Mr. Darren Koningen reports
MINERA ALAMOS ANNOUNCES POSITIVE PRELIMINARY ECONOMIC ASSESSMENT FOR THE LA FORTUNA GOLD PROJECT WITH AFTER-TAX IRR OF 93%
Minera Alamos Inc. has released the results of an independent preliminary economic assessment for its La Fortuna project in Durango, Mexico. The preliminary economic assessment was prepared in accordance with National Instrument 43-101 -- Standards of Disclosure for Mineral projects by CSA Global Geosciences Canada Ltd. of Toronto, Ont., Canada. Unless otherwise stated, all currency references are in U.S. dollars.
PEA SUMMARY
U.S. dollars Canadian dollars
Pretax NPV (7.5%) $103,800,000 $134,800,000
Pretax IRR 122% 122%
After-tax NPV (7.5%) $69,800,000 $90,600,000
After-tax IRR 93% 93%
Pretax payback period Nine months
After-tax payback period 11 months
Average annual production 43,000 oz Au, 220,000 oz Ag, 1,000 t Cu (50,000 oz GEO)
Preproduction capital $26,900,000 $34,900,000
LOM average AISC $440/oz $571/oz
Mine life Five years
Mill throughput (average t/d) 1,100
Mill grade and recovery 3.68 g/t Au (90% recovery)
Gold price $1,250/oz
Silver price $16/oz
Copper price $5,725/tonne
FX rate (CDN$/US$) 0.77
Preliminary economic assessment cautionary note
Readers are cautioned that the preliminary economic assessment is preliminary in nature and there is no certainty that the preliminary economic assessment results will be realized. Mineral resources are not mineral reserves and do not have demonstrated economic viability. Additional work is needed to upgrade these mineral resources to mineral reserves.
"With an after-tax internal rate of return in excess of 90 per cent, today's excellent PEA results confirm that the La Fortuna project provides a robust base for the next phase of gold production in the company's growth pipeline," commented Darren Koningen, chief executive officer of Minera Alamos. "The simplified gold recovery process outlined in the study represents a conservative starting point that is well suited to the initial project resource, which, to date, has been based exclusively on previously drilled mineralization. As our engineering work progresses, we continue to find opportunities to reduce the initial project capital requirements and improve overall project economics. Coupled with our strategic partnership with Osisko Gold Royalties that includes an option to provide a significant portion of the project capital requirements in return for a project royalty, these additional optimizations will greatly reduce the upfront funding requirements of this already low-capital-cost operation."
"This PEA represents a key milestone for the company as we begin to deliver to the market's attention the underlying project economics of our development pipeline that focuses on cost-efficient and targeted production that can incrementally build a significant production profile over time," commented Doug Ramshaw, president of Minera Alamos. "With the recently submitted commercial permit applications at the Santana project and ongoing work at the company's Guadalupe de los Reyes project, we are aggressively expanding our activities on multiple fronts. We continue to envision a plan whereby targeted production from the development of the Santana project will support the modest capital requirements of the La Fortuna operation."
Production and economic highlights:
- Production highlights:
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Average annual contained metal production of approximately 50,000 ounces gold equivalent (43,000 ounces gold, 220,000 ounces silver and 1,000 tonnes copper);
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Five-year mine life based on initial resource starter pit, with two million tonnes of mineralization (3.68 grams per tonne Au, 20 grams per tonne Ag, 0.27 per cent Cu) processed at an average processing rate of 1,100 tonnes per day;
- 215,000 ounces of Au, 1.1 million ounces of Ag and 5,000 tonnes of Cu produced in concentrates;
- Robust economics using metal prices of $1,250 per ounce Au, $16 per ounce Ag and $5,725 per tonne Cu:
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All-in sustaining cost (AISC) of $440 per ounce (net of byproduct credits);
- After-tax net present value at 7.5 per cent of $69.8-million and an internal rate of return of 93 per cent;
- Pretax NPV at 7.5 per cent of $103.8-million and IRR of 122 per cent;
- Low initial capital costs and rapid payback:
- Preproduction capital costs of $26.9-million;
- Payback period of 3.9 (11 months);
- 2,000-tonne-per-day mill already purchased and awaiting shipment to site reduces up-front capital;
- Significant upside:
- Current preliminary economic assessment completed on project starter pit resource only, a single zone of drilled mineralization that appears to remain open geologically;
- Additional milling capacity -- project permitted for a 2,000-tonne-per-day operation, with the preliminary economic assessment based on a starting rate of 1,100 tonnes per day;
- Numerous opportunities for significant economic improvement, such as improved gold recoveries and reduced initial capital costs.
OVERVIEW OF PEA RESULTS AND ASSUMPTIONS
Unit Base case
Inputs Gold price $/oz 1,250
Silver price $/oz 16
Copper price $/t 5,725
Exchange rate MXP/USD 19
Economics Net cash flows (undiscounted) $ 141,000,000
Pretax NPV at 7.5% $ 104,000,000
IRR % 122
Payback period Months Nine
Economics Net cash flows (undiscounted) $ 96,000,000
After-tax NPV at 7.5% $ 70,000,000
IRR % 93
Payback period Months 11
NPV discount
rate sensitivities
Pretax Net cash flows (undiscounted) $ 141,000,000
NPV at 5% $ 114,000,000
NPV at 10% $ 94,000,000
After-tax Net cash flows (undiscounted) $ 96,000,000
NPV at 5% $ 77,000,000
NPV at 10% $ 63,000,000
Capital and operating cost estimates
INITIAL AND SUSTAINING CAPITAL COSTS (CAPEX)
Area Initial (thousands) Sustaining (thousands) Total (thousands)
Mining (contractor mobilizations) $ 1,000 - $ 1,000
Site development/infrastructure 3,500 - 3,500
Mineral processing 15,000 $ 7,100 22,100
Tailings management 2,000 - 2,000
Closure - 3,000 3,000
Salvage value - (3,000) (3,000)
Contingencies (including owner's costs) 5,400 - 5,400
Total project 26,900 7,100 34,000
OPERATING COSTS (OPEX)
Area $/tonne mineralized material $/unit
Open-pit mining $11.80 $ 2.15 per tonne mined
Processing 15.95 22.89 per tonne milled
Stockpile/ore sorting 1.73 4.00 per tonne sorted
General and administrative 3.86 5.54 per tonne milled
All-in OPEX 33.34
Mineral resources
This preliminary economic assessment is based on a new mineral resource estimate prepared for the La Fortuna project by Scott Zelligan, PGeo, as part of the current report. The mineral resource estimate is based on the results from 125 core drill holes completed to date on the project. Wireframes were prepared using the drill hole information combined with geological interpretations of the deposit, and validated through observations and sampling of accessible historical underground openings. Further details related to the current mineral resource estimate are presented in a later section. The attached table outlines the total base case mineral resources, including those that were not included as part of the preliminary economic assessment mine plan.
MINERAL RESOURCE ESTIMATES (1.0 G/T AU CUT-OFF GRADE)
Resource category Cut-off (g/t Au) Tonnes Au (g/t) Ag (g/t) Cu (%) Au (oz) Ag (oz) Cu (t)
Measured 1.0 1,755,400 2.96 17.5 0.23 167,100 987,800 4,000
1.5 1,309,700 3.55 19.5 0.25
2.0 1,012,100 4.09 21.0 0.28
2.5 795,300 4.59 22.4 0.30
3.0 639,400 5.04 23.5 0.32
Indicated 1.0 1,714,300 2.59 15.5 0.21 142,800 854,400 3,600
1.5 1,241,400 3.11 17.5 0.24
2.0 886,400 3.65 19.2 0.27
2.5 626,600 4.24 21.0 0.30
3.0 458,500 4.80 22.2 0.32
Measured and
indicated 1.0 3,469,700 2.78 16.5 0.22 309,800 1,842,200 7,600
1.5 2,551,100 3.34 18.5 0.24
2.0 1,898,500 3.88 20.2 0.27
2.5 1,421,900 4.44 21.8 0.30
3.0 1,097,900 4.94 23.0 0.32
Inferred 1.0 156,300 1.72 8.5 0.09 8,600 42,700 100
1.5 78,612 2.21 9.2 0.10
2.0 38,059 2.73 11.1 0.12
2.5 18,169 3.28 13.1 0.14
3.0 7,589 4.04 15.6 0.18
Mining
The mineralization at the project extends close to surface and is amenable to conventional open-pit mining methods utilizing front-end loaders and trucks. Using a preliminary Whittle pit shell for the deposit ($1,250 per ounce gold, $2.50 per tonne mining, $30 per tonne processing, 95-per-cent recovery and 45-degree pit slopes) as a guide until a full open-pit mine plan was completed. Life-of-mine mineralized material was separated in grade baskets (0.8, 1.2, 1.6, two g/t Au) so that a more complete engineering cost evaluation could be completed and used as the basis of a final five-year production plan for the project. Mineralized material was grouped as direct milling (greater than 1.6 g/t Au) and mid-grade (0.8 g/t Au to 1.6 g/t Au), which is to be stockpiled and upgraded via ore sorting prior to milling (starting in the third year). No inferred resources were utilized in the preliminary economic assessment mine planning and further optimization efforts aimed at cut-off grades and the smoothing of waste mining activities may provide additional economic upside for the project.
FORTUNA PROCESSING PLANT MILL FEED SCHEDULE (DILUTED)
Year Total mill Au Ag Cu Gold Total mined
feed (tonnes) (g/t) (g/t) (%) (ounces) material (tonnes)
1 380,000 3.86 21.24 0.29 47,200 2,814,400
2 380,000 3.91 20.27 0.27 47,800 2,848,200
3 410,000 3.39 21.85 0.28 44,700 2,335,700
4 410,000 3.47 19.98 0.29 45,800 4,637,200
5 418,400 3.78 16.79 0.22 50,900 3,095,700
Total 1,998,400 3.68 19.96 0.27 236,600 15,731,200
Pit bench heights were selected at five-metre intervals in order to provide good ore/waste selectivity although use of larger bench heights in zones of primarily waste should be considered as part of future optimization studies. Overall average pit slopes with the benches/ramps in place are approximately 43 degrees for three sides and 41 degrees overall for the north wall. Rock competency is reasonable and higher pit slopes may be considered once the appropriate geotechnical information is available. Mineralized and waste materials are hauled using 25-tonne trucks approximately 500 metres (maximum) to the waste dumps/mineral stockpile locations near the mine. Crushed stockpile material is then transported to the plant processing facilities located at a distance less than 1.5 kilometres.
All drilling/mining/crushing operations at the project will be accomplished via an open-pit mining contractor. Mining costs were developed for the project from first principals utilizing recent Mexican cost information. Contractor availability in northern Mexico is currently high and rates are competitive. An appropriate profit factor was applied to the calculated owner/operator rates and the values were benchmarked against recent operational experience by Minera Alamos mining personnel. An additional factor was applied to account for the fact that the project is located a few hours from a major population base. Mine planning and supervision activities will be performed by Minera Alamos personnel and these costs are excluded from contractor rates.
Processing
A simplified base case process was utilized for the La Fortuna plant site. Mineralized material from the mine is stockpiled and crushed to a size of less than three-fourths of an inch prior to being transported to the process plant. The overall processing facilities consist of a primary coarse grind to 80 per cent passing 250 to 300 microns followed by a bulk sulphide concentrate flotation. Bulk concentrate is reground (80 microns) prior to a final flotation producing a copper concentrate. Centrifugal gravity gold recovery circuits are included in both the primary and concentrate reground circuits to extract free gold as a concentrate. Tailings from the flotation circuit are dewatered via filtration and dry-stacked in the tailings containment area adjacent to the processing plant.
Overall gold recovery for the preliminary economic assessment study has been conservatively estimated at 90 per cent. No final gold refining facilities are to be constructed at the Fortuna site (although this decision can be revisited in the future should site production rates increase). Approximately half of the gold is extracted as a gravity concentrate, which will be cyanide leached at site and loaded onto activated carbon for shipping outside of Mexico for final dore production. The other half of the recovered gold reports to the copper flotation concentrate (along with the majority of the copper and silver), which is filtered and transported to the port facilities at Guaymas (approximately 500 kilometres) for final sale.
The company has purchased a used 2,000-tonne-per-day processing facility (grinding/flotation/filtration) that has been used as the basis for the Fortuna project processing facilities. The size of the major equipment items allows for plant throughput to be increased from the currently assumed rate of 1,100 tonnes per day as the size of the project resource increases.
DEXTR (X-ray) ore sorting has been included in the overall project plans as a method to upgrade mid-grade (0.8 g/t Au to two g/t Au) mineralized material from the mine (and future potential project resources). Testwork has demonstrated that sorting of this material at normal project crush sizes can recover more than 80 per cent of the contained gold into a sorted concentrate with gold contents similar to the high-grade (3.5 g/t Au to four g/t Au) direct milling material from the mine. It is conservatively assumed that an ore-sorting machine will be purchased and installed in the third year of mining operations to upgrade this material. In the current operations plan, only 20 per cent of the LOM contained gold ounces sent to the processing plant have been upgraded in this manner.
SUMMARY OF LA FORTUNA METALLURGICAL RESULTS
Product Grade Metal recoveries (%)
Au (g/t) Ag (g/t) Cu (%) Au Ag Cu
Mill feed (LOM) 3.68 20 0.27
Products
Gravity concentrate - 45
Copper flotation concentrate 120 1,250 18 45 85 90
Infrastructure
Access
The La Fortuna project is accessible by road from Culiacan, a driving distance of approximately 85 kilometres. At present, the road is paved to within approximately 30 kilometres of the town El Barco, which is situated at the river immediately south of the project area. The remaining road is graveled, graded and of reasonable width for much of the route. It has been anticipated that some relatively minor upgrading of portions of this road (primarily in areas with a sharp turning radius) will be required in order to improve access for larger trucks to reach the La Fortuna project area.
Preliminary engineering has been completed to locate new access roads within the project area required for start of the La Fortuna operations. This includes a total of approximately five kilometres of gravel surface suitable for the operation of mining trucks:
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Road from planned open pit to new processing plant area -- 1.5 kilometres;
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Initial mine truck access roads around planned open pit -- two kilometres;
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Miscellaneous additional access roads around mine/plant -- 1.5 kilometres.
Power
The closest small villages to the project site (El Barco and San Fernando) have less than 100 inhabitants and are currently not serviced via the national power grid. Grid power is being extended along the state highway from Culiacan as it is widened and paved (currently within 30 kilometres of the project), but it is unknown when it will ultimately be available and what load capacity would exist.
It is assumed for the foreseeable future that all power required for the project will be generated at site via diesel generators. The total operating plant power load is estimated at approximately two megawatts, which will be supplied via multiple generator units (operating and standby) to build in redundancy for maintenance. Primary generators are to be located within close proximity to the processing plant area so that site power line requirements will be negligible. Wherever possible, large power consumers not associated with the processing plant (such as portable crushers) are self-contained with local diesel hydraulic/electric generation. Small auxiliary generators will be utilized as necessary for minor requirements (such as plant camp/offices).
At current fuel prices in Mexico, power generation via diesel equipment is equivalent to an electric power cost of 25 cents to 30 cents per kilowatt hour, which has been used for budgeting. Should grid power eventually arrive at the project area, power costs for the project would be reduced by 50 per cent or more.
Water management
The Humaya river flows roughly northwest-southeast, approximately 500 metres from the planned La Fortuna processing plant area. This river has a year-round supply of flowing surface water and discussions with the relevant permitting authorities have indicated that the project would be permitted to extract river water directly for process uses. In addition, a seasonal creek bed that runs east-west and connects with the Humaya river is located a few hundred metres south of the plant site. Hydrogeological studies are under way to establish optimal sources of groundwater that would also be suitable for the project's requirements.
Based on local observations, it is expected that river water/groundwater levels occur at the 250-metre-to-300-metre elevation (above sea level). Water would be pumped from this elevation to the plant site, which is located just above 500 metres (above sea level). Process water removed from the plant-filtered tailings will be recycled as much as possible in order to minimize fresh process water make-up requirements.
Permitting status
The environmental impact assessment (EIA) for mining projects in Mexico starts with an application for the following primary permitting documents:
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MIA -- manifestacion de impacto ambiental (environmental impact statement);
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ETJ -- estudio tecnico justificativo (technical justification study), which includes the estudio de riesgo (risk study) and programa de prevencion de accidentes (accident prevention program).
Following the completion of the EIA process, a number of other registrations and local/state permits are required before the start of commercial production. Important among these are water rights through the Comision de Agua (National Water Commission or CONAGUA), permits for the storage and use of explosives, as well as construction permits from the local municipality.
The MIA-ETJ permit applications were submitted by Minera Alamos for the La Fortuna project in 2018 and are pending. The submitted permitting documents included an expanded scope of processing facilities that included additional stages not required for the current start-up plan (such as concentrate cyanidation and detoxification). This provides the company with added flexibility in the future to modify the existing operation in order to accommodate new potential regional sources of mineralization.
The company does not currently own any surface rights in the La Fortuna area. The surface rights over the area are held jointly by the residents of the Tabahueto ejido (a Mexican agricultural co-operative). In 2016, the company started the discussions with the local ejido regarding the necessary surface rights for the development of the La Fortuna project. At a general meeting held on Feb. 16, 2017, the community voted unanimously to enter into a 25-year agreement to rent 235 hectares of surface area required by the company (agreement signed formally in June, 2017).
Sensitivity analysis
SENSITIVITY ANALYSIS (7.5% DISCOUNT/AFTER-TAX)
NPV (millions) Input factor
Input -30% -20% -10% Base +10% +20% +30%
Metal prices/recovery 25.1 40.0 54.9 69.8 84.7 99.6 114.5
Opex 84.1 79.3 74.6 69.8 65.0 60.3 55.5
Capex 77.3 74.8 72.3 69.8 67.3 64.8 62.3
Project opportunities
The preliminary economic assessment identifies several project opportunities to further enhance project economics. These include:
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The footprint of the current known deposit is very small, compared with the overall land position. Exploration potential exists over the 6,200-hectare land package. A number of other areas of historical mining activities have been identified, but most of the area has never been explored using modern exploration methods.
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No inferred resources have been utilized in the current mining plans. Further stepout drilling may be able to define additional extensions of the current resources.
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Further metallurgical testwork will optimize the gold extraction process and further improve overall metal recoveries.
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A staged plant construction plan (possibly involving earlier use of ore sorting) will further reduce the initial start-up capex and then expand the facilities once production is under way.
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Additional mine planning optimization studies will evaluate opportunities to delay portions of early waste removal until later in the mine life.
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Further optimization studies are under way to determine if a more aggressive use of ore sorting may offer additional economic benefits for the project (such as plant capex reductions and increased minable gold ounces).
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Trade-off studies aimed at optimizing cut-off grades (with or without ore sorting) and the incorporation of additional milling capacity -- the project is permitted for a 2,000-tonne-per-day operation, with the preliminary economic assessment based on a starting rate of 1,100 tonnes per day.
Qualified person statements
The 2018 preliminary economic assessment was prepared and led by CSA Global Geosciences Canada Ltd., in collaboration with other consultants, all qualified persons as defined under NI 43-101. The qualified persons have reviewed and approved the content of this news release. All of the qualified persons are independent of the company, pursuant to NI 43-101. The executive summary of the 2018 preliminary economic assessment and, subsequently, a technical report will be posted on the company's website and filed on SEDAR within 45 days.
The preliminary economic assessment was conducted under the overall review and supervision of CSA Global Geosciences Canada of Toronto, Ont., with the following qualified persons contributing to their respective sections. The listed qualified persons have reviewed the data contained in this news release and verified that they are accurately disclosed.
Felix Lee PGeo, principal consultant, CSA Global Geosciences Canada
Ian Trinder PGeo, principal consultant, CSA Global Geosciences Canada
Scott Zelligan PGeo, independent resource geologist
Bruce Brady PEng, senior associate mining engineer, CSA Global Geosciences Canada
Chris Campbell-Hicks PEng, senior associate metallurgist, CSA Global Geosciences Canada
Gordon Watts PEng, senior associate mining engineer, CSA Global Geosciences Canada
Mr. Koningen, PEng, a qualified person as defined under NI 43-101, is responsible for the other technical information (information not directly related to the preliminary economic assessment) in this news release.
Conference call
The company plans to host a telephone conference call to discuss the preliminary economic assessment results and general corporate plans. Conference call information will be provided publicly in the near future.
About Minera Alamos Inc.
Minera Alamos is an advanced-stage exploration and development company. Its growing portfolio of high-grade Mexican projects includes the La Fortuna open-pit gold project in Durango and the Guadalupe de los Reyes gold/silver project in Sinaloa as well as the now-combined Santana/Los Verdes gold-copper project in Sonora. The company is well financed to conduct all of its planned exploration and development activities and continues to pursue additional project acquisitions in Latin America.
We seek Safe Harbor.
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