Almaden’s Ixtaca Contains Over 200 Million Ounces of Silver Equivalent… Worth $800 Million
A small NYSE-listed company controls one of the world’s best silver-gold deposits....
Almaden’s Ixtaca Contains Over 200 Million Ounces of Silver Equivalent… Worth $800 Million
Shares need to rise at least 10X to match that value...
You Can Buy All That Silver for 40-Cents Per Ounce!
Almaden Minerals (TSX: AMM)(NYSE: AAU) controls one of the most undervalued, production-ready silver projects in the world.
Called Ixtaca, the company has been exploring and developing the project for over a decade. And now its time is almost here.
The project contains proven and probable reserves of 85.159 million ounces of silver and 1.387 million ounces of gold. That is 2.5 million gold equivalent ounces or 189.2 million silver equivalent ounces.
Shares of Almaden Minerals trade around $0.50.
It has a market cap of $75 million. At the current valuation, you’re buying all that silver for $0.40 per ounce. In gold terms, you’re buying it for $30 per ounce.
The average enterprise value per ounce for companies in this sector is $75 per ounce of gold.
Making Almaden Minerals one of the most attractive valuations in the entire precious metals exploration and development space.
It needs to go up 150% just to be properly valued in line with its peers.
There are numerous events in motion that could make that a reality in short order. You’ll hear about them firsthand in the interview below with CEO Morgan Poliquin.
You’re also about to see several other factors that show why the company could — and should — ultimately be valued even higher than its peers.
It all starts with the economics of the Ixtaca project, which are already show via a feasibility study in 2018.
Ixtaca’s Economics
Ixtaca is located in Puebla State, Mexico. There is power on site and paved roads to within two kilometers.
It is a very large precious metals deposit divided nearly equally between silver and gold. In that respect, it’s easier to think about it in either gold equivalent or silver equivalent terms.
The feasibility showed a mine that would produce 173,000 of gold equivalent for 11 years at and all-in sustaining cost of US$850 per ounce.
In silver equivalent terms, it would produce 12.9 million million ounces per year for 11 years at an AISC of US$11.30.
Using a gold price of $1,450 and silver price of $20 — both of which we’re well above — the project has a net present value of US$466 million and internal rate of return of 57%.
Almaden shares were sold down over the past year amid permitting delays and gold retracement from record prices in 2020.
Its current market cap of $75 million is just 16% of that $466 million NPV, meaning the stock needs to go up 6X to be fully valued.
And that’s without including the additional NPV the project now has since gold is now well above $1,425 and silver is well above $20.
So there is even more than 6X upside already baked in.
The Mill
Most companies have to build a mill when they start mining, which is a very costly endeavor.
But Almaden’s management had the foresight to buy a mill during the gold mining downturn for pennies on the dollar. So now the company owns a mill that would cost $75 million to build in today’s market.
Rock Creek Mill Secured: 7,000 tpd plant
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Purchased for US$6.5M and approx. 400,000 shares
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FS plan: plant to be dismantled and transported to Mexico for use at the Ixtaca project
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The mill operated from Sept. to Nov. 2008 only, prior to being put on care and maintenance
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Currently dismantled and containerized in Nome, awaiting shipping to Mexico
Put another way, the mill that Almaden owns is worth the same as the company’s entire market cap… meaning the stock is getting zero value for the gold-silver deposit!
The Team
Almaden Minerals has one of the best management teams in the business, and it fully owns what is likely to become a world-class gold and silver mine within the next several years — right in line with a new bull market in gold and silver.
The company's highly experienced and successful management team has discovered multiple deposits that become economic. And that's one of the key things to look for when investing in companies looking to prove and de-risk a project.
The team has over 200 years of combined experience in prospecting, exploration, and geochemistry:
Duane Poliquin, Founder and Chairman: Duane Poliquin received his degree in Geological Engineering in 1962 and has been continuously active in mining exploration around the world.
In 1972, Duane identified the Santa Fe gold property in Nevada and formed Westley Mines Ltd. to explore the project. Westley was taken over and transitioned into production.
Before founding Almaden, Duane discovered an extension to the Nevada Sheelite Mine as well as the Apex germanium-gallium mine - a specialty metals deposit in Utah that contained over one million tons of mineralized material with a gross value of over $1,000 per ton.
After founding Almaden and doing an IPO in 1986, Duane identified the Trinidad gold deposit in Mexico which was subsequently sold with a royalty retained to Eldorado Gold Corporation and became that company’s second mine.
Morgan Poliquin, President & CEO: Morgan Poliquin (Duane's son) earned his Masters of Science in Geology at the University of Auckland, studying geothermal systems and epithermal gold deposits.
His Ph.D. in Geology from the University of Exeter involved studying the geology and mineral deposits of eastern Mexico. His Ph.D. research was combined with the prospecting program he led in Eastern Mexico for Almaden. This exploration directly led to the Company’s involvement in the Caballo Blanco and Ixtaca projects.
Morgan oversees and directs the company's prospecting and property exploration programs, while his father manages the corporate and technical direction of Almaden.
The Poliquins have shown over a long period of time that they know how to judiciously use company funds to make new discoveries that build value. Plus, Duane Poliquin has been instrumental in bringing numerous top-grade mining projects through early prospecting and exploration into workable mines.
The Disconnect & Opportunity
In 2019, a non-governmental organization (NGO) sued the Mexican President, Congress, and Senate to change the mining law.
The lawsuit was not against Almaden, but it cites the Ixtaca claims as part of the suit against the Mexican government. As a result, the permitting was suspended.
Almaden then sued to resume the permitting process, and as a result the permitting process was allowed to continue in September 2020. In December, the company was notified it had not received approval.
Almaden is currently working towards submitting a revised environmental permit application while also planning to advance high priority exploration targets at Ixtaca.
And owning shares now — with gold and silver prices on the rise — is looking like a very solid window of opportunity.
To tell us more about the project and its upside, we have an exclusive interview with President and CEO Morgan Poliquin.
Exclusive Interview with Morgan Poliquin
President and CEO, Almaden Minerals
Gerardo Del Real: This is Gerardo Del Real with Resource Stock Digest. Joining me 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. 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, 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 $75 million level.
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 was 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 have been a pretty challenging environment for gold and silver. So, our focus over those 10 years has been 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.
This is a truly precious metals resource in that sense, just gold and silver. And interestingly, the special thing about this deposit 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.
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: 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. 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. You have initial studies that are called preliminary economic assessments (PEA), then pre-feasibility studies, and then feasibility studies. And we've done all three categories of study.
Our feasibility study at the end of 2018, that level of study is what defines the kind of category of reserve. 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. If we use $1,275 gold and $17 per ounce silver, which was a long time ago obviously, we're talking about a net present value of just over US$300 million, right? So over four times today's market cap. If we go up a little bit, and we go to $1,425 gold and $20 silver, that net present value rockets to US$466 million, or over six times the current market cap!
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 US$800 million, and a market cap of a tenth of that. And so, I think for people who are reading this, that's the value proposition here: 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 — 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.
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 the permit denial got us to really focus on bolstering the team. 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.
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.
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.
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. 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: 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 it, 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 could be other stems. And the indications on surface with our work at the end of last year showed that indeed there were 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 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 to 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 to a feasibility level.
And that has meant that we have left, I think, a lot of the potential for exploration that we plan to work on now. That's really exciting for me because, well, 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 on 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 that I think is really important for people to understand: our community social engagement — our community relations and transparency program — is something I'm really, really proud of. And I’m also proud of our efforts to incorporate the community, their opinions, and their attitudes towards the project. And to try to improve on that feedback is something that we're all proud of in our group. One of the things that's emerged here is that we're lucky geologically, meaning that our host rock is limestone, which is a pretty benign buffering rock that we think that even has the possibility to sell... We call it waste rock in mining, but it's a rock that 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’s used in 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 have 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.