Update: Almaden Minerals Revises Its Ixtaca PEA, Shows Superior Economics And Lower Start-Up Capex

| About: Almaden Minerals (AAU)


Almaden Minerals announced an updated PEA that shows that its Ixtaca Project can be more economical than initially thought.

The company cut initial capex and production in the early stages in order to increase the project's IRR and overall appeal to potential JV partners.

I had not anticipated this in my June article.

This news is bullish and it makes Almaden an even more compelling stock for gold and silver bulls.

Almaden Minerals (NYSEMKT:AAU) just announced an updated PEA on its Ixtaca Project in Mexico. The goal of this update was to show how the project can generate more value for investors by reducing initial capex. The company reduced its initial capex by 19% to $399 million and it increased the project's pre-tax NPV at 5% to $842 million from $728 million. The company also released a "ramp-up" case in which it will start producing at about 25% of its intended capacity and gradually ramp up production over 6 years. This case has a lower NPV - $699 million with the same assumptions - but it reduces initial capex to just $244 million.

With these different scenarios potential JV partners or buyers of Ixtaca are shown a few options depending on how much capital they want to lay out during the construction phase of the project. If they want to lay out less capital (if, for instance, a mid-tier producer buys the project) its economics won't be as robust but financing will be relatively easy to achieve. If a larger acquirer wants to lay out more capital it can reap the benefits of a project with much stronger economics. Either way the project will be compelling and offer leverage to gold and silver bulls.

As I argued in my June article, Almaden Minerals does not intend to build the Ixtaca Project. Its goal is to find a JV partner or a buyer of the property, and in return it will receive some sort of compensation which can include cash, stock in the acquiring company, and/or a royalty. Given the company's history it will probably do a combination of these three. This updated PEA means that (1) Almaden's end of the deal will be more compelling, and (2) there are more potential acquirers or JV partners. With this in mind the announcement is undoubtedly a bullish development, and it should come as no surprise to investors that the stock rose 6% on a day when gold and silver mining shares fell sharply.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

Editor's Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.