Quarterly Activities Report
Mount Marion Lithium Project
Barrambie Vanadium Project
(Production JV with Mineral Resources Limited)
During the December quarter 2010 the Company announced it had received works approval for plant construction from the Department of Environment and Conservation (DEC) to commence erection of the minerals processing plant at the Mt Marion Lithium Project, near Kalgoorlie, Western Australia. Construction of the plant in modular form by joint venture partner Mineral Resources Limited (ASX: MIN) (“Mineral Resources”) at its workshops in Kwinana, is well advanced. Approval has been granted for site clearing and will commence upon approval of the Mining Proposal, expected to be received early 2011.
Production is expected to commence in the September quarter of 2011 at an initial rate of 240,000tpa of spodumene concentrate grading nominal 6.0% Li2O, containing some 14,400 tonnes lithium oxide (Li2O). Total contained lithium oxide resources at present are 146,000 tonnes (Li2O).
The Joint Venture with Mineral Resources was recently expanded to include mica, tantalum and potash feldspar. Recent test work has highlighted the potential to recover significant quantities of these by-products.
Continued strong underlying market fundamentals, reflecting the growing strategic importance of chemical-grade lithium to developed economies, has led to increased interest in the Company and the Mount Marion Lithium Project from a range of industry participants. The Company has received approaches from parties proposing various transaction structures ranging from downstream toll treatment and/or joint ventures through to outright acquisition of the upstream (spodumene concentrate) operations.
In light of these developments, in December 2010 Reed appointed leading independent Australian investment bank Gresham Advisory Partners Limited to assist the Company in considering its strategic alternatives in relation to the Mount Marion Lithium Project, with a view to maximising shareholder value.
Although Reed believes that this opportunity can progress in a constructive and commercial manner, no party is under any obligation to proceed with any downstream processing proposal and regulatory requirements still need to be considered and addressed with no certainty that a transaction will eventuate. A decision on how the Company intends to proceed is expected Q1 2011.
Since May 2010 Reed Resources has been in discussions with China Non-Ferrous Metal Industry’s Foreign Engineering and Construction Co. Ltd (“NFC”) about NFC participating in development of the Barrambie Vanadium Project, which is recognised as one of the world’s highest grade vanadium deposits.
Reed and NFC initially entered into an exclusivity agreement that expired on the 31st August 2010 (the agreement was subsequently extended to 30th September 2010, and then lapsed). On 11 November 2010 the Company announced it had entered into a Memorandum of Understanding (MoU) with NFC for the Barrambie Vanadium Project in Western Australia. The MoU formalises discussions to date between Reed and NFC, specifically covering an engineering procurement and construction contract (EPC) and project financing, and represents the next step towards the successful development of the Barrambie Vanadium Project.
The MoU envisages NFC will undertake the engineering procurement and construction (“EPC”) contract for Barrambie in conjunction with West Australian based engineering and construction company Arccon (WA) Pty Ltd (“Arccon”). NFC will also assist Reed in securing debt and equity funding for the development of Barrambie.
As part of the MoU, NFC and Arccon have agreed to provide Reed with an updated fixed-price EPC estimate by Q1 2011. The updated estimate from NFC is expected to specify the use of Chinese equipment and services for the Barrambie Project and Reed expects the updated estimate will deliver significant savings compared with the original Definitive Feasibility Study capital cost estimate of A$628.9 million, subject to escalation and foreign exchange movements.
The involvement of both NFC and Arccon in the EPC consortium enables Reed to access the cost benefits of a Chinese contractor, whilst retaining appropriate Australian expertise and experience, to ensure Australian standards and work practices are adhered to and construction of the Project can be executed smoothly.
Reed and NFC are in discussions with banks and potential equity financing partners and will ensure the market remains fully informed about further developments as they arise.
Reed is being advised by Azure Capital Limited in relation to this transaction.
A Public Environmental Review Document (PER) was released for public comment to the public on 17th June 2010 and public submissions closed on 26th July 2010. A number of submissions were received from interested parties, and the Environmental Ptroection Agency (EPA) is currently considering the Company’s response to these submissions before preparing its report and recommendations for the Minister.
The PER document was based on the Definitive Feasibility Study (DFS) completed in April 2009 that targeted treating 3.2 million tonnes per annum of vanadium bearing magnetite/hematite mineralisation at a grade of 0.82% V2O5 to produce 6,300t of V as Ferrovanadium (FeV80) per year for a minimum of 12 years. The Ferrovanadium price is currently US $31/Kg of V2O5 (Ryans Notes 21 January 2010).
The Company resumed 100% ownership of the Sand Queen Gold Mine and all associated joint venture assets and infrastructure at the Comet Vale Gold Project in Western Australia from 1 June 2010.
Reed completed the first phase of a staged holistic review of the Comet Vale Project. Stage 1 of the review examined the potential to expand the Princess Grace open pit. Stages 2 and 3 have not yet commenced, pending a review of the data and other potential opportunities.
The mine remains on care and maintenance and there was no production from the Sand Queen during the December quarter.
The Stage 1 drilling program (Figure 2) was completed during the December quarter, with all assay results now received. The drilling intersected the Princess Grace structure in each of the drill holes but the gold tenor of the intersections did not extend the current reserve or pit optimisation. The principle strategy behind this drilling was to extend the pit allowing a portal and underground access scenario to be developed to exploit the underground areas from the two main lode systems.
The remainder of the drilling program has been placed on hold pending a review of the Company’s gold assets and a strategy being formulated on the most effective vehicle for expansion of the gold business.
The Nimbus precious metals processing plant and mining leases M26/490 and M26/598 were purchased from Polymetals Pty Ltd in September 2009. The plant was capable of treating 250,000 tonnes per annum of oxide ore and is situated approximately 15 kilometres east of Kalgoorlie (Figure 3).
During the previous quarter the Company continued to progress the Pre-Feasibility Study for recommissioning of the Nimbus Treatment Plant. The study indicated that the most capital effective improvement would be to refurbish the existing plant “as is” with an immediate target of 250,000 tonnes per annum of hard rock ore but allowing space within the plant foot print to expand to 500,000 tonnes per annum in the future.
The current treatment plant has a Merrill Crowe circuit for the recovery of gold. This will be replaced by a carbon-in-pulp circuit, which is seen as an important step to reduce operational risk and improve plant efficiency and gold recovery.
A Works Approval for refurbishment of the plant will be lodged in the March Quarter.
As a first step in the refurbishment the existing ball mill was removed from its bearings and placed on supports to enable the ball charge to be removed and the inside of the mill to be pressure cleaned. Overall the ball mill is in reasonable condition and has removed from site for machining of the end plate and replacement of some of the rubber liners.
During the December quarter Western Power installed a customer poletop switch from the existing Bulong High Voltage Line, the poles were ordered and the tender for construction of the high voltage power line along a power line easement (L25/32) from the Bulong Road directly into the Nimbus mining lease M26/490 (Figure 3) was let.
The Mt Finnerty Project, located about 65 km east of Koolyanobbing (Figure 4), is currently being explored for iron ore in joint venture with Cliffs Natural Resources (“Cliffs”) and nickel mineralization, partly in joint venture with Barranco Resources NL (“Barranco”).
The first stage of resource definition drilling program was undertaken during the December 2010 quarter with a total of 25 RC holes completed.
Drill assay results are still pending but initial (visual) results from the drilling indicate potential for a low grade resource. Several intersections have also been sampled for analysis for gold and again results are pending.
No additional work has been conducted on the anomalous areas this quarter. This part of the Mt Finnerty project remains prospective for massive nickel sulphide mineralisation. A shallow RAB program to target the basal contacts has been designed.
A review of the gold prospectivity on the Eastern flank of the Mt Finnerty holding has been an ongoing project this last quarter, with particular focus around the Tasman and Flinders projects (Figure 5). Favourable structural settings and geophysical anomalies have been interpreted to the west of these prospects. A drilling program to test these anomalies has been designed and may be drilled in 2011.
The Bell Rock Range Project (E69/2293) covers some 471 km2 within the western part of the Proterozoic Musgrave Block in central Australia. It is highly prospective for several commodities, particularly Ni-Cu sulphide and PGE mineralisation.
No work has been conducted at Bell Rock Range during the quarter.
The following corporate events took place during the quarter;
At the end of the quarter the Company had $13.4 million in cash and term deposits, including $9 million in restricted-use term deposits supporting performance bonds.
Geological aspects of this report that relate to Exploration Results have been compiled by Mr Craig Fawcett (MAusIMM), a full-time employee of Reed Resources Ltd. Mr Fawcett has sufficient experience relevant to the styles of mineralisation and types of deposit under consideration and to the activity being reported on to qualify as a Competent Person as defined in the Code for Reporting of Mineral Resources and Ore Reserves. Mr Fawcett consents to the inclusion in the report of the matters in the form and context in which it appears.
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