Mr. Greg McCunn reports
ALIO GOLD ANNOUNCES UPDATED LIFE OF MINE PLAN FOR FLORIDA CANYON
Alio Gold Inc. has released the results of an updated life-of-mine plan for its 100-per-cent-owned Florida Canyon mine in Pershing county, Nevada. An associated National Instrument 43-101-compliant technical report is being prepared by SRK Consulting and will be filed on SEDAR no later than March 1, 2019.
Florida Canyon life-of-mine plan highlights:
After-tax NPV5 (net present value at a 5-per-cent discount) of $105-million based on a $1,300-per-ounce gold price;
- Proven and probable mineral reserves of 1.01 million ounces gold (85.9 million tonnes at 0.37 gram per tonne gold) based on a pit designed to maximize project economics at $1,250/ounce gold price;
Near-term production growth: 47,400 ounces produced in 2018 expected to increase to 62,200 ounces in 2019, and to an average of 75,000 ounces per year for the next eight years;
- Life-of-mine (LOM) gold production of 734,000 ounces with a 9.8-year mine life;
- LOM free cash flow of $138-million, after tax, at $1,300/ounce gold;
- Capital expenditures of $81.9-million expected over the LOM, including replacement of mining fleet;
- LOM cash costs of $903 per ounce of gold and all-in sustaining costs of $1,058 per ounce of gold;
- LOM gold recovery of 71 per cent;
Potential for further production growth with the restart of the Standard mine, a past-producing mine adjacent to Florida Canyon;
- Further strategic value to be studied in the sulphide deposit underlying the oxide reserves.
"This positive life-of-mine plan confirms the value of Florida Canyon that we saw when we acquired the mine last year," said Greg McCunn, chief executive officer. "The mine produced 47,400 ounces of gold in 2018 and the ramp-up progressed well over the fourth quarter. In 2019, we expect Florida Canyon to produce approximately 60,000 ounces of gold at a cash cost of approximately $1,000/ounce. We expect to spend approximately $10-million in capital in 2019, including an expansion to the leach pad and key infrastructure around the crushing circuit to eliminate rehandling of the ore ahead of the crusher, which we expect will reduce operating costs.
"We anticipate needing to begin replacing our mining fleet in 2020. This life-of-mine plan assumes we will replace the existing CAT 785 fleet over a period of time with new equipment. In 2019 we will be evaluating alternative options to reduce the sustaining capital requirements as well as potentially reducing the truck size to CAT 777s to allow narrower ramps in the pits.
"Additionally, we believe that there are a number of opportunities to enhance the value of Florida Canyon that we will evaluate in 2019 including the restart of the adjacent Standard mine and the strategic value of the sulphide deposit underlying the oxide reserves."
Florida Canyon overview
The Florida Canyon mine is located halfway between Lovelock and Winnemucca in the state of Nevada. The mine sits immediately adjacent to Interstate 80 and is located approximately 210 kilometres northeast of Reno, Nev. The mine operated between 1986 through 2004; and 2007 to 2011, recovering over 2.3 million ounces of gold. The Standard mine operated between 2004 and 2007, and again between 2011 through the second quarter of 2015. The Florida Canyon mine was restarted in 2017 with commercial production declared in December, 2017. Alio Gold holds a 100-per-cent interest in the Florida Canyon mine through its wholly owned subsidiary Alio Gold U.S. Inc.
Mineral resource estimate
The LOM plan was developed based on the measured and indicated mineral resource estimate prepared by SRK Consulting dated July 31, 2018 (filed on SEDAR on Nov. 30, 2018, see news release dated Oct. 18, 2018).
FLORIDA CANYON: OXIDE RESOURCES
(July 31, 2018, $1,350/ounce gold)
Measured Indicated Measured and indicated
Contained Contained Contained
Tonnes Au Au ounces Tonnes Au Au ounces Tonnes Au Au ounces
(000) g/t (000) (000) g/t (000) (000) g/t (000)
Central pit 46,448 0.40 597 9,758 0.37 115 56,206 0.39 712
Main pit 27,983 0.37 331 9,100 0.34 100 37,083 0.36 431
Jasperoid Hill 5,393 0.39 68 2,046 0.32 21 7,439 0.37 89
Radio Towers 25,243 0.46 375 6,904 0.47 103 32,147 0.46 478
Total 105,068 0.41 1,371 27,807 0.38 339 132,875 0.40 1,711
Mineral reserve estimate
A mineral reserve estimate was produced using a combination of the ultimate pit design, cut-off grade and production schedule. The cut-off grade determines whether material is processed as ore or disposed of as waste. The grade is the gold fire assay grade of the material and the cut-off is the value at which the revenue of the ore is more than the cost of processing, general and administrative costs, and associated sustaining capital costs, less the differential haulage cost between ore and waste. The cut-off grade used for Central, Central North, Jasperoid Hill and Main mining areas was 0.17 g/t, while Radio Towers cut-off was 0.21 g/t.
FLORIDA CANYON: OXIDE RESERVES
(Nov. 1, 2018, $1,250/ounce gold)
Proven Probable Proven and probable
Metric Contained Metric Contained Metric Contained
tonnes Au Au ounces tonnes Au Au ounces tonnes Au Au ounces
(000) g/t (000) (000) g/t (000) (000) g/t (000)
Central 28,293 0.36 331 2,605 0.32 27 30,899 0.36 358
Central North 5,725 0.37 68 2,018 0.37 24 7,744 0.37 92
Main 20,496 0.33 217 4,932 0.31 49 25,428 0.33 267
Jasperoid Hill 2,000 0.39 25 830 0.30 8 2,831 0.37 34
Radio Towers 16,731 0.44 235 2,219 0.39 28 18,950 0.43 263
Total 73,246 0.38 876 12,605 0.34 136 85,852 0.37 1,013
* See notes on mineral reserves at the end of this release.
Mining and processing
Florida Canyon uses a standard open-pit mining method with conventional drilling and blasting to liberate ore and waste. Ore is sourced from five primary areas: Main, Central, Central North, Jasperoid Hill and Radio Towers. Waste is hauled to three waste dump locations to minimize haulage distances. The LOM strip ratio is estimated to be 1.03 tonnes of waste per tonne of ore.
Ore is currently dumped onto a run-of-mine stockpile where a front-end loader trams ore into a two-stage, open-circuit crushing circuit. Ore is crushed to a P80 of approximately 1.5 inches and agglomerated before being reloaded into haul trucks and stacked on conventional heap leach pads where it is irrigated with cyanide solution. Gold is recovered from solution in the form of dore via a conventional carbon-in-column adsorption, stripping and electrowinning circuit. The dore is transported off site for further refining into gold and silver metal. Gold recovery is estimated to be 71 per cent based on metallurgical testing as well as current and past operating results.
In 2019, planned capital expenditures will be employed to expand the existing leach pad as well as construct a dump pocket ahead of the primary crushing circuit. The dump pocket will eliminate the need for rehandling of ore ahead of the crushing circuit, allowing haul trucks to direct dump ore.
Scheduling of mineral reserves was based on the limitation of processing, approximately 8.7 million tonnes per annum of ore through the crushing circuit. The LOM plan is summarized in the associated table.
Year Ore mined Waste mined Strip ratio Gold grade Gold produced
(Mt) (Mt) (waste:ore) (g/t) (ounces)
2019 8.62 4.01 0.47 0.34 62.2
2020 8.71 8.46 0.97 0.34 67.4
2021 8.71 10.71 1.23 0.37 73.3
2022 8.71 10.94 1.26 0.36 72.1
2023 8.71 8.70 1.00 0.40 79.3
2024 8.71 6.28 0.72 0.42 82.6
2025 8.71 12.42 1.43 0.35 68.6
2026 8.71 14.32 1.64 0.43 85.5
2027 8.71 8.27 0.95 0.36 70.8
2028 6.67 3.51 0.53 0.32 48.3
2029 - - - - 24.1
Total 84.96 87.62 1.03 0.37 734.2
Figures may not total due to rounding, totals not exactly equal to mineral
reserves as November and December, 2018, production excluded from above.
Operating costs were estimated for the LOM plan based partially on first principles and partially on actual operating data from the mine site. Unit costs were estimated as shown in the associated table.
Operating costs Units Value
Mining $/t mined $1.93
Processing $/t processed $3.23
General and administrative $M/annum $5.3
Mining costs were developed based on the existing owner mining unit operations and estimated truck haulage schedules and distances. As the existing truck fleet is expected to be replaced, maintenance costs were based on first principles for new equipment. Processing costs were estimated based on current operations, with adjustments to the operating cost following capital improvements to eliminate rehandling of ore ahead of the crusher. Key cost drivers in the cash costs are:
- Diesel fuel price 65.8 cents/litre and 0.398 litre/tonne mined consumption;
Explosives 56.2 cents/kilogram and 0.185 kilogram/tonne mined (blended ANFO and heavy ANFO cost);
Cyanide cost $2.59/kg and 0.24 kg/tonne consumption;
Lime cost 29 cents/kg and 1.05 kg/tonne consumption.
Unit costs were applied to the mine plan, resulting in expected LOM cash cost expenditures of $663-million, or $903/ounce of gold produced.
In addition to cash costs, $3.48 per ounce of gold has been allowed for charges from the refinery to refine dore into saleable gold. This cost is based on the current precious metals refining contract. In addition, Florida Canyon production is subject to two royalties payable to third parties based on gold revenues: a 2.5-per-cent net smelter return royalty and a 3.5-per-cent royalty based on net smelter return less allowable deductions. The two royalties equate to 4.6 per cent of net revenues at $1,300/ounce gold price, or $60/ounce.
CASH COSTS AND AISC PER GOLD SOLD ($/OUNCE)
Life of mine $/oz
Mining $332 $453
Processing 274 374
General and administrative 56 76
Total cash costs 662 903
Refining charges 3 4
Royalties (at $1,300/oz gold) 44 60
Sustaining capital 68 92
All-in sustaining costs 777 1,058
* Figures may not total due to rounding.
Capital costs for the LOM are anticipated to be primarily for the replacement of the current mining equipment, construction of additional leach pad capacity, upgrading process equipment, and improving crusher production and efficiency. LOM capital was estimated at $81.9-million. A portion of these costs is required to sustain operations ($67.7-million), while a portion is targeted at reducing operating costs and improving reliability ($5.5-million). A contingency was added to the capital cost estimates where appropriate, totalling $8.7-million.
Capital costs estimates Life of mine
Sustaining capital 67.7
Other capital 5.5
Total capital costs 81.9
Sustaining capital is anticipated to be predominantly for the replacement of the existing mining fleet which is expected to start in 2020 and construction of four expansions to the existing heap leach pad. Total anticipated sustaining capital of $67.7-million over the LOM equates to $92/ounce of gold produced. Expected all-in-sustaining costs (AISC) for the LOM are $777-million, or $1,058/ounce of gold produced.
Cash flow estimates
Annual cash flows were estimated for the LOM based on revenues projected at a long-term gold price of $1,300/ounce and totalled $954-million LOM. Historically, Florida Canyon has produced approximately 0.88 ounce of silver for every ounce of gold. Silver has not been modelled in the mineral reserve estimate and as such, no credit has been taken in this study for silver revenue. In 2018, Florida Canyon generated approximately $500,000 in revenue from silver.
Expected AISC totalling $777-million as described above was deducted from the revenues. In addition, closure cost net of future bond releases was estimated based on forecast disturbances at the end of the mine life totalling $16.8-million.
Estimates for taxes payable include the Nevada net proceeds tax of 5 per cent of taxable income, U.S. federal tax at 21 per cent of taxable income, property taxes and Nevada state mining tax.
Free cash flow is defined as revenues less AISC, non-sustaining capital, taxes and closure costs and totals an expected $138-million LOM. Discounting these cash flows using a 5-per-cent discount rate results in a net present value of $105-million for the LOM.
($ million) 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 total
Revenue 80.9 87.6 95.3 93.8 103.1 107.4 89.2 111.1 92.1 62.7 31.3 954.4
Mining 27.3 33.6 36.2 36.3 34.3 32.3 37.5 44.6 31.3 18.9 0.0 332.5
Processing 27.1 27.4 27.4 27.4 27.4 27.4 27.4 27.4 27.4 21.0 7.5 274.4
GZA 5.3 5.3 5.3 5.3 5.3 5.3 5.3 5.3 5.3 5.3 2.7 56.0
Total cash costs 59.8 66.3 68.9 69.0 67.0 65.0 70.2 77.3 64.0 45.2 10.2 662.9
Refining charges 0.2 0.2 0.3 0.3 0.3 0.3 0.2 0.3 0.2 0.2 0.1 2.6
Royalties 3.7 4.0 4.4 4.3 4.7 4.9 4.1 5.1 4.2 2.9 1.4 43.9
Sustaining capital 5.7 12.6 14.2 15.1 7.0 6.9 3.6 2.0 0.6 0.0 0.0 67.7
Total AISC 69.4 83.1 87.7 88.7 79.1 77.1 78.1 84.8 69.1 48.3 11.7 777.1
Other capital 4.6 4.4 2.0 2.0 0.5 0.4 0.2 0.1 0.0 0.0 0.0 14.2
Tax 1.6 1.2 1.0 0.4 0.8 1.5 0.4 0.4 0.4 0.4 0.2 0.2 0.2 0.2 8.7
Closure costs 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 1.7 3.4 3.4 8.4 16.8
Free cash flow 5.3 -1.1 4.6 2.7 22.7 28.4 10.4 25.8 22.6 14.1 17.7 -3.5 -3.5 -8.6 137.6
Discount factor (5%) 1.000 0.952 0.907 0.864 0.823 0.784 0.746 0.711 0.677 0.645 0.614 0.585 0.557 0.530
Net present value 5.3 -1.0 4.2 2.4 18.7 22.2 7.8 18.4 15.3 9.1 10.9 -2.1 -2.0 -4.5 104.5
Economic sensitivity to gold prices
The net present value and LOM expected free cash flow is sensitive to the long-term price of gold, as shown in the associated table.
Gold price NPV (5%) LOM cash flow
$/oz $M $M
$1,200 $51 $71
1,250 78 105
1,300 105 138
1,350 131 170
1,400 156 202
1,450 181 233
1,500 205 263
A number of opportunities were outlined in the LOM plan that could enhance operating efficiency and reduce operating costs at the Florida Canyon mine. In addition, the company expects to begin work in 2019 on two important opportunities to enhance value.
The Standard mine is located approximately four kilometres south and immediately adjacent to Florida Canyon mine. This LOM plan does not consider the Standard mine in its mineral resource, reserve or production estimates. The open-pit heap leach mine operated between 2004 and 2007 as a run-of-mine heap leach and then more recently from 2011 to 2015 with ore crushing to a P80 of approximately 1.5 inches. Over this period, the mine produced approximately 500,000 ounces of gold from ore grading 0.62 g/t gold. In 2018, the Florida Canyon operations continued to circulate non-cyanide bearing solution through the Standard heap leach pad, trucking carbon to the Florida Canyon refinery occasionally for stripping. Gold production from Standard was approximately 1,000 ounces in 2018.
In 2019, the company expects to complete geological mapping focused on the current plan of operations boundary in known satellite deposits. A non-NI 43-101-compliant, historical mineral resource estimate will be investigated with the intent of bringing it up to current mineral resource standards including building a geological model and updating the historic resource models.
Sulphides underlying the existing Florida Canyon mineral resource area
Historical and more recent drilling in 2017 has shown a significant amount of sulphide mineralization underlying the oxide mineralization in the current Florida Canyon mineral resource. In the historical drilling a total of 262 drill holes (241 reverse circulation and 21 core) touched or penetrated the sulphide body and yielded an average grade of 2.36 g/t gold in the sulphide zone with gold values as high as 100 g/t in a northeast-oriented structural zone.
More recently, Rye Patch Gold completed scouting drilling of the sulphide zone (see news release filed on its SEDAR profile dated Nov. 29, 2017). The reverse circulation drill program was designed to test the distribution of the sulphide body and validated the current geologic model and ore controls. The three gold zones identified in drill hole FCR-17-015 consist of 35.1 metres grading 2.08 g/t gold starting at 88.4 metres, 57.9 metres grading 1.30 g/t gold starting 129.5 metres, and 15.2 metres grading 1.08 g/t gold starting at 236.2 metres. The grades reported are non-continuous in the specified intervals, using a 1.0 g/t gold cut-off. The drill hole was located in an untested sulphide area between the Central and Main pits. The intersections confirm the notion that the mineralization has a similar structural geometry to the oxide zone thus connecting the two zones. The multiple intercepts demonstrate a substantial thickness and breadth of the sulphide zone.
Drill hole FCR-17-016 identified two gold zones including 70.1 metres grading 2.94 g/t gold starting at 79.2 metres and 56.4 metres grading 2.60 g/t gold starting at 164.6 metres, also non-continuous using a 1.0 g/t gold cut-off. The drill hole was located along the northern portion of the sulphide body where existing assay information suggested lower grade in the sulphide zone. The drill hole shows the historic data will need more offset and twin drill holes to confirm grade distribution and tenor.
In 2019, the company expects to evaluate potential strategic partnerships to jointly investigate the potential for producing a gold-bearing sulphide concentrate suitable for treatment at other Nevada gold production facilities.
Approximate 2018 gold production subject to finalization and refinery adjustments.
Mineral reserves were estimated based on surveyed pit surfaces at Nov. 1, 2019. The production schedule excludes actual production from Nov. 1, 2018, to Dec. 31, 2018. In addition, gold production in the final years of operation include recovery of gold in inventory in the heap leach pads as at Nov. 1, 2018. As such, mineral reserves are not equal to scheduled gold production LOM.
Notes on mineral resources:
- Mineral resources are not mineral reserves and do not have demonstrated economic viability. There is no certainty that any part of the mineral resources estimated will be converted into a mineral reserves estimate.
Au recovery is based on a non-linear relationship to Au fire assay grade and is evaluated on a block-by-block basis in the resource model. To account for this variability, an NSR value was calculated for each block and cut-offs were then applied to the NSR.
- The resource model was constructed in U.S. units, and quantities and grades in the table reflect conversion to metric units for reporting where applicable. NSR cut-offs and costs in the notes below are expressed in U.S. dollars/short ton.
Resources are reported using an NSR cut-off grade of $3.99 (U.S.)/short ton for the Central area, $4.09 (U.S.)/short ton for the Central N and Jasperoid Hill areas, $3.94 (U.S.)/short ton for the Main and Radio Towers areas, $4.04 (U.S.)/short ton for the Radio Towers N area, and $3.99 (U.S.)/short ton for the Radio Towers area. The variable NSR cut-offs reflect differences in haulage cost.
Resources in the table are grouped by major mining area. Central and Central N were combined, as were all Radio Towers mining areas.
Resources stated as contained within a potentially economically minable open pit; pit optimization parameters are: $1,350 (U.S.)/ounce Au, an average Au recovery of 61 per cent for Radio Towers area and 67 per cent for the Central/Main area, $2.80 (U.S.)/ounce Au sales cost, $1.26 (U.S.)/short ton base waste mining cost, variable haulage costs by mining area, $3.99 (U.S.)/short ton base mineralized material processing cost, 45-degree pit slopes for in situ rock, and a 37-degree pit slope for fill/dumps.
Numbers in the table have been rounded to reflect the accuracy of the estimate and may not sum due to rounding.
Notes on mineral reserves:
Mineral reserves have an effective date of Nov. 1, 2018. The qualified person for the estimate is Justin Smith, PE, SME-RM.
- The mineral reserves and resources in this report were estimated using the Canadian Institute of Mining, Metallurgy and Petroleum (CIM), CIM Standards on Mineral Resources and Reserves, Definitions and Guidelines prepared by the CIM Standing Committee on Reserve Definitions and adopted by CIM Council.
- The reserve was developed using U.S. units, and quantities and grades in the table reflect conversion to metric units for reporting where applicable. Cut-offs and costs in the notes are expressed in ounces per short ton and U.S. dollars/short ton.
Reserves are reported within a designed pit using a cut-off of 0.006 ounce/short ton for the radio towers mining area and 0.005 ounce/short ton for all other areas.
- The mineral reserves are based on a pit design which in turn aligns with an ultimate pit shell selected from a Lerchs-Grossmann pit optimization exercise. Key inputs for the reserve cut-off calculation are:
- A metal price of $1,250/ounce Au;
- Ore mining costs by area ranging from $1.42/short ton to $2.67/short ton;
- Waste mining costs by area ranging from $1.24/short ton to $1.83/short ton;
- Crushing and processing costs of $2.85/short ton ore;
- General and administration costs of $1.02/short ton milled;
- Pit slope angles varying from 32.5 to 45 degrees;
- Process recoveries of 70 per cent.
- Mining dilution is assumed to be 5 per cent at zero grade.
Ore loss is assumed to be 5 per cent.
- The ultimate pit includes 88.8 million tonnes of waste for a stripping ratio of 1.03 tonnes of waste per tonne of ore.
- All figures are rounded to reflect the relative accuracy of the estimate. Totals may not sum due to rounding.
The resource estimate and related geologic modelling were conducted by, or under the supervision of Tim Carew, MSc, PGeo, of SRK Consulting (U.S.) Inc., Reno, Nev. The mine planning and related reserve estimate were conducted by, or under the supervision of Mr. Smith. The capital cost estimates were conducted by Kent Hartley, PE of SRK Consulting (U.S.) Inc., Reno, Nev., with the exception of the 2019 capital cost budget, which was completed by the Florida Canyon mine site staff and approved by the Alio Gold board of directors. The operating cost estimates and financial analysis were conducted by, or under the supervision of Tom Bagan, PE, MBA, SME-RM, of Thomas H. Bagan LLC, Sparks, Nev. The metallurgical processing and recovery estimates were conducted by, or under the supervision of Jeffrey Woods, SME MMSA, qualified person of Woods Process Services, Denver, Colo.
Mr. Carew, Mr. Smith, Mr. Hartley, Mr. Bagan and Mr. Woods are qualified persons independent of Alio Gold for the purposes of NI 43-101 and have reviewed and approved the technical content contained herein.
A National Instrument 43-101 -- Standards of Disclosure for Mineral Projects -- technical report that summarizes the results of the LOM plan and incorporates the initial mineral reserve statement for Florida Canyon will be filed within 45 days on SEDAR and on the company's website. For readers to fully understand the information in this news release, they should read the technical report in its entirety, including all qualifications, assumptions and exclusions that relate to the LOM plan. The technical report is intended to be read as a whole, and sections should not be read or relied upon out of context.
About Alio Gold Inc.
Alio Gold is a growth-oriented gold mining company, focused on exploration, development and production in Mexico and the United States. Its principal assets include its 100-per-cent-owned-and-operating San Francisco mine in Sonora, Mexico; its 100-per-cent-owned-and-operating Florida Canyon mine in Nevada, United States; and its 100-per-cent-owned development-stage Ana Paula project in Guerrero, Mexico. The company also has a portfolio of other exploration properties located in Mexico and the United States.
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