Lac Pelletier gold project could see production by mid 2010

Positive results from a pre-feasibility study could mean Alexis Minerals (AMC-T) will move its Lac Pelletier gold project in Quebec into commercial production next year as a satellite deposit. Alexis has the right to earn a 100% interest in the Lac Pelletier gold property 4 km southwest of the town of Rouyn-Noranda.

The study estimates that the Lac Pelletier mine would yield a 155% internal rate of return and would generate more than $20.7 million in free cash flow on the back of 109,300 ounces recovered gold over an estimated three-year lifespan.

Lac Pelletier is an opportunity for Alexis to bring a second satellite mine into production to complement cash flow from its Lac Herbin mine, 100 km away in Val d’Or, Quebec.

With both mines in production the company’s total gold production would increase in 2010 to 75,000-85,000 ounces of gold per year.

The past-producing Stadacona mine lies on the eastern side of the Lac Pelletier property, about 4 km east of the ramp. Between 1928 and 1958 Stadacona produced 2.74 million tonnes grading 5.49 grams gold per tonne.

Lac Pelletier’s measured and indicated resources, using a 3 gram gold per tonne cut-off grade, are estimated at 917,883 tonnes grading 7.11 grams of gold per tonne for contained gold of 209,895 ounces. In the inferred category the Lac Pelletier project has 391,770 tonnes grading 6.52 grams gold for contained gold of 82,127 ounces.

Proven and probable reserves were calculated using a cutoff grade of 5.5 grams gold per tonne and reached 483,362 tonnes grading 7.60 grams gold per tonne for 118,100 ounces.

Lac Pelletier should produce between 40,000 and 50,000 ounces of gold per year.

According to the study, the project’s net present value of production at a 7% discount rate would be $16.9 million.

Total capital expenditures in the pre-production stage are estimated at $8.8 million net of recovered gold ($9.8 million) and using an average gold price of US$887 per oz.

Total operating costs are projected to be $144 per tonne (includes shipping and third-party custom milling at $42 per tonne).

Total cash costs are projected to be US$554 per oz. gold.

The company plans to finish refurbishing of the mine and to undertake a 40,000 tonne bulk sample this year with commercial production slated for mid-2010.

The refurbishment of Alexis’ Aurbel gold mill by December is likely to lower production costs by about 10%, the company believes.

Alexis advanced surface site preparation at Lac Pelletier in early 2008 with the installation of power supply, road work, building construction and settling ponds for the project.

But rising mining costs and concerns over the mining method put forth by several mining contractors delayed the project.

The company began its pre-feasibility study in 2008 to assess the project’s potential and to review the proposed mining approach.

“With recent and forecasted gold prices being sufficient to make this project economic, management has elected to proceed with refurbishment of the underground workings and completion of a bulk sample in 2009, after which a production decision will be made in the first quarter of 2010,” the company said in a press release.

Dewatering the existing ramp started on June 10 and currently there is access to the first level.

Starting in August, development will be advanced enough to enable mining of 40,000 tonnes of ore, which is anticipated to contain 10,200 ounces of gold.

If mill recoveries are 92.5% by the end of 2009, Lac Pelletier should provide about 9,400 ounces of gold, which would offset refurbishment costs and the bulk sampling.

Alexis acquired the 722.6 hectare Lac Pelletier property in 2005.

Prior to that, Falconbridge, now Xstrata (XSRAF-O, XTA-L), and Thundermin Resources (THR-T), completed an underground exploration program on the deposit in 1992.

Historical work on the current deposit area includes 42,656 metres of surface and underground diamond drilling; 1,050 metres of ramp development and 292 metres of lateral drifting with two levels developed in ore.

The 1992 program treated a bulk sample of 11,634 tonnes at the Camflo mill in Malartic, a custom milling facility in the province.

The property is subject to a 1% net smelter return royalty to Falconbridge, and a 2.5% net smelter return to Thundermin Resources.

Alexis at presstime was trading at 44¢ per share.

The company has a 52-week trading range of 21¢-65¢ and has 147.5 million shares outstanding.