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ADANAC MOLYBDENUM CORPORATION

Ruby Creek Molybdenum Project


Alternatives Assessment

APPENDIX I
Discussion on Production Rate

Klohn Crippen Berger


ADANAC MOLYBDENUM CORPORATION July 4, 2007
Ruby Creek Molybdenum Project
Alternatives Assessment

Appendix I
Discussion on Production Rate

The optimum, economic processing rate for the Ruby Creek project has been determined
by developing operating costs, revenue schedules and capital costs for a range of
processing rates. From there, the Net Present Value (NPV) of each processing rate
scenario was determined. In addition to the Feasibility Study base case of 20,000 tonnes
per day (tpd) processing rate, processing rate scenarios of 15,000 tpd, 30,000 tpd and
40,000 tpd were studied.

The range of mining/processing rates provides reasonable variability in rates, confidence


in determination of the optimum /processing rate. The parameters and costs for each
mining/processing rate were incorporated into cash flow models for determination of the
respective NPVs. The optimum mining/processing rate is that which maximizes the
incremental increase in NPV. The processing capacity versus NPV at an 8.00% discount
rate is displayed graphically to provide a visual representation of this relationship. This is
the point on the curve where it flattens out and subsequently the NPV begins to decrease
(Figure 1).

Figure 1 presents the NPV results for the different mining/processing rates. The optimum
mining/processing rate for this project is approximately 30,000 tpd throughput. This is
the point at which the curve starts to flatten. Economies of scale have been reached and
further increases in the production rate provide diminishing returns.

The Feasibility Study base case of 20,000 tpd at a mining cutoff of 0.04% Mo was
prepared in mid 2005. For consistency in comparison the NPV versus processing rate
scenarios were also prepared using 2005 constant Dollar values. This avoided having to
completely recalculate the 20,000 tpd scenario, based on 2007 costs and long term metal
prices. The analysis indicates that the highest project NPV occurs at the 30,000 tpd
processing rate.

The resource estimate and mining reserve determined in the Feasibility Study were used
for all mining rate options, except for the 40,000 tpd option.

At processing rates of 15,000 and 30,000 tpd, mining, processing and overhead costs do
not significantly increase or decrease (approximately 10% change). Also, the mineral
reserves provide sufficient mine life for each case, to minimize the discounting effect in
later years of operations. Addition of reserves would have a negligible impact on the
calculated NPVs for these options.

070704R-Ruby Creek Alternatives Assessment.doc


File: M09222A05.500 Page I-1
Klohn Crippen Berger
ADANAC MOLYBDENUM CORPORATION July 4, 2007
Ruby Creek Molybdenum Project
Alternatives Assessment

At a processing rate of 40,000 tpd, operating costs for mining, processing and overheads
significantly decreased. The mining reserve also becomes significant as the mine life
using the Feasibility Study reserve estimate would be less than 10 years. Given the
discounting effect on NPV, increases in reserves and corresponding mine life could have
a significant impact on the final NPV for this option. As a result a new mining reserve at
a lower cut off grade was determined using open pit optimization software. An actual
mine design was not developed because of the high degree of work required and which
ultimately would have only marginal impact on the NPV calculation. The 40,000 tpd
NPV estimate would therefore be marginally over-estimated when compared to the other
production rate scenario NPV estimates.

Figure 1. Processing Rate Versus NPV

Ruby Creek Project Production Rate Versus


Net Present Value (8% Discount Rate)

500

450

400
NPV ($CDN millions)

350

300

250

200
150

100

50

0
15,000 20,000 30,000 40,000
Processing Rate (tpd)

Using the best available technology, Adanac is committed to the development of an


efficient, sustainable, socio-economically sound operation, able to produce high-quality
product at optimum economics. The 250 full-time jobs created by the Ruby Creek
Molybdenum Project would make up approximately 4% of the 7000 direct jobs in the
British Columbia mining industry. In addition, some 500 indirect jobs and other positive
trickle down effects can be expected from expenditures and taxes generated for some
20 years or more. These jobs, and the spin-off benefits, would be distributed in the

070704R-Ruby Creek Alternatives Assessment.doc


File: M09222A05.500 Page I-2
Klohn Crippen Berger
ADANAC MOLYBDENUM CORPORATION July 4, 2007
Ruby Creek Molybdenum Project
Alternatives Assessment

northern communities and throughout British Columbia and Canada. In addition, the
initial capital costs and construction jobs would provide a boost to the local economy.

Benefits of the project include:

Providing a basis for future economic planning for the Taku River Tlingit
First Nation;

Providing a basis for future economic planning for the Atlin area;

Potential for significant infrastructure and utilities improvements in the


community and surrounding area;

Sustainable direct and indirect job creation, locally and regionally;

A source of tax revenue; and,

No adverse long-term effects on the environment.

Adanac Molybdenum Corporation intends to become a dominant supplier of primary


molybdenum concentrates by innovatively developing large-scale molybdenite deposits
in an environmental sound manner. They are committed to promoting the delivery of
sustainable social and economic benefits to the local and regional communities, while
recognising and incorporating local and First Nations hopes and desires in a mutually
beneficial manner.

In addition, the milling process and production rates for the Ruby Creek Project were
evaluated during the previous work on the property in the 1970s and the 1980s, and again
during the 2005 preliminary feasibility study. Processing alternatives were evaluated
according to technical and economic feasibility. Technically feasible options consider the
environmental toxicity of reagents as well as the social acceptability and sustainability of
the life of mine. Bench-scale test work was conducted on the ore to optimize grind size
and determine the preferred reagents for maximizing metal recovery. A production rate of
20,000 tpd (tonnes per day) was determined to be feasible and acceptable to the
community.

070704R-Ruby Creek Alternatives Assessment.doc


File: M09222A05.500 Page I-3
Klohn Crippen Berger