Leagold off to strong start 
at Los Filos mine

Leagold Mining (TSXV: LMC) is navigating a six-month transition period at the Los Filos heap-leach gold mine in Mexico. The company acquired the asset from Goldcorp (TSX: G; NYSE: GG) in April for US$350 million in cash and shares.

On Aug. 10, Leagold reported its inaugural quarterly results, which are headlined by adjusted net earnings of US$6.4 million, or US6¢ per share, and all-in sustaining costs (AISCs) of US$989 per ounce. Los Filos produced nearly 44,000 oz. gold between April 8 and June 30, while gold sales are pegged at 54,000 ounces.

The company is working to transition the mine into a stand-alone asset, while introducing what it describes as substantially new management, and numerous operational improvements and capital programs.

Leagold said it would take through the fourth quarter to implement administrative changes and operational upgrades.

The company reports a number of improvements so far, including renegotiating its mining fleet maintenance contract to improve equipment availability; boosting underground production by 25% to 1,100 tonnes per day; and re-optimizing its reagent levels at the Los Filos heap-leach pads.

Los Filos has been Mexico’s third-largest gold mine, based on 2015 production numbers. The mine lies 230 km south of Mexico City. Credit: Leagold Mining.

Leagold has committed US$6.3 million to two projects that it hopes will improve mine performance heading into 2018: US$1.3 million to refurbish and install an agglomeration drum; and US$5 million to extend the conveyors to deliver crushed ore.

“Our transition plan at the site is going very well. We are creating a stand-alone business and profit centre. We expect this transition phase to be complete by the end of September,” Leagold CEO Neil Woodyer said during a conference call.

“We have made progress during the quarter under our new on-site management. We’ve decreased operating costs, improved accountability and generated cash flow. We anticipate continued cost and production improvements in the fourth quarter, and moving forward,” he added.

Leagold anticipates Los Filos will produce between 95,000 and 110,000 oz. gold over the rest of the year at AISCs ranging from US$875 to US$925 per oz. gold.

Meanwhile, the company is moving towards a US$47-million expansion at its Bermejal Underground zone that could boost annual production towards 350,000 oz. gold.

Leagold received its environmental permit for mine portal and ramp development in July.

Leagold CEO Neil Woodyer. Credit: Leagold Mining.

The company completed nearly 13,000 metres of drilling at Bermejal by June, which is part of a 56,000-metre annual program.

Recent highlights from the Bermejal infill and step-out drilling include 18.8 metres of 7.2 grams gold per tonne from 117 metres deep in hole 16-17; 19 metres of 3.8 grams gold from 125 metres deep in hole 6-17; and 16.3 metres of 5 grams gold from 191 metres deep in hole 13-17.

“The Bermejal expansion remains an upside driver for us, and exploration results have truly exceeded expectations,” Woodyer said. He noted the portal and ramp design have been completed and permitted, and Leagold expects to finalize the selection of its underground contractor.

Bermejal Underground mineralization extends 1,600 metres along strike of the intrusive contact and has a vertical extent of over 600 metres.

Leagold says the iron-oxide gold skarn mineralization is “similar to [underground ore] being mined at Los Filos.”

The deposit hosts measured and indicated resources of 4.7 million tonnes at 6.65 grams gold and 22.37 grams silver for 1.01 million contained oz. gold and 3.4 million contained oz. silver.

BMO Capital Markets analyst Andrew Breichmanas initiated coverage on Leagold in August after the company’s maiden quarterly results. He has an “outperform” rating alongside a $5.45-per-share price target.

BMO Research notes that Los Filos provides a “solid foundation” for management to create a multi-mine, intermediate gold producer in Latin America.

“While open-pit and underground mining activities have shown improvements, gold production has been affected by mine planning and heap-leach management issues,” Breichmanas wrote on Aug. 14. “The [delivery on] operational improvements through the rest of the year, especially injection-leaching performance, underground initiatives and heap-leach optimization, accounts for nearly half of our target price.”

Leagold shares have traded within a 52-week range of $2.27 to $4.55 per share, and closed at $2.94 at press time. The company has 151 million shares outstanding for a $445-million market capitalization.

It reported a US$65-million cash balance at the end of June.

Los Filos has proven and probable reserves of 40.7 million tonnes grading 1.3 grams gold per tonne for 1.71 million contained ounces. Only counting current reserves, Leagold  foresees an eight-year life for Los Filos.

Leagold expects the operation to produce 157,000 oz. gold per year at AISCs of US$803 per oz. over the mine life.