Aquila Resources Inc.

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Aquila Resources Inc.

Back Forty Project

Overview

Back Forty is a 100%-owned development-stage project delineating a zinc- and gold-rich volcanogenic massive sulfide (VMS) deposit located along the mineral-rich Penokean Volcanic Belt in Michigan's Upper Peninsula. Over the past 10 years, Aquila and various joint venture partners, including Hudbay Minerals, have spent more than $60 million exploring and advancing Back Forty. 


Strong PEA Results 

In July 2014, Aquila released results from a new preliminary economic assessment (PEA) on Back Forty. The PEA contemplates mining 16.1Mt of mineralized material over the 16-year life of mine ("LOM"), of which 12.5Mt is open-pit and 3.6Mt is underground. 

The PEA demonstrates the potential for a diverse earnings stream with a payable metal value mix of 40% gold, 40% zinc, 14% copper, 5% silver, and 1% lead. 


Economic & Production Highlights 

 

Pre-Tax

After-Tax

NPV @ 6%

$282.2M

$210.8M

IRR

38.8%

32.0%

Payback Period

1.4 years

1.8 years

The PEA includes inferred resources that are considered too speculative geologically to have the economic considerations applied to them that would enable them to be categorized as mineral reserves. There is no certainty that the PEA results will be realized. 

  • Operating at an initial throughput rate of 5,350 tpd, the total payable production of the mine is expected to be 532 thousand ounces of gold, 721 million pounds of zinc, 74 million pounds of copper, 4.6 million ounces of silver, and 21 million pounds of leads;
  • A total estimated initial capital cost of $261M million comprised of $177 million of direct pre-production capital expenditure ("CAPEX"), a $44 million contingency, and $40 million of indirect and owner's costs;
  • The average on-site operating costs are $29.25 per tonne processed for open-pit mining and $66.20 per tonne processed for the underground mine; and, 
  • The near-surface characteristics of the ore body provide the opportunity to develop a low-CAPEX, high-grade initial phase operation. The economics of this are still being evaluated as part of the PEA and will be reported when complete. 
     

Sensitivity Analysis 

A sensitivity analysis was performed to test the economic viability of Back Forty against possible fluctuations in commodity prices. A table illustrating project sensitivity is presented below: 

 

Base Case
-15%

Base Case

Base Case
+ 15%

Gold

$1,099/oz

$1,293/oz

$1,487/oz

Silver

$17.39/oz

$20.46/oz

$23.53/oz

Zinc

$0.82/lb

$0.96/lb

$1.10/lb

Copper

$2.70/lb

$3.18/lb

$3.66/lb

Lead

$0.82/lb

$0.96/lb

$1.10/lb

Pre-Tax

NPV @ 6%

$122.3M

$282.2M

$440.6M

IRR

23.7%

38.8%

52.0%

Payback Period

2.8 years

1.4 years

0.9 year

After-Tax

NPV @6%

$95.2M

$210.8M

$324.8M

IRR

20.2%

32.0%

42.0%

Payback Period

3.1 years

1.8 years

1.2 years


Project Potential 

The optimized mine plan provides some flexibility in the development of the project including a low-CAPEX, high-grade initial phase operation. This option would focus on mining near-surface, high-grade zones by way of three small open pits in order to maximize capital return in the early years of production. This approach has the potential to provide attractive economic returns, mitigate certain start-up risks, and allow significant optionality in the long-term development of the project. This opportunity would be fully evaluated during the feasibility stage of project development and could be pursued depending on future macro-economic conditions. 

Other opportunities for consideration include optimization of the underground mining approach, which was not completed as part of the PEA, improving processing performance, and defining the upside potential, including further exploration and expansion of the underground resource, in-pit targets, and near-mine drill targets, which have the potential to extend mine life and improve project economics. 


Resource Estimate*

In February 2013, Aquila updated its mineral resource estimate. The 2014 PEA incorporates the results from this updated resource, of which 90% was classified as Measured and Indicated and only 10% Inferred. Please refer to Aquila's annual information form dated March 31, 2014 for further information regarding the updated mineral resource estimate. 

Category

Tonnes

Au (g/t)

Ag
(g/t)

Cu (%)

Pb (%)

Zn
(%)

Au (oz) Content

Zn (lbs)
Content

Measured

6,700,000

2.16

27.30

0.47

0.18

3.95

465,000

583,000,000

Indicated

8,430,000

1.92

22.24

0.22

0.26

2.36

520,000

439,000,000

M&I

15,130,000

2.03

24.48

0.33

0.22

3.06

985,000

1,022,000,000

Inferred

2,340,000

2.07

26.53

0.36

0.33

2.20

156,000

113,000,000


History

Early in 2001, zinc-rich massive sulfide mineralization was intersected in a water well. Follow-up drill testing of a geophysical anomaly resulted in the discovery of the massive sulfide deposit. To date, Aquila has completed over 500 diamond drill holes and has drilled over 120,000 meters in which polymetallic ore mineralization has been intersected to a depth of approximately 700 meters. 


Geology

Mineralization at Back Forty consists of massive, semi-massive, and stringer sulfide mineralization as well as precious metal zones with sparse sulfides, developed within a highly altered sequence of rhyolite breccias and pyroclastic rocks cut by dikes, sills and irregular intrusions of porphyritic dacite and rhyodacite. Late mafic dikes and at least one dioritic to gabbroic intrusive intrude the felsic sequence.

Structurally, this rhyolite sequence and associated massive sulfide mineralization has been deformed into an asymmetric, moderately southwest plunging anticlinal fold characterized by a gently dipping north limb, and a steeply dipping and sheared south limb. Folding has produced an axial planar schistosity and faulting has offset lithologies and created zones of weakness for younger intrusive rocks.

Altered host rocks form assemblages of quartz – sericite – pyrite throughout an extensive area surrounding the known mineralization. The degree and extent of this alteration is evidence for a large and long lived hydrothermal system and suggests the potential for additional mineralization in the area.


Environmental Studies

In preparation for mine permitting at the Back Forty Project, Aquila Resources implemented an Environmental Baseline Study (EBS) beginning in 2007. Environmental Resources Management (ERM) was contracted to conduct the EBS. The survey was designed to meet Michigan’s Part 632 Permit to Mine time-critical baseline studies (e.g., two-year data requirements for certain resources), support mine planning and design activities, address key issues raised by stakeholders, and integrate with engineering design. 

The EBS plan includes: 

  •  Ground and surface water hydrogeology testing to support future modeling
  •  Wetland characterization
  •  Air quality and meteorological studies
  •  Flora and fauna surveys, including threatened and endangered species
  •  Cultural resources
  • Visual and noise studies
  •  Pre-permitting consultation with regulatory agencies

The following have been completed: 

  • 18 glacial overburden groundwater monitor wells, 9 bedrock monitor wells, and 9 piezometers have been installed over a 6 square mile area around the project
  • Surface water quality monitoring stations have been established on several rivers, streams and lakes near the project area
  • Monitor wells and surface water stations have been sampled on a quarterly basis
  • An additional 11 staff gauges have been installed over 20 square miles
  • Complete meteorological and air quality monitoring station erected Fall 2007 with continuous on-site data collection
  • Biological studies (aquatics, wildlife and flora) completed
  • Cultural studies completed
  • Visual and noise baseline studies completed 

In addition to the environmental baseline study, Aquila Resources has acted in cooperation with the local township on a drinking water survey. At the request of Lake Township a third party environmental consulting firm, Foth Infrastructure and Environment of Green Bay, was contracted to design and implement a water quality study of residential water wells.


*Notes: 

  1. Mineral resources are not mineral reserves and do not have demonstrated economic viability.
  2.  NSR cut-off values for the 2013 resource estimate were based on metal price assumptions of US$0.96 per pound zinc, US$3.65 per pound copper, US$1.01 per pound lead, US$1456.36 per troy ounce gold and US$27.78 per troy ounce silver. Metallurgical recoveries were determined and applied for each of the metallurgical domains determined for the deposit. Average cut-off value for the open-pit resource contained within an optimized pit shell was US$27.75. Average cut-off value for the underground resources outside of the optimized pit shell was US$66.45. 
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