Mr. Luc Lessard reports
FALCO ANNOUNCES POSITIVE PRELIMINARY ECONOMIC ASSESSMENT ON HORNE 5 GOLD PROJECT
Falco Resources Ltd. has released the results of a preliminary economic assessment (PEA) prepared in accordance with National Instrument 43-101 for the company's 100-per-cent-owned Horne 5 gold project located in Rouyn-Noranda, Que. The PEA indicates that the Horne 5 project represents a robust, high-margin, 12-year underground mining project with attractive economics in the current gold price environment. The study was prepared by BBA Inc., under the direction of Luc Lessard, PEng, president and chief executive officer of the company, and Robert Wares, PGeo, Francois Vezina, PEng, and Christian Laroche, PEng, Osisko Mining Group's technical team, and included contributions from the geological and engineering teams at InnovExplo Inc., Golder Associates Ltd. and WSP Canada Inc. At a gold price of $1,250-(U.S.) per ounce and using an exchange rate of $1 to 75 U.S. cents, the study shows that the Horne 5 project would generate an aftertax net present value (NPV) (at a 5-per-cent discount rate) of $667-million and an internal rate of return (IRR) of 16.0 per cent. In this scenario, the mine could become the next significant gold producer in Quebec, with a production profile averaging 236,000 ounces annually over the life of mine, with an all-in sustaining cash cost of $427 (U.S.) per ounce net of byproduct credits and all-in cost (capex (capital expenditures) plus opex (operating expenditures)) estimated at $660 (U.S.) per ounce. Falco intends to move forward and immediately initiate a feasibility study on the Horne 5 project, which is planned to be completed in the first semester of 2017. The environmental impact assessment (EIA) study, which has been initiated by WSP, is expected to be completed in the first semester of 2017.
Mr. Lessard, Falco president and chief executive officer, commented: "We are very pleased with the results of the new preliminary economic assessment on the Horne 5 deposit, which shows the promise of bringing this world-class deposit back into production after a more-than-40-year dormant phase, subsequent to having previously produced over 11 million ounces of gold and 2.5 billion pounds of copper. The study firmly establishes the Horne 5 project as one of the best undeveloped gold projects by value and margin in today's gold price environment. The Horne 5 project benefits from being situated in one of the world's best mining jurisdictions where a high level of underground mining expertise is readily available. We believe our advantageous location and existing infrastructure has the potential to positively impact the long-term viability of the Horne 5 project." He further noted: "The study marks a significant milestone for our company. At a $1,250 (U.S.)-per-ounce gold price, Horne 5 could generate more than $6.8-billion in gross revenue, deliver total life-of-mine, aftertax net present value of $667-million, and payback capital in approximately four years. Further upside to this evaluation is anticipated through optimization studies and continued successful exploration."
The PEA envisages an underground mine with a life of approximately 12 years, targeting 63.8 million tonnes of volcanic-massive sulphide material with an average diluted grade of 2.60 grams per tonne gold equivalent (g/t AuEq) or 4.8 million AuEq ounces (1.6 g/t gold, 15.5 g/t silver, 0.19 per cent copper, 0.85 per cent zinc). The study incorporates an underground crushing facility which would be followed by a conventional semi-autogenous ball milling crushing (SABC) circuit on surface with a capacity of 15,000 tonnes per day, along with three selective flotation circuits to recover copper, zinc and pyrite concentrates. The pyrite concentrate would be further reground and leached along with the pyrite flotation tailings in respective carbon-in-pulp (CIP) circuits. The facility would enable Falco to produce 3,051,000 ounces of gold over the life of mine (LOM). The study also outlines several opportunities to further enhance economics (see below) and the current resource remains open to the west and at depth. Several untested targets remain to be evaluated and Falco is confident that additional resources can be identified in the near term through continued drilling campaign (see Falco press release of April 26, 2016). The realized project would have a significant impact on the Abitibi-Temiscamingue region, with the potential of generating over $6.8-billion of gross revenue and contributing 525 permanent, well-remunerated jobs.
PEA highlights
All amounts are in Canadian dollars unless otherwise indicated; base case is stated using gold price of $1,250 (U.S.) per ounce, silver price of $17 (U.S.) per ounce, copper price of $2.85 (U.S.) per pound, zinc price of $1.00 (U.S.) per pound and an exchange rate of $1 equal to 75 U.S. cents.
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NPV of $1,131-million at a 5-per-cent discount rate and an IRR of 20.0 per cent before taxes and mining duties;
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NPV of $667-million at a 5-per-cent discount rate and an IRR of 16.0 per cent after taxes and mining duties;
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Mine life of 12 years with peak-year production of 274,000 ounces and average LOM annual production of 236,000 ounces of gold;
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Net payable gold recovery of 86.8 per cent;
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3,051,000 gold ounces production at an average diluted grade of 2.60 g/t Au LOM;
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2,903,000 ounces of payable gold LOM;
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807 million pounds of payable zinc LOM;
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194 million pounds of payable copper LOM;
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23.8 million ounces of payable silver LOM;
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All-in sustaining costs* of $427 (U.S.) per ounce oz net of byproduct credits (including royalties) over LOM, generating an operating margin of over $823 (U.S.) per ounce or 66 per cent;
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All-in cost (capex plus opex) estimated at $660 (U.S.) per payable ounce;
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Initial capital costs of $905.2-million (including a $60-million contingency);
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Integration of historical and existing underground mine infrastructure;
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Payback period of 3.8 years pretax and 4.1 years posttax;
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Gross revenue of $6.8-billion and operating cash flow of $2.6-billion;
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Commissioning in late 2020;
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Full production in early 2021.
Note
* All-in sustaining costs are presented as defined by the World Gold Council (WGC) less corporate general and administrative expenses.
The reader is advised that the PEA summarized in this press release is intended to provide only an initial, high-level review of the project potential and design options. The PEA mine plan and economic model include numerous assumptions and the use of inferred resources. Inferred resources are considered to be too speculative to be used in an economic analysis except as allowed for by Canadian securities administrators' National Instrument 43-101 in PEA studies. There is no guarantee that inferred resources can be converted to indicated or measured resources, and as such, there is no guarantee the project economics described herein will be achieved.
PEA SUMMARY
Total material mined (tonnes) 63,751,000
Average diluted gold-equivalent grade (g/t AuEq) 2.60
Average diluted gold grade (g/t Au) 1.63
Total gold contained (oz) 3,345,000
Total gold produced (oz) 3,051,000
Total gold payable (oz) 2,903,000
Total silver payable (oz) 23,800,000
Total copper payable (million lb) 194
Total zinc payable (million lb) 807
Gold recovery and payable (%) 86.8%
Average annual gold produced (gold oz per year) 236,000
Total initial capital cost ($m) $905.2
Sustaining capital ($m) $377.9
Site restoration cost ($m) $51.6
Unit operating cost (per tonne milled)
Mining $19.67
Processing $20.63
Tailing and water management $4.27
General and administration $2.87
Total unit operating costs (per tonne milled) $47.45
SUMMARY ECONOMICS AT $1,250 (U.S.) GOLD PER OZ
Total LOM NSR revenue ($m) $6,776.7
Total LOM operating cash flow ($m) $2,563.2
Total LOM pretax cash flow ($m) $2,281.5
Average annual pretax cash flow ($m) $261.1
LOM income taxes ($m) $841.4
Total LOM aftertax free cash flow ($m) $1,440.2
Average annual aftertax free cash flow ($m) $188.1
Discount rate 5%
Pretax NPV ($m) $1,131
Pretax IRR 20.0%
Pretax payback (years) 3.8
Aftertax NPV ($m) $667
Aftertax IRR 16.0%
Aftertax payback (years) 4.1
ALL-IN CASH COSTS INCLUDING SUSTAINING CAPEX
Mining cost ($m) $1,254.0
Processing cost ($m) $1,315.4
Tailing and water management ($m) $272.5
General and administrative cost ($m) $183.0
Refining and smelting ($m) $415.4
Royalties ($m) $135.5
Byproduct credit (loss) ($m) ($2,354.4)
Cash cost ($/oz) $421
Cash cost (US$/oz) $316
Sustaining ($m) $377.9
Closure ($m) $51.6
Total ($m) $1,645.1
All-in cash plus sustaining cost ($/oz)* $569
All-in cash plus sustaining cost (US$/oz)* $427
Note
* All-in sustaining costs are presented as defined by the World Gold
Council less corporate G&A.
SENSITIVITIES
(Base case underlined)
Gold price US$/oz $1,000 $1,100 $1,200 $1,250 $1,300 $1,400 $1,500 $1,600
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Pretax NPV 5% ($m) $549 $782 $1,015 $1,131 $1,248 $1,481 $1,714 $1,947
Aftertax NPV 5% ($m) $301 $451 $594 $667 $739 $874 $1,012 $1,149
Pretax IRR 13.1% 16.0% 18.7% 20.0% 21.3% 23.7% 26.0% 28.2%
Aftertax IRR 10.3% 12.8% 15.0% 16.0% 17.1% 18.9% 20.7% 22.5%
Pretax payback
years 5.5 4.8 4.1 3.8 3.5 3.1 2.8 2.5
Aftertax payback
years 5.7 5.0 4.4 4.1 3.8 3.4 3.0 2.8
FX: $1:US$ 0.90 0.85 0.80 0.75 0.70 0.65 0.60 $0.55
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Pretax NPV 5% ($m) $446 $647 $874 $1,131 $1,425 $1,763 $2,159 $2,626
Aftertax NPV 5% ($m) $237 $365 $506 $667 $840 $1,041 $1,273 $1,543
Pretax IRR 11.7% 14.3% 17.1% 20.0% 23.1% 26.5% 30.2% 34.3%
Aftertax IRR 9.2% 11.4% 13.6% 16.0% 18.5% 21.1% 24.0% 27.2%
Pretax payback years 5.9 5.2 4.5 3.8 3.2 2.7 2.3 1.9
Aftertax payback years 6.1 5.4 4.8 4.1 3.5 3.0 2.6 2.2
Opportunities to enhance value
Although Falco considers the PEA results for the base case are excellent, future trade-off studies are anticipated to evaluate alternative development scenarios that would be used to reduce the initial capital requirements. Items to be reviewed include location of access development, enhancing ventilation efficiency during preproduction period, improving metallurgical recoveries and usage of reagents, modification to stope size, and dewatering methods. In addition, Horne 5 project has high potential for resource expansion; the deposits in the current resource remain open to the west and at depth, and Falco owns more than 740 square kilometres of land around the Horne 5 project with targets that remain to be tested. An exploration budget of $7.5-million is planned for 2016.
PEA details
Contributors
The independent PEA was prepared through the collaboration of a number of industry-recognized consulting firms, including BBA Inc. (Montreal, Que.), Golder Associates Ltd. (Montreal, Que.), InnovExplo Inc. (Val d'Or, Que.) and WSP Canada Inc. (Rouyn-Noranda, Que.). These firms provided resource estimates, design parameters and cost estimates for mine operations, process facilities, major equipment selection, waste and tailings storage, reclamation, permitting, and operating and capital expenditures. A summary of contributors to the PEA is included in the associated table.
Consulting firm
or entity Area of responsibility
BBA Inc. Electrical and information technology
infrastructure (supply and on-site)
Metallurgical testwork analysis, processing plant design,
process plant capital costs and operating costs
General and administration operating costs, and financial
analysis
Overall NI 43-101 integration
InnovExplo Inc. Geological modelling and resource definition
Underground mine design, surface infrastructure (hoist),
production scheduling, capital costs and operating costs
Golder Associates Ltd. Waste rock, tailings and water management,
Water treatment plant design, capital and operating costs
Underground mine hydrogeology, geotechnical and rock mass
characterization
WSP Canada Inc. Environmental studies, permitting and mine closure plan
Paste backfill plant design, capital and operating costs
Surface infrastructure design and costing
Resource estimate
The PEA is based on an indicated and inferred mineral resource estimate completed by independent qualified person Carl Pelletier (PGeo, Geo, BSc) of InnovExplo Inc. This estimate consists of an indicated resource and an inferred resource using base case cut-off of $65 net smelter return (NSR) per tonne.
Resource Tonnes AuEq Au Ag Cu Zn
category (mt) (g/t) (g/t) (g/t) (%) (%)
Indicated 58.3 2.86 1.82 15.60 0.20 1.00
Inferred 12.7 3.08 2.10 26.26 0.22 0.57
Resource Contained Contained Contained Contained Contained
category AuEq (moz) Au (moz) Ag (moz) Cu (mlb) Zn (mlb)
Indicated 5.361 3.418 29.273 260.4 1,284.8
Inferred 1.254 0.855 10.705 61.7 158.1
For further details, resource estimate notes and resource modeling notes, please see company's press release of Jan. 25, 2016, and NI 43-101-compliant resource report filed on SEDAR.
CAPITAL AND OPERATING COSTS SUMMARY
Capital costs ($m) Preproduction Sustaining Total*
Mining (includes development $247.2 $324.1 $571.3
contingency)
Mineral processing plant $351.8 -- $351.8
Site infrastructure $98.1 $6.6 $104.6
Electrical and communication $20.6 $1.4 $21.9
Tailings and water management $19.2 $46.0 $65.1
Indirects $108.6 -- $108.6
Site restoration -- $51.6 $51.6
Subtotal $845.2 $429.4 $1,274.6
Contingency $60.0 -- $60.0
Total capital costs $905.2 $429.4 $1,334.6
Preproduction revenue** (loss) ($61.5)
Capital cost per payable oz Au ($/oz) $312
Capital cost per payable oz Au (US$/oz) $234
Capex per oz (US$/oz) $234
Opex per oz (US$/oz) $427
All-in cost per oz (US$/oz) $660
Notes
* Totals may differ due to rounding.
** The company anticipates having preproduction revenues during
development.
Operating costs $/t milled
Mining $19.67
Processing $20.63
Tailing and water management $4.27
General and administration $2.87
Total operating costs $47.45
Mining
The underground deposit is located at a depth of approximately 600 metres to 2,300 metres below surface. The existing Quemont No. 2 shaft which extends to a depth of 1,200 metres would be rehabilitated. The shaft would provide for the hoisting of mineralized material and waste, services personnel and materials, and the supply of ventilation to the underground workings. Further, Falco foresees rehabilitating several of the old Horne shafts for ventilation purposes and using old underground excavations for tailings disposal. The mine design has taken into consideration the Quemont No. 2 shaft and ventilation raises to provide fresh air for early works.
The mine has been designed to have low operating costs through the use of large modern equipment, gravity transport of mineralized material and waste through raises, shaft hoisting, minimal mineralized material and waste rehandling, high-productivity bulk mining methods, and unconsolidated waste rock backfill, where possible. The mine is designed to employ state-of-the-art technology. Highly automated and using remote-control equipment, the mine would be able to operate 21-tonne loaders to transport muck to the ore pass systems. The underground crushing facility would be fed by two ore pass systems. The crushed mineralized material would then be transported via a 600 m conveyor to the shaft loading point where it would be hoisted to the surface using 43.5-tonne skips on a continuous basis. The new configuration of the Quemont shaft would also have a dual floor-service cage of 2.4 metres by four metres and a dual floor personnel mine cage. Paste backfill would be used to fill the extracted stopes and strengthen stability of the adjacent stopes and avoid or minimize dilution.
The company expects to use transverse long hole as the primary mining method and will favour the minimization of dilution to resource recovery. The company believes the resource dilution will be below 4 per cent.
Processing
A semi-autogenous ball milling crushing (SABC) facility on surface with a capacity of 15,000 tonnes per day would be used to process the Horne 5 project mineralized material. The facility would also include a flotation and thickening section divided in three circuits dedicated to recovering copper, zinc and pyrite concentrates. The copper and zinc circuits would have their concentrate filtered to reduce humidity to 9 per cent. Both concentrates would be stored in silos to await shipment. The pyrite concentrate will require a finer grind to achieve improved gold recovery by cyanide leaching, resulting in the requirement to regrind from the primary grind size of 65 microns to the targeted P80
of 12 microns. The resulting reground pyrite concentrate would then be leached along with the pyrite flotation tailings in separate CIP circuits. Thickeners would be used to maximize water and cyanide recovery and the sulphur dioxide/air cyanide destruction method would be applied to reduce the cyanide content of the two leach streams. Pyrite tailings from flotation would be used as paste backfill in the new workings and the leached pyrite concentrate would largely be returned underground and disposed in existing historical openings. Water liberated in the underground workings from the consolidated tailings would be recovered, recycled and pumped back to the process plant.
Gold, zinc, copper and silver metal would be recovered. The process plant would produce two concentrates and dore bars. The copper concentrate would have an estimated copper content of 18 per cent as well as payable gold and silver, and the zinc concentrate would have an estimated zinc content of 50 per cent as well as payable silver. The payable gold recovery is estimated to average 86.8 per cent over the LOM and estimated payable metallurgical recoveries average 74.0 per cent for copper, 67.3 per cent for zinc and 74.9 per cent for silver. Copper and zinc concentrates have been analyzed and are considered to be free of deleterious elements and are expected to be readily marketable to both smelters and traders.
The process plant facility would include a wet laboratory, mill offices, a mill dry and a maintenance shop.
Project infrastructure and indirects
The Horne 5 project, located within the industrial park and former mine infrastructure (Quemont and Horne mines) of the city of Rouyn-Noranda, Que., a mining community of over 41,500 people, benefits from great infrastructure. As important as the physical infrastructure in the Rouyn-Noranda region, is the high level of underground mining expertise readily available in the region. The company believes its advantageous location has the potential to positively impact the long-term viability and attractiveness of employment at the Horne 5 project, given that employees and contractors could work in the community they live in, a rare opportunity in the mining industry.
The Horne 5 project is located 1.1 km from Route 101 and four km of the Trans-Canada Highway, with all services readily available at site. The Horne 5 project is also located less than 700 metres from the operating Horne custom copper smelter which uses both copper concentrates and precious metal-bearing recyclable materials as its feedstock to produce a 99.1 per cent copper anode. Development of the future mine would be done on the former Quemont mine site already owned by Falco. Acquisition of land adjacent to the currently proposed mine site would likely be necessary for some of the new infrastructure. Electric power would be supplied to the site at a voltage level of 120 kilovolts originating from the nearby Hydro-Quebec's Rouyn-Noranda substation, approximately one km away. At the site, the outdoor substation would lower the incoming voltage to 25 kilovolts using two main transformers of 120 to 125 kilovolts, 60/80/100 megavolt amperes each, for a combined firm power of 100 megavolt amperes. Electrical power infrastructure costs were estimated at $20.5-million.
The Horne 5 project envisions the following key infrastructure items to support the mine to be constructed: site access road, on-site parking area, process plant and paste backfill plant, maintenance shop and warehouse, mine dry and office building, administration building, headframe and shaft house, hoist room, 120-kilovolt substation, and railway spur lines.
Indirect costs such as owner's costs; engineering, procurement and construction management; construction temporary facilities; freight for process and major electrical equipment; preoperational verifications; commissioning support; vendor representatives; capital spares, one-year operating spares; commissioning spares; first fills; and construction temporary power are estimated at $108.6-million. An additional $60-million has been budgeted as contingency for specific direct and indirect costs.
Environment and site restoration
Environmental baseline studies have been initiated to support the permitting process and permit applications will be initiated to support the project timeline.
The Horne 5 project will require a provincial and federal decree. The project is subject to provincial impact assessment study as forecasted production is over the 2,000-tonne-per-day threshold outlined in the applicable regulation. The project will also be subject to a federal impact assessment study.
The company has already received a certificate of authorization (CoA) under sections 22 and 31.75 of the Environmental Quality Act issued by the Ministry of Sustainable Development, Environment and the Fight against Climate Change on March 1, 2016, for the dewatering of the two first levels (100 metres below surface) of the Quemont 2 shaft.
Site restoration costs were estimated at $51.6-million. The site restoration cost estimate for the Horne 5 project is based essentially on the dismantling of the mine buildings, but also accounts for the restoration of the potentially acid-generating waste rock pile, the temporary surface tailings storage facility and the retention ponds. The company intends to dismantle all buildings that would have served its mining operations. Given the proximity of the site to the city and the existence of very little infrastructures of this type in Rouyn-Noranda, these buildings could be reused or modified for other uses. This cost estimate includes the cost of site restoration, as well as postclosure monitoring. In accordance with the regulations, the company intends to post a bond as a guarantee against the site restoration cost.
Stakeholder engagement
The company is committed to taking a pro-active approach to its public consultation process and has been working diligently to identify as many stakeholders as possible in the Rouyn-Noranda and Abitibi region. Over the past 18 months more than 24 private and public community meetings have been held with various stakeholders.
Based on the company's numerous community meetings held throughout the region, there is strong community support for the Horne 5 project. Development of the mine would bring substantial economic development to the city of Rouyn-Noranda and the surrounding region. A construction work force of 800 people would be created at the peak of an 18-month construction period and the mine would provide direct employment for approximately 525 people over its 12-year operating life.
The company remains committed to working with the citizens of Rouyn-Noranda to build a plan for the Horne 5 project that would maximize benefits for the community, the company's shareholders and other stakeholder groups.
Projected timeline*
- A feasibility study and environmental impact assessment are scheduled for completion in the first semester of 2017.
- Permitting activities would be initiated following the completion of the feasibility study and EIA to support a 2019 construction start.
- Commissioning would occur in late 2020.
- Target full production would occur in early 2021.
Note
* Contingent on a positive feasibility study and obtaining the required financing and permitting approvals.
Back-in right and royalties
As per the terms and condition of the purchase agreement dated March 28, 2011, assigned to the company in September, 2012, the seller under the March 28, 2011, agreement retains the right to back in to a 65-per-cent interest on any base metal deposit containing more than 350,000 tonnes copper-equivalent metal with respect to which the in situ value of non-base metals is less than three times the in situ value of all base metals. Such right may be exercised by the seller, further to filing of an NI 43-101-compliant threshold resource by the company, subject to the following conditions:
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Paying Falco three times the project-specific exploration expenditures;
- Paying Falco three times the Rouyn regional base metal exploration expenditures up to a maximum of $20-million, which is related to the threshold resource;
- Pay 65 per cent of the development expenditures;
- Completing an NI 43-101-compliant feasibility study, within a specified period and at no cost to Falco.
Upon exercise of the back-in right and in addition to keeping a 35-per-cent interest and benefiting from a six-month period to finance its share of expenditures subsequent to a production decision, the company would form a joint venture where unanimous consent shall be required for critical mining decisions.
The seller also retains a 2-per-cent NSR on all metals produced from the Horne 5 project. The seller also has rights of first refusal with respect to purchase or toll process all or any portion of the concentrates and other mineral products from the Horne 5 project.
Falco currently considers that its recent updated mineral resource estimate is a threshold resource.
Independent qualified persons (QPs)
The Horne 5 project preliminary economic assessment was prepared for Falco under the direction of BBA Inc. by leading independent industry consultants, all qualified persons under National Instrument 43-101. The QPs have reviewed and approved the content of this news release. Independent QPs from BBA, InnovExplo, Golder and WSP who have prepared or supervised the preparation of the technical information relating to the preliminary economic assessment include:
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Colin Hardie, Pierre Lacombe (BBA Inc.);
- Carl Pelletier, Francois Girard (InnovExplo Inc.);
- Mayana Kissiova (Golder Associates Ltd.);
- Marie Claude Dion St. Pierre, Annie Lavoie, Issam Hessani (WSP Canada Inc.).
The company's disclosure of technical or scientific information in this press release has been reviewed and approved by Mr. Lessard, PEng, president and chief executive officer of Falco Resources, who serves as a qualified person under the definition of National Instrument 43-101.
Conference call details
Furthermore, Falco will be hosting a conference call to discuss the results on Monday, May 9, at 1 p.m. Eastern Time with the Falco executive and technical team.
Participants may join the call by dialling:
Toll-free dial-in number: 877-291-4570
International dial-in number: 647-788-4919
A recorded playback of the call will be available two hours after the call's completion until May 23, 2016, by dialling 416-621-4642 or 800-585-8367 and entering the conference ID No. 8919537.
We seek Safe Harbor.
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