TSX: AQA

Back Forty

Granted all 4 final permits

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

Aquila has been granted four of four final permits by Michigan’s Department of Environmental Quality, including:

  • Nonferrous Metallic Mineral Mining Permit
  • Air Use Permit to Install
  • Pollutant Discharge & Elimination System Permit (NPDES)
  • Wetlands Permit

Aquila has received all State and Federal permissions required for the construction and commencement of operations at the Back Forty Project.

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

gold

41

zinc

41

copper

10

silver

6

lead

2

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

ItemDescriptionTotal
OreMt11.7
Strip Ratiowaste : ore4.3
GradeGold equivalent4.3 g/t
GradeZinc equivalent6.7%
Total Recovery & Payability% of con’d ZnEq69.1%
Payable ZincMlbs512
Payable Goldkoz468
Payable Zinc EquivalentMlbs1,197
Payable Gold Equivalentkoz1,105
TailingsMt11.0
   
Gross Revenue$/t ore123
NSR (Base Case)$/t ore108
Total Site Opex$/t total ore32
Royalties$/t total ore1
EBITDA$/t total ore75
EBITDA marginEBITDA / NSR69.6%
Gross C1 Cash Costs$/oz AuEq499
Net C1 Cash Costs$/oz Gold(590)
Net C1 Cash Costs$/lb Zinc(1.73)
   
Initial Capital$M294
Total Investment (including Closure)$M480
Gross AISCs$/oz AuEq677
Net AISCs$/oz Gold(171)
Net AISCs$/lb Zinc(1.34)
   
Annual After-Tax Operating Cash Flow$M pa62
After-Tax NPV at a 0% discount rate$M316
After-Tax NPV at a 6% discount rate$M208
After-Tax IRR 28.2%
After-Tax PaybackYears2.2
   
Pre-Tax NPV at a 6% discount rate$M259
Pre-Tax IRR 32.0%
  1. None of EBITDA, C1 cash costs or all-in sustaining costs (“AISC”) have a standardized meaning under IFRS. See “Non-IFRS Measures”.
  2. Gold and zinc equivalencies were determined using total contained and payable metals and the respective ratio of Base Case metals prices.
  3. 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.

512M pounds

Payable zinc production

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.

MetalLife of Project ProductionAverage 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 Construction19
Common Plant20
Oxide Plant33
Sulphide Plant59
TMF/WRFs39
Infrastructure33
Mining25
Management Costs22
Owner costs13
Subtotal263
Contingency (12%)31
Total294

 

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 1Year 2Year 3Year 4Year 5Year 6Year 7Total
Equip. & Down payments749277401001,165
Equip. Capital Leases6,4207,7098,2878,2874,181848435,052
Mine Development2,9561631103,228
Freight & Spares358399414416209941,811
Total Mine Sustaining Costs10,4838,5488,8118,7434,3901938841,256

 

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 1Year 2Year 3Year 4Year 5Year 6Year 7Total
Cut-off Wall4,6584,658
Tailings Management Facility15,7344,3605,1551,81327,062
South Waste Rock Facility8,5388,538
North Waste Rock Facility9,79819,26329,062
Total Project Sustaining Costs38,72823,6235,1551,81369,320

 

Operating Costs

A summary of the life of Project operating costs is outlined in the table below.

 Life of Project

($M)

$/t

ore

Gross Revenue1,437123
Realization Charges18015
NSR (Base Case)1,256108
   
Mining16014
Processing18416
G&A272
Total Site Opex37132

 

 

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
TYPE

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.

Low-CAPEX environment

$294M in estimated initial capital costs

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.