Investing in our
securities is speculative and involves a high degree of risk due to the nature of our business and the present stage of exploration
of our mineral properties. The following risk factors, as well as risks currently unknown to us, could materially adversely affect
our future business, operations and financial condition and could cause them to differ materially from the estimates described
in forward-looking information relating to Trilogy, or our business, property or financial results, each of which could cause
purchasers of securities to lose all or part of their investments.
We
have not defined any proven or probable reserves and none of our mineral properties are in production or under development.
We have no history
of commercially producing precious or base metals and all of our properties are in the exploration stage. We have not defined
or delineated any measured mineral resources or proven or probable reserves on our Upper Kobuk Mineral Projects. Mineral exploration
involves significant risk, since few properties that are explored contain bodies of ore that would be commercially economic to
develop into producing mines. We cannot assure you that we will establish the presence of any measured resources, or proven or
probable reserves at the Upper Kobuk Mineral Projects, or any other properties. The failure to establish measured mineral resources,
or proven or probable reserves, would severely restrict our ability to implement our strategies for long-term growth.
We
may not have sufficient funds to develop our mineral projects or to complete further exploration programs.
We have limited
financial resources. We currently generate no mining operating revenue, and must primarily finance exploration activity and the
development of mineral projects by other means. In the future, our ability to continue exploration, development and production
activities, if any, will depend on our ability to obtain additional external financing. Any unexpected costs, problems or delays
could severely impact our ability to continue exploration and development activities. The failure to meet ongoing obligations
on a timely basis could result in a loss or a substantial dilution of our interests in projects.
The sources of
external financing that we may use for these purposes include project or bank financing or public or private offerings of equity
and debt. In addition, we may enter into one or more strategic alliances or joint ventures, decide to sell certain property interests,
or utilize one or a combination of all of these alternatives. The financing alternative we choose may not be available on acceptable
terms, or at all. If additional financing is not available, we may have to postpone further exploration or development of, or
sell, one or more of our principal properties.
Even
if one of our mineral projects is determined to be economically viable to develop into a mine, such development may not be successful.
If the development
of one of our projects is found to be economically feasible and approved by our Board, such development will require obtaining
permits and financing, the construction and operation of mines, processing plants and related infrastructure, including road access.
As a result, we are and will continue to be subject to all of the risks associated with establishing new mining operations, including:
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the
timing and cost, which can be considerable, of the construction of mining and processing
facilities and related infrastructure;
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the
availability and cost of skilled labor and mining equipment;
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the
availability and cost of appropriate smelting and refining arrangements;
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the
need to obtain necessary environmental and other governmental approvals and permits and
the timing of the receipt of those approvals and permits;
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the
availability of funds to finance construction and development activities;
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potential
opposition from non-governmental organizations, environmental groups or local groups
which may delay or prevent development activities; and
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potential
increases in construction and operating costs due to changes in the cost of fuel, power,
materials and supplies.
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The costs, timing
and complexities of developing our projects may be greater than anticipated because our property interests are not located in
developed areas, and, as a result, our property interests are not currently served by appropriate road access, water and power
supply and other support infrastructure. Cost estimates may increase significantly as more detailed engineering work is completed
on a project. It is common in new mining operations to experience unexpected costs, problems and delays during construction, development
and mine start-up. In addition, delays in the early stages of mineral production often occur. Accordingly, we cannot provide assurance
that we will ever achieve, or that our activities will result in, profitable mining operations at our mineral properties.
In addition, there
can be no assurance that our mineral exploration activities will result in any discoveries of new mineralization. If further mineralization
is discovered there is also no assurance that the mineralization would be economical for commercial production. Discovery of mineral
deposits is dependent upon a number of factors and significantly influenced by the technical skill of the exploration personnel
involved. The commercial viability of a mineral deposit is also dependent upon a number of factors which are beyond our control,
including the attributes of the deposit, commodity prices, government policies and regulation and environmental protection.
The
Upper Kobuk Mineral Projects are located in a remote area of Alaska, and access to them is limited. Exploration and any future
development or production activities may be limited and delayed by infrastructure challenges, inclement weather and a shortened
exploration season.
The Upper Kobuk
Mineral Projects are located in a remote area of Alaska. Access to the Upper Kobuk Mineral Projects is limited and there is currently
no infrastructure in the area.
We cannot provide
assurances that the proposed AMDIAP that would provide access to the Ambler mining district will be permitted or built, that it
will be built in a timely manner, that the cost of accessing the proposed road will be reasonable, that it will be built in the
manner contemplated, or that it will sufficiently satisfy the requirements of the Upper Kobuk Mineral Projects. In addition, successful
development of the Upper Kobuk Mineral Projects will require the development of the necessary infrastructure. If adequate infrastructure
is not available in a timely manner, there can be no assurance that:
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the
development of the Upper Kobuk Mineral Projects will be commenced or completed on a timely
basis, if at all;
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the
resulting operations will achieve the anticipated production volume; or
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the
construction costs and operating costs associated with the development of the Upper Kobuk
Mineral Projects will not be higher than anticipated.
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As the Upper Kobuk
Mineral Projects are located in a remote area, exploration, development and production activities may be limited and delayed by
inclement weather and a shortened exploration season.
We
have no history of production and no revenue from mining operations.
We have a very
limited history of operations and to date have generated no revenue from mining operations. As such, we are subject to many risks
common to such enterprises, including under-capitalization, cash shortages, limitations with respect to personnel, financial and
other resources and lack of significant revenues. There is no assurance that the Upper Kobuk Mineral Projects, or any other future
projects will be commercially mineable, and we may never generate revenues from our mining operations.
Future
sales or issuances of equity securities could decrease the value of any existing Common Shares, dilute investors’ voting
power and reduce our earnings per share.
We may sell additional
equity securities (including through the sale of securities convertible into Common Shares) and may issue additional equity securities
to finance our operations, exploration, development, acquisitions or other projects. We are authorized to issue an unlimited number
of Common Shares. We cannot predict the size of future sales and issuances of equity securities or the effect, if any, that future
sales and issuances of equity securities will have on the market price of the Common Shares. Sales or issuances of a substantial
number of equity securities, or the perception that such sales could occur, may adversely affect prevailing market prices for
the Common Shares. With any additional sale or issuance of equity securities, investors will suffer dilution of their voting power
and may experience dilution in our earnings per share.
Changes
in the market price of copper, gold and other metals, which in the past have fluctuated widely, will affect our ability to finance
continued exploration and development of our projects and affect our operations and financial condition.
Our long-term viability
will depend, in large part, on the market price of copper, gold and other metals. The market prices for these metals are volatile
and are affected by numerous factors beyond our control, including:
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global
or regional consumption patterns;
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the
supply of, and demand for, these metals;
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speculative
activities;
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the
availability and costs of metal substitutes;
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expectations
for inflation; and
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political
and economic conditions, including interest rates and currency values.
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We cannot predict
the effect of these factors on metal prices. A decrease in the market price of copper, gold and other metals could affect our
ability to raise funds to finance the exploration and development of any of our mineral projects, which would have a material
adverse effect on our financial condition and results of operations. The market price of copper, gold and other metals may not
remain at current levels. In particular, an increase in worldwide supply, and consequent downward pressure on prices, may result
over the longer term from increased copper production from mines developed or expanded as a result of current metal price levels.
There is no assurance that a profitable market may exist or continue to exist.
Actual
capital costs, operating costs, production and economic returns may differ significantly from those described in the PEA.
The PEA technical
report for the Arctic Project is an early stage study that is preliminary in nature. There can be no assurance that the results
described in the PEA will be realized. The capital costs to take our projects into production may be significantly higher than
anticipated.
None of our mineral
properties have an operating history upon which we can base estimates of future operating costs. Decisions about the development
of the Arctic Project (or the Bornite Project) will ultimately be based upon feasibility studies. Feasibility studies derive estimates
of cash operating costs based upon, among other things:
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anticipated
tonnage, grades and metallurgical characteristics of the ore to be mined and processed;
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anticipated
recovery rates of metals from the ore;
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cash
operating costs of comparable facilities and equipment; and
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anticipated
climatic conditions.
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Cash operating
costs, production and economic returns, and other estimates contained in studies or estimates prepared by or for us may differ
significantly from those anticipated by the PEA and there can be no assurance that our actual operating costs will not be higher
than currently anticipated.
We
will incur losses for the foreseeable future.
We expect to incur
losses unless and until such time as our mineral projects generate sufficient revenues to fund continuing operations. The exploration
and development of our mineral properties will require the commitment of substantial financial resources that may not be available.
The amount and
timing of expenditures will depend on a number of factors, including the progress of ongoing exploration and development, the
results of consultants’ analyses and recommendations, the rate at which operating losses are incurred, the execution of
any joint venture agreements with strategic partners and the acquisition of additional property interests, some of which are beyond
our control. We cannot provide assurance that we will ever achieve profitability.
Mineral
resource and reserve calculations are only estimates.
Any figures presented
for mineral resources in this Form 10-K and in our other filings with securities regulatory authorities and those which may be
presented in the future or any figures for mineral reserves that may be presented by us in the future are and will only be estimates.
There is a degree of uncertainty attributable to the calculation of mineral reserves and mineral resources. Until mineral reserves
or mineral resources are actually mined and processed, the quantity of metal and grades must be considered as estimates only and
no assurances can be given that the indicated levels of metals will be produced. In making determinations about whether to advance
any of our projects to development, we must rely upon estimated calculations as to the mineral resources and grades of mineralization
on our properties.
The estimating
of mineral reserves and mineral resources is a subjective process that relies on the judgment of the persons preparing the estimates.
The process relies on the quantity and quality of available data and is based on knowledge, mining experience, analysis of drilling
results and industry practices. Valid estimates made at a given time may significantly change when new information becomes available.
While we believe that the mineral resource estimates included in this Form 10-K for the Upper Kobuk Mineral Projects are well-established
and reflect management’s best estimates, by their nature mineral resource estimates are imprecise and depend, to a certain
extent, upon analysis of drilling results and statistical inferences that may ultimately prove to be inaccurate. There can be
no assurances that actual results will meet the estimates contained in feasibility studies. As well, further studies are required.
Estimated mineral
reserves or mineral resources may have to be recalculated based on changes in metal prices, further exploration or development
activity or actual production experience. This could materially and adversely affect estimates of the volume or grade of mineralization,
estimated recovery rates or other important factors that influence mineral reserve or mineral resource estimates. The extent to
which mineral resources may ultimately be reclassified as mineral reserves is dependent upon the demonstration of their profitable
recovery. Any material changes in mineral resource estimates and grades of mineralization will affect the economic viability of
placing a property into production and a property’s return on capital. We cannot provide assurance that mineralization can
be mined or processed profitably.
Our mineral resource
estimates have been determined and valued based on assumed future metal prices, cut-off grades and operating costs that may prove
to be inaccurate. Extended declines in market prices for copper, zinc, lead, gold and silver may render portions of our mineralization
uneconomic and result in reduced reported mineral resources, which in turn could have a material adverse effect on our results
of operations or financial condition. We cannot provide assurance that mineral recovery rates achieved in small scale tests will
be duplicated in large scale tests under on-site conditions or in production scale.
A reduction in
any mineral reserves that may be estimated by us in the future could have an adverse impact on our future cash flows, earnings,
results of operations and financial condition. No assurances can be given that any mineral resource estimates for the Upper Kobuk
Mineral Projects will ultimately be reclassified as mineral reserves. See “
Cautionary Note to United States Investors
.”
Significant
uncertainty exists related to inferred mineral resources.
There is a risk
that inferred mineral resources referred to in this Form 10-K cannot be converted into measured or indicated mineral resources
as there may be limited ability to assess geological continuity. Due to the uncertainty that may attach to inferred mineral resources,
there is no assurance that inferred mineral resources will be upgraded to resources with sufficient geological continuity to constitute
proven and probable mineral reserves as a result of continued exploration. See “
Cautionary Note to United States Investors
.”
Mining
is inherently risky and subject to conditions or events beyond our control.
The development
and operation of a mine is inherently dangerous and involves many risks that even a combination of experience, knowledge and careful
evaluation may not be able to overcome, including:
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unusual
or unexpected geological formations;
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metallurgical
and other processing problems;
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periodic
interruptions due to inclement or hazardous weather conditions;
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flooding,
explosions, fire, rockbursts, cave-ins and landslides;
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mechanical
equipment and facility performance problems; and
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the
availability of materials and equipment.
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These risks could
result in damage to, or destruction of, mineral properties, production facilities or other properties, personal injury or death,
including to our employees, environmental damage, delays in mining, increased production costs, asset write downs, monetary losses
and possible legal liability. We may not be able to obtain insurance to cover these risks at economically feasible premiums, or
at all. Insurance against certain environmental risks, including potential liability for pollution and other hazards associated
with mineral exploration and production, is not generally available to companies within the mining industry. We may suffer a material
adverse effect on our business if we incur losses related to any significant events that are not covered by our insurance policies.
General
economic conditions may adversely affect our growth, future profitability and ability to finance.
The unprecedented
events in global financial markets in the past several years have had a profound impact on the global economy. Many industries,
including the copper mining industry, are impacted by these market conditions. Some of the key impacts of the current financial
market turmoil include contraction in credit markets resulting in a widening of credit risk, devaluations, high volatility in
global equity, commodity, foreign exchange and precious metal markets and a lack of market liquidity. A worsening or slowdown
in the financial markets or other economic conditions, including but not limited to, consumer spending, employment rates, business
conditions, inflation, fuel and energy costs, consumer debt levels, lack of available credit, the state of the financial markets,
interest rates and tax rates, may adversely affect our growth and ability to finance. Specifically:
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the
volatility of copper, gold and other metal prices would impact our estimates of mineral
resources, revenues, profits, losses and cash flow, and the feasibility of our projects;
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negative
economic pressures could adversely impact demand for our future production, if any;
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construction
related costs could increase and adversely affect the economics of any project;
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volatile
energy, commodity and consumables prices and currency exchange rates would impact our
estimated production costs; and
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the
devaluation and volatility of global stock markets would impact the valuation of our
equity and other securities.
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We
cannot provide assurance that we will successfully acquire commercially mineable mineral rights.
Exploration for
and development of copper and gold properties involves significant financial risks which even a combination of careful evaluation,
experience and knowledge may not eliminate. While the discovery of an ore body may result in substantial rewards, few properties
which are explored are ultimately developed into producing mines. Major expenses may be required to establish reserves by drilling,
constructing mining and processing facilities at a site, developing metallurgical processes and extracting metals from ore. We
cannot ensure that our current exploration and development programs will result in profitable commercial mining operations.
The economic feasibility
of development projects is based upon many factors, including the accuracy of mineral resource estimates; metallurgical recoveries;
capital and operating costs; government regulations relating to prices, taxes, royalties, land tenure, land use, importing and
exporting and environmental protection; and metal prices, which are highly volatile. Development projects are also subject to
the successful completion of feasibility studies, issuance of necessary governmental permits and availability of adequate financing.
Most exploration
projects do not result in the discovery of commercially mineable ore deposits, and no assurance can be given that any anticipated
level of recovery of ore reserves, if any, will be realized or that any identified mineral deposit will ever qualify as a commercially
mineable (or viable) ore body which can be legally and economically exploited. Estimates of mineral reserves, mineral resources,
mineral deposits and production costs can also be affected by such factors as environmental permitting regulations and requirements,
weather, environmental factors, unforeseen technical difficulties, the metallurgy of the mineralization forming the mineral deposit,
unusual or unexpected geological formations and work interruptions. If current exploration programs do not result in the discovery
of commercial ore, we may need to write-off part or all of our investment in our existing exploration stage properties, and may
need to acquire additional properties.
Material changes
in mineral reserves, if any, grades, stripping ratios or recovery rates may affect the economic viability of any project. Our
future growth and productivity will depend, in part, on our ability to develop commercially mineable mineral rights at our existing
properties or identify and acquire other commercially mineable mineral rights, and on the costs and results of continued exploration
and potential development programs. Mineral exploration is highly speculative in nature and is frequently non-productive. Substantial
expenditures are required to:
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establish
mineral reserves through drilling and metallurgical and other testing techniques;
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determine
metal content and metallurgical recovery processes to extract metal from the ore; and
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construct,
renovate or expand mining and processing facilities.
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In addition, if
we discover ore, it would take several years from the initial phases of exploration until production is possible. During this
time, the economic feasibility of production may change. As a result of these uncertainties, there can be no assurance that we
will successfully acquire commercially mineable (or viable) mineral rights.
We
are subject to significant governmental regulations.
Our exploration
activities are subject to extensive federal, state, provincial and local laws and regulations governing various matters, including:
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environmental
protection;
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the
management and use of toxic substances and explosives;
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the
management of natural resources;
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the
exploration and development of mineral properties, including reclamation;
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taxation
and mining royalties;
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management
of tailing and other waste generated by operations;
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labor
standards and occupational health and safety, including mine safety; and
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historic
and cultural preservation.
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Failure to comply
with applicable laws and regulations may result in civil or criminal fines or penalties or enforcement actions, including orders
issued by regulatory or judicial authorities enjoining, curtailing or closing operations or requiring corrective measures, installation
of additional equipment or remedial actions, any of which could result in significant expenditures. We may also be required to
compensate private parties suffering loss or damage by reason of a breach of such laws, regulations or permitting requirements.
It is also possible that future laws and regulations, or more stringent enforcement of current laws and regulations by governmental
authorities, could cause us to incur additional expense or capital expenditure restrictions, suspensions or closing of our activities
and delays in the exploration and development of our properties.
We
require further permits in order to conduct current and anticipated future operations, and delays in obtaining or failure to obtain
such permits, or a failure to comply with the terms of any such permits that we have obtained, would adversely affect our business.
Our current and
anticipated future operations, including further exploration, development and commencement of production on our mineral properties,
require permits from various governmental authorities. Obtaining or renewing governmental permits is a complex and time-consuming
process. The duration and success of efforts to obtain and renew permits are contingent upon many variables not within our control.
Due to the preliminary stages of the Upper Kobuk Mineral Projects, it is difficult to assess what specific permitting requirements
will ultimately apply.
Shortage of qualified
and experienced personnel in the U.S. federal and Alaskan State agencies to coordinate a federally led joint environmental impact
statement process could result in delays or inefficiencies. Backlog within the permitting agencies could affect the permitting
timeline or potential of the Upper Kobuk Mineral Projects, as may negative public perception of mining projects in general due
to circumstances unrelated to the Company and outside of its control. Other factors that could affect the permitting timeline
include (i) the number of other large-scale projects currently in a more advanced stage of development which could slow down the
review process for the Upper Kobuk Mineral Projects and (ii) significant public response regarding the Upper Kobuk Mineral Projects.
We cannot provide
assurance that all permits that we require for our operations, including any for construction of mining facilities or conduct
of mining, will be obtainable or renewable on reasonable terms, or at all. Delays or a failure to obtain such required permits,
or the expiry, revocation or failure to comply with the terms of any such permits that we have obtained, would adversely affect
our business.
Our
activities are subject to environmental laws and regulations that may increase our costs and restrict our operations.
All of our exploration,
potential development and production activities are subject to regulation by governmental agencies under various environmental
laws. These laws address emissions into the air, discharges into water, management of waste, management of hazardous substances,
protection of natural resources, antiquities and endangered species and reclamation of lands disturbed by mining operations. Environmental
legislation is evolving and the general trend has been towards stricter standards and enforcement, increased fines and penalties
for noncompliance, more stringent environmental assessments of proposed projects and increasing responsibility for companies and
their officers, directors and employees. Compliance with environmental laws and regulations may require significant capital outlays
on our behalf and may cause material changes or delays in our intended activities.
Several regulatory
initiatives are currently ongoing within the State of Alaska that have the potential to influence the permitting process for the
Upper Kobuk Mineral Projects. These include revisions to Alaska's Water Quality Standards regarding mixing zones regulations,
which are currently under EPA review, and which revisions may be required in order to authorize a mixing zone for discharge in
Subarctic Creek. Future changes in these laws or regulations could have a significant adverse impact on some portion of our business,
requiring us to re-evaluate those activities at that time.
Environmental hazards
may exist on our properties that are unknown to us at the present time and that have been caused by previous owners or operators
or that may have occurred naturally. We may be liable for remediating such damage.
Failure to comply
with applicable environmental laws, regulations and permitting requirements may result in enforcement actions thereunder, including
orders issued by regulatory or judicial authorities, causing operations to cease or to be curtailed, and may include corrective
measures requiring capital expenditures, installation of additional equipment or remedial actions.
Land
reclamation requirements for our exploration properties may be burdensome.
Land reclamation
requirements are generally imposed on mineral exploration companies (as well as companies with mining operations) in order to
minimize long term effects of land disturbance. Reclamation may include requirements to:
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treat
ground and surface water to drinking water standards;
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control
dispersion of potentially deleterious effluents; and
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reasonably
re-establish pre-disturbance land forms and vegetation.
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In order to carry
out reclamation obligations imposed on us in connection with exploration, potential development and production activities, we
must allocate financial resources that might otherwise be spent on further exploration and development programs. In addition,
regulatory changes could increase our obligations to perform reclamation and mine closing activities. If we are required to carry
out unanticipated reclamation work, our financial position could be adversely affected.
Title
and other rights to our properties may be subject to challenge.
We cannot provide
assurance that title to our properties will not be challenged. We own mineral claims which constitute our property holdings. We
may not have, or may not be able to obtain, all necessary surface rights to develop a property. Title insurance is generally not
available for mineral properties and our ability to ensure that we have obtained a secure claim to individual mining properties
may be severely constrained. Our mineral properties may be subject to prior unregistered agreements, transfers or claims, and
title may be affected by, among other things, undetected defects. We have not conducted surveys of all of the claims in which
we hold direct or indirect interests. A successful claim contesting our title to a property will cause us to lose our rights to
explore and, if warranted, develop that property or undertake or continue production thereon. This could result in our not being
compensated for our prior expenditures relating to the property. In addition, our ability to continue to explore and develop the
property may be subject to agreements with other third parties including agreements with native corporations and first nations
groups, for instance, the lands at the Upper Kobuk Mineral Projects are subject to the NANA Agreement (as more particularly described
under “
History of Trilogy – Agreement with NANA Regional Corporation
”).
Risks
inherent in acquisitions of new properties.
We may actively
pursue the acquisition of exploration, development and production assets consistent with our acquisition and growth strategy.
From time to time, we may also acquire securities of or other interests in companies with respect to which we may enter into acquisitions
or other transactions. Acquisition transactions involve inherent risks, including but not limited to:
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accurately
assessing the value, strengths, weaknesses, contingent and other liabilities and potential
profitability of acquisition candidates;
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ability
to achieve identified and anticipated operating and financial synergies;
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diversion
of management attention from existing business;
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potential
loss of our key employees or key employees of any business acquired;
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unanticipated
changes in business, industry or general economic conditions that affect the assumptions
underlying the acquisition;
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decline
in the value of acquired properties, companies or securities;
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assimilating
the operations of an acquired business or property in a timely and efficient manner;
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maintaining
our financial and strategic focus while integrating the acquired business or property;
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implementing
uniform standards, controls, procedures and policies at the acquired business, as appropriate;
and
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to
the extent that we make an acquisition outside of markets in which it has previously
operated, conducting and managing operations in a new operating environment.
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Acquiring additional
businesses or properties could place increased pressure on our cash flow if such acquisitions involve a cash consideration. The
integration of our existing operations with any acquired business will require significant expenditures of time, attention and
funds. Achievement of the benefits expected from consolidation would require us to incur significant costs in connection with,
among other things, implementing financial and planning systems. We may not be able to integrate the operations of a recently
acquired business or restructure our previously existing business operations without encountering difficulties and delays. In
addition, this integration may require significant attention from our management team, which may detract attention from our day-to-day
operations. Over the short-term, difficulties associated with integration could have a material adverse effect on our business,
operating results, financial condition and the price of Trilogy Shares. In addition, the acquisition of mineral properties may
subject us to unforeseen liabilities, including environmental liabilities, which could have a material adverse effect on us. There
can be no assurance that any future acquisitions will be successfully integrated into our existing operations.
Any one or more
of these factors or other risks could cause us not to realize the anticipated benefits of an acquisition of properties or companies,
and could have a material adverse effect on our financial condition.
High
metal prices in past years have encouraged increased mining exploration, development and construction activity, which has increased
demand for, and cost of, exploration, development and construction services and equipment.
The relative strength
of metal prices in past years has encouraged increases in mining exploration, development and construction activities around the
world, which has resulted in increased demand for, and cost of, exploration, development and construction services and equipment.
While recent market conditions have had a moderating effect on the costs of such services and equipment, increases in such costs
may continue with the resumption of an upward trend in metal prices. Increased demand for and cost of services and equipment could
result in delays if services or equipment cannot be obtained in a timely manner due to inadequate availability, and may cause
scheduling difficulties due to the need to coordinate the availability of services or equipment, any of which could materially
increase project exploration, development and/or construction costs.
We
face industry competition in the acquisition of exploration properties and the recruitment and retention of qualified personnel.
We compete with
other exploration and producing companies, many of which are better capitalized, have greater financial resources, operational
experience and technical capabilities or are further advanced in their development or are significantly larger and have access
to greater mineral reserves, for the acquisition of mineral claims, leases and other mineral interests as well as for the recruitment
and retention of qualified employees and other personnel. If we require and are unsuccessful in acquiring additional mineral properties
or in recruiting and retaining qualified personnel, we will not be able to grow at the rate we desire, or at all.
We
may experience difficulty attracting and retaining qualified management and technical personnel to grow our business.
We are dependent
on the services of key executives and other highly skilled and experienced personnel to advance our corporate objectives as well
as the identification of new opportunities for growth and funding. Mr. Van Nieuwenhuyse and Ms. Sanders are currently our only
executive officers. It will be necessary for us to recruit additional skilled and experienced executives. Our inability to do
so, or the loss of any of these persons or our inability to attract and retain suitable replacements for them, or additional highly
skilled employees required for our activities, would have a material adverse effect on our business and financial condition.
Some
of our directors and officers have conflicts of interest as a result of their involvement with other natural resource companies.
Certain of our
directors and officers also serve as directors or officers, or have significant shareholdings, in other companies involved in
natural resource exploration and development or mining-related activities, including, in particular, NovaGold. To the extent that
such other companies may participate in ventures in which we may participate in, or in ventures which we may seek to participate
in, our directors and officers may have a conflict of interest in negotiating and concluding terms respecting the extent of such
participation. In all cases where our directors and officers have an interest in other companies, such other companies may also
compete with us for the acquisition of mineral property investments. Any decision made by any of these directors and officers
involving Trilogy will be made in accordance with their duties and obligations to deal fairly and in good faith with a view to
the best interests of Trilogy and its shareholders. In addition, each of the directors is required to declare and refrain from
voting on any matter in which these directors may have a conflict of interest in accordance with the procedures set forth in the
Business Corporations Act
(British Columbia) and other applicable laws. In appropriate cases, the Company will establish
a special committee of independent directors to review a matter in which several directors, or management, may have a conflict.
Nonetheless, as a result of these conflicts of interest, the Company may not have an opportunity to participate in certain transactions,
which may have a material adverse effect on the Company’s business, financial condition, results of operation and prospects.
In
the future, we may be subject to legal proceedings.
Due to the nature
of our business, we may be subject to numerous regulatory investigations, claims, lawsuits and other proceedings in the ordinary
course of our business. The results of these legal proceedings cannot be predicted with certainty due to the uncertainty inherent
in litigation, including the effects of discovery of new evidence or advancement of new legal theories, the difficulty of predicting
decisions of judges and juries and the possibility that decisions may be reversed on appeal. There can be no assurances that these
matters will not have a material adverse effect on our business.
Our largest
shareholder has significant influence on us and may also affect the market price and liquidity of the securities.
Electrum Strategic
Opportunities Fund L.P. (“Electrum”) is our single largest shareholder, controlling approximately 21.3% of the outstanding
voting securities. Accordingly, Electrum will have significant influence in determining the outcome of any corporate transaction
or other matter submitted to the shareholders for approval, including mergers, consolidations and the sale of all or substantially
all of our assets and other significant corporate actions. Unless significant participation of other shareholders takes place
in such shareholder meetings, Electrum may be able to approve such matters itself. The concentration of ownership of the shares
by Electrum may: (i) delay or deter a change of control of the Company; (ii) deprive shareholders of an opportunity to receive
a premium for their shares as part of a sale of the Company; and (iii) affect the market price and liquidity of the shares. Without
the consent of Electrum, we could be prevented from entering into transactions that are otherwise beneficial to us. The interests
of Electrum may differ from or be adverse to the interests of our other shareholders. The effect of these rights and Electrum’s
influence may impact the price that investors are willing to pay for securities. If Electrum sells a substantial number of shares
in the public market, the market price of the shares could fall. The perception among the public that these sales will occur could
also contribute to a decline in the market price of the shares.
Global
climate change is an international concern, and could impact our ability to conduct future operations.
Global climate
change is an international issue and receives an enormous amount of publicity. We would expect that the imposition of international
treaties or U.S. or Canadian federal, state, provincial or local laws or regulations pertaining to mandatory reductions in energy
consumption or emissions of greenhouse gasses could affect the feasibility of our mining projects and increase our operating costs.
Adverse
publicity from non-governmental organizations could have a material adverse effect on us.
There is an increasing
level of public concern relating to the effect of mining production on our surroundings, communities and environment. Non-governmental
organizations (“NGOs”), some of which oppose resource development, are often vocal critics of the mining industry.
While we seek to operate in a socially responsible manner, adverse publicity generated by such NGOs related to extractive industries,
or our operations specifically, could have an adverse effect on our reputation and financial condition or our relationship with
the communities in which we operate.
We may fail
to achieve and maintain the adequacy of our internal control over financial reporting as per the requirements of the Sarbanes-Oxley
Act.
We are required
to document and test our internal control procedures in order to satisfy the requirements of Section 404 of SOX. It requires an
annual assessment by management of the effectiveness of our internal control over financial reporting. We may in the future fail
to achieve and maintain the adequacy of our internal control over financial reporting, as such standards are modified, supplemented
or amended from time to time, and we may not be able to ensure that we can conclude on an ongoing basis that we have effective
internal control over financial reporting in accordance with Section 404 of SOX. Our failure to satisfy the requirements of Section
404 of SOX on an ongoing, timely basis could result in the loss of investor confidence in the reliability of our financial statements,
which in turn could harm our business and negatively impact the trading price of our Common Shares. In addition, any failure to
implement required new or improved controls, or difficulties encountered in their implementation, could harm our operating results
or cause us to fail to meet our reporting obligations. Future acquisitions of companies may provide us with challenges in implementing
the required processes, procedures and controls in our acquired operations. Acquired companies may not have disclosure control
and procedures or internal control over financial reporting that are as thorough or effective as those required by securities
laws currently applicable to us.
Our
business is subject to evolving corporate governance and public disclosure regulations that have increased both our compliance
costs and the risk of noncompliance, which could have an adverse effect on our stock price.
We are subject
to changing rules and regulations promulgated by a number of United States and Canadian governmental and self-regulated organizations,
including the SEC, the Canadian Securities Administrators, the NYSE-MKT, the TSX, and the Financial Accounting Standards Board.
These rules and regulations continue to evolve in scope and complexity and many new requirements have been created in response
to laws enacted by the United States Congress, making compliance more difficult and uncertain. Our efforts to comply with new
rules and regulations, including those promulgated under Dodd-Frank, have resulted in, and are likely to continue to result in,
increased general and administrative expenses and a diversion of management time and attention from revenue-generating activities
to compliance activities.
Our
Common Shares are subject to various factors that have historically made share prices volatile.
The market price
of our Common Shares may be subject to large fluctuations, which may result in losses to investors. The market price of the Common
Shares may increase or decrease in response to a number of events and factors, including: our operating performance and the performance
of competitors and other similar companies; volatility in metal prices; the arrival or departure of key personnel; the number
of Common Shares to be publicly traded after an offering; the public’s reaction to our press releases, material change reports,
other public announcements and our filings with the various securities regulatory authorities; changes in earnings estimates or
recommendations by research analysts who track the Common Shares or the shares of other companies in the resource sector; changes
in general economic and/or political conditions; acquisitions, strategic alliances or joint ventures involving us or our competitors;
and the factors listed under the heading “
Cautionary
Statement Regarding Forward-Looking Information.
”
The market price
of the Common Shares may be affected by many other variables which are not directly related to our success and are, therefore,
not within our control, including other developments that affect the market for all resource sector securities, the breadth of
the public market for the Common Shares and the attractiveness of alternative investments.
We
do not intend to pay any cash dividends in the foreseeable future.
We have not declared
or paid any dividends on our Common Shares. Our current business plan requires that for the foreseeable future, any future earnings
be reinvested to finance the growth and development of our business. We do not intend to pay cash dividends on the Common Shares
in the foreseeable future. We will not declare or pay any dividends until such time as our cash flow exceeds our capital requirements
and will depend upon, among other things, conditions then existing including earnings, financial condition, restrictions in financing
arrangements, business opportunities and conditions and other factors, or our Board determines that our shareholders could make
better use of the cash.
We
may be a “passive foreign investment company” in future periods, which may have adverse U.S. federal income tax consequences
for U.S. shareholders.
U.S. investors
in the Company should be aware that we believe we were not a passive foreign investment company (“PFIC”) for the years
ending November 30, 2014, 2015 and 2016 but may be a PFIC in future tax years. If we are a PFIC for any year during a U.S. Holder’s
(as defined below under
Certain U.S. Federal Income Tax Considerations – U.S. Holders
”) holding period, then
such U.S. Holder generally will be required to treat any gain realized upon a disposition of Common Shares and any so-called “excess
distribution” received on its Common Shares as ordinary income, and to pay an interest charge on a portion of such gain
or distributions, unless the shareholder makes a timely and effective “QEF Election” or a “Mark-to-Market Election”
(each as defined below under “
Certain U.S. Federal Income Tax Considerations – Default PFIC Rules under Section
1291 of the Code
”). A U.S. Holder who makes a QEF Election generally must report on a current basis its share of our
net capital gain and ordinary earnings for any year in which we are a PFIC, whether or not we distribute any amounts to our shareholders.
A U.S. Holder who makes the Mark-to-Market Election generally must include as ordinary income each year the excess of the fair
market value of the Common Shares over the U.S. Holder’s tax basis therein. This paragraph is qualified in its entirety
by the discussion below the heading “
Certain U.S. Federal Income Tax Considerations
.” Each U.S. shareholder
should consult its own tax advisor regarding the PFIC rules and the U.S. federal income tax consequences of the acquisition, ownership,
and disposition of Common Shares.
The following descriptions
summarize selected information about our Upper Kobuk Mineral Projects, which are located in the Ambler mining district of Alaska
and include the Arctic Project and the Bornite Project. All of the UKMP Projects are without known reserves, as defined under
SEC Industry Guide 7, and all proposed programs for the properties are exploratory in nature.
Arctic
Project, Ambler Mining District, Alaska
Arctic
Project – Technical Report
Except with respect
to the land size disclosure and the disclosure regarding the number of claims (which were both increased subsequent to the effective
date of the PEA), and the information under the heading “
Arctic Project – Current Activities
”, or as
otherwise stated, the scientific and technical information relating to the Arctic Project contained in this Form 10-K is derived
from, and in some instances is an extract from, the technical report titled “Preliminary Economic Assessment Report on the
Arctic Project, Ambler Mining District, Northwest Alaska” dated effective September 12, 2013 prepared by Tetra Tech and
EBA, a Tetra Tech Company (and together with Tetra Tech, “Tetra Tech”). Erin Workman, P.Geo., an employee and Director,
Technical Services, is a Qualified Person as defined in NI 43-101, and has approved the scientific and technical information contained
herein. The information regarding the Arctic Project is based on assumptions, qualifications and procedures which are not fully
described herein. Reference should be made to the full text of the PEA which has been filed with certain Canadian securities regulatory
authorities pursuant to NI 43-101 and is available for review on SEDAR at
www.sedar.com
and on EDGAR at
www.sec.gov
.
Arctic
Project - Property Description and Location
The Arctic Project
is located in the Ambler mining district of the southern Brooks Range, in the Northwest Arctic Borough (“NWAB”) of
Alaska. The Arctic Project is located 260 km east of the town of Kotzebue, 30 km north of the village of Kobuk, 260 km west
of the Dalton Highway, an all-weather state maintained public road, at geographic coordinates N67.17° latitude and W156.38°
longitude (Universal Transverse Mercator (UTM) North American Datum (NAD) 83, Zone 4 coordinates 7453080N, 613110E). The current
size of the Ambler lands is approximately 75 km long x 6 km wide and comprises a total of 45,348 ha.
The Ambler lands
comprise 45,348 ha of State of Alaska mining claims and US Federal patented mining claims in the Kotzebue Recording District.
The Ambler land tenure consists of 1,358 contiguous claims, including 870 40-acre State claims, 481 160-acre State claims, 5 State
claims ranging from 2-acre to 8-acre, and two Federal patented claims comprising 110 ha held in the name of NovaCopper US Inc.
The Arctic Project is located near the southern edge of the centre of the claim block. The Federal patented claim corners were
located by the US Geological Survey. There is no expiration date or labor requirement on the Federal patented claims. Rent for
each State claim is paid annually to the Alaska Department of Natural Resources (“ADNR”). An Annual Labor Statement
must be submitted annually to maintain the State claims in good standing.
In 1971, the US
Congress passed the Alaska Native Claims Settlement Act which settled land and financial claims made by the Alaska Natives and
provided for the establishment of 13 regional corporations to administer those claims. These are known as the Alaska Native Regional
Corporations. One of these 13 regional corporations is NANA. ANCSA Lands controlled by NANA bound the southern border of the property
claim block. National Park lands are within 25 km of the northern property border.
Figure 1: Regional
Location Map
Figure 2: Upper
Kobuk Mineral Projects Lands Prospect Location Map
There are no known
environmental liabilities due to previous operators or from our ongoing exploration activities at the Arctic Project. There has
been no mine development or production on the Ambler lands.
Multiple permits
are required during the exploration phase of the Arctic Project. Permits are issued from Federal, State, and Regional agencies,
including: the Environmental Protection Agency (“EPA”), the US Army Corps of Engineers (“USACE”), the
Alaska Department of Environmental Conservation (“ADEC”), the Alaska Department of Fish and Game (“ADF&G”),
the ADNR, and the NWAB. The State of Alaska permit for exploration on the Arctic Project, the Annual Hardrock Exploration Activity
(“AHEA”) Permit, is obtained and renewed every five years through the ADNR – Division of Mining, Land and Water.
Trilogy holds an AHEA exploration permit in good standing with the Alaska DNR. The Arctic Project is within the NWAB thus requiring
a Title 9 Miscellaneous Land Use permit for mineral exploration, fuel storage, gravel extraction, and the operation of a landfill.
NovaGold held these permits in good standing during the 2004 to 2008 seasons and renewed the permits for the 2010 exploration
season to 2015. The Bornite Camp, Bornite Landfill, and Dahl Creek Camp are permitted by the ADEC.
A number of statutory
reports and payments are required to maintain the claims in good standing on an annual basis. As the Arctic Project progresses,
additional permits for environmental baseline and detailed engineering studies will be necessary at federal, state, and local
levels.
Arctic
Project - Accessibility, Climate, Local Resources, Infrastructure and Physiography
Accessibility is
one of the most significant challenges of developing the Arctic Project. There is no developed surface access to the Ambler mining
district.
Primary access
to the Arctic Project is by air, using both fixed wing aircraft and helicopters. There are four well maintained, approximately
1,500 m-long gravel airstrips located near the Arctic Project, capable of accommodating charter fixed wing aircraft. These
airstrips are located 66 km west at Ambler, 46 km southwest at Shungnak, 36 km southwest at Kobuk, and 32 km
southwest at Dahl Creek. There is daily commercial air service from Kotzebue to the village of Kobuk, the closest community to
the Arctic Project. During the summer months, the Dahl Creek Camp airstrip is suitable for larger aircraft, such as C-130 and
DC-6. In addition to the four 1,500 m airstrips, there is a 700 m airstrip located at the Bornite Camp, approximately
25 km southwest of the Arctic Deposit, and a 400 m airstrip located approximately 10 km southwest of the Arctic
Deposit. The airstrip at Bornite is suited to smaller aircraft, which support the camp with personnel and supplies. An upgraded
one-lane gravel road suitable for vehicles or construction equipment links the Bornite Camp to the Dahl Creek airstrip and camp
southwest of the Arctic Deposit.
The climate in
the region is typical of a sub-arctic environment. Exploration is generally conducted from late May until late September. Weather
conditions on the Ambler lands can vary significantly from year to year and can change suddenly. During the summer exploration
season, average maximum temperatures range from 10°C to 20°C, while average lows range from -2°C to 7°C. By early
October, unpredictable weather limits regular helicopter travel to the Arctic Project. During winter months, the Arctic Project
can be accessed by snow machine, track vehicle, or fixed wing aircraft. Winter temperatures are routinely below -25°C and
can exceed -50°C. Annual precipitation in the region averages at 395 mm with the most rainfall occurring from June through
September, and the most snowfall occurring from November through January.
The Arctic Project
is located along the south slope of the Brooks Range, which separates the Arctic region from the interior of Alaska. Nearby surface
waters include Subarctic Creek, the Shungnak and Kogoluktuk Rivers, the Kobuk River, and numerous small lakes. The Arctic Project
is located at the eastern end of Subarctic Creek, a tributary of the Shungnak River to the west, along a ridge between Subarctic
Creek and the Kogoluktuk River Valley. The property area is marked by steep and rugged terrain with high topographic relief. Elevations
range from 30 masl along the Kobuk River to 1,180 masl on a peak immediately north of the Arctic Project area. The divide
between the Shungnak and Kogoluktuk Rivers in the Ambler Lowlands is approximately 220 masl. The Kobuk Valley is located
at the transition between boreal forest and Arctic tundra. Spruce, birch, and poplar are found in portions of the valley, with
a ground cover of lichens (reindeer moss). Willow and alder thickets and isolated cottonwoods follow drainages, and alpine tundra
is found at higher elevations. Tussock tundra and low, heath-type vegetation covers most of the valley floor. Intermittent permafrost
exists on the Arctic Project.
Wildlife in the
area includes caribou, moose, Dall sheep, bears (grizzly and black), wolves, wolverines, coyotes, and foxes. Fish species include
salmon, sheefish, arctic char, and arctic grayling. The Kobuk River, which briefly enters the UKMP lands on its southwest corner,
is a significant salmon spawning river. Subarctic Creek, which does not contain anadromous fish, drains into the Shungnak River,
which drains into the Kobuk River. The caribou on the property belong to the Western Arctic herd that migrates twice a year –
south in August, from their summer range north of the Brooks Range, and north in March from their winter range along the Buckland
River.
Currently, the
Arctic Project does not have access to Alaska power and transportation infrastructure. Beginning in 2009, the Arctic Project has
been the focus of the Ambler Mining District Access Corridor study.
The Arctic Deposit
proposed access road branches off from the proposed AMDIAP, formerly known as the Ambler Mining District Access Road or AMDIAR,
and ends at the Arctic Deposit. Figure 3 shows the overall road location plan showing the relationship of the proposed access
road to the proposed Brooks East corridor which eventually connects to the existing Dalton Highway 320 km from the access
road intersection. The proposed access road is 17 km long from the AMDIAP corridor to the Arctic Project site.
Figure 3:
Proposed Access to the Arctic Project Site
The proposed Arctic
Project mine site infrastructure is spread over a distance of approximately 6 km within the upper reaches of the Sub-Arctic Creek
Valley. The proposed development for the Arctic Project consists of the following major infrastructure: roads and an airstrip,
mill buildings and related services facilities including maintenance and truck shops, assay lab, water supply and distribution,
waste management, fuel storage, on site explosive storage, power supply, tailings storage facility (“TSF”) and
water management, water treatment plant, construction and permanent camp accommodation, waste rock storage facilities, and communication
infrastructure.
The proposed mine-site
infrastructure has been located to take advantage of local topography, minimize pumping requirements from the mill building to
the TSF, minimize environmental impacts to Sub-Arctic Creek, minimize snow avalanche mitigation requirements, and to reduce the
haul distance from the pit to the primary crusher and TSF.
The proposed location
for an airstrip sufficient to support project activities is located in the valley approximately 21 km from the Arctic Project
site. Geotechnical data is not available for the site but it is assumed that the facility will require permafrost protection to
ensure year round operations. The proposed airstrip will operate as a private aerodrome and prior permission will be required
for all aircraft utilizing the site. The gravel airstrip will be approximately 1,524 meters long and capable of landing a Dash
8 – Q400/Hercules C130.
The Arctic Project
will require power of 15 MW of peak load for 10,000 t/d operation demand. It is proposed that power will be generated
by five self-contained 3.6 MW prime diesel generators. Four units will be in service with the fifth unit reserved for maintenance.
Heat will be recovered from the generators and used to heat the mill, camp and related facilities.
Arctic
Project - History
During the 1940’s
and 1950’s Bear Creek Mining Corporation (“BCMC”), an exploration subsidiary of Kennecott, conducted regional
reconnaissance exploration in the Cosmos Hills and the southern Brooks Range. Stream silt sampling in 1963 by BCMC revealed a
significant copper anomaly in Arctic Creek roughly 17 km northeast of the previously identified Bornite deposit. The area
was subsequently staked and, in 1967, eight core holes were drilled at the Arctic Deposit yielding impressive massive sulphide
intercepts over an almost 500-m strike length. BCMC conducted intensive exploration on the property until 1977 and then intermittently
through 1998. No drilling or additional exploration was conducted on the Arctic Project between 1998 and 2004.
Arctic
Project - Historical Metallurgical Testwork
Metallurgical studies
during the Kennecott era included: two initial mineralogical studies undertaken by the Kennecott Research Center (“KRC”)
to evaluate and identify the potential beneficiation or metallurgical treatment of concentrates of the samples from the deposit
and a subsequent 1999 Lakefield Research Ltd. (Lakefield) metallurgical test program to confirm and improve upon the results from
the 1970s KRC test work program. In 2012, Trilogy contracted SGS to conduct an extensive metallurgical program in support of the
Artic PEA, the results of which are described and summarized below under the heading “
Arctic Project – Metallurgical
Testing
”.
Arctic
Project - Historical Geophysics
Prior to 1998,
Kennecott conducted a series of geophysical surveys which are poorly documented or are unavailable to Trilogy. In March 1998,
Kennecott initiated an extensive helicopter-supported airborne electromagnetic (“EM”) and magnetic survey covering
the entire VMS belt, including the Arctic Deposit. Kennecott identified eight EM anomalies which were deemed to have significant
potential for mineralization and followed-up with additional gravity lines and/or Controlled Source Audio-frequency Magneto-Telluric
(“CSAMT”) lines during 1998. Kennecott conducted no further geophysical field exploration in the district after 1998.
Arctic
Project - Historical Drilling
Between 1967 and
July 1985, Kennecott (BCMC) completed 86 holes (including 14 large diameter metallurgical test holes) totalling 16,080 m.
In 1998, Kennecott drilled an additional 6 core holes totalling 1,492 m to test for: 1) extensions of the known Arctic resource;
2) grade and thickness continuity at Arctic; and 3) a nearby airborne geophysical anomaly. Drilling for all BCMC/Kennecott campaigns
in the Arctic Deposit area (1966 to 1998) totals 92 core holes for a combined 17,572 m.
No drilling was
performed on the project between 1999 and 2003. NovaGold took control of the project in 2004.
Arctic
Project - Historical Geochemistry
Historic geochemistry
for the district, compiled in the 1998 Kennecott database, includes 2,255 soil samples, 922 stream silt samples, 363 rock samples,
and 37 panned concentrate samples. Data has been sourced from several companies including Kennecott, Sunshine Mining, Resource
Associates of Alaska, and NANA. Sourcing of much of the data had been poorly documented in the database. During 1998, Kennecott
renewed its effort in the district, and, as a follow-up to the 1998 EM survey, undertook directed soil and rock chip sampling
in and around EM anomalies generated in the geophysical targeting effort. During this period Kennecott collected 962 soils and
107 rocks and for the first time used extensive multi-element inductively coupled plasma (“ICP”) analysis.
Arctic
Project - Geologic Setting
Regional
Geology
The Ambler mining
district occurs along the southern margin of Brooks Range within an east-west trending zone of Devonian to Jurassic age submarine
volcanic and sedimentary rocks. The district covers both: 1) VMS-like deposits and prospects hosted in the Devonian age Ambler
Sequence (or Ambler Schist belt), a group of metamorphosed bimodal volcanic rocks with interbedded tuffaceous, graphitic and calcareous
volcaniclastic metasediments; and 2) epigenetic carbonate-hosted copper deposits occurring in Devonian age carbonate and
phyllitic rocks of the Bornite Carbonate Sequence. The Ambler Sequence occurs in the upper part of the Anirak Schist, the thickest
member of the Schist belt or Coldfoot subterrane. VMS-like stratabound mineralization can be found along the entire 110 km
strike length of the district. Immediately south of the Schist belt in the Cosmos Hills, a time equivalent section of the Anirak
Schist includes the approximately 1 km thick Bornite Carbonate Sequence. Mineralization of both the VMS-like deposits of the Schist
belt and the carbonate-hosted deposits of the Cosmos Hills has been dated at 375 to 387 Ma.
In addition, the
Ambler mining district is characterized by increasing metamorphic grade north perpendicular to the strike of the east-west trending
units. The district shows isoclinal folding in the northern portion and thrust faulting to south (Schmidt 1983). The Devonian
to Mississippian age Angayucham basalt and the Triassic to Jurassic age mafic volcanic rocks are in low-angle over thrust contact
with various units of the Ambler Schist belt and Bornite Carbonate Sequence along the northern edge of the Ambler Lowlands.
Local/Property
Geology
Rocks that form
the Ambler Sequence consist of a lithologically diverse sequence of lower Paleozoic Devonian age carbonate and siliciclastic strata
with interlayered mafic lava flows and sills and felsic tuffs. The clastic strata, derived from terrigenous continental and volcanic
sources, were deposited primarily by mass-gravity flow into the sub-wavebase environment of an extending marginal basin.
Though the Ambler
Sequence is exposed over 110 km of strike length, descriptions and comments herein will refer to an area between the Kogoluktuk
River on the east and the Shungnak River on the west where we have focused the majority of our exploration efforts over the last
decade.
The local base
of the Ambler Sequence consists of variably metamorphosed carbonates historically referred to as the Gnurgle Gneiss. We interpret
these strata as calc-turbidites, perhaps deposited in a sub-wavebase environment adjacent to a carbonate bank. Calcareous schists
overlie the Gnurgle Gneiss and host sporadically distributed mafic sills and pillowed lavas. These fine-grained clastic strata
indicate a progressively quieter depositional environment up section, and the presence of pillowed lavas indicates a rifting,
basinal environment.
Overlying these
basal carbonates and pillowed basalts is a section of predominantly fine-grained carbonaceous siliciclastic rocks which host a
significant portion of the mineralization in the district including the Arctic Deposit. This quiescent section indicates further
isolation from a terrigenous source terrain.
The section above
the Arctic Deposit host stratigraphy contains voluminous reworked silicic volcanic strata with the Button Schist at its base.
The Button Schist is a regionally continuous and distinctive albite porphyroblastic unit that serves as an excellent marker above
the main mineralized stratigraphy. The paucity of volcanically derived strata below the Arctic Deposit host section and abundance
above indicates that the basin and surrounding hinterlands underwent major tectonic reorganization during deposition of the Arctic
Deposit section. Greywacke sands that we interpret as channeled high-energy turbidites occur throughout the section but concentrate
high in the local stratigraphy.
Several rock units
show substantial change in thickness and distribution in the vicinity of the Arctic Deposit that may have resulted from the basin
architecture existing at the time of deposition. Between the Arctic Ridge, geographically above the Arctic Deposit, and the Riley
Ridge to the west, several significant differences have been documented including: 1) the Gnurgle Gneiss, which is thickest in
exposures along the northern extension of Arctic Ridge and appears to thin to the west; 2) mafic lavas and sills which thicken
from east to west; they show thick occurrences in upper Subarctic Creek and to the west, but are sparsely distributed to the east;
3) the quartzite section, which within and above the Arctic sulphide horizon does not occur in abundance east of Arctic Ridge;
it is thicker and occurs voluminously to the west; 4) the Button Schist which thickens dramatically to the west from exposures
on Arctic Ridge; exposures to the east are virtually nonexistent; and 5) Greywacke sands which do not exist east of Subarctic
Creek but occur in abundance as massive, channeled accumulations to the west, centered on Riley Ridge.
These data are
interpreted by us to define a generally north-northwest-trending depocentre through the central Ambler mining district. Diamictite
occurrences described below in concert with these formational changes suggest that the depocentre had a fault-controlled eastern
margin with the basin deepening to the west. This original basin architecture appears to have controlled mineralization of the
sulphide systems at Ambler and Shungnak (Dead Creek), concentrating fluid flow along structures on the eastern basin margin.
In addition to
the underlying pre-deformational structural framework of the district suggested by the stratigraphic thickening of various facies
around the Arctic Deposit, the Ambler Sequence is deformed by two penetrative deformational events that significantly complicate
the distribution and spatial arrangement of the local stratigraphy; as described below.
F1 Deformation:
the earliest penetrative deformation event is associated with greenschist metamorphism and the development of regional schistosity.
True isoclinal folds are developed and fold noses typically are thickened. The most notable F1 fold is the Arctic antiform that
defines the upper and lower limbs of the Arctic Deposit. The fold closes along a north-northeast- trending fold axis roughly mimicking
the trace of Subarctic Creek and opening to the east. Importantly, the overturned lower limb implies that the permissive stratigraphy
should be repeated on a lower synformal isocline beneath the currently explored limbs and would connect with the permissive mineralized
stratigraphy to the northwest at Shungnak (Dead Creek).
F2 Deformation:
the earlier F1 schistosity is in turn deformed by the F2 deformational event that resulted in the local development of an axial
planar cleavage. The deformational event is well defined throughout the Schist belt and results in a series of south verging open
to moderately overturned folds that define a series of east-west trending folds of similar vergence across the entire Schist belt
stratigraphies. This event is likely temporarily related to the emplacement of the Devonian Angayucham volcanics, the obducted
Jurassic ophiolites and Cretaceous sediments over the Schist belt stratigraphies. In addition to the earlier penetrative deformation
events, a series of poorly defined non-penetrative deformation events, likely as a consequence of Cretaceous extension, are seen
as a series of warps or arches across the district. The interplay between the complex local stratigraphy, the isoclinal F1 event,
the overturned south verging F2 event and the series of post-penetrative deformational events makes district geological interpretation
often extremely difficult at a local scale.
Recent work by
us defines the Arctic Deposit as two or more discrete horizons of sulphide mineralization contained in a complexly deformed isoclinal
fold with an upright upper limb and an overturned lower limb hosting the main mineral resources. Nearby drilling suggests a third
limb, an upright lower limb, likely occurs beneath the currently explored stratigraphy
.
Mineralization
occurs as stratiform semi-massive sulphide (“SMS”) to massive sulphide (“MS”) beds within primarily graphitic
chlorite schists and fine-grained quartz sandstones. The sulphide beds average four meters in thickness but vary from less
than one meter up to as much as eighteen meters in thickness. The bulk of the mineralization is within six modelled zones lying
along the upper and lower limbs of the Arctic isoclinal anticline. All of the zones are within an area of roughly 1 km
2
with mineralization extending to a depth of approximately 250 m below the surface. Mineralization characteristically
varies from MS to SMS. Unlike more typical VMS deposits, mineralization is not characterized by steep metal zonation or massive
pyritic zones. Mineralization is dominantly sheet-like zones of base metal sulphides with variable pyrite and only minor zonation
usually on an extremely small scale. No stockworks or stringer zones in association with the mineralization have been observed.
More importantly, the mineralization in general exhibits characteristics and textures common to replacement-style mineralization.
Mineralization is predominately coarse-grained sulphides consisting mainly of chalcopyrite, sphalerite, galena, tetrahedrite,
arsenopyrite, pyrite and pyrrhotite. Trace amounts of electrum and enargite are also present. Gangue minerals associated with
the mineralized horizons include quartz, barite, white mica, black chlorite, talc, calcite, dolomite and cymrite.
Talc and magnesium
chlorite are the dominant alteration products associated with the sulphide-bearing horizons. Talc alteration grades downward and
outward to mixed talc-magnesium chlorite with minor phlogopite, into zones of dominantly magnesium chlorite, then into mixed magnesium
chlorite-phengite with outer phengite-albite zones of alteration. Thickness of alteration zones vary with stratigraphic interpretation,
but tens of meters for the outer zones is likely, as seen in phengite-albite exposures on the east side of Arctic Ridge. Stratigraphically
above the sulphide-bearing horizons significant muscovite as paragonite is developed and results in a marked shift in sodium/magnesium
ratios across the sulphide bearing horizons. Of particular note are the barium (“Ba”) species including barite, cymrite
(a high-pressure Ba phyllosilicate), and Ba-bearing muscovite, phlogopite and biotite. These species associated with both alteration
and mineralization has also been strongly remobilized during metamorphism.
Historic interpretation
of the genesis of the Ambler Schist belt deposits have called for a syngenetic VMS origin with steep thermal gradients in and
around seafloor hydrothermal vents resulting in metal deposition due to the rapid cooling of chloride bound base metals. A variety
of VMS types have been well documented in the literature (Franklin et al. 2005) with the Ambler Schist belt deposits most similar
to deposits associated with a bimodal mafic dominant volcanism related to incipient rifting. The majority of field observations
broadly support such a scenario at the Arctic Deposit and include: 1) the tectonic setting with Devonian volcanism in an evolving
continental rift; 2) the geologic setting with bimodal volcanics including pillow basalts and limited felsic volcanic tuffs; 3)
an alteration assemblage with well-defined magnesium-rich footwall alteration and sodium-rich hanging wall alteration; and 4) typical
polymetallic base-metal mineralization with massive and semi-massive sulphides. Although the majority of field observations support
a VMS genesis to the deposits of the Schist belt, a series of other observations and characteristics suggest a more direct genetic
link with that of the carbonate-hosted Bornite Deposit in the Devonian Bornite Carbonate Sequence. Both deposit types have been
dated at 375 to 387 Ma suggesting a clear temporal link.
The principal lithologic
units captured in logging and mapping by us, in broad chronological order from oldest to youngest are as follows: greenstone,
chlorite schist, talc schist, grey to black schists, metarhyolites, most notably the so-called button schist which serves as an
important stratigraphic marker, quartz muscovite schists, diamictites and greywackes.
Arctic
Project - Exploration
NovaGold began
exploration of the Arctic Deposit and surrounding lands of the Schist belt in 2004 after optioning the property from Kennecott.
Previous exploration on the Arctic Project during Kennecott’s tenure is summarized in “
Arctic Project – History”.
Field exploration was largely conducted during the period 2004 to 2007 with associated engineering and characterization studies
between 2008 and 2012. Table 2 summarizes the exploration work conducted by NovaGold and us during our tenure from 2004 to 2012.
Table 2: Summary
of Trilogy/NovaGold Exploration Activities Targeting VMS-style Mineralization in the Ambler Sequence Stratigraphy and the Arctic
Deposit (2004 – 2012)
Work
Completed
|
|
Year
|
|
Details
|
|
Focus
|
Geological
Mapping
|
-
|
|
2004
|
|
-
|
|
Arctic Deposit surface
geology
|
-
|
|
2005
|
|
-
|
|
Ambler Sequence
west of the Arctic Deposit
|
-
|
|
2006
|
|
-
|
|
COU, Dead Creek,
Sunshine, Red
|
Geophysical
Surveys
|
SWIR Spectrometry
|
|
2004
|
|
2004 drill holes
|
|
Alteration characterization
|
TDEM
|
|
2005
|
|
2 loops
|
|
Follow-up of Kennecott
DIGHEM EM survey
|
|
|
2006
|
|
13 loops
|
|
District targets
|
|
|
2007
|
|
6 loops
|
|
Arctic extensions
|
Downhole EM
|
|
2007
|
|
4 drill holes
|
|
Arctic Deposit
|
Geochemistry
|
-
|
|
2005
|
|
-
|
|
Stream silts –
core area prospects
|
-
|
|
2006
|
|
-
|
|
Soils – core
area prospects
|
-
|
|
|
|
-
|
|
Stream silts –
core area prospects
|
-
|
|
2007
|
|
-
|
|
Soils – Arctic
Deposit area
|
Survey
|
Collar
|
|
2004 to 2011
|
|
GPS
|
|
All 2004 to 2011
Trilogy drill holes
|
|
|
2004, 2008
|
|
Resurveys
|
|
Historical Kennecott
drill holes
|
Photography/Topography
|
|
2010
|
|
-
|
|
Photography/topography
|
Technical
Studies
|
Geotechnical
|
|
2010
|
|
BGC
|
|
Preliminary geotechnical
and hazards
|
ML/ARD
|
|
2011
|
|
SRK
|
|
Preliminary ML and
ARD
|
Metallurgy
|
|
2012
|
|
SGS
|
|
Preliminary mineralogy
and metallurgy
|
Geotechnical and
Hydrology
|
|
2012
|
|
BGC
|
|
Preliminary rock
mechanics and hydrology
|
Project
Evaluation
|
Resource Estimation
|
|
2008
|
|
SRK
|
|
Resource estimation
|
PEA
|
|
2011
|
|
SRK
|
|
PEA
|
|
|
2012
|
|
SRK
|
|
PEA
update
|
Note: SWIR = short
wave infrared; ML = metal leaching; BGC = BGC Engineering Inc.; SRK = SRK Consulting
The
results of the above exploration programs have been incorporated into the PEA results, summarized under the heading “
Arctic
Project – Exploration and Development”.
For further details, refer to the PEA. Exploration
work conducted during the 2015 and 2016 summer field programs are summarized under the heading “
Arctic
Project – Current Activities
”.
Arctic
Project - Mineralization
In 2013, we updated
the mineralization models, representing massive and semi-massive VMS-style mineralization. Geometrically, the mineralization is
confined to six lenticular mineralized zones concentrated along an isoclinal fold hinge. Five of the six SMS zones contain a core
of MS material. For more details regarding length, width, depth and continuity together with a description of the type, character
and distribution of the mineralization see
“Local/Property Geology”
above.
Arctic
Project - Drilling
Drilling at the
Arctic Deposit has been ongoing since its initial discovery in 1965. Approximately 31,907 m of drilling in 135 drill holes
have been completed at the deposit or on potential extensions in 23 campaigns spanning 45 years. All of the drill campaigns between
1965 and 2012 have been run under the auspices of either: 1) Kennecott and its subsidiaries, or 2) NovaGold, our predecessor company.
We and our predecessor
company NovaGold, have drilled 17,983 m in 59 different drill holes targeting the Arctic Deposit and several other prospects
of the Ambler Schist belt. Table 3 summarizes all of the Trilogy/NovaGold tenure drilling on the property. Drilling conducted
during the 2015 and 2016 summer field programs are summarized under the heading “
Arctic Project – Current Activities
”.
Table 3: Summary
of Trilogy/NovaGold Drilling (2004 – 2012)
Year
|
|
Meters
|
|
No.
of
Drill
Holes
|
|
Sequence
|
|
Purpose
of Drilling
|
2004
|
|
2,996
|
|
11
|
|
AR04-78 to 88
|
|
Deposit scoping and verification
|
2005
|
|
3,030
|
|
9
|
|
AR05-89 to 97
|
|
Extensions to the Arctic Deposit
|
2006
***
|
|
3,100
|
|
12
|
|
AR06-98 to 109
|
|
Property-wide exploration drilling
|
2007
|
|
2,606
|
|
4
|
|
AR07-110 to 113
|
|
Deep extensions of the Arctic Deposit
|
2008
*
|
|
3,306
|
|
14
|
|
AR08-114 to 126
|
|
Grade continuity and metallurgy
|
2011
**
|
|
1,193
|
|
5
|
|
AR11-127 to 131
|
|
Geotechnical studies
|
2012
***
|
|
1,752
|
|
4
|
|
SC12-014 to 017
|
|
Exploration drilling – Sunshine
|
|
Notes:
|
*
A
total of 12 of the 14 holes drilled in 2008 were utilized in the 2012 SRK resource update.
Two holes were maintained in sealed frozen storage to provide additional metallurgical
samples if required.
|
**
Geotechnical
holes drilled in 2011 are not included in the current resource estimation contained herein.
***
Drilling
in 2006 and 2012 targeted exploration targets elsewhere in the VMS belt.
Over the Arctic
Project’s history, a relatively limited number of drill companies have been used by Kennecott and Trilogy/NovaGold at the
Arctic Deposit. During Kennecott’s tenure on the property, Sprague and Henwood, a Pennsylvania-based drilling company was
the principal contractor. Sprague and Henwood utilized company manufactured drill rigs during their tenure on the property. Many
of their rigs remain at the Bornite Deposit and constitute a historical inventory of 1950s and 1960s exploration artifacts. Tonto
Drilling provided services to Kennecott during Kennecott’s short return to the district in the late 1990s. We and NovaGold
have utilized Boart Longyear as our only contractor. The 2004 to 2012 Trilogy/NovaGold drill programs used a single skid-mounted
LF-70 core rig, drilling HQ or NQ core. Wireframes were updated in 2013 to incorporate interpretation of all drill results to
date and have been included in the resource estimate.
Arctic
Project - Sampling Methodology and Analysis
The data for the
Arctic Deposit resource was generated over three primary drilling campaigns: 1966 to 1986 when BCMC, a subsidiary of Kennecott
Copper Corporation was the primary operator, 1998 when Kennecott Minerals resumed work after a long hiatus, and 2004 to 2012 with
NovaGold and now us as the operators.
Sampling of drill
core prior to 1998 by BCMC focused primarily on the mineralized zones; numerous intervals of weak to moderate mineralization were
not sampled during this period. During the 1998 campaign, Kennecott did sample some broad zones of alteration and weak mineralization,
but much of the unaltered and unmineralized drill core was left unsampled. Little documentation on historic sampling procedures
is available.
Between 2004 and
2006, NovaGold conducted a systematic drill core re-logging and re-sampling campaign of Kennecott and BCMC era drill holes AR-09
to AR-74. NovaGold either took 1 to 2 m samples every 10 m, or sampled entire lengths of previously unsampled core within
a minimum of 1 m and a maximum of 3 m intervals. The objective of the sampling was to generate a full ICP geochemistry
dataset for the Arctic Deposit and ensure continuous sampling throughout the deposit. Sample preparation procedures for NovaGold
era work are described below.
All drill core
was transported by helicopter in secure core “baskets” to either the Dahl Creek camp or the Bornite camp for logging
and sampling. Sample intervals were determined by the geologist during the geological logging process. Sample intervals were labelled
with white paper tags and butter (aluminum) tags which were stapled to the core box. Each tag had a unique number which corresponded
to that sample interval. Sample intervals were determined by the geological relationships observed in the core and limited to
a three meter maximum length and one meter minimum length. An attempt was made to terminate sample intervals at lithological and
mineralization boundaries. Sampling was generally continuous from the top to the bottom of the drill hole. When the hole was in
unmineralized rock, the sample length was generally three meters, whereas in mineralized units, the sample length was shortened
to one to two meters. Geological and geotechnical parameters were recorded based on defined sample intervals and/or drill run
intervals (defined by the placement of a wooden block at the end of a core run). Logged parameters were reviewed annually and
slight modifications have been made between campaigns, but generally include rock type, mineral abundance, major structures, specific
gravity (“SG”), point load testing, recovery and rock quality designation measurements. Drill logs were converted
to a digital format and forwarded to the Database Manager, who imported them into the master database. Core was photographed and
then brought into the saw shack where it was split in half by the rock saw, divided into sample intervals, and bagged by the core
cutters. Not all drill core was oriented; however, core that had been oriented was identified to samplers by a line drawn down
the core stick. If core was not competent, it was split by using a spoon to transfer half of the core into the sample bag. Once
the core was sawed, half was sent to ALS Chemex Laboratories (“ALS Chemex”) in Vancouver for analysis and the other
half was stored at the Dahl Creek camp, but since has been consolidated at the storage facility at the Bornite camp facilities
or at our warehouse in Fairbanks. Shipment of core samples from the Dahl Creek camp occurred on a drill hole by drill hole basis.
Rice bags, containing two to four poly-bagged core samples each, were marked and labelled with the ALS Chemex address, project
and hole number, bag number, and sample numbers enclosed. Rice bags were secured with a pre-numbered plastic security tie and
a twist wire tie and then assembled into sling loads for transport by chartered flights on a commercial airline to Fairbanks,
where they were met by a contracted expeditor for delivery directly to the ALS Minerals preparation facility in Fairbanks. In
addition to the core, control samples were inserted into the shipments at the approximate rate of one standard, one blank and
one duplicate per 20 core samples:
|
·
|
Standards:
four standards were used at the Arctic Deposit. The core cutter inserted a sachet of
the appropriate standard, as well as the sample tag, into the sample bag.
|
|
·
|
Blanks:
were composed of an unmineralized landscape aggregate. The core cutter inserted about
150 g of blank, as well as the sample tag, into the sample bag.
|
|
·
|
Duplicates:
the assay laboratory split the sample and ran both splits. The core cutter inserted a
sample tag into an empty sample bag.
|
Samples were logged
into a tracking system on arrival at ALS Chemex, and weighed. Samples were then crushed, dried, and a 250 g split pulverized
to greater than 85% passing 75 μm.
Gold assays were
determined using fire analysis followed by an atomic absorption spectroscopy finish. The lower detection limit was 0.005 ppm
gold; the upper limit was 1,000 ppm gold. An additional 34-element suite was assayed by inductively coupled plasma-atomic
emission spectroscopy (“ICP-AES”) methodology, following nitric acid aqua regia digestion. The copper analyses were
completed by atomic absorption (“AA”), following a triple acid digest.
The accreditations
of Primary and Secondary assay laboratories used during the 1966 – 1986 campaigns are not known. ALS Analytical Lab (Fairbanks,
Alaska) was the Primary assay lab between 1998 – present. ALS Chemex has attained International Organization for Standardization
(“ISO”) 9001:2000 registration. In addition, the ALS Chemex laboratory in Vancouver is accredited to ISO 17025 by
Standards Council of Canada for a number of specific test procedures including fire assay of gold by AA, ICP and gravimetric finish,
multi-element ICP and AA assays for silver, copper, lead and zinc. Trilogy has no relationship with any assay labs.
During 2013, we
conducted a 26% audit of the NovaGold era assay database fields: sample interval, Au, Ag, Cu, Zn, and Pb. This audit is documented
in a series of memos. Our staff did not identify and/or correct any transcription and/or coding errors in the database prior to
resource estimation. We also retained independent consultant Caroline Vallat, P.Geo. of GeoSpark Consulting Inc. to: 1) re-load
100% of the historical assay certificates, 2) conduct a QA/QC review of paired historical assays and NovaGold era re-assays; 3)
monitor an independent check assay program for the 2004 to 2008 and 2011 drill campaigns; and 4) generate QA/QC reports for the
2004 to 2008 and 2011 drill campaigns.
Arctic –
Security of Samples
Security measures
taken during historical Kennecott and BCMC programs are unknown to NovaGold or us. We are not aware of any reason to suspect that
any of these samples have been tampered with. The 2004 to 2011 samples were either in the custody of NovaGold personnel, contractors
or the assay laboratories at all times as discussed above, and the chain of custody of the samples is well documented.
Arctic
Project - Mineral Resource Estimate
The mineral resource
estimate was prepared by Tetra Tech with an effective date of the resource estimate as of July 30, 2013. Mineral Resources
are classified in accordance with the 2010 CIM Definition Standards for Mineral Resources and Mineral Reserves.
The mineral resource
model prepared by Tetra Tech considers diamond drill holes drilled by different operators during the period 1965 to 2011. The
majority of the assaying has been completed in recent years by us and our previous parent company NovaGold. The mineral resource
for the Arctic Project is supported by 43 core holes (approximately 13,500 m) drilled by NovaGold and 92 core holes (approximately
17,600 m) drilled by previous owners Kennecott, and/or a Kennecott subsidiary. The geological and assay database used to
estimate the Arctic Project mineral resources have been reviewed and audited by Tetra Tech.
Leapfrog
™
software (version 2.5.1) was used to review and verify the resource estimation domains, prior to being imported into Isatis
™
software (version 2012.1) to prepare assay data for geostatistical analysis, variography, block model construction, metal
grade estimation and mineral resource tabulation. Mineral Resources were estimated into five MS and six SMS lenses, and then combined
for an overall grade for the mineralized portion of the 10 m by 10 m by 5 m block. Extreme lead and gold assays
were capped prior to compositing. Ordinary kriging and inverse distance squared estimates were run, with ordinary kriging used
for resource reporting and inverse distance squared used for validation. Search parameters were constrained within each mineralized
domain and required an optimum number of 15 composites, minimum number of 5 composites, minimum number of 2 drill holes, and maximum
search distance range of 200 m. In general, blocks categorized as Indicated were supported by at least two drill holes within
a 75 m search radii, and blocks categorized as Inferred were supported by at least 2 drill holes within a 150 m search
radii. Estimated resources for the Arctic Deposit are reported in the following Table 4 and Table 5.
The Arctic Project
has no known reserves.
The PEA is preliminary
in nature and includes inferred mineral resources that are considered too speculative geologically to have the economic considerations
applied to them that would enable them to be categorized as mineral reserves. There is no certainty that the estimates contained
in the PEA will ever be realized. Mineral resources that are not mineral reserves do not have demonstrated economic viability.
Table 4 Indicated
Resource Estimate for the Arctic Project (NSR Cut-off of $35/t)
Cautionary Note
to United States Investors concerning estimates of Indicated Resources.
This section uses the term “indicated resources”.
We advise United States investors that these terms are not recognized by the SEC. United States investors are cautioned not to
assume that estimates of indicated mineral resources are economically minable, or will be upgraded into measured mineral resources.
See “
Risk Factors
” and “
Cautionary Note to United States Investors
.”
Category
|
|
Mt
|
|
|
Cu
(%)
|
|
|
Zn
(%)
|
|
|
Pb
(%)
|
|
|
Au
(g/t)
|
|
|
Ag
(g/t)
|
|
|
Cu
(Mlb)
|
|
|
Zn
(Mlb)
|
|
|
Pb
(Mlb)
|
|
|
Au
(Moz)
|
|
|
Ag
(Moz)
|
|
Indicated
|
|
|
23.848
|
|
|
|
3.26
|
|
|
|
4.45
|
|
|
|
0.76
|
|
|
|
0.71
|
|
|
|
53.2
|
|
|
|
1,713
|
|
|
|
2,338
|
|
|
|
400.9
|
|
|
|
0.55
|
|
|
|
40.8
|
|
Notes:
|
1.
|
These
resource estimates have been prepared in accordance with NI 43-101 and the Canadian Institute
of Mining, Metallurgy and Petroleum (“CIM”) Definition Standards. Mineral
resources that are not mineral reserves do not have demonstrated economic viability.
See “Risk Factors” and “Cautionary Note to United States Investors.”
|
|
2.
|
Mineral
Resources are reported within mineralization wireframes, contained within an Indicated
pit design using an assumed copper price of $2.90/lb, zinc price of $0.85/lb, lead price
of $0.90/lb, silver price of $22.70/oz, and gold price of $1,300/oz.
|
|
3.
|
Appropriate
mining costs, processing costs, metal recoveries and inter ramp pit slope angles were
used to generate the pit design.
|
|
4.
|
The
$35.01/t milled cut-off is calculated based on a process operating cost of $19.03/t,
G&A of $7.22/t and site services of $8.76/t. NSR equals payable metal values, based
on the metal prices outlined in Note 2 above, less applicable treatment, smelting, refining
costs, penalties, concentrate transportation costs, insurance and losses and royalties.
|
|
5.
|
The
LOM strip ratio was estimated at 8.39.
|
|
6.
|
Rounding
as required by reporting guidelines may result in apparent summation differences between
tonnes, grade and contained metal content.
|
|
7.
|
Tonnage
and grade measurements are in metric units. Contained copper, zinc and lead pounds are
reported as imperial pounds, contained silver and gold ounces as troy ounces.
|
Table 5 Inferred
Resource Estimate for the Arctic Project (NSR Cut-off of $35/t)
Cautionary Note
to United States Investors concerning estimates of Inferred Resources.
This section uses the term “inferred resources”.
We advise United States investors that these terms are not recognized by the SEC. The estimation of inferred resources involves
far greater uncertainty as to their existence and economic viability than the estimation of other categories of resources. United
States investors are cautioned not to assume that estimates of inferred mineral resources exist, are economically minable, or
will be upgraded into measured or indicated mineral resources. See “
Risk Factors
” and “
Cautionary
Note to United States Investors
.”
Category
|
|
Mt
|
|
|
Cu
(%)
|
|
|
Zn
(%)
|
|
|
Pb
(%)
|
|
|
Au
(g/t)
|
|
|
Ag
(g/t)
|
|
|
Cu
(Mlb)
|
|
|
Zn
(Mlb)
|
|
|
Pb
(Mlb)
|
|
|
Au
(Moz)
|
|
|
Ag
(Moz)
|
|
Inferred
|
|
|
3.363
|
|
|
|
3.22
|
|
|
|
3.84
|
|
|
|
0.58
|
|
|
|
0.59
|
|
|
|
41.5
|
|
|
|
239
|
|
|
|
285
|
|
|
|
43.2
|
|
|
|
0.06
|
|
|
|
4.5
|
|
|
Notes:
|
1.
|
These resource estimates have been
prepared in accordance with NI 43-101 and the CIM Definition Standards.
See “Risk Factors” and “Cautionary
Note to United States Investors.”
|
|
|
2.
|
Mineral Resources are reported within mineralization
wireframes, contained within an Inferred pit design using an assumed copper price of $2.90/lb, zinc price of $0.85/lb, lead
price of $0.90/lb, silver price of $22.70/oz, and gold price of $1,300/oz.
|
|
|
3.
|
Appropriate mining costs, processing costs, metal
recoveries and inter ramp pit slope angles were used to generate the pit design.
|
|
|
4.
|
The $35.01/t milled cut-off is calculated based
on a process operating cost of $19.03/t, G&A of $7.22/t and site services of $8.76/t. NSR equals payable metal
values, based on the metal prices outlined in Note 2 above, less applicable treatment, smelting, refining costs, penalties,
concentrate transportation costs, insurance and losses and royalties.
|
|
|
5.
|
The LOM strip ratio was estimated at 8.39.
|
|
|
6.
|
Rounding as required by reporting guidelines may
result in apparent summation differences between tonnes, grade and contained metal content.
|
|
|
7.
|
Tonnage and grade measurements are in metric units. Contained
copper, zinc and lead pounds are reported as imperial pounds, contained silver and gold ounces as troy ounces.
|
Arctic
Project – Mining Operations
The
Arctic Project is not currently in production; for contemplated exploration or development activities see below.
Arctic
Project – Exploration and Development
As noted in the
summary
Arctic Project – Technical Report
above, we engaged Tetra Tech to prepare a PEA for the Arctic Project. The
following summary describes the main results and assumptions of the PEA not previously discussed above. See “
Arctic Project
– Current Activities
” below for a description of the Company’s current and contemplated exploration.
The PEA is based
on a conventional truck-and-shovel, open-pit mine design at a single pit. The mining schedule was developed based on a maximum
mill capacity of 10,000 t/d. The Arctic Project’s total mine life is 13 years, including 1 year of pre-stripping followed
by 12 years of production. The pit uses four pushbacks and a minimum mining width of 40 m. Over the 13-year life, the pit
is producing 35.7 Mt of mineralized material and 299.4 Mt of waste rock. The life-of-mine (“LOM”) stripping
ratio is 8.39 and the stripping ratio excluding the pre-stripping waste rock is 7.94. The mining schedule does not currently consider
a low-grade stockpiling option but this can be assessed in more detail in future studies.
Mineral Processing
and Metallurgical Testing
Since 1970, metallurgical
test work has been conducted to determine the flotation response of various samples extracted from the Arctic Deposit. In general,
the samples tested produced similar metallurgical performances. In 2012, SGS Mineral Services (“SGS”) conducted a
metallurgical test program to further study metallurgical responses of the samples produced from Zones 1, 2, 3, and 5 of the Arctic
Deposit. The flotation test procedures used talc pre-flotation, conventional copper-lead bulk flotation and zinc flotation, followed
by copper and lead separation. In general, the 2012 test results indicated that the samples responded well to the flowsheet tested.
Below is a summary of average results of the locked cycle tests (without copper and lead separation).
|
·
|
The
copper recoveries to the bulk copper-lead concentrates ranged from 89 to 93% excluding
the Zone 1 & 2 composite which produced a copper recovery of approximately 84%; the
copper grades of the bulk concentrates were 24 to 28%.
|
|
·
|
Approximately
92 to 94% of the lead was recovered to the bulk copper-lead concentrates containing 9
to 13% lead.
|
|
·
|
The
zinc recovery was 84.2% from Composite Zone 1 & 2, 93.0% from Composite Zone 3 and
90.5% from Composite Zone 5. On average, the zinc grades of the concentrates produced
were higher than 55%, excluding the concentrate generated from Composite Zone 1 &
2, which contained only 44.5% zinc.
|
|
·
|
Gold
and silver were predominantly recovered into the bulk copper-lead concentrates. Gold
recoveries to this concentrate ranged from 65 to 80%, and silver recoveries ranged from
80 to 86%.
|
Using an open circuit
procedure, the copper and lead separation tests on the bulk copper-lead concentrate produced from the locked cycle tests generated
reasonable copper and lead separation. The copper concentrates produced contained approximately 28 to 31% copper, while the grades
of the lead concentrates were in the range of 41% to 67% lead. Also, it appears that most of the gold reported to the copper concentrate
and on average the silver was equally recovered into the copper and lead concentrates.
The 2012 grindability
test results showed that the Bond ball millwork index tests ranged from 6.5 to 11 kWh/t and abrasion index tests fluctuated
from 0.017 to 0.072 g for the mineralized samples. The data indicates that the samples are neither resistant nor abrasive
to ball mill grinding. The materials are considered to be soft or very soft in terms of grinding requirements.
Recovery Methods
A 10,000 t/d
process plant has been designed to process the massive and semi-massive sulphide mineralization of the Arctic property. The main
economic elements found in the deposit are copper, zinc, lead, and associated gold and silver. The process plant will operate
two twelve hour shifts per day, 365 days per year with an overall plant availability of 92%. The process plant will produce
three concentrates: 1) copper concentrate, 2) zinc concentrate, and 3) lead concentrate. Gold and silver are expected to be payable
at a smelter and are recovered in both the copper and lead concentrates. The process plant feed will be supplied from the Arctic
open pit mine.
The mill feed will
be hauled from the open pit to a primary crushing facility where the material will be crushed by a jaw crusher to a particle size
of 80% passing 125 mm.
The crushed material
will be ground by two stages of grinding, consisting of one SAG mill and one ball mill in closed circuit with hydrocyclones (SAB
circuit). The hydrocyclone overflow with a grind size of approximately 80% passing 70 µm will first undergo pre-talc
flotation, and then be processed by conventional bulk flotation (to recover copper, lead, and associated gold and silver), followed
by zinc flotation. The rougher bulk concentrate will be cleaned and followed by copper and lead separation to produce a lead concentrate
and a copper concentrate. The final tailings from the zinc flotation circuit will be pumped to the TSF. Copper, lead, and zinc
concentrates will be thickened and pressure-filtered before being transported by truck to a port and shipped to smelters.
The LOM average
mill feed is expected to contain 2.28% copper, 0.53% lead, 3.13% zinc, 0.5 g/t gold, and 37 g/t silver. According to the
mine plan developed for the PEA study and metallurgical test results, the LOM average metal recoveries and concentrate grades
are projected below:
|
·
|
copper
concentrate recovery: 87.1% copper; 57.9% gold; 40.2% silver; copper grade: 29%
|
|
·
|
lead
concentrate recovery: 74.0% lead; 6.8% gold; 40.2% silver; lead grade: 50%
|
|
·
|
zinc
concentrate recovery: 86.8% zinc; zinc grade: 56%.
|
Tailings and
Storage Facility
The co-disposal
TSF will be a fully lined facility consisting of rockfill embankment constructed across the Sub-Arctic Creek drainage, creating
an impoundment that will extend up the drainage. The rockfill embankment will be constructed to an ultimate crest elevation of
655 masl with the embankment being raised in stages to minimize the initial capital construction cost. During operations,
potential acid generating (“PAG”) waste rock will be placed at the bottom and sides of the basin forming layers with
consecutive disposal on tailings that will be filling the voids. The tailings has the potential to generate acid and, therefore,
the tailings and the PAG waste rock will be placed under water and remain permanently submerged in order to reduce the potential
for acid generation. Additional studies will be required to determine the most suitable method of co-disposal and potential requirements
for acid rock drainage (“ARD”) management and mitigation programs will need to be part of the design of the TSF.
The TSF will be
required to contain 110.5 Mm
3
total over the 12-year LOM, with 23.8 Mm
3
to accommodate the tailings
at an assumed stored dry density of 1.5 t/m
3
and 86.7 Mm
3
of PAG waste rock at an assumed stored
dry density of 1.9 t/m
3
. The TSF will be sited as a staged rockfill embankment with an upstream geomembrane liner.
The starter embankment will have a crest elevation of 560 m and impound 1 year of mining production, which is approximately
670,000 m
3
of tailings and 12.3 Mm
3
of waste rock.
Arctic
Project - Environmental Considerations
Environmental baseline
data collection was initiated in 2007, including surface water quality sampling, wetlands mapping, stream flow monitoring, aquatic
life surveys, subsistence, meteorological monitoring, and acid base accounting sampling. Additional baseline environmental data
in the Ambler Lowlands, the Subarctic Creek drainage, the Shungnak River drainage and downstream receiving environments will be
required to support future mine design, development of an environmental impact statement, permitting, construction and operations.
The Arctic Project
has the potential to significantly improve work opportunities for local and regional residents. In October 2011, we signed an
agreement with NANA which in addition to consolidating landholdings in the Ambler district has language establishing native hiring
preferences and preferential use of NANA subsidiaries for contract work. Furthermore, the agreement formalized an Oversight Committee,
with equal representation from NANA and us, to regularly review project plans and activities. In addition, a Subsistence Subcommittee
has been formed to protect subsistence and the Iñupiaq way of life and a Workforce Development Subcommittee is also in
place to address current and future employment needs. We meet monthly, during summer months, with the residents of Kobuk, Shungnak
and Ambler, the three villages closest to the project area. We also meet annually with eight other NANA region villages including
Noatak, Kivalina, Kotzebue, Kiana, Deering, Buckland, Selawik and Noorvik, for the purpose of updating residents on project plans
and fielding their questions and concerns. We have also developed a good working relationship with the NWAB government.
The Arctic Project
will be subject to a mine permitting process which will include compliance with the
National Environmental Policy Act
and
will require a number of major mine permits from state and federal agencies as well as a significant number of minor permits.
Although a number of federal conservation units are located in the general vicinity of the Arctic Project, including but not limited
to the Gates of the Arctic National Parks, Kobuk Preserve, Selawik National Wildlife Refuge, and Kobuk Valley and Selawik Wilderness
areas, there presence does not change the permitting process nor add to the number of permits required for the Arctic Project.
We will be required
to develop a formal project description and detailed reclamation and closure plan to support a successful permit application strategy.
The mine plan will embrace the concept of “design for closure”. In order to reduce any lasting risk of environmental
impacts, the plan will minimize surface disturbances during operations and promote long-term stability of the site after closure.
No assurance can
be given that new laws and regulations will not be enacted or that existing laws and regulations will not be applied in a manner
that could limit or curtail the Arctic Project. Amendments to current laws, regulations, licenses and permits governing operations
and activities of mining companies, or more stringent implementation thereof, could have a material adverse impact on the Arctic
Project and cause increases in capital expenditures or production costs, or reduction in levels of production, or abandonment,
or delays in the development of the business.
Arctic
Project - Current Activities
2015
The focus of work
on the Arctic Project in 2015 was drilling, surficial field investigations and desktop studies to support pre-feasibility. Trilogy
completed fourteen diamond drill holes for a total of 3,056 m of core; including twelve in-fill drill holes, representing 2,425
m, designed to evaluate vertical and lateral continuity of the high-grade polymetallic copper, gold, silver, lead and zinc mineralization,
and support upgrading of inferred resources to measured and indicated resource classification within the area of the proposed
Arctic open-pit as outlined in the PEA, and two drill holes, representing 631 m, specifically targeting geotechnical and hydrogeological
information. Based on a cut-off grade of 1.0% copper all fourteen drill holes intersected significant intervals; defined as a
minimum of 1.0 meter copper interval with average grade >0.7% copper.
The 2015 drill
program, sampling protocol and data verification were managed and overseen by qualified persons employed by Trilogy. The twelve
in-fill diamond drill holes were drilled at NQ diameter drill core and the two geotechnical drill holes were drilled at HQ diameter
drill core by Boart Longyear of South Jordan, Utah. Samples in mineralized core were collected using a 0.3-meter minimum length,
2.0-meter maximum length and 0.9-meter average sample length. Samples in un-mineralized core were collected using 2.0-meter minimum
length, 10-meter maximum length and 4-meter average sample length. Drill core recovery averaged 94% without overburden. Three
quality control samples (one blank, one standard and one duplicate) were inserted into each batch of 20 samples. The drill core
was either sawn or shipped as whole core, with samples sent to ALS Minerals, Fairbanks, Alaska for sample preparation and the
sample pulps forwarded to ALS’s North Vancouver facility for analysis. ALS Minerals in North Vancouver, B.C., Canada, is
a facility certified as ISO 9001:2008 and accredited to ISO / IEC 17025:2005 from the Standards Council of Canada.
In addition to
the drill program, Trilogy contracted SRK Consulting of Vancouver, Canada (SRK) to conduct a dedicated field investigation comprised
of drill logging, mapping, laboratory test work and downhole installations. A summary report detailing a gap analysis, desktop
study findings and field investigation recommendations was issued prior to the drill program. Two dual purpose drill holes were
completed for geotechnical (soil and rock) and hydrogeological data acquisition. Additionally, SRK hydrogeologists re-visited
previously installed vibrating wire piezometers to ensure data loggers were operational and to download pore pressure measurement
data. A civil geotechnical site visit was conducted to investigate surface conditions and provide comment on potential infrastructure
and waste management facilities layout. Furthermore, structural mapping of exposed rock faces along the Arctic ridge along with
downhole televiewer and structural logging of newly acquired drill core were consolidated with prior work to support a 3D structural
model.
Under the guidance
of SRK, Trilogy initiated acid-base-accounting kinetic test work at Arctic in 2015; both on-site barrel testing and parallel laboratory
humidity cells. In addition, Trilogy collected samples from the 2015 drill program to increase static testing coverage over the
Arctic deposit.
Environmental baseline
data collection continued in 2015, including 34,000 acres of wetlands delineation within the project area, which was completed
by WHPacific of Anchorage, Alaska. Seventy percent of a LiDAR survey over the UKMP was completed by WHPacific and Quantum Spatial
before weather conditions became unfavorable.
2016
Site investigation
activities continued at the UKMP Projects in 2016 and were mainly focused on advancing the Arctic project towards pre-feasibility.
We completed thirteen diamond drill holes for a total of 3,058 meters of core. The 2016 drill program was designed to collect
data for geotechnical, hydrological, waste rock characterization and metallurgical studies as well as further resource definition.
Three drill holes
representing 822 meters drilled were designed to collect geotechnical and hydrological data within the proposed Arctic open-pit.
Data collected from the geotechnical/hydrological drill program and outcrop/seeps mapping was used to update a 3D structure model,
rock mass model, and hydrogeology model and these results have been integrated into a combined geotechnical model that will be
used for characterization of geotechnical domains and slope stability evaluation in a future pre-feasibility study.
Four drill holes
representing 1,030 meters drilled were designed to collect metallurgical samples, specifically targeting material within the initial
production years of the Arctic open-pit. A metallurgical test work program is currently underway and expected to be complete in
Q1-2017.
Six drill holes
representing 1,206 meters drilled were designed to evaluate vertical and lateral continuity of the high grade polymetallic copper,
gold, silver, lead, and zinc mineralization, and support upgrading of Inferred resources to Measured and Indicated resource classification
within the area of the proposed Arctic open-pit. We are pleased to announce that all six infill holes encountered mineralized
intervals consistent with previous drilling conducted within the resource area on the property. Data collected from the drill
program was used to update the 3D geology model. The updated geology domains and drill data will be incorporated into an updated
resource estimate that will support a future pre-feasibility study.
The drill program,
sampling protocol and data verification were managed and overseen by qualified persons employed by Trilogy Metals. Thirteen diamond
drill holes were drilled at HQ and NQ diameter drill core by Boart Longyear of South Jordan, Utah. Samples in mineralized core
were collected using a 0.2-meter minimum length, 5.0-meter maximum length and 1.4-meter average sample length. Samples in un-mineralized
core were collected using 0.2-meter minimum length, 5.0-meter maximum length and 3.2-meter average sample length. Drill core recovery
averaged 94% with overburden. Three quality control samples (one blank, one standard and one duplicate) were inserted into each
batch of 20 samples. The drill core was either sawn or shipped as whole core, with samples sent to ALS Minerals, Fairbanks, Alaska
for sample preparation and the sample pulps forwarded to ALS's North Vancouver facility for analysis. ALS Minerals in North Vancouver,
B.C., Canada, is a facility certified as ISO 9001:2008 and accredited to ISO / IEC 17025:2005 from the Standards Council of Canada.
In addition to
the drill program, we conducted an aquatics survey, avian survey, habitat survey, archaeological survey, and wetlands delineation
survey, and continued ongoing baseline environmental data collection in 2016.
An aquatics survey
of rivers and creeks over the UKMP Projects included identification of fish species present and tissues metals testing. An avian
survey over the UKMP Projects was conducted in May to identify bird nest locations, with a follow-up survey in July to measure
fledging success. A habitat survey was completed in conjunction with the wetlands survey and will be used to inform future biological
surveys. Approximately 2,400 acres were surveyed for archaeological resources in or around the potential Arctic open-pit and facilities
locations. Approximately 2,900 acres of wetlands were delineated using techniques approved by the Army Corps of Engineers.
On-going baseline
environmental data collection included maintenance of three hydrologic gauging stations and one meteorological station. Surface
water quality samples were taken from sixteen surface water locations and analyzed for a full suite of parameters including total
and dissolved metals.
We continue to
advance the acid-base-accounting static and kinetic test work at Arctic. Continuous down-hole samples were collected from the
2016 drill program to support static testing coverage over the Arctic deposit. On-site barrel sampling was successfully completed
in the spring and fall of 2016 to support the kinetics program, and in August we achieved the 40-week milestone for the parallel
laboratory humidity cells; maintenance and monitoring of all kinetic tests will continue into 2017.
The LiDAR survey
that was incomplete last year due to weather conditions was also completed during the summer. Final deliverables received in the
fall of 2016 are being utilized to support on-going engineering design and geological modeling.
Bornite
Project, Ambler District, Alaska
Bornite
Project
Except for the
information under the heading “
Bornite Project – Current Activities
” and except as otherwise stated,
the scientific and technical information relating to the Bornite Project contained in this Form 10-K is derived from, and in some
instances is an extract from, the technical report titled “NI 43-101 Technical Report on the Bornite Project, Northwest
Alaska, USA” report dated effective April 19, 2016 released May 16, 2016 (the “Bornite Report”) prepared by
BD Resource Consulting, Inc., SIM Geological Inc., and International Metallurgical & Environmental Inc. Erin Workman, P.Geo.,
an employee and Director, Technical Services, is a Qualified Person as defined in NI 43-101, and has approved the scientific and
technical information contained herein. The information regarding the Bornite Project is based on assumptions, qualifications
and procedures which are not fully described herein. Reference should be made to the full text of the Bornite Report which has
been filed with certain Canadian securities regulatory authorities pursuant to NI 43-101 and is available for review on SEDAR
at
www.sedar.com
and on EDGAR at
www.sec.gov
.
Bornite
Project - Property Description and Location
The property is
located in the Ambler mining district of the southern Brooks Range, in the NWAB of Alaska. The property is located in Ambler River
A-2 quadrangle, Kateel River Meridian T 19N, R 9E, sections 4, 5, 8 and 9. The Bornite Project is located 248 km east of the town
of Kotzebue, 19 km north of the village of Kobuk, 275 km west of the Dalton Highway, an all-weather state maintained public road,
at geographic coordinates N67.07° latitude and W156.94° longitude (Universal Transverse Mercator (UTM) North American
Datum (NAD) 83, Zone 4W coordinates 7440449N, 589811E).
Bornite
Project - Accessibility, Climate, Local Resources, Infrastructure, and Physiography
Primary access
to the Bornite Project is by air, using both fixed wing aircraft and helicopters. There are four well maintained, approximately
1,500 m-long gravel airstrips located near the property, capable of accommodating charter fixed wing aircraft. These airstrips
are located 40 km west at Ambler, 23 km southwest at Shungnak, 19 km south at Kobuk, and 15 km south at Dahl Creek. There is daily
commercial air service from Kotzebue to the village of Kobuk, the closest community to the property. During the summer months,
the Dahl Creek Camp airstrip is suitable for larger aircraft, such as C-130 and DC-6. In addition to the four 1,500 m airstrips,
there is a 700 m airstrip located at the Bornite Camp. The airstrip at Bornite is suited to smaller aircraft, which support the
Bornite Camp with personnel and supplies.
There is no direct
water access to the property. During spring runoff, river access is possible by barge from Kotzebue Sound to Ambler, Shungnak,
and Kobuk via the Kobuk River.
A two-lane, two-wheel
drive gravel road links the Bornite Project’s main camp to the 1,525 m Dahl Creek airstrip and village of Kobuk.
The climate in
the region is typical of a sub-arctic environment. Exploration is generally conducted from late May until late September. Weather
conditions on the Bornite Project can vary significantly from year to year and can change suddenly. During the summer exploration
season, average maximum temperatures range from 10°C to 20°C, while average lows range from -2°C to 7°C. By early
October, unpredictable weather limits safe helicopter travel to the property. During winter months, the property can be accessed
by snow machine, track vehicle, or fixed wing aircraft. Winter temperatures are routinely below -25°C and can exceed -50°C.
Annual precipitation in the region averages at 395 mm with the most rainfall occurring from June through September, and the most
snowfall occurring from November through January.
Drilling and mapping
programs are seasonal and have been supported out of the Main Bornite Camp and Dahl Creek Camp. The main Bornite Camp facilities
are located on Ruby Creek on the northern edge of the Cosmos Hills. The camp provides office space and accommodations for the
geologists, drillers, pilots, and support staff. There are four 2-person cabins installed by NANA prior to our tenure. In 2011,
the main Bornite Camp was expanded to 20 sleeping tents, 3 administrative tents, 2 shower/bathroom tents, 1 medical tent, and
1 dining/cooking tent. With these additions, the camp capacity was increased to 49 beds. A 30 m by 9 m core logging facility was
also built in summer of 2011. An incinerator was installed near the Bornite airstrip to manage waste created by the Bornite Project.
Power for the Bornite Project is supplied by a 175 kW Caterpillar diesel generator. Water is provided by a permitted artesian
well located 250 m from the Bornite Camp. In 2012, the camp was further expanded with the addition of a laundry tent, a women's
shower/washroom tent, a recreation tent, several additional sleeping tents, and a 2 x enlargement of the kitchen tent. Camp capacity
increased to 76 beds. The septic field was upgraded to accommodate the increase in camp population. One of the two-person cabins
was winterized for use by the winter caretaker. A permitted landfill was established to allow for the continued cleanup and rehabilitation
of the historic shop facilities and surroundings. The Dahl Creek camp is a leased facility used as an overflow or alternative
facility to the main Bornite Camp. The Dahl Creek camp has a main cabin for dining and administrative duties, and a shower facility.
Sleeping facilities include two hard-sided sleeping cabins with seven beds (primarily used for staff), one 4-person sleeping tent,
and three 2-person sleeping tents for a total of 17 beds. There are support structures, including a shop and storage facilities.
The Bornite Project
is located on Ruby Creek on the northern edge of the Cosmos Hills. The Cosmos Hills are part of the southern flank of the Brooks
Range in Northwest Alaska. Topography in the area is moderately rugged. Maximum relief in the Cosmos Hills is approximately 1,000
masl with an average of 600 masl. Talus covers the upper portions of the hills; glacial and fluvial sediments occupy valleys.
The Kobuk Valley is located at the transition between boreal forest and Arctic tundra. Spruce, birch, and poplar are found in
portions of the valley, with a ground cover of lichens (reindeer moss). Willow and alder thickets and isolated cottonwoods follow
drainages, and alpine tundra is found at higher elevations. Tussock tundra and low, heath-type vegetation covers most of the valley
floor. Patches of permafrost exist on the property. Wildlife in the property area is typical of Arctic and Subarctic fauna. Larger
animals include caribou, moose, Dall sheep, bears (grizzly and black), wolves, wolverines, coyotes, and foxes. Fish species include
salmon, sheefish, arctic char, and arctic grayling. The Kobuk River, which briefly enters the Upper Kobuk Mineral Projects on
its southwest corner, is a significant salmon spawning river. The caribou on the property belong to the Western Arctic herd that
migrates twice a year – south in August, from their summer range north of the Brooks Range, and north in March from their
winter range along the Buckland River.
Bornite
Project - History
Kennecott
and Bear Creek Mining Tenure
Regional exploration
began in the early 1900s when gold prospectors noted copper occurrences in the hills north of Kobuk, Alaska. In 1947, local prospector
Rhinehart “Rhiny” Berg along with various partners traversing in the area located outcropping mineralization along
Ruby Creek (Bornite) on the north side of the Cosmos Hills. They subsequently staked claims over the Ruby Creek showings and constructed
an airstrip for access. In 1957, BCMC, Kennecott's exploration subsidiary, optioned the property from Berg. Exploration drilling
in 1961 and 1962 culminated in the discovery of the “No.1 Ore Body” where drill hole RC-34 cut 20 m of 24% copper
(the “No.1 Ore Body” is a historic term used by BCMC that does not connote economic viability in the present context;
it is convenient to continue to use the term to describe exploration work and historic resource estimation in a specific area
of what is now generally known as Ruby Creek Upper Reef). The discovery of the “No.1 Ore Body” led to the development
of an exploration shaft in 1966. The shaft, which reached a depth of 328 m, encountered a significant watercourse and was flooded
near completion depth. The shaft was subsequently dewatered and an exploration drift was developed to provide access for sampling
and mapping, and to accommodate underground drilling to further delineate mineralization. A total of 59 underground holes were
drilled and, after the program, the shaft was allowed to re-flood. The discovery of the Arctic Project in 1965 prompted a hiatus
in exploration at Bornite, and only limited drilling occurred up until 1976.
In the late 1990s,
Kennecott resumed its evaluation of the Bornite deposit and the mineralization in the Cosmos Hills with an intensive soil, stream,
and rock chip geochemical sampling program using 32 element ICP analyses. Grid soil sampling yielded 765 samples. Ridge and spur
sampling resulted in an additional 850 soil samples in the following year. Skeletonized core samples (85 samples) from key historic
drill holes were also analyzed using 32 element ICP analytical methods. Geochemical sampling identified multiple areas of elevated
copper and zinc in the Bornite region.
Kennecott completed
numerous geophysical surveys as an integral part of exploration throughout their tenure on the property. Various reports, notes,
figures, and data files stored in Kennecott’s Salt Lake City exploration office indicated that geophysical work included,
but was not limited to, the following:
|
·
|
Airborne
magnetic and EM surveys (fixed-wing INPUT) (1950s)
|
|
·
|
Gravity,
single point (“SP”), Audio-Frequency Magneto-Telluric (“AMT”),
EM, borehole and surface IP/resistivity surveys (1960s)
|
|
·
|
Gravity,
airborne magnetic, and CSAMT surveys (1990s)
|
We have little
information or documentation associated with these geophysical surveys conducted prior to the 1990s. Where data are available
in these earlier surveys, the lack of details in data acquisition, coordinate systems, and data reduction procedures limit their
usefulness. The only complete geophysical report available concerns down-hole IP/resistivity results. Most notable is the 1996
Bouger gravity survey from the Bornite deposit into the Ambler lowlands. The Bornite deposit itself is seen as a significant 3
milligal anomaly. Numerous 2 milligal to > 6 milligal anomalies occur under cover in the Ambler lowlands and near the Aurora
Mountain and Pardner Hill occurrences. In addition to the geophysical surveys conducted by Kennecott, the ADNR completed an aeromagnetic
survey of portions of the Ambler mining district in 1974-1975.
Several studies
have been undertaken reviewing the geology and geochemistry of the Bornite deposit. Most notable is Murray Hitzman’s PhD
dissertation at Stanford University and Don Runnel’s PhD dissertation at Harvard University. Bernstein and Cox reported
on mineralization of the “No. 1 Ore Body” in a 1986 paper in Economic Geology. In addition to the historical work,
Ty Connor at the Colorado School of Mines recently completed a Master’s thesis which reported on the timing of alteration
and mineralization at the Bornite deposit.
Kennecott conducted
two technical reviews of the groundwater conditions and a summary of the findings related to the flooding of the exploration shaft.
In 1961, Kennecott collected 32 coarse reject samples from five drill holes to support preliminary metallurgical test work at
Bornite. Samples targeted high-grade (> 10%) copper mineralization from the Upper Reef at Ruby Creek.
Bornite
Project - Geological Setting and Mineralization
The Bornite Project
is located within the Arctic Alaska Terrane, a sequence of mostly Paleozoic continental margin rocks that make up the Brooks Range
and North Slope of Alaska. It is within the Phyllite Belt geologic subdivision, which together with the higher-grade Schist Belt,
stretches almost the entire length of the Brooks Range and is considered to represent the hinterland of the Jurassic Brooks Range
orogeny. The southern margin of the Phyllite Belt is marked by mélange and low angle faults associated with the Kobuk River
fault zone, while the northern boundary is thought to be gradational with the higher-grade metamorphic rocks of the Schist Belt.
The geology of
the Bornite resource area is composed of alternating beds of carbonate rocks (limestone and dolostone) and calcareous phyllite.
Limestone transitions laterally into dolostone, which hosts the majority of the mineralization and is considered to be hydrothermal
in origin. Spatial relationships and petrographic work establish dolomitization as genetically related to early stages of the
copper mineralizing system.
Work by Trilogy
in 2015 focused on furthering the understanding of the distribution and nature of the various lithologic units and their context
in a sedimentary depositional model. The updated model, based on lithogeochemical signatures of the various units along with their
historical visual logging, shows stacked debris flows composed of basal non-argillaceous channelized debris flows breccias with
a fining upward sequence of increasingly argillaceous-rich breccias capped by high calcium (Ca) phyllites, confined laterally
in channels between either massive or thin-bedded platform carbonates. Two stacked debris flow sequences are apparent, the Lower
and Upper reefs. The Upper reef grades vertically into capping argillaceous limestones instead of discrete high Ca phyllites indicating
a shallowing upward or filling of the debris flow channels. Based on this updated interpretation, a series individual debris flow
cycles have been modeled. Low calcium (Ca) phyllites, such as the Anirak schist (QP) and the Beaver Creek phyllite respectively
underlie and cap the local stratigraphy suggesting different sourcing than the locally derived high Ca phyllites of the debris
flow dominated Bornite Carbonate sequence stratigraphy. The Beaver Creek is in structural contact with the Bornite Carbonate Sequence
while the contact with the underlying Anirak schist is an unconformity. In addition to the stacked sedimentary stratigraphy, a
crosscutting breccia dubbed the P-Breccia has been identified in and around the recently discovered South Reef mineralization.
Though poorly defined by the overall lack of drilling in the area, the body which contains excellent copper grade lies at or near
the Iron Mountain discontinuity. It remains unclear whether the P Breccia is a post-depositional structural, hydrothermal or solution-collapse
induced breccia.
Structural fabrics
observed on the property include bedding and two separate foliations. Bedding (S0) can be measured only rarely where phyllite
and carbonate are interbedded and it is unclear to what extent it is transposed. The pervasive foliation (S1) is easily measured
in phyllites and may be reflected by colour banding and/or stylolamination (flaggy habit in outcrop) of the carbonates. Core logging
shows that S1 is folded gently on the 10 m scale and locally tightly folded at the decimetre scale. S2 axial planar cleavage is
locally developed in decimetre scale folds of S1. Both S1 and S2 foliations are considered to be Jurassic in age. Owing to their
greater strength, bodies of secondary dolostone have resisted strain and foliation development, whereas the surrounding limestone
and calc-phyllite appear in places to have been attenuated during deformation. This deformation, presumably Jurassic, complicates
sedimentological interpretations. Potentially the earliest and most prominent structural feature in the resource area is the northeast-trending
Iron Mountain discontinuity which is still problematic in its interpretation.
Mineralization
at Bornite occurs as tabular mineralized zones that coalesce into crudely stratiform bodies hosted in secondary dolomite. Two
significant dolomitic horizons that host mineralization have been mapped by drilling and include: 1) the Lower Reef, a thick 100
to 300 m thick dolomitized zone lying immediately above the basal quartz phyllite unit of the Anirak Schist; and 2) the Upper
Reef, a 100 to 150 m thick dolomite horizon roughly 300 m higher in section.
The Lower Reef
dolomite outcrops along the southern margin of the Ruby Creek zone and is spatially extensive throughout the deposit area. It
hosts a significant portion of the shallow resources in the Ruby Creek zone as well as higher grade resources down dip and to
the northeast in the South Reef. The Upper Reef zone hosts relatively high-grade resources to the north in the Ruby Creek zone.
The Upper reef zone appears to lie at an important NE- trending facies transition to the NW of the main drilled area and locally
appears to be at least partially thrust over the Lower Reef stratigraphy to the southeast.
Drill results from
2013 show dolomitization and copper mineralization in the Upper and Lower Reefs coalescing into a single horizon along the northern
limits of current exploration. The NE- trending Ruby Creek and South Reef zones also coalesce into a roughly 1000 m wide zone
of >200 m thick dolomite containing significant copper mineralization dipping north at roughly 5-10 degrees.
Bornite
Project – Mineralization
Copper
mineralization at Bornite is comprised of chalcopyrite, bornite, and chalcocite distributed in stacked, roughly stratiform zones
exploiting favourable stratigraphy within the dolomitized limestone package. Mineralization occurs, in order of increasing grade,
as disseminations, irregular and discontinuous stringer-style veining, breccia matrix replacement, and stratiform massive sulphides.
The distribution of copper mineral species is zoned around the bottom-centre of each zone, with bornite-chalcocite-chalcopyrite
at the core and progressing outward to chalcopyrite-pyrite. Additional volumetrically minor copper species include carrollite,
digenite, tennantite-tetrahedrite, and covellite. Stringer pyrite and locally significant sphalerite occur above and around the
copper zones, while locally massive pyrite and sparse pyrrhotite occur in association with siderite alteration below copper mineralization
in the Lower Reef.
In
addition to the copper mineralization, significant cobalt mineralization is found accompanying bornite-chalcocite mineralization.
Cobalt occurs with high-grade copper as both carrollite (Co2CuS4) and as cobaltiferous rims on recrystallized pyrite grains.
Appreciable
silver values are also found with bornite-rich mineralization in the South Reef and Ruby Creek zones.
Bornite
Project – Exploration
Exploration in
and around the Bornite Project by Kennecott from 1957 to 1998 is summarized above. In addition to the extensive drilling completed
during the more than 40 year tenure of Kennecott in the district, Kennecott completed widespread surface geochemical sampling,
regional and property scale mapping, and numerous geophysical surveys employing a wide variety of techniques. The majority of
this data has been acquired by us and forms the basis for renewed exploration that targets Bornite-style mineralization in the
Bornite carbonate sequence.
NovaGold as the
precursor company to us began to actively pursue an agreement to explore the Bornite Project with NANA in 2005 resulting in an
initial airborne geophysical survey in 2006. Negotiations on the consolidation and exploration of the entire Ambler district continued
for the next several years culminating in the NANA Agreement in October, 2011.
With the NANA Agreement
approaching completion, NovaGold initiated work in 2010 to begin to characterize the exploration potential and depositional controls
by re-logging and re-analyzing select drill holes with a Niton portable x-ray fluorescence (“XRF”) to determine geochemical
variability. In 2011, NovaGold began an initial drill program to verify the historical database and exploration potential and
conducted additional geophysical surveys to provide better targeting tools for continued exploration in the district. In 2012,
we expanded the IP geophysical coverage completing a major district-wide survey that targeted the prospective Bornite Carbonate
sequence. Subsequent resource drilling between 2011 and 2013
based on the exploration targeting is discussed in
the “
Bornite Project - Mineral Resource Estimates”
section below
.
2006
NovaGold Exploration
In 2006, NovaGold
contracted Fugro Airborne Surveys to complete a detailed helicopter DIGHEM magnetic, EM and radiometric survey of the Cosmos Hills.
The survey covered a rectangular block approximately 18 km by 49 km which totaled 2,852 line kilometres. The survey was flown
at 300 m line spacing with a line direction of N20E. The DIGHEM helicopter survey system produced detailed profile data of magnetics,
EM responses and radiometrics (total count, uranium, thorium, and potassium) and was processed into maps of magnetics, discrete
EM anomalies, EM apparent resistivity, and radiometric responses.
2010
NovaGold Exploration
In
2010, in anticipation of completing the NANA Agreement, NANA granted NovaGold permission to begin low level exploration at Bornite;
this consisted of re-logging and re-analyzing select drill holes using a Niton portable XRF. In addition to the 2010 re-logging
effort, NovaGold contracted a consulting geophysicist, Lou O'Connor, to compile a unified airborne magnetic map for the Ambler
mining district from Kennecott, Alaska DNR, and NovaGold airborne geophysical surveys.
2011
NovaGold Exploration
In
2011, NovaGold contracted Zonge International Inc. (“Zonge”) to conduct both dipole-dipole complex resistivity induced
polarization (“CRIP”) and natural source audio-magnetotelluric (“NSAMT”) surveys over the northern end
of the prospect to develop tools for additional exploration targeting under cover to the north.
NSAMT
data were acquired along two lines totaling 5.15 line-km, with one line oriented generally north-south through the centre of the
survey area and one being the southernmost east-west line in the survey area. CRIP data were acquired on five lines: four east-west
lines and one north-south line, for a total coverage of 14.1 line-km and 79 collected CRIP stations. The initial objective of
the survey was to investigate geological structures and the distribution of sulphides possibly associated with copper mineralization.
Results
from the paired surveys show that wide-spaced dipole-dipole resistivity is the most effective technique to directly target the
mineralization package. Broad low resistivity anomalies reflecting pyrite haloes and mineralization appear to define the limits
of the fluid package. Well-defined and often very strong chargeability anomalies are also present, but appear in part to be masked
by phyllitic units which also have strong chargeability signatures. The NSAMT show similar resistivity features as the IP, but
are less well resolved.
2012
Trilogy Exploration
In
light of the success of the 2011 geophysical program, we contracted Zonge to conduct a major district-wide dipole/dipole IP survey,
a down-hole IP radial array survey in the South Reef area, and an extensive physical property characterization study of the various
lithologies to better interpret the existing historical geophysical data.
Zonge
completed 48 line km of 200 m dipole/dipole IP during 2012, infilling and expanding on the 2011 survey, and stretching across
the most prospective part of the outcropping permissive Bornite Carbonate sequence. The results show a well-defined low resistivity
area associated with mineralization and variable IP signatures attributed both to mineralization and the overlying Beaver Creek
phyllite. Numerous target areas occur in the immediate Bornite area with lesser targets occurring in the Aurora Mountain and Pardner
Hill areas and in the far east of the survey area. During the 2012 drill program at South Reef, a single drill hole was targeted
on a low resistivity area approximately 500 m to 600 m southeast of the South Reef mineralization trend. Although the drill hole
intersected some dolomite alteration in the appropriate stratigraphy, no significant sulphides were encountered.
In
addition to the extensive ground IP survey, Zonge also completed 9 km of down-hole radial IP using an electrode placed in drill
hole RC12-0197 to further delineate the trend and potential in and around the South Reef. In addition to the 2012 ground geophysical
surveys, extensive physical property data including resistivity, chargeability, specific gravity, and magnetic susceptibility
were captured for use in modelling the existing ground IP and gravity surveys, and the airborne EM and magnetic surveys.
In
addition to geophysical focused exploration, a district wide geologic map was compiled integrating Kennecott’s 1970’s
mapping of the Cosmos Hills with selective Trilogy mapping in 2012.
2013 Trilogy
Exploration
The
emphasis of the 2013 program was to further validate and refine the 2012 geologic map of the Cosmos Hills. A deep penetrating
soil and vegetation geochemical orientation survey was completed over the South Reef deposit, utilizing various partial leaches
and pH methods. The initial, approximately 1 km, test lines suggest a good response for several of the partial leaches of the
soils but little response in the vegetative samples; further follow-up is warranted to the north of the deposit into the Ambler
lowlands.
2014 Trilogy
Exploration
During
2014, exploration work was limited to a re-logging and re-sampling program of historical Kennecott drill core.
2015
Trilogy Exploration
As
a follow-up to the 2013 field program, a deep penetrating soil and vegetation geochemical survey was extended north of the deposit
into the Ambler lowlands. Trilogy geologists completed a lithogeochemical desktop study and a comprehensive update to the 3D lithology
model; the updated domains have been utilized in the most recent resource estimation.
Bornite
Project – Drilling
A
total of 183 surface core holes and 51 underground core holes, totaling 78,147 m have been drilled, targeting the Bornite deposit
during 21 different annual campaigns dating from 1957 through 2013. All of the drill campaigns, with the exception of the 2011
NovaGold campaign and the 2012 and 2013 Trilogy campaigns were completed by Kennecott or their exploration subsidiary BCMC. All
drill holes (except RC13-230 and RC13-232 which have been reserved for metallurgical studies) were utilized in the estimation
of the current resource.
Sprague
and Henwood, a Pennsylvania-based drilling company, completed all of the Kennecott drilling, with the exception of the 1997 program
(three drill holes) completed by Tonto Drilling Services, Inc. (a NANA-Dynatech company). The 2011 thru 2013 NovaGold/Trilogy
programs used Boart Longyear Company as the drill contractor.
In
the initial years of drilling at Bornite, Kennecott relied on AX core (1.1875 in or 30.2 mm diameter), but, as drilling migrated
towards deeper targets, a change to BX core (1.625 in or 41.3 mm diameter) was implemented to help limit deviation. From 1966
to 1967, drilling activity at Bornite moved underground and EX diameter core (0.845 in or 21.5 mm diameter) was implemented to
define the Ruby Creek Upper Reef zone “No.1 Ore Body”. Drilling activity moved back to the surface in 1968, and, from
1968 to 1972, BX core was most commonly drilled. In later years, core size increased to NX (2.125 in or 54.0 mm diameter) and
finally, in 2011, core size increased to NQ (1.874 in or 47.6 mm diameter) and HQ (2.5 in or 63.5 mm diameter). Progressively
larger diameter drill rods have been continually used over the years in an attempt to minimize drill hole deviations.
There
is only partial knowledge of specific drill core handling procedures used by Kennecott during their tenure at the Bornite Deposit.
All of the drill data collected during the Kennecott drilling programs (1958 to 1997) was logged on paper drill logs, copies of
which are stored in the Kennecott office in Salt Lake City, Utah. Electronic scanned copies of the paper logs, in PDF format,
are held by Trilogy. Drill core was sawed or split with a splitter, with half core submitted to various assay labs and the remainder
stored in the Kennecott core storage facility at the Bornite Deposit. In 1995, Kennecott entered the drill assay data, the geologic
core logs, and the down hole collar survey data into an electronic format. In 2009, NovaGold geologists verified the geologic
data from the original paper logs against the Kennecott electronic format and then merged the data into a Microsoft™ SQL
database. Sampling of drill core by Kennecott and BCMC focused primarily on the moderate to high grade mineralized zones. Intervals
of visible sulphide mineralization containing roughly >0.5 to 1% copper were selected for analysis by Union Assay Office Inc.
of Salt Lake City, Utah. This approach left numerous intervals containing weak to moderate copper mineralization un-sampled in
the historic drill core. During the 2012 exploration program, we began sampling a portion of this remaining drill core in select
holes in the South Reef area. Trilogy extended this sampling program to the Ruby Creek area in 2013 and 2014.
Throughout
our tenure at Bornite, the following core handling procedures have been implemented. Core is slung by helicopter, or transported
by truck or ATV, from the drill rig to the core-logging facility. Upon delivery, geologists and geotechnicians open and inspect
the core boxes for any irregularities. They first mark the location of each drilling block on the core box, and then convert footages
on the blocks into metric equivalents. Geotechnicians or geologists measure the intervals (or “from/to”) for each
box of core and include this information, together with the drill hole ID and box number, on a metal tag stapled to the end of
each box. Geotechnicians then measure the core to calculate percent recovery and rock quality designation (“RQD”).
RQD is the sum of the total length of all pieces of core over 12 cm in a run. The total length of core in each run is measured
and compared to the corresponding run length to determine percent recovery. Core is then logged with lithology and visual alteration
features captured on observed interval breaks. Mineralization data, including total sulphide (recorded as percent), sulphide type
(recorded as a relative amount), and gangue and vein mineralogy are collected for each sample interval with an average interval
of approximately 2 m. Structural data is collected as point data. Geologists then mark sample intervals to capture each lithology
or other geologically appropriate intervals. Sample intervals of core are typically between 1 m and 3 m in length but are
not to exceed 3 m in length. Occasionally, if warranted by the need for better resolution of geology or mineralization, smaller
sample intervals have been employed. Geologists staple sample tags on the core boxes at the start of each sample interval, and
mark the core itself with a wax pencil to designate sample intervals. This sampling approach is considered sound and appropriate
for this style of mineralization and alteration. Drill core is digitally photographed prior to sampling. Drill core is cut in
half using diamond core saws. Specific attention to core orientation is maintained during core sawing to ensure that representative
samples are obtained. One-half of the core is retained in the core box for storage on site, or at our Fairbanks warehouse, and
the other half bagged and labeled for analysis. Samples are selected for specific gravity measurements.
In
2013, 33 historic drill holes in the Ruby Creek area, and in 2014, 37 historic drill holes in the Ruby Creek Area were re-logged,
re-sampled and re-assayed as these holes had previously only been selectively sampled by Kennecott. Entire holes were re-logged
utilizing Trilogy protocols discussed above. Samples were submitted either as halfcore, where previously sampled, or whole core
where un-sampled (this was done to ensure that a sufficient volume of material was provided for analysis). Sample intervals were
matched to historic intervals whenever possible, or selected to reflect Trilogy sampling procedures described above. The objectives
of the re-assay/re-logging program were threefold: 1) to implement a QA/QC program on intervals previously sampled by Kennecott
in order to confirm the validity of their results; 2) to identify additional lowergrade (0.2-0.5% copper), which was not previously
sampled; and 3) to provide additional multi-element ICP data to assist in the geologic interpretation of the deposit.
Bornite
Project - Sample Preparation, Analyses and Security
Sample
preparation, analytical lab accreditation and security measures taken during historical Kennecott and BCMC programs are unknown
to us; however, we are not aware of any reason to suspect that any of these samples have been tampered with. The 2011 to 2013
samples were either in the custody of NovaGold or Trilogy personnel or the assay laboratories at all times, and the chain of custody
of the samples is well documented.
Once
drill core was sawed, one half was retained for future reference and the other half was sent to ALS Minerals (formerly ALS Chemex)
in Vancouver for analyses. Shipment of core samples from the Bornite camp occurred whenever backhaul capacity was available on
the chartered aircraft, which was generally 5 to 6 days a week. Rice bags, containing two to four individual poly-bagged core
samples, were marked and labeled with the ALS Minerals address, project name (Bornite), drill hole number, bag number, and sample
numbers enclosed. Rice bags were secured with a pre-numbered plastic security tie, assembled into loads for transport by chartered
flights on a commercial airline to Fairbanks, and directly delivered by a contracted expeditor to the ALS Minerals preparation
facility in Fairbanks. In addition to the core samples, control samples were inserted into the shipments at the approximate rate
of one standard, one blank and one duplicate per 17 core samples. Samples were logged into a tracking system on arrival at ALS
Minerals, and weighed. Samples were then crushed, dried, and a 250 g split was pulverized to greater than 85% passing 75 μm.
Gold
assays in 2011 and 2012 were determined using fire analysis followed by an atomic absorption spectroscopy (“AAS”)
finish; gold was not analyzed in 2013 or 2014. The lower detection limit was 0.005 ppm gold; the upper limit was 10 ppm gold.
An additional 48-element suite was assayed by inductively coupled plasma-mass spectrometry (“ICP-MS”) and ICP-AES
methodologies, following a four acid digest. Over limit (>1.0%) copper and zinc analyses were completed by AA, following a
four acid digest.
ALS
Minerals has attained International Organization for Standardization (ISO) 9001:2000 registration. In addition, the ALS Minerals
laboratory in Vancouver is accredited to ISO 17025 by Standards Council of Canada for a number of specific test procedures including
fire assay of gold by AA, ICP and gravimetric finish, multi-element ICP and AA assays for silver, copper, lead and zinc. Trilogy
has no relationship with any primary or check assay labs utilized.
During
2012, 2013 and 2014, Trilogy staff performed continuous validation of the drill data; both while logging was in progress and after
the field program was complete. Trilogy also retained independent consultant Caroline Vallat, P.Geo. of GeoSpark Consulting Inc.
to: 1) import digital drill data to the master database and conduct QA/QC checks upon import, 2) conduct a QA/QC review of paired
historical assays and Trilogy 2012, 2013 and 2014 re-assays; 3) monitor an independent check assay program for the 2012, 2013,
and 2014 campaigns; and 4) generate a QA/QC report for the 2012, 2013, and 2014 campaigns.
Bornite
Project - Mineral Resource Estimates
The
mineral resource estimate has been prepared by Bruce M. Davis, FAusIMM, BD Resource Consulting, and Robert Sim, P.Geo., SIM Geological
Inc., both “Independent Qualified Persons” as defined in NI 43-101. We have filed three previous NI 43-101 Technical
Reports on the Bornite Project dated March 18, 2014, February 5, 2013 and July 18, 2012. The effective date of this resource is
April 19, 2016.
The
Bornite Project database comprises a total of 235 diamond drill (core) holes totaling 78,745 m; 174 holes target the Ruby Creek
zone and 42 holes target the South Reef zone. The remaining 19 holes in the database are exploratory in nature and test for satellite
mineralization proximal to the Bornite Deposit. The database contains a total of 29,262 samples that have been analyzed for copper
content. During 2014, Trilogy geologists re-logged and sampled 37 Kennecott drill holes comprising approximately 13,000 meters
with partial or no assays. The new resource estimate incorporates the results from the 2014 field program as well as advancements
to the 3D geological model completed during 2015.
Mineralization
in the Ruby Creek zone occurs as two discrete strata bound lenses: a Lower Reef which outcrops and dips approximately 10-15 degrees
to the northeast; and an Upper Reef lying roughly 150+ meters above the Lower Reef stratigraphy and which includes a small high-grade
zone historically referred to as the "No.1 Orebody" by Kennecott. Mineralization is hosted by a Devonian age carbonate
sequence containing broad zones of dolomite alteration and associated sulfide mineralization including bornite, chalcopyrite,
and chalcocite occurring as disseminations and vein stockworks as well as crackle and mosaic breccia fillings and locally massive
to semi-massive replacement bodies. The geological and assay database have been reviewed and audited by BDRC and SGI. It is of
the opinion of BDRC and SGI that the current drilling information is sufficiently reliable to interpret with confidence the boundaries
for copper mineralization and that the assay data are sufficiently reliable to support mineral resource estimation. That estimation
utilizes two-meter compositing of assays from 216 drill holes completed between 1961 and 2013. Estimated blocks were 5 x 5 x 5
meters on a side.
Sixty
domains were established for the estimation, all of which were treated as hard boundaries with no mixing of data between the domains.
A series of carbonate and phyllite lithology domains together with grade probability shells at 2% copper and 0.2% copper thresholds
were used to constrain the estimates. Visual inspections of the probability shells show that they fit well with observed levels
of bornite, chalcocite and chalcopyrite mineralization.
Based
on the interpreted local high-grade nature of the mineralization, both capping and outlier restriction strategies were implemented
to control the influence of high-grade mineralization in the resource model. This methodology removed approximately 3% of the
contained copper in the Ruby Creek area and 7% of the contained copper in the South Reef area.
A
total of 5,366 samples containing specific gravity measurements were utilized to estimate densities in the block model. Specific
gravity values were estimated into model blocks using inverse distance squared moving averages using the domains described previously.
Copper
grades in model blocks were estimated using ordinary kriging. A dynamic search orientation strategy was utilized, during both
grade and specific gravity interpolations, which is controlled by the interpreted trends of mineralization in the Upper, Lower
and South Reef zones. The block model has been validated through a combination of visual and statistical methods to ensure that
the grade and density estimates are an appropriate representation of the underlying sample data.
The
Bornite deposit comprises several zones of relatively continuous moderate- to high-grade copper mineralization that extends from
surface to depths of more than 800 m below surface. The deposit is potentially amenable to a combination of open pit and underground
extraction methods. It is important to recognize that these discussions of underground and surface mining parameters are used
solely for the purpose of testing the “reasonable prospects for economic extraction,” and do not represent an attempt
to estimate mineral reserves. No mineral reserves have been calculated for the Bornite Project.
Indicated
Mineral Resources includes blocks in the model that are potentially amenable to open pit extraction methods and are delineated
by drilling with holes spaced at a maximum distance of 75 meters, and exhibit a relatively high degree of confidence in the grade
and continuity of mineralization. Resources in the Inferred category require a minimum of one drill hole within a maximum distance
of 100 m and exhibit reasonable confidence in the grade and continuity of mineralization.
In
the opinion of the Qualified Persons, the level of understanding of the geologic controls that influence the distribution of copper
mineralization at the Bornite Deposit is relatively good. The drilling, sampling and validation practices utilized by Trilogy
during the various campaigns have been conducted in a professional manner and adhere to accepted industry standards. The confidence
in older, historic, drilling conducted by Kennecott has been demonstrated through a series of validation checks and, overall,
the underlying database is considered sufficient for the estimation of Indicated and Inferred mineral resources. The mineral resources
have been estimated in conformity with generally accepted CIM Estimation of Mineral Resources and Mineral Reserves Best Practices
Guidelines and are reported in accordance with the Canadian Securities Administrators’ NI 43-101. Mineral resources are
not mineral reserves and do not have demonstrated economic viability. There is no certainty that all or any part of the mineral
resource will be converted into mineral reserve. The estimate of mineral resources for the Bornite Project are summarized in,
“Bornite Project – Mineral Resource Statement”
.
Bornite
Project - Mineral Resource Statement
Mineral Resources
are classified in accordance with the 2014 CIM Definition Standards for Mineral Resources and Mineral Reserves.
The Qualified Persons
for the Mineral Resource estimate are Bruce Davis and Robert Sim, both Qualified Person’s independent of us. Mineral Resources
for the Bornite Project are found in Table 7 and Table 8.
Table 7: Indicated
Resource Estimate for the Bornite Project
See “Cautionary
Note to United States Investors”
This section uses the term “indicated resources”. We advise United States
investors that these terms are not recognized by the SEC. United States investors are cautioned not to assume that estimates of
indicated mineral resources are economically minable, or will be upgraded into measured mineral resources. See “
Risk
Factors
” and “
Cautionary Note to United States Investors
”.
Type
|
|
Cut-off
(Cu
%)
|
|
|
M tonnes
|
|
|
Grade
(Cu
%)
|
|
|
Contained
Metal
(Mlbs
Cu)
|
|
Indicated
|
|
In-Pit
(2)
|
|
|
0.5
|
|
|
|
40.5
|
|
|
|
1.02
|
|
|
|
913
|
|
|
Notes:
|
1.
|
These resource estimates have been prepared in accordance with NI 43-101 and the CIM Definition Standards. Mineral resources that are not mineral reserves do not have demonstrated economic viability.
See “Risk Factors” and “Cautionary Note to United States Investors.”
|
|
|
2.
|
Resources stated as contained within a pit shell developed using a metal price of US$3.00/lb Cu, mining costs of US$2.00/tonne, milling costs of US$11/tonne, G&A cost of US$5.00/tonne, 87% metallurgical recoveries and an average pit slope of 43 degrees.
|
|
|
3.
|
Rounding as required by reporting guidelines may result in apparent summation differences between tonnes, grade and contained metal content.
|
|
|
4.
|
Tonnage and grade measurements are in metric units. Contained copper are reported as imperial pounds.
|
|
|
5.
|
All amounts are stated in U.S. dollars unless otherwise noted.
|
Table 8: Inferred
Resource Estimate for the Bornite Project
See “Cautionary
Note to United States Investors”
This section uses the term “inferred resources”. We advise United States
investors that these terms are not recognized by the SEC. The estimation of inferred resources involves far greater uncertainty
as to their existence and economic viability than the estimation of other categories of resources. United States investors are
cautioned not to assume that estimates of inferred mineral resources exist, are economically minable, or will be upgraded into
measured or indicated mineral resources. See “
Risk Factors
” and “
Cautionary Note to United States
Investors
”.
Type
|
|
Cut-off
(Cu
%)
|
|
|
M tonnes
|
|
|
Grade
(Cu
%)
|
|
|
Contained
Metal
(Mlbs
Cu)
|
|
Inferred
|
|
In-Pit
(2)
|
|
|
0.5
|
|
|
|
84.1
|
|
|
|
0.95
|
|
|
|
1,768
|
|
Below-Pit
(3)
|
|
|
1.5
|
|
|
|
57.8
|
|
|
|
2.89
|
|
|
|
3,683
|
|
Total Inferred
|
|
|
|
|
|
|
141.9
|
|
|
|
1.74
|
|
|
|
5,450
|
|
|
Notes:
|
1.
|
These resource estimates have been prepared in accordance with NI 43-101 and the CIM Definition Standards.
See “Risk Factors” and “Cautionary Note to United States Investors.”
|
|
|
2.
|
Resources stated as contained within a pit shell developed using a metal price of US$3.00/lb Cu, mining costs of US$2.00/tonne, milling costs of US$11/tonne, G&A cost of US$5.00/tonne, 87% metallurgical recoveries and an average pit slope of 43 degrees.
|
|
|
3.
|
Mineral resources at a 1.5% cut-off are considered as potentially economically viable in an underground mining scenario based on an assumed projected copper price of $3.00/lb, underground mining costs of $65.00 per tonne, milling costs of $11.00 per tonne, G&A of $5.00 per tonne, and an average metallurgical recovery of 87%.
|
|
|
4.
|
Rounding as required by reporting guidelines may result in apparent summation differences between tonnes, grade and contained metal content.
|
|
|
5.
|
Tonnage and grade measurements are in metric units. Contained copper are reported as imperial pounds.
|
|
|
6.
|
All amounts are stated in U.S. dollars unless otherwise noted.
|
There are no known
factors related to environmental, permitting, legal, title, taxation, socio-economic, marketing or political issues which could
materially affect the mineral resource.
Bornite
Project – Metallurgy
Metallurgical
testwork to date indicates that the Bornite Project can be treated using standard grinding and flotation methods to produce copper
concentrates. Initial testing indicates copper recoveries of approximately 87% resulting in concentrate grades of approximately
28% copper with very low potential penalty elements. Further metallurgical testwork is warranted to test these assumptions.
Bornite
Project – Environmental Considerations
The Bornite Project
area includes NANA’s Bornite and ANCSA lands, the Ruby Creek drainage (a tributary of the Shungnak River), the Shungnak
River drainage, and portions of the Ambler Lowlands. Since 2007, baseline environmental data collection has occurred in the area
including archaeology, aquatic life surveys, sediment sampling, wetlands mapping, surface water quality sampling, hydrology, meteorological
monitoring, and subsistence. Additional baseline environmental data in NANA’s Bornite and ANCSA lands, the Ruby Creek drainage,
the Shungnak River drainage, portions of the Ambler Lowlands, and downstream receiving environments will be required to support
future mine design, development of an EIS, permitting, construction and operations.
Bornite
Project – Mining Operations
The
Bornite Project is not currently in production; for contemplated exploration or development activities see below.
Bornite
Project – Exploration and Development Permitting
Development of
the Bornite Project will require a significant number of permits and authorizations from state, federal, and regional organizations.
Much of the groundwork to support a successful permitting effort must be undertaken prior to submission of permit applications
so that issues can be identified and resolved, baseline data can be acquired, and regulators and stakeholders can become familiar
with the proposed project. The comprehensive permitting process for the Bornite Project can be divided into three categories:
|
1.
|
Exploration
state/regional permitting: required to obtain approval for drilling, camp operations,
engineering, and environmental baseline studies.
|
|
2.
|
Pre-application
phase: conducted in conjunction with engineering feasibility studies. This stage includes
the collection of environmental baseline data and interaction with stakeholders and regulators
to facilitate the development of a project that can be successfully permitted.
|
|
3.
|
The
National Environmental Policy Act phase: formal agency review of the Federal and State
requirements for public and agency participation to determine if and how the Bornite
Project can be done in an acceptable manner.
|
The permit review
process will determine the number of management plans required to address all aspects of the Project to ensure compliance with
environmental design and permit criteria. Each plan will describe the appropriate environmental engineering standard and the applicable
operations requirements, maintenance protocols, and response actions.
Bornite Project
– Current Activities
Following
the release in the spring of 2016 of the Bornite Report, we focused field investigations and drilling activities on advancing
our Arctic Project towards pre-feasibility. Field work at the Bornite Project consisted of continued environmental baseline data
collection and the completion of the LiDAR survey over the greater project area initiated in 2015. We continue to evaluate geological
and hydrogeological data to support internal desktop evaluations and planning of future field investigations at the Bornite project.