Shares of Aquila Resources (TSX: AQA; US-OTC: AQARF) rose 15% after the Toronto-based firm published an updated preliminary economic assessment (PEA) for its gold- and zinc-rich Back Forty project in Michigan’s Upper Peninsula.
The study, prepared by consulting engineering firm Tetra Tech, includes a revised resource estimate and a new mine plan after numerous trade-off studies earlier this year looked at different mine configurations and throughput rates.
Back Forty is a volcanogenic massive sulphide deposit that would be mined as a 5,350-tonne-per-day operation, where miners would recover 16.1 million tonnes of material over a 16-year mine life. That total includes 12.5 million tonnes from open pits and 3.6 million tonnes from underground mining that would start in year eight.
The cost to build the mine is estimated at US$261 million. The start-up cost consists of US$177 million of direct pre-production costs, a US$44-million contingency and US$40 million of indirect and owner’s costs.
For comparison, a 2012 PEA pegged costs at US$272.3 million to build a 3,000-tonne-per-day operation with a seven-year life.
Under the new mine plan, Back Forty should generate total payable production of 532,000 oz. gold, 704 million lb. zinc, 63 million lb. copper, 4.6 million oz. silver and 11 million lb. lead.
The PEA forecasts that 80% of the mine’s earnings stream will come from an even mix of gold and zinc, with the rest coming from copper, silver and lead.
The economics of the Back Forty project also appear better than they did two years ago, giving investors something to cheer about.
Under the base-case scenario, Back Forty has a US$184.7-million after-tax net present value (NPV) at a 6% discount rate and a 28.9% after-tax internal rate of return (IRR). The previous PEA, which didn’t release after-tax numbers, had an 18.2% pre-tax IRR.
Payback is estimated to be within two years.
The PEA used base-case metal prices of US$1,293 oz. gold, US$20.46 oz. silver, US96¢ per lb. zinc, US$3.18 per lb. copper and US96¢ per lb. zinc.
If those metal prices drop by 15%, the after-tax NPV and IRR would fall to US$74.6 million and 17.5%. If the prices increase, the economics will also improve.
Some factors that contributed to the improved economics include the updated resource, the increased pit size to capture extra resources and the higher throughput rates, Tom Quigley, the company’s vice-president of exploration, said in an email.
“The current mine plan envisions targeting the deposit’s near-surface, high-grade mineralization on the onset of production, as opposed to the 2012 PEA, which envision ‘bench-by-bench’ mining within the ultimate pit,” he added.
Average on-site operating costs are US$29.25 per tonne for open-pit mining and US$66.20 per tonne for the underground mine.
With the PEA checked off its list, Aquila intends to restart project development at Back Forty.
“The PEA provides a path forward for the next set of project milestones, including the ramp-up of permitting activities and the commencement of a feasibility study, and an exploration program initially focused on near-mine satellite targets,” chairman Mark Burridge said in a release.
“Engineering and environmental studies supporting a permit application are in an advanced stage, so the project is positioned to move ahead rapidly,” Quigley added.
Back Forty holds a global measured and indicated resource of 15.1 million tonnes grading 2.03 grams gold per tonne and 3.06% zinc for 985,000 oz. gold and 1 billion lb. zinc. It also has 2.3 million tonnes in inferred grading 2.07 grams gold and 2.2% zinc.
Aquila, previously a joint-owner at Back Forty, gained 100% of the project after buying Hudbay Minerals’ (TSX: HBM; NYSE: HBM) 51% interest in a deal that closed this January.
After the 2012 PEA, Hudbay suspended work on the Back Forty project, citing its capital commitments to other development assets.
On the PEA news, Aquila ended July 23 up 1.5¢ at 11.5¢.
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