Amarillo completes prefeasibility on Posse

Amarillo Gold‘s (AGC-V) Posse deposit in the Brazilian state of Goias is surrounded by a number of large copper, gold and nickel laterite projects and was previously mined by the Western Mining Company during the 1990s.

The deposit is about 35 km northeast of Yamana Gold‘s (YRI-T, AUY-N, YAU-L)  Chapada open-pit copper-gold operation, 60 km northeast of Yamana’s Pilar gold project, 95 km northwest of Votarintim’s Niquelandia nickel laterite mine, 105 km northeast of Serra Grande’s underground gold mine and 105 km northwest of Anglo American‘s (AAUK-Q, AAL-L) nickel laterite project at Barro Alto.

The deposit has proven and probable reserves of 17.1 million tonnes grading 1.72 grams gold per tonne for 945,200 ounces of contained gold (869,600 ounces of gold will be recovered after processing).

According to a prefeasibility study it released at the end of November, Posse will have an initial mine life of seven years with an annual throughput of 2.5 million tonnes. Processing will involve a 12-hour pre-oxidation stage feeding a conventional carbon in leach gold recovery circuit.

Average gold production of 124,000 ounces per year at an average total cash operating cost of US$524 per ounce.  Cash operating costs include mine costs US$464 per ounce plus refining, royalties, insurance, transport, and security costs.

The study demonstrated the mine would yield gross revenue of $1.04 billion assuming a gold price of US$1200 per ounce.

The project’s pre-tax net present value at a 5% discount rate equals US$283 million and the internal rate of return works out to 37.9% at a gold price of US$1200 per oz. The after-tax NPV drops to US$178 million and the IRR to 26.6%.

The study forecast start-up capital will be in the range of US$184 million, including US$5.4 million for working capital.

Buddy Doyle, Amarillo’s chief executive and president noted that the project economics have improved over those of a preliminary economic assessment completed in 2008, despite a “sizable increase” in capital expenditure. He attributed the improved economic results to better metallurgical recoveries, higher gold prices and increased annual throughput and noted that the capital expenditure estimates in the latest study include pre-strip costs, owner operated equipment and power line construction.   Amarillo expects to complete a feasibility study in 2012 and says it could become the next producer in Brazil of more than 100,000 ounces of gold per year by 2014.

At a cut-off grade of 0.5 gram gold per tonne, Posse has measured and indicated resources of  20.85 million tonnes grading 1.75 grams gold for 1.17 million ounces of contained gold. Inferred resources add 3.63 million tonnes of 1.38 grams gold for 156,400 ounces of gold.

The final pit will measure 1.4 km long in the north-south direction and 0.6 km wide in the east-west direction. The total area impacted by the pit is roughly 87 hectares. The highest wall will be about 260 metres.  The hanging wall will be carried at a slope of approximately 55 degrees and the footwall at a slope of 40 degrees.

The mine will require 11 million tons of waste pre-stripping at a cost of $14.2 million. An operational strip ratio of 7.4 to 1 is achieved after excluding the waste removed by the pre-stripping. Infrastructure includes a railway 1.5 km from the pit and a main highway 11 km away, along with a town of about 12,000 residents 11 km from the project. A 4-km gravel road connects the highway to the site.

Grid power to the site was set up when Western Mining operated its open pit at Posse, but the existing 69 kilovolt power line contains only enough capacity to be used during the construction period.

To secure enough power for mining operations Amarillo will have to install a 63-km-long 138 kilovolt power line at a cost of about US$7.9 million. Power costs will be about US$0.04 per kilowatt hour at current exchange rates. The Serra da Mesa (450 megawatt) hydro-electric dam lies 35 km to the east of Posse.

Amarillo expects to submit a base line environmental study in January.

At presstime in Toronto Amarillo was trading at $1.30 within a 52-week range of $1.03-$1.90 and has about 56.2 million shares, fully diluted.