Overview
Back Forty is Aquila’s 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. Aquila and various past joint venture partners, including Hudbay Minerals, have invested more than $90 million exploring and advancing Back Forty.
Aquila completed a Preliminary Economic Assessment in 2014 that demonstrated strong economics. The company published results of an open pit Feasibility Study on August 1, 2018. Highlights of the study are outlined here.
The Company has received the four key permits required to commence construction and operations at Back Forty. The Company is awaiting a decision by an administrative law judge regarding the contested case challenge to its Wetlands Permit, which is expected later in 2020. The Company is also working to secure additional permits prior to construction, including a Dam Safety Permit.
Strong Feasibility Study Results
In August 2018, Aquila released results of an open pit Feasibility Study on Back Forty. The Feasibility Study was compiled by Lycopodium Minerals Canada Ltd with support from globally recognized experts and specialist consulting engineering companies in environmentally critical areas such as waste water treatment, tailings and waste rock management and mine design.
Highlights
- Pre-tax NPV at a 6% discount rate of $259M and IRR of 32.0% at base case metal prices of $1,300/oz gold, $1.20/lb zinc, $20/oz silver, $3.00/lb copper and $1.00/lb lead.
- After-tax NPV at a 6% discount rate of $208M and IRR of 28.2% with a 2.2 year payback.
- Open pit Proven and Probable Mineral Reserves of 11.65M tonnes.
- A project life of seven years with total payable gold production of 468,000 oz (or an average of 67,000 oz per year) and 135,000 oz in Year 1. Total payable gold equivalent production of 1.1 million oz.
- Total payable zinc production of 512M lbs (or an average of 73M lbs per year). Total payable zinc equivalent production of 1.2B lbs.
Initial project capital costs estimated at $294M with a 24-month construction period. - Sustaining capital costs of $110.6M.
- Gross C1 cash costs of $499/oz gold equivalent or $0.46/lb zinc equivalent and net C1 cash costs of -$590/oz gold or -$1.73/lb zinc.
- Gross AISC of $677/oz gold equivalent or $0.62/lb zinc equivalent and net AISC of -$171/oz gold or -$1.34/lb zinc.
- The Company has also identified a number of opportunities to further enhance the overall economics of the Project including the future addition of an underground expansion.
The Feasibility Study demonstrates the potential for a diverse earnings stream with a payable metal value mix of
Economic Highlights
A summary of key Back Forty Project metrics is outlined in the table below. The Base Case metal price deck is: $1,300/oz gold, $1.20/lb zinc, $20/oz silver, $3.00/lb copper and $1.00/lb lead.
Summary Economic Analysis – Base Case Metal Prices
| Item | Description | Total |
| Ore | Mt | 11.7 |
| Strip Ratio | waste : ore | 4.3 |
| Grade | Gold equivalent | 4.3 g/t |
| Grade | Zinc equivalent | 6.7% |
| Total Recovery & Payability | % of con’d ZnEq | 69.1% |
| Payable Zinc | Mlbs | 512 |
| Payable Gold | koz | 468 |
| Payable Zinc Equivalent | Mlbs | 1,197 |
| Payable Gold Equivalent | koz | 1,105 |
| Tailings | Mt | 11.0 |
| Gross Revenue | $/t ore | 123 |
| NSR (Base Case) | $/t ore | 108 |
| Total Site Opex | $/t total ore | 32 |
| Royalties | $/t total ore | 1 |
| EBITDA | $/t total ore | 75 |
| EBITDA margin | EBITDA / NSR | 69.6% |
| Gross C1 Cash Costs | $/oz AuEq | 499 |
| Net C1 Cash Costs | $/oz Gold | (590) |
| Net C1 Cash Costs | $/lb Zinc | (1.73) |
| Initial Capital | $M | 294 |
| Total Investment (including Closure) | $M | 480 |
| Gross AISCs | $/oz AuEq | 677 |
| Net AISCs | $/oz Gold | (171) |
| Net AISCs | $/lb Zinc | (1.34) |
| Annual After-Tax Operating Cash Flow | $M pa | 62 |
| After-Tax NPV at a 0% discount rate | $M | 316 |
| After-Tax NPV at a 6% discount rate | $M | 208 |
| After-Tax IRR | 28.2% | |
| After-Tax Payback | Years | 2.2 |
| Pre-Tax NPV at a 6% discount rate | $M | 259 |
| Pre-Tax IRR | 32.0% |
- None of EBITDA, C1 cash costs or all-in sustaining costs (“AISC”) have a standardized meaning under IFRS. See “Non-IFRS Measures”.
- Gold and zinc equivalencies were determined using total contained and payable metals and the respective ratio of Base Case metals prices.
- Evaluation includes financial impacts of the Company’s silver stream with Osisko Gold Royalties (OGR) but does not include the financial impact of its gold stream with OGR for which the majority of the upfront payments have yet to be received and for which there is uncertainty regarding the exact timing of these payments. See the Company’s Q1 2018 Financial Statements and MD&A available on SEDAR for additional details regarding the gold stream.
Production Highlights
Mining
The Project area consists of subdued terrain and topography. The area, topography and climate are amenable to the conventional open pit mining operations proposed for the Project. No underground mining is planned at this stage although the potential for underground mining will be evaluated in the near future.
The mining operations will encompass a single large open pit that will be mined with conventional mining equipment in three pushback phases. The mining fleet will consist of major equipment used directly in the rock-moving operation including blast hole drills, hydraulic excavators, and 91 t haul trucks. Various support equipment will be required, such as dozers, graders, water trucks, and light vehicles for maintenance, personnel transport and mine supervision.
For scheduling purposes, the Back Forty open pit was subdivided into three phases. Mining commences in a small higher-grade starter pit and subsequently expands outwards by pushing back the pit walls. This enables annual waste stripping quantities to be distributed over time to avoid highly variable annual total material mined tonnages.
Metal Production
Metal production figures are summarized in the table below.
| Metal | Life of Project Production | Average Annual Production |
| Gold (K oz) | 468 | 67 |
| Zinc (K lbs) | 512,198 | 73,171 |
| Copper (K lbs) | 51,109 | 7,301 |
| Silver (K oz) | 4,458 | 637 |
| Lead (K lbs) | 24,183 | 3,455 |
Concentrate Marketing
In addition to a Doré, the Back Forty Project will produce zinc, copper and lead concentrates. The zinc concentrates will on average grade 52.7%, the copper concentates will on average grade 19.3%, and the lead concentrate will on average grade 35%. Over its seven year life, the Project will on average annually produce 71,160 tonnes of zinc concentrate, 23,120 tonnes of copper concentrate and 5,600 tonnes of lead concentrate. All concentrates are expected to be marketable. Studies are ongoing to evaluate the optimal blends, destinations and transport options for Back Forty concentrates. The Company believes that there are multiple attractive options for each of the concentrates.
Capital and operating costs
Capital Costs
The capital estimate is summarized in the following tables by area and by discipline. All costs are based on Q1 2018 pricing. The estimate is deemed to have an accuracy of ±15%.
Capital Estimate Summary by Area
| Area | $ M |
| Indirect Construction | 19 |
| Common Plant | 20 |
| Oxide Plant | 33 |
| Sulphide Plant | 59 |
| TMF/WRFs | 39 |
| Infrastructure | 33 |
| Mining | 25 |
| Management Costs | 22 |
| Owner costs | 13 |
| Subtotal | 263 |
| Contingency (12%) | 31 |
| Total | 294 |
Mine Sustaining Capital
Expenditures incurred after Year -1 are considered sustaining capital and are summarized in the table below. The majority of the sustaining capital consists of capital lease payments for the mining equipment. Given the five year life of the open pit, no equipment replacements are planned.
Mine Sustaining Capital Cost Summary ($ ‘000)
| Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | Year 6 | Year 7 | Total | |
| Equip. & Down payments | 749 | 277 | – | 40 | – | 100 | – | 1,165 |
| Equip. Capital Leases | 6,420 | 7,709 | 8,287 | 8,287 | 4,181 | 84 | 84 | 35,052 |
| Mine Development | 2,956 | 163 | 110 | – | – | – | – | 3,228 |
| Freight & Spares | 358 | 399 | 414 | 416 | 209 | 9 | 4 | 1,811 |
| Total Mine Sustaining Costs | 10,483 | 8,548 | 8,811 | 8,743 | 4,390 | 193 | 88 | 41,256 |
Project Infrastructure Sustaining Capital
Infrastructure sustaining capital costs include subsequent TMF stage raises over the life of mine, waste rock facility expansion costs, mine closure costs, salvage value and rehabilitation costs. The sustaining capital schedule over the life of mine is estimated as shown in the table below.
Project Sustaining Capital Cost Summary ($ ‘000)
| Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | Year 6 | Year 7 | Total | |
| Cut-off Wall | 4,658 | – | – | – | – | – | – | 4,658 |
| Tailings Management Facility | 15,734 | 4,360 | 5,155 | – | 1,813 | – | – | 27,062 |
| South Waste Rock Facility | 8,538 | – | – | – | – | – | – | 8,538 |
| North Waste Rock Facility | 9,798 | 19,263 | – | – | – | – | – | 29,062 |
| Total Project Sustaining Costs | 38,728 | 23,623 | 5,155 | – | 1,813 | – | – | 69,320 |
Operating Costs
A summary of the life of Project operating costs is outlined in the table below.
| Life of Project ($M) | $/t ore | |
| Gross Revenue | 1,437 | 123 |
| Realization Charges | 180 | 15 |
| NSR (Base Case) | 1,256 | 108 |
| Mining | 160 | 14 |
| Processing | 184 | 16 |
| G&A | 27 | 2 |
| Total Site Opex | 371 | 32 |
Project Potential
Aquila believes there are a number of opportunities available to the Company to improve the performance of the Project as currently outlined in the Feasibility Study, all of which require additional evaluation. These include:
Underground Expansion
The Feasibility Study Mineral Reserve Estimate does not consider any out of pit Mineral Resource. The Company believes there is an opportunity to develop the out of pit Mineral Resource, which currently stands at 3.7M tonnes (Measured + Indicated), but additional studies will be required to demonstrate the economic viability of an underground expansion. An underground expansion would also defer mine closure costs which currently commence in Year 8 at a nominal cost of $74.7M. The Company’s existing permits are for an open pit mine only and amendments and additional environmental studies would be required to allow underground mining. Aquila will soon be commencing an exploration drill program to further define the underground Mineral Resource.
Process Plant
Metallurgical test work and optimization is continuing with the objective of decreasing process plant cyanide consumption, water treatment costs and tailings treatment operability. Studies will also be undertaken to follow up on initial test results that have demonstrated increased copper recoveries particularly in the years of higher copper grades in the process plant feed.
Resource Estimate
Back Forty Mineral Resource Estimate as of February 6, 2018(1-6)
AREA | METALLURGY | CLASS | NSR CUT-OFF | TONNES | GOLD | GOLD | SILVER | SILVER | ZINC | ZINC | COPPER | COPPER | LEAD | LEAD |
$/tonne | (1,000) | g/t | K oz | g/t | K oz | % | M lb | % | M lb | % | M lb | |||
In-Pit | Floatable | Meas | 21 | 6,797 | 1.75 | 381 | 18.4 | 4,027 | 3.45 | 516.5 | 0.38 | 56.4 | 0.16 | 23.4 |
Ind | 21 | 3,768 | 1.58 | 191 | 25.2 | 3,056 | 3.15 | 261.7 | 0.24 | 19.9 | 0.39 | 32.8 | ||
M & I | 21 | 10,565 | 1.68 | 572 | 20.9 | 7,083 | 3.34 | 778.2 | 0.33 | 76.3 | 0.24 | 56.2 | ||
Inf | 21 | 71 | 1.01 | 2 | 30.7 | 70 | 2.98 | 4.7 | 0.14 | 0.2 | 0.37 | 0.6 | ||
Leachable | Meas | 22 | 553 | 5.61 | 100 | 34.8 | 618 | 0.19 | 2.4 | 0.05 | 0.6 | 0.13 | 1.5 | |
Ind | 22 | 1,777 | 2.15 | 123 | 39.6 | 2,263 | 0.41 | 16.1 | 0.03 | 1.3 | 0.29 | 11.5 | ||
M & I | 22 | 2,330 | 2.97 | 223 | 38.5 | 2,881 | 0.36 | 18.5 | 0.04 | 1.9 | 0.25 | 13.0 | ||
Inf | 22 | 378 | 3.62 | 44 | 40.1 | 487 | 0.38 | 3.2 | 0.06 | 0.5 | 0.52 | 4.3 | ||
Total | Meas | 21+22 | 7,350 | 2.04 | 481 | 19.7 | 4,645 | 3.20 | 518.8 | 0.35 | 57.0 | 0.15 | 24.9 | |
Ind | 21+22 | 5,545 | 1.76 | 314 | 29.8 | 5,319 | 2.27 | 277.8 | 0.17 | 21.2 | 0.36 | 44.3 | ||
M & I | 21+22 | 12,895 | 1.92 | 795 | 24.0 | 9,964 | 2.80 | 796.6 | 0.28 | 78.2 | 0.24 | 69.2 | ||
Inf | 21+22 | 448 | 3.21 | 46 | 38.6 | 557 | 0.79 | 7.9 | 0.07 | 0.7 | 0.49 | 4.9 | ||
Out of Pit | Floatable | Meas | 70 | 556 | 1.79 | 32 | 26.8 | 480 | 5.32 | 65.2 | 0.33 | 4.0 | 0.41 | 5.0 |
Ind | 70 | 3,059 | 1.84 | 180 | 26.2 | 2,577 | 4.23 | 285.4 | 0.51 | 34.3 | 0.30 | 20.3 | ||
M & I | 70 | 3,615 | 1.83 | 213 | 26.3 | 3,057 | 4.40 | 350.7 | 0.48 | 38.4 | 0.32 | 25.3 | ||
Inf | 70 | 544 | 2.96 | 52 | 37.5 | 656 | 1.38 | 16.6 | 0.62 | 7.5 | 0.39 | 4.6 | ||
Leachable | Meas | 70 | 37 | 7.38 | 9 | 74.3 | 89 | 0.31 | 0.3 | 0.12 | 0.1 | 0.11 | 0.1 | |
Ind | 70 | 77 | 3.85 | 9 | 47.3 | 117 | 0.32 | 0.5 | 0.15 | 0.2 | 0.13 | 0.2 | ||
M & I | 70 | 114 | 5.01 | 18 | 56.1 | 206 | 0.32 | 0.8 | 0.14 | 0.3 | 0.13 | 0.3 | ||
Inf | 70 | 137 | 5.93 | 26 | 81.0 | 356 | 0.42 | 1.3 | 0.16 | 0.5 | 0.49 | 1.5 | ||
Total | Meas | 70 | 593 | 2.14 | 41 | 29.8 | 569 | 5.01 | 65.5 | 0.32 | 4.1 | 0.39 | 5.1 | |
Ind | 70 | 3,135 | 1.88 | 190 | 26.7 | 2,694 | 4.14 | 286.0 | 0.50 | 34.6 | 0.30 | 20.5 | ||
M & I | 70 | 3,729 | 1.93 | 231 | 27.2 | 3,262 | 4.28 | 351.5 | 0.47 | 38.7 | 0.31 | 25.7 | ||
Inf | 70 | 680 | 3.56 | 78 | 46.2 | 1,011 | 1.19 | 17.8 | 0.53 | 8.0 | 0.41 | 6.1 | ||
Total | Floatable | Meas | 21+70 | 7,353 | 1.75 | 414 | 19.1 | 4,507 | 3.59 | 581.7 | 0.37 | 60.5 | 0.18 | 28.4 |
Ind | 21+70 | 6,827 | 1.69 | 371 | 25.7 | 5,633 | 3.64 | 547.1 | 0.36 | 54.2 | 0.35 | 53.1 | ||
M & I | 21+70 | 14,180 | 1.72 | 785 | 22.2 | 10,140 | 3.61 | 1,128.8 | 0.37 | 114.7 | 0.26 | 81.5 | ||
Inf | 21+70 | 615 | 2.74 | 54 | 36.7 | 726 | 1.57 | 21.2 | 0.57 | 7.7 | 0.38 | 5.2 | ||
Leachable | Meas | 22+70 | 590 | 5.72 | 109 | 37.3 | 707 | 0.20 | 2.6 | 0.05 | 0.7 | 0.12 | 1.6 | |
Ind | 22+70 | 1,854 | 2.22 | 132 | 39.9 | 2,380 | 0.41 | 16.7 | 0.04 | 1.6 | 0.29 | 11.7 | ||
M & I | 22+70 | 2,444 | 3.07 | 241 | 39.3 | 3,087 | 0.36 | 19.3 | 0.04 | 2.2 | 0.25 | 13.4 | ||
Inf | 22+70 | 514 | 4.24 | 70 | 51.0 | 842 | 0.39 | 4.5 | 0.09 | 1.0 | 0.51 | 5.8 | ||
Total | Meas | 21+22+70 | 7,943 | 2.04 | 522 | 20.4 | 5,214 | 3.34 | 584.3 | 0.35 | 61.2 | 0.17 | 30.0 | |
Ind | 21+22+70 | 8,680 | 1.80 | 504 | 28.7 | 8,013 | 2.95 | 563.8 | 0.29 | 55.8 | 0.34 | 64.9 | ||
M & I | 21+22+70 | 16,623 | 1.92 | 1,026 | 24.7 | 13,227 | 3.13 | 1,148.1 | 0.32 | 116.9 | 0.26 | 94.9 | ||
Inf | 21+22+70 | 1,129 | 3.42 | 124 | 43.2 | 1,568 | 1.03 | 25.7 | 0.35 | 8.7 | 0.44 | 11.0 |
(1) | MINERAL RESOURCES ARE ESTIMATED AS OF FEBRUARY 6, 2018. |
(2) | Mineral Resources which are not Mineral Reserves do not have demonstrated economic viability. The estimate of Mineral Resources may be materially affected by environmental, permitting, legal, title, taxation, socio-political, marketing, or other relevant issues. |
(3) | The Inferred Mineral Resource in this estimate has a lower level of confidence that that applied to an Indicated Mineral Resource and must not be converted to a Mineral Reserve. It is reasonably expected that the majority of the Inferred Mineral Resource could be upgraded to an Indicated Mineral Resource with continued exploration. |
(4) | The Mineral Resources in this report were estimated using the Canadian Institute of Mining, Metallurgy and Petroleum (CIM), CIM Standards on Mineral Resources and Reserves, Definitions and Guidelines prepared by the CIM Standing Committee on Reserve Definitions and adopted by the CIM Council. |
(5) | Metallurgical type Oxide (all gold domains and leachable Gossans) is leachable, while all other metallurgical types are floatable. |
(6) | The Mineral Resource Estimate was based on metal prices of US$1,375/oz gold, US$22.27/oz silver, US$1.10/lb zinc, US$3.19/lb copper and US$1.15/lb lead. |
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.
History
To date, Aquila has completed over 700 diamond drill holes
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 700 diamond drill holes and has drilled over 135,000 meters in which polymetallic ore mineralization has been intersected from the surface to depths exceeding 700 meters.