Minera Alamos downsizes its dreams at Los Verdes

VANCOUVER — Junior Minera Alamos (TSXV: MAI; US-OTC: VGMTF) is getting a second look from investors after a change in strategy at its wholly owned Los Verdes copper-molybdenum property, 200 km southeast of Hermosillo, Mexico. In response to weak capital markets the company has taken a step back and designed a much smaller start-up operation which it says could result in a lower development cost and a quicker path to cash flow.

Minera Alamos’ preliminary economic assessment (PEA) in 2012 modelled a 3,000-tonne-per-day operation with a US$92-million capital requirement. The operation would have cranked out 19,000 dry tonnes of copper concentrate and 2,000 dry tonnes of high-grade moly concentrate annually, and generated a US$113-million net present value at a 5% discount rate, along with a 34% internal rate of return.

“The project has been around for quite a while, and we’ve spent a fair amount of time on mine planning. Unfortunately it proved pretty much impossible to finance that ‘last mile,’ given current market conditions,” explained CEO Chris Frostad during an interview. “We still believe it was a strong project design with reasonable capital requirement, but as lovely as all that was, it didn’t fly. So we shook up the box and ended up saying: ‘What would it look like if we went in with a smaller operation?’”

The company’s new project design cuts throughput down to 400 tonnes per day, and would carry an estimated development cost of between US$8 million and US$10 million. Another investment of US$8 million would be considered in the third year of operations to double processing capacity and capture value from any growth in resource potential.

Los Verdes’ in-situ copper equivalent resources haven’t changed since the original PEA. The project hosts 7.7 million measured and indicated tonnes grading 0.6% copper, 0.1% moly and 4.74 grams silver per tonne.

Mineralization at Los Verdes is magmatic-hydrothermal with sulphide minerals — mostly chalcopyrite, pyrite and moly — that could be related to granodiorites. Weathering near the surface has converted some of the mineralization to an oxide facies (i.e., ferromolybdite plus iron oxides).

The first step for Minera was outlining a higher-grade starter pit that could feed its smaller operation early on. The company ended up with a measured and indicated resource at its South deposit of 3.9 million tonnes of 1.9% copper equivalent.

“After that we explored the upside of ore sorting, since our team has used it in the past and had good results. We’re essentially adding a new element to our concentration circuit, and it’s a technology that’s been used for years in recyclables and food industries. In our case it involves crushing the rock, running it down a conveyor and scanning it with X-rays to separate the lower-grade material. We optimize that for cut-off based on our recovery, which allows us to double the grade,” Frostad said.

“When we ran numbers things got really intriguing. For the amount of capital we’d be investing upfront, the adjusted earnings per year were kind of crazy. We can get into production in around eighteen months, and that’s an attractive timeline to cash flow,” he added.

The company is targeting earnings before interest, taxes, depreciation and amortization of between US$10 million and US$12 million during its first year of operation, and a minimum eight-year mine life. Preliminary testing on the ore-sorting technology has yielded 100% grade increases and up to 90% recoveries of valuable metals.

The company has raised US$3.5 million via private placements since June.

Minera has issued 35 million units priced at 10¢ per unit, which each consist of one share and one purchase warrant priced at 10¢ for four years. Major investors include merchant banks Norvista Capital and IBK Capital, which own 16% and 26% of the company.

“The financing ended up being structured in that way because, to be frank, it snowballed. As we talked to more people we picked up a lot of interest and built that momentum. We closed the first round, and opened it up for a few more folks we wanted to get involved. I think a large part of the attraction was also our technical team. We have a strong group of engineers and metallurgists who have been building mines in Mexico for quite some time,” Frostad said.

The next step for Minera is an updated PEA on the smaller mine plan. The company is drilling 1,400 metres at its North deposit to extend Los Verdes’ life. North hosts a historic resource at the past-producing Buenavista mine of 1.1 million tonnes of 0.5% copper and 0.1% moly.

“The mine life issue is really why we’re drilling right now. We bought the North area a few years back, which historically had better results during private mining. It had similar grades, a cleaner concentrate and it was easier to access,” Frostad said. “And the area is open, so there’s potential to add more mill feed, and there’s also a promising induced-polarization anomaly south of there that is more intense than both the past-producing deposits.”

Minera Alamos shares have traded within a 52-week range of 6¢ to 38¢, and last closed at 10¢ per share. The company has 42.5 million shares outstanding.