Trilogy Metals Announces Pre-Feasibility Study Results and Reserves for the Arctic Project, Alaska
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News Release
Trilogy Metals Announces Pre-Feasibility Study Results
and Reserves for the Arctic Project, Alaska
February 20, 2018 - Vancouver, British Columbia – Trilogy Metals Inc. (TSX/NYSE
American: TMQ) (“Trilogy Metals” or the “Company”) is pleased to announce the positive
results of its Pre-Feasibility Study (“PFS”) for its Arctic Copper-Zinc-Lead-Silver-Gold Project
(“Arctic” or the “Arctic Project”) in the Ambler mining district of Northwestern Alaska. These
results convert indicated mineral resources at Arctic to probable mineral reserves. All amounts
are stated in U.S. dollars unless otherwise stated.
Trilogy Metals will host a conference call on February 21, 2018
at 11:00am (Pacific Time) or 2:00pm (Eastern Time) to discuss these
results. Call-in information is provided at the end of this news release and
on our website at www.trilogymetals.com.
Highlights of the Arctic PFS study are as follows:
Pre-tax Net Present Value (“NPV”)8% of $1,935.2 million calculated at the beginning of
the three-year construction period and an Internal Rate of Return (“IRR”) of 38.0% for
the base case.
After-tax NPV8% of $1,412.7 million and after-tax IRR of 33.4% for the base case.
Initial capital expenditure of $779.6 million and sustaining capital of $65.9 million for
total estimated capital expenditures of $845.5 million over the estimated 12-year mine
life. In addition, closure and reclamation costs are estimated at $65.3 million.
Estimated pre-tax and after-tax payback of initial capital within 2 years. At $2.00/lb
copper, after-tax payback is 3 years.
Minimum 12-year mine life supporting a maximum 10,000 tonne-per-day conventional
grinding mill-and-flotation circuit to produce copper, zinc and lead concentrates
containing significant gold and silver by-products.
Life of mine strip ratio of 6.9 to 1.
Average annual payable production projected to be more than 159 million pounds of
copper, 199 million pounds of zinc, 33 million pounds of lead, 30,600 ounces of gold
and 3.3 million ounces of silver for life of mine.
A capital intensity ratio on initial capital of approximately $6,200 per tonne of average
annual copper equivalent produced.
Estimated cash costs of $0.15/lb of paya ble copper (C1 cash costs include on-site
mining and processing costs, road tolls and maintenance, transport, royalties, and is
net of by-product credits).
Total “all-in” cash costs (initial/sustaining capital, operating, transportation, treatment
and refining charges, road toll, and by-product metal credits) estimated at $0.63/lb of
payable copper.
Economic indicators justify moving forward with permitting and a feasibility study.
TSX/NYSE American
Symbol: TMQ
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The PFS was prepared under National Inst rument 43-101 standards by independent
consultant, Ausenco Engineering Canada Inc. (“Ausenco”) of Vancouver, Canada and the full
technical report will be filed on SEDAR and EDGAR within 45 days of this news release. The
Company also engaged Amec Foster Wheeler (“ Amec”) to complete mine planning and SRK
Consulting (Canada) Inc. (“SRK”) to complete tailings and waste design, hydrology and water
management studies.
The PFS for the Arctic Project describes the po tential technical and economic viability of
establishing a conventional open-pit copper-zinc-lead-silver-gold mine-and-mill complex for a
10,000 tonne-per-day operation. The base case scenario utilizes long-term metal prices
of $3.00/lb for copper, $1.10/lb for zinc, $1.00/lb for lead, $18.00/oz for silver and
$1,300/oz for gold. The PFS was prepared on a 100% ownership basis.
“The results of the PFS show that Arctic is a robust, high quality project. We are very pleased
with the improvements in the economics in this Pre-Feasibility Study compared with the
Preliminary Economic Assessment (“PEA”) perf ormed on the Arctic Project in 2013. The
increase in net present value of Arctic in the PFS from the PEA is due to a number of cumulative
factors, including: 1) improved mine plan that moves approximately $100 million in the pre-
stripping forward which allows for a more aggressive mine ramp up – two years, rather than
four years in the PEA. This brings forward a significant amount of metal production and
cashflow; 2) use of LNG versus diesel in the PEA – this redu ces power generation costs and
saves approximately $2.00/tonne in operating costs on processing; 3) improved tax legislation
in the United States improves after-tax NPV and IRR; 4) improved long term commodity prices,
specifically for copper and zinc; 5) improved metallurgical recoveries; and 6) an almost 20%
increase in resource tonnes along with an improvement in grade resulting from our in-fill
drilling programs conducted over the past co uple of years”, said Rick Van Nieuwenhuyse,
President and Chief Executive Of ficer. “We are also very excited with the potential for job
opportunities for the Upper Kobuk region. The PFS estimate s approximately 400 year round
jobs during mine operations. This is import ant for our local communities in the Kobuk and
Koyukuk regions that currently have limited opportunities for long term employment.”
Rick Van Nieuwenhuyse continues, “The Arctic Project is now set to advance to the next stages
of development: Permitting and Feasibility. With the average grade currently mined in open
pit copper mines approaching 0.5% worldwide, we are blessed with a truly high-grade copper
project in Arctic with grades of 5% copper equivalent1. Based on the foregoing, I expect Arctic
could be among the highest grade open pit copper mines in the world if and when it is placed
into production. And with Public Scoping now completed on the Ambler Mining District
Industrial Access Project (“AMDIAP”) and the Draft EIS underway, and with continued support
from Governor Walker and the St ate of Alaska as outlined in his recent State of the State
address (Walker State of the State Address), we are starting to see all the pieces come together
to realize the value inherent in developing the Ambler Mining District – one of the highest grade
volcanogenic massive sulfide di stricts known in the world. Meanwhile, we will of course
continue to explore our Bornite Project with a $10 million program funded by South32, which
we hope to advance towards a developmen t decision. With the long-term demand
fundamentals for copper driven by increased use of alternative forms of energy and a transition
from internal combustion engines to non-pollut ing electric vehicles, both of which require 5
times the amount of copper than carbon based fuels, we expect the price of copper to remain
strong over the long term – especially when we consider the impending supply crunch expected
by analysts.”
1. See Table 9.
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Arctic Pre-Feasibility Study – Mining and Processing
The PFS is based on a conventional truck-and-sho vel, open-pit mine design at a single pit,
10,000 tonne-per-day mining and milling operation with sulphi de floatation concentration
resulting in the production of copper, zinc and lead concentrates. Based on the pre-feasibility
level metallurgical work on the sulphide minera lization, the average recoveries are projected
to be 90.0% for copper, 91.7% for zinc and 80.0% for lead. The majority of the silver and gold
report to the lead concentrate at 95% payable. The mineralized material at the Arctic Project
will be processed through conven tional milling and flotation for an estimated mine life of 12
years. The PFS contemplates the metallurgical flow sheet to consist of a conventional mill with
a talc pre-float followed by a bulk copper-lead flotation and zinc flotation followed by a
separation of the copper and lead. Most of the precious metals will report to the copper and
lead concentrates. Key parameters and assump tions used for the PFS study are discussed
below and summarized in Tables 1 through 3.
Table 1 – Mining rates and volumes of mined material
Type of Mining Total Years
Avg
Tonnes/yr
(000’s)
Avg
Tonnes/day
Total
Tonnes
(000’s)
Open-pit mineralized material (Years 0
– 12)
12 3,586.5 9,826 43,038
Open-pit waste (Years 0 – 12) 12 24,756 67,824 297,071
Total material mined 340,109
Average strip ratio for the life of mine 6.9:1
Table 2 – Projected payable metal production
Metal Total Payable Production
Average Annual
Production
Life of Mine
lbs (000’s) Tonnes lbs (000’s) Tonnes
Copper 1,908,493 865,687 159,041 72,141
Zinc 2,399,128 1,088,237 199,927 90,686
Lead 405,727 184,037 33,811 15,336
Ounces Ounces
Silver 40,237,644 3,353,137
Gold 367,531 30,628
Table 3 – Base case head grades, recoveries, metal prices, and other data
Head Grades
Copper % 2.32
Zinc % 3.24
Lead % 0.57
Silver g/t 36.0
Gold g/t 0.49
Metal Recoveries
To Copper Concentrate
- Copper % 90.0
- Silver % 11.8
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- Gold % 35.0
To Zinc Concentrate
- Zinc % 91.7
To Lead Concentrate
- Lead % 80.0
- Silver % 61.1
- Gold % 49.7
Payables
Payable Copper % 90.0
Payable Zinc % 91.7
Payable Lead % 80.0
Table 3 Continued – Base case head grades, recoveries, metal prices, and other data
Concentrate grades - Copper
Copper % 30.3
Silver g/t 169
Concentrate grades - Zinc
Zinc % 59.2
Concentrate grades - Lead
Lead % 55.0
Silver g/t 2,383
Gold g/t 34.0
Metal Prices
Copper $/lb 3.00
Zinc $/lb 1.10
Lead $/lb 1.00
Silver $/oz 18.00
Gold $/oz 1,300
Other Parameters
Life of mine Years 12
LNG price $/GJ LHV 18.45
Electrical power – LNG $/kWhr 0.17
NANA NSR % Net Revenues 1.0
Arctic Pre-Feasibility Study – Project Economics
The results of a discounted cash flow analysis for the Project are presented in Table 4 below.
NPV, IRR and payback values are estimated for both pre-tax and after-tax scenarios. The base
case scenario utilizes the long-term metals prices outlined in Table 3 and a discount rate of
8%. IRR and NPV values are calculated to show sensitivities for a range of copper prices from
$2.00 to $4.00 and zinc prices from $0.90 to $1.30.
Under the Exploration Agreement and Option to Lease (“NANA Agreement”) between Trilogy
Metals and NANA Regional Corporation, Inc. (“NANA”), NANA has the right, following a
construction decision, to elect to purchase a 16% to 25% direct interest in the Arctic Project
or, alternatively, to receive a 15% Net Proceeds Royalty. This PFS was carried out on a 100%
ownership basis and does not include the impact on Trilogy Metals if NANA elects to purchase
an interest in the Arctic Project under the NA NA Agreement or, alternat ively, the impact on
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Trilogy Metals and the Project if the NPR becomes applicable. The PFS does include the 1.0%
Net Smelter Royalty (“NSR”) to be granted to NANA under the NANA Agreement in exchange
for a surface use agreement.
Under the Option Agreement (“ South32 Option Agreement”) between Trilogy Metals and
affiliates of South32 Limited (“South32”), South32 has the right to form a 50/50 Joint Venture
with respect to the Company’s Alaskan assets including the Company’s Arctic Project. Upon
exercise of the option, the Company will transfer its Alaskan assets, including the Arctic Project,
and South32 will contribute a minimum of $150 million, to a newly formed joint venture. For
more information on the South32 Option Agreement see the Company’s press release on April
10, 2017 (https://Trilogy PR April 10 2017). This PFS was carried out on a 100% ownership
basis and does not include the impact on Trilog y Metals if South32 elects to form the joint
venture under the Option Agreement.
Additional information on the NANA Agreement and the South32 Option Agreement is included
in the Company’s 2017 Annual Report on Form 10-K, which is available on SEDAR and EDGAR.
Table 4a – Pre-tax discounted cash flow estimates for varying copper prices
Pre-Tax NPV*
($ million)
Copper Price
($/lb)
2.00 2.50
Base
Case
3.00 3.50 4.00
Discount
Rates
5% 1,437.8 2,039.9 2,642.0 3,244.0 3,846.1
Base Case 8% 993.4 1,464.3 1,935.2 2,406.1 2,877.0
10% 770.0 1,173.4 1,576.8 1,980.1 2,383.4
IRR % 25.3 31.9 38.0 43.6 48.9
Payback Years 2.9 2.3 1.9 1.6 1.4
*Assumes base case metals prices of $1.10/lb zinc, $1.00/lb lead, $18.00/oz silver and $1,300/oz gold
Table 4b - After-tax discounted cash flow estimates for varying copper prices
After-Tax NPV*
($ million)
Copper Price
($/lb)
2.00 2.50
Base
Case
3.00 3.50 4.00
Discount
Rates
5% 1,064.6 1,512.4 1,946.1 2,377.2 2,808.5
Base Case 8% 718.2 1,071.5 1,412.7 1,751.5 2,090.5
10% 543.7 848.1 1,141.5 1,432.7 1,724.1
IRR % 22.3 28.1 33.4 38.2 42.8
Payback Years 3.0 2.4 2.0 1.8 1.5
*Assumes base case metals prices of $1.10/lb zinc, $1.00/lb lead, $18.00/oz silver and $1,300/oz gold
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Table 4c – Pre-tax discounted cash flow estimates for varying zinc prices
Pre-Tax NPV*
($ million)
Zinc Price
($/lb)
0.90 1.00
Base
Case
1.10 1.20 1.30
Discount
Rates
5% 2,340.1 2,491.0 2,642.0 2,792.9 2,943.8
Base Case 8% 1,699.6 1,817.4 1,935.2 2,053.0 2,170.8
10% 1,375.2 1,476.0 1,576.8 1,677.5 1,778.3
IRR % 35.1 36.5 38.0 39.4 40.8
Payback Years 2.1 2.0 1.9 1.8 1.8
*Assumes base case metals prices of $3.00/lb copper, $1.00/lb lead, $18.00/oz silver and $1,300/oz gold
Table 4d - After-tax discounted cash flow estimates for varying zinc prices
After-Tax NPV*
($ million)
Zinc Price
($/lb)
0.90 1.00
Base
Case
1.10 1.20 1.30
Discount
Rates
5% 1,726.2 1,836.2 1,946.1 2,056.1 2,166.1
Base Case 8% 1,240.3 1,326.5 1,412.7 1,498.9 1,585.1
10% 993.5 1,067.5 1,141.5 1,215.5 1,289.5
IRR % 30.8 32.1 33.4 34.6 35.8
Payback Years 2.2 2.1 2.0 1.9 1.9
*Assumes base case metals prices of $3.00/lb copper, $1.00/lb lead, $18.00/oz silver and $1,300/oz gold
As seen in Table 5, average life of mine cash costs for the Arctic Project, which include on-
site operating costs, treatment and refinement charges, transportation , road toll charges,
royalties and by-product credits (zinc, lead, silver and gold), are estimated to be $0.15/lb of
payable copper. If the total capi tal costs (initial plus sustaining and closure costs) of $910.8
million are included, then the total “all-in” cash cost is estimated to be $0.63/lb of payable
copper.
Table 5 – Summary of estimated cash costs
Cash Costs
($/lb Cu payable)
Average Life of
Mine
C1 (delivered metal – net of by-product credits) 0.15
Total Cash Costs (opex, TC/RCs, capex, sustaining capex, closure) 0.63
This PFS was developed on the basis of up-to-date macro-economic and technical assumptions
related to the Arctic Project and supersedes the previous Preliminary Economic Assessment
completed for the Arctic Project in 2013.
Arctic Pre-Feasibility Study - Capital Costs
The PFS estimates the initial de velopment capital expenditure at $779.6 million during the
proposed two and a half-year construction peri od. With sustaining (deferred and working)
capital over the life of the mine estimated at $65.9 million, the expected total capital
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investment is expected to be $845.5 million over the estimated 12-year mine life. In addition,
closure costs are estimated to be $65.3 million. The capital cost estimates, which are shown
in Table 6, generally comply with AACEI Class 4 level esti mates and are based on budget
quotations and the consultants database/experie nce with similar projects and should not be
considered definitive.
Table 6 – Capital estimate summary
Initial Capital Estimate
($ million)
Mine 281.2
Crushing 18.3
Process 113.8
Tailings 30.3
On Site Infrastructure 84.5
Off Site Infrastructure 15.6
Subtotal – Direct costs 543.7
Indirect Costs 121.9
Owners Costs 22.0
Contingency 92.0
Initial development capital 779.6
Sustaining Capital Estimate
($ million)
Mining Equipment 45.1
Tailings 19.9
G&A 0.9
Total sustaining capital 65.9
Total capital expenditure for the life of mine 845.5
Rounding as required by reporting guidelines may result in apparent summation differences
Infrastructure
The Arctic Project will require 12.6 MW of average load for 10,000 tonne-per-day operation
demand. Power will be generated by six 4.4 MW LNG generators, housed in a common
building. Four units will be in service with the fifth unit reserved for stand-by capacity and the
sixth unit reserved for maintenance. Onsite power costs using LNG are estimated to be
$0.17/kWh, assuming a LNG price of $18.45/GJ LHV.
There is currently no developed surface access to the Arctic Project area and beyond. Access
to the Arctic Project is proposed to be vi a the AMDIAP, a road approximately 340 km (211
miles) long, extending west from the Dalton Highway where it would connect with the proposed
Arctic Project area. The final terminal for the road has not yet been determined. Although the
capital costs of the road are not yet final, an estimate of approximately $300 million has been
used in this PFS. The Alaska Industrial Development and Export Authority (“AIDEA”) is
currently permitting the AMDIAP. Although Trilogy has been in discussions with AIDEA about
investigating alternatives to reduce the overall cost to construct the AMDIAP, the final cost of
the road could be higher than $300 million. The working assumption of this PFS study is that
AIDEA would arrange financing in the form of a public-private partnership and arrange for the
construction and maintenance of the access road. AIDEA would charge a toll to multiple mining
and industrial users (inc luding the Arctic Project) in order to pay back the costs of financing
the AMDIAP. This model is very similar to what AIDEA undertook when the DeLong Mountain
Transportation System (also known as the Re d Dog Mine Road and Port facilities) was
constructed in the 1980s. The amount paid in tolls by any user will be affected by the cost of
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the road, its financing structure, and the number of mines and other users of the road which
could also include commercial transportation of materials and consumer items that would use
the AMDIAP to ship concentrates to the Port of Anchorage in Alaska and possibly provide goods
and commercial materials to villages in the region.
For the purposes of this PFS study, AIDEA and Trilogy Metals reviewed current bonding ability
of AIDEA based on a $300 million 30-year bond with a rate of 6.00% compounded semi-
annually and a $300 million 15-year bond with a rate of 5.50% compounded semi-annually.
Although the final toll payments will be negotiated with AIDEA and any Public-Private
Partnership owners of the access road sometime in the future, it has been assumed that a toll
would be paid based on the Arctic Project paying approximately $9.7 million each year for its
12-year mine life. The toll payments are assume d to commence in Year 1 of production and
are an operating cost in the Ar ctic PFS. In addition, a road maintenance fee of $2.00/tonne
processed has been assumed.
Operating Costs
The Project is projected to produce approxim ately 159 million pounds of payable copper per
year at an estimated average C1 cash operat ing cost of $0.15/lb Cu over the estimated 12-
year mine life. These estimated cash costs are net of zinc, lead, gold and silver byproducts and
include onsite operating costs, transport, road tolling, smelting an d refining charges and
royalties. Maintenance parts and repairs are estimated based on industry standard factors for
these costs. Mining costs are estimated at $3.09 per tonne of material mined, at a strip ratio
of 6.9 which equates to $20.47 per tonne of ma terial processed. Deta ils of the estimated
operating costs, and other charges, are presented in Tables 7 and 8 below.
Table 7 – Operating costs
Estimated Operating Cost
(as indicated)
Mining $/tonne processed 20.47
Processing $/tonne processed 15.09
General and Administrative $/tonne processed 5.60
Plant Services $/tonne processed 0.95
Road Toll and Maintenance $/tonne processed 4.70
Total on-site operating costs $/tonne processed 46.81
Rounding as required by reporting guidelines may result in apparent summation differences
Table 8 – Concentrate transportation, treatment and refining charges
Estimated Operating Cost
(as indicated)
Concentrate Transportation charges $/dmt concentrate 270.37
Treatment charges - Copper $/dmt concentrate 80.00
Treatment charges – Zinc $/dmt concentrate 200.00
Treatment charges - Lead $/dmt concentrate 180.00
Refinement charges - Copper $/ lb of payable copper 0.08
dmt: dry metric tonne
Mineral Resource Estimate
The mineral resource estimate, as seen in Table 9 and which formed the basis of the PFS, has
been prepared by Bruce M. Davi s, FAusIMM, BD Resource Consulting, Inc., and Robert Sim,