General Precious Metals
Almaden Minerals (TSX: AMM)(NYSE: AAU) CEO Morgan Poliquin on Robust Economics, Exploration Upside & Permitting at Ixtaca
Gerardo Del Real: This is Gerardo Del Real with Resource Stock Digest. Joining me today is the president and CEO of Almaden Minerals, Mr. Morgan Poliquin. Morgan, how are you?
Morgan Poliquin: I'm excellent, thank you very much. Thanks for having me on. Hope you're well too.
Gerardo Del Real: I'm well, thank you for asking. It's great to have you back on. What motivated this conversation was the most recent bit of news that Almaden is conducting IP geophysical work at Ixtaca. And I thought it was a really good opportunity to highlight the quality of the project, because I get the sense that there's a lot of people that despite you being around for over a decade, right? The initial discovery, I believe it was made in 2010, there's still a lot of people not familiar with the deposit. This is a deposit that is anchored by a 4.1 million gold equivalent resource, that's across all categories. You have a mint condition mill with a replacement cost of approximately $70 million. And here you sit with a market cap right around the $93 million level, that's Canadian. So I would love for you to give us a brief overview of the project, the polymetallic nature, which makes it unique, and then we'll get into some of the economics, which I think are pretty compelling.
Morgan Poliquin: Well, thank you very much for the opportunity. You're right, this is discovered 10 years ago. We call it a new discovery because it's a brand new area of Mexico to find this kind of resource, and this isn't around historic working. And most of those 10 years has been pretty challenging environment for gold and silver. So, our focus over those 10 years is being on the resource and developing it into a reserve which we did through a feasibility study. And there's some special things about this resource. We've got a two and a half million ounce gold equivalent reserve. And that's comprised of just gold and silver.
And so, this is a truly precious metals resource in that sense, just gold and silver. And interestingly, the special thing about this deposit, I think, is that it's 50% gold, 50% silver, roughly by value of dollars per tonne. So you can look at it either way, from a gold equivalent perspective or from a silver equivalent perspective. So we've got two and a half million ounce gold equivalent in the reserve, which is comprised of 85 million ounces of silver and about 1.4 million ounces of gold. That's 189 million ounces of silver equivalent. And the first six years of production, the key period of time in any mine, we produce 200,000 ounces a year of gold equivalent, but that's 15 million ounces in silver equivalent terms. So, those silver metrics make it really special. And like I say, just to reiterate, it's 50% gold, 50% silver value per tonne.
Gerardo Del Real: And again, I mentioned the 4.1 million gold equivalent ounces. It's important to note that that's the resource space across all categories, which I think speaks to the exploration upside, which we'll touch on in just a bit, but the two and a half million gold equivalent reserve. Reserves for those not familiar, can you make the distinction there for the audience there, Morgan?
Morgan Poliquin: Well, that's right. The highest kind of level of study is a feasibility study. And you have initial studies that are called now PEAs or scoping studies and pre-feasibility studies, and then feasibility studies. And we've done all three categories of study. And our feasibility study at the end of 2018, that level of study is what defines the kind of category of reserve. And so, that's a lot of work. It's a great opportunity, and thank you for the opportunity to describe that because that 10 years we haven't wasted that time. We used it to do the detailed engineering work, social environmental work that all go into that level of study, a feasibility study.
Gerardo Del Real: The metallurgy is excellent, the infrastructure is excellent, you have a community that is supportive of the project. We all know that there was a permitting decision that effectively denied the initial application, but we also all know that in Mexico it's not uncommon for that to happen once or twice before subsequent approvals, it's part of the negotiation process that goes on in Mexico. I want to highlight some of the numbers in that feasibility study, because I think I spoke to that $93 million market cap Canadian that you have right now. And if we use $1,275 gold and 17 ounce silver, which was a long time ago obviously, we're talking about a net present value of just over $400 million Canadian, right? So over four times today's market cap, that's at $1,275 gold and 17 ounce silver. If we go up a little bit and we go to $1,425 gold and $20 silver, that net present value rockets to over $600 million Canadian.
If I use today's prices, and I believe gold and silver are both headed higher, then we're talking about a market cap, a net present value of over a billion dollars Canadian, and a market cap, a tenth of that, right? And so, I think for people that are listening or reading this, that's the value proposition here, right? The discount that's being applied to the shares as a result of the initial permit application being denied. Walk me through the recent additions to the board, Morgan, because this is a big emphasis and focus for the company moving forward is really getting more familiar with all of the departments that need to be involved to get this project permitted the way we all believe it should be, right?
Morgan Poliquin: Well, that's exactly right. And let's be clear, we found this deposit in our group. We're an exploration-oriented group. And obviously, as we've described, we've taken this through the various stages of geology and engineering studies to get to a feasibility stage where at which point we submitted our permits on the design basis of that feasibility study. And going into production requires a whole different skill set. And I think recently the permit denial, which got us to really focus on bolstering the team. And obviously, that was a decision that was a real challenge, but however, we wished it to be positive, but it would have been an inflection point for our company if it was positive, because we were moving towards production. So, I think this has been a great opportunity for us in some ways to really look at our team. And Alfredo Phillips who has joined the board, I want to highlight him initially.
Kevin O'Kane has got a very rich background in ESG in particular and mine management and all aspects of building mines in Chile and Latin America, and a key addition in that respect in terms of ESG governance and all issues pertaining to that side of the business. Alfredo Phillips is working with a major company in Mexico that's making major investments in the country, but has an extremely rich background with, particularly Torex, a very, very successful gold mining company in Mexico that has navigated the challenging waters of permitting successfully. And I think that Alfredo's background dealing with the challenges that inevitably come up when you're building a mine, and in particular not very far away in Mexico, is a powerful addition to our board. And already we feel that our communication and our efforts in terms of opening new doors and whatnot, he's very helpful in that regard obviously, having been through that experience. So, it's an exciting time, I think, to be rejuvenating our group and our team for the next effort ahead.
Gerardo Del Real: It also helps that Mr. Phillips is currently the Head of Government Affairs in Mexico for the world's largest steel producer, right? Let's talk exploration upside, because despite the very robust resource and reserve base, there is a lot of exploration upside on the property. You mentioned your knitting, your specialty Morgan is pioneering and exploration for precious metals in this part of Mexico, and making discoveries. Can you speak a bit to the exploration upside and how you plan on unlocking some of that value here as you work through the next phase of the permitting application?
Morgan Poliquin: Well... And let me digress a little bit, being a geologist, I have to speak to the particular environment here so people understand why this was a new discovery 10 years ago, and why it wasn't found before. And that's because this kind of gold and silver deposit is basically a hot springs. And the best way to think of, I believe, is as a mushroom. And basically, the top of the mushroom, the cap there, is this clay alteration, which very often doesn't have very much gold and silver in it at all. And you're looking for the stem. And there could be a few stems... Imagine a bunch of mushrooms together. We don't want to extend the metaphor too far, but we're looking for these stems underneath. And we found one with the Ixtaca deposit itself, and the alteration, the area that sort of cap on top extends for significant distance away from the deposit, the known area of mineralization, and we think that there it could be other stems. And the indications on surface with our work the end of last year showed that indeed there was real hotspots in this alteration.
As you pointed out at the beginning of our interview, we're doing some additional geophysics to try to highlight where under this barren zone of clay alteration where we should be drilling to see if this will help us define it a bit better. But that's the basic concept. And tying into the work program that's gone on, until recently, precious metals have been challenged in terms of their price environment. There's a reason why in 2018, you talked about the price stack for the feasibility study, the base case was $1,275 and $17 silver. So, that's pretty indicative of where we've been the last 10 years. And so we've had the focus in that kind of environment, on developing the resource that we had identified through the exploration drilling and de-risking it and moving it through stages, which we talked about, to a feasibility level.
And that has meant that we have left, I think, a lot of the exploration potential for exploration that we plan to work on now. So, that's really exciting for me because, well, it's been quite exciting doing these detailed studies and so on, and seeing a project emerge from that and be defined. At the same time, I'm an explorationist, and I'm always thinking about what's over the next hill. So, it's a pretty exciting opportunity on the one hand to be developing and moving forward a deposit, and the other hand, hoping to find something new, all on the same project.
Gerardo Del Real: Morgan, that was a very thorough update and overview. Anything else that you'd like to add before I let you go? And thank you again for your time. I always appreciate it.
Morgan Poliquin: Yeah, thank you. And there is something I think is really important for people to understand, that our community social engagement, our community relations and transparency program is something I'm really, really proud of. And our efforts to incorporate the community, their opinions, their attitudes we did towards the project and try to improve on that feedback is something that we're all proud of in our group. And one of the things that's emerged here, we're lucky geologically, meaning that our host rock is limestone, which is a pretty benign buffering rock that we think that even as the possibility to sell... We call it waste rock in mining, but it's a rock that it doesn't have the gold and silver in it. We think there is even the possibility of contributing to a circular economy by selling that material, or it could be utilizable, put it that way. But the two key aspects of this project that make it very special, this is an area where we can enhance local access to fresh potable water through the construction of a freshwater reservoir that is actually part of the mine plan.
One of the major concerns in human rights in the world today is access to fresh drinking water. And so, that's part of the mine plan itself, which is I think really unique. We've already contributed to helping people with reservoirs that are separate from the one in the mine plan. The one that my plan is a big one. And the second aspect of this project is that through the process of the various levels of studies and the pre-feasibility study we had a tailings dam. And we've reduced the footprint of the mine plan by building a dry stack filtered tailings facility, which is more expensive, but it reduces the impact area on the one hand and also the water impact by obviously filtering and removing water from our tailings, and removing a tailings dam entirely from the picture, which means there's no risk of a tailings dam failure as a consequence. So, those and other aspects of the project make it really, really special. And that's part of obviously our efforts to communicate this to all the stakeholders.
Gerardo Del Real: The quality of the work that you and the team has done is apparent, Morgan. And I am excited about the new board additions and the renewed focus in really getting the message out about the quality of the work, the deposit, and the support that the community has, and the need, frankly, that the community has for this project to move forward. I think it's a heck of an opportunity. And again, thank you for your time, Morgan. Good catching up.
Morgan Poliquin: Excellent. Thank you very much, Gerardo.
Gerardo Del Real: Stay safe out there.
Morgan Poliquin: Yeah, you guys too.