The brokered private placement consists of 10 million units priced at $3 per unit, for $30 million gross and $28.2 million net proceeds. A unit consists of a share plus half a warrant, with a full warrant entitling the holder to buy one Alamos share at an exercise price of $3.50. The warrants expire two years after closing.
Proceeds will be used to develop the Mulatos gold deposit, part of the Salamandra property, about 150 km east of Hermosillo.
National Gold (which would later bring in Alamos Minerals as a joint venture partner, then merge with it to form Alamos Gold) bought the Salamandra property from
(A second deposit, El Victor, had an inferred resource of 9 million tonnes grading 1.4 grams per tonne but was not included in the feasibility study.)
The feasibility used a minable reserve of 43 million tonnes at an average gold grade of 1.6 grams per tonne, and based the economics on a heap-leach operation recovering 67% of the gold. National and Alamos acquired the property partly as a play on the low gold price and partly in the hope that a higher-grade core zone in the resource, Estrella, might be developed separately, with better economics than Mulatos. (A resource of 11.5 million tonnes grading 3.2 grams gold per tonne at a cutoff grade of 2 grams had been identified at Estrella.)
With the increased gold price, and consequent improvement of the larger deposit’s economics, Alamos has been proceeding with underground drilling and development work. From workings on the Estrella zone, a 15-hole underground drill program has indicated higher-grade zones controlled by fracture systems that had not been identified in earlier resource drilling. The fractures are oriented obliquely to earlier drill holes, and the new drill holes have been spotted to intersect them at right angles.
The newly discovered mineralized zones are in veins, mainly in rhyodacite volcanics but partly in derived volcanic sediments. The wall rocks are strongly silicified, a typical feature of Sonoran epithermal gold deposits, and often clay-altered.
Wide zones
Drilling in November and December 2003 intersected fairly wide zones of 70-100 metres across, with gold grades ranging from 1 to 3 grams per tonne. Within the wider zones, higher-grade intervals, 7-20 metres across, carried grades of 3-29 grams gold. The drilling also confirmed that the structures and gold mineralization persist for at least 75 metres vertically.
The structural zones also appear to have allowed deeper percolation of surface water and caused oxidized zones to deepen in those areas. A larger tonnage of oxidized material, which is easier to leach gold from than fresh rock, would mean that a heap-leach operation could have a higher average gold recovery than the 67% that had been used as a model figure in the earlier feasibility study.
Following the year-end drilling, consulting firm Resource Modeling calculated an new resource estimate for the whole Mulatos deposit, using new drill data as well as results of the old Placer and Kennecott drilling. The new estimate used known alteration and structures, mapped in drilling and surface prospecting, to model the shape of the mineralized body.
Alamos regards the new estimate as conservative because it disregards some earlier drilling that had raised suspicions of sample contamination and because it caps high-grade drill intervals at 35 grams gold per tonne and cuts grades in some holes where check assays showed the original assays to have been inaccurate.
At a 1-gram cutoff grade, Mulatos has a measured and indicated resource of 33 million tonnes grading 2.2 grams gold per tonne, plus 4 million tonnes of inferred mineralization at 2 grams gold. Resucing the cutoff grade to 0.6 gram gold brings the measured and indicated resource up to 62 million tonnes grading 1.5 grams per tonne and increases the separate inferred resource to 10 million tonnes at 1.3 grams.
Using the lowest cutoff grade, 0.2 gram per tonne, puts the Mulatos resource at 140 million tonnes of 0.9 gram gold per tonne, with additional inferred resources of 55 million tonnes grading 0.5 gram per tonne.
On the development front, Alamos has secured water rights for the project by purchasing the right to 1.5 million cubic metres per year from the Sahuaripa region’s agricultural co-operative. The deal, approved by Mexico’s National Water Commission, calls for Alamos to finance drilling of five water wells in the area.
Alamos recently bought a used 3-stage crusher plant from Kennecott Minerals for US$1 million. The plant, which comes from Kennecott’s Rawhide mine in Nevada, includes a stacker and conveyors, as well as an inventory of spare parts. Its capacity of 17,500 tonnes per day is probably enough for any mining operation at Mulatos, as most designs to date have centred around a daily throughput of 10,000 tonnes, possibly increasing to 20,000 tonnes in a later expansion.
A larger daily plant throughput than 10,000 tonnes might also allow lower-grade material to be mined, which would increase the operation’s gold production in the early years of the project, thereby reducing the payback period.
Alamos believes another 2,500 tonnes of capacity could be bolted on to the Rawhide plant, permitting the full expansion in 2006.
Metallurgical testing is under way, as is a redesign of the site layout and optimization of the mine plan. There is also a choice to be made between contract- and owner-mining, and between buying and leasing the mining fleet if owner-mining is chosen. The final feasibility study is expected early in the second quarter.
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