- The sensor-based ore sorting should improve the economics of the Ixtaca Project notably.
- A feasibility study incorporating the sensor-based ore sorting should be completed by the end of 2018.
- The recent drill results indicate that the updated resource estimate that should be completed by the end of 2018 will present bigger resources and probably also reserves.
- The permitting seems to be the main issue of the Ixtaca Project, the permits are expected in late 2019 or early 2020 now.
- At the current market capitalization of $66 million, Almaden Minerals is very attractively valued.
The weak precious metals market and some delays to the Ixtaca Project development schedule have a negative impact on Almaden Minerals' (NYSE:AAU) share price. Almaden's share can by bought approximately 50% cheaper than 1-year ago. And given the current state of the precious metals market, it is hard to expect any meaningful share price growth in the near term. However, the Ixtaca Project is very good and shares of Almaden offer a significant upside potential. Moreover, the recent developments indicate that the feasibility study that is expected by the end of this year should deliver a notable improvement to the PFS results.
The Ixtaca Project is located in the Puebla State, Mexico. The deposit contains measured and indicated resources of 1.97 million toz gold and 109 million toz silver, or 3.55 million toz of gold equivalent, at a gold equivalent grade of 0.9 g/t. There are also inferred resources that contain 457,000 toz gold and 28.97 million toz silver (874,000 toz of gold equivalent). A substantial part of the resources has been converted into reserves that contain 1.29 million toz gold and 78.83 million toz silver. It equals to 2.43 million toz of gold equivalent at a gold equivalent grade of 1.17 g/t.
Source: Almaden Minerals
But the resources will most probably grow further, as Almaden's properties are highly prospective. A new mineralized zone was discovered only 1.2 kilometers to the south-west of the Ixtaca deposit. Some of the best drill results from the Tano zone include 89.5 meters grading 0.83 g/t gold and 2.3 g/t silver, 9.65 meters grading 0.66 g/t gold and 41.8 g/t silver or 10 meters grading 2.11 g/t gold and 1.6 g/t silver. Also, the Ixtaca deposit alone will probably experience some further growth. For example, an interval of 101.45 meters grading 1.94 g/t gold and 12.7 g/t silver was drilled right beneath the PFS pit. And some new zones of high-grade mineralization were discovered directly in the PFS pit.
A PFS prepared in early 2017 envisions an open-pit mine producing 88,780 toz gold and 5.47 million toz silver (168,100 toz of gold equivalent or 11.6 million toz of silver equivalent) per year on average over the first 9 years of a 14-year mine life. According to the PFS, the initial throughput rate of 7,650 tpd should grow to 15,300 tpd by year 5. The AISC is estimated at $862/toz of gold equivalent or $12.5/toz of silver equivalent. The AISC seems to be relatively high, however, it is important to note that the AISC is usually calculated net of by-product credits. But Almaden doesn't consider gold or silver to be a by-product, as the revenues are expected to be almost evenly distributed between these two metals. Moreover, the AISC includes also expansion CapEx worth $72.11 million that is needed to expand the throughput rate from 7,650 to 15,300 tpd.
The initial CapEx is estimated only at $117 million, which is a low number compared to other mining projects of a similar size. The CapEx is low especially due to the purchase of an almost unused mill. Almaden's management was able to purchase a mill from the Rock Creek mine, worth around $70 million, for only $6.5 million and 407,997 common shares. The mill has a 7,000 tpd throughput rate. It was put into production back in September 2008, however, due to the global financial crisis, it was put on care and maintenance only 2 months later, in November 2008. The mill should be transported to Mexico and refurbished at Ixtaca.
The economics of the project are very good. At a gold price of $1,250/toz and silver price of $18/toz, the after-tax NPV (5%) equals to $310 million and the after-tax IRR equals to 41%. However, what is even more interesting, the recent developments indicate that the upcoming feasibility study should present even better numbers.
On July 16, Almaden announced very good results from its ore sorting program. Given the nature of the ore, the management has decided to test the ore sorting technology in order to improve the mill feed grades. According to Morgan Poliquin, Almaden's CEO:
The Ixtaca deposit is very well suited to ore sorting. This is because the actual occurrence of gold and silver in the limestone hosted portions of the Ixtaca project is in the form of high-grade veins and veinlets. The many individual veins and veinlets within the vein swarms enclose irregular small bodies of barren limestone because these veins and veinlets branch and re-connect, as well as locally, change strike and dip, pinch and swell. The wireframe models constructed to define the overall vein zones, therefore, contain interspersed irregular zones of barren limestone host rock.
The test results show that the sensor-based ore sorting was able to eliminate 36% of waste rock at the crushing stage, which helped to improve the gold feed grade by 39% and silver feed grade by 47%. Another important information is that:
Drill core samples used in the Performance Tests have a more significant variation of thickness in cross-section (thin at the edges and thick at the center of the core) compared to typical crushed ROM rock. Better results are expected with more natural shaped material from actual operations.
The feasibility study that should be completed by the end of this year will incorporate also the sensor-based ore sorting. It should lead to a small increase of the initial CapEx but it is expected that it will boost the average annual production rate significantly. As a result, the AISC should decline and NPV and IRR should increase. It should also help to reduce the process tailings and water and energy usage notably, which should help with obtaining all of the necessary permits.
This is important, as the permitting process is probably the most serious obstacle right now. The initial CapEx is estimated at only $117 million and it is expected that the feasibility study will present only its modest growth. Almaden should be able to cover a better part of the CAPEX via debt and although some share dilution will be inevitable, there is also the option to sell a gold or silver stream in order to minimize it. The main reason why Almaden's market capitalization stands at $66 million right now is some complications with the permitting process.
It was originally expected that the mine should start production in late 2019. However, according to the latest corporate presentation, the initial production is projected for early 2021. As can be seen (schedule below), there are two major catalysts expected by the end of 2018: the resource estimate update and the feasibility study. However, the permitting activities are expected to be completed only in late 2019 or early 2020. And it is quite possible that it will take even longer.
Source: Almaden Minerals
In recent months, an activist group opposed to the Ixtaca Project has emerged. When Almaden released the Ixtaca social impact assessment, an activist group released some accusations related to it. The activists even organized a protest near Almaden's headquarters in Vancouver. According to the protesters, the proposed mine endangers the water supply, ecosystem, and health of the residents. Although the majority of the mining projects have some activist groups opposing them, it is hard to predict how influential the Ixtaca opposition will be. For now, it seems like the permitting process will take longer than expected. Only last September, Almaden expected that the permitting should be completed by the end of 2018. Now, less than 12 months later, the permitting is expected to be completed by late 2019 or early 2020. However, the positive impacts of the ore sorting on the ecological footprint of the mine could help to mitigate some of the worries of the local population and maybe even to quicken the permitting process a little.
The market capitalization of Almaden Minerals is only $66 million. It is a very low price for a company that owns an advanced project with reserves of 2.43 million toz of gold equivalent, with an initial CapEx estimated at only $117 million and after-tax NPV (5%) of $310 million. Moreover, a feasibility study and an updated resource estimate are expected by the end of this year and both of them should deliver some meaningful improvements to the project. The main issue, besides the precious metals market weakness, is the permitting process. It was expected that the permitting should be completed by the end of this year. However, right now, it seems like it will take at least a year longer. Moreover, there seems to be an activist group opposing the project. What is positive, the feasibility study should present a project with a smaller environmental footprint, which should help to pass through the permitting process successfully. Almaden Minerals is a risky investment, but it may pay-out handsomely.
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This article was written by
I am an associate professor at the University of Economics in Bratislava, Department of Banking and International Finance. My dissertation was focused on commodity markets and my habilitation was focused on the calendar anomalies. I have more than 15 years of investing experience. My investments mostly focus on small- and mid-cap companies in the resource sector. Since May 2019, I have been preparing regular monthly reports focused on the precious metals royalty & streaming industry. Based on positive feedbacks and numerous inquiries, I decided to launch a Marketplace Service named "Royalty & Streaming Corner", which provides an in-depth analysis of this exciting market segment, as well as investment ideas from the mining industry.
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