Trilogy Metals Announces Pre-Feasibility Study Results and Reserves for the Arctic Project, Alaska

2018-02-21

NASDAQ - Nasdaq Stock Market · Gold · Antimony · Silver · United States

Canada NewsWire

VANCOUVER, Feb. 20, 2018

VANCOUVER, Feb. 20, 2018/CNW/ - 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 millioncalculated 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 millionand after-tax IRR of 33.4% for the base case. Initial capital expenditure of $779.6 millionand sustaining capital of $65.9 millionfor total estimated capital expenditures of $845.5 millionover 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 $6,200per tonne of average annual copper equivalent produced. Estimated cash costs of $0.15/lb of payable 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.

The PFS was prepared under National Instrument 43-101 standards by independent consultant, Ausenco Engineering Canada Inc. ("Ausenco") of Vancouver, Canadaand 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 potential 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") performed 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 millionin 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 reduces power generation costs and saves approximately $2.00/tonne in operating costs on processing; 3) improved tax legislation in the United Statesimproves 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 couple of years", said Rick Van Nieuwenhuyse, President and Chief Executive Officer. "We are also very excited with the potential for job opportunities for the Upper Kobuk region. The PFS estimates approximately 400 year round jobs during mine operations. This is important for our local communities in the Kobukand Koyukukregions that currently have limited opportunities for long term employment."

Rick Van Nieuwenhuysecontinues, "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 State of Alaskaas outlined in his recent State of the State address (Walker Stateof 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 districts known in the world. Meanwhile, we will of course continue to explore our Bornite Project with a $10 millionprogram funded by South32, which we hope to advance towards a development 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-polluting 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.

Arctic Pre-Feasibility Study – Mining and Processing

The PFS is based on a conventional truck-and-shovel, open-pit mine design at a single pit, 10,000 tonne-per-day mining and milling operation with sulphide floatation concentration resulting in the production of copper, zinc and lead concentrates. Based on the pre-feasibility level metallurgical work on the sulphide mineralization, 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 conventional 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 assumptions 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 | | - | 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 4below. 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 3and a discount rate of 8%. IRR and NPV values are calculated to show sensitivities for a range of copper prices from $2.00to $4.00and zinc prices from $0.90to $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 NANA Agreement or, alternatively, the impact on 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 102017). This PFS was carried out on a 100% ownership basis and does not include the impact on Trilogy 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*

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 |

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 capital costs (initial plus sustaining and closure costs) of $910.8 millionare 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

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 development capital expenditure at $779.6 millionduring the proposed two and a half-year construction period. With sustaining (deferred and working) capital over the life of the mine estimated at $65.9 million, the expected total capital investment is expected to be $845.5 millionover 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 estimates and are based on budget quotations and the consultants database/experience 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 via 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 millionhas 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 (including 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 Red 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 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 Anchoragein Alaskaand 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 million30-year bond with a rate of 6.00% compounded semi-annually and a $300 million15-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 millioneach year for its 12-year mine life. The toll payments are assumed to commence in Year 1 of production and are an operating cost in the Arctic PFS. In addition, a road maintenance fee of $2.00/tonne processed has been assumed.

Operating Costs

The Project is projected to produce approximately 159 million pounds of payable copper per year at an estimated average C1 cash operating 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 and refining charges and royalties. Maintenance parts and repairs are estimated based on industry standard factors for these costs. Mining costs are estimated at $3.09per tonne of material mined, at a strip ratio of 6.9 which equates to $20.47per tonne of material processed. Details of the estimated operating costs, and other charges, are presented in Tables 7 and8below.