Turkish projects prove economic for Alamos

Vancouver – The two Turkish gold projects that Alamos Gold (AGI-T) bought from Teck Resources (TCK.B-T, TCK-N) and Fronteer Development (FRG-T) last year now carry a combined net present value (NPV) of US$267.6 million, according to a new preliminary economic assessment.

The assessment considered the economics of developing three open pits at two mine sites. The Agi Dagi and Kirazli properties are in Canakkale province, on the Bigi Peninsula in northwest Turkey. Kirazli lies roughly 25 km southeast of the city of Canakkale; Agi Dagi is another 25 km distant, in the same direction.

Plans call for two pits, known as Baba and Deli, at Agi Dagi and a single pit at Kirazli. The Agi Dagi and Kirazli oxide mining operations would each run independently.

At Agi Dagi, a two-stage crushing facility would churn through 15,000 tonnes of ore daily. A conveyor stacker would place crushed ore on a heap-leach pad; a dilute cyanide solution would extract the contained gold and silver. Alamos plans to produce dore bars on site by using an adsorption-desorption-recovery plant and refinery.

The process at Kirazli would be very similar, just a bit smaller – plans call for a 10,000-tonne-per-day crushing facility. Kiralzi would also have its own process plant and refinery to produce dore bars. Alamos says one reason for producing dore bars on site is to keep its product exempt from Turkey’s value-added tax.

Combined, the two operations would produce 135,000 oz. gold and 621,600 oz. silver annually. Over their eight-year mine life, the operations would produce a total of 1.14 million oz. gold and 5.07 million oz. silver. The deposits conform to open pits that carry an average strip ratio of 1.24 to 1.

To develop both operations is expected to cost US$234.7 million, including a 27% contingency. For that investment, Alamos should be able to produce an ounce of gold at the operations for US$314, net of silver credits and including net smelter royalties and refining and transportation costs.

Using a gold price of US$800 per oz. and a silver price of US$13.50 per oz., the Agi Dag and Kirazli project carry a pre-tax NPV of US$179.1 million, using a 5% discount rate. The after-tax NPV, at the same discount rate, is US$134.9 million. The projects generate an 18% internal rate of return (IRR).

Raising the price of gold to US$1,000 per oz. and the price of silver to US$15 per oz. lifts the after-tax NPV to US$267.6 million and brings the IRR to 28%.

The timeline still depends on permitting but Alamos hopes to bring Kirazli into production in 2013 and add Agi Dagi a year later. As part of that timeline the company plans to complete a prefeasibility study and submit the environmental impact assessments by the middle of 2011.

Resources contained within the three proposed pits currently total 33.7 million indicated tonnes grading 0.84 gram gold per tonne and 7.24 grams silver per tonne, plus 14 million inferred tonnes averaging 0.99 gram gold and 12.52 grams silver. Total resources, not constrained by pit walls and including sulphide mineralization, come in at 63.8 million indicated tonnes grading 0.64 gram gold and 5.2 grams silver plus 26.4 million inferred tonnes averaging 0.74 gram gold and 8.72 grams silver.

Alamos is keen to lift the projects’ economics even further and to that end is pursuing an aggressive drill program. The main drilling goals for 2010 are to complete sufficient infill drilling to upgrade the inferred resource to the measured and indicated categories and to provide metallurgical and geotechnical data for the prefeasibility study. But Alamos also believes there is room for resource expansion at both sites and potential for additional zones of mineralization in close proximity. In the second half of the year the company will drill-test Camyurt, a prospective zone 3.5 km southeast of the Agi Dagi pits, and Rock Pile, an area with some known high-grade gold mineralization 1.5 km south of Kirazli.

Agi Dagi and Kirazli are well located with respect to infrastructure. The projects are accessible via paved roads and transmission lines pass close by.

On news of the Agi Dagi and Kirazli assessments, Alamos’ share price gained 10¢ to close at $14. The company has a 52-week trading range of $7.25 to $14.54 and has 114 million shares outstanding.

There is good reason Alamos is trading near its 52-week high. In mid-March the company released its 2009 financial results and, on the back of its third consecutive year of production growth and US$56 million in earnings, declared its inaugural dividend. Alamos shareholders of record on April 15 will receive a US 3¢-per-share dividend on April 30.

Alamos’ main focus is its Mulatos mine in Sonora, Mexico, which taps into a high-sulphidation, epithermal-disseminated gold system. The 15,000-tonne-per-day operation produced more gold than expected last year primarily because the deposit contained higher grades and less waste rock than modelled.

In 2009 Alamos increased its annual gold output to 178,500 oz., an increase of 18% compared to 2008. Selling the majority of that gold for an average realized price of US$964 per oz. brought in revenues of US$171.4 million, which translated into earnings of US$56 million or US52¢ per share. The company’s 2009 earnings represent a 90% increase over its 2008 end result.

Since it cost Alamos, on average, just US$327 to produce each ounce of gold, the company realized an average cash margin of US$637 per ounce of gold produced.

At the end of 2009 the company had cash and short-term investments totalling US$186.9 million; a bought-deal financing in early 2009 contributed US$62.2 million. The company’s acquisition of Agi Dagi and Kirazli from Teck and Fronteer closed in January, taking US$40 million from its account. The company also issued four million shares in conjunction with the property deal. Even so, with cash flow from Mulatos, no debt, and a strong balance sheet, Alamos expects to develop Agi Dagi and Kirazli without any external financing.

For 2010 Alamos expects to produce between 160,000 and 175,000 oz. gold at Mulatos, for an average cost of US$338 per oz. The company is currently finalizing a scoping study assessing the potential to increase crusher throughput at the mine; the study will also update the project’s reserve and resource statement. Alamos is also pre-stripping a new, higher-grade pit at the mine, which should start contributing mine feed in 2011.