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Mineral Ridge

Feasibility Study
On October 10, 2017 the Company reported a positive feasibility study on reprocessing the heap leach residual material at its Mineral Ridge property. The study was undertaken by Novus Engineering Inc. ("Novus"), Mine Technical Services ("MTS"), NewFields.

About 68% recovery of gold was realized from the previous heap leach operations at Mineral Ridge. Sonic core drilling was completed to create a mineral resource estimate from the heap pad, which was previously issued by MTS on July 12, 2017. Independent testing of the residual heap leach material indicates 91% recovery by further grinding the heap material and reprocessing using the carbon-in-leach ("CIL") process. Novus was engaged by Scorpio Gold to design a processing facility and develop capital expenditure ("CAPEX") and operating expenditure ("OPEX") estimates related to the new processing facility. NewFields developed the methodology for "mining" the heap residual material and for returning the tailings material from the processing facility to the lined pad. NewFields also provided the CAPEX and OPEX estimates related to the mining and filtered-tailings placement activities. Scorpio Gold provided information on the balance of project costs and general and administrative cost estimates. The economic highlights of the project are presented in Table 1 below.

Table 1: Economic Highlights


Defined terms not otherwise defined herein shall have the meanings ascribed to them under the heading "Units of Measure" in this news release.

Drilling

A total of 3,671 ft (1,119 m) of drilling in 34 sonic core drill holes was completed to test the grade of the leach pad material. Sonic drill core was placed in plastic bags in nominal 2.5 ft (0.76 m) intervals at the drill rig by the drillers and transferred to the Mineral Ridge assay laboratory on site after the completion of each drill hole by Mineral Ridge, LLC ("Mineral Ridge") geologists. At the Mineral Ridge assay laboratory, the material from the sample bags was composited into 10 ft (3 m) intervals, dried, disaggregated, split to 250 g, and sent to Florin Analytical Services ("Florin") in Reno for gold and silver assay. At Florin, the entire sample was pulverized to 80% passing 75 microns, homogenized, and gold determined by one-assay ton fire assay and AAS finish and silver determined by four-acid digestion and AAS finish.

Blanks, standards, and duplicates were inserted into the sample sequence by Mineral Ridge prior to sending the samples to Florin for analysis to determine the quality of the Florin gold assays. Standards and blanks indicate that Florin assays are acceptably accurate and there is no significant carryover contamination. Duplicate pairs returned poor precision and screen fire assays indicate that coarse gold is likely a contributing factor in the poor precision of the duplicate results. The 2017 Florin gold assay data are sufficiently accurate and precise for use in mineral resource estimation.

Mineral Resources and Mineral Reserves

There has been no change to the mineral resource estimate as disclosed in the press release dated August 14, 2017.

The mineral resources are comprised of material contained entirely within the leach pad as of June 29, 2017. While newly mined material from the available open-pit resource will continue to be placed on the heap leach pad through October 2017, the material added in this time period is not included as it has not been validated as part of the current mineral resource estimate.

It is assumed that as the leach pad is mined, there will be no selectivity of the material to be processed, and therefore, the mineral resources presented represent a global estimate of the tonnage and grade.

Ordinary Kriging was used for the gold resource estimation with Inverse Distance, Inverse Distance Squared and Nearest Neighbor estimates serving as validation models. Silver estimates were run using a single Inverse Distance model and a Nearest Neighbor estimate as a validation model.

For reasonable prospects of eventual economic extraction, the gold price used is the 3-year trailing average gold price through June 2017. The process recovery is that obtained by Kappes, Cassiday & Associates ("KCA") test-work using reasonable mill-scenario. The processing cost was provided by Mineral Ridge using actual Mineral Ridge Mine labor costs, and conceptual mill processing costs estimated by Novus for a 4,000 tpd mill operation.

Table 2: Mineral Ridge Mineral Resource Statement
Mineral Resource Classification Tons
(kt)
Au
(opt)
Ag
(opt)
Contained
Au (koz)
Contained
Ag (koz)
Measured 2,895 0.017 0.016 48.5 46.4
Indicated 4,220 0.017 0.018 73.2 74.1
Measured & Indicated 7,115 0.017 0.017 121.7 120.4
Inferred 76 0.016 0.027 1.2 2.0

Notes:
  1. The effective date of the Mineral Resource estimate is June 29, 2017.
  2. The Qualified Person for the estimate is Mr Ian Crundwell, P.Geo.
  3. Mineral Resources are quoted only for the Mineralized Leach Pad.
  4. Mineral Resources are contained within the Mineral Ridge leach pad facility with the following assumptions:
    a. A long-term gold price of US$1,216/oz.
    b. Assumed process costs are US$11/t.
    c. Metallurgical recovery for gold is 91%.
  5. Rounding may result in apparent differences between when summing tons, grade and contained metal content.
  6. Tonnage and grade measurements are in Imperial units. Grades are reported in opt.
  7. The resource estimate was prepared with reference to CIM Definition Standards for Mineral Resources and Mineral Reserves (2014) and CIM Estimation of Mineral Resources and Mineral Reserves Best Practice Guidelines (2003).
  8. Mineral resources that are not mineral reserves do not have demonstrated economic viability.

Conversion from Mineral Resources to Mineral Reserves is relatively straightforward. Given the nature of the reclaimed material on the heap leach pad and the method of mining, the assumption is that all material will be mined and processed, less any material left in place due to permit restrictions and facility location. Allowance has been made for facility location which excludes 260,000 tons, which must remain in place, according to the heap material mining and tailings placement design completed by Newfields.

Based on the criteria above, the Mineral Reserve Estimate is provided in Table 3 below. Given the positive economic analysis of the Project, the mill feed material can in fact be considered a Mineral Reserve.

Table 3: Mineral Ridge Mineral Reserve Estimate
Mineral Reserve Classification Tons
(kt)
Au
(opt)
Ag
(opt)
Contained
Au (koz)
Contained
Ag (koz)
Proven 2,895 0.017 0.016 48.5 46.4
Probable 4,220 0.017 0.018 73.2 74.1
Less Material Remaining in Place (260) 0.017 0.017 (4.5) (4.6)
Total Proven & Probable 6,855 0.017 0.017 117.2 115.9

Notes:
  1. Mineral Resources are contained within the Mineral Ridge leach pad facility with the following assumptions:
    a. A long-term gold price of US$1,216/oz.
    b. Assumed process costs are US$11/t.
    c. Metallurgical recovery for gold is 91%.
  2. Rounding may result in apparent differences between when summing tons, grade and contained metal content.
  3. Tonnage and grade measurements are in Imperial units. Grades are reported in opt.

Mineral Processing

The proposed processing plant will be conventional and will re-process gold heap leach residual material at a rate of 4,000 tpd with an equipment availability of 92% (365 d/a). The process flowsheet developed for the Mineral Ridge heap leach residues is a combination of conventional comminution using ball-mills, and CIL cyanidation to recover gold and silver. The process plant will produce a gold and silver loaded activated carbon product from the CIL circuit. Based on the annual average throughput, and leaching and refinery recoveries, the process plant is estimated to produce approximately 22,583 oz of gold and 5,886 oz of silver from the mill feed grading 0.0171 opt gold and 0.0169 opt silver. The estimated gold and silver recoveries in the CIL circuit are 91% and 24% respectively. The loaded carbon will be shipped off-site to a refinery to recover the gold and silver. Refinery recovery is estimated in 99.4%.

The process plant will consist of:
  • Reclaiming area including mixing and holding tanks
  • Grinding circuit consisting of two parallel ball mills
  • A Pre-leach thickener
  • Carbon in leach cyanidation
  • Tailings thickening and filtration

The process flowsheet was developed based on parameters established from test work conducted by KCA mainly from 2014 to 2017, as well as Novus' engineering experience. The size selection of the grinding mills was based on the amenability of the reclaimed ore to grinding determined through test programs performed by laboratories. The CIL tank sizing was based on leaching times determined by test work and using scale-up factors and experience.

Test programs evaluated several options for treating the reclaimed Mineral Ridge heap leach material. Samples showed regular to poor responses to conventional flotation. The CIL process was chosen as the best available alternative due to higher gold recoveries. As part of the study, several areas for optimization and simplification were identified in the process plant design, which reduced operational and capital requirements.

The major criteria used in the plant design to process 4,000 tpd equivalent to 1,460,000 tpa is outlined in Table 4.

Table 4: Major Design Criteria
Criteria Unit Value
Daily Processing Rate tpd 4,000
Operating Days per Year d/a 365
Operating Schedule - two shifts/day; 12 hours/shift
Mill Feed Grade -- Average opt 0.0171
Metal Recovery - CIL % Au 91
Metal Recovery - CIL % Ag 24
Refining Recovery - Au & Ag % 99.4
Reclaimed Ore Particle Size, 80% passing in 0.14
Grinding / CIL Availability % 92
Milling and CIL Process Rate tph 181.2
Ball Mill Grinding Particle Size, 80% passing mesh 200
Ball Mill Circulating Load % 300
Bond Ball Mill Work Index kWh/t 15.3
CIL slurry feed density % 45
CIL residence time h 36
Final tailings cake moisture % 15

The grinding plant will receive material from the previous heap leaching operation. This material will be reclaimed, scalped to remove trash, and mixed with water to form slurry of approximately 55% solids. The slurry will then be transferred to a holding tank and pumped to the ball mill pump box. The design contemplates two ball mills operating in parallel, with a shared pump box for both mills and dedicated cyclone clusters for each ball mill. The cyclone overflow has a design 80% passing size of 200 mesh (74 microns) and feeds a pre-leach linear trash screen. The cyclone underflow will return to the two ball mills. The mills are designed to process 2,000 tpd each. The linear trash screen undersize reports by gravity to the pre-leach high-rate thickener where the slurry is flocculated and thickened to a density of 60% solids. The thickener overflow is recycled to the process water pond for reuse and the thickener underflow reports to the leaching circuit.

The leaching circuit will consist of four tanks operating in series with a total residence time of 36 hours. The slurry density will be adjusted by recycling the overflow from the tailings thickener for the CIL circuit to operate at 45% solids. It is expected that the slurry will arrive at the CIL circuit at a pH of 10.5; adjustments will be made to maintain the required pH level, as necessary. Slurry will flow by gravity to each tank. Dissolved gold and silver in the slurry will be adsorbed onto activated carbon and discharged from the circuit at a designed rate of two tons per day. Every 14 days bagged loaded carbon will be transported to an external facility for final gold and silver recovery, and carbon regeneration and recycling. The current operation at Mineral Ridge is a heap-leach operation, which uses reactivated carbon to adsorb gold from the pregnant leach solution. The existing carbon handling infrastructure, which includes carbon receiving, attritioning, sizing, sampling, and loading is suitable for the new process.

The CIL tailings will pass through a carbon safety screen to capture fugitive loaded carbon, and will report to a tailings thickener for cyanide solution recovery. The tailings thickener overflow will be recycled to the leach feed while the underflow will be sent to the tailings filters, where additional cyanide solution will be recovered. The filter cake at a designed moisture of 15% will be transported by existing grasshopper conveyors to the tailings pad. The tailings filter cake will be placed on the lined heap leach pad.

Infrastructure

The existing site infrastructure at the Mineral Ridge property is in good repair and is deemed suitable to support the envisioned operations in the feasibility study. The following items were reviewed and found suitable for use for the project.

Substation and power distribution: additional distribution costs were considered in the CAPEX estimate. The main substation was found suitable to support ongoing activities.
  • Maintenance facilities: no expansion necessary.
  • Fuel storage: suitable as is.
  • Roads: suitable as is.
  • Water Supply and Management: suitable as is.
  • Assay Lab: suitable as is.
  • Offices: suitable as is.
  • Lined pad for tailings storage: expansion required and included in the CAPEX estimate.
  • Carbon handling facility: suitable as is.

Economic Analysis

The economic viability of the project has been evaluated using constant dollar, unleveraged (no financing), after-tax discounted cash flow (DCF) methodology. This valuation method requires projecting material balances estimated from operations and calculating resulting economics. Economic value is calculated from sales of metal plus net equipment salvage value and bond collateral less cash outflows such as operating costs, management fees, capital costs, working capital changes, any applicable taxes and reclamation costs. Resulting annual cash flows are used to calculate the net present value (NPV) and internal rate of return (IRR) of the project.

The NPV 5 is $16.5 million and the IRR is 22.5%, with payback 2.9 years from the end of construction. The project's economic metrics are most sensitive to changes in grade and metals price, and less sensitive to changes in operating and capital costs.

Permitting and duration of construction timetables are such that first production is scheduled to commence start of third quarter 2019. Table 5 sets for the production schedule, grades and recoveries that result in salable metal.

Table 5: Production Schedule


Gold prices for all project years are forecast at $1,250/oz, less $0.50/oz. of gold per contract with buyer. Forecast silver prices are from a June 30, 2017 CIBC Global Mining Group, Analyst Consensus Commodity Price Forecasts study, less $0.01/oz. of silver per contract with buyer. The price of silver varies year over year between $19.28/oz to $19.82/oz, with an average price over the project life of $19.76/oz. Table 6 shows ounces of metal for sale, prices and resulting revenues. Given the terms of the selling agreement (payment five days following placement for sale) and production inventory time due to shipping from the mill to the stripper and then to the refinery (stripping time is 16 days and refining 7 days, inclusive of transport time), receipt of payment for revenues is delayed by 28 days. The cash impact of these timing differences is noted in the last two lines of Table 6 and, combined with accounts payable changes is noted as working capital in Table 9: Cash Flow.

Table 6: Salable Ounces, Price and Revenue and Working Capital Changes


Operating costs are summarized in Table 7.

Table 7: Operating Costs


Capital costs, reclamation bond collateral, reclamation costs and recovery of bond collateral are summarized in Table 8.

Table 8: Capital, Bond and Reclamation Costs</html>


Table 9: Cash Flow


Figure 1: Cash Flow Chart


Figure 2: NPV Sensitivity


Figure 3: IRR Sensitivity


Risks

The following have been identified as contingent in the advancement of the project:
  • Financing,
  • A timely completion of the permitting process.

Units of Measure

Unless otherwise defined herein, the following defined terms have the following meanings:

foot ft
meter m
gram g
ounce oz
pound lb
ton (short = 2,000 lb) t
ounces per ton opt
kilo (x 1,000) k
million (x 1,000,000) M
hour h
minute min
year y
day d
annum a
tons per hour tph
tons per day tpd
tons per annum tpa
US gallon gal
cubic feet ft3
US gallons per minute gpm
US dollars $

Qualified Persons

The following Qualified Persons as defined by NI 43-101 participated in the preparation of the feasibility study:

Qualified Person Company QP Responsibility/Role
Mr. Todd Wakefield, MSc, SME Mine Technical Services Geology
Mr. Ian Crundwell, P. Geo. Mine Technical Services Mineral Resources and Mineral Reserves
Mr. Paul Kaplan, P.E. NewFields Environment Studies and Permitting
Mr. Gordon John Cooper, P. Eng. Novus Engineering Inc. Mineral Processing
Mr. Amritpal Singh Gosal, P. Eng. Novus Engineering Inc. Infrastructure and Plant Design

A NI 43-101 compliant technical report in support of the feasibility study will be filed on SEDAR within 45 days of the Company's October 10, 2017 news release.




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