Alamos Announces Positive Feasibility Study for Agi Dagi Project and Preliminary Economic Assessment for Camyurt Project
Alamos Gold Inc. today reported results from the positive feasibility study conducted on its Ağı Dağı gold project, located in the Canakkale Province in northwestern Turkey. The study is a continuation of the pre-feasibility study completed on the project in 2012. The Company also reported results from a positive preliminary economic assessment completed on its Camyurt gold project, located approximately 4 kilometres rom Ağı Dağı.
Ağı Dağı Feasibility Study Highlights
Declaration of an initial Proven and Probable mineral reserve of 54.4 million tonnes grading 0.67 grams per tonne of gold and 5.4 grams per tonne of silver, containing 1.17 million ounces of gold and 9.5 million ounces of silver
Average annual gold production of 177,600 ounces over five years with total life of mine production of 937,300 ounces
Life of mine total cash costs of $374 per ounce of gold and mine-site all-in sustaining costs of $411 per ounce, among the lowest in the industry
Initial capital estimate of $250 million and total life of mine capital, including sustaining capital and closure costs, of $313 million
After-tax net present value of $298 million at an 8% discount rate and an after-tax internal rate of return of 39%, representing a 1.9 year payback using base case gold and silver price assumptions of $1,250 and $16.00 per ounce, respectively
After-tax NPV has increased 240% to $298 million and after-tax IRR has more than doubled to 39%, from $88 million and 15%, respectively in the 2012 prefeasibility study when applying the same base case gold and silver price assumptions, highlighting the significant improvement in project economics
Camyurt Preliminary Economic Assessment Highlights
Average annual production of 93,200 ounces of gold and 403,000 ounces of silver over four years with total life of mine production of 373,200 ounces of gold and 1,612,600 ounces of silver
Initial capital estimate of $10 million and total life of mine capital, including sustaining capital and closure costs, of $26 million. The low capital reflects no infrastructure requirements with ore from Camyurt to be trucked and processed through the nearby Ağı Dağı infrastructure
Life of mine total cash costs of $604 per ounce of gold and mine-site all-in sustaining costs of $645 per ounce, reflecting longer haul distances to the Ağı Dağı processing facilities
After-tax net present value of $86 million at an 8% discount rate and an after-tax IRR of 253%, representing a 1.4 year payback using base case gold and silver price assumptions of $1,250 and $16.00 per ounce, respectively
The PEA assumes ore from Camyurt is sequenced after Ağı Dağı has been depleted in order to utilize the infrastructure at Ağı Dağı, resulting in a combined mine life of nearly 10 years between the two projects
“With the step-change improvement in Ağı Dağı’s economics, we now have three of the highest return, undeveloped gold projects in the world. With Kirazlı, followed by Ağı Dağı and Camyurt, we own a pipeline in Turkey that can provide low cost production and free cash flow growth for more than a decade,” said John A. McCluskey, President and Chief Executive Officer.
Average annual production is based on five full years of production and excludes pre-commercial production
Reported waste-to-ore ratio is over the life of mine. The waste-to-ore ratio during commercial production is 0.70:1 in the 2017 feasibility study and 0.93:1 in the 2012 pre-feasibility study
Total unit cost per tonne of ore excludes silver as a by-product credit. Total unit costs of $8.24 per tonne of ore reported in the 2012 pre-feasibility study included a silver credit of $0.61 per tonne, or $8.85 excluding the by-product credit
Total cash costs and mine-site all-in sustaining costs include silver as a by-product credit
Key Changes from the 2012 Ağı Dağı Pre-Feasibility Study
Unit mining costs per tonne of ore and operating costs per ounce have decreased reflecting:
Improved pit slope design based on geotechnical work conducted since 2012, resulting in increased overall slope angles, less waste mined, and a lower waste-to-ore ratio
Lower Turkish Lira/US dollar assumption of 2.90:1 compared with 1.80:1 used in the pre-feasibility study. This remains conservative relative to the current Turkish Lira/US Dollar exchange rate of 3.6:1. Approximately 60% of the project operating and capital costs are denominated in Turkish Lira
Unit mining costs have decreased to $1.72 per tonne of material with the application of Turkish mining contractor rates. This compares to $3.21 per tonne assumed in the 2012 pre-feasibility study which reflected North American mining costs
Gold and silver grades have increased reflecting the steeper pit slopes which allowed for the exclusion of low grade marginal material near the edge of the pit:
Total tonnes of ore and waste mined have decreased 21% and 30%, respectively, while average grades have increased to 0.67 g/t Au and 5.4 g/t Ag, a 22% and 64% increase, respectively
The net result is a 24% increase in average annual gold production and 35% reduction in mine-site all-in sustaining costs, more than offsetting a 6% reduction in life of mine gold production
A 2% corporate tax rate has been assumed with the Company expecting to qualify for tax investment incentives enacted by the Turkish government. A 4% corporate tax rate was assumed in the 2012 pre-feasibility study
A more conservative 8% discount rate has been assumed for the base case economic analysis compared with 5% in the pre-feasibility study
Gold and silver price assumptions of $1,250 and $16.00 per ounce, respectively, compared to $1,206 and $22.15 per ounce in the pre-feasibility study
Applying the same base case gold and silver price assumptions to the pre-feasibility study demonstrates the significant improvement in economics under the feasibility study with the after-tax NPV increasing to $298 million and after-tax IRR increasing to 39%, from $88 million and 15%, respectively
Ağı Dağı Mineral Reserves and Resources
A large portion of the Measured and Indicated mineral resource at Ağı Dağı has been successfully converted to an initial Proven and Probable Mineral Reserve totaling 54.4 million tonnes, grading 0.67 g/t Au and 5.4 g/t Ag, containing 1.17 million ounces of gold and 9.5 million ounces of silver.
Compared with the mineral resources included within the pre-feasibility mine plan, the initial mineral reserve is slightly smaller but significantly higher grade. The mineral reserve contains 22% higher gold grades, 21% fewer tonnes and 5% lower contained gold ounces. The mine plan in the pre-feasibility study included Measured and Indicated mineral resources of 69.1 million tonnes grading 0.55 g/t Au and 3.3 g/t Ag, containing 1.23 million ounces of gold and 7.3 million ounces of silver. Of the Inferred mineral resource, approximately 74,000 ounces of gold is contained within the mineral reserve pit and treated as waste in the feasibility mine plan. This represents an opportunity to add to the mine plan with its conversion through additional infill drilling.
Ağı Dağı’s estimated base case after-tax IRR is 39% and after-tax NPV is $298 million, using an 8% discount rate based on an economic analysis conducted as part of the feasibility study. This represents a 1.9 year payback and assumes a gold price of $1,250 per ounce and silver price of $16.00 per ounce, and incorporates only Proven and Probable mineral reserves. The project’s economics are sensitive to discount rates, metal price assumptions and input costs as detailed in the tables below.
The Environmental Impact Assessment for Ağı Dağı has been approved by the federal government. The key remaining permits are the Forestry permits which are also granted by the federal government, and the GSM permit which is granted by the Canakkale Governorship. The Company has not started pursuing the Forestry or GSM permits with the current focus on completing the permitting process at Kirazlı and proceeding with its development. Incorporating the Camyurt project into Ağı Dağı would require the submission and approval of an amended EIA.
The Company expects to first develop Kirazlı and then utilize cash flows from that operation to help fund development of Ağı Dağı. Following a construction decision, the Company expects a 36 month development timeline for Ağı Dağı, including approximately three months of pre-commercial production. The critical path task for the completion of the Ağı Dağı project will be the construction of the water reservoir.
Conventional open pit mining methods will be utilized at Ağı Dağı with contract mining to be employed. Ağı Dağı is comprised of two deposits which form the Baba and Deli pits. Baba and Deli are located approximately 2.5 km apart. The final pit designs are based on a 5 metre bench height. A traditional drill, blast, load and haul sequence will be used to deliver ore to the crushing circuit. Waste produced over the life of the mine will be used as engineered fill for the leach pad foundation, primarily during the pre-production phase, trucked to the waste rock dump located directly north of the Deli pit, or backfilled into the pits once the ultimate pit bottoms are achieved.
As with Kirazlı, an opportunity to improve the design of the pit slopes at Ağı Dağı was outlined in the 2012 pre-feasibility study and additional geotechnical work was subsequently undertaken. The geotechnical evaluation was based on core logging, point load testing and laboratory analysis of the geotechnical core holes. Based on the findings, the recommended inter-ramp/overall pit slope angles have been increased to a range of 35 to 48° depending on the sector of the pits with all but one of the sectors between 40 and 48°. This has reduced the amount of waste to be mined resulting in a lower life of mine waste-to-ore ratio of 1.03:1, from 1.16:1 in the 2012 pre-feasibility study. This has helped reduce the mining cost per tonne of ore and improved the overall economics of the project.
Ağı Dağı has been designed as a 30,000 tonnes per day heap leach operation utilizing a multiple lift, single use leach pad. Ore will be mined from both the Baba and Deli pits and processed through two primary crushers, one located near each pit. The primary crushed ore will then be conveyed to a central secondary crushing circuit where it will be crushed to a nominal size of 26 millimetres. The secondary crushed ore will be drum agglomerated, stacked on the leach pad by conveyor stacking and processed with conventional heap leaching methods.
The crushed ore will be stacked in 10 m lifts with the leach pad facility to be constructed in three phases to an ultimate height of 70 m. Phase 1 will have a capacity of 29.7 million tonnes, phase 2, a capacity of 19.8 million tonnes, and phase 3, a capacity of 24.1 million tonnes for an ultimate capacity of 73.6 million tonnes. This is approximately 19.2 million tonnes larger than the current mineral reserve of 54.4 million tonnes to accommodate future potential exploration success and the current 16.6 million tonnes of ore included within the PEA mine plan for Camyurt. The capital required for all three phases is included within the total life of mine capital estimate for Ağı Dağı.
A dilute cyanide solution will be applied to the crushed ore over a 90 day leaching cycle with the pregnant solution collected and processed through the adsorption-desorption-recovery plant where gold and silver doré will be produced.
Based on column tests conducted on the different alteration types at Ağı Dağı, gold and silver recoveries are expected to average 80% and 25%, respectively.
Ağı Dağı will be supplied with power by connecting to commercial power. Overhead power lines will connect 34.5 kV, three phase and 50 Hz power system to a metering and switching substation located on site near each primary crusher. In the event of a power failure, a diesel-fired backup generator will be used to supply emergency power.
Operational water will be supplied via a pipeline from a planned reservoir to be constructed by Alamos. The reservoir for Ağı Dağı will be independent of the reservoir to be constructed for the Kirazlı project. In conjunction with the Ministry of Forestry and Water Affairs – State Hydraulic Works, a water reservoir project has been designed to supply the process water requirements of the Ağı Dağı project and clean drinking water for the nearby communities. The feasibility study on the reservoir project has been approved by DSI.
Total cash costs are expected to average $374 per ounce of gold and mine-site all-in sustaining costs $411 per ounce, net of silver as a by-product credit. Similar to Kirazlı, these are both among the lowest in the industry. Total unit costs per tonne of ore processed are expected to average $6.46 per tonne. This is down from $8.85 per tonne assumed in the 2012 pre-feasibility study reflecting the depreciation of the Turkish Lira, lower unit mining costs per tonne of material, and a lower waste-to-ore ratio.
Unit mining costs have decreased to $1.72 per tonne of material with the application of Turkish mining contractor rates. This compares to $3.21 per tonne assumed in the 2012 pre-feasibility study which reflected North American mining costs. Unit mining costs per tonne of material at Ağı Dağı are expected to be slightly higher than Kirazlı reflecting longer haulage distances. Approximately 60% of Ağı Dağı’s operating and capital costs are denominated in Turkish Lira. Of the remaining 40%, the majority is denominated in US dollars.
Ağı Dağı and Camyurt are subject to a Mining State Right Royalty payable to the Turkish government. It is a top line sliding scale royalty based on the price of gold with a 50% deduction to the royalty for producing doré in country. Including certain other eligible deductions available for expenses related to transportation and processing costs, the Company expects the gross royalty of 4% would be reduced to a net payable royalty of approximately 1.5%.
In addition to the State Right Royalty, production from Ağı Dağı and Camyurt is subject to a 2% net smelter return royalty payable to Franco-Nevada Corporation.
Initial capital cost of $250 million is down 10% from the $278 million assumed in the 2012 pre-feasibility study primarily reflecting lower capital required for pre-stripping. With good infrastructure and the ability to connect to the commercial electricity grid, the bulk of pre-production capital will be spent on construction of the leach pad, crushing circuit, process plant facilities, water management and the reservoir.
The construction workforce is expected to ramp up to a maximum of 735 personnel and average approximately 500 over the peak phase of construction. Following a construction decision, the Company expects a 36 month development timeline, including approximately three months of pre-commercial production.
The statutory corporate tax rate in Turkey is 20%; however, the Company expects to benefit from tax investment incentives that have been implemented by the Turkish Government to reduce the corporate tax rate on the Ağı Dağı project to 2%. Effective June 19, 2012, the Turkish Government legislated certain tax investment incentives designed to promote investment in specific industries and regions of Turkey. The Company has evaluated these investment incentives in consultation with a recognized international accounting firm and the Turkish Government, and expects that the Ağı Dağı project will qualify for the following incentives on successful application:
Under the incentive program, the Company is expected to be eligible for a reduction to the corporate tax rate, resulting in an effective corporate tax rate of 2% over the current life of the Ağı Dağı based on the gold and silver price assumptions used in the financial analysis.
For the purpose of the feasibility study, the Company has only incorporated the corporate tax rate reduction into the economic analysis.
Incorporating Ağı Dağı and Camyurt projects – as a higher level economic study is completed on Camyurt, there are opportunities to optimize the mine plan incorporating both projects.
Accelerate development timeline – Initiating the construction of the water reservoir for the project earlier will shorten the site development timeline
Infill & exploration drilling – Both Ağı Dağı and Camyurt have strong exploration potential with a large drill program of approximately 57,000 m planned across both projects prior to construction. At Ağı Dağı, this includes 5,000 m of infill drilling within the Baba and Deli pits, designed to upgrade Inferred mineral resources to a higher resource category, an additional 12,000 m of extension drilling testing along strike from both pits, and an additional 18,000 m of exploration drilling to follow up on other prospects on the project
At Camyurt an additional 22,000 m of infill and exploration drilling has been designed to both upgrade and grow the existing mineral resource base
The Ağı Dağı project consists of 10,514 hectares and is located in the Canakkale Province on the Biga Peninsula of northwestern Turkey. The project is located approximately 50 km southeast of Canakkale, the largest centre on the Biga Peninsula with a population of approximately 100,000. There is excellent, well-serviced infrastructure in close proximity to the project with paved roads, electricity, transmission lines, and electricity generating facilities, the most significant being a large coal-fired power plant adjacent to the nearby Town of Can, which has a population of approximately 30,000.
The Camyurt project is located approximately 4 km southeast of Ağı Dağı and is expected to utilize its processing infrastructure. The Company also owns the Kirazlı development project, located approximately 25 km northwest of Ağı Dağı. Both Kirazlı and Ağı Dağı are standalone open pit heap leach projects.
The PEA for Camyurt was conducted on the basis that the project will have minimal standalone infrastructure. Ore from Camyurt will be mined and trucked approximately 8 km to be processed through the infrastructure at Ağı Dağı once the Baba and Deli pits have been mined out. As more detailed economic studies are completed on Camyurt, there are opportunities to both accelerate the processing of the Camyurt ore before the end of the mine life at Ağı Dağı and build a standalone crushing circuit and leach pad facility at Camyurt which would reduce haulage and mining costs.
Average annual production is based on four years of production
Reported waste-to-ore ratio is over the life of mine
Total unit cost per tonne of ore excludes silver as a by-product credit
Total cash costs and mine-site all-in sustaining costs include silver as a by-product credit
The PEA for Camyurt is based on the Measured and Indicated mineral resource of 17.7 million tonnes grading 0.89 g/t Au and 6.1 g/t Ag, containing 0.51 million ounces of gold and 3.5 million ounces of silver.
The mine plan in the PEA incorporates Measured and Indicated mineral resources of 16.6 million tonnes grading 0.92 g/t Au and 6.3 g/t Ag, containing 0.49 million ounces of gold and 3.4 million ounces of silver. The mineable ounces were determined using an optimized pit shell based on gold and silver price assumptions of $1,200 and $18.00 per ounce, respectively.
An Inferred mineral resource of 55,000 ounces of gold and 298,000 ounces of silver is contained within the pit shell and treated as waste in the PEA mine plan. This represents an opportunity to add to the mine plan with its conversion through additional infill drilling.
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