Mr. Paul Parisotto reports
CALICO AMENDS PRELIMINARY ECONOMIC ASSESSMENT ON THE GRASSY MOUNTAIN PROJECT
Calico Resources Corp., as a result of a review by the British Columbia Securities Commission of the company's Feb. 27, 2015, preliminary economic assessment, will file today an amended technical report entitled "Amended Preliminary Economic Assessment, Calico Resources Corp., Grassy Mountain Project, Malheur County, Oregon, USA." The amended PEA was prepared by Metal Mining Consultants Inc. (MMC) using resource and geologic information developed by Hardrock Consulting LLC.
The economic aspects of the amended PEA remain unchanged from the original PEA. All of the deficiencies identified during the BCSC review were addressed and corrected in the amended PEA. The key deficiencies identified by the BCSC were related to the disclosure of the mineral resources for the Grassy Mountain project.
Mineral resources
The project's base case is an underground model but the original PEA disclosed estimated global resources that were not relevant to the resources used in the PEA. Further, the PEA disclosed lower-grade resources that were not open pit constrained, which may have included resources that might not have been able to demonstrate reasonable prospects for eventual economic extraction. It was also unclear in the PEA that underground resources were not included in the global resource estimate. To correct these disclosure issues, Calico's independent consultants have re-estimated the project's mineral resources in a way that more clearly demonstrates reasonable prospects for eventual economic extraction.
Underground resources for the Grassy Mountain project are reported in the amended PEA at a gold cut-off grade of 0.065 ounce per ton, as opposed to a grade of 0.079 ounce per ton in the PEA, and are constrained within the designed underground stopes that were used in the PEA. In order to demonstrate the reasonable prospects of eventual economic extraction of lower-grade mineralization by open-pit methods, mineral resources were also constrained within an $800 pit optimization boundary. To ensure that there was no double counting of underground and open-pit mineral resources, the underground resources were removed from consideration of the determination of the pit limits and treated as unmineralized backfill. The resulting mineral resource estimate, constrained by the pit, is now estimated at a gold cut-off grade of 0.005 ounce per ton as opposed to the previous disclosure at 0.012 ounce per ton. Calico believes it is in the best interest of its shareholders to disclose this new resource estimate as it clarifies previous disclosure.
Mineral resources are estimated as shown in the table.
MINERAL RESOURCES
Tons Au Ounces Au Ag Ounces Ag
(000) (oz/t) (000) (oz/t) (000)
Measured
Underground (0.065 oz/t cog) 3,157.2 0.155 490.5 0.263 828.9
Open pit (0.005 oz/t cog) 52,644.6 0.020 1,027.1 0.072 3,783.6
Indicated
Underground (0.065 oz/t cog) 88.3 0.149 13.2 0.163 14.4
Open pit (0.005 oz/t cog) 12,802.8 0.010 121.9 0.027 349.8
Measured plus indicated
Underground (0.065 oz/t cog) 3,245.5 0.155 503.7 0.260 843.2
Open pit (0.005 oz/t cog) 65,447.4 0.018 1,149.0 0.063 4,133.3
Inferred
Underground (0.065 oz/t cog) 0.0 0.000 0.0 0.000 0.0
Open pit (0.005 oz.t cog) 221.3 0.007 1.5 0.010 2.2
Economic projections
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 $120-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 $221.9-million (U.S.) and the internal rate of return improves to 45.1 per cent.
The PEA is considered preliminary in nature and includes mineral resources, including inferred mineral resources, that are considered too speculative geologically to have the economic considerations applied to them that would enable them to be categorized as mineral reserves. Mineral resources that are not mineral reserves have not yet demonstrated economic viability. Due to the uncertainty that may be attached to mineral resources, it cannot be assumed that all or any part of a mineral resource will be upgraded to mineral reserves. Therefore, there is no certainty that the results concluded in the PEA will be realized.
BASE-CASE ASSUMPTIONS
Gold price (US$) $1,300
Silver price (US$) $17.50
Mill processing rate (tons per day) 1,000
Average annual gold production (ounces) 53,000
Average annual silver production (ounces) 82,000
Peak annual gold production (ounces) 69,000
Peak annual silver production (ounces) 118,000
Preproduction capital costs (US$) $119.6M
LOM sustaining capital (US$) $24.1M
Preproduction period (years) 1
Production life (years) 9
Cash cost per Au ounce (US$) $578
Cash costs and sustaining cost per Au ounce (US$) $880
Before-tax economic results
Life-of-mine NPV at 5% discount rate (US$) $144.2M
Internal rate of return 32.6%
Payback period (years) 2.5
Aftertax economic results
Life-of-mine NPV at 5% discount rate (US$) $107.7M
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 on-site and sold as gold-silver dore.
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 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 testwork that have 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 testwork 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-ounce-per-ton-gold cut-off grade (two grams per tonne Au) are as shown in the table.
UNDERGROUND DILUTED RESOURCES USED FOR PRODUCTION SCHEDULING
Classification Mineralized material Gold grade Gold grade Gold ounces Silver grade Silver grade Silver ounces
(000 t) (oz/t) (g/t) (000) (oz/t) (g/t) (000)
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 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 in the table.
LIFE-OF-MINE ESTIMATED CAPITAL COSTS
(In 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
Indirects including 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 in the table.
UNIT OPERATING COSTS
(In U.S. dollars, per ton processed)
Cost category
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 shown in the table.
PROJECTED ECONOMIC RESULTS
(In U.S. dollars)
Base case Lower-price case Higher-price case
Gold price per ounce/silver price per ounce $1,300 $17.50 $1,100 $15.00 $1,500 $20.00
Pretax net cash flow $202.9-million $106.5-million $299.2-million
Pretax NPV @ 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
Aftertax net cash flow $157.0-million $89.6-million $224.5-million
Aftertax NPV @ 5% discount rate $107.7-million $52.8-million $162.6-million
Aftertax internal rate of return 27.1% 16.4% 37.4%
The PEA is considered preliminary in nature and includes mineral resources, including inferred mineral resources, that are considered too speculative geologically to have the economic considerations applied to them that would enable them to be categorized as mineral reserves. Mineral resources that are not mineral reserves have not yet demonstrated economic viability. Due to the uncertainty that may be attached to mineral resources, it cannot be assumed that all or any part of a mineral resource will be upgraded to mineral reserves. Therefore, there is no certainty that the results concluded in the PEA will be realized.
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 testwork 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 net present value.
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.
Additional technical disclosure matters
The company has disclosed the results of its PEA in news releases and investor materials available on its website. In certain of these news releases and investor materials, the company did not include proximate cautionary language required by National Instrument 43-101.
Accordingly, investors are cautioned that the PEA is considered preliminary in nature and includes mineral resources, including inferred mineral resources, that are considered too speculative geologically to have the economic considerations applied to them that would enable them to be categorized as mineral reserves. Mineral resources that are not mineral reserves have not yet demonstrated economic viability. Due to the uncertainty that may be attached to mineral resources, it cannot be assumed that all or any part of a mineral resource will be upgraded to mineral reserves. Therefore, there is no certainty that the results concluded in the PEA will be realized.
Authors and qualified persons
The amended PEA 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 amended PEA.
We seek Safe Harbor.
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