PMA fast tracks Windimurra with $25m plan

Precious Metals Australia has announced plans for a $25 million fast tracking of its Windimurra vanadium project.

Below is PMA's summary + a copy of its quarterly report:

- Board Approves $25m budget for 2006 for Windimurra project fast track
implimentation.
- Windimurra Pre-feasibility Study completed by Hatch.
- Direct capital cost of rebuilding the plant estimated at A$103m plus EPCM, indirects
and contingency of A$46 m.
- Selection of key process design options confirmed by Hatch, allowing tenders on
critial path items to be issued and procurement to commence.
- Owner's team being rapidly put in place for construction and operation.
- A number of kick off meetings have been held with potential project financiers.
- Product marketing activites underway, with visit to Chinese steel producers.
- Environmental approvals expected by third quarter 2006.
- Resource drilling progamme extends drilled strike length of resource by 1,900m.
- Revised vanadium Resource (in all catagories), which already includes the largest
reported proven vanadium reserve in the world, increased by 47%.

WINDIMURRA VANADIUM MINE (PMA 100%)
Windimurra Mine History
The Windimurra mine was built in 1999 at a cost exceeding A$200m. Over 30 million pounds of high quality vanadium pentoxide was produced at Windimurra, however production ceased in March 2003, and in early 2004 much of the plant and equipment was demolished and removed by the previous owner.
Re-opening the mine will require replacement of removed plant, which will be greatly facilitated by the existing services and infrastructure. Much of the plant and vanadium recovery processes as built, performed or exceeded the expectations of the original design.
The Board of PMA has approved a budget of $25m which is forecast to be expended between 1 April and the end of 2006. This budget includes expenditure to advance the project development and makes provision for an early start to detailed engineering and procurement of critical long lead items in parallel with finalizing the BFS, environmental approvals, market off-take agreements and financing. Construction is expected to commence later this year, to be completed by late 2007.
Pre- Feasibility Study
As previously announced, the Company engaged Hatch Associates Pty Ltd (Hatch) to carry out a detailed Bankable Feasibility Study (BFS) on reopening the Windimurra Vanadium Project.
The first stage of the study, a Pre-Feasibility Study (PFS), included a review of options for redevelopment of the Windimurra mine, has been successfully completed. The key outcomes from the PFS are highlighted below: - The original combination of single primary jaw crusher feeding directly to a SAG mill remains the preferred option. The pre-scrubbing pilot test work performed during the quarter indicated that ahead of the SAG mill is not required. The circuit provides an effective, low capital, low operating cost solution for the first stage of beneficiation, and exploits the soft nature of the oxidised ore.
- The use of DSM screens in place of the previously classification cyclones, coupled with the correctly sized milling circuit, will achieve the desired ground product size ahead of magnetic separation.
- The new magnetic beneficiation circuit will incorporate three stages of magnetic separation, with the introduction of Medium Intensity Magnetic Separators (MIMS) between the original Low Intensity Magnetic Separators (LIMS) and the Rare Earth high intensity Magnetic Separators (REMS). Testwork during the quarter confirmed that the use of the MIMS, whilst representing an additional capital cost, will result in higher magnetite recoveries and decreased maintenance and operating costs.
- Pilot scale testwork conducted in South Africa during the quarter has demonstrated that a flash drier ahead of the kiln using kiln off gas to dry and pre-heat the magnetite concentrate, will significantly improve kiln capacity and vanadium recovery. Furthermore, the lower off-gas temperature that can be achieved exiting the flash drier allows the use of a bag house to clean the off-gas, instead of the original wet gas scrubber. The bag house will have higher dust collection efficiency than the original wet gas scrubber, resulting in improved recoveries and environmental performance. The efficient use of heat from the kiln off-gasses will also reduce the overall gas consumption in the kiln, resulting in reduced green house gas emissions and lower operating costs.
- Maximum use will be made of the previously constructed tailings facility for the non-magnetic tailings exiting the magnetic beneficiation circuit.
The tailings thickener and underflow pumps will be designed to cope with higher discharge densities, and the existing single paddock tailings dam will be converted into three smaller paddocks, thus maximizing water recovery and reducing the demand on the saline portion of the bore field.
Capital Cost Hatch have prepared a "Class 4" Pre-Feasibility Study capital Estimate. The accuracy range for this type of estimate is considered to be within +/- 30%. Based on the "preferred options" generated at the end of the PFS, the indicative direct capital cost provided by Hatch for rebuilding the plant is A$102.6 million. In addition, indirect costs including EPCM, commissioning, spares, first fill, owner's costs and general contingency of (approximately 15%), amount to A$46.4m. Thus giving a total estimated project funding requirement of A$149 million.
The PFS has incorporated a number of initiatives that whilst adding to the overall capital investment, will result in significant benefits including increased throughput, availability and recovery, reduced operating costs, and improved safety and environmental performance. Based on expected cash operating costs, production levels and sales, the capital cost is not expected to have a material effect on the net present value of the project.
Detailed Feasibility Study
Since the completion of the PFS in early February, Hatch have developed the process flow Precious Metals Australia Limited Quarterly Report - 31 March 2006 3 of 6 sheets and design specifications for the detailed BFS. As a considerable amount of work has already been completed during the PFS, progress on the BFS is advancing rapidly and is scheduled for completion by end June 2006. The study will more accurately prove the capital cost of the reopened mine, and the project economics.
Hatch bring extensive process design and engineering skills to the project, including knowledge drawn from personnel involved in the original design and construction of the processing facility at Windimurra. In addition, the Company has appointed a number of expert consultancy firms to assist with sections of the BFS. These include: - Coffey Geosciences Pty Ltd (Geology/Geotechnical); - Tenant Isokangas Pty Ltd (Mine Design); - Golder Associates Pty Ltd (Tailings Dam Design); - Drytech Group (Pty) Ltd (Flash Dryer, Reduction Kiln and ferrovanadium Furnace design); - Rockwater Pty Ltd (Bore field upgrade); - Industrial Safe Pty Ltd (Occupational Health & Safety Planning); and - Independent Metallurgical Laboratories Pty Ltd (Metallurgical Testwork).
- Freehills ( Legal & Contracting) - Hunt and Humphry (Native Title, Mineral Titles) The Company has also engaged a number of key specialists whose expertise covers such areas as: - Mine geology; - Mine planning; - Process Design; - Procurement & Logistics; - Environmental Planning; - Project Implementation and Management; - Construction Scheduling; and - Capital Cost Estimation.
Project Implementation
The Company has identified the procurement of the SAG mill as important for project implementation. Consequently, technical and commercial tender specifications for the new SAG are currently being prepared jointly between the Company and Hatch. The Company intends to issue the formal tender in early May and place and order thereafter.
In carrying out a number of activities in parallel with finalising the BFS, and concluding financing and product off-take agreements the Company is making a pro-active investment which will bring the mine back into production earlier than it otherwise would.
The Company has also sought to identify and repurchase equipment previously used at Windimurra that was removed and sold after the mine closure. In January the Company purchased a number of items, including but not limited to: - a new filter cloth for the Magnetic Filter Belt - the hot caustic flash tank; - the spare V2O5 Flaking Wheel; - various electrical drives; - various equipment for the deammoniator kiln; - various pump starter panels (for the bore field); - a Metso gearbox for the kiln; - the kiln electrical switch gear and drives; - various agitator drives; - various tech taylor valves; - various VVVF drives, - filter belt vacuum pumps - spare table feeder The Company has also purchased a second hand jaw crusher, which is the same model as the one installed previously, the majority of the original wet drum magnetic separators and the magnetite concentrate belt filter.
The Company is currently reviewing options to expand the existing 40 man construction accommodation at site and is seeking to purchase a second hand camp suitable for the initial phases of construction. This will allow an early start to the site refurbishment, which will include repairing minor damage to the civil works and concrete foundations that occurred during site closure.
Environmental
From an environmental perspective, the reopened Windimurra will not be significantly different to the original operation, and will not require significant additional land disturbance due to improvement and use of existing facilities. PMA presented a project update to the environmental authorities earlier in the year outlining the company's plans for the project, which were well received.
The Environmental Protection Agency (EPA) has advised PMA that Windimurra will be assessed as an existing project with 'non-substantial' changes.
This will involve a project review, under section IV of the Environmental Protection Act. Once the review is complete the Project will be assessed under standard Western Australian approval processes managed by key state decision making authorities including: - The Department if Environment - Works Approval and Operating Licence - Department of Industry and Resources - Mining Proposal (Notice of Intent) Precious Metals Australia Limited Quarterly Report - 31 March 2006 4 of 6 - Department of Consumer and Employment Protection - Project Management Plan - Department of Water - Water Abstraction Licensing The Company has actively consulted with relevant stakeholders, including the Mt Magnet Shire, local pastoralists and indigenous communities with regard to plans to reopen the mine.
Based on preliminary approval timelines from the authorities the Company expects that all relevant approvals for commencement of construction will be in place during the third quarter of 2006.
Relevant decision making authorities have expressed their enthusiasm to work with the Company in renewing project approvals, providing the opportunity for PMA to work in cooperation with the environmental authorities for the most sustainable mine operation. PMA are most grateful for the assistance provided.
Project Finance
The process of attracting debt finance for the development of the Windimurra project commenced during March with initial presentations being made to a select group of Australian and international banks. Feedback from this group was positive regarding the Windimurra project and in April the Company will be providing further information to the bank group to progress their due diligence.
The Company has appointed KPMG Corporate Finance to provide debt advisory support for the project financing. KPMG Corporate finance provides advisory for debt, equity, M & A to a broad cross section of clients, including many in the resources industry.
The law firm Freehills has been retained to provide legal support for the development and financing of the Windimurra project. Freehills are a national practice and have a very strong resources and banking and finance practice based in Perth. We are pleased to welcome Freehills and KPMG to the team and believe that their experience in the resources area will add considerable value as we seek to complete the project finance and development of the Windimurra mine.
Various scenarios for the project finance are still being worked through, and the final level of borrowings will be determined in the coming quarter. However it is the intent of the Company to finance the project on a conservative debt/equity basis. The Company has a strong cash position ($43m at Quarter end) and this combined with the substantial value of the assets already acquired, provides a strong equity base for the financing.
The company expects that by the end of the next quarter, project finance requirements will be well advanced.
Vanadium Marketing
During the quarter the Company's Chairman, Managing Director and Chinese liaison visited mainland China to meet with key vanadium producers and users. The reception was most positive, with several key customers expressing strong interest in off-take agreements.
A number of parties have requested that samples be sent to them in China. Further marketing trips to Europe and USA are planned for the coming quarter.
The Company is currently recruiting a senior Marketing executive who will work to develop relationships and expand upon the interest expressed by end users, devise a marketing strategy, and formulate contracts for offtake.
During discussions with steelmakers who use vanadium, interest was expressed in the iron content of the Windimurra ore. Windimurra ore is a vanadiferous titaniferous magnetite - and iron magnetite containing vanadium and titanium. The iron content is believed to be similar to other magnetite deposits in the Mid West region of Western Australia which are being examined for their potential to supply iron to Chinese customers. These other deposits do not contain vanadium or titanium.
PMA has engaged consultants to compile a data base of drill hole and other data with a view to examining an iron resource. Fortunately, drill samples taken at Windimurra by PMA over the past 15 years were assayed for iron and titanium as well as vanadium, and this data is to hand.
Precious Metals Australia Limited Quarterly Report - 31 March 2006 5 of 6 The Windimurra plant will produce approximately 1m tonnes per year of iron concentrate which is then processed to remove the vanadium. The resulting iron concentrate (calcine) may be saleable for its iron content. Samples have been requested by a number of Chinese steel mills.
Vanadium Outlook
The Company commissioned Metal Bulletin Research ("MBR"), London, to prepare a special report on the vanadium market in support of offtake and financing initiatives. Metal Bulletin publishes a twice weekly vanadium pentoxide and ferrovanadium price which has been adopted by the industry as a defacto official market price MBR have determined the market in 2006 is approximately 96,000t of V205 equivalent. The following is MBR's outlook for vanadium demand through 2015.
"Vanadium is expected to grow by a CAGR of 3.2% over the next ten years. This is slightly lower than the 4.4% CAGR over the period 1990 to 2005. We forecast that vanadium demand will reach 126,409 tonnes by 2015. This reflects the one-off nature of some of the increase in vanadium rebar applications within China and the emergence of HSLA as a major force for demand in mature markets. Steel will remain the key enduse market, although the expected emergence of new uses for titanium-vanadium alloys in the alloys and chemicals sector will see this sector grow the fastest".
PMA production from Windimurra at 9,000t of V205 equivalent will represent approximately 8% of world output.
MBR conclude that "Based on this bullish demand and the fact that the addition of vanadium to improve strength is likely to continue, we believe that additional capacity is required in the vanadium industry".
New Drilling
Final results from the January/February 2006 drilling program have extended the drilled strike length of the deposit by nearly 50% (1,900m) from the existing reserve, with the majority of the mineralised horizon still to be tested.
Due to recent interest in the iron potential of Windimurra, PMA has begun reporting the assay values for iron and titanium from new drilling, in addition to vanadium assays.
The results from this quarter's program are very robust, demonstrating a continuation of the vanadium, iron and titanium mineralisation at surface, in widths that allow cheap bulk mining via a pit entirely within ore, with no requirement for blasting.
A total of 20 reverse circulation holes for 1,134m were drilled during the quarter. The holes were mostly drilled at a spacing of approximately 50m apart across lines 200m apart heading north along strike, starting from the existing resource, the calculation of which currently ends at grid line 11,750N. The new holes on lines 11,900N, through to 13,650N therefore extend the drilled mineralisation by a further 1,900m north.
The holes were drilled eastward across strike at a 60o dip, giving apparent intercepts approximating true widths. SGS Australia P/L assayed the samples in Perth by XRF. Full assays of all holes were recently announced.
Vanadium Resource Increased 47%
A reassessment of the Windimurra resource at a 0.27% V2O5 cutoff, incorporating data from the recent drilling, has been completed by Coffee in accordance with the JORC code.
The combined Resource in all categories (including the Proven Reserve) now stands at 147.75 Mt at 0.46% V2O5, an increase of 47% over the previous resource calculation.
Windimurra Vanadium Resources Tonnes Grade V2O5 Measured and Indicated Resource 129.75Mt 0.46% Inferred Resource- Northern 8Mt 0.4% Inferred Resource- Southern (Shephard's Hill) 10Mt 0.4% New Total 147.75Mt Av 0.46% Previously 95.53Mt 0.47% - The Combined Measured and Indicated Resource is now 129.75 Mt at 0.46% V2O5 including 74 Mt at 0.45% V2O5 in oxidised and 55.27 Mt at.45% V2O5 in unoxidised material.
This resource extends over a total strike length of 5,150m, 1150m further than the previously declared Combined Measured and Indicated Resource, (as at December 2005), of 95.53 Mt at 0.47% V2O5 in oxidised and unoxidised material.
- An Inferred Resource has been identified in the 750m strike length immediately north of the above resource amounting to 8 Mt at 0.4% V2O5 including 4 Mt in oxidised and 4 Mt in unoxidised material each at 0.4% V2O5.
Precious Metals Australia Limited Quarterly Report - 31 March 2006 6 of 6 - To the South of the present resource at Sheppard's Hill an inferred resource has been calculated of 10 Mt at 0.4% V2O5 including 4 Mt in oxidised and 6 Mt in oxidised each at 0.4% V2O5.
- The Proved Reserve remains unchanged at 50.4 Mt @ 0.489% V2O5 and is included within the Combined Measured and Indicated Resource stated above.
Significant potential to add to the reserves and resources was previously identified, with extensions to mineralisation at depth and along strike, identified by geological mapping, costeaning, ground geophysics, aeromagnetics and limited drilling. This work indicated the continuous nature of the mineralisation, and defined a large horizon hosting significant vanadium mineralisation over a 26km length within PMA's granted tenements.
The new drilling has confirmed the extension of the mineralisation along strike to the north for nearly 2km to a depth of approximately 60m, leaving a significant area still to be tested along strike and at depth.
Windimurra is already considered one of the most straightforward open pit mining undertakings in Australia, due to the absence of overburden or ongoing waste removal, soft oxidised ore, low production requirement, shallow depth, no dewatering and ground control, easy blending of ore at the face, and no grade control requirement.
The Windimurra reserve is the largest proved vanadium ore reserve reported anywhere in the world, and the only one which allows development of an open cut completely within ore, with no overburden removal or blasting.
Project Personnel Recruitment
The Director's and staff have been pleased to welcome Shaun Bunn who joined the team in March as Director of Operations. Shaun is a metallurgist by profession and has a very strong background in project execution and development. Shaun has held senior technical positions in the laterite nickel and gold industries and his experience encompasses managing feasibility studies, project development and plant commissioning. He has held operations responsibility at a senior level for sophisticated pyrometallurgical and hydrometallurgical process plants, which experience will be invaluable in running the relatively less complex Windimurra plant. Shaun has a Bachelor of Science majoring in extractive metallurgy from WA School of Mines, and a postgraduate MBA from Deakin University.
The Company is further strengthening the team and is in the process of recruiting; - General Manager - Marketing - Safety and Health Co-coordinator - Procurement & Logistics Coordinator - Chief Geologist - Senior Process (Chemical) Engineer - Senor Mechanical Engineer Details of these positions can be found on the PMA website at www.pmal.com.au/careers/html.
These positions which we expect to fill during the coming quarter, whom together with existing members of staff, will form the basis of the owners team for the Windimurra mine.
CORPORATE
At the end of the quarter cash reserves of the company were in excess of $43m.
Shares on Issue (as at 31 March 2006) Fully Paid Ordinary Shares 74.7m Unlisted options 0.9m
Yours sincerely
PRECIOUS METALS AUSTRALIA LIMITED
RODERICK SMITH
Managing Director

The information in this report that relates to Exploration Results, Mineral Resources and Ore Reserves is based on information compiled by Mrs Hilary Wright who is a member of the Institute of Materials, Minerals and Mining, London, a fellow of the Geological Society, London, and a Chartered Geologist, and is an employee of Coffey Mining, who are independent consultants to Precious Metals Australia Limited.
Mrs Hilary Wright has more than five years relevant experience in the style of mineralisation and types of deposit under consideration and consents to inclusion of the information in this report in the form and context in which it appears. She is qualified as a Competent person as defined in the 2004 Edition of the "Australasian Code for reporting of Exploration Results, Mineral Resources and Ore Reserves".