Allied Nevada plans major Hycroft expansion

VANCOUVER — With a prefeasibility study outlining how to boost gold and silver production from the Hycroft mine in Nevada, Allied Nevada Gold (TSX: ANV; NYSE-MKT: ANV) now just needs the money to make it happen.

Hycroft is a heap-leach operation that Allied Nevada restarted in 2008, a decade after the previous owners shuttered the mine. In 2013 Hycroft produced 182,000 oz. gold and 858,000 oz. silver from oxide mineralization pulled from various parts of the deposit.

But Allied Nevada has always known Hycroft has more to offer. 

“I’ve said over and over since joining this company that this expansion project needs to be built,” said Allied Nevada president and CEO Randy Buffington during a conference call. “It’s a long-life, low-cost, low-risk project in Nevada, a great place to do business and it’s a great land package that still has upside, and is permitted.”

Hycroft boasts a proven and probable reserve of 951 million tonnes grading 0.38 gram gold per tonne and 16.8 grams silver per tonne. Some of those tonnes are oxidized, some are transitional ore and some are sulphidic. The current heap-leach operation at Hycroft only processes oxide ore, but the expanded Hycroft mine as envisioned in the prefeasibility study would churn through all three kinds of mineralization. 

The study assesses a two-phase expansion. By the end of phase one, Hycroft could process 60,000 tonnes per day. After a one-year construction period, phase two would double that throughput. 

The expanded Hycroft mine would produce 450,000 oz. gold and 21 million oz. silver annually for the first five years of production. Using silver as a by-product credit, the operation could produce each ounce of gold for US$478.

Capital costs would total US$1.32 billion, with US$900 million earmarked for building phase one, which requires building a rail spur and power line. 

The processing plant would comprise conventional circuitry, such as semi-autogenous grinding mills, ball mills, sulphide-flotation cells and leach tanks. The facility would also include an ambient alkaline-oxidation (AAO) circuit. AAO is a pre-treatment method for oxidizing certain refractory ores before leaching using oxygen, heat and a pH modifier to neutralize the acid produced in the oxidation reaction.

By oxidizing the sulphide concentrates, Allied Nevada could produce gold doré on-site. Buffington says doré is easier to market than concentrate, so including the AAO system “derisks the project.”

“There have been a lot of changes over the last few months with Hycroft, and I’m confident in and proud of what we’ve accomplished,” Buffington said. “We have delivered a great plan that shows the future of the Hycroft mine.”

Using gold and silver prices of US$1,300 and US$21.67 per oz., and a 5% discount rate, the expanded version of Hycroft carries a US$1.7-billion net present value and a 26.5% after-tax internal rate of return.

Allied Nevada aims to start construction in the fourth quarter, but that will depend on the company securing financing. By the end of 2013 Allied Nevada carried US$623 million in debt.

“The biggest question now is: How are we going to finance it?” stated Stephen Jones, Allied Nevada’s chief financial officer. “We know we can’t finance this off of our balance sheet — that is not lost on us — so we will be actively seeking investment partners to assist us.”

Several conference-call participants asked for more information on how Allied Nevada plans to pull together the US$1.3 billion needed to expand Hycroft. 

“I don’t have a straight-up answer as to how we’re going to finance this, but we’re going to have to attract some third-party capital,” Jones answered. “We’re pretty highly leveraged, and we recognize that. Third-party involvement could take the form of many things. Certainly I think a stream can be part of the answer. As for the rest, it will depend on how the first part works out, how much third-party capital we can bring in, and once we do, what our balance sheet looks like.”

Allied Nevada shares lifted by 29¢ in a day to close at $4.25. But shares are still not far from their 52-week low of $3.20. A year ago they were worth $12.40. The company has 104 million shares outstanding.