Publisher's Note: Morgan Poliquin is the CEO and President of Almaden Minerals, which is nearing production on a very unique deposit at its Ixtaca Project in Mexico. Below, he shares his story with our own mining expert, Gerardo Del Real. Read on to hear about Ixtaca, and how Almaden persevered through the downturn in the mining sector while positioning itself to turn Ixtaca into one of Mexico's premier low-cost operations. Keep an eye out for Part II tomorrow as well, which will focus on Almaden Minerals' plans going forward, along with how and when the Ixtaca Project will transition into production.
To your wealth,
Publisher, Outsider Club
Gerardo Del Real: This is Gerardo Del Real for the Outsider Club. Joining me today is president and CEO of Almaden Minerals, Mr. Morgan Poliquin. Morgan, how are you today?
Morgan Poliquin: Excellent, thank you. I hope you're well. Thanks for having me on.
Gerardo Del Real: Absolutely. No, it's an absolute pleasure. I wanted to have you on because you had a news release today, and I want to get to that. Let me read the headline. The headline reads, "Almaden infill drilling confirms main Ixtaca zone, hits 25 meters of 4.08 grams per ton gold and 91.7 grams per ton silver, and 32.5 meters of 2.02 grams per ton gold and 109.2 grams per ton silver, all within 184 meters of 1.25 grams per ton gold and 54 grams per ton silver." Obviously, it's an infill hole, but a very good one that shows the continuity.
Before I get into the details — before we get into the details — of this specific news release and infill hole, I would love if you could provide an overview of the deposit, which I think is very, very unique.
Morgan Poliquin: Well, thank you very much for that opportunity. I'd be delighted to do that as well. We found the deposit in 2010, and it's a brand-new discovery. That is to say it's not a historic mining camp. It's the first time these claims were staked. We saw an alteration zone without gold or silver occurring at surface and thought it was the right environment and drilled a hole. Luckily, our first hole hit. We hit a very good intercept right into the main zone, so we got very fortunate with the first hole. By 2013, we had a significant resource. The resource covers this system of veins that have both gold and silver in them. The value is about half gold, half silver per ton. And we've completed several different PEAs [preliminary economic assessments] that looked at different sizes and scales of an operation, and that has culminated in April of this year, we produced a pre-feasibility study on the project.
In the last couple of years, in the really grim market that we've had, we purchased a plant, essentially, a brand-new plant. It was built for an operation in Alaska that only lasted for two-and-a-half weeks, I believe the plant was actually used, and it was fully decommissioned, and so we have a plant to go with the operation that's the right scale for the operation that we are just currently disassembling, with the idea of moving it to Mexico once we have our permits in place. We're about to fully permit the project, and we're working on a bankable feasibility study right now.
We're expecting, in the next 18 months, that the results of the pre-feasibility study were extremely robust that looked at, in gold equivalent terms, about a 2-million-ounce reserve of gold equivalent and had a 41% after-tax IRR [internal rate of return] with a capital cost of around $120 million and producing, thereabouts, 140,000 ounces, if I'm not mistaken, on average, there a year. It's a very robust deposit, and we're moving very rapidly towards a production decision, which we expect to be in a position to make sometime, perhaps, even next year. It's moved very rapidly, in the last little while, and really, from initial discovery from ground zero, that's what we've been doing the last seven years.
Gerardo Del Real: Excellent. Now, I want to backtrack even a little further back because you and your father pioneered exploration in this part of Mexico. Can you talk about how that came about, Morgan? I mean, you have almost a three-decade head start on everybody in this region, and it's led to multiple discoveries. You discovered Caballo Blanco. You discovered this deposit, and you're onto another discovery in Veracruz, Mexico, the El Cobre Deposit, with Almadex Minerals. Can you talk a bit about what led you to this region?
Morgan Poliquin: Sure. I think, geologically, Mexico has — obviously, they're connected, geologically speaking, Mexico to the United States, and there's a lot of similarities between the historic production in Mexico and the western United States. What I mean by that is that the big historic mines in the Sierras along the California and Nevada border, the Comstock Lode, and some of the operations that really led the development of California, and those were on the west side of the mountain range. It was later on in the 20th Century when far bigger gold deposits were found, like the Carlin Trend and Bingham Canyon in Utah, many of hundreds of miles to the east.
If you look at Mexico, you see very similar things, Guanajuato, Zacatecas, Fresnillo, these major silver deposits that made Mexico similar and brought about the development of much of Mexico in the 16th century and onwards. Those mines are quite far east from where we're working and making these discoveries. That was the initial geologic concept. In addition to that, we felt we had some very good, strong geologic reasons that there ought to be gold and, in the case of Almadex, copper-gold deposits out in this part of the world. I wound up doing my Ph.D in Geology on this whole region, so yes, we do have a significant head start. This is the third discovery we've made in this belt, and we think that our sister company, Almadex, has the potential to make many more. We've staked a number of properties, and we certainly are a first mover and pioneer of this area.
Gerardo Del Real: Excellent. Now, you mentioned the mill earlier. You were able to use a brutal, brutal bear market to shareholders' advantage. Can we talk a bit about the cost of that mill in mint condition, which it basically was when you purchased it, what it would have been had you paid retail for it, and then what you actually paid in cash and stock, Morgan?
Morgan Poliquin: Yeah. I mean, just to give you a framework for why we looked for those opportunities, is that that's really the silver lining to bad markets is they provide them. Fortunately, my father, our chairman, our founder of the company and leader here, he's lived through a number of these cycles. That's who you look to, those sorts of leaders, in those tough environments, which we've had, and to some extent, still have. The first instinct of this company was to look for the opportunities. In fact, earlier in his career, he had helped build a mine that utilized a used plant very successfully.
It was our first instinct to look for those opportunities, and we found this one, and it's a very unique one. Originally, the mine where this plant is located, which was unsuccessful and, as I say, the plant only operated for two-and-a-half weeks, unfortunately, that was built for $250 million. In an earlier PEA, we contemplated a new mill of the same scale, and we think our numbers were reflective of what a new mill would cost. After the purchase price upstaged payments of $6.5 million to buy this plant, we think it would bring about, based on our pre-feasibility study here, savings in the realm of about $70 million. It's a significant impact on the initial capital and, thereby, the payout and the risk of this operation.
@RSDigest ON TWITTER
Small Cap Stock Digest