Conceptual Mining Summary - Canada.ca · dataset is not presently strong enough to support reserve designation. The accuracy of the process yield prediction is affected by the size

Appendix 10 Conceptual Mining Summary

ROBB TREND

CONCEPTUAL MINING STUDY

Submitted to: SHERRITT INTERNATIONAL CORPORATION

November 5, 2010

Norwest Corporation Suite 2700, 411 – 1st Street, S.E. Calgary, Alberta T2G 4Y5 Tel: (403) 237-7763 Fax: (403) 263-4086 Email [email protected] www.norwestcorp.com

mailto:[email protected]

SHERRITT INTERNATIONAL CORPORATION #10 4882

ROBB TREND CONCEPTUAL MINING STUDY TOC-1

TABLE OF CONTENTS 1 INTRODUCTION .............................................................................................................. 1-1

2 BACKGROUND ............................................................................................................... 2-1

3 GEOLOGIC MODELING .................................................................................................. 3-1

4 MINING METHODS .......................................................................................................... 4-1

5 PIT LIMITING CRITERIA ................................................................................................. 5-1

6 PIT DESIGN ..................................................................................................................... 6-1

7 PRICE SENSITIVITY ........................................................................................................ 7-1

8 SEAM CONTRIBUTION ................................................................................................... 8-1

9 CONCLUSIONS AND RECOMMENDATIONS ................................................................ 9-1

APPENDIX A YELLOWHEAD TOWER - PIT DESIGN LETTER REPORT............................. A-1



LIST OF TABLES

Table 5.1 BESR for Truck/Shovel Mining Method ................................................................. 5-1

Table 5.2 BESR for Combination Truck/Shovel/ Dragline Mining Method ............................. 5-2

Table 5.3 BESR for Dragline Mining method ........................................................................ 5-2

Table 6.1 Robb Trend Resource Summary .......................................................................... 6-5

Table 6.2 Resource Summaries by Mining Area and Coal Price .......................................... 6-6

Table 8.1 Base Case Pit – ROMT by Seam ......................................................................... 8-1

Table 8.2 Modified Base Case Pit – ROMT by Seam Including Arbour ................................ 8-2

Table 8.3 Modified Base Case Pit Resources - Including Arbour Seam ............................... 8-2

LIST OF FIGURES

Figure 1-1 Coal Ownership Map ............................................................................................ 1-2

Figure 3-1 Typical - Drillhole Composite ................................................................................ 3-3

Figure 3-2 Typical Cross-Section – Model Blocks Populated with Ash & SG ......................... 3-4

Figure 6-1 Mining Areas & Base Case Pit .............................................................................. 6-1

Figure 6-2 LG Pit Shells - Section E50 .................................................................................. 6-1

Figure 6-3 LG Pit Shells - Section E12450............................................................................. 6-2



Figure 7-1 FOB Mine Price versus Mineable Resources ........................................................ 7-1

Figure 8-1 Base Case Pit - Section E50 ................................................................................ 8-3

Figure 8-2 Base Case Pit - Section E12450 ........................................................................... 8-4





CERTIFICATE of AUTHENTICATION

This report has been prepared for Sherritt International Corporation. The text contained herein presents documentation of the conceptual mining study carried out by Norwest regarding the Robb Coal Trend, located near Robb, Alberta. This represents the opinion of Norwest based on information provided by Coal Valley Resources Incorporated.

The report includes information provided by Coal Valley Resources Incorporated and references related Technical Reports produced by Norwest.

All data contained herein has been reviewed and interpreted by, or under the direct supervision of Greg MacMaster, P.Eng.

Norwest Corporation APEGGA Permit Number P – 5015.

“original signed and sealed by author”

November 5, 2010 _____________________

Greg MacMaster, P.Eng. Manager, Surface Mining

Norwest Corporation


ROBB TREND CONCEPTUAL MINING STUDY 1-1

1 INTRODUCTION

In August 2010 Coal Valley Resources Incorporated (CVRI) commissioned Norwest Corporation (Norwest) to prepare two separate but related reports concerning the surface mineable portion of the coal seams that underlie the Robb Main Trend (RM) and the Robb West (RW) coal blocks, collectively referred to as the Robb Trend (see Figure 1-1).

The first report, prepared in accordance with the requirements of National Instrument 43-101 Standards of Disclosure for Mineral Projects (the Technical Report) developed a classification based estimate of the in-place coal resource over the company controlled portion of the Robb Trend. A complete description of leases that are currently held and under application can be found in Section 6 of the Technical Report. For reference purposes, please refer to the Technical Report entitled, “Technical Report – Robb Trend Coal Property” dated November 5, 2010.

This, the second report, was commissioned by CVRI to examine at a conceptual level the surface mining potential of the resources identified in the Technical Report. The conceptual study was founded on current CVRI cost experience and was designed to examine the relationship between the size of the mineable resource and FOB Mine price where mineable resource is defined as the total tonnes of product coal that can be profitably produced on an incremental basis at a given FOB Mine price. This conceptual study has been prepared for internal Sherritt International Corporation (CVRI) consumption only and is not intended for public disclosure.



FIGURE 1-1 COAL OWNERSHIP MAP



2 BACKGROUND

The Technical Report provides a detailed description of the history, tenure and geology of the Robb Trend and surrounding area. The reader is directed to “Technical Report – Robb Trend Coal Property” dated November 5, 2010 for these details.

The Robb Trend conceptual study was developed using similar methods and techniques to those applied by Norwest in developing economic pit designs for the Yellowhead Tower area. The results of that work were reported by Norwest in a June 23, 2010 letter report entitled Yellowhead Tower Pit Design. That report is appended hereto as Appendix A.



3 GEOLOGIC MODELING

Norwest used Mintec’s MineSight® software to develop a 3D block model covering the Robb Trend Area. The geologic model (the model) was primarily concerned with the Val d’Or and Mynheer Seams, the dominant seams which together account for some 88% of total coal. The Val d’Or and Mynheer Seams occur along separate sub-parallel trends across the Project Area. The model covers some 50 km of strike length and is supported by 599 drillholes, located on variable spaced section lines as provided by CVRI. The Robb Main Trend section lines range from 200 m spacing at the east end to 500m at the west end with 1,000 m spacing in the center portion of the block. The Robb West area shows section spacing of about 300 m.

Once the drillhole dataset was imported into MineSight®, continuous seam footwall polylines were generated at each section line based on the drillhole picks. Footwall surfaces were created and then sliced onto a 100 m spaced North-South grid set. Seam polygons were drawn on a section by section basis. The contained area of these polygons was then compared to that of the source sections to ensure that the modeled seam volume was representative. AutoCAD based sections supplied by CVRI were used as guides to ensure that seam/ply correlations were consistent. Discreet seam packages were correlated including the Val d’Or, Arbour, Macleod, Macpherson, Wee (Siltstone) and Mynheer Seams. The sectional polygons for each seam were linked together from section to section such that seam solids could be created over the full length of the model. The seam solids were then clipped by topography.

Consistent with CVRI practice, the elevation of the bottom of casing from each drillhole was taken as the elevation of the bottom of till at that location. These bottom of till depth intervals were then used to create a base of till isopach which was then subtracted from the updated topographic surface. The resultant surface is the base of till. The seam solids were then clipped by the base of till surface such that in-place tonnes could be calculated.

Norwest did not develop a base of oxidation surface; it was decided that the introduction of an oxidation provision would not materially alter the conclusions of the current study. It is recommended that CVRI introduce an oxidation surface at the next level of study.

There is an area along the Robb Trend where surface mining has taken place in the past. Surface workings can be seen on the north side of the Robb Road just northwest of its intersection with Highway 47. These workings appear to be fairly shallow and involve some 200 m of strike length. There is a gap of some 800 m between the Robb Main Trend lease boundary and the Robb West lease boundary which appears to include these old workings, therefore no provision for loss due to old workings was taken in the resource calculation.

To account for the rock partings that are included in the seam solids, an ore-waste composite ash value was calculated for the drill holes, where the interval thickness for each material type within the coal package contributed to the overall raw ash value. The composited raw ash values for



each seam were interpolated into the model blocks using the composited drill hole data (see Figure 3-1).

Once the in-place composited ash was determined, contact dilution was introduced to simulate the raw coal recovery process. This was accomplished by replacing 0.2 m of in-place coal with 0.2 m of rock at each external rock/coal contact. Quality data were then incorporated into the model where ash was assigned to each lithology from the limited drillhole quality data that was available for each seam. Once the ash levels were assigned then specific gravity was calculated using an Ash/SG relationship developed by Norwest in consideration of CVRI experience. These values were then interpolated into model blocks. ROM specific gravity was calculated on a by seam basis using of the following equation.

ROM SG = 0.98* ROM Ash% + 1.209

By seam by block run of mine tonnes (ROMt) could then be calculated.



FIGURE 3-1 TYPICAL - DRILLHOLE COMPOSITE

Process yield was introduced at the block level by way of a yield equation developed by Norwest in consideration of CVRI experience. The yield equation is as follows:

Yield % = 0.4717*SG2 – 2.4038*SG + 3.1226

Process yield was coded into each block being calculated as a function of the ROM Ash/SG for that block. The resulting average yields averaged approximately 50% with individual blocks varying by as much as ± 7% absolute from the average. Note that for the current study, applied SG and Yield equations were consistent for all seams. It is recommended that CVRI introduce seam specific equations at the next level of study when more detailed coal quality information is available.



In Section 16.7 of the Technical Report the author concludes that the Robb Trend coal quality dataset is not presently strong enough to support reserve designation. The accuracy of the process yield prediction is affected by the size and value of the quality dataset as well. The ROM Ash/SG values that are derived from the dataset are only as good as the information provided in the coal quality dataset. As a result, the accuracy of yield predictions developed in the study may be quite variable on a local and even perhaps regional basis. Product coal tonnage was then calculated on a by seam basis and coded to the blocks.

Finally, the coal solids were coded to a 3-dimensional block model. Block dimensions are 12 x 100 x 5 m (x, y, z). The model was then rotated 45o in a clockwise direction relative to the legal grid such that the x-axis is near as possible to the direction of strike. A typical cross section displaying block model items is shown on Figure 3-2.

FIGURE 3-2 TYPICAL CROSS-SECTION – MODEL BLOCKS POPULATED WITH ASH & SG



4 MINING METHODS

The Robb Trend leases cover approximately 50 km’s of strike length. Over the length of the trend, seam dips range from 22.5˚ to 63.5˚. The variability of seam dip offers opportunities to apply different mining methods to specific areas along the property. In the current study, mining areas have been selected based on average seam dip where different mining methods are applied to optimize resource potential.

In areas where seam dips exceed 45˚ it is plausible to incorporate a dragline mining scenario where the bulk of waste is moved using the dragline and coal is removed by backhoes and trucks. The dragline method is the lowest cost waste removal scenario and represents about 32% of the trend at the east end of the property. In areas where seam dip is relatively shallow (< 28˚) a truck and shovel mining method would be employed. Although this mining scenario is a higher cost waste removal method it provides operating flexibility and allows coal recovery in areas where geometry is not conducive to dragline operations. Approximately 48% or the western half of the trend is most suited to truck and shovel operations. The remaining 20% of the property is a transition zone in the middle of the trend where seam dip angles and thick till pockets (up to 28m) warrant a combination of mining methods.



5 PIT LIMITING CRITERIA

The economic basis for the evaluation was developed in collaboration with CVRI and thus is founded on CVRI’s current view of cost of production and product pricing. Over the 50km length of the Robb Trend seam dip angle, till thickness and/or coal package thickness vary considerably. As a result, three different mining methods were considered for the Robb Trend those being truck/shovel, dragline and dragline/truck/shovel. Each method was attended by a method specific waste removal cost. To enable the analysis, Norwest developed mining method specific unit coal production and waste production costs.

The economic limits of mining were determined by the breakeven strip ratio (BESR) or cut-off strip ratio method. The BESR method is based on the idea that for a block of in-place ROM coal to be considered recoverable it must be able to carry all of the incremental costs associated with its production. BESR was calculated at a base case pricing level, a lower pessimistic price level and a higher optimistic level. At each pricing level, BESR was calculated on a by mining method, net value basis. It should be noted that by definition the BESR or cutoff strip ratio will always be higher than the overall ratio. Across pricing levels, the unit waste production cost was held constant on a by mining method. In the analysis, coal production cost was treated as a constant. The BESR values are developed in Tables 5.1 through 5.3.

TABLE 5.1 BESR FOR TRUCK/SHOVEL MINING METHOD



TABLE 5.2 BESR FOR COMBINATION TRUCK/SHOVEL/ DRAGLINE MINING METHOD

TABLE 5.3 BESR FOR DRAGLINE MINING METHOD



6 PIT DESIGN

Norwest used Mintec’s MineSight® Lerchs-Grossman (LG) pit optimization utility to develop a series of pit shells using preliminary CVRI typical 45˚ pit slope criteria. MineSight® offers the user the ability to develop ultimate LG pits on the basis of raw coal strip ratio, clean coal strip ratio and/or gross operating margin. Norwest elected to use clean coal as the basis for net value LG pit development.

Pit size will vary in response to changes in BESR whether driven by production cost and/or price. To investigate this relationship, Norwest applied the Lerchs-Grossman algorithm to the geologic model such that a series of mining method/price specific pit shells were created at different breakeven strip ratios where the incremental cost of clean coal and waste production was equal to the gross value of the associated recoverable coal. The first step in the pit design process was to determine what mining method was best applied at what location along the strike length of the Robb Trend. This was done under base case pricing conditions. This was accomplished as follows.

1. Firstly, range diagrams were generated at select locations along the trend to confirm the viability of dragline operations for pit geometry given spoil design criteria and machine parameters. Waste rehandle volumes were also estimated and factored into the dragline BESR values. A dragline net value pit shell was developed over the full extent of the property where the depth of the pit was limited to the minimum of either a depth of 45m from surface, the deemed maximum digging depth of the dragline, or the depth returned by the LG analysis using the base case dragline BESR value.

2. Secondly a truck/shovel net value pit shell was developed over the full extent of the property where the depth of the pit was that returned by the LG analysis using the base case truck/shovel BESR value. In each LG analysis, regardless of mining method, the pit wall geometry was set to an overall angle of 45˚.

3. Finally a dragline/truck/shovel pit shell was developed over the full extent of the property where the depth of the pit was limited to the minimum of either a depth of 45m from surface or the depth returned by the LG analysis using the base case dragline/truck/shovel BESR value.

The three pit shells were then compared on a section by section basis across the property to find the mining method that returned the greatest depth. Mining method was then assigned to each cross-section based on maximum depth and where applicable the feasibility of the method given overall geometry. Local adjustments were made to method assignment where such an adjustment led to continuity of method along strike. Four method specific zones were identified along strike those being dragline in the east (Robb East), dragline/truck/shovel at mid-trend (Robb Center) and truck/shovel zones (Robb Main) at the west end of the Robb Main Trend and in the Robb



West area. The three pit segments were then merged to the four specific mining zones to create a continuous base case pit shell involving multiple seams and covering a footprint of some 1,200 hectares (see Figure 6-1).

Norwest elected to move the analysis to FOB Mine price milestones of C$50 (pessimistic), C$60 (base case) and C$70 (optimistic). The foregoing steps were repeated with reference to the BESR values associated with both the pessimistic and optimistic pricing level scenarios. As in the base case three pit segments were identified and merged to the four specific mining zones to create two additional continuous pit designs; the pessimistic and the optimistic pit shells. Cross-sections through each of the four specific mining zones show pit shells for the three elected coal price scenarios (see Figures 6-2, 6-3, 6-4 and 6-5). The mineable resources associated with each of the three price/BESR driven pit designs are reported on a by lease block (Robb Main Trend and Robb West) basis and a total Robb Trend summary in Table 6.1.



FIGURE 6-1 MINING AREAS AND BASE CASE PIT



FIGURE 6-2 LG PIT SHELLS - SECTION E50












TABLE 6.1 ROBB TREND RESOURCE SUMMARY

Resource summaries for the four specific mining zones covering the entire Robb Trend lease block are shown in Table 6.2. The mining zones are determined by proposed mining method and the resource summary information describes the allocation of resources to the various mining methods. The four specific mining zones can be seen in Figure 6-1.



TABLE 6.2 RESOURCE SUMMARIES BY MINING AREA AND COAL PRICE

At the base case coal price of C$60 FOB mine, the truck and shovel mining method utilized in the Robb West and Robb Main areas accounts for approximately 39 % of total waste and 50% of total coal. The dragline mining in the Robb East area releases about 38% of total coal while moving some 44% of overall waste. These numbers are reflective of the BESR values associated with different mining methods and the consequent impact on overall strip ratio in these areas. The ratios are somewhat skewed by the depth restriction imposed on the dragline mining scenarios and the thicker till pockets seen in the Robb Center area. Nevertheless, over the extent of the coal trend there is an application for both dragline and truck/shovel mining systems.



7 PRICE SENSITIVITY

From Table 6.1 it can be seen that the size of the mineable resource ranges from 32.5 million ROMt at the pessimistic FOB Mine price of C$50 to 66.3million ROMt at the optimistic FOB Mine price of C$70. At the base case FOB Mine price of C$60, the mineable resource was determined to be 50.8 million ROMt. The relationship between FOB Mine price and mineable resource is shown on Figure 7-1.

FIGURE 7-1 FOB MINE PRICE VERSUS MINEABLE RESOURCES

From Figure 7-1 it can be seen that the size of the mineable resource is very sensitive to FOB Mine price increasing to 130% of base case level when the FOB Mine Price was increased by C$10 from the base and decreasing to 64% of base case level when the FOB Mine price was reduced by C$10 from the base. It should be noted that the results shown in Figure 7-1 are not only influenced by price/BESR but are also influenced by the fact that the dragline pit designs were limited to a maximum depth of 45m meaning that resource growth across this segment of the pits may be depth capped. The incremental effect of this depth capping is considered to be minor and therefore should not materially impact the general conclusions that can be drawn from Figure 7-1.



8 SEAM CONTRIBUTION

The base case ROM mineable resource is reported on a by seam/package basis in Table 8.1.

TABLE 8.1 BASE CASE PIT – ROMT BY SEAM

From Table 8.1 it can be seen that there are two dominant seam packages the Val d’Or and the Mynheer which contribute 58% and 30% of the total ROM coal respectively or 88% of the mineable resource on a collective basis.

The operating history at the Coal Valley Mine shows that the Arbour seam is not generally recovered due to high ash and the presence of inseparable and difficult to process bentonotic layers, therefore the Arbour seam has not been included in the resource evaluation. At CVRI’s request Norwest examined the significance of the Arbour Seam assuming that it could be economically recovered. In the analysis the base case pit shell (utilizing the base case pit design footprint as a template) was modified to include the Arbour seam. The adjusted pit shell was used to estimate the in-place tonnage of this seam and the incremental strip ratio required to recover it. The adjusted ROM resource including the Arbour seam is reported on a by seam/package basis in Table 8.2.



TABLE 8.2 MODIFIED BASE CASE PIT – ROMT BY SEAM INCLUDING ARBOUR

In this scenario the Arbour seam would contribute almost 20% of the total ROM tonnes, a net increase of about 27%. The adjusted resource summary is shown in Table 8.3.

At present the economic potential of the Arbour Seam in the Robb Trend area is unknown. The Technical Report offers some guidance in terms of what information would be required to better assess the potential of the Arbour Seam.

TABLE 8.3 MODIFIED BASE CASE PIT RESOURCES - INCLUDING ARBOUR SEAM

Typical cross-sections through each of the four specific mining zones show pit shells for the base case with and without the Arbour seam (see Figures 8-1, 8-2, 8-3 and 8-4).



FIGURE 8-1 BASE CASE PIT – SECTION E50












9 CONCLUSIONS AND RECOMMENDATIONS

1) Given base case economics the analysis identified 50.6 MROMt of mineable resources over the full length of the Robb Trend (Robb Main Trend and Robb West Leases combined). The analysis calculated an average ROM ash level of 37.3%, an average ROM specific gravity of 1.58 and forecasts an average process yield of 50.5%. The average ROM based strip ratio was found to be 2.63:1. All of these values fall within the range of Coal Valley experience suggesting that the Robb Trend should continue to be pursued.

2) The lack of core based coal ply ash and parting quality information makes it difficult to confidently forecast process yield and hence value the project. As a means to improving the accuracy of the yield estimate, it is recommended that at a minimum CVRI implement the exploration program evidenced in the Technical Report.

3) The pit slope design criteria applied in the study are typical in nature and have been engineered for the specific conditions found on the Robb Trend. Later, in detailed design stage of Robb Trend development these pit slope design criteria may change. The effect of these changes could be significant. It is recommended that CVRI conduct the geotechnical analyses necessary to support the development of trend specific preliminary pit slope design criteria once sufficient additional data has been collected to support such an analysis.

4) The transition zone, where the dragline/truck/shovel operations have been scheduled for implementation will be comparatively complex from an equipment deployment point of view. It is recommended that in the next round of analysis, after the additional quality information is in hand, that CVRI develop more detailed plans for this area to better define operations and more importantly BESR.

5) It is recommended that the extent of the old mine workings on or near the Robb West leases be the subject of a detailed survey such that the impact of this work on the mineable resource is fully understood.


ROBB TREND CONCEPTUAL MINING STUDY A-1

APPENDIX A ENGINEERING REPORT

YELLOWHEAD TOWER - PIT DESIGN LETTER REPORT

2700, 411 – 1st Street S.E. • Calgary, Alberta CANADA T2G 4Y5 • Telephone (403) 237-7763 • Fax (403) 263-4086 • www.norwestcorp.com

CALGARY / VANCOUVER / SALT LAKE CITY / DENVER / HOUSTON / CHARLESTON

June 23, 2010 File #: 10-4650 Sherritt Coal Les LaFleur, P.Eng. Senior Manager, Technical Services Mountain Operations Obed Mountain Mine Attn: Les LaFleur Senior Manager, Technical Services

Dear Les: Re: Yellowhead Tower Pit Design

This letter report has been crafted to fully document the pit design process that Norwest Corporation (Norwest) used in designing a sequence of pits its in the Yellowhead Tower Area (YT) and in particular Pit 152 and Pit 162. The economic basis for the designs was developed in collaboration with Coal Valley (CV) personnel and thus reflects current views of product pricing and CV’s cost of production. Pit size and hence total recoverable tonnes vary as a function of gross margin where gross margin is defined as unit price minus unit cost of production, excluding waste. To quantify this relationship, Norwest applied the Lerchs-Grossman (LG) algorithm to the geologic model such that a series of simple pit shells were created at different breakeven strip ratios where the total cost of clean coal and waste production was equal to the gross value of the recoverable coal. Total waste volume and recoverable tonnes were then calculated and compared.

Geologic Modeling

Norwest used Mintec’s MineSight® software for the development of a 3D block model covering the Yellowhead Tower Area. Norwest developed a detailed geologic model (the model) concerning the Val d’Or and Mynheer Seams which occur along separate sub-parallel trends through the Project Area. The model covers some 9 km of strike length and is supported by 614 drillholes, located on 100 m spaced section lines that were provided by (CV). In order to allow model development, the drillhole dataset was frozen as of mid-May 2010.

Once the drillhole dataset was imported into MineSight® a 100 m spaced North-South grid set was created and seam polygons were drawn on a section by section basis. The contained area of these polygons was then compared to that of the source sections to ensure that the modeled seam volume was representative. AutoCAD based sections supplied by CV were used as guides to ensure that seam/ply correlations were consistent. Two seam packages were correlated the Val d’Or Seam and the Mynheer Seam. Due to the variability of seam geology from section to section, and the potential difficulties that might result when linking sectional polygons, it was decided to create a simplified interpretation of each seam where the seam boundaries were drawn to be consistent with the source sections.

CV YELLOWHEAD TOWER 10-4650 June 23, 2010

Page 2 of 8

The elevation of the bottom of casing from each drillhole was assumed to be akin to the elevation of the bottom of till at that location. These bottom of till spot elevations were then used to create a base of till isopach which was then subtracted from the updated topographic surface. The resultant surface is the base of till.

Consistent with CV experience Norwest developed a base of oxidation surface by offsetting the bottom of till surface downward vertically by 1.5 m thereby isolating and identifying separately a 1.5 m thick zone of oxidized coal from the non-oxidized raw product coal below. Oxidized coal by seam was then separated from the underlying product coal by creating oxidized coal solids the volume of which could now be reported discreetly. For the purposes of further analysis the oxidized coal was deemed to have no commercial value.

There are areas along the Yellowhead Tower trend where the top of the coal zone is burnt. Where burnt coal zones are present, Norwest treated the bottom of the burnt zone as the top of coal meaning that the burnt zones were excluded from the model. As a result the volume of burnt material cannot be quantified directly from the model.

The sectional polygons for each seam were linked together such that seam solids could be created across the full length of the model. The resultant coal solids were then clipped to topography and the base of till.

To account for the rock partings that are included in seam solids, an ore-waste discrimination procedure was run on the drill holes, where intervals of coal and waste were flagged using a 1m minimum separable thickness. Using these flagged intervals, a mineable fraction of each seam was calculated and interpolated into the model blocks. See Figure 1.

Once the rock and coal had been discriminated contact dilution was introduced to simulate the raw coal recovery process. This was accomplished by replacing 0.2 m of in-place coal with 0.2 m of rock. Quality data were then incorporated into the model. Ash percentages were assigned to individual lithologies and by seam in each drill hole based on a limited amount of quality data available for each coal seam. Once the ash levels of the run-of-mine (ROM) coal were assigned then Specific Gravity was calculated using an Ash/SG relationship that Norwest developed on the basis of CV experience. These values were then interpolated into model blocks.

ROM specific gravity was calculated on a by seam basis using of the following equations.

Val d’OR SG = 0.78786* ROM Ash% + 1.2069.

Mynheer SG = 0.51*ROM Ash% + 1.2069.


Page 3 of 8

Figure 1 Typical Section - Drillhole Composites

Process yield was coded into each block as a function of the estimated run of mine Ash/SG for that block. The yield equations were developed on the basis of CV’s actual long term recovery for each seam. The resulting average yields were in the range of 50% with individual block results varying by as much as ± 7% absolute.

Process yield was calculated on a seam specific basis using of the following equations.

Val d’OR Yield = -1.0044*SG + 2.0279.

Mynheer Yield = 0.8892*SG2 - 3.7055*SG + 3.9271.

The oxidized and non-oxidized solids were coded to a 3-dimensional block model. Block dimensions are 25 x 10 x 7 m (x, y, z). The model was then rotated 10o in a counter-clockwise direction relative to the mine grid such that the x-axis is near as possible to the direction of strike. A typical cross section through the model is shown on Figure 2.


Page 4 of 8

Figure 2 Typical Section – Blocks Populated with Ash

Breakeven Strip Ratio

The economic limits of mining were determined by the breakeven strip ratio (BESR) or cut-off strip ratio method. In order for a block of in-place coal to be considered recoverable it must be able to carry all of the incremental costs associated with its production. BESR is found by dividing the total cost of coal production by the unit cost of waste production and varies with changes in revenue and/or coal production cost. Coal production costs and the unit cost of waste production were developed in co-operation with CV personnel. In the analysis, coal production cost has been held constant thus isolating the sensitivity of project recoverable tonnes to changes in revenue only. BESR was calculated at a base case level as well as price levels that were considered to be optimistic and pessimistic. The BESR values are developed in Table 1.

For the purposes of further analysis the optimistic, base and pessimistic clean coal BESR’s were rounded to 9:1, 7:1 and 5:1 (bcm/CMT) respectively.

YT Lerchs-Grossman Analysis

Norwest used Mintec’s MineSight® Lerchs-Grossman utility to perform the LG analysis. MineSight® offers the user the ability to develop LG pits on the basis of raw coal strip ratio, clean coal strip ratio and/or gross margin. Norwest elected to use clean coal as the basis for LG pit development Pit resources were examined through increments of one BESR (bcm/CMT) point commencing at three and ranging through to a maximum value of nine thereby covering the full range of value calculated through breakeven


Page 5 of 8

analysis. Pit slopes were set at a constant 40 degrees throughout the YT area. Pit limits were defined by economic pit limiting criteria with the resulting pit limit checked for conflict with lease boundaries, sensitive environmental areas and/or areas of social concern. In the case of YT no over-riding constraints presented themselves.

Table 1

BESR versus Selling Price

Optimistic Base Pessimistic

Newcastle Price ($US 6,322 kcal basis) 100.00$ 90.00$ 75.00$ CV Price ($US) FOB Port (6,000kcal basis) 94.91$ 85.42$ 71.18$

Cdn$/US$ Exchange Rate 0.95 0.95 0.95 CV Price ($CDN) FOB Port 99.90$ 89.91$ 74.93$

Rail&Port 33.27$ 29.94$ 24.95$ Selling Price FOB Mine 66.63$ 59.97$ 49.98$

Clean Coal Opex ($/cmt) 28.10$ 28.10$ 28.10$ Depreciation and Reclamation ($/cmt) 5.50$ 5.50$ 5.50$

Total Coal ($/cmt) 33.60$ 33.60$ 33.60$ Available for Waste Mining ($/cmt) 33.03$ 26.37$ 16.38$

Unit Cost Waste ($/bcm) 3.65$ 3.65$ 3.65$ BESR (bcm/cmt) 9.05 7.22 4.49

Plant Yield 50% 50% 50%BESR (bcm/rmt) 4.53 3.61 2.24

Value/ParameterBESR Calculation

The pit limits that resulted from LG runs carried out at BESR thresholds of 5:1, 7:1 and 9:1 (bcm/CMT) are shown in plain view on Figure 3.

Across the bottom of Figure 3, the same series of LG pit shells are posted on five cross-sections through the area of particular interest, Pit 152 and Pit 162.

The design based quantities and strip ratios associated with each LG run along with the incremental quantities between designs are reported in Table 2.

In Table 2 it can be seen that from the LG analysis that the YT area offers 14.2MCMT of recoverable product in the base case given a BESR of 7:1 (bcm/CMT). Similarly, when the pessimistic and optimistic BESR criteria were applied, it was found that the YT offers 10.7MCMT and 16.2MCMT of recoverable product.

Figure 4 shows the relationship between product coal tonnes and BESR.


Page 6 of 8



Table 2 LG Based Pit Design and Incremental Quantities

LG PIT Shells

(bcm/rmt) (bcm/CMT)

Pit 3 - 3:1 BESR 13,660 6,900 11,975 36.6 1.46 50.5 0.9 1.7

Pit 4 - 4:1 BESR 17,583 8,871 18,875 36.7 1.46 50.5 1.1 2.1

Pit 5 - 5:1 BESR 21,217 10,704 27,119 36.7 1.46 50.5 1.3 2.5

Pit 6 - 6:1 BESR 25,310 12,768 38,634 36.9 1.46 50.5 1.5 3.0

Pit 7 - 7:1 BESR 28,217 14,230 48,166 36.9 1.46 50.4 1.7 3.4

Pit 8 - 8:1 BESR 30,229 15,241 55,759 36.9 1.46 50.4 1.8 3.7

Pit 9 - 9:1 BESR 32,055 16,157 63,504 36.9 1.46 50.4 2.0 3.9

Incrementals

(bcm/rmt) (bcm/CMT)

Pit 3 to Pit 4 3,923 1,971 6,900 37.1 1.47 50.2 1.8 3.5

Pit 4 to Pit 5 3,634 1,833 8,245 37.0 1.46 50.5 2.3 4.5

Pit 5 to Pit 6 4,093 2,064 11,514 37.6 1.47 50.4 2.8 5.6

Pit 6 to Pit 7 2,908 1,462 9,532 37.1 1.46 50.3 3.3 6.5

Pit 7 to Pit 8 2,012 1,011 7,594 36.8 1.45 50.2 3.8 7.5

Pit 8 to Pit 9 1,826 917 7,745 36.7 1.44 50.2 4.2 8.5

�

IncrementStrip Ratio

Strip RatioDesign Basis

ROM Coal

(Krmt)

Clean Coal

(KCMT)

WASTE

(Kbcm)

ROM Ash

(Wt%)ROM SG Yield (%)

ROM Coal

(Krmt)

Clean Coal

(KCMT)

WASTE

(Kbcm)

ROM Ash

(Wt%)ROM SG Yield (%)


Page 7 of 8



Figure 4Breakeven Strip Ratio vs Total Product Coal

y = -0.1238x2 + 3.0571x - 1.2619R2 = 0.9982

0

2

4

6

8

10

12

14

16

18

2 3 4 5 6 7 8 9 10

BESR (bcm/CMT)

Prod

uct C

oal (

MCM

T)

From Figure 4 it can be seen that a strong relationship exists between BESR and product coal.

Pit 152/162 LG Analysis

To examine the affect of BESR on total product tonnes for Pit 152 and Pit 162 Norwest isolated and reported the LG based quantities results for that portion of the YT only (defined as the proposed license area on Figure 3). Pit slopes were set at a constant 40 degrees throughout the project area. The results of that work are reported in Table 3.

The relationship between BESR and total product tonnes for the Pit 152/162 area is shown on Figure 5.

Table 3 Pit 152/162 LG Based Pit Designs

(bcm/rmt) (bcm/CMT)

Pit 5 - 5:1 BESR 9,698 4,881 11,125 35.9 1.44 50.3 1.2 2.3

Pit 7 - 7:1 BESR 11,742 5,918 17,429 35.8 1.44 50.4 1.5 2.9

Pit 9 - 9:1 BESR 13,252 6,684 23,506 35.7 1.44 50.4 1.8 3.5

Strip RatioDesign Basis

ROM Coal

(Krmt)

Clean Coal

(KCMT)

Waste

(Kbcm)

ROM Ash

(Wt%)

ROM

SGYield (%)

From Table 3 it can be seen that the LG analysis found that the Pit 152/162 area offers 5.9MCMT of recoverable product in the base case given a BESR of 7:1 (bcm/CMT). Similarly, when the pessimistic and optimistic BESR criteria were applied, it was found that the Pit 152/162 area offers 4.9MCMT and 6.7MCMT of recoverable product.


Page 8 of 8

Figure 5Pit 152/162 Breakeven Strip Ratio vs Total Product Coal

y = -0.035x2 + 0.940x + 1.055

4.50

4.75

5.00

5.25

5.50

5.75

6.00

6.25

6.50

6.75

7.00

4.5 5.0 5.5 6.0 6.5 7.0 7.5 8.0 8.5 9.0 9.5

BESR (bcm/CMT)

Prod

uct C

oal (

MCM

T)

Norwest trusts that this letter report meets Sherritt’s requirements. Should you have any questions or require further clarification, please feel free to contact me or Grant Barrow at (403) 237-7763.

Sincerely yours,

NORWEST CORPORATION

Greg MacMaster, P.Eng. Manager, Surface Mining GJM/tn

mckeagep

Typewritten Text

<original signed by>

900 E

1100 E

1300 E

1500 E

1700 E

0 E

1200

1225

1250

1275

1300

1175

1150

1125

1100

1225

1200

1225

1250

1275

1300

1175

1150

1125

1100

1225

1200

1225

1250

1275

1300

1175

1150

1125

1225

1200

1225

1250

1275

1300

1175

1150

1125

1225

12501250

1200

1225

1250

1275

1300

1175

1150

1125

1225

1200

1225

1250

1275

1300

1175

1150

1125

1225

12501250

1200

1225

1250

1275

1300

1175

1150

1125

1225

1200

1225

1250

1275

1300

1175

1150

1125

1225

12501250

1250

1200

1225

1250

1275

1300

1175

1150

1125

1225

1200

1225

1275

1300

1175

1150

1125

1225

12501250

DRAWN BY: MLE

CHK'D BY: G.B.APEGGA Permit

P05015

10-4882\Report\Mining Report\

FiguresDATE: 10 11 08

FIGURE 3

LG PIT SHELLS(AT BESR 5:1, 7:1, 9:1)

FILE: Fig 3_LG Pit Shells.dwg

YELLOWHEAD TOWER PROJECT

LEGEND

LEASE BOUNDARY

CONTOUR - INTERVAL 20m

CONTOUR - INTERVAL 5m

RIVER OR CREEK

BESR = 9 : 1

BESR = 7 : 1

BESR = 5 : 1

TOPOGRAPHY

BASE OF TILL

COAL SEAM

SECTION LINE

PROPOSED PIT LICENSE

APPLICATION AREA

Documents

Conceptual Mining Summary - Canada.ca · dataset is not presently strong enough to support reserve designation. The accuracy of the process yield prediction is affected by the size