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Aurcana Corp (3)
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Aurcana releases NI 43-101 PEA for Shafter mine

2016-08-31 17:29 ET - News Release

Mr. Kevin Drover reports

AURCANA CORPORATION ANNOUNCES PRELIMINARY ECONOMIC ASSESSMENT FOR THE SHAFTER MINE

Aurcana Corp. has received the results of an updated preliminary economic assessment for its 100-per-cent-owned Shafter project oxide silver deposit in Texas.

The PEA incorporates the results of the company's recent mineral resource estimate, as disclosed in the company's news release dated Jan. 12, 2016. The PEA is based on reopening the existing Aurcana underground access ramp and recommissioning the existing leach-milling operation at 600 tons per day. This approach will focus on higher-grade mineralization and improved silver recovery. (Unless otherwise noted, a reference to dollars in this news release is to U.S. currency. Due to rounding, some of the totals in the attached tables in this news release may not sum exactly.)

Kevin Drover, president and chief executive officer of Aurcana, noted: "The PEA is a significant step forward for Aurcana. It provides a solid foundation for advancing the project to the next stages of development. The fully permitted Shafter deposit is ideally poised in terms of project economics, with existing underground development, a mill and established infrastructure."

PEA highlights:

  • Base-case (i) posttax net present value (5-per-cent discount rate) of $18-million, internal rate of return (IRR) of 40.9 per cent; Aurcana has sufficient tax losses, based in the United States, to offset federal tax liabilities;
  • Initial capital costs of approximately $13.2-million, including $1.1-million contingency;
  • Preproduction development of less than one year;
  • Mine production of just over six years;
  • Net average posttax undiscounted operating cash flow of approximately $5.5-million per year;
  • Life-of-mine payable production of 9.3 million ounces of silver;
  • Average annual silver production during first six years of operation of 1.5 million ounces;
  • Life-of-mine average silver recovery of 81.73 per cent;
  • Payback is approximately 1.7 years.

(i) Base case uses $20 per ounce silver.

The PEA is preliminary in nature and includes 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, and there is no certainty that the economic results described in the PEA will be realized. Mineral resources that are not mineral reserves do not have demonstrated economic viability.

The base-case discounted cash flows in the PEA are provided both pretax and posttax and are prepared in compliance with National Instrument 43-101 (standards of disclosure for mineral projects) of the Canadian Securities Administrators. The PEA was completed by Mine Development Associates (MDA) and Samuel Engineering Inc., both independent engineering firms.

The attached key economic indicators table summarizes key economic indicators from the PEA. A pretax analysis of the cash flow from the project was completed. The property incurred in excess of $100-million in losses that Aurcana believes is available to offset any U.S. federal tax liability of the property. Since any taxes due should be reduced by the prior property losses, the pretax and after-tax evaluation will be the same with the exception of the Texas franchise tax (0.75 per cent of adjusted revenue).

                    KEY ECONOMIC INDICATORS
               ($20-per-ounce silver base case)
Item                                               PEA base-case (i) results

Posttax IRR                                                             40.9%
Posttax NPV (5%)                                                 $18-million
Posttax payback                                                    1.7 years
Initial capex (including contingency)                          $13.2-million
Total capex (including sustaining and                                       
contingency)                                                   $52.6-million
Average annual silver production for first six                                
years                                                     1.5 million ounces
Life-of-mine silver production                            9.3 million ounces

(i) Base case uses $20 per ounce silver.

The attached sensitivity of Shafter PEA key economic indicators table summarizes the metal price sensitivity of the main economic outputs of the PEA.

                SENSITIVITY OF SHAFTER PEA KEY ECONOMIC INDICATORS 
                                      (posttax)
                                                     Low case    Base case    High case

Silver price                              $/oz            $18          $20          $22
Posttax NPV (5%)                    $ millions            3.4         18.0         32.6
IRR                                          %           11.9         40.9         69.2
Payback period                           Years            6.7          1.7          1.3
Net average annual operating free
cash flow (posttax)                 $ millions            2.9          5.5          8.1

The base-case metal prices are based on a review of current analyst consensus reports 
and recent SEDAR filings for similar reports.

The key economic indicators are summarized on an annual basis in the attached key economic indicators by year table.

                                      KEY ECONOMIC INDICATORS BY YEAR
                                                                                                 Life
Key economic                                                                                       of
indicator                Year 1    Year 2    Year 3    Year 4    Year 5    Year 6    Year 7      mine

Recovered Ag ounces
(millions)                  1.8       1.7       1.4       1.1       1.3       1.5       0.5       9.3
State franchise tax
($ millions)              $0.18     $0.18     $0.15     $0.11     $0.14     $0.16     $0.05     $0.96
Total postfranchise
tax revenue
($ millions)               34.3      33.6      27.6      21.0      25.6      29.9       9.0     181.2
Total operating
costs ($ millions)         14.7      14.7      16.4      17.4      17.3      17.3       5.2     103.1
Posttax net profit
($ millions)               19.6      18.8      11.2       3.7       8.3      12.7       3.8      78.1
$/ton milled              70.20     70.20     78.00     82.66     82.63     82.32     77.72     77.67
Total operating cost
per ounce ($/oz Ag)         8.4       8.6      11.6      16.2      13.1      11.2      11.3      11.1

Mining operation

The PEA contemplates an underground mine at Shafter maximizing the use of the extensive pre-existing underground development and feeding the modified existing mill at a rate of 600 tons per day. Mining will use conventional mechanized methods. The total mill throughput in the PEA is estimated to be 1.3 million tons, of which 59 per cent is currently classified in the resource estimate as measured and indicated material, and 41 per cent is currently classified as inferred material. A five-ounce-per-ton break-even cut-off grade was reflected in the underground mine design. The break-even cut-off incorporates grade, mine and process plant operating costs and recovery data.

Mineral resource estimate

MDA completed the updated resource estimate for the Shafter deposit in January, 2016. See the Aurcana news release dated Jan. 12, 2016, and the technical report dated Jan. 11, 2016, titled "Technical report on the Shafter silver project, Presidio county, Texas," which is filed on SEDAR.

Key features:

  • The Shafter drill-hole assay database contains 20,006 silver assays from 1,694 drill holes. Of the drill holes, 155 were drilled by Aurcana. The majority of drill holes (992 holes) in the database is underground core holes completed by American Metal Company prior to 1942, followed by Gold Fields Mining with 403 holes.
  • Silver grades fall into two natural populations as low- and high-grade silver domains. The low-grade domain is associated with weakly fractured and silicified limestone characterized by silver grades between 0.8 ounce per ton silver and 5.0 ounces per ton silver. The high-grade domain (greater than 5.0 ounces per ton silver) is associated with strongly silicified, fractured limestone.
  • Resource blocks having underground workings of 5 per cent or greater were removed from the classified mineral resource.
  • Compositing was done to four-foot downhole lengths, matching the model block size and honouring all mineral-domain boundaries.
  • Four tonnage factors ranging from 12 to 14 cubic feet per ton were used, reflecting low-grade, high-grade domains, non-mineralized units, and zones of clay or rubble.
  • The reported mineral resources were estimated by inverse distance to the third power to estimate the grade of each block. Ordinary kriging and nearest-neighbour estimates were used for comparison and validation. The stated resource is fully diluted to 10-foot-by-10-foot-by-four-foot blocks and is tabulated on a silver cut-off grade of 4.0 ounces per ton silver.

Mr. Drover, president and chief executive officer of Aurcana, commented: "The updated resource estimates reflect the experiences and knowledge gained by Aurcana's engineers and geologists during three years of development at Shafter. Sophisticated modelling and the application of stringent modelling parameters has resulted in a tightly constrained model of the deposit that has an attractive grade with potential to be expanded by successful infill and step-out exploration drilling. Additional drilling, underground mapping and sampling, geotechnical work, and targeted metallurgical tests are recommended by MDA."

The attached Shafter deposit mineral resources table shows the mineral resources at a series of silver cut-off grades. A four-ounce-per-ton-silver-cut-off grade is the basis for the reported resource estimate. The effective date of the resource estimate is Dec. 11, 2015, and the resource estimate was prepared by Paul Tietz, CPG, of MDA, an independent qualified person within the meaning of NI 43-101.

                     SHAFTER DEPOSIT MINERAL RESOURCES
                             (Dec. 11, 2015)
Shafter measured resources                         
                                                                            
Cut-off (oz/t Ag)               Tons         Oz/t Ag      Contained silver ounces

2                            220,000            5.55                    1,200,000
3                            170,000            7.39                    1,006,000
4                            100,000            8.73                      888,000
5                             80,000            9.77                      799,000
6                             70,000           10.70                      719,000
7                             60,000           11.68                      637,000
8                             50,000           12.53                      567,000
9                             40,000           13.49                      494,000
10                            30,000           14.48                      426,000
12                            20,000           16.84                      299,000
15                            10,000           20.14                      185,000
20                             3,000           25.71                       80,000
                                                                            
Shafter indicated resources                        
                                                                            
Cut-off (oz/t Ag)               Tons         Oz/t Ag      Contained silver ounces

2                          2,490,000            5.60                   13,967,000
3                          1,940,000            7.56                   11,646,000
4                          1,110,000            9.15                   10,171,000
5                            880,000           10.41                    9,114,000
6                            710,000           11.53                    8,230,000
7                            580,000           12.69                    7,363,000
8                            470,000           13.89                    6,550,000
9                            380,000           15.22                    5,757,000
10                           310,000           16.47                    5,122,000
12                           210,000           19.07                    4,039,000
15                           130,000           22.67                    2,954,000
20                            60,000           28.71                    1,772,000

                                                                            
Measured and indicated resources                      
                                                                            
Cut-off (oz/t Ag)               Tons         Oz/t Ag      Contained silver ounces

2                          2,710,000            5.60                   15,167,000
3                          2,110,000            6.00                   12,652,000
4                          1,210,000            9.14                   11,059,000
5                            960,000           10.33                    9,913,000
6                            780,000           11.47                    8,949,000
7                            640,000           12.50                    8,000,000
8                            520,000           13.69                    7,117,000
9                            420,000           14.88                    6,251,000
10                           340,000           16.32                    5,548,000
12                           230,000           18.86                    4,338,000
15                           140,000           22.42                    3,139,000
20                            63,000           29.40                    1,852,000
                                                                            
Inferred resources                             
                                                                            
Cut-off (oz/t Ag)               Tons         Oz/t Ag      Contained silver ounces

2                          2,610,000            4.29                   11,189,000
3                          1,370,000            6.00                    8,193,000
4                            870,000            7.47                    6,511,000
5                            650,000            8.49                    5,518,000
6                            490,000            9.47                    4,649,000
7                            370,000           10.41                    3,887,000
8                            280,000           11.45                    3,160,000
9                            200,000           12.50                    2,549,000
10                           150,000           13.57                    2,044,000
12                            70,000           16.25                    1,207,000
15                            40,000           19.28                      712,000
20                            10,000           24.34                      267,000
                                                                            
Notes:                                                                      
1. MDA is reporting the resources at cut-off grades that are reasonable for 
deposits of this nature that will be mined by underground methods. As such, 
some economic considerations were used to determine cut-off grades, at which 
the resource is presented. MDA considered reasonable metal prices and 
extraction costs and recoveries, albeit in a general sense, and then 
dropping the resource cut-off grade a bit to account for that material that 
would become mill feed using internal cut-offs.            
2. No assumptions were made for mining recovery.                           
3. An external dilution factor was not considered during this resource 
estimation.                                                             
4. Internal dilution within a 10-foot-by-10-foot-by-four-foot SMU (selective    
mining unit) was considered.                                            
5. Mineral resources that are not mineral reserves do not have demonstrated
economic viability.                                                     
6. Rounding errors may occur.                                              

Metallurgy and processing

Samuel Engineering was retained to review the metallurgy of the Shafter deposit, as well as assess the suitability of the existing 1,500-ton-per-day process plant and estimate process operating and capital costs. The Shafter mine has a history of operations and testwork that indicates the mineralization is amenable to several techniques of beneficiation and extraction. Though slight improvements in recovery can be achieved through concentration of the mill feed and focused leaching, the main factor for achieving desirable recovery is affected by grinding and cyanide leaching.

Predicted recovery rates are dependent on the head grade due to a relatively constant tails grade. The consistency of the tails grade is due to occluded silver and silver mineral, locked in quartz or jarosite minerals at or below the 10-micron range. Practically, all the non-encapsulated silver appears to be recoverable, making the recovery prediction highly dependent on the mill feed head grade.

The Shafter mine processing facility proposed in the PEA will use whole cyanide leach to extract silver from the mill feed. Metal recovery will be accomplished using a standard Merrill Crowe CCD (countercurrent decantation) zinc precipitation method. Run-of-mine material will be crushed to a nominal one-inch crushed product using a single jaw crusher for primary crushing and a cone crusher in a closed circuit with a product screen.

Milling to the final leach-feed product size of 80 per cent passing 74 microns will be achieved by a single ball mill in closed circuit with cyclones for classification. The leach tanks are designed for 72-hour retention to achieve an estimated silver extraction rate of 82 per cent. The slurry from the leach circuit will report to the countercurrent decantation circuit using four thickeners for cleaning of the slurry of pregnant leach solution at an anticipated efficiency of 96 per cent. The pregnant solution from the CCD circuit will flow to the deaeration vessel and then to the zinc precipitation circuit. Cleaned residue from the CCD circuit is pumped to the tailings plate and frame filters for one final wash before the residue cake is conveyed to a tailings load-out area, where it will be haul to a lined dry-stacked tailings storage facility.

The zinc precipitation circuit will mix zinc with silver-bearing pregnant solution, causing the silver to precipitate from solution. The silver-precipitated slurry is pumped through the zinc precipitation filters to capture the silver as a cake. The silver precipitate cake is transferred to a retort for drying and to remove any contained mercury, which will be collected for removal off-site. The dried cake from the retort is then mixed with flux and melted in a gas-fired furnace for pouring in silver dore. The silver dore is stored in a safe until it is shipped off-site to a refiner.

Capital costs

The preproduction capital-cost estimate includes the mine capital expenditures, environmental costs, owner's and indirect costs, preparation of the existing mill, expansion of the CCD circuit, addition of instrumentation, and contingency. The mine equipment is assumed purchased in year one with a 25-per-cent down payment during the preproduction period.

Sustaining capital costs include mine equipment replacement, infrastructure upgrades and reclamation costs.

Development capital costs for the PEA are reflective of the condition of the present underground workings and work necessary to recommence underground mining operations.

Initial capital and sustaining capital costs for the PEA, summarized in the attached summary of Shafter capital-cost estimates table, were estimated using current data and pricing.

               SUMMARY OF SHAFTER CAPITAL-COST ESTIMATES
                             ($ millions)                                           
                                                  Sustaining                
Category                       Preproduction         capital     Total capital

Mine                                    $3.6           $34.4             $38.0
Processing and indirects                 7.1             1.2               8.3
Environmental and closure                  0             0.7               0.7
Owner's costs                            1.4               0               1.4
Contingency                              1.1             3.1               4.2
Total                                   13.2            36.3              52.6

Operating costs

Total operating costs for the project are estimated to be $77.67 per ton of mill feed. Mining costs were estimated as $40 per ton milled. The attached summary of PEA operating cost estimates table shows a breakdown of the operating cost categories on a basis of average cost per ton of mill feed.

                   SUMMARY OF PEA OPERATING COST ESTIMATES
Operating cost                                                  $/ton milled

Mining (mill feed and waste)                                          $40.00
Cement for paste fill                                                   4.75
Paste plant and distribution                                            1.32
Surface transport                                                       1.40
Processing                                                             21.70
G&A                                                                     8.50
                                                                      ------
Total on-site costs                                                    77.67

Permitting

Permits required for the development of the Shafter project are in place. Aurcana is not aware of any permitting-related impediment to commencing operations.

Aurcana near-term development and exploration plans

With the release of a positive PEA study, Aurcana believes future work should include commencing the rehabilitation of the Shafter ramp, which will permit establishment of underground drill stations to begin definition drilling.

Additional exploration and advanced engineering studies include:

  • Infill and step-out drilling;
  • Variability tests of potential mill feed to confirm process plant performance;
  • Refinement of engineering studies (mining, process, geotechnical, infrastructure, operating and capital-cost estimation).

PEA preparation and qualified persons

The PEA was completed independently by Mine Development Associates, Reno, and Samuel Engineering, Denver. The information in this news release that relates to the geology, resources and mining portions of the PEA was prepared by: Neil Prenn, PEng, and Mr. Tietz, CPG, both from MDA. The information in this news release that relates to the processing and metallurgy portions of the PEA was prepared by: George Burgermeister, PE, of Samuel Engineering. Mr. Prenn, Mr. Tietz and Mr. Burgermeister are each independent qualified persons within the meaning of NI 43-101.

Jerry Blackwell, PGeo, director of Aurcana, a qualified person as defined by NI 43-101, reviewed and approved the technical information in this news release.

A technical report supporting the PEA will be filed on SEDAR within 45 days.

About Shafter:

  • Silver mineralization at Shafter occurs as subhorizontal bodies of variably silicified oxide mineralization in Permian limestone. Mineralization occurs over a 13,000-foot east-northeast strike length, is locally up to 1,200 feet across and is locally up to 20 feet thick. Thicknesses and silver grades can be highly variable.
  • The western end of the Shafter deposit was first exploited by the Presidio Mining Company from 1883 to 1926, when the American Metal Co. acquired the property and continued production (American Metal Co. subsequently merged with Climax Molybdenum Company to form American Metal Climax Inc.). From 1883 to 1942, when the Presidio mine was closed, total recorded production was 2,307,000 tons of ore containing 35,153,000 ounces of silver at an average grade of 15.24 ounces per ton silver. The operation was then known as the Presidio mine.
  • Gold Fields Mining Corp. held the Shafter property from 1977 to 1982. Gold Fields identified the northeastern, downdip extension of the Shafter deposit, extending more than 5,000 feet from the deepest development workings in the Presidio mine, through a systematic surface-drilling program. During the 1980s, Gold Fields sunk a 1,052-foot shaft to access and explore this extension.
  • Rio Grande Mining Company (RGMC) acquired Shafter in 1994, and in 2008, RGMC was purchased by Aurcana. Aurcana began exploration at Shafter in 2011 and has conducted geophysical surveying, drilling, mapping and geochemical sampling since that time. Aurcana re-entered the old Presidio mine through a new decline in June, 2012, with limited production commencing in December, 2012, from mineralized materials found adjacent to Amax's old stopes. During this time, a mill, mineral processing plant and silver-recovery facility were constructed and brought on-line. The operation was placed on care and maintenance in December, 2013.

About Aurcana

Aurcana owns the Shafter silver project in Texas, U.S. The Shafter silver project was put on care and maintenance in December, 2013, in part due to depressed silver prices.

We seek Safe Harbor.

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