VANCOUVER, British Columbia, August 26, 2003 (PRIMEZONE) -- In accordance with the requirements of the British Columbia Securities Commission under the Partial Revocation Order, Steffen, Robertson and Kirsten Consulting (Canada) Inc.("SRK") was retained by Pan Asia Mining Corp. (TSX Venture Exhange:PAR) ("the Company"), to complete an independent technical report on the 701 Changma Diamond Mine ("701 Mine") in the People's Republic of China ("PRC"). The report has been prepared in compliance with National Instrument 43-101.
In compliance with National Instrument 43-101, the Qualified Person that made a personal inspection of the 701 Mine during the period July 10 to July 18, 2003 is Mr. Michael Michaud, a Senior Resource Geologist with SRK. Mr. Andrew Bradfield, a Principal Mining Engineer with SRK, accompanied Mr. Michaud during the review of the 701 Mine.
The 701 Mine is situated in the Shandong Province, a costal province in the northeast PRC. The property size of the mining license is 8.2 hectares and encompasses the immediate area around the current open pit, located in Mengyin County, PRC. The 701 Joint Venture Company has the exclusive right to mine and explore for diamonds within the mining license. The Chagma diamond deposit consists of a big pipe, a small pipe and the No. 2 dike, which merge together at the -40m level (approximately 300m below the topographic surface). Exploration has defined the kimberlite pipes to a vertical depth of 600m below surface (+260m level to -340m level). The kimberlite pipe appears to extend beyond this depth but no data is available.
Mining on this property commenced in 1970. Continuous production from 1970 to June, 2003, mainly from open pit mining, has produced a total of 1.57 million carats from 1.22 million tonnes of ore for an overall grade of 1.28(ct/t) based on a 0.2mm lower stone size cutoff. For the period July 1, 2002 to June 30, 2003, production has been from underground mining, and has totalled 64,184 carats from 57,304 tonnes for an overall grade of 1.12(ct/t). The primary purpose of the operation was to produce diamonds for industrial uses, however, many large gem quality stones have been produced. To date, the largest diamond recovered was 119 carats.
The Exploration and Mineral Resource definition was completed in the late 1960's and 1970's by the No 7 Geological Exploration Brigade of the Ministry of Geology and Mineral Resources, PRC. The database consists of 179 holes totalling 33,921 m, 25 trenches (1,550 m) resulting in a total of 77.5 m3 of bulk sample volume, and 76 test pits (799 m) with a total bulk sample volume of 258.9 m3. All of the samples of kimberlite collected from the drilling, test pits and trenches were processed in the No. 7 Brigade's designed and operated, 5-8 m3/day processing plant. After reviewing the data SRK believes that the sampling and assaying procedures and Quality Assurance/Quality Control program for the bulk sampling, test pits and core drilling have been well documented. SRK did not consider it necessary to resample any of the drill core or underground exposures.
SRK completed a comparison of the stone size distributions determined from the core samples with the actual production, and found them to correlate very well. This correlation confirms that the results of the exploration sampling and assaying are reliable.
The report states that as of June 30, 2003, the 701 Mine has an Indicated Mineral Resource of 1,453,649 tonnes at a grade of 0.92 carats/tonne, for a total of 1,342,192 carats. The Indicated Mineral Resource is situated between the bottom of the open pit and the -40m level. Between the -40m level and the -340m level is an Inferred Mineral Resource of 1,533,385 tonnes at a grade of 0.63 carats/tonne, for a total of 966,033 carats. These results are based on 1.0mm stone size lower cutoff. It is important to recognize that although the current processing plant recovers stones greater than 0.2mm in size, the mineral resource is reported at 1.0mm in size, which is more typical of similar producing mines around the world. SRK recommends that an economic trade-off study be completed to assess whether or not it is worth the extra cost of recovering these stones. If it is deemed positive, the mineral resources grade would be adjusted upwards.
Mine personnel have completed reconciliation between the drill-defined Mineral Resource and mine production, resulting in a plant recovery of 73%. However, considering that the current processing plant is recovering a large percentage of small stones (greater than 0.2 mm in size), which is similar to the recovery of small stones from core drilling, SRK considers the plant recovery of 73% may be understated and in the opinion of SRK, is most likely due to two factors:
-- The fact that although the total number of diamonds being recovered may be recorded adequately, the current operation does not have an adequate method of reconciling tonnage from the mine and tonnage processed in the plant. As such, the processing recovery of 73% most likely includes all aspects of the mine including dilution and mining recovery in addition to plant recovery. Therefore, SRK recommends that a better procedure of tracking tonnages in the reconciliation be completed. The Company has requested that SRK provide recommendations for procedure of tracking tonnages and the reconciliation to be completed.
-- Another source of discrepancy is loss of diamonds to theft, particularly large stones, but this is impossible to quantify. Security measures are considered by SRK to be very lax, and theft is thought to exist.
In addition, from 1990 to 1993, mine personnel sampled the ore feed from the open pit and compared this with the Mineral Resource estimates. The tonnage was comparable, but the grade was approximately 10% higher than the feed grade. Therefore SRK concluded that the estimated grade for this period of time compares well with production and adds support for current drill-defined Mineral Resource estimates.
In the opinion of SRK, the current valuation of the recovered diamonds is not maximized based on current world market conditions. The Company recently commissioned the services of Mr. Nizam Peters of American Institute of Diamond Cutting, an independent diamond valuator based in Florida, U.S.A., to provide recommendations on the current classification scheme and valuation. Mr.Peters examined two parcels of stones representing production from May and June, 2003, a total of approximately 10,000 carats. Mr. Peters reported that "Based on the mix of industrial diamond sizes seen in the overall production for the industrial portion for both May and June, it is my opinion that gem quality material in the large sizes may be deficient". Considering the very poor security in place at the 701 Mine, and the relatively low proportion of gem quality stones in the larger size fractions, compared to industrial quality stones, there may be a deficiency of the gem quality stones in this parcel. It was jointly decided by SRK and Mr. Peters that a true valuation of the stones at this time could not be achieved. Therefore it was recommended that a better security system with trained personnel be implemented at the mine, and a parcel of stones representing two to three months of production be collected and stored for valuation.
Another important outcome of this review was the question of stone fragmentation during processing, where previously it was thought that changing the processing method could substantially reduce the number of fragmented stones, and therefore, improve the overall value per carat. However, in the opinion of Mr. Peters, the fragmentation, although it is occurring, generally only accounts for a small percentage of the stones. In addition, the majority of fragmented stones are of poor quality, and are primarily the brown stones that are typically weaker in nature and often have a greater number of inclusions. These stones are of industrial quality, and therefore, decreasing the fragmentation of these stones is not expected to significantly increase the overall value per carat of the deposit.
The Company has begun to implement SRK's recommendations with the purpose of obtaining proper valuation of diamonds. The Company has engaged the services of Mr. Peters to review and implement new security policies and procedure to ensure the safeguard of the Company's diamond assets. The Company has recently entered into an agreement with a China Company to provided security monitoring equipment which is currently being installed at the 701 Mine. The Company has also mobilized a team of individuals to provide a physical presence until full security system is in place. The Company is currently reviewing proposals for a Dense Media Separation (DMS) plant and X-ray sort house facility which will improve the situation dramatically. The processing plant is currently designed to process 70,000tpy. In general the processing plant is old and inefficient. The plant requires new parts and maintenance to reach the design capacity. SRK recommends that the processing plant be studied with a view of increasing the capacity of the plant, and improve diamond recovery. The Company has also retained Bateman Minerals, South Africa, to study the options with respect to the processing plant.
SRK did not find diamond classification and valuation information to be sufficient to base a proper economic analysis of current, and future, operation at the 701 Mine. As such the current Mineral Resources cannot be converted to Mineral Reserves. Therefore, the cash flow analysis of the operation will be deferred until the information can be compiled. It is anticipated that a period of three months is required to ensure a secure, representative parcel of diamonds to be valued and sold. The three month period provides the valuator time to not only value a more representative parcel of stones, but also provides time for the Company to sell the stones on the world market to compare the valuation with actual prices.
The mine is proposing to use the sublevel caving method to extract ore from the underground mine, which SRK agrees is appropriate for the 701 Mine rock conditions. However, given the relatively strong nature of the host rock and kimberlite, SRK recommends that the sublevel heights in the big pipe may be increased to 15m or 20m. This has the potential to save a significant amount of future development, and hence, capital costs.
The current underground mine design capacity is capable of hoisting up to 450tpd from 110m level, and is adequate to give an average of 333tpd. There is an opportunity to make revisions to the planned underground development. SRK recommends that haulage levels below 110m level, and decline deepening, be delayed until a mine planning study has been carried out to review sublevel height, equipment selection, rock mechanics and operating and capital stock. There is adequate kimberlite above the 110m level to meet the processing plant capacity for at least one year.
Current operations are successful at 701 Mine because they are only mining ore below the open pit and have not yet commenced true sublevel caving. SRK recommends that a mining engineer with sublevel caving experience be hired to provide training.
The current level of mine planning at the 701 Mine is not sufficient. A yearly plan is done and is used to estimate the next year's budget. Detailed planning must be carried out, on a weekly, monthly, and six-month basis. Long-term planning for a period of at least five years should also be carried out. There should also be a life-of-mine plan.
SRK has listed a comprehensive series of recommendations throughout their report in order to assist 701 Mine management in their goal of continually improving the current operations. The company has retained SRK to provided further studies on recommendations where required and institute a plan with current mine managers for implementation of relevant recommendations. Andrew Bradfield of SRK was returned to the Mine site on August 18, 2003 to begin this process.
Overall, SRK believes that the 701 Mine has the potential to be much improved given the appropriate set of mining and processing scenarios possible to maximize the Mineral Resource and profitability.
ON BEHALF OF THE BOARD Sam Halbouni Co-Chairman and Chief Executive Officer For further information, please contact Donald Johnson at (604) 608-6686
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