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Lac Dore Vanadium Feasibility Study

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Table of Contents VOLUME 1 Page xi

Notice 1.0

Executive Summary

1-1

1.1

General Information

1-1

1.2

Geology and Resources

1-1

1.3

Mining and Mining Reserves

1-2

1.4

Processing 1.4.1 General Description of the Proposed Process 1.4.2 Test Work 1.4.3 Design Criteria 1.4.4 Process Description

1-3 1-3 1-3 1-5 1-6

1.5

Tailings and Water Management

1-9

1.6

Infrastructure, Services and Utilities 1.6.1 Roads 1.6.2 Site Preparation 1.6.3 Surface and Sanitary Drainage 1.6.4 Solid Wastes Disposal. 1.6.5 Parking 1.6.6 Potable Water. 1.6.7 Fresh Water. 1.6.8 Process Water 1.6.9 Fire Protection 1.6.10 Heating OiL 1.6.11 Diesel and Gasoline 1.6.12 Steam and Condensate 1.6.13 Compressed Air. 1.6.14 CoolingWater. 1.6.15 Pipe Rack 1.6.16 Outside Storage 1.6.17 Truck Scale

1-10 1-10 1-10 1-10 1-10 1-11 1-11 1-11 1-11 1-11 1-12 1-12 1-12 1-12 1-12 1-12 1-12 1-13

1.7

Electrical, Automation and Communications 1.7.1 Hydro-Quebec Tie-in and 161 kV Transmission Line 1.7.2 Main Substation 1.7.3 Plant Electrical Distribution 1.7.4 Communication Systems 1.7.5 Automation 1.7.6 Emergency Power System

_1-13 1-13 1-13 1-13 1-14 1-14 1-14

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2.0

3.0

1.8

Buildings

1-14

1.9

Market Study Summary

1-15

1.10

Operating Cost Estimate

1-16

1.11

Capital Cost Estimate

1-16

1.12

Environmental Study

1-18

1.13

Project Schedule

1-23

1.14

Financial Analysis

1-23

1.15

Conclusions

1-25

1.15

Conclusions

1-26

1.16

Recommendations

26

General Information

2-1

2.1

Introduction

2-1

2.2

Scope of Work 2.2.1 Contents of the Feasibility Study 2.2.2 Preparation of the Feasibility Study

2-1 2-1 2-2

2.3

Physiography " 2~3.1 Location : 2.3.2 Topography ~ : 2.3.3 Hydrology 2.3.4 Seismicity 2.3.5 Wind

2-2 2-2 2-3 2-3 2-3 2-4

: •.

:...'.' -

2.4

Climate

2-4

2.5

Criteria and Assumptions

2-4

Geology and Resources

3-1

3.1

Introduction and Scope of Work

3-1

3.2

Summary and Conclusions

3-2

3.3

Historical Work (MRN, SOQUEM, lOS, CAMBIOR)

3-4

3.4

Regional Geology 3.4.1 Stratigraphy 3.4 .2 Mineral Deposit.. 3.4.3 Structural Geology

3-7 3-7 3-8 3-8

3.5

Local Geology

3-11

3.6

Mineralogy

3-14

3.7

Methodology of Sampling and Assaying 3.7 .1 Drill Core and Channel Sampling

3-19 3-1 9

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3.7.2 3.7.3 3.7.4 3.7.5 3.7.6

4.0

Davis Tube (Composite Samples) Satmagan Microprobe Specific Gravity Testing Bulk Samples

3-20 3-23 3-23 3-25 3-27

3.8

Data Validation 3.8.1 Introduction 3.8.2 Early Drilling Core Data 3.8.3 Assay Certification 3.8.4 Validation of the Davis Tube Method 3.8.5 2001 Confirmation Drilling 3.8.6 Results of Statistical Analysis 3.8.7 Results of Geostatistical Analysis

3-27 3-27 3-27 3-28 3-32 3-32 3-33 3-38

3.9

Block Model for Resource Estimation 3.9.1 Ore and Waste Determination 3.9.2 Methodology of Modelling 3.9.3 Rock Types and Database Structure 3.9.4 Specific gravity 3.9.5 Variables in the Block Model

3-42 3-42 3-45 3-45 3-45 3-46

3.10

Resources

3-46

3.11

Reference Documents . : . . 3.11.1 Public Documents and Company Documents 3.11.2 Electronic and Computer Documents

3-49 3-49 3-50

Mining

4-1

4.1

Open-pit Design and Mining Reserves 4.1 .1 General 4.1.2 Whittle-4D Calculations of Mineable Reserves 4.1.3 Final 20-Year Pit Plan 4.1.4 Mining Reserves for the 20-Year Period 4.1.5 Mining Plans for Assessment of Profitability

.4-1 4-1 .4-1 .4-4 .4-8 .4-14

4.2

Mining Equipment 4.2.1 Operational Delays 4.2.2 Mechanical Availability 4.2.3 Equipment Utilisation 4.2.4 Loaders 4.2.5 Haul Trucks 4.2.6 Blasthole Drills

4-15 .4-16 4-16 4-17 4-17 4-18 4-19

4.3

Support Equipment 4.3.1 Bulldozers 4.3.2 Grader 4.3.3 Water/Sand Truck 4.3.4 Service Vehicles

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4.3.5 4.3.6 5.0

6.0

Bus Mobile Lighting Plants and Pumps

Processing

5-1

5.1

5-1

General

Tailings and Water Management

6-1

6.1

Summary

6-1

6.2

Tailings Characteristics

6-2

6.3

Design Criteria

6-3

6.4

Potential Sites Considered

6-4

6.5

Design Overview 6.5.1 Concentrator Tailings 6.5.2 Calcine Tailings 6.5.3 Gypsum Waste

6-6 6-6 6-7 6-8

Operation and Management of Tailings Storage Facilities Concentrator Tailings Storage Facility Calcine Tailings Storage Facility ~

6-8 6-8 6-9

6.6

6.6.1 6.6.2 6.7

7.0

4-21 .4-21

Water Management 6.7.1 GeneraL :' 6.7.2 Concentrator Tailings Storage Facility 6.7.3 Calcine Tailings Storage Facility

6-9 6-9 6-9 6-10

Infrastructures, Services and Utilities

7-1

7.1

Site Access Roads

7-1

7.2

Site Preparation

7-2

7.3

Surface and Sanitary Drainage

7-2

7.4

Solid Waste Disposal.

7-2

7.5

Parking and Site Roads

7-2

7.6

Potable Water

7-3

7.7

Fresh Water

7-3

7.8

Process Water

7-3

7.9

Fire Protection

7-3

7.10

N掳2 Fuel Oil

7-3

7.11

Fuel and Diesel

7-3

7.12

Steam and Condensate

7-4

7.13

Compressed Air

7-5

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8.0

9.0

7.14

Cooling Water

7-5

7.15

Pipe Rack

7-5

7.16

Outside Storage

7-5

7.17

Truck Scale :

7-6

Electrical, Automation and Communications

8-1

8.1

161 kV Transmission Line

8-1

8.2

Main Substation

8-4

8.3

Plant Distribution 8.3.1 13.8 kV Distribution Lines 8.3.2 SAG and Ball Mill Loads 8.3.3 Auxiliary Systems Loads

8-4 8-4 8-5 8-6

8.4

Emergency Power

8-8

8.5

Communications 8.5.1 Requirements 8.5.2 Options Evaluated 8.5.3 Microwave Link 8.5.4 Telephone System : 8.5.5 Computer Network 8.5.6 Meter Communications for Hydro-Ouebec 8.5.7 Local Radio Communication 8.5.8 GPS-Radio Equipment for Land Measuring 8.5.9 Security Access and Alarm System

8-8 8-8 8-9 8-9 8-10 8-10 8-10 8-11 8-11 8-11

8.6

Lighting and Services

8-12

8.7

Fire Alarm System

8-12

8.8

Grounding

8-12

8.9

Uninterrupted Power Supply (UPS)

8-13

8.10

PLC and MMI Network 8.10.1 Requirements 8.10.2 System Description

8-13 8-13 8-13

8.11

Automation

8-14

8.12

Programming

8-15

Buildings

9-1

9.1

General .

9-1

9.2

Process Buildings

9-1

9.3

Garage

9-1

9.4

Warehouse

9-2

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10.0

9.5

Administration BUilding

9-2

9.6

Utilities Building

9-3

Environmental Assessment - Summary

10-1

10.1

Context of the Mandate

10-1

10.2

Legal Framework 10.2.1 Impact Assessment Process 10.2.2 Mining Act. 10.2.3 Other Requirements

10-1 10-1 10-2 10-3

10.3

Location and Overview of Mining Operations 10.3.1 Mine Location 10.3.2 Overv iew of Mining Operations

10-4 10-4 10-4

10.4

Main Socio-Economic and Environmental Characteristics 10.4.1 Overv iew 10.4.2 Aboriginal Land Usage Rights 10.4.3 Forestry Operations 10.4.4 Tourism Activities 10.4.5 The Hydrographic Network 10.4.6 Vegetation ; ; : 10.4.7 W ildlife

10-5 10-5 10-7 10-7 10-7 10-8 10-8 10-8

10.5

; Transportation Infrastructures: Comparison of Rights-of-Way 10.5.1 Presentation : 10.5.2 Comparative Analysis of Recommended Rights-of-Way

10-10 10-10 10-10

10.6

Characteristics of the Aquatic Milieu and Background Noise Determination 10.6.1 Ph And Mineralization Parameters 10.6.2 Organic Colour and Carbon 10.6.3 Sediment Analysis 10.6.4 Analysis of in the Biomass (Fish and Benthos)

10-13 10-13 10-14 10-15 10-15

10.7

Vanadium Toxicity in Fish

10-16

10.8

Vanadium Bioaccumulation in Fish

10-16

10.9

Projected Industrial Waste 10.9.1 Gaseous Waste 10.9.2 Liquid Waste 10.9.3 Solid Waste

10-18 10-18 10-24 10-25

10.10 Hydrogeological Study 10.10.1 Groundwater Seepage ModeL 10.10.2 Groundwater Flow Model 10.10.3 Choice of Concentrator and Calcination Residue Sites 10.10.4 Potential Sites for Process Water Intake

10-31 10-31 10-32 10-32 10-34

10.11 Site Assessment..

10-34

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10.11.1 Drinking Water Supply

10-35

11.0

Project Schedule

12.0

Operating Cost Estimate............................................•..........•............................ 12-1

11-1

12.1

Summary

12-1

12.2

Working Conditions and Manpower

12-1

12.3

Basis of Manpower Cost Estimate

12-4

12.4

Mining Operating Cost Estimate 12.4.1 General 12.4.2 Scope of Estimate 12.4.3 Mine Operating Cost Estimate

12-5 12-5 12-6 12-6

12.5

Mill Operating Cost Estimate 12.5.1 Summary of Mill Operating Cost.. 12.5.2 Mill Manpower 12 .5.3 Mill Consumables 12 .5.4 Mill Reagents 12.5.5 Mill Electricity 12.5.6 Mill Maintenance and Laboratory Supplies 12.5.7 Other Mobile Equipment..

12-12 12-12 12-12 12-14 12-14 12-14 12-15 12-15

Refinery Operating Cost Estimate :~ , : Summary of Refinery Operating Cost Estimate Manpower Refinery Electricity Refinery Maintenance and Laboratory Supplies Refinery NO.2 Oil Refinery Reagents Refinery Other Mobile Equipment..

12..:16 · 12-16 12-16 12-18 12-18 12-19 12-19 12-19

12.6

12.6.1 12.6.2 12.6.3 12.6.4 12.6.5 12.6.6 12.6.7 12.7

Sales, Engineering and Administration Cost Estimate 12-19 12.7.1 Summary of Sales, Engineering and Administration (S.E.&A.) Cost Estimate 12-19 12.7.2 S.E.&A. Manpower 12-20 12-22 12.7.3 S.E.&A. Energy 12.7.4 S.E.&A. Maintenance and Safety Supplies 12-22 12.7.6 S.E.&A. General Maintenance 12-23 12.7.7 S.E .&A. Office Expenses 12-23 12.7.8 S.E.&A. Other Mobile Equipment.. 12-23 12.T.9 Transportation of Electrolyte 12-24 12.7.10 Administration Cost 12-24

12.8

Transportation, Storage and Ship-Loading Costs Estimate

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13.0

Capital Cost Estimate

13-1

13.1

13-1

13.2

Summary

,

Basis of Estimate 13.2.1 General. 13.2.2 Purpose 13.2.3 Estimate Base Date and Escalation 13.2.4 Schedule 13.2.5 Scope 13.2.6 Estimate Approach 13.2.7 Work Week 13.2.8 Equipment and Material Costs 13.2.9 Civil Work 13.2.10 Steel Structures 13.2.11 Architectural Buildings 13.2.12 Piping 13.2.13 Piping Insulation 13.2.14 Heat Tracing 13.2.15 Electrical 13.2.16 Instrumentation and Automation . 13.2.17 Construction.Labour Rates 13.2.18 Freight '1'3.2.19 EPCM : '. 13.2.20 Construction Indirects 13.2.21 Other Cost. 13.2.22 Owner's Costs 13.2.23 Contingencies 13.2.24 Currency 13.2.25 Confidence Factor 13.2.26 Exclusions

,

• • ••• • • • •

13.3

Mining Cost Estimate 13.3.1 General. 13.3.2 Mine Preparation 13.3.3 Rock Mechanics Study 13.3.4 Mine Equipment.. 13.3.5 Capital Replacement Costs

13-11 13-11 13-11 13-12 13-12 13-12

13.4

Service Mobile Equipment

13-16

13.5

Site Restoration and Mine Closure Cost Estimate

13-18

ATTACHMENT 1)

u

13-2 13-2 13-2 13-2 13-2 13-2 13-7 13-7 13-7 13-7 13-7 13-7 13-8 13-8 13-8 13-8 13-8 -' 13-8 13-9 13-9 13-9 13-9 13-9 13-10 13-10 13-10 13-10

Estimate Summary by Area (ESW)

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14.0

Market Study....................... .............................. ..............................•................... 14-1 14.1

Traditional Markets

14-1

14.2

Forecast for Published Prices in Traditional Markets

14-9

14.3

Innovative Markets for Vanadium: Energy Storage 14.3.1 Addressable Demand

14.4

Market Entry Scenarios

"'

VOLUME 2

1. 2. 3.

Drawings Equipment List Visit Report (of Redox batteries, Osaka, Japan)

01452B.McKanzieBayfTOCPlO402

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ApPENDICES (as individual documents) Appendix Title of Report A.

Campagne de forage de validation

1.0.S. Services Geoscientifiques

B.

Preliminary Pit Slope Design

Golder Associe ltee

C.

Etude d'impact environnemental (2 Volumes)

Entraco

D.

Investigation Geotechnique Prelirninaire

Golder Associes ltee

E.

Ore petrography and microprobe analysis of vanadiferous magnetite

1.0.S. Services Geoscientitiques

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NOTICE

This document contains the expression of the professional opinion of SNC-Lavalin Inc. ("SLI") as to the matters set out herein, using its professional judgment and reasonable care. It is to be read in the context of the agreement dated April 11, 2001 between SLI and McKenzie Bay Resources Ltd., and the methodology, procedures and techniques used, SLI's assumptions, and the circumstances and constrains under which its mandate was performed . This document is written solely for the purpose stated in the Agreement, and for the sole and exclusive benefit of the client, whose remedies are limited to those set out in the Agreement. This document is meant to be read as a whole, and sections or parts thereof should thus not be read or relied upon out of context. SLI has, in preparing the cost estimates, followed methodology and procedures, and exercised due care consistent with the intended level of accuracy, using its professional judgment and reasonable care, and is thus of the opinion that there is a high probability that actual costs will fall within the specified error margin. However, no warranty should be implied as to the accuracy of estimates. Unless expressly stated otherwise, assumptions, data and information supplied by, or gathered from other sources (including the client, other consultants, testing laboratories and equipment suppliers, etc.) upon which SLI's opinion as set out herein is based has not been verified by SLI; SLI makes no representation as to its accuracy and disclaims all liability with respect thereto. -", SLI disclaims any liability to the client and to third parties in respect of the publication; reference, quoting , or distribution of this report or any of its contents to and reliance thereon by any third party .

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1.0

Executive Summary

1.1

General Information The Lac Dore vanadium deposit is located approximately 70 km southeast of Chibougamau, Quebec, Canada. In April 2001, SNC-Lavalin Inc. (SNC-Lavalin) was selected by McKenzie Bay International Ltd. (McKenzie Bay) via its wholly owned subsidiary McKenzie Bay Resources Ltd. to carry out a feasibility study for its project to develop an open pit mine based on that deposit and to build a process plant consisting of primary crushing and stockpiling, ore reclaiming , milling and magnetic separation of concentrate, and roasting and refining of magnetic concentrate. The scope of the study also included geology definition and resource estimation, and an audit drilling program at the deposit to validate the extent of the mineral reserves as derived from the various drill holes and surface trenches done since 1958. The feasibility study also includes the estimation of capital and operating costs and a financial analysis. Separate mandates were awarded by McKenzie Bay to Entraco for the environmental study , to Secor for a market study, and to Savanco to assist SNC-Lavalin in process development. The results of their work was incorporated in their report. The project's original scope consisted of the development of the mine plan, processing facilities and infrastructure required to produce metallurgical grade pentavanadate (V20S) , intended for the conventional steel alloys market. In August 2001, the scope of the project was increased to include the development of processing facilities to produce , as an alternative, an equivalent quantity of vanadium-based chemicals intended to be used in vanadium "Redox" batteries (VRB) developed by Sumitomo Electric Industries (SEI). A new process technology was developed by SNC-Lavalin with the collaboration of Savanco, to produce high purity battery chemicals at lower capital and operating costs when compared to existing processes.

1.2

Geology and Resources The Lac Dore magnetic deposit was discovered in 1954 and staked by Dominion Gulf. In 1958, Jalore Mining did a short exploration program including six drill holes. In 1966, the discovery of vanadium content in the Lac Dore titaniferous deposit by Dr. Gilles Allard while mapping the region forthe Mlnistere ~es Richesses Naturelles du Quebec (MRN) changed the economic perspective of the project. MRN re-staked the property and drilled 13 additional holes in 1970

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and 1974, that outlined resources of 72 million tonnes grading 31.3% Fe and 0.5% VzOs in the rock. After 1977, SOQUEM did additional work, including 19 drill holes, that confirmed the resource outlined by MRN . In 1997, McKenzie Bay International optioned the property and conducted a systematic surface sampling program, the results of which were used in a pre-feasibility study by Cambior in 1999. The deposit is divided into three thick and extensive magnetite units: P1, P2 and P3, of which P2 is the higher grade material. SNC-Lavalin validated the existing database and geological interpretation and created a block model of the deposit using kriging. Using this block model, SNC-Lavalin estimated the measured and indicated resources of the deposit at 102 million tonnes at 35% magnetite, 17.4% ilmenite and 0.50% VzOs which confirmed LO.S. previously estimated resources of 100 million tonnes at a grade of 0.49% VzO in the "measured" and "indicated" categories . LO.S. also estimated an additional "inferred resources" of 350 million tonnes at 0.45% VzOs. Since the measured resources were sufficient for the 20 years life of the project, SNC-Lavalin did not validate the inferred r~s;ources estimated by 1.0.$.

1.3

Mining and Mining Reserves The mining of the Lac Dare vanadium deposit will be done by the open pit method . The mineable reserves were established from the block model using the Whittle-4D software program. The block model covers an area of 5,300 metres (strike) by 1,000 metres (width) and 200 metres (depth). The Small Mining Units (SMUs) of the block model are 10 m 3 each (10m x 10m x 10m). The tonnage of each block was calculated using specific graVities based on average grades of magnetite and ilmenite estimated in the block model. The vanadium grade of each block was used to determine if the block was to be classified as ore or as waste. Following the Whittle results, the best possible 20-year mining plan was established, for a total reserve of 80 million tonnes of ore. Mine production equipment was chosen on the basis that it has to be able to supply some 12,000 tonnes of ore per day to the crusher, for an annual concentrator production of some 4,300,000 tonnes of ore. The average stripping ratio of waste to ore for the first 5 years was established at 1.4:1 in order to free sufficient ore for the following years. Ore mining will be done on two shifts of 8 hours, 7 days per week, 52 weeks per year. A third shift will be necessary for the hauling of waste.

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1.4

Processing

1.4.1

General Description of the Proposed Process SNC-Lavalin has developed with the collaboration of Savanco, and Lakefield Research, a new process to produce pure vanadium chemicals from the Lac Dore vanadium ore. All information in Chapter 1.4 and Section 5 is confidential and has been removed from the public version of the report except for 1.4.1 General and 5.1 General. Vanadium recovery from ore is quite difficult and comprises of ore beneficiation, sodium salts roasting, water leaching and solution treatment processes. During beneficiation, the mined ore is crushed and milled to the required particle size. Magnetic separation is often included since magnetite is a parent mineral for most industrially treated vanadium bearing ores. During sodium salts roasting, the water insoluble vanadium is converted to water soluble form. In the next operation, vanadium is dissolved from the mineral by leaching in water. , .. . Vanadium bearing solution is then treated to yield vanadium product. Solution treating methods differ from case to case and are generally tailored to product type and quality.

1.4.2

Test Work

1.4.2.1

Production of Magnetic Concentrate The development of the vanadium ore beneficiation process to produce a vanadium-magnetite concentrate was performed using the mineralogical, and metallurgical information, data and test results mainly generated by Lakefield Research Limited and A. R. MacPherson Consultants Limited. The metallurgical test work has been performed at bench scale (laboratory), and pilot plant level. Figure 1.4.2.1 shows the process flow diagram that has been developed from the test work and that has been retained for the elaboration of the concentrator design criteria, material and metallurgical balances.

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Figure 1.4.2.1 Selected Concentrator Process Flow Diagram

Magnetic Separators SAG Mill

Classification

~""O'--....

Ball Mill oncentrate ' - - - ' " To Tailings

The following data, generated from the test work, were retained for the concentrator process development:

o

Head grade of 0,47 % V2 0 S and 32% magnetite;

o

Magnetite concentrate grade of 1,2 % V2 0 S . with silica content < 1.0%

Si0 2 . 1.4.2.2

Roasting of Magnetic Concentrate During the sodium salt roasting, the water insoluble vanadium V(+3) is oxidized to vanadium V(+5) , which reacts with sodium to create the water soluble sodium meta-vanadate.

o

Although this process is well described and used since the sixties, the .- confirmation of process parameters was performed during pilot plant testing. During this testing, 8.5 tonnes of the magnetic concentrate was roasted in the Krupp Polysius testing facility in Germany.

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In order to lower the capital and operating cost of the project, the roasting process was designed to include the kiln feed pre-heating and calcine cooling . This arrangement will allow for maximum heat recovery from the kiln off-gas and kiln discharge. Consequently, the kiln is much shorter, resulting in lower capital cost.

1.4.2.3

Calcine Leaching The calcine leaching pilot plant testing was performed at Lakefield Research ltd. During pilot plant operation, 7.5 tonnes of the calcine was treated. This calcine was obtained during roasting pilot plant testing in Germany. The simple calcine leaching circuit then consists of the Regrind Mill, Two Stage Continuous Atmospheric Leaching and Calcine Filtration with washing.

1.4.2.4

Solution Purification Laboratory and pilot plant tests for solution purification were conducted in Lakefield Research. Two liters of battery electrolyte. were: prepared from the Lac Dore ore and shipped to Sumitomo for validation. . Results of analysis done at Lakefield, . indicate that all impurities levels are within Sumitomo specification.

1.4.3

Design Criteria The following are the main general design criteria that were generated and used in the development of this feasibility study. Parameters

Units

Data

Ore grade (P2 zone)

%V20S % Fea04

0,47 32,0

Magnetite concentrate grade

% V 20S

1,20

%

90

Nominal concentrator feed rate

tonnes I year

4,257,362

Design concentrator feed rate

tonnes I hour

540

Nominal magnetite conc . production .

tonnes I year

1,085,627

Design magnetite conc . production

tonnes I hour

137,7

Kiln feed rate (conc. dry basis)

tonnes I hour

137,7

Total kiln feed rate (inc moisture & salts)

tonnes I hour

150,0

%

90

Concentrator availability

Refinery availability

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1.4.4

Process Description

The following gives a description of the proposed process for the production of VRB electrolyte. 1.4.4.1

Preparation of Magnetic Concentrate

The transformation of the run-of-mine ore to produce a magnetic concentrate will include the following process steps:

o

Crushing and Handling;

o

Primary Grinding and Magnetic Separation;

o o

Secondary Grinding and Magnetic Separation;

o

Tailings Disposal and Water Supply.

Concentrate Dewatering;

Crushing and Handlinq

Run-of-mine-ore' will be transported :by haulaqe trucks from the open pit to the crushing plant. The ore will be crushed in a gyratory crusher at a design rate of 1,013 tonnes I hour. Rocks that are too large to enter the crusher will be reduced in size by a hydraulic rock breaker mounted next to the crusher. The crushed ore will be transferred to a 10,000 tonne live outside stockpile by a stacker conveyor. The ore will be reclaimed from the stockpile at a rate of 540 tonnes per hour using apron feeders. The ore will then be transported to the SAG mill by a belt conveyor equipped with a belt scale to control the ore feed rate and water addition. Primary Grinding and Magnetic Separation

The reclaimed crushed ore will be ground in a SAG mill driven by a 8,400 HP motor. The SAG mill will be operating in closed circuit with a vibrating screen. The SAG mill discharge will be diluted and pumped to a vibrating screen . The screen overflow will be returned by gravity to the SAG mill for further size reduction. The screen underflow will be pumped to four primary magnetic separators installed in parallel. The non-magnetic streams will be pumped to the tailings thickener for dewatering and disposal. The magnetic concentrate from the separators will be transferred to the ball mill circuit for further grinding.

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Secondary Grinding and Magnetic Separation

The ball mill circuit, driven by a 8,400 HP motor, will be operating in closed circuit with a cyclone cluster for particle sizing. The cyclones underflow , the coarse fraction , will be returned by gravity to the ball mill for further grinding. The cyclones overflow will be pumped to the secondary magnetic separation circuit which includes three magnetic separators operating in parallel. The magnetic separators will be triple drum, low intensity permanent magnets. The nonmagnetic streams will be pumped to the tailings thickener for dewatering and disposal. The magnetic concentrate from all three secondary magnetic separators will be pumped to the magnetite concentrate holding tank. Concentrate Dewatering

From the tank, the concentrate will be pumped to two pressure filters operating in parallel. In the filters, the concentrate will be dewatered to about 6% moisture. From both filters, the concentrate cake will drop onto a conveyor belt which will transport it to the concentrate storage silo located in the roasting kiln building. The filtrate from the filters will be collected in a filtrate tank and will be pumped back to the tailings thickener for clarification and ultimately re-circulation as process water. .-Tailings Disposal and Process Water Supply

The primary and secondary magnetic separation tailings (non-magnetic) will be forwarded by gravity to the tailings thickener. The thickener will increase the tailings slurry density to about 50% solids prior to disposal to recover the water for re-use as process water. The thickener overflow will be pumped to the process water tank to be re-used in the concentrator circuit. The thickener underflow stream will be pumped to the tailings pond, located some three kilometers away from the concentrator, for disposal. After the solids have settled in the pond, the water will be transferred by gravity to the polishing pond for further clarification. From the polishing pond, the maximum amount of water will be pumped back to the process water tank for reuse, and the excess will be sampled and analyzed before it will be discharged into the environment.

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1.4.4.2

Refining of Magnetic Concentrate Roasting The magnetic concentrate will be discharged from the storage silos onto the flexible conveyor and forwarded to the rotary kiln, where it will be mixed with sodium salts before entering the pre-heater circuit. In the pre-heater circuit, the mixture of magnetic concentrate and sodium salts will be pre-heated by the kiln off-gas and fed directly to the kiln. Fine discharged calcine will be cooled by the ambient air, which will be used for kiln heating. Cooled calcine will subsequently be fed to the regrind mill. The coarse calcine will be fed directly to the regrind mill without air cooling . In the regrind mill, the calcine will be leached in water. Since the hot calcine will be in contact with cold water, the leaching reaction will bevery fast. The fast 路 leaching rate will also be enhanced by the milling effect inside the regrind mill. ;'

. During the operation, the slurry density will have to be checked frequently in order to operate the regrind mill on a optimal solid/liquid ratio. During calcine leaching , a large amount of steam will be generated . This steam will be safely removed from the regrind mill, condensed in a scrubber and returned back to leaching . This will enable operation of the regrind mill with minimal negative impact on environment and reduce consumption of fresh water. The hot slurry will be discharged from the regrind mill and pumped to the leaching section .

two

The kiln off-gas will be treated in stage scrubbing system to remove sulphur dioxiqe~nd . ~ o lid s from gasequs stream.. Generatedjiypsurn will be washed, filtered and discharged to. landfill. Calcine Leachlnq Slurry from the regrind mill will be pumped to the leaching section, where water - - .- .~. ~" ":路路"s oluble vanadium meta-vanadate will be dissolved in water. -. .

. '

The slurry density in the leaching' section will be checked "frequently in order to ---_. ,... operate the leaching section under optimal conditions.

.. . ~

- -

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Lac Dore Vanadium Feasibility Study

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Slurry will be discharged from the leaching section to the calcine filtration section .

Calcine Filtration and Washing Slurry discharged from the leaching tanks will be pumped to the filtration section . After filtration , the solids will be washed on the filter and discharged to the discharge bins. Condensate will be used for calcine washing. It will be discharged in sealed containers that will be transported by truck to the double liners storage ponds where they will be discharged. Filtrate containing dissolved vanadium will be sent to the polishing filtration section, where two polishing filters will be operating in parallel.

Salt Recovery Plant

- -- -_..

Before entering the salt recovery section, the pH of the solution will be adjusted to the required level by adding caustic soda.

~

The salt recovery plant is a mechanical vapour re-ccmpression plant requirinq. Vf~ry little or no steam when operatinq. :-.:. " . .

..

7 ""

'

' :

,

'

,': , : ' , :

'

,

.

..

' : :

..

The condensate produced will be used for calcine washing and dried sodium sulphate crystals will be used for kiln roasting.

1.5

Tailings and Water Management The plant will generate two main tailings streams, concentrator and calcine 3 tailings. The storage volumes required are estimated to be about 2,000,000 m and 300,000 m 3 per annum respectively. In addition gypsum waste from kiln scrubbing will require an estimated annual volume of 12,700 m3 . Three different sites were considered and the best site was selected based on environmental and economical criteria'.

The concentrator tailings storage facility will be formed by conventional tailings dams, built in stages and beginning with a 5 m high· starter dam. <The starter' . dam will provide sufficient storage volume for the first five years of operation. Concenfrate tailings will be pumped and ~d isch a rg ed from..spiqots.arcundthe -entir e .'perimeter of the dam: -Tailin.iis bleed -water 'wfll-=re ~-decanted· to a · · · - -:.. .-=:: --::-:=--=- -sedimeotetion pond' and' returned tothe plant ..__ -..

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The calcine tailings will be filtered and transported in scaled trucks to the calcine cell which will be sealed with a double geosynthetic liner. The calcine will be maintained under a minimum of 300 mm of water to inhibit dust generation. All excess water will be returned to the plant. The gypsum waste will be dumped in trenches excavated in the glacial till overburden.

1.6

Infrastructure, Services and Utilities

1.6.1

Roads Access to the plant will be provided by the existing forestry road #210, from highway #167 . It will give access to the tailing ponds and fresh water pumping station. Since this road will be subjected to a significant volume of traffic, it will be repaired and a new section of about 8 km will be built to give a more direct access to the plant.

1.6.2

Site Preparation The plant site will be levelled at-elevation 508 m. except for the crusher building which will be built at elevation 514.6 rn. Site geotechnical investigations were carried out as part of the study , in order to determine the depth of rock below surface and the type of soil, for buildings and equipment foundations .

1.6.3

Surface and Sanitary Drainage The runoff water on the site will be collected from the surface 路 via a system of ditches and culverts constructed along the roads and at the perimeter of the plant. Sanitary drainage will be underground, piped by gravity flow to a local septic tank connected to a septic field. The tank will be emptied by a local contractor on a - regular basis. -

1.6.4

Solid Wastes Disposal Solid wastes will be put into containers and removed from the site by a local contractor.

r:

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1.6.5

Parking Parking facilities will be provided in various locations, mainly near the guardhouse for visitors and close to the administration building for the majority of the employees. Parking facilities will also be provided for company vehicles in various locations close to their working areas.

1.6.6

Potable Water Potable water will be pumped from a local well. No water treatment is planned at this stage, since it is expected that water quality will meet the norms in this area , Analysis of water will be done on a regular basis. Drinkable water in 4.5 gallon bottles will also be provided in the administration building and in various locations in the plant, such as the control rooms.

1.6.7

Fresh Water Fresh water will be pumped from Lac Sanac and Lake Briqon, for which capacities were checked against requirements for the new process. Water will be pumped into the fresh water tank on site that will provide sufficient reserve .:'; .:'C'apacity for production as well as for fire protection . . : .

_. : ! .;

1.6.8

; :. .- ~'; ~1

-

.:-

..' :

i~

" :

Process Water Process water will be pumped from the tailings thickener and re-circulated from the concentrate tailings ponds to the process water tank located near the concentrator building. It will be pumped from the tank to the various users in the concentrator building.

1.6.9

Fire Protection Fire water will be pumped from the fresh water tank by a fire pump equipped with a diesel generator as a back-up in case of an electrical power failure. The fire pump will feed a fire loop around the perimeter of the plant. Fire hydrants will be provided outside, and sprinklers systems and fire hose cabinets inside the buildings. Dry type fire-fighting systems will be installed in electrical and control rooms.

-

-

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1.6.10

Heating Oil No. 2 oil will be used for the burner of the kiln and the steam boiler. It will be shipped by trucks from Chibougamau to the plant. Two tanks will be provided , contained by dykes and sized for a full week of production.

1.6.11

Diesel and Gasoline A diesel pumping station will be provided at the outlet of the pit. A gasoline pumping station will be provided near the guardhouse.

1.6.12

Steam and Condensate A steam boiler will be provided in the utilities buildinq to supply steam to the evaporation plant in the refinery and for heating and humidification of the various buildings as described in Section 9.0.

1.6.13

Compressed Air A compressed air system will be installed in the utilities building to supply dry or路 wet airto the various users. The system will include filters, a compressor unit: " pressure relief valves, air receivers and dryers. -.. ~ .

1.6.14

Cooling Water A cooling water system will be required . It will include a cooling tower, a water basin and recirculation pumps. The cooling tower will be located outside, near the refinery building.

1.6.15

Pipe Rack In general, pipmq supports wiU be-attached to buildings columns,conveyor structures, and kiln support structures. Outside pipe racks will be provided to bring services to the refinery, kiln feed, utility, concentrator and administration buildings.

1.6.16

Outside Storage A fenced outside storage area will be provided. An unheated building , as described in Section- 9'.0-will路be required to-protect specific materials against rain and show.

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1.6.17

Truck Scale A truck scale will be provided at the entrance of the plant, near the guardhouse .

1.7

Electrical, Automation and Communications

1.7.1

Hydro-Quebec Tie-in and 161 kV Transmission Line The electricity required by the mining complex will be fed from the Hydro-Quebec 161 kV line supplied by the 735-161 kV Chibougamau substation. The line going to the site will be tapped onto the 161 kV line L 1627 feeding the Chapais and Obatogamau substations. The electrical power will be supplied to the project with a 161 kV single circuit transmission line connected to the Hydro-Quebec grid. The length of the transmission line will be approximately 35 km. Since the ownership of the 161 kV transmission line will be transferred to Hydro-Quebec, the cost will be reimbursed during the first five years of operation at a rate of $85.00 per average kW consumed during the year. The reimbursement amount will not exceed the initial investment.

1.7.2

Main Substation The incoming line at 161 kV will supply the power to a main substation that will transform the voltage to 13.8 kV for site and plant distribution. To achieve adequate distribution, five 13.8 kV outcoming overhead circuits will be made available to supply several secondary substations. The total connected load is estimated at 42 MVA.

1.7.3

Plant Electrical Distribution 13.8 kV distribution lines will be installed to bring electricity to the plant site, pumping stations and pit. The total estimated- lengths of the required 13.8 kV distribution lines are as follows:

o

8.0 km of single circuit line;

o

1.2 km of double circuit line.

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1.7.4

Communication Systems A dedicated microwave-based communication link will be set up between the plant and the closest access point to the public communication infrastructure, located in Chibougamau. In addition to this microwave-based system, the plant will have the following systems for its operation: a PBX telephone communication system for administration and operations, including fax and modem lines, three internet hub switches and a router for the computer network infrastructure; a local radio communication system for operations, security and maintenance personnel; specialized radio-GPS equipment for surveying; and a security access and alarm system.

1.7.5

Automation The process will be controlled by programmable logic controllers (PLC) located in the crusher building, the concentrator, the refinery and the utility building. To permit local control by operators, man/machine interface (MMI) will be installed in various locations near the equipment: All equipment will be connected to an industrial communication network for better communication of operational and maintenance parameters. ' : ..:

1.7.6

Emergency Power System Two 1,500 kW diesel generators will be provided, to supply emergency power and lighting to the plant in case of a power failure.

1.8

Buildings In general, buildings will be made of structural steel, with concrete footings and foundations, concrete floors and elevated concrete slabs. Walls will be fabricated of pre-painted , insulated steel siding. Translucent panels will be provided to allow daylight to enter. Roofs will be constructed of galvanized steel roof deck and pre-painted, insulated metal cladding . Rain water will be drained to an outside surface ditch system. Protection against falling ice will be provided above all doors and above any area that require use by plant personnel, such as pipe racks and conveyor galleries. Process buildings will be heated and ventilated, to maintain a temperature of 15掳C and the minimum fresh air required by building codes and government regulations. The administration building, guardhouse and control rooms will be air conditioned .

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Market Study Summary

1.9

The following summary was written by Secor and has been reproduced hereafter in its entirety. The key to entering vanadium markets with new primary production capacity is to avoid established metal commodity channels in favour of innovative uses for vanadium in energy storage applications.

'-

Traditional or metallurgical markets for vanadium are currently saturated. Moreover, they are structured in such a way that encourages severe boom-bust swings with producer prices below total costs for most of the cycle. This economically unhealthy situation is sustained for two reasons. First, most of the industry capacity is produced as a by-product of other processes, which allows producers to sell vanadium at prices below the total cost of production. Second, large producers of vanadium are either integrated with iron and steel companies or with commodities distributors, which allows them to enter term supply. As a new producer with primary production of vanadium (as apposed to by-product production) and no corporate link to either steel producers of commodity brokers, McKenzie Bay ' would be hard pressed .to find favourable terms for sales in ~" rnetallurqlca! markets. '..:';.: . ,: ., Fortunately, the very structure that blocks entry into traditional markets has created an opportunity for new vanadium capacity serving the energy storage markets. The potential impact of Vanadium Redox Flow Batteries (VRB) has not been missed by existing vanadium suppliers. However, because they are locked in the commodity swings of traditional markets, very little attention has been paid to servicing developing VRB producers. As a result, the production of high purity vanadium needed for electrolyte is currently insufficient to sustain VRB R&D needs, let alone eventual production. Price volatility has even hindered the development of the VRB market. Moreover, the marginal cost pricing practices of most vanadium producers leaves little room for investment in innovation. For McKenzie Bay, the underdeveloped of the VRB opportunity is an opening. Section 14.0 describes the nature of traditional markets and why entering them is difficult. It then turns to VRB markets to link potential battery sales with addressable demand for McKenzie Bay's electrolyte production. Finally, it addresses VRB market entry scenarios to derive a price range for the output of the Lac Dore mine.

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1.10

Operating Cost Estimate Estimated annual operating cost is summarized below: (000 $CDN)

o

Total operating cost

79,814

o

Breakdown by sector Mine Concentrator Refinery Administration, sales and engineering

14,087 16,346 38,518 10,863

18% 20% 48% 14%

Annual operating cost is based on the following nominal plant capacities:

o o

Total material rock mined

7,900,000 tonnes/year

Ore

4,257,000 tonnes/year

D 路

Waste

o 1.11

3,643,000 tonnes/year .

I

Average stripping ratio (waste to ore) .

0.86

Capital Cost Estimate All costs in this study were estimated in December 2001 Canadian dollars . In developing the capital cost estimate of the project the location of the plant was taken into consideration and regional factors were applied in determining construction and operating labour costs . Budget quotations were obtained for 72% of the equipment. Unit rates, derived from recent similar SNC-Lavalin's projects, were used for civil work, buildings and site preparation. Piping, insulation, heat tracing and instrumentation costs were established as percentages of equipment costs, based on SNC-Lavalin's experience of recent similar projects. Indirect costs were established as a percentage of direct costs.

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The initial investment capital cost of the project is estimated to be 364 M$CDN. The confidence level of the estimate is +20 %, -15%. The capital cost estimate break-down is as follows: WBS

(000$ CON)

1- Direct Cost 1-01.00 1-02.00 1-03.00 1-04.00 1-05.00 1-06 .00 1-07.00 1-08.00 1-08.01

Mine Site Services & Utilities Ore Preparation & Storage Concentrator Refinery Buildings Tailing Ponds Infrastructures Freight

Subtotal 1 - Direct Cost

2- Indirect Cost 2-09.00 2-10.00 2-11.00 2-12.00

,.....

262,160 :

... ..

EPCM Construction Indirects Other Costs (start-up, spare parts) Owner's Costs

Subtotal 2 - Indirect Cost

31,459 15,729 7,865 7,865 62,918

3- Escalation

Excluded

4- Contingencies

39,009

TOTAL:

oI4528路McK.nzi. Bay/Scc-O I1'/04 02

17,292 75,346 8,157 29,679 70,727 23,557 13,572 12,890 10,940

364,087

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1.12

Environmental Study The following summary was prepared by Entracto and has been reproduced in its entirety by SNC-Lavalin. Legal, Administrative, and Social Framework The project to develop the Lac Dore vanadiferous magnetite deposit is subject to the environmental and social impact assessment and review procedure pursuant to Section 22 of Chapter 1 of the Environment Quality Act. It is also subject to Chapter /I (Provisions Applicable to the James Bay and Northern Quebec Region) of the Act in question, and to Chapter 22 of the James Bay and Northern Quebec Agreement (JBNQA) . The project is also governed by the Canadian Environmental Assessment Act (CEAA); it must take into account, among others, the Fisheries Act and Fisheries and Oceans Canada's Fish Habitat Management Program. The mining project must also have been carried out in accordance with the Quebec Mining Act and with Directive no 019 sur les industries minieres .[Directive No. 019 respecting Mining Industries]. From an administrative point of view, the project lies mostly on Category 11/ Land, as defined in the James Bay and Northern Quebec Agreement, as well as on public land adjacent to the territory under that Agreement. It lies within the limits of the trapping land of the Mistissini Beaver Preserve, which is used to practice traditional activities by the Ouje-Bouqournou Crees, and also lies in the Roberval Beaver Preserve of the Mashteuiatsh Innus. The project is located in an environment suitable for its implementation. The regional population has a long tradition of managing extensive mining projects and labour is available. The municipality of Chibougamau has all the facilities required to make workers welcome (housing , school, hospital , tourism infrastructures...), and all the technical services necessary for proper functioning of the mine (provincial roads and logging roads, railroad and transfer station, hydroelectricity ... ). At the human level, one of the major issues is the Natives' concern with respect to the effect that the project would have on practicing traditional activities and the possibility of being actively involved in carrying out the project. Since the project was launched in 1997, discussions on this subject have been ongoing between representatives of McKenzie Bay and the interested groups, especially the Cree community of Ouje-Bouqournou , in order to lay the foundations of a partnership between the parties.

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Lac Dore Vanadium Feasibility Study

Transportation Infrastructures As far as the access road and the power line for the project are concerned, they are not likely to have very significant repercussions on the environment of the mining area; first, because most of the road is built and the right-of-way of the line already exists, for the most part; also, because the target area has already been extensively used by logging and mining companies. Characteristics of Aquatic Environments and Definition of Background Levels The pH and the high mineralization parameters of the surface water, with respect to other regions of Quebec, can contribute toward minimizing, if necessary , the toxicity of certain metals. The same is true for the organic matter present, which plays a protective role that reduces the ecotoxicity of most metals for fish, by making them less bio-available. This provides the studied receiving environment with a high buffering capacity with respect to various sources of contamination of anthropogenic origin. .r

Analysis of metals in the sediments brings out the fact that those that are the subject of a recommendation .by the Canadian Council 'of 'Ministers of the ''Environment (CCME) (arsenic, cadmium, chromium, 路路coppet,'路 iea:d; 'and zinc) all have average concentrations that lie below the values suggested by the organization. Results of analyses of metal in fish indicate that only the values for mercury are significantly higher than the analytical detection limit. For this metal, however, the concentrations obtained are comparable with those recorded as background levels for 29 natural lakes in the James Bay territory. Ecotoxicity and Bioaccumulation of Vanadium In rainbow trout, vanadium 0hOs) shows a moderate toxicity compared to other metals. In fact, nickel is less toxic than vanadium by a factor that can vary from 2 to 15, depending on water hardness , and copper is 5 to 80 times more toxic than vanadium. Zinc , on the other hand, is six times more toxic than vanadium in water with low hardness, while the same metal is 1.3 times less toxic in very hard water. The relative toxicity of the various metals is the following, in decreasing order of toxicity : cadmium > copper> mercury> zinc> vanadium > arsenic> chromium. It must be mentioned that sodium orthovanadate (Na2V04) was used for these tests.

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Oxidation of the sulfur will not produce acidic drainage (AMD) problems since testing of the residue showed that the neutralization potential (NP) of 9.1 t of CaC03/1000 t is much greater than the acid producing potential (AP), which gives a value of 1.6 t CaC03/1 000 t. Many chlorites can contain low amounts of Mn, Cr, Ni, and Ti. During the alteration process, and depending upon the degree of ionic substitution in the structure between the sr' by AI+ 3 and the Mg+ 2 for Fe+ 2 , the resulting chlorites can incorporate or adsorb metals such as Cr, Ni, Mn, Ti, and possibly vanadium, if the latter is available during the alteration. The expected impact is dispersion of the chlorites in the environment by surface water runoff or wind erosion . This dispersion will send fine particles of chlorite into the soil and lake sediments and will result in soil and sediments neighboring the site being enriched in certain heavy metals and vanadium.

The Calcine The calcine, regardless of the grain size of its aggregates, shows thermal stability since the reactions that could be induced require temperatures that will not be attainable in the cells. The,fine fraction has been .cornpletely leached after calcining and the reaction ls. therefore more efficient and complete for the fine aggregates. This means that the fine fraction of the calcine contributes less to leaching of the metals and represents a lower risk following dispersion by water or wind. It will therefore be necessary to avoid attrition of the coarse or intermediate fractions during handling at the cells since this could release grains attached to the surface of these larger aggregates, considering that the small grains are rich in Cr, Ni, and vanadium . The stability of the calcine when submitted to aggressive leaching using acids has also been established. The results show that there are few metals in significant abundance considering the aggressiveness of the attack. The results for water leaching, however, indicate significant values for sodium (767 ppm) and 381 ppm for vanadium. These are the results that will need to be considered for long-term storage of the calcine .

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Storage of the Calcine The choice of sites for concentrator and calcining residues was based on local hydrogeological conditions, in terms of how easily a body of potentially contaminated groundwater could flow toward a water table outlet, as well as the possibility of adjacent bodies of water filling up with sand due to erosion of piles of residue. Moreover, the design of the cells of the tailings impoundment for residue from calcining suggested by SNC-Lavalin consists of a high-density polyethylene membrane combined with a layer of bentonite on the bottom, sides, and top of the tailings impoundment. This proposal is different from the two alternatives suggested by the Quebec Ministry of the Environment (MENV), but is better than one of them, which includes only a membrane on the bottom and sides of the residue accumulation area. Consequently, the tailings impoundment for the calcine suggested by SNCLavalin is an alternative that fully meets the environm,ental protection standards of the MENV. -, ~

Conclusion

. .... '

The mining history of the region favours the social acceptability of the project. From a biophysical point of view, the receiving environment has a capacity for neutralizing contaminants far superior to all other regions of Quebec. Moreover, vanadium has a moderate toxicity compared to other metals and its potential for bioaccumulation is very low. At the effluent level, the mitigation measures for the industrial process are apt to ensure its regulatory compliance. At this stage in our work, we are of the opinion that the project has been developed according to high environmental standards and that there are no environmental constraints to its implementation.

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Lac Dore Vanadium Feasibility Study

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1.13

Project Schedule The project will be divided into two phases . Phase 1 will start after preliminary funding has been approved, and will include basic engineering along with some pilot plant test work of the new process. It will also include the completion of the environmental impact study necessary for obtaining an environmental permit, the preparation of a definitive estimate for capital cost appropriation, and detailed engineering of long-delivery equipment. The total duration of Phase 1 will be regulated by the time necessary to obtain the environmental permit, which is expected to be approximately 16 months after the approval of preliminary funding. Phase 1 is expected to be completed by October 2003. Phase 2 will consist of detailed engineering, procurement, construction, commissioning and start-up of the plant. It is estimated that the total duration of Phase 2 will be approximately two years after the approval of Project funding. Phase 2 is expected to be completed by June 2005.

1.14

Financial Analysis The financial potential of the Lac Dore project was measured in terms of the calculated Internal Rate of Return (IRR) with and without ~inancing. Scenario 1 - Base Case reflects Secor's market study which predicts a decreasing sale price of electrolyte from year 2009 to a constant low price from year 2018 to the end of the project. It also establishes annual sales volume increasing from year 2005 to a constant full plant capacity from year 2008 to the end of the project. The results of the analysis are as follows: IRR Project (w/o financing) IRR 30% equity

19.0% 28.5%

Scenario 2 assumes a sale price of electrolyte as per scenario 1 but with a slower market penetration where the sales volume would increase over a longer period of time from year 2005 to year 2011 instead of 2008. The results are as follows : IRR Project (w/o financing) IRR 30% equity

014528-McKcnzic

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19.1% 29.8%

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Lac Dore Vanadium Feasibility Study

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Scenario 3 assumes a constant low sale price of electrolyte and a market penetration as in Scenario 1 - Base Case. The results are as follows: IRR Project (w/o financing) IRR 30% equity

8.5% 9.3%

Scenario 4 assumes a constant low sale price of electrolyte and a market penetration as in Scenario 2. The results are as follows: IRR Project (w/o financing) IRR 30% equity

8.2% 8.9%

Scenario 5 establishes a constant sales price of electrolyte to obtain an IRR of 20% without financing. Sensitivity analysis indicates that IRR is mostly sensitive to selling price and production volume and less sensitive to capital and operating costs.

' .'

. tt.

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Lac Dare Vanadium Feasibility Study

SNC路 LAVALIN

Graph 1.14 Sensitivity Analysis IRR Project w/o Financing

% 27 -l--

26

- - -- - -- - - - - -- - -- -- - - - -- - -- - -

4 - - - -- - - - - -- - -- - - - - -- - -- - - - -- -

-

21

12

4 - - - --- - - -- - - - - - - - - - - -- - - - - -- - -

11 10 -!--- - - - - - - - - -- - - - - - - - - - - -- - - - - - -- -

I

-20%

I

I

o

-10%

I

+10%

I +20%

Variation

oI 4528-McKCl17.ic [3ay/Soc-OI P/04.02

1-25


+)

Lac Dare Vanadium Feasibility Study

SNC· LAVALIN

1.15

Conclusions The financial analysis of the project indicates a good internal rate of return based on Secor's market penetration and selling price. The project would have a very positive impact on the economy of the Chibougamau area through the creation of direct jobs and the potential of doubling the number of indirect jobs. The development of the project may also result in the creation of other companies which produce batteries and other related industries. If the project is to proceed, further discussions with Sumitomo Electric Industries Ltd.·will have to take place.

1.16

Recommendations Since the potential demand for the batteries is very large and the production of the electrolyte from the Lac Dore vanadium project shows a good economic potential, it is recommended to carry out the following phases of development: .

1.

Further develop the process and build or rent a pilot plant to produce 5 million liters of electrolyte annually from commercial V 20S for a period of three years. Monitor the quality and logistic of distribution of the VRB electrolyte with the battery producers and customers;

2.

Complete and submit environmental permit;

3.

Obtain a complete feasibility study for VRB Chemical batteries;

4.

Start phase 1 of the project consisting of the following activities:

o14528-McKenzie Bay/See-D IP/04 02

the

environmental impact

study

to

obtain

Carry on with additional test work for the refining;

Carry on with basic engineering including flowsheets, mass balance, P&ID's, layout, design criteria, single line diagrams, etc.;

Obtain firm quotations for long delivery equipment;

Prepare project schedule;

Prepare definitive estimate;

1-26

.~

.. ' ;".


+)

Lac Dare Vanadium Feasibility Study

SNC·LAVALIN

Obtain quotation for early contracts such as temporary facilities , access road, 161 kV transmission line and site preparation.

.; ~ :

oI~S28·McK~nzic (lay/S ~c-o IP!().l,02

.. .

.

', '

1-27

SNC LAVALIN LAC DORE FEASIBILITY STUDY  

The Lac Dore deposit, in 2002-03, was the subject of a positive non-compliant NI 43-101 Feasibility Study by SNC-Lavalin, with regard to the...