Kemess East

The Kemess East (KE) deposit is located approximately one kilometre east of the Kemess Underground (KUG) deposit and 6.5 kilometres north of the existing Kemess South processing plant and infrastructure. Both deposits are located on Centerra Gold's 100%-owned Kemess property.

In May 2017, Aurico Metals released the results of a Preliminary Economic Assessment (“PEA”) prepared in accordance with National Instrument 43-101 for the Kemess East project in British Columbia. The KE PEA presents a stand-alone scenario which does not incorporate the economics of the KUG project. A positive Feasibility Study for the KUG project was released on March 23, 2016. The KE PEA evaluates the development of a low-cost panel caving operation to extract the KE resources, with all ore being processed at the existing KS processing plant over a 12 year mine life.

Based on the positive PEA results, Aurico Metals planned to conduct a separate feasibility study, which they expected to be released in 2018, which will evaluate KUG and KE as part of an integrated development scenario.

All amounts stated are in Canadian dollars (C$) unless otherwise indicated.

Commodity price and exchange rate assumptions include a gold price of US$1,250/oz, a copper price of US$3.00/lb, a silver price of US$18.00/oz, and a C$/US$ rate of 0.75.

• Pre-tax undiscounted net cash flow of C$1,309M
• Pre-tax NPV^5% of C670$M and IRR of 22.1%
• After-tax NPV^5% of C$375M, and IRR of 16.7%
• Total life-of-mine (“LOM”) production of  2.7Moz of gold equivalent
• Total LOM production of 963Koz gold, 687Mlbs copper and 3.8Moz silver
• LOM average annual production of 80Koz of gold, 57Mlbs of copper, and 318Koz of silver over 12 years
• LOM co-product all-in sustaining costs (“AISC”) of US$744/oz gold and US$1.79/lb copper
• Pre-production capital costs (including 15% to 30% contingency) of C$327M (US$245M)

Parameter	Unit	Base Case	Spot Price	Alternate
Gold Price Copper Price Silver Price Exchange Rate	US$/oz US$/lb US$/oz C$/US$	$1,250 $3.00 $18.00 0.75	$1,270 $2.60 $17.00 0.74	$1,350 $3.25 $20.00 0.75
Pre-Tax Undiscounted Net Cash Flow	C$M	$1,309	$1,023	$1,664
Pre-Tax NPV (5%)	C$M	$670	$497	$885
Pre-Tax NPV (6.5%)	C$M	$544	$395	$731
Pre-Tax NPV (8%)	C$M	$440	$310	$603
Pre-Tax IRR	%	22.1%	18.7%	26.0%
After-Tax Undiscounted Net Cash Flow	C$M	$797	$623	$1,014
After-Tax NPV (5%)	C$M	$375	$269	$507
After-Tax NPV (6.5%)	C$M	$292	$201	$407
After-Tax NPV (8%)	C$M	$224	$144	$324
After-Tax IRR	%	16.7%	13.9%	19.9%
Payback Period (pre-tax)	years	3	4	3

Production	Average Annual	LOM
Gold / Gold Equivalent (Koz)	80 / 222	963 / 2,666
Copper / Copper Equivalent (Mlbs)	57 / 92	687 / 1,111
Silver (Koz)	318	3,826

Total Cash Costs1	Gold ($US/oz)	Copper ($US/lb)
Co-product basis	$619	$1.49
By-product basis	($415)	$0.61
All-In Sustaining Costs2	Gold ($US/oz)	Copper ($US/lb)
Co-product basis	$744	$1.79
By-product basis	($69)	$1.10

_{⁽¹⁾ Co-product basis allocates costs proportionally based on the relative value of gold and copper revenues; Gold by-product basis applies all copper and silver revenues as a credit to costs while Copper by-product basis applies all gold and silver revenues as a credit to costs.}

_{⁽²⁾ All-in sustaining costs defined per World Gold Council guidelines but excludes corporate G&A allocation.}

The PEA for the KE project presents a stand-alone scenario that does not factor in or modify in any way the economics of the Feasibility stage KUG project located on the same property. The PEA does, however, assume that the KUG project is advanced ahead of KE, and hence a number of project components, most notably the access corridor connecting KUG to the KS process plant and the water treatment plants associated with KUG, are not duplicated in the capex for KE. Potential optimization opportunities such as economies of scale that might exist by advancing KE prior to depletion of KUG are not reflected in the PEA but are noted in the Project Enhancement Opportunities section below.

The location of KE in relation to the KUG project and the past producing KS mine is shown in Figure 1. The Kemess Property is located in north-central British Columbia, Canada, approximately 430 kilometres northwest of Prince George.

As with the KUG project, the KE project benefits from the brownfields nature of the Kemess property. Between 1998 and 2011, the KS mine produced approximately 3.0 million ounces of gold and 750 million pounds of copper from 218 Mt of ore. The KS Mine comprised a large open pit feeding gold-copper ore to a 52,000 (t/d) process plant. Open pit mining and processing ceased in March 2011 on depletion of the mineral reserves. The process plant and other facilities and equipment required to support an underground mining operation at the KE deposit are currently under care and maintenance (see Figure 2). Existing on-site infrastructure includes offices, warehouse, laydowns, maintenance facilities, a 400-person accommodation camp footprint, crushed ore stockpile and reclaim, access and service roads, airstrip, explosives magazines, and electrical sub-station. A Company-owned, 380 km power line originating in Mackenzie provides power to the mine site from the BC Hydro grid.

The PEA for KE is based on a mine plan for an underground panel cave with initial production beginning 4 years (KE year 4) following the start of development of the KE declines and ramping up to a steady-state production rate of 30,000 t/d in KE year 8. The KE resources are located approximately 800 m to 1,140 m below surface. The KUG extraction level is at elevation 1,140 m (above sea level), while the KE extraction level is at elevation 370 m and offset 900 m laterally to the east of KUG. The KE cave footprint is 400 m by 275 m and will be accessed and supported by a twin decline system for access and ore conveying. This twin decline system starts from the KUG decline (see Figure 3), utilizing 2.5 km of planned KUG development. A raise from surface supplies fresh air to the KE mine levels and is exhausted via the KE twin declines to the KUG exhaust ventilation system.

Following extraction from the KE cave and primary crushing underground, ore will be conveyed to the existing KS process plant where it will be processed at an average rate of 30,000 t/d (~11 Mt per year) using existing grinding, flotation, thickening, and concentrate handling facilities, and a grinding circuit of increased capacity included in the PEA design. Concentrate will be trucked to the AuRico-owned loadout facility in Mackenzie for subsequent rail transport to market.

The KE panel cave design and schedule was derived using Geovia’s Footprint Finder and PCBCTM software, an industry standard for cave optimization and scheduling, using the resource model provided by SRK Consulting (Canada) Inc. The cave footprint will be accessed and supported by a twin decline system providing access, ore conveying and exhaust air routing. Mine levels within and directly adjacent to the KE cave footprint comprise undercut, extraction, haulage and crushing, and ventilation levels. Total LOM development requirements are estimated to be 43,700 m lateral and 2,635 m vertical development. Figure 3 shows the KE mine design and the interconnection between the KUG and KE projects. The graphic shows the elevations of the KUG and KE extraction levels and the height of draw across the footprints for each cave.

Geotechnical assessments of caveability, fragmentation, subsidence and ground support requirements were carried out by Golder Associates based on geotechnical characterizations developed from geological assessments and core logging data from the KE exploration drilling program, and prior geomechanical studies of the KUG deposit by others.

Electric-drive loaders will deliver ore to passes at the mid-point of each extraction level drive which connect to truck loading stations on the underlying haulage level. Trucks will haul ore to a primary crusher in the south-east area of the KE cave footprint. Following crushing, ore will be conveyed 5 km in the KE conveyor decline where it will transfer to the KUG underground conveyor. At surface, ore will be transferred to the KUG surface conveyor and transported 4.9 km to the existing ore stockpile ahead of the process plant.

Processing ore at a rate of approximately 11Mt per year will be achieved using the remaining KS grinding circuit that was used to process KS ore. The original flotation, thickening and concentrate handling facilities will be used and preliminary metallurgical testwork has resulted in estimated average recoveries of 88.6% copper, 69.6% gold and 65.6% silver. Figure 1 shows the resulting KE annual gold equivalent production profile.

Figure 1: KE Gold Equivalent Production (ounces)

The coarse fraction of the rougher tailings from the mining and processing of KE ore is non-acid generating and is planned to be stored in a dry-stack facility. Cleaner tailings and rougher fine tailings will be combined and deposited in the existing Kemess South tailings storage facility, which has sufficient capacity to store this material sub-aqueously.

Estimates for surface and groundwater inflow quantities to the KE mine workings have been made by Golder, with figures similar to those for KUG mine workings. This water will be pumped to the KUG tailings storage facility for subsequent treatment using the water treatment plants planned for the KUG Project due to similar expected water quality.

For KE ore, the process plant is expected to produce a single concentrate with an estimated 22.3% copper content as well as payable gold and silver. Testwork has shown the concentrate to be free of deleterious elements, hence it is not expected to incur penalties and it is expected to be readily marketable to both smelters and traders.

As with the KUG project, the majority of the capex at KE pertains to the underground mine, reflecting the benefit of having existing infrastructure and processing facilities in place, but also the higher proportion of up-front development requirements for cave mining. The two most significant categories of initial mine capex are underground mine development and the purchase of mine equipment. While the outright purchase of underground mine mobile equipment is assumed for this study, AuRico will also be evaluating leasing alternatives.

Pre-production capital expenditures are estimated to total C$327M (US$245M), and are inclusive of a 15% contingency for components previously costed in detail in the KUG FS and 30% for other components. The development period is approximately 5 years to first production.

Sustaining capital is estimated at C$456M (US$342M) with the major components being mine development, mine equipment, and tailings.

C$ M	Initial Capex	Sustaining Capex	Total Capex
Mine Development	$168	$215	$384
Equipment & Infrastructure	$103	$110	$213
Tailings	$5	$104	$109
Processing	$6	$2	$8
Contingency	$44	$24	$68
Total	$327	$456	$783

Table 2: KE Pre-Production and Sustaining Capex

The total unit operating costs after the commencement of commercial production are estimated at C$16.82/t ore, comprising mining cost of C$7.31/t, processing cost of C$5.13/t, site services cost of $0.82/t, general and administrative (G&A) cost of C$2.11/t, tailings cost of $1.19/t, and water treatment cost of C$0.26/t.

Figure 2: Kemess Property Map

Figure 3: Kemess Site (2015) showing processing facility (front), maintenance-administration facility, and camp

Figure 4: Kemess Underground and Kemess East Cave diagrams and elevations