Allied Nevada hot on Hycroft-Hasbrouck plan

It’s looking like a big year for Reno-based Allied Nevada Gold (AVN-T, AVN-X), with a US$1.2-billion expansion plan underway at its wholly owned Hycroft gold-silver mine in Humboldt County and a proposed US$78-million, heap-leach operation entering the permitting stage at its Hasbrouck gold-silver project outside of Tonopah, Nev.

In its third year of production Hycroft processed 31 million tonnes of material, including 15 million tonnes of ore on a leach-pad at average grades of 0.37 gram gold per tonne and 9.6 grams silver per tonne. The mine produced 104,000 oz. gold and 479,400 oz. silver last year. Allied Nevada’s gold sales totalled 88,191 oz. gold and 372,000 oz. silver at adjusted cash costs of US$488 per oz. for total sales revenues of US$152 million.

Hycroft’s 2012 guidance includes between 180,000 oz. and 220,000 oz. gold production and 750,000 oz. to 850,000 oz. silver production at average cash costs in the US$475 to US$495 range. According to president and chief executive officer Scott Caldwell, the wide variance in production estimates is owing to uncertainties regarding the arrival of new equipment — primarily a third, large mining shovel awaiting shipment from Japan. The operation is expected to process 68 million tonnes of material in 2012, including 34 million tonnes of ore at average grades of 0.4 gram gold and 7.2 grams silver.

Allied Nevada expanded Hycroft’s reserves earlier this year after drawing a quantity of lower grade resources into its open-pit production model.

“Although the new drilling resulted in an increase to overall measured and indicated resources, the reserve increase and final pit are primarily driven by two additional factors,” explains vice-president of exploration David Flint. “Number one, we completed an update to the slope design during the fourth quarter of last year, resulting in steeper slope angles on the west wall of the pit. Number two, the result of higher recoveries is that lower grade material within the pit is now considered as economic to process, and therefore has driven a reserve increase.”

Hycroft’s gold-silver reserves increased by 24% in a late February resource update, and now total 1 billion tonnes grading 0.3 gram gold per tonne and 11.9 grams silver for 12.7 million contained oz. gold and 482 million contained oz. silver. Measured and indicated gold-silver resources increased by 21% and 16%, respectively, to 940 million tonnes carrying 0.26 gram gold and 7.1 grams silver.

“You’ll notice the silver-gold grade has actually gone down in this resource estimate,” Caldwell points out. “But the actual quantity of our gold and silver ounces have increased quite a bit.”

To capitalize on the extra tonnage, Allied Nevada has designed a mine expansion plan worth US$1.2 billion that includes a gyratory crusher, new mill infrastructure to process transitional and sulfide ore and an upgraded mining fleet. 

“The big milestone for us, a real big milestone, is that the team was able to get approval to begin construction on the primary crusher system . . . the gyratory, core stockpile, reclaim chambers, pebble crushers and that approval and was received three months ahead of schedule,” Caldwell says. “We’ve actually already begun the excavation and it is proceeding well. We believe that we will receive approval to begin construction on the mill early next year, and so we see no slippage there at present.”

According to a preliminary economic assessment (PEA), the Hycroft expansion will carry an after-tax internal rate of return (IRR) of 37% with a US$1.6-billion net present value (NPV) at a 6% discount rate. The study projects a 19-year mine life, with average production of 580,000 oz. gold and 29 million oz. silver per year over the first 10 years at average adjusted cash costs of US$166 per oz., including a by-product silver credit. 

“On the mining side of things, we really focused our mine-planning efforts on maximizing cash flow, hence the NPV of the project,” Caldwell explains. “We weren’t looking for a specific metal target of ounces produced in gold or silver.”

Allied Nevada ramped up throughput levels under the new study, with rates clocking in at 213 million tonnes per year, or 581,000 tonnes per day. A previous study had modelled a yearly throughput rate of 172 million tonnes. The increased processing model was attributed mostly to including a fourth large electric shovel to transport the extra material.

“The mining rate is large. It’s high, but there are several hard-rock mines worldwide that are moving this type of tonnage or greater, and quite frankly in much more difficult conditions, whether that be rainfall, high elevation or just logistical conditions,” Caldwell says. “We’re comfortable with that mining rate, although it is a large mine.”

Allied Nevada has committed US$350 million to Hycroft’s expansion so far, with equipment and supply delivery expected throughout the year. 

The original US$1.2-billion capital expenditure remains unchanged, though life-of-mine expenditures have increased by US$200 million owing to a new mining fleet added in 2016, including two blast-hole drills, a rope shovel and eight more trucks and a larger tailings dam capacity at the end of its life to handle additional ore reserves.

On top of an extensive capital expansion at Hycroft, Allied Nevada also filed a PEA on its wholly owned gold-silver Hasbrouck project in early April. The proposed development includes a heap-leach operation with a five-year mine life designed to process Hasbrouck and a nearby resource at its Three Hills property. 

Hasbrouck’s inferred resource is estimated at 106 million tonnes at an average grade of 0.31 gram gold and 7.8 grams silver, while Three Hills has a reported 5.2 million tonnes grading 0.28 gram gold. 

“Our current thinking and what’s reflected in the study is that we don’t have the size of resource to warrant a mill,” Caldwell says. “The idea would be to construct the heap-leach and use that cash to pay for the mill if it improves the overall project economics. We’re not looking for ounces. We’re looking for dollars here. So if it doesn’t improve the economics we wouldn’t deploy the capital to build the mill.”

According to the initial PEA, Hasbrouck has an after-tax IRR of 60% with a US$98.7 million NPV at a 6% discount rate. Initial capex requirements would be US$78 million, with life-of-mine costs of US$90 million. The low initial costs demonstrate one of the benefits of being a multi-mine producer as economies of scale begin to come into play.

“[There are] pretty low capital costs, and the reason for that is we intend to deploy or move the surplus — [for example] the smaller mining fleet from Hycroft to Hasbrouck, once it is replaced by the big fleet that’s arriving on site at Hycroft now,” Caldwell explains. 

Under the current model the Hasbrouck operation would produce 135,000 oz. gold and 540,000 oz. silver annually at average cash costs of US$555 per oz., including a by-product silver credit. 

Allied Nevada is tagging US$7 million for regional Nevada exploration this year, and the bulk of that capital will be spent on resource expansion at Hasbrouck.

“If the program is as successful as we believe it will be, you may see the addition of a small mill,” Caldwell says. “We’re talking 4,000 to 6,000 tonnes per day, in order to process th
at high-grade material we have out there.”

Allied Nevada has traded within a 52-week range of $28.10 to $45.54 per share on an average daily volume of 211,500 units. The company has a $2.8 billion presstime market capitalization, with a US$275-million cash balance to end 2011 and an extra US$300 million equipment lease financing in place.