Amarillo posts prefeasibility study on Posse

In the Brazilian state of Goias, Amarillo Gold‘s (AGC-V) Posse deposit – previously mined by Western Mining during the nineties – is surrounded by a number of large, copper-gold-nickel laterite projects.

The deposit is 35 km northeast of Yamana Gold‘s (YRI-T, AUY-N, YAU-L) Chapada open-pit copper-gold operation, 60 km northeast of Yamana’s Pilar gold project, 95 km northwest of Votorantim’s Niquelandia nickel laterite mine, 105 km northeast of Serra Grande’s underground gold mine and 105 km northwest of Anglo American‘s (AAL-L) nickel laterite project at Barro Alto.

The deposit has proven and probable reserves of 17.1 million tonnes grading 1.72 grams gold per tonne for 945,200 contained oz. gold. Processing will recover 869,600 oz. gold.

According to a prefeasibility study released at the end of November, Posse will have an initial mine life of seven years with an annual throughput of 2.5 million tonnes. Processing will involve a 12-hour pre-oxidation stage feeding a conventional carbon-in-leach gold recovery circuit.

Average gold production is 124,000 oz. per year at an average total cash operating cost of US$524 per oz. Cash operating costs include mine costs at US$464 per oz., plus refining, royalties, insurance, transport and security costs.

The study demonstrated the mine would yield a $1.04-billion gross revenue, assuming a gold price of US$1,200 per oz.

The project’s pre-tax net present value (NPV) at a 5% discount rate equals US$283 million, and the internal rate of return (IRR) works out to 37.9% at US$1,200 per oz. gold. After-tax, the NPV drops to US$178 million and the IRR to 26.6%. 

The study’s forecasted start-up capital is US$184 million, including US$5.4 million for working capital.

Buddy Doyle, Amarillo’s chief executive and president, noted that the project economics have improved since its preliminary economic assessment in 2008, despite a “sizeable increase” in capital expenditure. He attributed the improved economic results to better metallurgical recoveries, higher gold prices and increased annual throughput, and noted that the capital expenditure estimates in the latest study include pre-strip costs, owner-operated equipment and power line construction.

Amarillo expects to complete a feasibility study in 2012, and says it could become Brazil’s next producer of more than 100,000 oz. gold per year by 2014.

At a cut-off grade of 0.5 gram gold per tonne, Posse has measured and indicated resources of 20.85 million tonnes grading 1.75 grams gold for 1.17 million contained oz. gold. Inferred resources add 3.63 million tonnes and 1.38 grams gold for 156,400 oz. gold.

The final pit will measure 1.4 km in the north-south direction and 0.6 km in the east-west direction. The pit impacts an 87-hectare area, with the highest wall measuring 260 metres. The hanging wall will be carried at a 55-degree slope and the footwall at a 40-degree slope.

The mine anticipates 10 million tonnes of waste pre-stripping at a cost of $14.2 million.

A 7.4-for-1 operational strip ratio is achieved after excluding the waste removed by pre-stripping. 

Infrastructure includes a railway 1.5 km from the pit and a main highway 11 km away, along with a town of 12,000 residents 11 km from the project. A 4-km gravel road connects the site to the highway.

Grid power to the site was set up when Western Mining operated its open pit at Posse, but the existing 69-kilovolt power line can only support the construction period.

To secure enough power for mining operations Amarillo will have to install a 63-km-long, 138-
kilovolt power line at a cost of US$7.9 million. Power costs could reach US4 ¢ per kilowatt hour at current exchange rates. 

The 450-megawatt Serra da Mesa hydroelectric dam lies 35 km east of Posse.

Amarillo expects to submit a baseline environmental study in January.

At presstime Amarillo traded at $1.30 within a 52-week range of $1.03-$1.90. It has 56.2 million shares, fully diluted.