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Adex Mining's ambition to develop indium-tin mine in New Brunswick takes massive leap forward

By Richard Badakaus

October 21,2010

Adex Mining's (TSX-V:ADE) ambition of becoming a significant producer of indium and tin received a massive boost after the company recently announced a financing agreement with a Hong Kong based investor. The agreement includes the placement of 40 million shares at 12 cents to raise CAD$4.8 million which closed on October 19, 2010, a warrant to raise CAD $7.2 million and terms for a $50 million debt financing package to bring its Mount Pleasant Mine, located in New Brunswick, back into production by 2012.
Adex Mining currently has approximately 109 million fully diluted shares and is, capitalized at CAD$11.5 million, before the new issue. The funds raised will be applied to the completion of a Definitive Feasibility Study (DFS) on the North Zone, which has a NI 43-101 compliant Indicated Resource of 10.88 million tonnes of 0.43% tin, 64 parts per million of indium, 0.67% zinc, 0.11% copper and 0.08% bismuth and an Inferred Resource of 7.6 million tonnes of 0.22% tin, 72 parts per million of indium, 0.99% zinc, 0.09% copper and 0.05% bismuth.
A recently completed Preliminary Economic Assessment (PEA) highlighted favorable economics for this unusual deposit. Estimated pre-production capital cost of CAD$71 million for a planned mine life of 10 years at a mining rate of 850 tonnes per day. Annualized revenues estimated at CAD$48 million, with operating costs of CAD$23 million, producing a free cash flow of CAD$25 million, utilizing US$14.70 per kilogram of tin, US$2.45 per kilogram of zinc and US$580 per kilogram of indium from the sale of concentrates. Pre-tax Net Present Value came in at CAD$80 million, producing a healthy pre-tax Internal Rate of Return of 29%. Current price of tin is US$26.50 per kilogram, of indium is US$580 and zinc is US$2.22.
The "in mill" feed came in at 0.71% tin, 1.82% zinc and 183 g/t of indium, to produce 3,200 tonnes per year of tin, 4,000 tonnes of zinc and 40 tonnes of indium. The Hong Kong backers will manage their investment in Adex through Great Harvest, which deals in metals and metals concentrate and can assist with accessing technologies and to sell finished product.
As part of the DFS, Adex Mining will drill out the North Zone, which covers 8 sub zones over a surface area of 450 meters by 250 meters to a depth of 450 meters, and includes surface, near surface and underground ore resources. This will allow the DFS to assess the economic potential for development of, low cost low tonnage, near surface tin and indium deposits, as well as deeper underground resources. Drilling and technical studies are expected to be completed by mid 2011. Great Harvest can also assist with the purchase of mill and mining equipment, which could offer significant reductions to capital costs and get the project into production by 2012.
The original mine was built by Billiton Exploration Canada at a cost of $150 million, producing 990,200 tonnes of tungsten from 1983 to 1985, and then ceased production due to reduced tungsten prices. During this time all of the production came from the underground Fire Tower Zone, which was joined to the North Zone by a 1,187 meter long access ramp. This second zone hosts a current Indicated Resource of 13.4 million tonnes of 0.33% tungsten, 0.21% molybdenum and 0.06% bismuth and an Inferred Resource of 841,700 tonnes of 0.26% tungsten, 0.20% molybdenum, and 0.04% bismuth.
Adex estimates pre-production capital of $130 million at the Fire Tower Zone, for a mine life of 12 years at a production rate of 2,400 tonnes per day. Annualized revenues are estimated at $92 million, operating costs at $49 million, and free cash flow of $46 million. Pre-tax Net Present Value is at $164 million and the pre-tax Internal Rate of Return is 27%. Metallurgical test work and feasibility studies are expected to be completed by 2012, so that construction and development can be completed by 2014 for the commencement of ore processing. The in mill feed grade is calculated at 0.33% tungsten and 0.21% for molybdenum, with recoveries of between 76 to 82%, producing 1,900 tonnes per year of Ammonium Paratungstate and 1,100 tonnes per year of molybdenum concentrate.
Both the North Zone and Fire Tower Zone are open for delineation of additional resources. An area known as the Saddle Zone sits in the middle of these zones and contains an irregular distribution of tin with small amounts of tungsten, molybdenite and bismuth, with an additional target outlined at Hornet Hill, located 1.5 kilometers to the west of the North Zone. The remainder of the property, which carries complex geology, marked by multiple episodes of volcanic activity, has never been fully explored with modern sensing technologies.
Mount Pleasant is ranked as the world's largest and richest indium resource and North America's largest tin resource. The area has excellent infrastructure for export of metal to local and overseas buyers, with all season roads, building complex, some process plant, electrical and water supply, underground workings and tailings pond with an estimated replacement value of $84 million.
Indium is a rare and very soft and malleable metal, easily fusible with other metals, and is a key component of liquid crystal displays, touch screens, high efficiency thin film solar panels and light emitting diodes, fiber optics and semiconductors, lead free solders, and is used as an imaging agent in nuclear medicine amongst a host of applications. Consumption of the metal is rising significantly as technology applications multiply. The metal is predominantly found in zinc deposits, but also in iron, lead and copper ores.
Canada is a leading producer with Teck (NYSE:TCK, TSX:TCK.A) refining 45 to 75 tonnes per year at its Trail smelting and refining complex, and is acknowledged as the world's largest producer of indium. Xstrata (LSE: XTA) refines some 11 tonnes per year at Falconbridge, Ontario. China produces approximately 50% of world supply and is a major consumer, has imposed restrictions on exports of indium, which suggest Adex Mining's fast track to production appears to well timed, and if successful, the company will certainly garner a better valuation.