Leagold pursues new resource at Los Filos gold mine

Leagold Mining (TSX: LMC) has tabled new step-out drill results from the underground portion of its Los Filos gold mine, 230 km south of Mexico City. The company has drilled 12,000 metres so far this year at Los Filos and will look to drop another 50,000 metres, as it attempts to build resources and replace reserves at the active mine.

Highlights from the latest round of assays include 7 metres from 61 metres downhole at 5.06 grams gold per tonne, including 5 metres from 87 metres downhole grading 27.44 grams gold, as well as 9 metres from 266 metres downhole grading 9.07 grams gold.

Leagold acquired Los Filos in 2017 from Goldcorp (TSX: G; NYSE: GG). The mine features two open pits and an underground mine. At the end of 2017, Los Filos contained 61.4 million proven and probable tonnes grading 1.26 grams gold for 2.49 million oz. gold, with another 216,000 oz. gold in probable heap-leach inventory. It began 2017 with 1.7 million oz. gold and mined 300,000 oz. gold.

Los Filos also has 380.6 million measured and indicated tonnes grading 0.94 gram gold for 11.5 million oz. gold and 9.29 grams silver for 113.6 million oz. silver, as well as 240.5 million inferred tonnes at 0.74 gram gold for 5.74 million oz. gold and 10.23 grams silver for 79 million oz. silver. The company says it will incorporate 2018 drill results into an updated resource estimate at year-end.

The company is also about to close its acquisition of Brio Gold (TSX: BRIO), which has three operating gold mines and one gold development project in Brazil.

Leagold’s Los Filos gold mine — 230 km south of Mexico City — in 2017. Credit: Leagold.

“What we liked about Brio is that it was really consistent with our strategy in Latin America,” Leagold vice-president of investor relations Meghan Brown says in a telephone interview with The Northern Miner. “The strategy we defined at the very outset of this company was called ‘buy and build,’ meaning to buy assets that have the capacity to be built out.

“We’re looking for gold assets, for producing mines and for a minimum of 100,000 oz. per year.”

In 2017, Brio produced 43,100 oz. gold at its Riacho dos Machados open-pit gold mine in Minas Gerais, Brazil, with production for 2018 pegged at 75,000 oz. gold. It produced 61,000 oz. gold last year at its Fazenda Brasileiro underground gold mine in Bahia, Brazil, and could increase production by as many as 14,000 oz. gold this year. It produced 73,900 oz. gold last year at its Pilar underground gold mine in Goias, Brazil, with production likely to decline slightly in 2018.

Brio is also reviving its Santa Luz gold project in Bahia state, which suffered metallurgical problems after being fast-tracked to production in 2013, and had to be put on care and maintenance. Those issues have now been resolved. Brio says the project could produce an average 100,000 oz. gold per year over 10 years, according to a 2017 feasibility study.

Brown says Leagold will need time after closing the deal to evaluate all Brio’s mine plans.

“We’re not done,” Brown adds. “We will probably need some period of time to integrate these assets into Leagold, and after that we will turn our attention back to growth — just as we did with Los Filos. It took a few months to integrate it into our company, and then we turned our attention back to mergers and acquisitions.”

In the first quarter of 2018, Leagold mined 101,000 tonnes ore from the Los Filos underground mine at 5.47 grams gold per tonne. It mined 2 million tonnes ore at the open pits at 0.57 gram gold. Overall, the mine produced 51,003 oz. gold — on track for the company’s 2018 guidance of 215,000 to 240,000 oz. gold.

It also stopped processing low-grade, run-of-mine material. As a result, 41% less tonnes of ore reached heap-leach pads, compared to the previous quarter.

“It’s very low-grade and very low-recovery material,” Brown says. “It’s the highest-cost material, so we’re focusing instead on the higher-grade and higher-recovery material.”

She adds the company may go back to processing the lower-grade material later in the mine’s life.

At the end of March, the company had US$53 million in cash and equivalents. It had all-in sustaining costs of US$1,039 per oz. that Leagold expects to drop to at least US$925 by year-end.

The company is also building a second underground mine at Los Filos. So far it has completed 750 metres of development of its Bermejal underground mine. Brown says the company will have to build a 1.3 km ramp to access the main high-grade orebody. Leagold expects to test mine by mid-year and release a reserve estimate on Bermejal around the same time.

“It will take Los Filos’ production from around 200,000 oz. to as much as 350,000 oz.,” Brown says. “So even without Brio, we have a growth platform at Los Filos.”

The company completed a 56,000-metre drill program at Bermejal last year that defined the current resource. The project has 10.8 million measured and indicated tonnes grading 5.96 grams gold for 2 million oz. and 19.6 grams silver for 6.8 million oz. It will require US$50 million to bring to production.

The company is also working on a study for a new carbon-in-leach plant that should be finished by mid-year.

“The rationale for that is it will enable us to process a number of different types of ore and get higher recoveries — in particular on the high-grade ore,” Brown says.

Leagold shares are valued at $2.80 within a 52-week range of $2.27 to $3.48. The company has a $432-million market capitalization.