VANCOUVER — Leagold Mining (TSXV: LMC) envisions itself as the next intermediate gold producer in Latin America, and that journey is now underway with a US$350-million deal in early 2017 to acquire Goldcorp’s (TSX: G; NYSE: GG) Los Filos gold mine, 230 km south of Mexico City.
The acquisition may appear ambitious for a gold junior, but the company’s management has the needed development and mining experience. Leagold’s entire management team was involved in Endeavour Mining (TSX: EDV; US-OTC: EDVMF), which grew into a leading gold miner in West Africa.
Leagold emerged in mid-2016 with US$25 million in cash. Leagold CEO Neil Woodyer holds a 20.4% equity stake, while financier Frank Giustra has an 11.5% share interest.
Los Filos has been Mexico’s third-largest gold mine, based on 2015 production numbers. The mine lies 230 km south of Mexico City. Credit: Leagold Mining.
“We’d been through this experience before, and we started by looking for new jurisdictions where we could apply our business model. Latin America emerged as an obvious choice,” Woodyer says in a phone interview from London, England.
“First, the size of the mining industry and opportunities there are much bigger. Second, there are a number of seniors that may be divesting properties and a number of juniors that may be struggling. We’re hoping it’s a better situation in terms of capital markets and gold prices than we lived through five or six years ago,” he added.
Leagold will acquire Los Filos for US$279 million in cash and US$71 million in shares, which will result in Goldcorp holding a 22% interest in Leagold.
Leagold has arranged a US$150-million, senior-secured loan facility from a fund managed by Orion Resources Partners, and closed a $175-million equity offering, wherein it issued 63.6-million subscription receipts priced at $2.75 each.
Los Filos consists of the Los Filos and El Bermejal open-pit mines, an underground mine at Los Filos, and the opportunity to develop an underground mine at El Bermejal.
Gold is recovered from crushed and run-of-mine ore through heap-leach processing. The operation generated 194,000 oz. gold through the first nine months of 2016 at all-in sustaining costs (AISCs) of US$854 per oz. gold.
Leagold CEO Neil Woodyer. Credit: Leagold Mining.
“Los Filos is obviously a large asset to acquire for a company of our size,” Woodyer says. “But it’s small when compared to some of the assets in Goldcorp’s portfolio, and things are getting a bit more complicated, as operations move toward a second underground mine. So it was on the market. They could see the benefit of Los Filos growing, however, and they will have a significant share position in our company to maintain exposure to that upside.”
Los Filos has proven and probable reserves of 40.7 million tonnes grading 1.3 grams gold per tonne for 1.71 million contained ounces. Only counting current reserves, the mine foresees an eight-year life and the production of 1.3 million oz. gold at an average AISC of US$803 per oz. gold.
Mineralization is hosted by, or spatially associated with, marble and skarn alteration formed during contact metamorphism of the carbonates. Massive magnetite, hematite, goethite and jasperoidal silica — with minor associated pyrite, pyrrhotite, chalcopyrite and native gold — typically occur in the veins and metasomatic replacement bodies that developed at the contacts between the carbonates and intrusive rocks.
Bermejal extends at least 400 metres below open-pit operations. The deposit hosts measured and indicated resources of 4.7 million tonnes averaging 6.65 grams gold and 22.37 grams silver for 1.01 million contained oz. gold and 3.4 million contained oz. silver. There is another inferred resource of 4.2 million tonnes averaging 5.05 grams gold for 0.68 million contained ounces, which has been the focus of recent infill drilling.
On Feb. 8, Leagold released a preliminary economic assessment modelling an underground expansion at Bermejal that would require US$47 million in capital expenses. The development could add 1.4 million oz. gold production over an eight-year mine life at an average US$439 per oz. AISC.
“We’re going to start a program to expand the Bermejal underground right away, but there is also significant additional potential to extend the mine life way beyond its current nine years,” Woodyer said.
“The underground exploration is obviously a priority, since we need to make sure our feasibility study is optimal. Goldcorp is completing a drill program right now, but we’ll add step-out and infill of our own. There is also regional potential we have to realize, however, so I would expect us to spend more on exploration moving forward,” he adds.
Woodyer also comments that a “smaller, perhaps less traditional mining company” such as Leagold can look at Los Filos from a “different perspective” than a major.
Leagold could contemplate the economic potential of another process facility, as well as an agglomeration circuit.
The company intends to fund the Bermejal expansion, and auxiliary operational improvements, via its starting capital position and future cash flows.
“The Bermejal underground has had a permit application submitted and received for the portal and decline that would access the deposit,” Leagold senior vice-president of technical services Doug Reddy says. “We’re just going through the final phases of reviewing the project designs at the moment. Development could commence in the second quarter. When it eventually becomes part of the full production schedule there would likely need to be a permit revision, but that shouldn’t be a big deal, because it’s all within the footprint of the existing mine and facilities.”
Leagold also hopes to explore more near-mine and regional targets at Los Filos later on. The company sees potential in the immediate vicinity of the Bermejal open pit and the San Pablo prospect. Reddy estimates that there is over 30 km of strike of intrusive contact on the broader property package, and sees prospectivity in the past-producing Guadalupe deposit.
“More people are looking for assets right now. It’s very market-driven in terms of the availability of capital, and there was competition for this asset,” Woodyer says. “There are a number of other seniors that may look to divest similar projects, and that plays into our feeling that this is a great time to develop a new company. We looked at Los Filos and dropped everything else, because it’s such a good mine. We can see the expansion upside, and that makes it a great asset for us to get a head start.”
Smart management, no shortage in money supply, higher gold prices and a depreciating peso makes this company very kosher