The Kemess East (KE) deposit is located approximately one kilometre east of the Kemess Underground (KUG) deposit and 6.5 kilometres north of the existing Kemess South processing plant and infrastructure. Both deposits are located on AuRico's 100%-owned Kemess property.

In May 2017, the Company released the results of a Preliminary Economic Assessment (“PEA”) prepared in accordance with National Instrument 43-101 for the Kemess East project in British Columbia.  The KE PEA presents a stand-alone scenario which does not incorporate the economics of the KUG project.  A positive Feasibility Study for the KUG project was released on March 23, 2016.  The KE PEA evaluates the development of a low-cost panel caving operation to extract the KE resources, with all ore being processed at the existing KS processing plant over a 12 year mine life.

Based on the positive PEA results, the Company plans to conduct a separate feasibility study, expected to be released in 2018, which will evaluate KUG and KE as part of an integrated development scenario.  The combined feasibility study is expected to reflect further in-fill and expansion drilling planned at KE this summer and the resulting KE resource update expected in early 2018.

All amounts stated are in Canadian dollars (C$) unless otherwise indicated.

PEA Highlights:

Commodity price and exchange rate assumptions include a gold price of US$1,250/oz, a copper price of US$3.00/lb, a silver price of US$18.00/oz, and a C$/US$ rate of 0.75.

  • Pre-tax undiscounted net cash flow of C$1,309M
  • Pre-tax NPV5% of C670$M and IRR of 22.1%
  • After-tax NPV5% of C$375M, and IRR of 16.7%
  • Total life-of-mine (“LOM”) production of  2.7Moz of gold equivalent
  • Total LOM production of 963Koz gold, 687Mlbs copper and 3.8Moz silver
  • LOM average annual production of 80Koz of gold, 57Mlbs of copper, and 318Koz of silver over 12 years
  • LOM co-product all-in sustaining costs (“AISC”) of US$744/oz gold and US$1.79/lb copper
  • Pre-production capital costs (including 15% to 30% contingency) of C$327M (US$245M)

Economic Sensitivities and Key Operational Parameters

Parameter

Unit

Base Case

Spot Price

Alternate

Gold Price
Copper Price
Silver Price
Exchange Rate
US$/oz
US$/lb
US$/oz
C$/US$
$1,250
$3.00
$18.00
0.75
$1,270
$2.60
$17.00
0.74
$1,350
$3.25
$20.00
0.75
Pre-Tax Undiscounted Net Cash Flow C$M $1,309 $1,023 $1,664
Pre-Tax NPV (5%) C$M $670 $497 $885
Pre-Tax NPV (6.5%) C$M $544 $395 $731
Pre-Tax NPV (8%) C$M $440 $310 $603
Pre-Tax IRR % 22.1% 18.7% 26.0%
After-Tax Undiscounted Net Cash Flow C$M $797 $623 $1,014
After-Tax NPV (5%) C$M $375 $269 $507
After-Tax NPV (6.5%) C$M $292 $201 $407
After-Tax NPV (8%) C$M $224 $144 $324
After-Tax IRR % 16.7% 13.9% 19.9%
Payback Period (pre-tax) years 3 4 3

Tonnage and Grade

LOM

Tonnes milled (M) 103
Gold grade (g/t) 0.42
Copper grade (%) 0.34%
Silver grade (g/t) 1.76

Average Recoveries

LOM

Gold (%) 70
Copper (%) 89
Silver (%) 66
Production Average Annual LOM
Gold / Gold Equivalent (Koz) 80 / 222 963 / 2,666
Copper / Copper Equivalent (Mlbs) 57 / 92 687 / 1,111
Silver (Koz) 318 3,826
Total Cash Costs1 Gold ($US/oz) Copper ($US/lb)
Co-product basis $619 $1.49
By-product basis ($415) $0.61
All-In Sustaining Costs2 Gold ($US/oz) Copper ($US/lb)
Co-product basis $744 $1.79
By-product basis ($69) $1.10

1Co-product basis allocates costs proportionally based on the relative value of gold and copper revenues; Gold by-product basis applies all copper and silver revenues as a credit to costs while Copper by-product basis applies all gold and silver revenues as a credit to costs.

2All-in sustaining costs defined per World Gold Council guidelines but excludes corporate G&A allocation.

PEA Approach and Project Overview

The PEA for the KE project presents a stand-alone scenario that does not factor in or modify in any way the economics of the Feasibility stage KUG project located on the same property.  The PEA does, however, assume that the KUG project is advanced ahead of KE, and hence a number of project components, most notably the access corridor connecting KUG to the KS process plant and the water treatment plants associated with KUG, are not duplicated in the capex for KE.  Potential optimization opportunities such as economies of scale that might exist by advancing KE prior to depletion of KUG are not reflected in the PEA but are noted in the Project Enhancement Opportunities section below.

The location of KE in relation to the KUG project and the past producing KS mine is shown in Figure 1. The Kemess Property is located in north-central British Columbia, Canada, approximately 430 kilometres northwest of Prince George.

As with the KUG project, the KE project benefits from the brownfields nature of the Kemess property. Between 1998 and 2011, the KS mine produced approximately 3.0 million ounces of gold and 750 million pounds of copper from 218 Mt of ore. The KS Mine comprised a large open pit feeding gold-copper ore to a 52,000 (t/d) process plant. Open pit mining and processing ceased in March 2011 on depletion of the mineral reserves. The process plant and other facilities and equipment required to support an underground mining operation at the KE deposit are currently under care and maintenance (see Figure 2). Existing on-site infrastructure includes offices, warehouse, laydowns, maintenance facilities, a 400-person accommodation camp footprint, crushed ore stockpile and reclaim, access and service roads, airstrip, explosives magazines, and electrical sub-station. A Company-owned, 380 km power line originating in Mackenzie provides power to the mine site from the BC Hydro grid.

The PEA for KE is based on a mine plan for an underground panel cave with initial production beginning 4 years (KE year 4) following the start of development of the KE declines and ramping up to a steady-state production rate of 30,000 t/d in KE year 8. The KE resources are located approximately 800 m to 1,140 m below surface.  The KUG extraction level is at elevation 1,140 m (above sea level), while the KE extraction level is at elevation 370 m and offset 900 m laterally to the east of KUG.  The KE cave footprint is 400 m by 275 m and will be accessed and supported by a twin decline system for access and ore conveying.  This twin decline system starts from the KUG decline (see Figure 3), utilizing 2.5 km of planned KUG development.  A raise from surface supplies fresh air to the KE mine levels and is exhausted via the KE twin declines to the KUG exhaust ventilation system.

Following extraction from the KE cave and primary crushing underground, ore will be conveyed to the existing KS process plant where it will be processed at an average rate of 30,000 t/d (~11 Mt per year) using existing grinding, flotation, thickening, and concentrate handling facilities, and a grinding circuit of increased capacity included in the PEA design. Concentrate will be trucked to the AuRico-owned loadout facility in Mackenzie for subsequent rail transport to market.

Mineral Resources

The Company’s January 2017 resource estimate was used as the resource base for the PEA (see Table 1).  A total of 101.9 Mt mineral resource comprises the PEA production from the total Indicated resource of 113.1 Mt and Inferred resource of 63.8 Mt; with the 101.9Mt having average grades of 0.34% Cu, 0.42g/t Au and 1.76g/t Ag.  The optimized KE cave production (mineral resource) comprises approximately 85% of ore classified in the Indicated category and 15% of ore in the Inferred category.

Table 1: Kemess East Mineral Resource Estimate Summary, January 13, 2017 (SRK, 2017)

Category

Mt

Cu (%)

Au (g/t)

Ag (g/t)

Cu Mlb

Au Koz

Ag Koz

Indicated - potassic strong 67.2 0.43 0.60 2.06 640 1,292 4,457
Indicated - potassic moderate 40.0 0.32 0.27 1.81 286 352 2,336
Indicated - potassic weak 5.1 0.22 0.19 1.45 24 31 238
Indicated - phyllic + propylitic 0.8 0.21 0.20 1.40 4 5 36
Indicated - total 113.1 0.38 0.46 1.94 954 1,680 7,066

Category

Mt

Cu (%)

Au (g/t)

Ag (g/t)

Cu Mlb

Au Koz

Ag Koz

Inferred - potassic strong 15.2 0.41 0.51 2.05 137 249 1,003
Inferred - potassic moderate 41.9 0.34 0.26 1.91 311 353 2,579
Inferred - potassic weak 6.0 0.20 0.17 1.42 27 32 274
Inferred - phyllic + propylitic 0.7 0.21 0.24 1.42 3 6 33
Inferred - total 63.8 0.34 0.31 1.90 478 640 3,889

Notes

  • NSR cut-off value of C$17.3/t was used to define Indicated and Inferred resources within a reasonable prospects for economic extraction solid.
  • NSR calculation assumed US$3.20/lb copper, US$1,275/oz gold, and US$21.0/oz silver prices, and C$/US$ exchange rate of 0.76.
  • NSR calculation assumed metallurgical recoveries of 91% copper, 72% gold, and 65% silver; as well as a 22% copper grade for concentrate. Molybdenum was excluded from the NSR calculation.
  • Details of the Sample Preparation and Quality Assurance and Quality Control are presented in AuRico Metals’ November 8, 2016, press release reporting on the results of the Company’s 2016 drill program.
  • Resources were generated from 81 holes drilled at Kemess East in 2006, 2007, 2013, 2014, 2015, and 2016.
  • Exploration activities at the Kemess East deposit have been conducted under the supervision of Wade Barnes, PGeo, Kemess Project Geologist, for AuRico Metals. Mr. Barnes is a “Qualified Person” as defined by NI 43-101.
  • Mineral Resources were prepared under the supervision of Marek Nowak, SRK Consulting (Canada) Inc. Mr. Nowak is a “Qualified Person” as defined by NI 43-101.

As previously announced, the Company is planning to conduct an approximately 12,000 metre drill program at KE in 2017.  This program will include in-fill drilling targeting the potassic strong zone, resource expansion around the known deposit, and exploration holes looking for higher grade material within the Kemess Offset Zone (located between the KUG and KE deposits).  The high grade core at KE is associated with a strong potassic alteration zone which remains open to the north, south and west, as does the overall deposit. 

Mining and Processing

The KE panel cave design and schedule was derived using Geovia’s Footprint Finder and PCBCTM software, an industry standard for cave optimization and scheduling, using the resource model provided by SRK Consulting (Canada) Inc.  The cave footprint will be accessed and supported by a twin decline system providing access, ore conveying and exhaust air routing. Mine levels within and directly adjacent to the KE cave footprint comprise undercut, extraction, haulage and crushing, and ventilation levels. Total LOM development requirements are estimated to be 43,700 m lateral and 2,635 m vertical development.  Figure 3 shows the KE mine design and the interconnection between the KUG and KE projects. The graphic shows the elevations of the KUG and KE extraction levels and the height of draw across the footprints for each cave.

Geotechnical assessments of caveability, fragmentation, subsidence and ground support requirements were carried out by Golder Associates based on geotechnical characterizations developed from geological assessments and core logging data from the KE exploration drilling program, and prior geomechanical studies of the KUG deposit by others.

Electric-drive loaders will deliver ore to passes at the mid-point of each extraction level drive which connect to truck loading stations on the underlying haulage level.  Trucks will haul ore to a primary crusher in the south-east area of the KE cave footprint.  Following crushing, ore will be conveyed 5 km in the KE conveyor decline where it will transfer to the KUG underground conveyor.  At surface, ore will be transferred to the KUG surface conveyor and transported 4.9 km to the existing ore stockpile ahead of the process plant.

Processing ore at a rate of approximately 11Mt per year will be achieved using the remaining KS grinding circuit that was used to process KS ore.  The original flotation, thickening and concentrate handling facilities will be used and preliminary metallurgical testwork has resulted in estimated average recoveries of 88.6% copper, 69.6% gold and 65.6% silver.  Figure 1 shows the resulting KE annual gold equivalent production profile.

Figure 1: KE Gold Equivalent Production (ounces)

KE Gold Equivalent Production in ounces

The coarse fraction of the rougher tailings from the mining and processing of KE ore is non-acid generating and is planned to be stored in a dry-stack facility. Cleaner tailings and rougher fine tailings will be combined and deposited in the existing Kemess South tailings storage facility, which has sufficient capacity to store this material sub-aqueously.

Estimates for surface and groundwater inflow quantities to the KE mine workings have been made by Golder, with figures similar to those for KUG mine workings.  This water will be pumped to the KUG tailings storage facility for subsequent treatment using the water treatment plants planned for the KUG Project due to similar expected water quality.

For KE ore, the process plant is expected to produce a single concentrate with an estimated 22.3% copper content as well as payable gold and silver. Testwork has shown the concentrate to be free of deleterious elements, hence it is not expected to incur penalties and it is expected to be readily marketable to both smelters and traders.

Capital and Operating Costs

As with the KUG project, the majority of the capex at KE pertains to the underground mine, reflecting the benefit of having existing infrastructure and processing facilities in place, but also the higher proportion of up-front development requirements for cave mining. The two most significant categories of initial mine capex are underground mine development and the purchase of mine equipment. While the outright purchase of underground mine mobile equipment is assumed for this study, AuRico will also be evaluating leasing alternatives.

Pre-production capital expenditures are estimated to total C$327M (US$245M), and are inclusive of a 15% contingency for components previously costed in detail in the KUG FS and 30% for other components.  The development period is approximately 5 years to first production.

Sustaining capital is estimated at C$456M (US$342M) with the major components being mine development, mine equipment, and tailings.

Table 2: KE Pre-Production and Sustaining Capex

C$ M

Initial Capex

Sustaining Capex

Total Capex

Mine Development $168 $215 $384
Equipment & Infrastructure $103 $110 $213
Tailings $5 $104 $109
Processing $6 $2 $8
Contingency $44 $24 $68
Total $327 $456 $783

The total unit operating costs after the commencement of commercial production are estimated at C$16.82/t ore, comprising mining cost of C$7.31/t, processing cost of C$5.13/t, site services cost of $0.82/t, general and administrative (G&A) cost of C$2.11/t, tailings cost of $1.19/t, and water treatment cost of C$0.26/t. 

Project Enhancement Opportunities

The following opportunities have been identified as a result of carrying out the KE PEA. However, these opportunities require technical, environmental, social, and economic evaluation and should therefore be considered speculative until the related evaluation work has been completed.

  • Sequencing: The PEA evaluates KE as a stand-alone operation (with production at KE assumed to ramp up as KUG production ramps down).  An alternative scenario could be considered that evaluates overlap in production between KUG and KE.  Importantly, the processing facility at Kemess South has capacity for approximately 50 kt/d (though the grinding circuit is currently limited to approximately 25 kt/d – with an increase to 30 kt/d planned as part of the KE PEA design).  Funding the development of KE with free cash flow from KUG is also a possibility.
  • Integration with KUG project: Economies of scale may exist in areas including ore processing, G&A and site services for a scenario where KUG and KE are operating in parallel and optimization opportunities could be considered for aspects such as tailings management.
  • Mineral Resources: Potential exists to improve the quality and quantity of the KE mineral resource by additional in-fill and expansion drilling respectively; the KE mineral resource remains open to the north, south, and west.
  • Development advance rate: There are potential opportunities to increase development efficiencies and improve the current forecast underground development rate of 4.5 m/day per heading.
  • Metallurgy: There is potential for further improvement in metallurgical recoveries and concentrate grade based on additional metallurgical test work.
  • Tailings alternatives: Additional tailings storage alternatives for KE could be studied, including the further use of conventional slurry tails.
  • Mining mobile equipment leasing: The PEA assumes purchasing all mobile equipment for C$90M.
  • Operating cost: It may be possible to decrease the mining operating cost with the use of automated production load-haul-dump (LHD) equipment.

Figure 1: Kemess Property Map

Kemess Property Map

Figure 2: Kemess Site (2015) showing processing facility (front), maintenance-administration facility, and camp

Kemess Site (2015) showing processing facility (front), maintenance-administration facility, and camp

Figure 3: Kemess Underground and Kemess East Cave diagrams and elevations

Kemess Underground and Kemess East Cave diagrams and elevations