Almaden has new strategy at Ixtaca after mill agreement

VANCOUVER — It’s been a busy 12 months for Almaden Minerals (TSX: AMM; NYSE-MKT: AAU), and it wrapped up the year with an option agreement for mill infrastructure that will drop development capital requirements at its Ixtaca gold-silver deposit, 95 km north of Puebla city, Mexico.

The company also engineered a spin-out for its promising portfolio of exploration properties, and locked up a non-brokered private placement that should advance Ixtaca towards production in 2016.

In June Almaden announced the creation of Almadex Minerals (TSXV: AMZ; US-OTC: AXDDF), which will hold a 100% interest in the El Cobre project and 21 other exploration assets that the company’s father-son team of Duane and Morgan Poliquin have amassed over 35 years of prospecting and dealmaking in Mexico.

Under the spin-out arrangement, shareholders received one “new” share of Almaden and 0.6 of a share in Almadex. The spin-out will start with $3 million in cash and a 2% net smelter return royalty at Ixtaca. Almadex first traded on Aug. 14 with nearly 44 million shares outstanding, and closed at 15¢ per share at press time.

“Given that Ixtaca has advanced to the point where we’re nearing development, the timing makes sense for our shareholders. Assuming another company is interested in picking up a more production-ready asset, it’s just easier for everyone if we completed the spin out at this time,” Morgan Poliquin, president and CEO of both companies, explained during an interview.

“If we move ahead with financing Ixtaca, on the other hand, we didn’t want to dilute our exploration plays. We have a good amount of capital in the new vehicle, and we’ve focused on creating a strong list of drill-ready targets,” he added.

Meanwhile, Almaden has been shopping for a potential mill purchase for Ixtaca for over a year.

On Oct. 19 the company announced an option agreement for the Rock Creek mill assets, which sit just outside Nome, Alaska. The deal would provide a 7,000-tonne-per-day facility that includes a three-stage crushing plant, gravity circuit, ball mill, flotation cells and leaching facilities.

Rock Creek only operated for several months before the mining operation was shut down in 2008, and it has reportedly been “kept in excellent condition” during care and maintenance.

Almaden will pay US$6.5 million under the option, with payments exercisable over three years. The company negotiated low upfront payments to keep financial flexibility, with only US$750,000 due by the end of 2016.

“We had started looking at available mills around 18 months ago, though certainly deteriorating market conditions gave us options, and dropping capital requirements at Ixtaca makes more sense than ever,” Poliquin said. “We’ve dealt with mill acquisitions like this with previous deals, and Rock Creek fits what we were looking for at the project. Obviously, the low upfront payments give us some optionality, in terms of how we proceed here.”

On Dec. 9 Almaden released an updated preliminary economic assessment (PEA) that takes into account a new mine plan and the impact of the mill purchase. The company released a PEA in September 2014 that envisioned a staged-build at Ixtaca that would carry a US$244-million capital expense and start out at 7,000 tonnes per day, before expanding to 30,000 tonnes per day. The mine would have produced 130,000 oz. gold and 7.8 million oz. silver annually.

Under the new mine plan Ixtaca will remain at 7,000 tonnes per day over a 13-year mine life, and focus on 36 million tonnes of mill feed grading 0.76 gram gold per tonne and 47 grams silver per tonne, for an average head grade of 1.42 grams gold equivalent. Initial capital requirements have been cut to US$100 million, due to the Rock Creek acquisition.

Ixtaca is envisioned to crank out 55,660 oz. gold and 3.6 million oz. silver annually at operating costs of US$684 per equivalent oz. gold. Assuming US$1,150 per oz. gold the plan features a US$166-million after-tax net present value at a 5% discount rate, and a 30% internal rate of return.

“We’ve focused on the high-grade core of the deposit in the study, but the big element is our new mill purchase,” Poliquin said. “The cost savings are important given current market dynamics, but I’d also point out that we still have a lot of material in the ground, if we proceed with an expansion.”

Ixtaca hosts total measured resources of 30.4 million tonnes grading 1.38 grams gold equivalent for 1.35 million contained oz. Indicated resources include 62 million tonnes of 1.09 grams gold equivalent for 2.2 million contained oz. Around 97% of the material in Almaden’s new PEA falls in the measured and indicated categories, which should give the company a leg up when it boosts its scoping to the prefeasibility level.

“There’s been a lot of great work done on the ground in terms of setting us up for that next level of engineering. That’s our goal for the coming year, and I don’t think there are a lot of precious metal projects with so many things moving in the right direction,” Poliquin added. “We’ve also set a great foundation in terms of social licence work with local communities in the form of mine tours and other initiatives, and have had really good conversations with government.”

Almaden closed a $3.4-million, non-brokered private placement in late November, wherein it issued 4.5 million units priced at 75¢. Each unit consists of one share and one-half purchase warrant, while a full warrant is exercisable at $1 for 12 months.

Almaden trades within a 52-week range of 65¢ to $1.57 per share and last closed at 77¢. There are 73 million shares outstanding for a $56.3-million market capitalization, and it had $4.3-million in working capital in September.