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. Over the past 10 years, Aquila and various 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 is currently advancing towards completion of a Feasibility Study, expected mid-2018.

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 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

gold

40

zinc

40

copper

14

silver

5

lead

1

Economic Highlights

The PEA includes inferred resources that are considered too geologically speculative to be categorized as mineral reserves. There is no certainty that the PEA results will be realized.

On February 7, 2018, Aquila announced an updated mineral resource estimate for the Back Forty Project (the “2018 Mineral Resource Estimate”), which was subsequently documented in a technical report, titled “Updated Mineral Resource Estimate and Technical Report on the Back Forty Project, Michigan, USA” prepared by P&E Mining Consultants Inc. (the “2018 Technical Report”). The 2018 Mineral Resource Estimate replaces the mineral resource estimate that was first disclosed in an Aquila news release dated February 4, 2013 (the “2013 Mineral Resource Estimate”) and subsequently included in a technical report titled “Preliminary Economic Assessment of the Back Forty Project, Michigan, USA” prepared by Tetra Tech, Inc. (the “2014 PEA”). As a result of the 2018 Mineral Resource Estimate, Aquila no longer considers the 2014 PEA to be a current technical report and, at this time, the 2018 Technical Report is the only current technical report in respect of the Back Forty Project.

pre-tax

after-tax

NPV @ 6%

$282.2M

$210.8M

IRR

38.8%

32.0%

Payback Period

1.4 years

1.8 years

721 million pounds

Zinc production

Production Highlights

Initial throughput rate of 5,350 tpd

Expected total payable production of 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 lead

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.

Total estimated initial capital cost of $261M million:

  • $177 million of direct pre-production capital expenditure (“CAPEX”)
  • $44 million contingency
  • $40 million of indirect and owner’s costs

Average on-site operating costs:

  • $29.25 per tonne processed for open-pit mining
  • $66.20 per tonne processed for the underground mine

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 here:

Base Case -15%Base CaseBase 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
IRR23.7%38.8%52.0%
Payback Period2.8 years1.4 years0.9 years
After-Tax
NPV @ 6%$95.2M$210.8M$324.8M
IRR20.2%32.0%42.0%
Payback Period3.1 years1.8 years1.2 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 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

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

$261M 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 500 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 500 diamond drill holes and has drilled over 125,000 meters in which polymetallic ore mineralization has been intersected from the surface to depths exceeding 700 meters.

Maps & Cross Section

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 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.

*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.

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, nine bedrock monitor wells, and nine piezometers have been installed over a six-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.