Almaden Minerals (TSX: AMM) CEO Morgan Poliquin on Feasibility Study for the Ixtaca Precious Metals Project in Mexico: 42% After-Tax IRR with Annual Production of 203,000 Gold Equivalent Ounces

December 13, 2018

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Gerardo Del Real: This is Gerardo Del Real with Resource Stock Digest. Joining me today is the President and CEO of Almaden Minerals (TSX: AMM)(NYSE: AAU), Mr. Morgan Poliquin. Morgan, how are you this afternoon?

Morgan Poliquin: I'm doing very well, thank you very much. And yourself? Thanks for having me on.

Gerardo Del Real: I'm great, thank you for asking. Congratulations are in order. You just published results from your feasibility study for the Ixtaca project. Congratulations, I know it's a lot of work. These are pretty robust numbers that we're going to get to. Congrats, Morgan.

Morgan Poliquin: Thank you very much. I must confess, it's very nice to finally get the news release out. Feasibility studies are big endeavors and it's very exciting to be able to finally report these results.

Gerardo Del Real: The Ixtaca was a blind discovery in 2010. Today you reported a 42% after-tax IRR at 5%, with 203,000 gold equivalent ounces produced per year over the first 6 years. Let's talk about the details. Average annual production would be approximately 108,500 ounces of gold, and 7 million ounces of silver, 203,000 gold equivalent ounces, or 15.2 million silver equivalent ounces over the first 6 years. It's an 11-year mine life, if I'm not mistaken. Can we talk about the details? Fill in the blanks for me, Morgan.

Morgan Poliquin: Sure. Well that's a pretty good summary. Look, it's a very unique project in terms of the metal breakdown. It's half gold, half silver. The deposit doesn't come with a whole lot of things that normally come with silver in Mexico, like lead and zinc. So the silver and gold are recovered together in a pretty typical world, epithermal situation. So we're able to open pit mine a vein zone that occurs in limestone. And of course, limestone is a very benign rock, meaning it is base and doesn't create acid. So we're able to get that limestone out with our open pit mining method and also with ore sorting, which is the big introduction that we've made here, one of the significant introductions to the study from the pre-feasibility study last year.

It results in those kinds of numbers. We're able to, in very simple metallurgy based on the minerals, which is dominated by electrum, an alloy of gold and silver and other leachable silver sulfides. We're able to create doré on site. So a very simple process.

And in an area with excellent infrastructure. We are about 25 kilometers or a little less from a Kimberly-Clark facility, in a big industrial park. An hour and a half drive from the Volkswagen plant in Puebla, which is huge. So an area of excellent infrastructure, with good access, but at the same time, an area where there aren't significant impediments to development, where we can provide some major community opportunities, where villages don't need to be moved or things of that nature. So it's a great combination of infrastructure and access that put together with a good mine plan, and these high-grade veins that are in limestone.

So all of that put together, along with I guess the other key aspect is, utilizing the Rock Creek Plant, which is something we purchased for $6.5 million dollars U.S. It was used for about three weeks and is located in Nome, Alaska. We spent $2 million this summer disassembling it, readying it to move to Mexico. So all those factors have gone towards these numbers and the feasibility study. And what follows from here is obviously submitting permits and moving the project forward.

Gerardo Del Real: Let me dig a little bit more into the numbers because I want to provide some context. You currently have a market cap U.S. of approximately $72, $73 million. The project has an after-tax net present value, using a 5% discount rate of $310 million, that's U.S. Initial capital, $174 million. This is conventional open pit mining project here, all in sustaining costs are approximately $850 per gold equivalent ounce, or $11.30 per silver equivalent ounce.

The two things that I really want to touch on, that are different from the pre-feasibility study is the reduced project footprint. Obviously, there's been a focus on water and you wanted to minimize and optimize ­– I should say, is probably a better word – the water usage profile. You eliminated the tailings dam. Can we talk about why, and the benefits there?

Morgan Poliquin: Absolutely. Well, in our situation, without getting into a detailed conversation about tailings per se, in our situation, we have a high annual rainfall, but it's focused in the rainy season, and we're very near the divide, if you like, where drainages, these creeks that are in our area begin just above us, a kilometer or so. So basically, it flash floods in the rainy season. And that water isn't captured for use by anyone locally.

The other aspect is a rock. And our limestone, as I mentioned before is benign. It's not an acid generating rock, and it doesn't have a great deal of sulfides in it because the sulfides are all in the veins. And the veins are dominated by limey rock carbonate. So the geochemistry is really good. And what we were able to recognize is that we can, the word is commingle, put our benign limestone waste together with the tailings, to water the tailings, and store that in what's called dry stack or filtered tailings.

And that is becoming a major focus for mining companies, is to review the opportunities to have a dry stack because it eliminates having a dam. And normally, in a tailings dam you store your tailings, ultimately saturated. And of course, people are concerned about dams because dams of whatever sort have to be built very well to avoid the possibilities of issues with them down the track.

We've eliminated that need for a dam to contain the tailings by being able, through all those factors, to store it in this filtered fashion. So there's a cost to that obviously. We have to have a filter plant, and that's part of the capital cost in this study. But it has significant benefits in that the water tailings provide water immediately, as opposed to have to waiting for settling and those sorts of things. So that's one aspect of the study.

The other aspect of the study is that I mentioned that when it rains, it sort of flash floods out in these creeks. We have done a social impact assessment in Mexico. It's called an EVIS, which is required by law for oil and gas, but not for mining. We've done the first one for mining that we're aware of. It involves sending sociologists and anthropologists to live in the communities, and listen to what people are thinking about. And it's moved into a social investment plan. What we heard from the communities is that rain water is the only source of water, and it's limited in terms of what they can capture today. In fact, from what I understand, there's been a community initiative to try to get the government to build a dam, to capture some of this water.

So obviously, we've got an arroyo, a stream that goes through the project, and we want to divert the water that runs through that stream when it rains around the project area. So, what we're able to do is build a small, permanent water reservoir there to capture some of that water and divert it around. We listened to the community and they would like a water reservoir structure. So, we're building it in a permanent fashion so we can hand it over to the community. And of course, that's an ongoing dialog, but ultimately it provides a major community opportunity that we'd like to realize, this mine plan.

On the water subject, those are the two aspects. Filtered dry stack tailings, which is state-of-the-art stuff and it depends on your rocks and your minerals, and your environment. And luckily all those things worked for that to be done here. And on the other hand, providing water storage facility for local people, as well as the mine use while the mine's in operation.

Gerardo Del Real: That's an excellent, not too technical overview of those changes. I want to cite some more numbers here because I know I'll have people that say, "Hey look, you cited some great net present value numbers, and the IRR, that was using $1,275 gold and $17 silver." Look folks, even if we go down to $1,200 gold and $15.50 silver, the internal rate of return after-tax, at 5% is still 34%. The after-tax net present value is still $233 million U.S. And again, the current market cap U.S. is approximately a third of that. It's about $73 to 74 million dollars U.S.

A lot there, Morgan, a lot there. Is there anything else that you'd like to add? What does it look like in 2019? I've been to the property. I know how strong the community relations are. I know that you have the potential, along with your father, to possibly pioneer mining in this part of Mexico, eastern Mexico. You not only have this project, there's the El Cobre project in Veracruz. This obviously would be first in line. What does the permitting process look like in 2019? And what does the exploration plan look like? Because I know there's a lot left to look over at the project.

Morgan Poliquin: Well, obviously, there's a new administration in Mexico and they have said some extremely positive things about the fact that they want mining, that they see mining as a growth industry, that they want clean mining, and they want mining that respects communities and enhances them. So, we think our project does all of that. We think we're a leading-edge consultation effort.

We hope your listeners will consult our website on the social side. We've had individual interactions of more than 20,000. We've taken 480 people on mine tours to educate them about what we're proposing and ensure that they understand it fully and they can make their own decisions, not based on rhetoric or ideas that aren't grounded in the reality of mining. So, we really feel that yes, we have that community support and the government, while they've proposed a new mining bill which they've pulled back, our interpretation is that the changes they're proposing are to make things more regularized so that some of the doubt can be removed about social situations. We welcome those sorts of changes.

We don't know what will come, but we do know that we're prepared to submit our EIS at this point, and we feel that we have listened to the community and we're working with the community. In fact, they have duly elected committee members that interact with us on a routine basis. And this is a robust mine plan that is done to the best of standards and respects environment and society. So, we feel very positive about Mexico, and that's the main thrust, is the permitting.

On the other side, you're quite right, we have a discovery that was made in 2010, before this bad market really started to manifest itself in 2011. And that we've been in there ever since, really. And it's been challenging to follow up on the blind exploration side of the project. Fortunately, we did make that discovery in 2010 and focused on de-risking a deposit that emerged to this point, the feasibility study. But it does leave the question mark, which we kind of addressed a bit earlier this year with some good drill results, at more than a kilometer away, that this could be the start of something even bigger. So, I would love to get back to our knitting, which is exploration drilling.

Gerardo Del Real: Excellent. One last point I'd like to make. You mentioned the community, you mentioned the incoming government that I have frankly, behind the scenes, heard it has been positive, it has been receptive to responsible mining. And I think that's the key difference. I've heard of initiatives behind the scenes, that want to guarantee that the local municipalities benefit directly from the projects that are operating in those communities. I think that's a big positive that has not been the case oftentimes in the past.

Economic contributions to the community, you anticipate that approximately 600 jobs will be created during the peak of construction, 420 jobs generated during operations. Elon Musk would congratulate you for the 420 jobs. The project is anticipated to generate approximately $130 million U.S in federal taxes, $50 million in state taxes, and probably as important is $30 million in municipal taxes. So I think that's an important point that speaks to the benefits that the community would see, when and if this project is permitted.

Morgan, any last words?

Morgan Poliquin: Well thank you. That was a great summary. I really appreciate the opportunity. And for all your listeners, appreciate all the support and thinking about us and interest in us over the past 8 years really, since the discovery and through this tough time. We are very delighted to deliver this news today, and look forward to the next steps. Thank you so much.

Gerardo Del Real: Thank you for your time, Morgan. Congrats again.

Morgan Poliquin: Thank you.

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