Mr. Barry Hildred reports

AQUILA RESOURCES FILES FIRST QUARTER 2018 FINANCIAL RESULTS

Aquila Resources Inc. has filed its financial results for the first quarter ended March 31, 2018. All amounts, unless indicated, are reported in U.S. dollars.

First quarter highlights

In February, 2018, the company announced an updated mineral resource estimate for the Back Forty project, which was subsequently documented in a technical report titled, "Updated Mineral Resource Estimate and Technical Report on the Back Forty Project, Michigan, USA," prepared by P&E Mining Consultants Inc., dated March 26, 2018, and filed on SEDAR on March 26, 2018. The 2018 mineral resource estimate replaces the mineral resource estimate that was first disclosed in an Aquila news release dated Feb. 4, 2013. Highlights of the 2018 mineral resource estimate include a 10-per-cent increase in tonnage in the measured and indicated mineral resource categories versus the 2013 mineral resource estimate, a 12-per-cent increase in contained zinc and a 4-per-cent increase in contained gold. Contained silver, copper and lead also increased versus the 2013 mineral resource estimate.

The company appointed Michael Welch as chief operating officer (COO) effective March 1, 2018. As COO, Mr. Welch has now assumed responsibility for the company's activities at its Back Forty project in Michigan, where he will lead operational readiness and help drive the seamless integration from project to operations. He also oversees stakeholder engagement, compliance, sustainability and the company's regional strategy.

On Dec. 8, 2017, the company announced that the Michigan Department of Environmental Quality (MDEQ) deemed Aquila's wetland/stream/floodplain permit application for the Back Forty project administratively complete, allowing the regulatory technical review process to move to the next stage. The wetlands permit is the fourth and final permit required to build and operate the Back Forty project. On Jan. 23, 2018, the MDEQ held a public hearing for the wetlands permit. The public comment period, which continued after the public hearing, concluded on Feb. 2, 2018. The company continues to work with the MDEQ to provide further clarifications as part of its continuing technical review of the wetlands permit application.

On March 8, 2018, the United States Environmental Protection Agency (EPA) provided comments to the MDEQ regarding the wetlands permit. The EPA had 90 days from Dec. 8, 2017, when the MDEQ deemed the company's wetlands permit application administratively complete, to provide comments. The EPA's opportunity to comment on the application is subject to strict statutory processes, regardless of the significance of the comments. The MDEQ has 90 days from March 8, 2018, to work with Aquila to resolve the comments made by the EPA and to provide the information requested by it. The EPA provided supplementary comments to the MDEQ in a letter dated May 3, 2018 (see postquarter highlights).

In January, 2018, the Menominee Indian Tribe of Wisconsin filed a federal lawsuit in the eastern district of Wisconsin against the Environmental Protection Agency and the U.S. Army Corps of Engineers, claiming that the federal government should exercise jurisdiction over the wetlands permitting process currently being administered by the State of Michigan and require Aquila to obtain a federal wetlands permit. Both federal agencies rejected this argument when it was presented to them last year, and Aquila anticipates that its position that the State of Michigan is properly exercising its delegated authority to issue a wetlands permit will be vindicated by the federal court. To that end, the U.S. Department of Justice has filed a motion for dismissal of the lawsuit, which Aquila has joined.

On March 16, 2018, Hudbay Minerals Inc. exercised 865,385 warrants with an exercise price of 19 cents for proceeds to the company of $164,423.

As at March 31, 2018, Aquila had cash of $14.9-million and working capital of $13.5-million. This compared with cash of $17.2-million and working capital of $15.5-million at Dec. 31, 2017. The decrease in working capital is primarily due to the financing of the company's permitting activities and development of the feasibility study.

Postquarter highlights

In April, 2018, an administrative contested case hearing began. The case was adjudicated by an administrative law judge regarding the validity of the Part 632 permit to mine issued to Aquila for the Back Forty project by the MDEQ in December, 2016. An individual alleging to own property near the Back Forty project and the Menominee Indian Tribe of Wisconsin have challenged the permit. These challenges will ultimately be resolved by the director of the MDEQ after the contested case hearing is complete. Aquila does not anticipate the MDEQ director will come to a different conclusion on issuing the permit than MDEQ staff.

On May 3, 2018, the EPA provided supplementary comments to the MDEQ regarding the company's wetlands permit application. The EPA confirmed that a number of objections identified in the March 8, 2018, letter have been resolved. Further, the EPA believes there is a ready pathway for the resolution of the EPA's remaining objections through the MDEQ's inclusion of specific conditions in a final wetlands permit. Aquila has reviewed the proposed permit conditions and is confident that the conditions can be readily met. The MDEQ and Aquila have until June 6, 2018, to ensure that the proposed permit conditions fully address the EPA's objections. The company will continue to work with the MDEQ in order to satisfy completely all requirements of both the state and federal wetland and stream protection statutes and believes all other related issues have largely been reviewed. The company is confident that it can work with the MDEQ within the prescribed time frame.

"Aquila continues to make significant progress towards receiving the final wetlands permit in June," said Barry Hildred, president and chief executive officer of Aquila. "With the concerns of the EPA now substantially resolved, subject to inclusion of specific permit conditions, we are able to focus on working closely with the MDEQ to address any final questions concerning the application. In parallel, we are moving ahead on a number of key initiatives, including finalizing the Back Forty feasibility study, developing an exploration strategy for Back Forty and our earlier-stage assets in Wisconsin, continuing to enhance our leadership team, and considering the strategic and financial options available to the company."

Selected financial information

The attached table provides selected financial information that should be read in conjunction with the financial statements of the company for the three months ended March 31, 2018.

                                                            Three months ended 
                                                                      March 31
                                                              2018        2017    
(in U.S. dollars)
Administrative expenses                                 $1,152,188  $  960,665
Mineral property exploration expenses                    1,334,773   1,320,701
Net finance charges                                        392,648       1,060
Loss from operations                                     2,879,609   2,282,426
Gain (loss) on foreign exchange                           (197,303)     81,833
Gain on change in value of contingent consideration        (24,470)    (32,260)
(Gain) loss on change in fair value of warrant 
liability                                                 (225,465)    423,563
Net and comprehensive loss for the period                2,432,371   2,755,562
Net loss per share -- basic and diluted                       0.01        0.01

About Aquila Resources Inc.

Aquila is a development-stage company with strategic assets in the Great Lakes region. The company's experienced management team is currently focused on advancing permitting and engineering activities for its 100-per-cent-owned zinc-and-gold-rich Back Forty project in Michigan.

We seek Safe Harbor.