Aquila closes in on US$21M financing with Orion

If a proposed US$20.8-million capital injection from Orion Mine Finance goes ahead, Aquila Resources (TSX: AQA; US-OTC: AQARF) could get its Back Forty project — a zinc- and gold-rich volcanogenic massive sulphide deposit in Michigan’s Upper Peninsula — shovel-ready by the end of 2016, chief executive Barry Hildred says.

The proposed financing — of which US$17.3 million would consist of a silver stream and US$3.5 million in the form of a private placement.

“We needed money to move the project into phase two, and doing it all through equity would have been tremendously dilutive,” Hildred says, noting that Aquila’s market cap is just $20 million.

When Hildred and his management team set out last September and October to market the project and raise money, they focused on private equity firms in North America and Europe that could invest in different parts of the capital structure. They soon narrowed their search to Orion.

“There were certainly other parties that were interested in the project … but we decided it was in our best interest to pursue a transaction with Orion … the structure made sense for our situation and our shareholders,” Hildred explains.

And while some executives in the industry might turn their noses up at streaming deals, in this particular case, Aquila will be streaming a non-core metal. Silver makes up 5% of the estimated payable metal from the Back Forty project, with the lion’s share coming from gold (40%) and zinc (40%), and the rest from copper (14%) and lead (1%).

Proceeds of the financing would be used for permits and a feasibility study, and for repurchasing royalties from Vale Exploration USA and Hudbay Minerals (TSX: HBM; NYSE: HBM).

Until January 2014, Hudbay owned 51% of the Back Forty project and was operator, and Aquila owned the remaining 49%. Aquila now owns 100% of the project and Hudbay is a significant shareholder in the junior, with an 18% stake.

Hildred hopes that by the end of 2016 Aquila will have finished permitting and a feasibility study, and that the company can then begin detailed engineering. At that point Aquila would also pursue project financing, with construction from 2017–18. Hildred estimates it would take 16 months to build the mine.

He says that the permitting process — from ramping up the application to submission and a review by government regulators and the public — could take 18 months (which would take Aquila to September 2016), and adds that while permitting is always a risk, Michigan is mining friendly.

“Michigan has been a good jurisdiction as of late and they have issued some permits recently, but you’re dealing with local regulators, and there are things beyond your control,” he continues. “We think we’ve got a great project and we’ll ultimately be successful in receiving a permit, but some of the timelines may be beyond our control.”

A preliminary economic assessment (PEA) of the Back Forty project released in July 2014 envisioned a 16-year mine life. During that time, 16.1 million tonnes of mineralized material would be mined: 12.5 million tonnes would come from an open pit and 3.6 million tonnes from underground.

The study also estimated total payable production of 532,000 oz. gold, 721 million lb. zinc, 74 million lb. copper, 4.6 million oz. silver and 21 million lb. lead.

Initial capital costs are forecast to come in at US$261 million and the PEA estimated the project’s after-tax net present value would reach US$211 million at a 6% discount rate, with a 32% after-tax internal rate of return and a payback period of just under two years.

The PEA used metal prices of US$1,293 per oz. gold, US$20.46 per oz. silver, US96¢ per lb. zinc, US$3.18 per lb. copper and US96¢ per lb. lead.

News of the proposed financing sent Aquila’s shares up 2¢, or 18%, to 13¢ apiece. Over the last year the junior has traded in a range of 9¢ to 16¢ per share. The company has 193 million shares outstanding.

Orion Mine Finance, which has offices in New York, Denver, Bermuda and Sydney, is managed by Oskar Lewnowski. Last year its financing deals included mining companies such as Aldridge Minerals (TSXV: AGM; US-OTC: AGMIF), EMED Mining (TSX: EMD), Stornoway Diamond (TSX: SWY; US-OTC: SWYDF) and Claude Resources (TSX: CRJ; US-OTC: CLGRF).

Orion was spun out from metal commodities investment manager Red Kite Group in 2013.