Mr. Paul Parisotto reports
STUDY PREDICTS 10 YEAR OPERATION AVERAGING 53,000 OZS OF GOLD AND 82,000 OZS OF SILVER PRODUCED ANNUALLY
Calico Resources Corp. has provided the results of a preliminary economic assessment (PEA) for its 100-per-cent-owned Grassy Mountain gold and silver project in Oregon. The PEA demonstrates that the Grassy Mountain project represents an excellent economic opportunity in the current gold price environment.
The PEA was prepared by Metal Mining Consultants Inc. (MMC) using resource and geologic information developed by Hardrock Consulting LLC (HRC). A National Instrument 43-101 standards of disclosure for mineral projects technical report summarizing the PEA has been completed by MMC, and will be filed on SEDAR within 45 days of this news release. The technical report will also be available on the Calico website.
Paul Parisotto, president and chief executive officer of Calico, stated: "We now have an important input required to move forward with our strategy for Calico. We believe that this PEA demonstrates that the Grassy Mountain project represents an attractive development option for gold producers in part due to moderate estimated start-up capital requirements and low operating costs. Unlike most other PEAs, this study is based on measured and indicated resources only, which we think makes it more reliable than studies which depend on inferred resources. Furthermore, MMC has confirmed that the exploration potential at the Grassy Mountain project is highly favourable for expanding the resources available to the underground operation envisioned in the PEA."
Mr. Parisotto noted that the MMC team assigned to the PEA is highly experienced in the design of similar, smaller greenfield projects such as the recently completed PEA for Paramount Gold and Silver Corp.'s San Miguel project in Mexico, which is being acquired by Coeur Mining Inc. "We are confident that this study significantly derisks the Grassy Mountain project and that it will satisfy the needs of a sales process at the appropriate time," he said.
MMC has concluded that the most attractive development scenario for the Grassy Mountain project consists of an underground mining operation with a processing plant handling mineralized material, producing a gold-silver dore. A milling base case scenario was developed for the Grassy Mountain project with production of 365,000 tons per year, resulting in a projected nine-year operation with estimated average annual production of 53,000 ounces of gold and 82,000 ounces of silver. Projected life of mine average cash operating costs are $578 (U.S.) per ounce of gold recovered, net of silver byproduct credits. Start-up capital costs for this project scenario are projected to be $119.6-million (U.S.) plus sustaining capital of $24.1-million. The total cost of gold production (including cash operating costs and total capital and contingency costs over the life of the mine) is estimated at $880 (U.S.) per ounce.
At a gold price of $1,300 (U.S.) per ounce and a silver price of $17.50 per ounce, the base case has a $202.9-million (U.S.) pretax net cash flow, a $144.2-million (U.S.) net present value at a 5-per-cent discount rate and an internal rate of return of 32.6 per cent. At $1,500 (U.S.) gold and $20 (U.S.) silver, the total pretax net cash flow increases by 47.5 per cent over the base case to $299.2-million (U.S.), the net present value at 5 per cent increases to $221.9-million (U.S.) and the internal rate of return improves to 45.1 per cent.
The PEA is considered preliminary in nature. Mineral resources are not mineral reserves and do not have demonstrated economic viability.
BASE CASE ASSUMPTIONS
Gold price (U.S.$) $1,300
Silver price (U.S.$) $17.50
Mill processing rate (tons per day) 1,000
Average annual gold production (ounces) 53,000
Average annual silver production (ounces) 82,000
Peak annual gold production (ounces) 69,000
Peak annual silver production (ounces) 118,000
Preproduction capital costs (U.S.$) $119.6 M
LOM sustaining capital (U.S.$) $24.1 M
Preproduction period (years) 1
Production life (years) 9
Cash cost per au ounce (U.S.$) $578
Cash costs and sustaining cost per au ounce (U.S.$) $880
Before-tax economic results
Life of mine NPV at 5% discount rate (U.S.$) $144.2 M
Internal rate of return 32.6%
Payback period (years) 2.5
After-tax economic results
Life of mine NPV at 5% discount rate (U.S.$) $107.7 M
Internal rate of return 27.1%
Payback period (years) 2.7
PEA overview
The PEA was prepared as an underground mining operation accessed by a production decline with a processing plant handling mineralized material. Mineralization will be accessed by LHDs and underground haulage trucks. The mining method employed will be underhand cut and fill, using fill material comprising mined waste and cemented tailings. Material would then be transported to the milling facility, including three-stage crushing to facilitate precious metals recovery. Treatment will by conventional gravity concentration followed by cyanide leaching (CIL) of the gravity tails. Metal would be recovered onsite and sold as gold-silver dore.
Mineral resources
In October, 2012, Calico disclosed a National Instrument 43-101-compliant undiluted global resource estimate (Gustavson, 2012) for the Grassy Mountain project (see news release dated Oct. 16, 2012, report dated Nov. 29, 2012). In its analysis, Gustavson estimated mineral resources and reported these resources at various cut-off grades. The resource estimate, in the form of the resource block model, was used as the basis for determining potentially minable mineralization in the PEA. National Instrument 43-101-compliant global mineral resources estimated by Gustavson at different cut-off grades are as displayed in the table.
MEASURED
Cut-off
Ounces Ounces
Au Au Tonnes Au Au Au Ag Ag Ag
(g/t) (opt) (000s) (g/t) (opt) (000s) (g/t) (opt) (000s)
0.4 0.012 33,820.8 1.30 0.038 1,416.7 3.84 0.112 4,172.6
2.7 0.079 2,341.4 9.48 0.276 713.4 13.01 0.379 979.5
INDICATED
Ounces Ounces
Tonnes Au Au Au Ag Ag Ag
(000s) (g/t) (opt) (000s) (g/t) (opt) (000s)
0.4 0.012 10,225.5 0.56 0.016 183.7 1.97 0.057 648.0
2.7 0.079 95.1 8.75 0.255 26.7 3.84 0.112 11.7
MEASURED PLUS INDICATED
Ounces Ounces
Tonnes Au Au Au Ag Ag Ag
(000s) (g/t) (opt) (000s) (g/t) (opt) (000s)
0.4 0.012 44,046.3 1.13 0.033 1,600.4 3.41 0.099 4,820.6
2.7 0.079 2,436.4 9.45 0.276 740.2 12.65 0.369 991.2
INFERRED
Ounces Ounces
Tonnes Au Au Au Ag Ag Ag
(000s) (g/t) (opt) (000s) (g/t) (opt) (000s)
0.4 0.012 4,376.5 0.50 0.015 69.8 1.83 0.053 258.0
2.7 0.079 14.7 8.75 0.255 4.1 4.57 0.133 2.2
Mine planning
To facilitate the estimation of minable material for the PEA, HRC reblocked the model to incorporate a smaller block size suitable for underground mine planning and mining dilution appropriate for cut and fill operations. The resource estimate is based on a 3-D geologic model constructed using geologic and assay data from 219 exploration drill holes by previous owners and 17 holes drilled by Calico. The model incorporates 17,440 composites used in the estimation of gold and 13,683 samples used in the estimation of silver. Block grades were estimated using an ordinary kriging (OK) interpolation method in Micromine modelling software.
A PEA provides a basis to estimate project operating and capital costs, and establish a projection of the potential minable resource including measured, indicated and inferred categories as permitted under National Instrument 43-101. However, due to drilling density and metallurgical test work that has been conducted at Grassy Mountain, inferred resources were excluded from the PEA and all reported resources are in the measured and indicated categories. The underground design utilized estimates of operating costs typical of operating underground mines and mill processing facilities in northern Nevada. Estimates of metallurgical recovery are based on test work performed on samples from Grassy Mountain drill core. The ultimate mineralized envelope was determined using a gold price of $1,300 per ounce. Underground diluted resources used for production scheduling, at a 0.065 gold ounce per ton cut off grade (2.0 Au g/t) are as displayed in the table.
Classification Mineralized Gold Gold Gold Silver Silver Silver
material grade grade ounces grade grade ounces
(000s tonnes) (oz/t) (g/t) (000s) (oz/t) (g/t) (000s)
Measured 2,846 0.157 5.4 490 0.263 9.0 825
Indicated 86 0.149 5.1 14 0.156 5.0 14
Measured and indicated 2,932 0.155 5.3 504 0.256 9.0 839
Metallurgy
Resource Development Inc. (RDI) has completed positive bench-scale metallurgical testing for the Grassy Mountain project. A technically sound and economically viable processing strategy has been developed by RDI for production of gold and silver based on representative samples of drill core from the Grassy Mountain project. Tests indicate that recoveries of 97.0 per cent gold and 84.6 per cent silver are achievable utilizing a conventional gravity process followed by carbon-in-leach (CIL) cyanidation of the gravity tailings. For the purpose of this study recoveries of 95 per cent gold and 84 per cent silver were used.
Based on capital economic considerations, a mill is planned to process 1,000 tons per day. A small tailing pond is planned for early production.
Capital costs
Capital costs were developed based on scaling costs from similar facilities for production rates and from design basis assumptions including an owner-operated mining fleet. The estimated life of mine capital costs for the base case are summarized as displayed in the table.
LIFE OF MINE ESTIMATED CAPITAL COSTS
(millions of U.S. dollars)
Description
Underground development $18.2
Mill construction $48.2
EPCM $7.8
Contingency $14.2
Owner's costs $5.0
In-directs includes sustaining EPCM $24.3
Working capital (two months of operating costs) $2.2
Continue to develop underground $23.8
Total $143.7
Operating costs
Operating cost assumptions were based on the cost mine indexes updated 2014 underground mining operations using conventional processing facilities in northern Nevada. Process cost estimates for key consumables are based on the available metallurgical test data, power consumption data and prevailing costs for key materials in similar Nevada mining operations. Operating cost assumptions per ton of material processed are summarized as displayed in the table.
UNIT OPERATING COSTS
U.S.$
(per ton
Cost category processed)
Mining cost $39.86
Mill processing $17.61
General and administrative $5.00
Reclamation $1.54
Total $64.01
Economic analysis
MMC chose prices of $1,300 (U.S.) for gold and $17.50 (U.S.) for silver as the base case economic scenario as these prices approximate the trailing three-year averages for gold and silver. The base case, lower price case and higher price case economic results for the metal price assumptions are as displayed in the table.
Lower Higher
Base price price
case case case
Gold price per ounce $1,300 $1,100 $1,500
Silver price per ounce $17.50 $15.00 $20.00
Pretax net cash flow $202.9-million $106.5-million $299.2-million
Pretax NPV at 5% discount rate $144.2-million $66.5-million $221.9-million
Pretax internal rate of return 32.6% 19.0% 45.1%
Operating costs per ounce of gold produced (life of mine) $578 $580 $577
Total costs per ounce of gold produced (includes all
capital) $880 $882 $879
After-tax net cash flow $157.0-million $89.6-million $224.5-million
After-tax NPV at 5% discount rate $107.7-million $52.8-million $162.6-million
After-tax internal rate of return 27.1% 16.4% 37.4%
Infrastructure
There are currently no facilities of any kind at the Grassy Mountain project. The project is easily accessible from Vale, Ore. (22 miles), along the existing Twin Springs Road. As designed the project will operate using diesel-generated power. An option for the transition to line power is currently being studied. Sufficient processing water is available including vested water rights. Logistical support is available in the nearby communities of Vale, Nyssa and Ontario, Ore. Mining personnel and other resources for operations at the Grassy Mountain project are expected to be available from the local communities as well as Boise, Idaho, and northern Nevada.
Opportunities
MMC has recommended a geotechnical drilling program to allow better understanding of the rock mechanics for the project. It is expected that improved geotechnical information could suggest that roof and pillar strengths are higher than the test work conducted 25 years ago by previous operators which could result in lower projected mining costs. Lower mining costs equate to lower cut-off grades which could increase the resources available for potential production and a higher NPV.
The Grassy Mountain project also contains numerous exploration targets of a similar style of mineralization that should be further evaluated in order to determine economic viability.
Authors and qualified persons
The technical report was prepared by or under the supervision of Scott E. Wilson, CPG, of MMC, who is an independent qualified person (as defined under National Instrument 43-101). Mr. Wilson has read and confirmed that this news release fairly and accurately reflects the contents of the technical report.
Michael F. McGinnis, Calico's project manager/exploration, is the company's designated qualified person for this news release within the meaning of National Instrument 43-101 and has reviewed and validated that the information contained in this news release is consistent with that provided by the qualified persons responsible for the PEA.
We seek Safe Harbor.
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