Feasibility Study – MRC Project

On July 2, 2015, the Company announced the results of a Feasibility Study (the “Study”), led and prepared by Ausenco Engineering Canada Inc. (“Ausenco”), with the assistance of Moose Mountain Technical Services (“MMTS”) in respect of mine design and pit optimization, as well as having compiled the economic results for the project.  The Company also engaged Stantec Consulting Ltd. (“Stantec”) in respect of the design of the Tailings Management Facility, Mr. Neil Schofield, a principal of FSSI Consultants (Australia) Pty Ltd. (“FSSI”) in respect of the resource modelling, and Conestoga-Rovers & Associates (“CRA”) in respect of environmental and permitting aspects of the Feasibility Study.

The Study considers the co-development of Touquoy, as well as Beaver Dam, located approximately 37 km by road from Touquoy. 

Production Profile

The table below sets out the expected gold production from the MRC Project over the life of mine:

MRC Project Life of Mine Production

Description
Waste (000’s tonnes)
Ore Processed
(000’s tonnes)
Gold Production (000’s oz.)
Pre-Production
2,639
0
0
Year 1
5,616
1,800
74
Year 2
4,897
2,000
96
Year 3
4,174
2,000
94
Year 4
3,274
2,000
92
Year 5
14,384
2,000
77
Year 6
14,368
2,000
90
Year 7
9,170
2,000
90
Year 8
2,686
2,000
85
Year 9
99
652
16
Total LoM Production
61,307
16,452
714
Overall Strip Ratio
3.73

The Study is based on the deposits being developed as conventional surface open pit mining operations with drill/blast/load/haul activities utilizing a leased production fleet operated by Company employees.  Initial production commences at Touquoy where the relatively low strip ratio and short haul to external waste dumps translates to a smaller production fleet, minimizing production costs in the process. 

Beaver Dam, as a satellite operation, will require minimal infrastructure to supply basic office facilities and equipment maintenance requirements.  The mining fleet at Touquoy will be transitioned to Beaver Dam and expanded due to the higher rate of material movement.  Ore will be crushed at a location adjacent to the Beaver Dam pit near Highway 224 and then loaded onto highway trucks which will transport it along a combination of private logging and public roads to the Touquoy processing facility.  Beaver Dam waste rock will be placed as close to the pit as practical to minimize waste haulage costs.  Other than primary crushing, there will be no treatment of ore at Beaver Dam and therefore no plant or tailings management facility is required there.  A Preliminary Economic Assessment (“PEA”) prepared for the MRC Project released in October, 2014 estimated a total of 294,000 oz. of gold to be recovered at Beaver Dam.  As a result of the resource delineation drilling program conducted at Beaver Dam to upgrade the majority of the resource to Measured and Indicated classifications following the PEA, the expected recovery of gold at Beaver Dam has increased to 315,000 oz., with a related increase in tonnes processed as well as waste tonnes mined.

Metallurgical testing indicates that Beaver Dam ore will have treatment characteristics similar to the Touquoy ore and will therefore be processed in the same manner as the Touquoy ore.  Tailings generated from treating the Beaver Dam ore is planned to be placed in the mined-out Touquoy open pit.   After all mining is complete, the Touquoy pit will continue to fill with water as was the plan for developing Touquoy alone, and the tailings will be settled well below the expected final maximum water surface level.  Permanently sealing tailings below water is globally considered a preferred method for long term tailings disposal.

Processing and Metallurgy

The metallurgy of Touquoy ore has been extensively investigated and the flow sheet to be constructed has been defined.  The plant will have a capacity of 2 million tonnes per year with an expected gold recovery of 94%.

MRC Project Flowsheet

The flow sheet is conventional and consists of three stage crushing, ball milling to a grind of 80% passing 150 microns, with cyclones being used to close the grinding circuit. A centrifugal concentrator will be used to treat a portion of the cyclone underflow to recover coarse gold, with gold being recovered from the gravity concentrate by intensive cyanidation.  The cyclone overflow will be screened to remove organic particles and then leached in a CIL circuit with a two stage pre-leach.  Loaded carbon will be treated in a pressure Zadra circuit with the electrowinning sludge smelted to doré.  The tailings from leaching will be treated for cyanide destruction using sulfur dioxide / air with a copper catalyst. 

As previously mentioned, ore from the Beaver Dam pit will be crushed and transported to the Touquoy plant. The metallurgical characteristics of the Beaver Dam ore are very similar to those of the Touquoy ore and as such, no modifications of the plant will be necessary.  A similar gold recovery of 94% is expected.

Infrastructure and Power

The infrastructure requirements for Touquoy are relatively modest, with minor public road realignment required; and electrical power required to be accessed from a substation at Caribou Mines, a total distance of 13 km, with a large part of the line using existing poles. The power line will be provided by Nova Scotia Power, who have provided a cost estimate for this installation.

No accommodation will be required as the labour force will come from surrounding communities.

The tailings management facility will be constructed from mine waste rock and low permeability till from the mine area, avoiding importation of materials from more distant locations. The tailings management facility will have a positive water balance and therefore will provide process water requirements, but extraction from nearby Scraggy Lake is available to provide water for startup as necessary and in case of dry periods when additional process water may be required.. 

As all ore mined from Beaver Dam will be trucked to the Touquoy plant for treatment, a significant investment in forestry road upgrades (approximately 20 km in all) will be required. Three bridges and a number of culverts will need upgrading.  These improvements will enhance the quality of the existing water crossings for the community and will also provide benefits from an environmental standpoint.  Costs will be reduced by using crushed mine waste rock for the majority of the road bed and running surfaces. Road upgrading will be carried out during the fourth year of operation at Touquoy. As only primary crushing will be carried out at Beaver Dam, the electrical power demand at Beaver Dam is relatively small.  As there is no appropriate power supply close to the facility, temporary diesel generators will be utilized. Tailings from the treatment of Beaver Dam ore will be stored in the mined-out Touquoy pit and no significant cost will be associated with their management.  The buildings at Touquoy will remain in use and only temporary workshop, office and change room facilities will be built at Beaver Dam.  

Environmental and Permitting

All major environmental permits are in place for mining and processing operations at Touquoy and background environmental information has been collected at Beaver Dam since the late summer and fall of 2014.  Discussions on permitting at Beaver Dam are underway with the relevant authorities.

Mineral Reserve Estimate

The Mineral Resource estimate for the Touquoy portion of the MRC Project is based on a Mineral Resource estimate contained within the Company’s PEA reported in a Company news release dated September 29, 2014 and filed on SEDAR on October 14, 2014, prepared by MMTS with an effective date of August 1, 2014. 

The Mineral Resource estimate for the Beaver Dam portion of the MRC Project is based on a Mineral Resource estimate reported in a Company news release dated March 3, 2015 and filed on SEDAR on April 16, 2015, prepared by Mr. Neil Schofield of FSSI with an effective date of March 2, 2015. 

MRC Mineral Reserves, shown in Table 3, have been developed by Moose Mountain Technical Services with an effective date of July 2, 2015. The Mineral Reserve is contained within the Mineral Resource, and is based on the following assumptions:

  • Only Measured and Indicated Resource Class materials are included in the reserves;
  • A cutoff gold grade of 0.40 g/t is applied;
  • In addition to the modelled in-block dilution, a further dilution factor of 1.6% at 0.28g/t gold grade has been applied to account for mining face dilution;
  • Additional tonnes from mining dilution are assumed balanced with lost tonnes due to an estimated mining recovery of 98.4% at the average diluted reserve grades;
  • Mining recovery is reduced to 40% for material between 0.40 g/t and 0.50 g/t gold cutoff grades.

Summary of Estimated MRC Mineral Reserves 

Classification
Mt
Diluted Grade (g/t Au)
Mined Au oz's (000)
 
Cut-Off Grade: 0.4 g/t Au
Touquoy      
Proven Reserves
2.62
1.41
119
Probable Reserves
6.58
1.45
306
Total Proven and Probable Reserves
9.2
1.44
425
       
Beaver Dam      
Proven Reserves
4.03
1.47
191
Probable Reserves
3.22
1.39
144
Total Proven and Probable Reserves
7.25
1.44
335
       
Moose River Consolidated      
Proven Reserves
6.65
1.45
310
Probable Reserves
9.80
1.43
450
Total Proven and Probable Reserves
16.45
1.44
760
  1. Mineral Reserves are classified in accordance with the Canadian Institute of Mining, Metallurgy and Petroleum ("CIM") Definition Standards on Mineral Resources and Mineral Reserves, whose definitions are incorporated by reference into National Instrument 43-101 -- Standards of Disclosure for Mineral Projects ("NI 43-101").
  2. CIM Standards on Mineral Resources and Reserves Definitions and Guidelines defines a ‘Proven Mineral Reserve’ as the economically mineable part of a Measured Mineral Resource demonstrated by at least a Preliminary Feasibility Study. This Study must include adequate information on mining, processing, metallurgical, economic, and other relevant factors that demonstrate, at the time of reporting, that eventual economic extraction is justified.
  3. CIM Standards on Mineral Resources and Reserves Definitions and Guidelines defines a ‘Probable Mineral Reserve’ as the economically mineable part of an Indicated, and in some circumstances a Measured Mineral Resource demonstrated by at least a Preliminary Feasibility Study. This Study must include adequate information on mining, processing, metallurgical, economic, and other relevant factors that demonstrate, at the time of reporting, that eventual economic extraction can be justified.
  4. Mineral Reserves are mined tonnes and grade; the reference point is mill feed at the crusher.
  5. Diluted grades refer to mining dilution factors applied to the in situ resource grade estimates.
  6. The Mineral Reserves information is based on estimates prepared as of July 2, 2015, by independent Qualified Person, Mr. Marc Schulte, P.Eng., who has the appropriate relevant qualifications, and experience in mining and reserves estimation practices.

There are no known legal, political, environmental or other risks that could materially affect the potential development of the Mineral Reserve.

The Feasibility Study mine schedule and economic analysis does not include Inferred Resources at MRC of approximately 1.10 million tonnes at 1.40 g/t Au.  Mineral Resources that are not Mineral Reserves do not have demonstrated economic viability.

Feasibility Study Metrics

The table below lists the key Feasibility Study economic metrics for the MRC Project.  The economics take into account the fact that the Company's effective ownership in Touquoy is 63.5%, and that the Company will recover all operational, overhead, financing and sunk costs prior to any distributions to its privately-owned partner in Touquoy.  As of March 31, 2015, the total estimated cost to be recovered under the agreement is approximately $20 million.  The Company holds 100% of Beaver Dam subject to a 0.6% production royalty.. 

Highlights of the MRC Project from the Study

Gold price: US $1,200/oz
MRC Project
Pre-tax NPV (5%)
$236 million
Post-tax NPV (5%)
$168 million
Pre-tax IRR
34.9%
Post-tax IRR
30.0%
Post-tax Payback
2.0 years

The economics have been calculated on an unlevered basis, based on a gold price of US $1,200/oz. and a foreign exchange rate of CAD$1 = USD$0.80.  Substantially all operating costs are Canadian dollar denominated.  Given the exchange rate used in the PEA was CAD$1 = USD$0.90, the Company has seen a corresponding increase in the capital expenditures of the project for those components quoted in US dollars, but is more than offset by the benefit realized through the conversion of the US dollar gold price to Canadian dollar gross revenues.  The tables below show the sensitivity of after-tax NPV and IRR to changes in the US dollar gold price and the CAD/USD exchange rate.

Sensitivity Analysis on After-Tax NPV5 

CAD/USD Rate
US$ Gold Price
 
 $1,000
 $1,100
 $1,200
 $1,300
$1,400
 $1,500
0.75
 $121,644
 $159,007
 $195,961
 $232,870
 $269,627
 $306,338
0.80
 $98,248
 $133,306
 $168,263
 $202,873
$237,465
$271,924
0.85
 $77,643
 $110,651
 $143,596
$176,431
$208,972
 $241,519
0.90
 $59,142
 $90,469
 $121,644
 $152,751
$183,672
 $214,393
0.95
 $42,310
 $72,354
 $101,932
 $131,465
$160,956
$190,140

Sensitivity Analysis on After-Tax IRR 

CAD/USD Rate
US$ Gold Price
 
 $1,000
$1,100
 $1,200
 $1,300
$1,400
 $1,500
0.75
24%
29%
33%
37%
40%
43%
0.80
21%
26%
30%
34%
37%
40%
0.85
19%
23%
27%
31%
34%
37%
0.90
16%
20%
24%
28%
32%
35%
0.95
13%
18%
22%
26%
29%
32%









 

The Feasibility Study economics take into account a 1% royalty payable to the Nova Scotia government (no other mining taxes apply), in addition to the following NSR's:

  • 1% relating to production from Touquoy, post exercise of buyback options
  • 0.6% relating to production from Beaver Dam

Income taxes are also accounted for using a 15% Federal and 16% Provincial income tax rate.

Capital Costs

Summary of MRC Project Capital Costs ($CDN) 

Description
Total Initial Capital Cost ($ 000)
Total Sustaining Capital Cost*** ($ 000)
Total Capital Cost ($ 000)
Mine Development
16,948
2,041
18,989
Processing
51,045
3,948
54,993
Tailings Management Facility
9,158
8,572
17,730
Infrastructure
15,447
10,600
26,047
EPCM
9,955
500
10,455
Indirect and Other Costs*
21,523
(4,787)
16,736
Contingency**
13,260
1,903
15,163
Total
137,336
22,777
160,113

*Sustaining Indirect and other costs includes a credit representing the principal balance of a reclamation bond being returned to the Company. 
**Contingencies are applied according to the degree of certainty of the relevant line item.
***Total sustaining capital costs includes construction capital expenditures at Beaver Dam.

Operating Costs

Summary of MRC Project Operating Costs ($CDN) 

Description
Unit Cost/ tonne  ($ 000)
Unit Cost/ oz. ($ 000)
Mining*
 2.89
 304
Processing
11.94
275
Site G&A
2.03
47
Total Cash Operating Costs  
626
Total All-In Sustaining Costs**  
690

*Excludes pre-production mining, which is captured under initial capital
**All-In Sustaining Costs excludes Corporate G&A expenses

Next Steps

Over the coming months, the Company will be focused on:

  • Environmental Impact Assessment and permitting for Beaver Dam;
  • Securing Project Financing;
  • Agreement on a Mutual Benefits Agreement with the Nova Scotia Mi'kmaq

Qualified Persons 

Each of the qualified persons below has reviewed and approved the technical information contained in the Feasibility Study and in this press release and are independent of the Company. The qualified persons are:

Kevin C. Scott, P. Eng., of Ausenco, is the qualified person responsible for the metallurgy, recovery methods, infrastructure, capital cost and operating cost estimates, and the overall preparation of the report.

Marc Schulte, P. Eng. of MMTS is the qualified person responsible for the Mining and Mineral Reserve estimates.

Tracey Meintjes P. Eng. of MMTS is the qualified person responsible for the Economic analysis.

Jeffrey Barrett, M. Sc.E., P. Eng., of Stantec is the qualified person responsible for the Tailings Management Facility Design.

Neil Schofield, MS – Applied Earth Sciences, MAusIMM, MAIG, of FSSI is the qualified person responsible for the Mineral Resource estimates.