TORONTO (miningweekly.com) – Project developer Aquila Resources has entered into an exclusivity agreement with Orion Mine Finance on a multilevel financing transaction that includes a private placement and a silver stream in exchange for funding $20.75-million.

TSX- and Frankfurt-listed Aquila said on Tuesday that it would use the capital to fund its flagship Back Forty gold/zinc project, in Michigan, through the next phase of development, including permitting, a feasibility study, the repurchasing of existing royalties on the project and ongoing exploration programmes in the immediate project area.

Under the terms of the proposed transaction, Aquila would issue 26.92-million units to Orion – with each unit consisting of one common share and one-half of a three-year warrant to buy one common share at a strike price of $0.19 a share – at a price of $0.13 apiece for gross proceeds of $3.5-million.

Orion would also buy 75% of Aquila's life-of-mine silver output from Back Forty for gross proceeds of $17.25-million, subject to a draw-down schedule that would be set out in the definitive agreement. Orion would also pay an ongoing price of $4/oz of silver delivered under the streaming agreement.

Before the final transaction could close, Aquila would repurchase the existing royalties at Back Forty from Vale Exploration USA  and HudBay Minerals for $4-million in cash and $1-million in cash plus $225 000 in units – priced at $0.13 a unit – respectively.

Aquila expected the proposed transaction to close in the current quarter.

"This transaction will be transformational for Aquila on a number of levels. The capital raised, which reduces dilution to existing shareholders, will help us get Back Forty shovel-ready by the end of 2016.

“Over the near and mid-term, proceeds from the transaction will allow us to focus our efforts on the completion of permitting, feasibility and select exploration programmes designed to determine additional resource upside in the Back Forty project area,” Aquila CEO Barry Hildred said.

Following the close of the proposed transaction, Orion would hold about 12.2% of the outstanding common shares in Aquila on a basic shares outstanding basis and 18.3% on a partially diluted basis. Orion would also have the right to participate in any future equity or equity-linked placements to maintain its interest level in Aquila.

Following the private placement, Orion would gain the right to nominate one individual for election to the board for 24 months and, thereafter, as long as Orion owned at least 10% of the outstanding common shares.

Raymond James and TD Securities acted as financial advisers to Aquila regarding the proposed transaction.

POSITIVE PEA

Aquila in July last year announced positive results of a preliminary economic assessment (PEA) on the Back Forty project.

The PEA envisioned mining 16.1-million tonnes of ore over the 16-year mine life, of which 12.5-million tonnes would come from an openpit operation and 3.6-million tonnes from an underground mine.

Aquila noted that the PEA demonstrated the potential for a diverse earnings stream, representing a payable metal value mix of 41.2% gold, 40.5% zinc, 12% copper, 5.7% silver and 0.6% lead.

The PEA assumed a base price of $1 293/oz of gold and $20.46/oz of silver, while the zinc price was modelled at $0.96/lb, copper at $3.18/lb and lead at $0.96/lb.

Under the base case scenario, the Back Forty project was expected to have an after-tax net present value, at a 6% discount, of $184.7-million, providing an internal rate of return of 28.9% and a capital expenditure (capex) payback period of 2.1 years.

Operating at an initial throughput rate of 5 350 t/d, the mine’s total payable output was expected to be 532 000 oz of gold, 704-million pounds of zinc, 63-million pounds of copper, 4.65-million ounces of silver and 11-million pounds of lead.

The project would cost $261-million to build, more than the previous estimate of $224.7-million. Capex comprised $177-million of direct preproduction capex, a $44-million contingency and $40-million in indirect and owner’s costs.

The PEA estimated the average on-site operating costs of $29.25/t for processed ore from the openpit operation and $66.20/t of ore processed from the underground mine.