Alamos brings Midas touch to Puerto Del Aire near Mulatos

Drilling by Alamos Gold (TSX: AGI; NYSE: AGI) has extended high-grade gold mineralization outside the Puerto Del Aire (PDA) underground deposit next to its cornerstone Mulatos open pit in Sonora state, Mexico.

A wildcat drill hole had also intersected a broad new mineralized breccia to the east, the company said in a May 15 release.

Alamos is conducting an ongoing 35,000-metre surface drilling campaign and reported high-grade gold beyond the current PDA reserve and resource estimate, pointing to resource growth potential in several directions.

Hole 23MUL117 returned 14.2 metres at 21 grams gold per tonne (11.1 grams gold cut), and 23MUL119 returned 18 metres grading 8.33 grams gold (cut). Another strong hole was 23MUL112, which returned 9.1 metres grading 14.8 grams gold per tonne.

President and CEO John McCluskey said PDA has grown larger in size than the company’s new-build, 105,000-oz. yearly La Yaqui Grande mine., which poured first gold last June. PDA could extend the mine life of mine by at least five years.

Haywood Capital Markets mining analyst Kerry Smith points out 13 holes of the 29 holes released Monday graded over 3 grams gold per tonne over mineable widths.

“These are deep holes, about 1,000 metres below surface, and continue to hit ore grades outside the current resource envelope, although the step-outs are modest,” the analyst said in a note to clients. He added that the grades and widths align with planned underground mining parameters.

Mulatos District orientation map. Credit: Alamos Gold.

This follows a 71% increase in the combined reserve and resource statement for the PDA last year for 1 million oz. gold, comprising 4.7 billion tonnes grading 4.8 grams gold per tonne for 728,000 oz. in proven and probable reserves, and 1.3 billion tonnes grading 5 grams gold for 414,000 oz. in the measured and indicated categories.

Alamos also said its drills hit a significant mineralized oxide and sulphide gold interval in a breccia along the Capulin Fault, 2 km east of the former San Carlos openpit. Hole 23REF012 returned 82.5 metres of 2 grams gold per tonne, including 16.4 metres at 4.81 grams gold and 12.4 metres at 5.4 grams gold per tonne.

Kerry reckons this is a priority target for follow-up work, and a second rig has been added. The emerging Capulin zone has a 2-km strike length based on surface grab samples.

Gold-seeking drills

The Mulatos mine is expected to produce 175,000-185,000 oz. gold this year at all-in sustaining cost of US$950-US$1,000 per oz.

The Mulatos mine is Alamos’ founding operation. It was acquired for US$10 million and has produced over 2 million oz. gold and generated about US$350 million in free cash flow since 2005.

Alamos describes the asset as a consistent gold producer and significant cash flow generator with solid exploration potential.

These new exploration results open the door to an extended mine life, just as were the cases in several of its other assets, including the formerly underappreciated Island Gold mine in northern Ontario. Few paid attention to the mine in 2015 when Richmont Mines owned it, and gold was at US$1,285 an ounce.

With a phase-three overhaul to more than double annual output to nearly 300,000 oz. by 2026 underway, Island Gold has become one of Alamos’s most important assets.

Back in the Mulatos District, Alamos plans a 35,000-metre surface drill program at PDA this year to underpin a development plan expected by December. So far, 14,000 metres (45 holes) have been completed.

The company has an extensive exploration package covering 289.7 sq. km, with most past exploration efforts focused around the Mulatos mine. For 2023, a total of US$21 million has been budgeted for exploration, triple the US$7 million budget in 2022.

The stock is up 98% over the past 12 months and “sports a premium valuation,” according to Haywood’s Kerry, which has a hold rating on the stock.

On the drill results, Alamos’s Toronto-quoted equity to gain about 2% in early trades Monday to an intraday high of $18.43, flirting with the 12-month high at $19.18. Company shares last traded at $18.31, with a market capitalization of $7.3 billion.