VLC.V · 2020-08-31 12:00:00

Velocity Announces Positive Pre-Feasibility Study Results for the Rozino Gold Project, Southeast Bulgaria After-Tax NPV5% of CAD $163 million and IRR of 27.4%

Economic Studies

NR20-18 August 31, 2020

Velocity Announces Positive Pre-Feasibility Study Results

for the Rozino Gold Project, Southeast Bulgaria

After-Tax NPV5% of CAD $163 million and IRR of 27.4%

Vancouver, British Columbia – Velocity Minerals Ltd . ( TSXV: VLC) (“ Velocity” or the “ Company”)

announces the results of an independent Prefeasibility Study (“PFS”) on its Rozino gold project (“Rozino”

or the “Project”) located in southeast Bulgaria. The PFS establishes the Rozino deposit as supporting an

economic open pit mine operation with gold recovery by a combination of on-site concentration in a

flotation plant (“Flotation Plant”) and further processing to produce a gold-silver doré in the existing and

operating processing plant (“Processing Plant”) located in Kardzhali, 85 km by road from Rozino , where

doré would be produced. The PFS financial model base case returns an after-tax Net Present Value at a

5% discount rate (“NPV5%”) of CAD $163 million and an after-tax internal rate of return (“IRR”) of 27.4%.

Rozino is located within the Tintyava prospecting and exploration licence owned by Tintyava

Exploration AD (“Tintyava”), in which Velocity has 70% ownership.

“We are pleased to report results of the Rozino prefeasibility study, which further de-risks the project

and provides opportunities for additional project enhancements as we advance the project towards

production,” stated Keith Henderson, Velocity’s President and CEO, “The prefeasibility study presents

financial results for the Rozino gold deposit as currently defined. Exploration work is ongoing aiming

to discover and define additional minerali zation within the 145 km2 exploration licence and at

Velocity’s other option properties in the region, which could potentially fit into a Hub and Spoke

development model. Over the coming 12 months, Velocity will continue to aggressively explore the

exploration properties in the surrounding area, aiming to discover and define mineral resources as part

of this strategy.”

All amounts are reported in United States dollars (US$) unless otherwise specified.

Prefeasibility Study1 Highlights

• After-Tax Financials: After-tax NPV5% of CAD$163 ($123) million and after-tax IRR of 27.4% using

a base case gold price of $1,500 per ounce.

• Life of Mine Earnings: $293 million before interest, taxes, and depreciation.

• Cash Cost: All-in sustaining cost2 of $755 per ounce of gold and cash cost3 of $699 per ounce of

gold.

• Capital Costs: Total estimated capital costs of $94.8 million and pre-production capital costs of

$87.1 million (including an 11% contingency).

• Mineral Resource: Indicated Mineral Resource at a 0. 3 g/t gold cut-off grade of 20.5 Mt at 0.87

g/t gold, for contained gold of 573,000 ounces and an Inferred Mineral Resource at a 0.3 g/t cut-

off of 0.38 Mt at 0.8 g/t gold for 10,000 ounces4.

• Initial Mineral Reserve: Probable Mineral Reserve at a 0.5 g/t gold cut -off grade of 11.8 Mt at

1.22 g/t gold for 465,000 ounces.

NR20-18 Continued August 31, 2020

• Mining: Open pit with 0.5 g/t gold cut-off grade (COG), low strip ratio of 2.2 and 1.22 g/t life of

mine (“LOM”) gold grade.

• Conventional Process Flow Sheet: Returns 79.3% gold recovery to doré at the operating

Processing Plant.

• Processing: On-site flotation producing gold-bearing pyrite concentrate assaying from 15 to

40 g/t and transportation to the Processing Plant (located 85 km from the Project) for processing

to produce doré.

• Low Environmental Risk: Small project footprint with benign, non-acid generating and non -

hazardous waste and tailings material.

• Opportunities for Project Enhancement: The Rozino gold deposit is open to the southeast and

exploration is ongoing. Additional pit tailings storage capacity exists to accommodate potential

increases in ore production.

Notes:

(1) Base case parameters assume a gold price of US$1,500/ounce and an exchange rate (CAD$ to US$) of 0.75. Financial

results on 100% equity basis.

(2) All-In Sustaining Cost ( AISC) is defined as all cash costs related to production costs such as mining, processing,

refining, site administration, and NSR royalty to final product (direct and indirect), and mine closure and rehabilitation.

Sustaining capital costs related to continuing the business including development and equipment required to sustain

production are included. Taxes, working capital , M&A, disposals, and acquisitions as well as new mine development

capital costs are excluded. See “Use of Non-IFRS Financial Performance Measures” below.

(3) Cash Costs include production costs such as mining, processing, refining, site administration, and NSR royalty, divided

by gold ounces sold to arrive at a cash cost per gold ounce sold. See “Use of Non-IFRS Financial Performance Measures”

below.

(4) Mineral Resources that are not Mineral Reserves do not have demonstrated economic viability. Inferred Mineral

Resources are considered too speculative geologically in nature to enable them to be categorized as Mineral Reserves

and there can be no certainty that all or any part of an inferred mineral resources will ever be upgraded to Indicated

Mineral Resources or Measured Mineral Resources.

The PFS was prepared by CSA Global, an international mining consultancy with experience in Bulgaria, in

accordance with National Instrument 43-101 Standards of Disclosure for Mineral Projects (“NI 43-101”).

A technical report prepared pursuant to NI 43-101 on the Project will be filed on SEDAR within 45 days of

the date of this news release.

Velocity’s strategy is to develop a low cost “Hub and Spoke” operation in southeast Bulgaria whereby

multiple gold projects produce gold concentrates for trucking to an existing, central processing plant for

the production of doré. Other than Rozino, the projects referred to in the “Hub and Spoke” development

model do not have defined resources nor is there is any guarantee that resources will be defined. These

projects are not included in the PFS. We refer to the risks and assumptions set out in our Cautionary

Statement regarding Forward-Looking Information located at the end of this release.

NR20-18 Continued August 31, 2020

Velocity’s Hub and Spoke Development Model

Rozino Development Overview: Mine Site to Payable Gold

Rozino is located within the Tintyava prospecting licence, a property owned by Tintyava in which Velocity

Minerals Ltd has a majority 70% interest and is the operating partner. Gorubso Kardzhali AD (“Gorubso”)

holds a 30% interest and both partners contribute pro rata to joint venture costs.

The PFS establishes the Rozino deposit as supporting an economic open pit mine operation. The Project

includes on-site crushing, milling and simple flotation to produce a gold concentrate with a grade ranging

between 15 and 40 g/t. The concentrate will be trucked 85 km on existing roads to the currently operating

Processing Plant where gold-silver doré will be produced. The sale of doré to Bulgarian refineries will be

an important consideration in the Feasibility Study for the Project.

In addition to returning positive economic results, this study also outlines significant benefits, including

shortened permitting timelines and capital cost efficiencies, for the following reasons:

• the existing Processing Plant is permitted, currently operational, and has sufficient capacity to

process concentrate from Rozino,

• the use of the existing Processing Plant reduces total capital cost requirements for Rozino, and

• on-site development at Rozino only requires permitting for mining, flotation concentration, and

disposal of relative ly benign waste rock and tailings . The area of disturbance has been kept

relatively compact to facilitate reclamation and closure.

PFS Financial Results and Sensitivity

The PFS financial model reflects an after-tax NPV5% of $123 million and an after -tax IRR of 27.4%. Total

undiscounted after-tax cash flow over the life of the Project is estimated to be $179 million, with a robust

return on capital employed (ROCE) of 3.1.

NR20-18 Continued August 31, 2020

Table 1. Headline Financial Results.

PRE-TAX US$ CAD$

Pre-Tax NPV0% $M 199 265

Pre-Tax NPV5% $M 137 183

IRR % 34.7%

Payback (Production Start) Years 2.9

AFTER-TAX US$ CAD$

After-Tax NPV0% $M 179 239

After-Tax NPV5% $M 123 163

IRR % 27.4%

Payback (Production Start) Years 3.0

Single factor sensitivity analysis was completed on a number of key parameters , including gold price,

capital expenditure and operating expenditure. These parameters are assessed as having the greatest

impact on the economics of the Project. Parameters were increased and decreased, in isolation, in

increments of 25% from the base case to assess the impact on the Project’s NPV5%. The Project NPV5% is

most sensitive to metal prices.

Table 2. Project Sensitivities.

Sensitivities After-Tax IRR% After-Tax NPV5% ($M)

CAPEX

-25% 46.5% 158

Base Case 27.4% 123

+25% 15.3% 77

OPEX

-25% 37.9% 186

Base Case 27.4% 123

+25% 13.8% 47

Gold Price

US$1,125 (-25%) 10.2% 27

Base Case US$1,500 27.4% 123

US$1,875 (+25%) 41.4% 218

Recommendations, Risks and Opportunities

Recommendations

The PFS represents the best available estimates of operating and financial parameters of the Rozino

Project. CSA Global recommend that the Company progress to complete a Feasibility Study for the

Project, which will aim to resolve key project parameters with greater certainty. It is recommended that

ongoing exploration drilling be completed prior to commencement of the Feasibility Study so that any

additional discoveries can be integrated therein.

Risks

The proposed open pit mining operation at Rozino is considered low to medium risk from a technical

standpoint.

• CSA Global were able to determine that minerali zation can be adequately modelled for its

diluted, recoverable grade properties assuming a selective mining unit (SMU) of 4 x 6 x 2.5 m

using the multiple indicator Kriging (MIK) methodology. No further dilution or mining loss was

considered appropriate. Key to th is recommendation is that the operational and technical

NR20-18 Continued August 31, 2020

mining team, mine management, and key operators to be well trained and attentive to dilution

and ore loss controls and consistently apply best practices in mineral handling.

• The small pit size and requirement for there to be six to eight working location s may result in

ore and waste scheduling constraints. Detailed short -term planning will identify the stress

points and enable mitigation.

• Concentrate transport will require approximately 12 X 20 t trucks per day transporting

concentrate to the existing Processing Plant located at Kardzhali (85 km by road). Although

considered a low risk, public safety and concentrate supply continuity will be areas of focus

during the mine life.

Opportunities to Enhance Project Value

There are several opportunities to add value at Rozino during the advancement of the FS engineering

work.

• Potential Additional Resources at Rozino: Further exploration drilling may create additional

opportunity at the Project. Minerali zation is open on the southeastern boundary of the deposit

and ongoing drilling by Velocity has recently intersected moderate grade, near -surface gold

mineralization (most recent news releases 21st July 2020). The recent exploration results are

considered not material t o the outcomes of this PFS. The results of the recent and proposed

exploration drilling will be considered in a future evaluation of the Mineral Resources and Mineral

Reserves.

• Ongoing Exploration: Exploration is ongoing on various other prospects within the Tintyava

Property, all of which are within trucking distance of the Rozino Flotation Plant. There is some

additional unused tailings capacity in the pit.

• Recoveries: Additional metallurgical testwork is recommended in the FS to undertake additional

variability testwork to obtain more confidence in the grade-recovery function and the oxidation-

recovery relationship. If gold recovery at lower grades is better than expected, there could be

more value derived from lower grade ore. In addition, more accurate estimation of the oxidation

rating will improve short-range recovery estimates.

• Silver upside: The metallurgical testwork indicates the presence of silver in the bulk concentrate

and doré that could potentially add value. Routine drill core analyses have been limited to gold

through much of the drilling campaigns. Consequently, silver was not able to be incorporated into

the Mineral Resource estimate and Mineral Reserve statement. Silver analysis of laboratory pulps

is recommended and will be undertaken for the FS.

Mineral Resource Estimate

The estimates are based on 2 m down-hole composited gold assay grades from angled diamond drilling

available on 23rd October 2019. Relative to the dataset available for the previous September 2018 Inferred

Mineral Resource estimates, the estimation dataset contains assay results for an additional 114 holes for

12,733 m of drilling. This additional infill drilling, which reduced hole spacing for much of the deposit to

around 50 m by 50 m, confirmed the general tenor and continuity of mineralization interpreted from the

previously broad spaced drilling. This drilling, a long with additional analytical information , supports the

estimation of Indicated Mineral Resources.

The Rozino sampling database compiled for these estimates includes 311 diamond holes for 44,071 m of

drilling, of which 86 drill holes (14,289 m) completed by Asenovgrad Geoengineering EAD during the 1980s

are not included in the resource estimation dataset due to insufficient quality control data. The estimation

dataset compiled for resource modelling and defining mineralization extent totals 204 diamond holes for

26,321 m and includes drill holes within the interpreted mineralised domain and rare holes up to

NR20-18 Continued August 31, 2020

approximately 100 m from the domain. This drilling includes 170 holes (21,787 m) drilled by Velocity, 28

drill holes (3,794 m) completed by Hereward Ventures Ltd. (“ Hereward”), and 6 drill holes (740 m)

completed by Asia Gold Inc. (“Asia Gold”). The remaining angled drill holes from the database are located

outside the modelling area and did not inform the resource estimation. Relative to the dataset available

for the previous September 2018 Mineral Resource estimate, the estimation dataset contains data for an

additional 114 diamond holes (12,733 m).

The combined hole spacing varies from around 50 m by 50 m and locally closer in central portions of the

deposit, to around 100 m by 100 m in peripheral areas. Samples from Velocity’s diamond drilling provide

82% of the estimation dataset, with diamond holes drilled by Hereward and Asia Gold contributing 16%

and 3% respectively.

Velocity’s work program at Rozino was designed and supervised by Stuart A. Mills, CGeol, the Company's

Vice-President Exploration, who is responsible for all aspects of the work, including the quality

control/quality assurance program. On-site personnel at the Project rigorously collect and track samples

which are then security sealed and shipped to ALS Global laboratory in Romania. Samples were prepared

and analyzed by fire assay using a 30 gram charge in compliance with industry standards. Field duplicate

samples, blanks, and independent controlled reference material (standards) are included in every batch.

Hereward and Asia Gold’s diamond core from angled drilling was sampled and analyzed by industry

standard methods. The core was generally halved for analysis with a diamond saw over about 1 m

intervals, and samples were analyzed for gold by fire assay by commercial laboratories. Hereward and

Asia Gold’s monitoring of sampling and assay reliability included duplicates and blanks for both data sets

and certified reference standards for Asia Gold’s data.

The Mineral Resource estimate was carried out by MPR Geological Consultants Pty Ltd.

Estimated Resources are constrained within a mineralised envelope interpreted from 2 m down -hole

composited gold grades and geological logging from diamond drill core. The envelope captures intervals

of greater than 0.1 g/t, with the lower boundary reflecting the contact between variably mineralised

sedimentary rocks and un-mineralised basement. It covers an area of approximately 0.8 km by 1.0 km.

Bulk densities of 2.35, 2.40 and 2.55 tonnes per cubic metre were assigned to completely oxidized,

transitional and fresh material respectively, using surfaces representing the base of complete o xidation

(“BOCO”) and top of fresh rock (“ TOFR”) interpreted by Velocity. The density values were derived from

the results of 250 immersion density measurements performed by Velocity and Hereward on samples of

diamond drill core. Within the resource area the depth to BOCO averages around 11 m, with fresh rock

occurring at an average depth of around 22 m.

Recoverable resources were estimated using Multiple Indicator Kriging (MIK) with block support

adjustment, a method that has been demonstrated to provide reliable estimates of recoverable open pit

resources in gold deposits of diverse geological styles. Indicator class grades used for the MIK modelling

were determined from the mean composite gold grade of each indicator class. The effect of ex treme

grades on estimates was reduced by cutting six outlier composites with gold grades of greater than 60 g/t

to 60 g/t for determination of the mean grade for the highest indicator class.

Estimates for mineralization tested by generally consistently 50 m by 50 m and closer spaced drilling are

classified as Indicated, with estimates for more broadly sampled zones assigned to the Inferred category.

Mineral Resources that are not Mineral Reserves do not have demonstrated economic viability. To

provide estimates with reasonable prospects for eventual economic extraction, Mineral Resources are

reported within an optimized pit shell generated with the parameters shown in Table 3. These cost and

revenue parameters were specified by Velocity and are compatible with the mining and recovery methods

NR20-18 Continued August 31, 2020

described in this announcement. They generate a cut-off grade of 0.3 g/t, which is selected as the base

case for Mineral Resource reporting.

The optimal pit shell generated for constraining Mineral Resources has dimensions of about 770 m by

660 m, with a maximum depth of around 150 m.

Table 4 shows the Indicated and Inferred Mineral Resource estimates for Rozino. The figures in this table

are rounded to reflect the precision of the estimates and include rounding errors.

Table 3. Parameters used to generate pit shell to constrain Mineral Resources.

Parameter Value

Gold price $1,500 per ounce

Cost per tonne of material mined $2.59 per tonne

Cost per tonne of material milled, excl. mining $11.74 per tonne

Metallurgical recovery 79.3%

Refining charge $1.44 per ounce

Average pit wall angles Wall azimuth 030 to 150o 36o

Wall azimuth 150 to 030o 40o

Note:

(1) The reasonable prospects for eventual economic extraction utilizes a fixed metallurgical recovery of 79.3% that

does not vary for ore type or grade.

Table 4. Mineral Resource Estimate (effective date April 15, 2020).

Within $1,500/oz pit shell

Indicated Mineral Resource Estimate

Cut-off

g/t

Tonnes

Grade Gold

g/t

Contained

Gold koz

0.2 27.2 0.72 630

0.3 20.5 0.87 573

0.4 15.5 1.04 518

0.5 12.0 1.22 471

0.6 9.42 1.40 424

Inferred Mineral Resource Estimate

Cut-off

g/t

Tonnes

Grade Gold

g/t

Contained

Gold koz

0.2 0.49 0.7 11

0.3 0.38 0.8 10

0.4 0.29 0.9 8

0.5 0.23 1.0 7

0.6 0.17 1.2 7

Notes:

(1) The selected base case Mineral Resources are reported at a cut-off grade of 0.3 g/t gold.

(2) Mineral Resources are not Mineral Reserves and do not have demonstrated economic viability.

(3) The Mineral Resources have been classified and reported in accordance with the Canadian Institute of

Mining, Metallurgy and Petroleum “CIM Definition Standards - For Mineral Resources and Mineral

Reserves” ("CIM Definition Standards").

(4) Mineral Resources that are not Mineral Reserves do not have demonstrated econom ic viability.

Inferred Mineral Resources are considered too speculative geologically in nature to enable them to be

categorized as Mineral Reserves and there can be no certainty that all or any part of an inferred mineral

resources will ever be upgraded to Indicated Mineral Resources or Measured Mineral Resources.

NR20-18 Continued August 31, 2020

Mineral Reserves

The Rozino deposit supports an economic open pit mining operation. The Mineral Reserve estimate is

based on the Indicated classification of the Mineral Resource contained within the pit design. The Mineral

Reserve estimate has considered all modifying factors appropriate to the Rozino Gold Project.

The reference point at which the Mineral Reserves are defined is where the ore is delivered to the

processing plant.

Table 5. Probable Mineral Reserves (effective date 20th August 2020).

Ore Type Reserve