Alamos scores Agi Dagi EIA approval, but Kirazli in limbo

VANCOUVER — It’s been a rocky permitting road for producer Alamos Gold (TSX: AGI; NYSE: AGI) in Turkey given the legal troubles surrounding its Kirazli epithermal gold project. But the company looks to have made some political inroads after it scored approval of an environmental impact assessment (EIA) on its wholly owned Agi Dagi project, 50 km southeast of the seaport town of Canakkale.

Alamos acquired the projects in January 2010 from Teck Resources (TSX: TCK.B; NYSE: TCK) and Fronteer Development for US$90 million, and had been hoping to get Kirazli in production by the first half of 2015.

The company received EIA approval for the mine in August 2013, but got tangled in a socio-political quagmire when the Canakkale Administrative Court issued an injunction order to the Ministry of Environment and Urbanization to revoke the EIA on the basis that it failed to assess the “cumulative impacts” of Kirazli in conjunction with other potential mining projects in the region.

Alamos opted to rejig its environmental application to take into account the new requirements. President and CEO John McCluskey said on Aug. 3 that Alamos expects a ruling by the Turkish High Court on an interim relief remedy by the fourth quarter, and that the company will be in a position to file its reconstituted EIA by September.

“I spent the last week of June and the first week of July in Turkey, and met with representatives from the various ministries,” McCluskey outlined during the conference call, noting that gold production from Kirazli is expected within 18 months of receiving outstanding forestry and operating permits.

“One of the things that I’ve heard directly from quite a high level is that the responsibility for granting forestry permits has been put back in the hands of the forestry department, and it’s no longer being handled out of the prime minister’s department. But since Kirazli is under the current legal cloud, we can’t apply for nor be granted forestry permits. We effectively have to have this injunction process run its course. So we haven’t directly benefitted from the change yet, but we expect we will,” he added.

On Aug. 20 the company announced the Ministry had issued a formal approval on its Agi Dagi EIA, which McCluskey said “reaffirms the government’s commitment to the mining industry.” Alamos expects to start production at Agi Dagi 18 months after start-up at Kirazli. The twin deposits will be mined via open-pit heap leach, with a 2012 joint prefeasibility study (PFS) calling for a 30,000-tonne-per-day crusher at Agi Dagi and a 15,000-tonne-per-day crusher at Kirazli.

Capital expenditures at the projects are pegged at US$424 million, with annual combined gold production expected to peak in 2017 at 237,000 oz. Average production is estimated at 166,000 oz. per year over a nine-year combined mine life at US$579 total cash costs per oz. sold.

Assuming US$1,239 per oz. gold, Alamos’ PFS carries a US$276-million after-tax net present value at a 5% discount rate, along with a 22.3% internal rate of return.

At press time measured and indicated resources at Kirazli totalled 34 million tonnes grading 0.7 gram gold per tonne and 8.5 grams silver per tonne for 772,500 contained oz. gold and 9.3 million contained oz. silver, while Agi Dagi holds 88 million measured and indicated tonnes averaging 0.58 gram gold and 4 grams silver for 1.6 million contained oz. gold and 11.4 million contained oz. silver.

“We are focused on timelines and deliverables in this industry,” McCluskey said. “But it’s important to take a step back from time to time. We remain optimistic that the permits required to develop our projects will be granted in time.”

The company expects to produce between 150,000 and 170,000 oz. gold in 2014 at its Mulatos open-pit mine in Sonora State, Mexico. Cash-operating costs are estimated between US$630 and US$670 per oz. sold. Alamos remains debt free and had US$390 million in cash at press time.

BMO Analyst Brian Quast has a an  “outperform” rating on Alamos stock and a $14.50 price target.

He wrote on Aug. 20 that the Agi Dagi EIA approval is “a step forward, given permitting approvals for the Turkey projects have stalled this year. But the forestry and operating permits for the Kirazli project are critical. The timeline for receiving these permits remains unknown.”

Alamos has traded between $8.70 and $10.51 over the past year, and closed up 4¢ following the Agi Dagi EIA news at $10.31 per share. The company has 127.3 million shares outstanding for a $1.3-billion market capitalization.