Anaconda improves with age

If you ask Dustin Angelo about Anaconda Mining (ANX-T) and its operating Pine Cove gold mine just east of Baie Verte on Newfoundland’s northeast coast, the first thing he’ll tell you is that it was a turnaround project that has “made the complete turn.”

Sales volume and revenues for the fiscal year ended May 31 were 24% and 21% higher than in the previous fiscal year, and in January the junior reported that the first phase of its 2013 diamond drilling program had found a potential new gold zone on the fringe of its open pit.

The open pit at Pine Cove has a seven-year mine life but Angelo, Anaconda’s president and CEO, says the company can increase the resource either around the pit area or with regional exploration.

“The project has developed into a nice little complex,” he says, noting that the property has grown in size from 6.6 sq. km to nearly 48 sq. km. “We’ve got a mill, and we’ll find pockets of mineralization at Pine Cove and be able to truck back the ore to the mill,” he says.

It’s all a far cry from six or seven years ago, when the operators discovered that the wrong type of mill equipment had been purchased to perform the initial ore separation and they couldn’t get the recoveries they wanted. As a stop-gap measure it entered into a mill-tolling agreement in early to mid-2009, but it recognized the arrangement wouldn’t work for the long-term. The decision was later made to upgrade the mill and put in a ball mill and flotation circuit — the best way to recover the gold.

That was when the company started layering on more and more debt. By 2010 the upgrade was complete and the mine was ready to start, but it turned out that getting all the circuits working would take another nine months, which ate into the company’s balance sheet. By late 2010, during the commissioning phase, the company had accrued debt and liabilities to the tune of $14 million.

Angelo joined the company that September, but it wasn’t until May 2011 that Pine Cove generated positive cash flow and started paying off debt. As part of that effort it sold its interest in a non-core asset in Chile to its joint-venture partner, netting $4 million.

“We’ve completely cleaned up the balance sheet,” Angelo says, who before joining Anaconda had been chief financial officer at Elgin Mining for four years, after a career in private equity and mergers and acquisitions at investment banks in New York.

Today the company’s debt — which has been trimmed to just $230,000 — is being paid off entirely with cash flow, and Anaconda held $460,000 in cash as of May 31. The company also expects to generate over $3 million in free cash flow in the current fiscal year that began on June 1.

While the turnaround has been satisfying, the exploration potential that lies ahead is even more exciting. Drilling along the western margin of the open-pit boundary — in an area with no previous drilling and outside of the existing mine plan — intersected a zone of gold mineralization the company is calling the Western Extension.

In February Anaconda reported that four of six diamond drill holes intersected gold mineralization there with highlights of 2.19 grams gold over 11.4 metres from a vertical depth up to 38 metres, and 1.28 grams gold over 5.3 metres from a vertical depth reaching 54 metres. The depth and grade of the intercepts is similar to the material Anaconda is mining from its current open pit.

More drill results from the Western Extension released at the end of March included highlights of 2.15 grams gold over 20 metres from a depth of 73 metres and 12.7 metres of 1.28 grams gold from a depth of 109 metres. After the encouraging results Anaconda undertook a second phase, 1,000-metre drill program, adding to the initial 10-hole, 1,900-metre drill program slated for the year.

In June the company completed the second drilling phase, with notable intercepts including 2.34 grams gold over 41 metres beginning from a 41-metre depth, and 7 metres of 3.05 grams gold from a 47-metre depth.

Anaconda is also drilling the downdip zone 100 metres north of the open pit, and Angelo is encouraged by the results. Highlighted intercepts include 2.50 grams gold per tonne over 40.8 metres, including 7.18 grams gold over 3.2 metres and 11.44 grams gold over 4.3 metres.

“There’s a lot of potential around the pit as long as we can put these pieces together,” Angelo says. “If there are more resources to come around the pit, we think it’s going to come from [the Western Extension and downdip], as far as we know right now.”

Angelo adds that the next step is to line up a structural geologist to help the company target its drill program. “We’ve done a lot of drilling — we’ve hit some nice zones — but it’s a structurally complex area, and we need to take a step back,” he says. “We’re looking to hire a structural geologist to come in and help us understand how the mineralization is lying in the ground and what the control features are, and help direct us towards where we should be drilling.”

Anaconda is also exploring the higher-grade Romeo and Juliet vein, which outcrops at surface 1.5 km from the mill. Romeo and Juliet is a high-grade quartz vein that Angelo says could have a grade that is three times the amount the company is mining from the open pit. The vein has an estimated 300-metre strike length and runs 1.5 metres thick.  

If the Romeo and Juliet vein is large enough and continuous enough, and the grade holds steady with what has been witnessed so far in the sampling, Angelo says, Anaconda could use it as a blend feedstock to increase the overall grade at the mill without piling on much capital expenditure.

“We’d take our 2 grams per tonne gold in the pit and combine it in some sort of ratio with the 6 grams per tonne material from the Romeo and Juliet vein,” he explains.

Anaconda sold 14,879 oz. gold and generated $24.2 million in revenue at an average sales price of $1,625 per oz. gold during the 2013 fiscal year. Angelo forecasts the mine will produce that much or more in the current fiscal year. The pit was originally modelled on a US$980 per oz. gold price.

Gold was first discovered at Pine Cove following a stream geochemical survey in 1988. Anaconda acquired an option to earn up to 60% of the project in 2003. By November 2004 the company and its joint-venture partner, New Island Resources, had completed a 5,000-tonne bulk-sampling program, producing 1,045.35 oz. gold. The two companies received government approval to build the mine in May 2007, and in 2011 Anaconda bought the remaining 40% in the project that it did not already own.

Over the last year Anaconda has traded within a range of 7.5¢ to 15.5¢ per share, and last traded at 7.5¢. The company has 177 million shares outstanding.