Lac Pelletier Could See Gold Production By Mid-2010

Positive results from a prefeasibility study could mean Alexis Minerals (AMC-T, AXSMF-O) will move its Lac Pelletier gold project in Quebec into commercial production next year as a satellite deposit. Alexis has the right to earn a 100% interest in the property, 4 km southwest of Rouyn-Noranda.

The study estimates that Lac Pelletier would yield an internal rate of return of 155% and generate more than $20.7 million in free cash flow on the back of 109,300 oz. recovered gold over an estimated three-year lifespan.

Lac Pelletier is an opportunity for Alexis to bring a second satellite mine into production to complement cash flow from its Lac Herbin mine, 100 km away in Val d’Or, Que.

With both mines in production, the company’s total gold production would increase in 2010 to 75,000-85,000 oz. gold per year.

The past-producing Stadacona mine lies on the eastern side of the Lac Pelletier property, about 4 km east of an existing ramp at the project. Between 1928 and 1958, Stadacona produced 2.74 million tonnes grading 5.49 grams gold per tonne.

Lac Pelletier’s measured and indicated resources, using a cutoff grade of 3 grams gold per tonne, are estimated at 917,880 tonnes grading 7.11 grams gold for contained gold of about 209,900 oz. In the inferred category, the project has 391,770 tonnes grading 6.52 grams gold for 82,130 oz.

Proven and probable reserves were calculated using a cutoff grade of 5.5 grams gold and reached 483,360 tonnes grading 7.6 grams gold for 118,100 oz.

Lac Pelletier should produce between 40,000 and 50,000 oz. gold per year.

According to the study, the project’s net present value of production at a 7% discount rate would be $16.9 million.

Total capital costs in the preproduction stage are estimated at $8.8 million net of recovered gold ($9.8 million) and using an average gold price of US$887 per oz.

Total operating costs are projected to be $144 per tonne (includes shipping and third-party custom milling at $42 per tonne).

Total cash costs are projected to be US$554 per oz. gold.

The company plans to finish refurbishing of the mine and to undertake a 40,000-tonne bulk sample this year with commercial production slated for mid-2010.

The refurbishment of Alexis’s Aurbel gold mill by December 2009 is likely to lower production costs by about 10%, the company believes.

Alexis advanced surface site preparation at Lac Pelletier in early 2008 with the installation of power supply, road work, building construction and settling ponds for the project.

But rising mining costs and concerns over the mining method put forth by several mining contractors delayed the project.

The company began its prefeasibility study in 2008 to assess the project’s potential and to review the proposed mining approach.

“With recent and forecasted gold prices being sufficient to make this project economic, management has elected to proceed with refurbishment of the underground workings and completion of a bulk sample in 2009, after which a production decision will be made in the first quarter of 2010,” the company said in a press release.

Dewatering the existing ramp started on June 10 and at presstime, allowed access to the first level.

Starting in August, development will be advanced enough to allow mining of 40,000 tonnes of ore, which is anticipated to contain 10,200 oz. gold.

If mill recoveries are 92.5% by the end of 2009, Lac Pelletier should provide about 9,400 oz. gold, which would offset refurbishment costs and the bulk sampling.

Alexis acquired the 7.2-sq.-km Lac Pelletier property in 2005.

Before that, Falconbridge, now Xstrata (XSRAF-O, XTA-L), and Thundermin Resources (THR-T, TUDMF-O), completed an underground exploration program on the deposit in 1992.

Historical work on the current deposit area includes nearly 42,660 metres of surface and underground diamond drilling; 1,050 metres of ramp development and 290 metres of lateral drifting with two levels developed in ore.

The 1992 program treated a bulk sample of 11,630 tonnes at the Camflo mill in Malartic, a custom milling facility in the province.

The property is subject to a 1% net smelter return royalty to Xstrata, and a 2.5% net smelter return to Thundermin.

At presstime, Alexis was trading at about 44¢ per share.

The company has a 52-week trading range of 21-65¢, with 147.5 million shares outstanding.