Allied Nevada Gold Corp. is primarily a gold producer which operates the Hycroft Mine and has a large number of prospective exploration claims in the State of Nevada. At May 15, 2009, Allied Nevada had Proven and Probable Mineral Reserves of 1.1 million ounces of gold and an aggregate land position of approximately 386 square miles (621 square kilometers). Assuming current life of mine plans, it is estimated that the proven and probable reserves would be mined and processed for approximately five years.
Allied Nevada’s corporate headquarters is located at 9790 Gateway Drive, Suite 200, Reno, Nevada 89521. In this report, “Allied Nevada”, the “Company”, “our” and “we” refer to Allied Nevada Gold Corp and/or our affiliates and subsidiaries.
Formation of Allied Nevada
Initial Corporate Organization
Allied Nevada Gold Corp. commenced operations in May 2007. We were incorporated under the laws of Delaware on September 14, 2006 and until May 10, 2007 we were a wholly-owned subsidiary of Vista Gold Corp. (“Vista”), a corporation incorporated under the laws of the Yukon Territory, Canada.
We commenced our operations on May 10, 2007, following Vista’s transfer to us of its Nevada-based mining properties and related assets, along with cash, and the transfer to us by Carl Pescio and Janet Pescio (the “Pescios”) of their interests in certain Nevada mining properties and related assets. In this document, we sometimes use the terms “Vista Nevada Assets” and “Pescio Nevada Assets” to refer to, respectively, Vista’s Nevada-based mining properties and related assets, and the Pescios’ interests in certain Nevada mining properties and related assets that were transferred to us pursuant to the Arrangement Agreement that we entered into with Vista and the Pescios on September 22, 2006, as amended. Before the Arrangement Agreement transactions were completed, we had no properties or property interests, were not yet conducting business operations and had no shareholders other than Vista.
The new common shares of Vista and the shares of Allied Nevada common stock began trading on May 10, 2007, on the NYSE Amex, and the Toronto Stock Exchange (“TSX”).
In July 2007, Allied Nevada completed a private placement for gross proceeds of CDN$17,000,000. We issued 3,696,000 units consisting of one common share and common share purchase warrant. The proceeds of the private placement were for the exploration and development of the Hycroft Mine and for general corporate purposes.
In September 2007, the Board of Directors approved the re-opening of the Hycroft Mine (“Hycroft Development Program”). The Hycroft Development Program involved re-opening the Hycroft Mine and heap leach facilities which had been placed on a care and maintenance program due to low gold prices since 1998.
In April 2008, we completed a financing and issued 14,375,000 common shares for gross proceeds of CDN$75,468,7550. Proceeds from the financing were to fund the reactivation of the Hycroft Mine and to continue oxide and sulphide exploration activities at Hycroft.
In December 2008, initial production was achieved at the Hycroft mine with 1,000 ounces of gold and 3,000 ounces of silver produced.
In August 2009, we completed a cross-border financing and issued 11,150,000 common shares for gross proceeds of CDN$100,350,000. Proceeds from the financing were to fund an expanded oxide and sulphide exploration program at Hycroft and general corporate purposes.
Segment Information
We have operating segments of Hycroft Mine, Exploration Properties, and other. The Hycroft Mine operating segment contains the exploration and operational activities at our wholly-owned Hycroft mine located in Nevada. The exploration properties segment contains the exploration and development activities on the remaining mineral properties owned by the Company. The other operating segment primarily contains the corporate overhead functions of the Company.
General Description of the Business of Allied Nevada
Allied Nevada owns the Hycroft Mine, the Maverick Springs (a 45% joint venture with Silver Standard Resources Inc. “Silver Standard”), Mountain View, Hasbrouck, Three Hills and Wildcat projects, the Contact and other Nevada properties previously owned by Vista, the Pony Creek/Elliot Dome property package and the exploration rights to more than a hundred other earlier-stage exploration properties. All of these properties are located in the state of Nevada. We operate the wholly-owned Hycroft Mine, which is located 54 miles west of Winnemucca, Nevada. The Hycroft Mine is an open pit, heap leach gold mine that is expected to produce silver as a byproduct of the gold recovery process. All currently identified ore reserves will be mined by open pit methods with a typical drill, blast, load, and haul cycle from two pits; the Brimstone Pit and the Cut-5 pit. Presently, all ore-grade material placed on the leach pad will be run-of-mine. In 2010, the mine will integrate a crushing system capable of crushing 12,000 tonnes of ore per day. Ore will be selectively crushed based on ore type and grade. Once this system is in place, both crushed ore and run-of-mine ore will be placed on the leach pad. The pregnant solution will be processed using a Carbon in leach solution recovery process (“CIL process”) and a Merrill-Crowe zinc-precipitation process (“Merrill-Crowe process”). Based on current operating performance and life of mine plans, management believes the Hycroft Mine has achieved full production capacity and expects annual gold production to be approximately 100,000 ounces in 2010. Management also believes that the mining of the current proven and probable reserves will permit the Company to produce gold at these production levels for each of the next five years. Management intends to continue its oxide exploration program with the objective of identifying additional proven and probable reserves that can extend the current mine life. Management also intends to continue its exploration of the sulphide mineralization and its economic evaluation of the feasibility of bringing a sulphide mine into production.
In addition to operating the Hycroft Mine, Allied Nevada is engaged in the evaluation, acquisition, exploration and advancement of gold exploration and development projects in the State of Nevada. Management continues to seek opportunities to improve the value of the gold projects that we own or control through exploration drilling, introducing technological innovations, potential joint venture partners and developing properties into operating mines. We expect that emphasis on gold project acquisition and development will continue in the future.
Principal Products
Allied Nevada sold 42,358 ounces of gold and 53,125 ounces of silver during 2009. We generally sell our gold at the prevailing market price during the month in which the gold is delivered to the customer. We recognize revenue from a sale when the price is determinable, the gold has been delivered, the title has been transferred to the customer and collection of the sales price is reasonably assured.
Most of our revenue will come from the sale of refined gold in the international market. The end product at our gold operations, however, is generally doré bars. Doré is an alloy consisting of gold, silver and other metals. Doré is sent to refiners to produce bullion that meets the required market standard of 99.95% pure gold. Under the terms of our refining agreements, the doré bars are refined for a fee, and our share of the refined gold and the separately-recovered silver are credited to our account or delivered to our buyers. During 2009, our gold revenues were more than 50 times our silver revenues. As such, we consider gold to be a principal product and silver to be a byproduct of the gold recovery process.
Gold Uses. Gold has two main categories of use: fabrication and investment. Fabricated gold has a variety of end uses, including jewelry, electronics, dentistry, industrial and decorative uses, medals, medallions and official coins. Gold investors buy gold bullion, official coins and jewelry.
Gold Supply. The supply of gold consists of a combination of current production from mining and the draw-down of existing stocks of gold held by governments, financial institutions, industrial organizations and private individuals. Based on public information available for the years 2006 through 2008, current mine production has, on average, accounted for approximately 70% of the annual supply of gold. For the first nine months of 2009, mine supply had diminished to approximately 65% as the gold price reached record highs and individuals were persuaded to monetize their physical gold holdings such as jewelry and coins increasing old gold scrap supply.