• 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' (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.

ChartAAU data by YCharts

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.

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.

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