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TABLE OF CONTENTS Feb 18 - 24, 2013 Volume 99 Number 1 - 0 comments

Back Forty gains grade but work still suspended

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By: Gwen Preston

VANCOUVER — A new resource estimate for the Back Forty poly-metallic project in Michigan’s Upper Peninsula has boosted the deposit’s metal grades. But despite the improvement, no work is underway at the site because project operator Hudbay Minerals (HBM-T, HBM-N) suspended the operation seven months ago, citing more pressing capital commitments on other projects and uncerain global economic conditions.

Hudbay owns 51% of Back Forty and Aquila Resources (AQA-T) owns 49%. Since a water well first hit massive sulphide mineralization on the site in 2002, Aquila and various partners, including Hudbay, have spent $50 million exploring the property, which has since been perforated with more than 500 drill holes. Polymetallic massive sulphide mineralization has been traced to a 700-metre depth and remains open.

The new estimate incorporates data from 78 holes drilled since the previous estimate in 2010. Total resource tonnes are down slightly, but grades for every metal in the deposit have climbed.

In the open-pit category, measured-and-indicated resources stand at 9.65 million tonnes grading 2.07 grams gold per tonne, 22.45 grams silver per tonne, 0.34% copper, 0.17% lead and 2.47% zinc. Inferred resources add 152,500 tonnes of similar-grade material.

Open-pit resources are down compared to the last estimate, but many of those tonnes simply became part of a much-increased underground resource. The underground resource now comprises 5.5 million measured-and-indicated tonnes at 1.97 grams gold, 28.06 grams silver, 0.32% copper, 0.32% lead and 4.1% zinc, plus 2.18 million inferred tonnes at 2.03 grams gold, 25.96 grams silver, 0.37% copper, 0.33% lead and 2.15% zinc.

Aquila and Hudbay now have to decide just what to do with Back Forty. The project had been advancing steadily towards development until Hudbay suspended activities, just a few months after the partners released a preliminary economic assessment (PEA) of the project. The study concluded that an open-pit Back Forty mine processing 3,000 tonnes of ore each day would generate an 18.2% pre-tax internal rate of return, enabling payback of the US$224.7-million capex during the third year of operation.

The mine as envisioned in the study would have only operated for seven years, based on defined open-pit resources at the time. It carried a pre-tax net present value of US$73.6 million at an 8% discount rate, and gold was responsible for 48% of the project’s projected revenues.

The PEA was a step forward for Back Forty, but the project’s future has been unclear since Hudbay’s suspension of activities at Back Forty in July.

In November Aquila provided an update, letting investors know that the partners were evaluating a range of options to advance the project towards permitting and potential production.

Aquila says the project is being maintained in a “ready-to-go status to capitalize on the engineering, environmental and other work completed by the joint venture.”

While Back Forty remains in limbo, Aquila has turned its attention to two other gold properties it has in the southeastern U.S. The Royal Vindicator project and the Moose property are both in the Carolina Slate belt, which also hosts Romarco Minerals’ (R-T, RTRAF-Q) Haile gold deposit, as well as the historic Brewer and Ridgeway gold mines.

Royal Vindicator in Haralson County, Ga., is also a historic mine, having operated in the late 1800s as a small-scale open-pit and underground operation. Exploration drilling in the late 1970s outlined a gently dipping, continuous gold-bearing zone 1 km long, 500 metres wide and 12- to-24 metres thick.

Aquila now owns the property outright, aside from two production-related royalties, and preliminary mapping and sampling work found gold in outcrops outside of the known zone. Aquila says a second stage of exploration is in the works, and will include drilling.

The Moose Pasture property is in the northern part of the Slate belt, in Anson County, N.C. The property covers a geochemical soil anomaly and placer operations have recovered abundant gold from creeks.

Aquila’s geologists have confirmed anomalous gold in soils and outcrop. Stream sampling also produced prospective results. The company is now planning a drill campaign.

News of the resource estimate for Back Forty had no impact on Aquila’s share price, which remained stuck at 15¢. Hudbay’s share price slid 38¢ on the news to $11.22.

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