Almaden a model of father-son success

Almaden Minerals (TSX: AMM; NYSE-MKT: AAU) has found volcanic-hosted mineralization beside its Ixtaca gold–silver deposit on its 100%-owned Tuligtic project in Puebla state, adding to the prospecting success it has had over the years in eastern Mexico, an area that it recognized in the early 1990s as an underexplored terrain with great mineral potential.

Almaden’s CEO Morgan Poliquin — credited for discovering the Ixtaca deposit in 2010 and helping uncover the company’s first eastern Mexico project, Caballo Blanco — says he got the idea to explore the region while completing his master’s degree in geology at the University of Auckland.

After the gold rush in California and western Nevada, explorers found bigger deposits a century later to the east in Nevada’s Carlin trend and in Utah, Poliquin says. Given the number of historic deposits in Mexico’s western Sierra Madre mountains, and the fact that “nobody looked in the eastern part of the country,” Poliquin thought there might be a similar potential here.

“Geology doesn’t stop at borders, and indeed it is similar. There’s potential for things that are unexplored for in the eastern part of the country,” he says.

After his master’s degree, Poliquin earned a PhD in geology from the University of Exeter, where he focused on geology and deposits in eastern Mexico, an area comprised of the states of Hidalgo, Puebla, Tlaxcala and Veracruz.

As part of his PhD research, Poliquin led a prospecting program in that region for Almaden, which his father, mining legend Duane, had founded and taken public in 1986.

Almaden was Duane’s second enterprise following Westley Mines, which he created in 1972 after discovering the Santa Fe gold deposit in Nevada. A division of Homestake Mining bought Westley Mines and mined out the Santa Fe deposit as a heap-leach operation.

Almaden’s chairman Duane was also part of other discoveries that have become mines, including the La Trinidad gold deposit in Sinaloa, Mexico. Almaden sold La Trinidad to Eldorado Gold (TSX: ELD; NYSE: EGO) but kept a royalty on what became the buyer’s second mine.

Poliquin joined Almaden in 1996 and his groundwork led to the Caballo Blanco gold discovery on an optioned property in 2005. Almaden sold Caballo Blanco to Goldgroup Mining (TSX: GGA) in 2011, but retained a 1.5% net smelter return royalty.

In 2001, Poliquin guided Almaden to the 140 sq. km Tuligtic property through one of his many helicopter-supported prospecting programs.

Tuligtic is in the Trans-Mexican volcanic belt, 95 km north of Puebla city, and 150 km east of Mexico City. It is also near the Pachuca mine, one of the largest gold–silver deposits in the country, with historic production of 1.4 billion oz. silver and 7 million oz. gold.

During the helicopter surveys, Poliquin recalls that he landed on “thousands and thousands” of prospects that Almaden had identified from the “Texas’ border all the way through to Guatemala, and eastern Mexico.”

While many of the prospects had no potential, Poliquin says the Tuligtic area was different, as it contained clay alterations. Knowing clay minerals can form in many different ways — including by hot fluids in a volcanic environment, which can bake rock into clay, but can also transport gold and silver and deposit those metals in cracks of the overlying rocks — Poliquin and his team were intrigued.

“So we said: ‘Well look, there’s no certainty that there is anything beneath this thing, but let’s drill some holes and see what happens.’”

In August 2010, Almaden hit the Ixtaca zone with its first drill hole. The discovery hole returned 302 metres grading 1 gram gold and 48 grams silver per tonne, and multiple high-grade intervals, including 1.7 metres grading 60.7 grams gold and 2,122 grams silver.

Between 2010 and 2012, Almaden completed 247 holes on Ixtaca, tracing the mineralization over a kilometre in a northeasterly direction and identifying three zones: Main Ixtaca, Ixtaca North and the Northeast Extension.

The junior describes Ixtaca, a blind discovery, as an epithermal gold–silver deposit, mostly hosted by veins in carbonate units and crosscutting pre-mineral altered dykes with some disseminated mineralization hosted in overlying volcanic rocks.

In January 2013, Almaden published a maiden resource on Ixtaca. It updated the estimate a year later and released a positive preliminary economic assessment (PEA) on April 2014. 

The project has 3.53 million equivalent oz. gold grading 1.19 equivalent gold grams in measured and indicated. It has another 717,000 equivalent oz. gold of 0.98 equivalent gram gold per tonne in inferred.

The latest resource estimate includes 400 drill holes, a cut-off grade of 0.5 equivalent gram gold per tonne, and metal prices of US$1,540 per oz. gold and US$30 per oz. silver.

The PEA envisioned Ixtaca as a 30,000-tonne-per-day open-pit operation, producing 130,000 oz. gold and 7.8 million oz. silver a year over a 12-year life.

Start-up costs were US$496 million, with another US$106 million in sustaining capital.

The company updated the PEA in September. While using the same resource model, it changed the mine production schedule to target higher grades early in the mine life and incorporated a new waste model, both resulting in cost improvements.

For the 30,000-tonne-per-day operation, initial capital is now US$399 million, down 19%. This has improved the project’s economics. Using base-case metal prices of US$1,320 per oz. gold and US$21 per oz. silver, Ixtaca has a 28% after-tax internal rate of return (IRR), instead of 22% previously. The after-tax net present value (NPV), at a 5% discount, jumped to US$515 million, from US$437 million. Payback has nearly halved to 2.5 years.

The life-of-mine strip ratio has dropped to 1.7-to-1 from 2-to-1.

In the updated PEA, Almaden also looked at the economics of an alternative ramp-up case that starts with a smaller 7,000-tonne-per-day mill and ramps up to 30,000 tonnes per day in year six of operations.

Start-up costs under this scenario are US$244 million. It has an NPV, at a 5% discount, of US$427 million, and 23% IRR, both after taxes.

“The PEA update highlights the significance of the Ixtaca deposit on a world scale. The projected average annual silver production could make Ixtaca one of the top twenty silver projects in the world,” chairman Duane said in a release.

Almaden will look at these scenarios in more detail in its upcoming prefeasibility study (PFS), expected out in 2015.

To fund the engineering and ongoing environmental studies at Ixtaca, the company closed a $6-million, non-brokered private placement in August, when it issued 4 million units for $1.50 per unit. Each unit consisted of a share and a half warrant, with a full warrant allowing the holder to buy an Almaden share for $2 until Aug. 1, 2015.

Almaden has US$13 million in cash, enough to keep working on the PFS and continue prospecting.

The company owns five portable drills, and has one roaming around its large Tuligtic property for new discoveries, and another drilling for the Ixtaca PFS.

“This is still a tough mining market, and what we’ve chosen to do is to focus a little bit more on the development of Ixtaca. But we are still prospectors and we are trying to keep al
l the balls in the air. The next few months to a year will define Ixtaca and allow us to determine the direction,” Poliquin says. 

The latest highlights from Almaden’s ongoing 2014 drill program returned 32 metres of 2.22 grams gold and 5.4 grams silver per tonne, including 15 metres of 4.43 grams gold and 9.5 grams silver. Those assays came from a hole drilled beside the Ixtaca deposit and just outside of the pit shell defined in the PEA.

Another hole returned 27 metres of 0.45 gram gold and 1.7 grams silver per tonne, including a 1.5-metre intercept grading 2.26 grams gold and 2.3 grams silver.

These results “show the potential for additional discoveries on the Tuligtic project and scope for the Ixtaca deposit to grow,” Duane stated.

Almaden intends to conduct follow-up drilling on the new discovery, as well as drill other areas within the Tuligtic concession.

“You have to get results and scratch your head on them and find out how to drill next, and that is what we are doing now. It is basically prospecting with a drill rig,” Poliquin says.

Asked what the company offers investors, Poliquin, who has been Almaden’s president and CEO since 2007 and 2009, points to the company’s history of discoveries and healthy cash position.

“We have quite a conservative approach, we’re lean and mean operators, and the proof is in the pudding. We have been around for thirty years, and we have given shareholders the opportunities to make money off of real discoveries we have made,” Poliquin says.

Almaden has a large portfolio of exploration projects in Mexico, with a few in Nevada and Canada.

The company recently closed at $1.48 per share within a 52-week window of $1.08 to $2.11. It has 68.7 million shares outstanding.