranium; and the sale of uranium to nuclear power utilities.

Notes:

  1. CIM definitions were followed for mineral resources.
  2. UE refers to the Upper Elsburg Reef horizon, which is mined for gold only; ME refers to the Middle Elsburg Reef horizon, which is mined for gold and uranium.
  3. Mineral resources were estimated at a cut-off grade of 4.0 g/t Au for the UE and 3.0 g/t for the ME.
  4. Mineral resources were estimated using an average long-term gold price of US$775 per ounce, US$56 per pound U3O8, and a US$/R exchange rate of 7.0.
  5. A minimum mining width of 1.0 m was used.
  6. Rows and columns may not add exactly due to rounding.
  7. Mineral resources that are not mineral reserves do not have demonstrated economic viability.
  8. 2009 production tonnes from FIU records. 2009 production grade from Scott Wilson RPA estimate.

 

The mineral resource estimates were updated in a Technical Report by Scott Wilson RPA dated March 22, 2010. Mineral resources that are not mineral reserves do not have economic viability. The mineral resource statement has been reviewed and approved by D Bergen, P.Eng.; W Valliant, P.Geo., and D Ross, P.Geo,; each of whom is a “qualified person” underNI 43-101 with regard to these resources. Additional information can be found in the Company’s Annual Information Form dated June 29, 2010 and the technical report for the Ezulwini Mine dated March 22, 2010, both of which are filed on Canada’s SEDAR website, www.sedar.com.