Back Forty Project
Overview
The Back Forty project is an advanced-staged exploration project delineating a zinc and gold rich volcanogenic massive sulfide (VMS) deposit located within the Penokean Volcanic Belt. Over the past 10 years, Aquila and various venture partners have spent more than $50 million exploring and advancing the Back Forty project. Aquila owns a 49% interest and HudBay Minerals Inc. (TSX: HBM; NYSE: HBM) holds a 51% interest.
As of July 3, 2012 HudBay suspended funding for the joint venture. Both parties are now working together to assess various strategic alternatives that will continue to advance the project and that are in the best interests of shareholders and stakeholders. An updated National Instrument (NI) 43-101 resource estimate that included an additional 78 drill holes was released on February 4, 2013.
- Located in Menominee County Michigan, USA 12 miles west of the town of Stephenson
- Gold and zinc-rich VMS deposit with over 120,000 meters of drilling to date
- Positive Preliminary Economic Assessment (PEA) completed in April 2012
- Updated resource estimate released in February 2013
- Two-year environmental baseline studies completed
- Excellent infrastructure in place, including access to roads, rail, water and electricity
Resource Estimate
The updated February 2013 National Instrument (NI) 43-101 technical report (see press release dated February 4, 2013) calculated 15.1 Mt of Measured plus Indicated (M+I) and 2.3 Mt of Inferred resources. The updated M+I resource estimate contains 987,236 ounces of gold, 11.91 million ounces of silver, 1.02 billion pounds of zinc, 74.3 million pounds of lead and 110.4 million pounds of copper. An additional 155,885 ounces of gold, 1.99 million ounces of silver, 113.3 million pounds of zinc, 17.2 million pounds of lead and 18.6 million pounds of copper are included in inferred resources.
| Category | Tonnes | Au (g/t) | Ag (g/t) | Cu (%) | Pb (%) | Zn (%) |
| Open Pit * | ||||||
| Measured | 4,720,716 | 2.24 | 26.77 | 0.55 | 0.13 | 3.49 |
| Indicated | 4,926,783 | 1.90 | 18.30 | 0.14 | 0.21 | 1.49 |
| Measured and Indicated | 9,647,498 | 2.07 | 22.45 | 0.34 | 0.17 | 2.47 |
| Inferred | 152,488 | 2.76 | 34.56 | 0.19 | 0.39 | 2.86 |
| Underground ** | ||||||
| Measured | 1,982,087 | 1.97 | 28.56 | 0.29 | 0.31 | 5.04 |
| Indicated | 3,504,462 | 1.96 | 27.78 | 0.33 | 0.32 | 3.57 |
| Measured and Indicated | 5,486,549 | 1.97 | 28.06 | 0.32 | 0.32 | 4.10 |
| Inferred | 2,184,246 | 2.03 | 25.96 | 0.37 | 0.33 | 2.15 |
| Open Pit and Underground | ||||||
| Measured | 6,702,803 | 2.16 | 27.30 | 0.47 | 0.18 | 3.95 |
| Indicated | 8,431,244 | 1.92 | 22.24 | 0.22 | 0.26 | 2.36 |
| Measured and Indicated | 15,134,047 | 2.03 | 24.48 | 0.33 | 0.22 | 3.06 |
| Inferred | 2,336,734 | 2.07 | 26.53 | 0.36 | 0.33 | 2.20 |
Preliminary Economic Assessment
The April 2012 National Instrument (NI) 43-101 Preliminary Economic Assessment (PEA)(see press release dated April 26, 2012) outlined development of an estimated seven year open pit mining operation producing approximately one million tonnes of ore per year. The high-grade, open pit deposit provides substantial leverage to gold and zinc prices. Revenue by metal is 48% gold and 26% zinc, 18% copper and 8% silver. Using the base case metal price assumptions below, the project achieves payback of capital costs during the third year of production. The following table outlines a price/sensitivity analysis based on the assumptions set out in the PEA.
| -15% Change To Base Case |
3 Year Historical Price Base Case |
+15% Change To Base Case |
||
| Gold | US$ (oz) | 1,124 | 1,332 | 1,520 |
| Silver | US$ (oz) | 26.29 | 25.05 | 28.81 |
| Copper | US$ (oz) | 2.92 | 3.44 | 3.96 |
| Zinc | US$ (oz) | 0.80 | 0.94 | 1.08 |
| Pre-tax | Cashflow | 85,779,000 | 211,794,000 | 355,958,000 |
| NPV 8% | 2,858,000 | 73,574,000 | 142,958,000 | |
| IRR | 8.4% | 18.2% | 26.2% |
The potential economic viability of the Back Forty deposit was evaluated using measured, indicated and inferred mineral resources and a discounted pre-tax cash flow analysis. The mine plan evaluated in the PEA assessed the mining of only the near surface portion of the resource by open pit methods. Potential underground mining of deeper resources was not addressed in the PEA.
The PEA outlined the scope for the project and a summary of the key operating and cost parameters of the project are as follows:
- Proposed life of mine is approximately 7 years at a full production rate of 3,000 tonnes per day
- Net payable gross revenue of $786.8 million is from copper and zinc concentrates and gold-silver alloy dore
- Average unit operating costs of $36.79 per tonne mined and processed over life of the project
- Total life of mine capital of $272.3 million, includes $224.7 million for initial project capital required to build the mine, site infrastructure, sulfide flotation and oxide leach plant and purchase of new mining equipment to achieve commercial production
- The project has a pre-tax cash flow of $211.8 million and a Net Present Value (8%) of $73.6 million, 18.2% Internal Rate of Return using 3 year historical metal prices
- Over the Life of Mine (LOM), Back Forty is expected to produce 77,200 tonnes of copper concentrate, 323,500 tonnes of zinc concentrate and 295,300 ounces of gold and 2,561,700 ounces of silver contained in gold-silver alloy dore product and within the copper concentrate
History
Early in 2002 massive sphalerite 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 and HudBay have completed over 500 diamond drill holes in which polymetalic 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.
Continued Exploration
The limit of strong quartz-sericite-pyrite alteration in rhyolites has not been identified in either drilling or surface exploration at Back Forty. Outcrops over half a kilometer to the southwest are altered and mineralized.
Step out drill holes have shown that strongly altered host-rocks with anomalous zinc and gold mineralization continue for at least 500 meters east of the known massive sulfide. Drilling in late 2010 intersected deep, high grade gold and zinc mineralization between 100 and 300 meters west-southwest of previously modeled mineralization, indicating that mineralization continues at depth. Strong gravity trends that coincide with the strike of massive sulfide remain to be tested.
Environmental Studies
In preparation for mine permitting at the Back Forty Project, Aquila Resources implemented an Environmental Baseline Study (EBS) in 2007. Environmental Resource Management (ERM) was contracted to conduct the EBS. The survey is 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
- 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
- Phase I biological studies (aquatics, wildlife and flora) complete and Phase II studies in progress or scheduled
- Cultural studies initiated
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.
* Cut off values were determined for each of the metallurgical domains contained in the optimized open pit were based on NSR values. Average cut-off value for the open pit resource contained within an optimized pit shell was US$27.75. See “Mineral Resource Estimate Disclosure.”
** Cut off values were determined for each of the metallurgical domains based on NSR values. Average cut-off value for the underground resources outside of the optimized pit shell was US$66.45. See “Mineral Resource Estimate Disclosure.”
