Falco Resources Ltd has announced that it has entered into an agreement in principle with Glencore Canada Corporation establishing the framework of the terms and conditions pursuant to which the parties will enter into the Principal Operating License and Indemnity Agreement (the OLIA) in order to enable Falco to develop and operate its flagship Horne 5 gold-silver-copper-zinc project, as further described in the updated feasibility study filed on SEDAR on April 29, 2021. It is anticipated that the OLIA will be finalised in the third quarter of 2021. Adjacent to the project, only 700 m away, is the Horne smelting facility owned and operated by Glencore which will process the copper concentrate.

The underground deposit is located at a depth of approximately 600 m to 2,300 m below surface. The existing Quemont #2 shaft, which extends to a depth of approximately 1,200 m, would need to be rehabilitated. The shaft would provide for the hoisting of mineralised material and waste, services personnel and materials, and the supply of ventilation to the underground workings in the development stage. The access to and use of the Quemont #2 shaft by Falco is contingent upon entering into the OLIA with Glencore as the owner of such infrastructure. While development of the future mine would be done on the former Quemont mine site, the surface rights for which were acquired by Falco, the access to and use by Falco of surface rights and infrastructure not owned by it may, in some instances, be contingent upon entering into the OLIA.

Falco Resources’ Horne 5 Project area in Rouyn-Noranda, Quebec encompasses the former producing Horne and Quemont mines, as well as the Horne 5 deposit. The Horne mine, discovered by EH Horne in 1920 and operated by Noranda from 1926 to 1976, was one of the richest VMS mines in Canada as it produced over 54 Mt @6.1 g/t gold, 13 g/t silver and 2.22% copper. The new mine will be a a conventional, owner operated underground mine (average of 15,500 t/d over the LOM) that will employ large, modern automated equipment, gravity transport of mineralised material through raises, shaft hoisting, minimal mineralised material and waste re-handling, and high productivity bulk mining methods (transverse long hole). The paste backfill will be used to fill the extracted stopes and strengthen stability of the adjacent stopes and avoid or minimise dilution. The crushed mineralised material would then be transported via two 250 m conveyors and transferred to a 600 m conveyor leading to the shaft loading point, where it would be hoisted to the surface using 43.5 t skips on a continuous basis.

Ore will be processed in a comminution circuit consisting of primary grinding in a single SAG mill and single ball mill, followed by three flotation and thickening circuits dedicated to recovering copper, zinc and pyrite concentrates. The pyrite concentrate will then be reground to the targeted P80 of 12 microns. The resulting reground pyrite concentrate would then be leached along with the pyrite flotation tailings in separate leaching circuits, followed by CIP circuits to produce a gold/silver doré. The planned mine life is 15 years, with peak-year payable production of 268,000 oz, average life-of-mine (LOM) annual payable production of 219,000 oz of gold and 235,000 ounces at steady-state.

For the Horne 5 deposit to be mined, the old excavations surrounding the mining area, including the interconnected historical Horne, Quemont and Donalda mines, must be dewatered. According to the preproduction schedule, the dewatering of the Horne 5 Project is expected to take approximately two years from the day pumping is initiated. The company aims to initiate the construction of dewatering infrastructure in H2 2021/H1 2022.

The Agreement in Principle outlines the terms to be included in the OLIA which will establish the framework to govern Falco’s development and operation of its world-class Horne 5 Project, including:

• The creation of Technical and Strategic Committees, comprised of both Glencore and Falco representatives, to collaborate in the successful and safe development and operation of the
• Horne 5 Project and to capitalise on the many synergies between the parties
• The right to appoint one Glencore representative on Falco’s Board
• Rights of access, use and transformation rights in favour of Falco
• Financial assurance including guarantees, and indemnification to cover risks to Glencore’s copper smelting operations (the Horne Smelter)

The life of mine offtake agreements for the copper and zinc concentrates, as entered into on October 27, 2020 and the UFS will also form part of the final OLIA.

Discussions between the parties have accelerated since the start of the Glencore work program and the signing of the Concentrate Agreements. Falco believes that this is a major step forward into the final phase of negotiations of the OLIA, which will establish the terms upon which Falco will be granted the right to proceed with its Horne 5 Project development and operation to the mutual benefit of both parties.

Luc Lessard, President and Chief Executive Officer of Falco noted: “This agreement is a major milestone for the development of the Horne 5 Project that we have been working towards over the last five years. It is the culmination of an extensive technical and strategic collaboration between Falco and Glencore and, together with the significant advancement of the Work Program, has enabled the parties to build the foundation for the OLIA. The Work Program has achieved its objective to identify and mitigate the potential risks to the Horne Smelter, in addition to strengthening our partnership and relationship with Glencore. I am confident that the parties will be successful in finalising the OLIA within the expected timeframe.”

Aline Coté, Glencore Global Zinc and Lead Industrial Lead, and Claude Bélanger, Chief Operating Officer of Glencore’s North American copper assets (including the Horne Smelter and CCR Refinery), commented: “This agreement represents a milestone towards the development of Falco’s Horne 5 Project. We are very pleased with the work accomplished over the past 10 months and the strong working relationship that has developed between Falco and Glencore. Copper produced at Horne 5 and processed through Glencore’s integrated Quebec Copper Operations will be some of the greenest and lowest-carbon footprint copper in the world. While it is impossible to eliminate all of the risks inherent with having two such operations in close proximity, Glencore is confident that with the work done to date, our strong relationship and the successful completion of the OLIA, an alignment of interests will have been achieved and a path to success for the Horne 5 Project will have been set out.”

Since November 2020, Glencore and Falco have conducted an intensive Work Program to address concerns and mitigate potential risks of the Horne 5 Project to the Glencore operations. The key components of the Work Program were established by Glencore after a complete due diligence review of the Horne 5 Project by their technical teams.

The Work Program with a budget of approximately $7.5 million was largely financed through the proceeds of the convertible debenture financing made available by Glencore to Falco in October 2020. The Work Program was managed by a joint Technical Committee between Glencore and Falco and addressed key components, categorised as follows:

• Geotechnical advancement (drilling investigation, crown pillar stability, seismicity potential, backfill characterisation, etc);
• Water management of the Horne 5 Project;
• Synergies between the Horne 5 Project and the Horne Smelter

At this date, Falco and Glencore have successfully addressed the majority of the key components, including the backfilling of old underground workings to secure certain crown pillars at the Horne Smelter and will continue to collaborate to finalise the current Work Program. The parties are working diligently to mitigate risk factors for the Horne Smelter’s operation and are in agreement on the path forward towards the dewatering phase of the Horne 5 Project.

Network and automation plans for Horne 5

As outlined in the updated FS filed April 29, the mine has been designed to have low operating costs through the extensive use of automation, implementation of large modern remote-controlled trackless equipment. Each level will be equipped with WiFi communication and anetwork of access point will be installed through fibre optics and in addition, a leaky feeder communication system will also be installed. Three master networks will be installed from the surface to every underground level. Leaky feeder cables will provide voice communication throughout the mine. This network will be separated into multiple VLANs: administration, instrumentation, WiFi, tracking and other uses (except for live camera). A FEMCO security system will be deployed at every refuge and strategic site. This second network will be dedicated to the operation and automation of hoists, which for the purposes of the FS are ABB designs. Fibre optic cables will be brought to every electrical substation, pumping station, crushing station, conveying facility and strategic site. This third network will be ready for all automation systems such as WiFi, PLC, automation of mobile vehicles, administrative network, cameras and others. A dedicated fibre optic cable will be used for the live cameras, as they require a very high bandwidth. The fibre optic network will pass in two separate cables in the shaft to create redundancy. When all the ramp segments will connect with each other, the network can be made redundant for added reliability.

Ore pass system

The Phase 1 and Phase 2 material handling systems will consist of 2.4 m diameter double ore pass networks. Each production level will be split into an east and west zone from the central main level access drift connected to the ramp. Each zone will be served by an independent ore pass network. Ore passes will be developed every two levels with a raisebore machine. Levels between the top and bottom of the ore pass will connect with a finger. This network design will result in an average distance of 221 m between a stope and the nearest ore pass, to maximise the efficiency of the LHD productivity. The ore pass networks will be able to manage either waste or mineralised material. Each ore pass will service two levels. The upper level will have a cone plug and a press door. One access will be provided to the cone plug in order to dump material into the ore pass. Likewise, there will be a second access behind the ore pass to muck material coming from the upper levels. The press door will control the material by either retaining it or sending it through to the next ore pass. This configuration will allow mineralised and waste material to be sorted, depending on whether a given level is in production or being developed. Since all the waste material will be returned as backfill into the empty stopes, this configuration will provide easy access to waste material for secondary stopes.

This configuration was designed for automation purposes and to provide flexibility to the operation. With this design, the east or west networks can be closed to personnel and managed by automated LHDs. The double dump access on each level will allow for production and development on the same level without interaction between them, or for production on both sides of the level. The ore handling system will benefit from the short average haulage distance, making it possible to avoid using trucksfor hauling as much as possible.

A total of 71 units of mobile equipment are listed in the FS. Production equipment, such as production drills, LHDs and trucks, will all be automated. For the purposes of calculating airflow requirements, the FS lists a mainly Sandvik fleet with a production fleet of four LH625 14 yd3 LHDs, one TH551 truck and five DU412I production drills as well as two DS421 cable bolters. The development fleet assessed includes four Sandvik 11 yd3 LH517 LHDs, four TH551 trucks, four DD422I jumbos and five DS411 bolters. Ancillary and utility equipment calculations were mainly based on variants of Getman’s A64 platform as well as MacLean machines.

Ventilation setup

The ventilation system is a push-pull system. Permanent main fans on level 322 will provide fresh air to the mine. Fans in the headframe will feed the shaft to lower global pressure in the infrastructure. A total of 420,000 cfm is required for the mining operation. During preproduction, the old Quemont ventilation raise will be reused for development start-up. Two natural gas heating systems will be used during the winter months. Ventilation on Demand (VOD) will be implemented to maximize the use of ventilation in working areas and thus lower requirements in other areas to help reduce energy costs.

Hoisting setup

The production hoist selected is a friction type, in a tower mounted configuration due to the large payload required to achieve thefeed to the process plant. The hoisting capacity is 23,180 t/d at level Q1197 in Phase 1 and 16,530 t/d at level Q1867 in Phase 2. The use of a double drum hoist is not a viable option due to market availability of a rope with sufficient capacity. A Blair Multi-Rope hoist was a feasible option, but was a more expensive solution. The friction type hoist provided the greatest ability to meet the production requirements for the lowest cost. Using a friction hoist in a deep shaft requires an important number of ropes and fitting the six ropes required in this application on top of the skips represents a challenge, especially using an existing shaft with fixed dimensions, thus, the ropes are offset by 150 mm from the centre of the skips in order to allow additional clearance for the attachments. The rope configuration in the selected friction type hoist only allows operation on one level at a time with two skips, due to the presence of tail ropes under the conveyances. However, it is possible to operate one skip at a time at any station,which reduces the impact of this configuration. Good mine planning combined with a single skip operation makes the use of a friction type hoist feasible. Underground ore passes and crushing station locations were designed to hoist using two skips from one level during Phases 1 and 2 of the mine development.