The results of an updated Feasibility Study (FS) for AuRico Metals’ 100%-owned Kemess Underground (KUG) Project were provided in a press release dated 23rd March 2016. The related National Instrument 43-101 compliant technical report was subsequently published on SEDAR on 6th May 2016. The FS contemplates the development of a low-cost panel caving operation to extract the KUG reserves over a 12 year mine life. The results indicate that the KUG project is a robust, low-risk project benefiting from extensive existing infrastructure.

Feasibility Study Highlights:

The “base case” assumes a long-term gold price of US$1,250/oz, copper price of US$2.50/lb, and a C$/US$ rate of 0.75; the “consensus case” assumes long-term gold and copper prices of US$1,250/oz and US$3.00/lb respectively.

  • Pre-tax net cash flow of C$1,102M in base case (C$1,453M in consensus case)
  • After tax net cash flow of C$746M in base case (C$969M in consensus case)
  • After tax NPV5% of C$289M in base case (C$421M in consensus case)
  • IRR of 12.6% in base case (15.4% in consensus case)
  • Total life-of-mine production of 1.4Moz gold, 573Mlb copper and 4.5Moz silver
  • Average annual production of 129Koz of gold and 52Mlbs of copper over first five years
  • Co-product all-in sustaining costs (“AISC”) over first five years of US$682/oz of gold and US$1.36/lb of copper
  • By-product AISC over first five years of US$201/oz of gold
  • Pre-commercial production capital costs (including 12.5% contingency) of C$450M (US$337M) plus an additional C$153M (US$115M) in capitalized operating costs (net of revenue); Capital expenditures are back-end weighted
  • Large Indicated resource base of 246.4Mt including reserves of 107.4Mt (currently constrained by tailings storage capacity of the mined-out Kemess South open pit)
  • Further property resource potential at Kemess East (1km to the east of KUG) as highlighted in the resource update for Kemess East which AuRico Metals announced in a press release dated 23rd March 2016
  • Testwork indicates that KUG ore will produce a concentrate that is free of deleterious elements and readily marketable to both smelters and traders
  • AuRico submitted its Environmental Assessment Application on 3rd March 2016 for screening review and entered the 180 day Application Review period on 11th May 2016

Economic Summary

Base Case Consensus Case
Gold Price (US$/oz) $1,050 $1,150 $1,250 $1,250 $1,350 $1,450
Copper Price (US$/lb) $1.50 $2.00 $2.50 $3.00 $3.00 $3.50
Silver Price (US$/oz) $16.00 $16.00 $16.00 $18.00 $16.00 $16.00
Pre-Tax Net Cash Flow (C$M) $86 $596 $1,102 $1,453 $1,607 $2,112
After-Tax Net Cash Flow (C$M) $64 $426 $746 $969 $1,067 $1,388
After-Tax NPV (5%) (C$ M) ($128) $94 $289 $421 $479 $669
After-Tax IRR 1.6% 8.0% 12.6% 15.4% 16.5% 19.9%
Payback Period (years) 9.75 5.4 3.9 3.3 3.1 2.6
Exchange Rate (C$/US$) 0.75 0.75 0.75 0.75 0.75 0.75

Annual Production:

First 5 Years LOM
Gold 129Koz 106Koz
Copper 52Mlbs 47Mlbs
Gold Equivalent 238Koz 207Koz

Total Cash Costs1:

First 5 Years LOM
Gold (co-product basis) US$575/oz US$639/oz
Copper (co-product basis) US$1.15/lb US$1.28/lb
 
Gold (by-product basis) US$3/oz US$94/oz

All-in Sustaining Cash Costs2:

First 5 Years LOM
Gold (co-product basis) US$682/oz US$718/oz
Copper (co-product basis) US$1.36/lb US$1.44/lb
 
Gold (by-product basis) US$201/oz US$244/oz

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

2 All-in Sustaining Cash Costs (AISC) defined per World Gold Council guidelines but excl. corporate G&A allocation

Project Summary

The updated KUG FS outlines a robust project with significant production of gold and copper over a 12 year mine life at low all-in sustaining costs. Importantly, the KUG project hosts potentially material upside opportunities, including significant mine life extension opportunities associated with the large resource at KUG.

Kemess is located in north-central British Columbia approximately 250 km north of Smithers and 430 km northwest of Prince George. The property is host to the former Kemess South (KS) Mine, the KUG deposit and the KE deposit. The KUG deposit lies approximately 6.5 km north of the existing KS processing plant and other infrastructure.

The KS Mine comprised a large open pit mine feeding gold-copper ore to a 52,000 tonnes per day (t/d) processing plant. Between 1998 and 2011, KS produced approximately 3.0 million ounces of gold and 750 million pounds of copper from 218 Mt of ore. Open pit mining and processing ceased in March 2011 on depletion of the mineral reserves. The processing plant and other facilities and equipment that are required to support an underground mining operation at the KUG deposit are currently under care and maintenance (Figure 1). Existing on-site infrastructure includes offices, warehouse, laydowns, maintenance facilities, a 300-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 via the BC Hydro grid.

Figure 1: Kemess Site (2015) showing existing facilities

An access corridor (Figure 2) will be developed from the existing KS facilities to provide access (for personnel, equipment and supplies/consumables), ore conveying, electricity supply and a dewatering pipeline for the underground operation. The cave footprint will be accessed and supported by a triple decline system comprising access, ore conveying and intake air declines.

Figure 2: KUG access corridor and other site facilities

The 107.4Mt KUG ore reserve is located approximately 200 to 550 m below surface. The lateral extents (or footprint) of the ore reserve is approximately 570 m east-west and 90 to 300 m north-south (Figure 3). The planned production rate of 25,000 t/d (9.0Mt per year) is considered well within the capacity of a cave footprint with these dimensions and KUG rockmass characteristics.

Figure 3: Isometric view of KUG mine workings and cave (red)

According to SRK, “While all mining projects have residual technical uncertainties, the KUG Project is considered to be relatively low risk for a caving project in terms of key mining-related risks including production ramp-up, drawpoint stability, subsidence and mudrush.”

Following extraction from the KUG 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 25,000 t/d (9.0Mt per year) using existing grinding, flotation, thickening and concentrate handling facilities. Concentrate will be trucked to the AuRico-owned load-out facility in Mackenzie for subsequent rail transport to market. Testwork indicates that KUG ore will produce a concentrate that is free of deleterious elements and readily marketable to both smelters and traders.

Waste rock and tailings from the mining and processing of KUG ore are planned for deposition in the KS open pit which received tailings late in the operation of the KS mine.

The KUG FS report has been prepared by SRK Consulting (Canada) Inc (SRK) with contributions from AuRico, AMEC Foster Wheeler, BioteQ Environmental Technologies, Conveyor Dynamics, ERM Consultants Canada, Exen Consulting Services, KWM Consulting, Mine Ventilation Services, and Struthers Technical Solutions.

Mining

The KUG 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. Figure 4 shows the resulting annual gold equivalent production profile.

Figure 4: KUG Gold Equivalent Production (ounces)

Given local topography, the cave footprint will be accessed and supported by a triple decline system comprising access, ore conveying and intake air declines. Mine levels within and directly adjacent to the cave footprint comprise undercut, extraction, conveying and ventilation levels. Total life of mine development requirements are estimated to be 47,750m lateral and 2,200m vertical development, with all lateral development assumed to be carried out by owner crews. Lateral development peaks at 8,500m in the 4th year of mine development, and averages 5,300m over the nine year period during which underground development takes place. A total 2,250t of ore per metre of lateral development results from this mine design, representing a very high “development efficiency” compared to other underground mining methods. Note, that panel caving differs from block caving in that panel caving does not require all cave footprint development to be completed ahead of cave initiation.

Cave ore is fed from the undercut level to the extraction level via a total of 582 drawpoints (291 drawbells), facilitating average steady-state production of 25,000 t/d or 9.0Mt per year. Caving will be initiated in the highest value ore at the east end of the KUG deposit. Ore will be delivered to one of four primary jaw crushers located on the south side of the extraction level. Following crushing, ore will be conveyed by one of two transfer conveyors to a 3.2km long underground conveyor (in the conveyor decline) and then transferred to a 4.9km surface conveyor that will deliver ore to the existing stockpile ahead of the process plant.

Geotechnical assessment for caveability, fragmentation, subsidence and ground support was carried out by SRK and Itasca Consulting Group Inc. using both empirical and numerical modeling methods, with this work carried out as part of the 2013 KUG FS (SRK, 2013).

Processing

Processing ore at a rate of 9.0Mt per year will be achieved using one of the two KS grinding circuits that was used to process KS ore. The original flotation, thickening and concentrate handling facilities will be used for processing KUG ore. Tailings will be pumped to and stored in the KS open pit, with sufficient capacity for a minimum 107.4Mt ore treated in the process plant. The KS open pit was used for waste rock and tailings storage towards the end of the KS operation.

Testwork has resulted in estimated metallurgical recoveries of 91% copper, 72% gold and 65% silver.

For the KUG ore, the process plant is expected to produce a single concentrate with an estimated 22% copper content as well as payable gold and silver. Testwork has shown the KUG 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.

Due to minor mineralogical differences between the KUG and KS ores, a finer grind is required for KUG ore, resulting in the requirement to install stirred regrinding mills to achieve the targeted P80 20 microns. Testwork carried out to determine fine grinding mill energy requirements included batch Eliasaon, Levin and Signature Plot tests.

Capital Expenditures

The majority of the capital expenditures at KUG pertain to underground mine capital, 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 mine capital expenditures are underground mine development and the purchase of underground mobile equipment. While the outright purchase of underground mining equipment is assumed for this study, AuRico will also be evaluating leasing alternatives. Pre-commercial production expenditure on underground mobile equipment totals C$86M or 19% of initial capital.

Pre-production capital expenditures are estimated at C$524M comprising C$380M in initial capital expenditures and $144M in capitalized operating expenses. A further C$70M in capital expenditures and C$9M in capitalized operating expenses (net of pre-commercial production revenue and after adjustments for working capital and taxes) will be spent before commercial production is declared (refer to Table 1). The total pre-production capital expenditure equates to C$603M or US$452M. The development period is 4 years to first production and 5 years to commercial production.

Pre-production capital is inclusive of 12.5% contingency. It is estimated that 87% of capital expenditure will be C$ denominated, with the 13% non-C$ denominated costs relating to equipment (including spares), consumables and fuel purchases.

Sustaining capital expenditure is approximately C$262M, including C$207M of ongoing underground development and underground mobile equipment refurbishments and replacements, C$31M relating to the tailings storage facility, and C$13M for the addition of a third fine re-grind mill in the processing facility.

Table 1: Initial Capital Cost Estimate (C$ millions)

Item To First Production Additional Capital to Commercial Production
Mining 205 61
Processing 31 7
Site Services G&A 13 0
Conveyor 40 0
Electrical 18 1
Underground Ventilation 10 0
Access Corridor and Other 43 0
Water Treatment 13 0
Tailings Storage Facility and Pipeline 7 1
Total Capital 380 70
Capitalised Pre-production Opex 144 94
Capitalized Pre-production Revenue - (85)
Total Capital 524 79
Total Capital (US$) US$393 US$59

Operating Expenses

The total unit operating costs after the commencement of commercial production are estimated at C$14.27/t ore, comprising a mining cost of C$5.39/t, a processing cost of C$5.69/t, a G&A cost of C$2.93/t and a water treatment cost of C$0.26/t. A summary of the KUG life-of-mine (commercial production period) unit operating cost estimates are shown in Table 2.

Labour is a significant component of operating costs, comprising 53% of mining, 17% of processing, and 26% of G&A costs.

Other significant operating costs include consumables (37% of processing cost), electricity (32% of processing cost), and flights and camp (28% of G&A cost).

It is estimated that 85% of operating costs will be C$ denominated, with the 15% non-C$ denominated costs due to equipment spares, consumables and fuel purchases.


Table 2: Operating Expenditure Estimate - Summary of Unit Costs (C$/t ore)

Item Commercial Production
Mining $5.39
Processing plant $5.69
Water Treatment $0.26
G & A $2.93
Total $14.27

Marketing Expenses

Marketing expenses include treatment and refining costs, smelter deductions and transportation costs. Various alternate destinations were studied and compared for the most favourable combination of freight costs and economic terms. For the KUG FS, it was assumed that concentrate would be exported to a smelter in Japan, Korea or Northern China.

Total life-of-mine concentrate transport costs are estimated at C$208M, or C$176 per dry metric tonne, with approximately 75% being Canadian dollar denominated expenditures.

Total life-of-mine treatment and refining costs are estimated at C$196M, comprised primarily of treatment charges of US$80 per dry metric tonne of concentrate, and refining costs of US$0.08 per payable pound copper and US$6.00 per payable ounce of gold; these costs are entirely US dollar denominated.

Total life-of-mine effective payable rates are 95.5% copper, 97.0% gold and 90.0% silver, for total smelter deductions of C$161M.

No penalties have been applied as testwork has shown the KUG concentrate to be free of deleterious elements.

Upside Opportunities

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

  • Mining mobile equipment leasing; KUG FS assumed purchasing all mobile equipment for C$86M pre-commercial production and C$147M life-of-mine
  • Operating cost decrease associated with use of automated production load-haul-dump (LHD) equipment, and use of electric drive LHDs
  • Increase KUG mining and processing rate by addition of a secondary crusher ahead of grinding
  • Improved draw cone interaction, compared to the KUG FS assumption, resulting in reduced lateral development requirements
  • Increase in KUG mine life (from large KUG M&I resource base) by identifying additional tailings storage capacity
  • Conversion of resources to reserves at Kemess East deposit