Mr. John McCluskey reports
ALAMOS GOLD ANNOUNCES PHASE III EXPANSION OF ISLAND GOLD TO 2,000 TPD
Alamos Gold Inc. has released results of the positive phase 3 expansion study conducted on its Island Gold mine, located in Ontario, Canada. Based on the results of the study, the company is proceeding with an expansion of the operation to 2,000 tonnes per day. This follows a detailed evaluation of several scenarios, which demonstrated the shaft expansion as the best option, having the strongest economics, being the most efficient and productive scenario, and the best positioned to capitalize on further growth in mineral reserves and resources. All amounts are in U.S. dollars, unless otherwise stated.
Phase 3 expansion study highlights -- shaft expansion:
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Average annual gold production of 236,000 ounces per year starting in 2025 upon completion of the shaft; this represents a 72-per-cent increase from the midpoint of previously issued 2020 production guidance;
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Industry-low average total cash costs of $403 per ounce of gold and mine-site all-in sustaining costs of $534 per ounce starting in 2025, a 19-per-cent and 30-per-cent decrease from the midpoint of previously issued 2020 guidance, respectively;
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After-tax net present value (NPV) of $1.02-billion at a 5-per-cent discount rate and an after-tax internal rate of return (IRR) of 17 per cent, using a base-case gold price assumption of $1,450 per ounce and a U.S.-dollar/Canadian-dollar foreign exchange rate of 75 cents to $1;
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After-tax NPV of $1.45-billion and an after-tax IRR of 22 per cent, at a 5-per-cent discount rate using a gold price assumption of $1,750 per ounce and a U.S.-dollar/Canadian-dollar foreign exchange rate of 75 cents to $1;
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Mine life of 16 years, double the current eight-year mineral reserve life; this is based on a minable mineral resource of 9.6 million tonnes grading 10.45 grams per tonne of gold containing 3.2 million ounces of gold;
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Lowest combined capital and operating costs of all scenarios evaluated; total life-of-mine capital of $1,066-million, including sustaining capital; higher life-of-mine growth capital of $514-million with the shaft expansion is more than offset by the lowest sustaining capital and operating costs of all scenarios evaluated.
"Island Gold has been a tremendous acquisition for Alamos Gold. We acquired Island Gold in 2017 at a cost of approximately $600-million when it had 1.8 million ounces of mineral reserves and resources. This high-grade deposit has more than doubled to 3.7 million ounces, and we expect further growth yet. The phase 3 expansion study showcases the growing value of Island Gold. Already one of the most profitable mines in Canada, the expansion will increase production, lower costs and make this operation even more profitable. The expansion will also best position the operation to benefit from additional exploration success," said John A. McCluskey, president and chief executive officer.
PHASE 3 EXPANSION STUDY HIGHLIGHTS -- SHAFT EXPANSION
Life of mine Postcompletion of
(starting January, 2020) shaft (2025+)
Production
Mine life (years) 16
Total gold production (000 ounces) 3,104
Average annual gold production (000 ounces) 201 236
Total mill feed (000 tonnes) 9,572
Average gold grade (grams per tonne) 10.45
Recovery (%) 96.5%
Average mill throughput (tpd) 1,700 2,000
Operating costs
Total cost per tonne of mill feed (1) (Cdn$) $182 $178
Total cash cost (per ounce sold) (2) 422 403
Mine-site all-in sustaining cost (per ounce sold) (2) 598 534
Capital costs (millions)
Growth (project) capital expenditure 514
Sustaining capital expenditure 552
Total capital expenditure 1,066
Base-case economic analysis
IRR versus current 1,200 tpd operation (after tax) (3) 17%
NPV at 0% discount rate (millions, after tax) 1,659
NPV at 5% discount rate (millions, after tax) 1,019
Gold price assumption (average, per ounce sold) 1,450
Exchange rate (U.S. dollar/Canadian dollar) 0.75
Economic analysis at $1,750 per ounce gold price
IRR versus current 1,200 tpd operation (after tax) (3) 22%
NPV at 0% discount rate (millions, after tax) 2,280
NPV at 5% discount rate (millions, after tax) 1,450
Gold price assumption (average, per ounce sold) 1,750
Exchange rate (U.S. dollar/Canadian dollar) 0.75
(1) Total unit cost per tonne of ore includes royalties and silver as a
byproduct credit.
(2) Total cash costs and mine-site all-in sustaining costs include
royalties and silver as a byproduct credit.
(3) The IRR is calculated on the differential after-tax cash flow between
the shaft expansion scenario and continuing to mine at 1,200 tonnes per
day with ramp access and with a paste fill plant.
Minable resource
A minable resource totalling 9.6 million tonnes, grading 10.45 grams per tonne gold, containing 3.2 million ounces of gold, has been included in the phase 3 expansion study. This incorporates mineral reserves and approximately 80 per cent of measured and indicated and inferred mineral resources as of Dec. 31, 2019. Mineral resources included in the study had stoping outlines applied and then were assigned Island Gold's standard zonal dilution and recovery rates. Stopes were evaluated against applicable cut-off grades, and a mine design and sequence were generated. The inclusion of 80 per cent of the mineral resource is consistent with the historical conversion rate of inferred mineral resource to mineral reserve, which has averaged 83 per cent since 2016. This also reflects the high degree of confidence in the quality of the mineral resource, which is part of the same structure as mineral reserves with a consistent style of mineralization.
MINABLE RESOURCE AS OF DEC. 31, 2019
Tonnes Grade Ounces
(000) (g/t Au) (000)
Mineral reserves
Proven 786 13.48 341
Probable 2,857 9.52 874
Total reserves 3,643 10.37 1,215
Mineral resources
Measured 25 4.52 4
Indicated 853 6.57 180
Total measured and indicated 879 6.51 184
Inferred 5,392 13.26 2,298
Undiluted resource used in phase 3 study
Tonnes Grade Ounces
Mineral reserves
Proven
Probable
Total reserves
Mineral resources
Measured 21 4.52 3
Indicated 724 6.57 153
Total measured and indicated 746 6.51 156
Inferred 4,576 13.26 1,950
9,572
Diluted and recovered resource used in phase 3 study
Tonnes Grade Ounces
(000) (g/t Au) (000)
Mineral reserves
Proven 786 13.48 341
Probable 2,857 9.52 874
Total reserves 3,643 10.37 1,215
Mineral resources
Measured 24 3.85 3
Indicated 807 5.60 145
Total measured and indicated 831 5.55 148
Inferred 5,099 11.30 1,853
Phase 3 mill feed 9,572 10.45 3,216
Economic analysis
The shaft expansion to 2,000 tpd has an estimated base-case after-tax NPV of $1.02-billion and an after-tax IRR of 17 per cent using a 5-per-cent discount rate and assuming a gold price of $1,450 per ounce and U.S.-dollar/Canadian-dollar foreign exchange rate of 75 cents to $1.
Assuming a $1,750-per-ounce gold price, the after-tax NPV increases to $1.45-billion, and after-tax IRR increases to 22 per cent. The mine plan, operating assumptions and capital estimates incorporated in the study are effective Jan. 1, 2020. The project economics are sensitive to metal price assumptions and input costs as detailed in the attached sensitivity tables.
SHAFT EXPANSION AFTER-TAX NPV (5 PER CENT) SENSITIVITY
($ millions)
-10% -5% Base case 5% 10%
Gold price $808 $914 $1,019 $1,124 $1,228
Canadian dollar $1,127 $1,073 $1,019 $964 $910
Capital costs $1,083 $1,051 $1,019 $988 $954
Operating costs $1,077 $1,048 $1,019 $991 $961
SHAFT EXPANSION AFTER-TAX NPV (5 PER CENT) AND
IRR SENSITIVITY TO GOLD PRICE
Gold price After-tax NPV 5% ($M) After-tax IRR (%)
$1,250 $727 14%
$1,350 $874 16%
$1,450 $1,019 17%
$1,550 $1,164 19%
$1,650 $1,308 20%
$1,750 $1,450 22%
$1,850 $1,593 24%
Phase 3 expansion scenarios evaluated
Five scenarios were evaluated as part of the phase 3 expansion study as follows:
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Ramp 1,200 tpd (current base-case operation with no paste plant);
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Ramp 1,200 tpd (R1200);
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Ramp expansion to 1,600 tpd (R1600);
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Shaft expansion to 1,600 tpd (S1600);
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Shaft expansion to 2,000 tpd (S2000).
With the exception of the first scenario (maintaining the current operation), all of the other scenarios included the addition of a paste plant. Detailed mine plans were created for all scenarios with multiple optimizations for each. Design engineering and costing for each scenario were completed to prefeasibility level. Costing was based on first principles and with a high degree of confidence given existing operating experience.
Phase 3 shaft expansion overview
The phase 3 expansion of Island Gold to 2,000 tpd from a current rate of approximately 1,200 tpd will involve various infrastructure investments. These include the installation of a shaft, paste plant, and an expansion of the mill and tailings facility. Following the completion of the shaft construction in 2025, the operation will transition from trucking ore and waste to skipping ore and waste to surface through the new shaft infrastructure, driving production higher and costs significantly lower.
Mining
Long-hole open stoping will continue to be utilized as the primary mining method; however, increased development and key infrastructure changes, including the addition of a paste plant and shaft, will allow for mining rates to increase to 2,000 tpd.
Shaft
A 5.0-metre-diameter concrete lined shaft will be constructed with a steel headframe. The shaft will house two 12-tonne skips in dedicated compartments for ore and waste movement, and a double-deck service cage for the transport of personnel and materials. The shaft will be sunk to an initial depth of 1,373 metres. The hoisting plant is designed for an ultimate depth of 2,000 metres, providing flexibility to accommodate future exploration success. At the initial depth of 1,373 metres, the shaft has a capacity of 4,500 tpd, more than sufficient to accommodate the peak mining rates of 3,300 tpd (ore and waste).
A conventional blind sink methodology will be utilized, providing improved schedule reliability with minimal impact on existing operations. A combined raisebore from the 840-metre level and blind sink option below the 840-metre level were evaluated; however, this option would significantly impact existing operations. The cuttings from the raisebore in the upper mine and waste generated from the conventional sink in the lower mine would displace underground throughput capacity and significantly reduce mining rates below 1,200 tpd by as much as 400 tpd over the next several years.
The underground ore and waste handling and loading pocket will be a conventional configuration similar to that of Young-Davidson. Once skipped to surface, ore will be trucked to the expanded mill circuit.
Ventilation requirements under the shaft expansion are lower than under the ramp scenarios given the significantly smaller mobile fleet, allowing the shaft to serve as the only new required fresh air source. The total construction capital for the shaft installation, including all supporting infrastructure, is $232-million (4).
Paste plant
With the exception of the current base-case operation, the addition of a paste plant was included in all scenarios for a number of reasons, principally the high project returns with an after-tax IRR of 32 per cent. The addition of paste fill underground will allow for faster stope cycling, thereby supporting higher mining rates and providing increased geotechnical stability. It will also increase mining recovery, resulting in an additional 100,000 ounces of gold recovered over the life of mine and an in situ value of $145-million at a gold price of $1,450 per ounce. Further, 56 per cent of tailings will be placed underground, reducing tailings dam raise requirements, a capital savings of $13-million.
The paste plant will have a capacity of 2,000 tpd and a capital cost of $34-million (4) with the plant expected to be completed in the fourth quarter of 2023.
Mobile fleet
Mining rates are expected to ramp up to 2,000 tpd following the completion of the shaft in 2025. This will be supported by a significantly smaller mobile fleet than required under the ramp scenarios. Postcompletion of the shaft, a total of five haul trucks will be required to support a mining rate of 2,000 tpd. This compares with a peak of 18 haul trucks required to sustain ramp haulage at 1,200 tpd and 25 haul trucks for ramp haulage at 1,600 tpd. This contributes to the lower ventilation requirements with the shaft expansion, and significantly lower diesel usage and greenhouse gas emissions.
Processing and infrastructure
The expanded mill will be a conventional milling operation with a nominal capacity of 2,000 tpd, up from approximately 1,200 tpd currently. The expansion will include upgrading the crushing circuit, adding a second parallel ball mill, and a new elution and carbon-in-pulp (CIP) circuit with carbon screens. The total cost of the mill expansion is $40-million (4).
The flowsheet of the new circuit includes upgrades and expansions for the following major process operations:
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New vibratory grizzly feeder;
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New primary crusher;
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New fine ore stockpile and conveyors;
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Additional primary ball mill;
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Primary ball mill screen for both ball mill circuits;
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Existing thickener converted to high-rate thickener;
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Two additional leach tanks;
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New elution plant and kiln (ADR);
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Tailing pumps.
Mill recoveries are expected to average 96.5 per cent over the life of mine, consistent with the historical performance of the existing operation.
To accommodate the increased electricity requirements with the larger mill and shaft, the power line to site will be upgraded at a cost of $14-million. The same power line upgrade is required under all scenarios, including maintaining the existing operating rates of 1,200 tpd. This reflects increased ventilation requirements with the ramp scenarios as mining progresses deeper.
An expansion of the existing tailings impoundment area is under way and required under all scenarios to accommodate the growth in the deposit over the last several years. With two planned future raises beyond 2020 and the addition of the paste plant, the tailings facility has sufficient capacity to accommodate existing mineral reserves and resources.
Operating costs
Total cash costs are expected to average $403 per ounce, and mine-site all-in sustaining costs $534 per ounce, following the completion of the shaft construction in 2025. These represent a 19-per-cent and a 30-per-cent decrease from the midpoint of previous 2020 guidance, respectively. These are also the lowest costs of any scenario evaluated, reflecting the significant productivity improvements, decreased ventilation requirements, increased automation and higher throughput rates associated with the shaft.
Total life-of-mine operating costs of $1.31-billion with the shaft expansion are significantly lower than all the other scenarios evaluated. This includes continuing ramp access mining at the current rate of 1,200 tpd, which carried total operating costs of $1,648-million. The lower operating costs more than offset the higher capital, such that total combined life-of-mine operating costs and capital with the shaft expansion are the lowest of any scenario.
Total operating costs are expected to average $178 (Canadian) per tonne of mill feed postcompletion of the project. This includes average mining costs of $96 (Canadian) per tonne. Both are the lowest of any scenario evaluated. This becomes even more significant as mining moves deeper with unit mining costs remaining relatively stable under the shaft expansion, while steadily increasing with the ramp scenarios.
The breakdown of unit costs is summarized in the attached unit costs table.
UNIT COSTS
Life-of-mine Postproject (2025) Total LOM
Operating cost Cdn$/t processed Cdn$/t processed Cdn$M
Mining $98 $96 $936
Processing $31 $31 $300
General and administration $39 $37 $377
Royalties $15 $15 $146
Silver credit -$1 -$1 -$12
Total operating costs $182 $178 $1,747
Royalty
Production from Island Gold is subject to third party net smelter return (NSR) royalties, which vary by claim location. The NSR royalties average 2.4 per cent over the life of mine.
Capital costs
Each scenario evaluated included several common infrastructure investments required to incorporate the minable resource, which is 165 per cent larger than the current mineral reserve, resulting in a longer mine life. The shaft expansion has extended the mine life to 16 years from the current eight-year mineral reserve life, while the ramp scenarios at lower throughput rates extended the mine life to as many as 22 years.
These common infrastructure changes include the following:
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Addition of a paste plant;
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Power line upgrade;
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Surface infrastructure upgrades, including the employee camp, kitchen, administration building and warehouse;
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Tailings expansion.
The combined capital cost for these projects is $104-million (4).
Growth capital for the shaft expansion is expected to total $514-million. This is expected to be spent over the next five years until the completion of the shaft and expansion of the mill in 2025. The bulk of this spending will occur between 2022 and 2024. This includes the noted $104-million (4) of capital for infrastructure projects that would be spent under every scenario, including maintaining the current 1,200-tonne-per-day operation. Other significant capital items include $40-million (4) for the mill expansion and $232-million (4) for shaft installation. Sustaining capital is expected to total $552-million, averaging $37-million per year.
Combined growth and sustaining capital is expected to total $1,066-million over the life of mine. This is $118-million higher than the ramp 1,200-tonne-per-day scenario (R1200), reflecting higher growth capital for the shaft and mill expansion, partially offset by lower sustaining capital with less development and mobile equipment requirements.
This higher combined capital was more than offset by $338-million of savings through lower operating costs with the shaft expansion. Total combined capital and operating costs with the shaft expansion are $220-million lower than the R1200 scenario.
A breakdown of the capital requirements for the ramp 1,200-tonne-per-day option (R1200) and shaft expansion (S2000) is detailed in the attached capital requirements tables.
SUSTAINING CAPITAL
(in Cdn$ millions)
R1200 S2000
TSF earthworks $13 $13
Misc U/G infrastructure 17 14
U/G mine dewatering 23 23
U/G power 58 58
General UG facilities 35 24
Mobile equipment 234 144
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Subtotal 379 276
Indirects 29 29
Contingency 20 27
Capital development 541 373
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Total sustaining capital 998 730
Reclamation 6 6
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Total (including reclamation, Cdn$) 1,004 736
Total (including reclamation, U.S.$ millions) 753 552
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GROWTH CAPITAL
(in Cdn$ millions)
R1200 S2000
Site-wide surface works $43 $41
Power supply upgrade 18 18
Mill expansion - 36
Paste plant 38 38
Shaft surface works - 9
Headframe and hoisting plant - 59
Shaft sinking and equipping - 78
U/G ore and waste handling - 13
U/G misc. 16 18
Other 6 6
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Subtotal direct costs 121 315
Indirect costs 21 104
EPCM 4 22
Owner's costs 1 7
Contingency 8 70
Capital development 105 166
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Total growth capital (Cdn$) 260 685
Total growth capital (U.S.$ millions) 195 514
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(4) Total capital for individual projects referenced in the text include contingency and indirects.
TOTAL CAPITAL AND OPERATING COSTS
(in Cdn$ millions)
R1200 S2000
Sustaining capital $1,004 $736
Growth capital 260 685
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Total capital (Cdn$) $1,264 1,421
Total capital (U.S.$ millions) 948 1,066
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Total operating costs (Cdn$) 2,197 1,747
Total operating costs (U.S.$ millions) 1,648 1,310
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Total capital and operating costs
(U.S.$ millions) 2,596 2,376
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Taxes
Given existing tax pools, Island Gold is not expected to pay cash taxes for approximately five years based on a $1,450-per-ounce gold price, after which the effective tax rate is expected to average approximately 32 per cent, including federal tax and Ontario mining tax.
Permitting
The shaft expansion, as currently configured, is not expected to require a lengthy environmental assessment process, and the majority of the permitting requirements falls within the provincial government jurisdiction. These include amendments to existing authorizations and new authorizations for construction activities. All of the shaft expansion permitting requirements are expected to be completed within an 18- to 24-month time frame. This is a known jurisdiction within which Alamos has operated for years, achieving various permitting milestones at both of its Young-Davidson and Island Gold mines.
Consultant contributions
The phase 3 expansion study was consolidated by Alamos Gold's technical team in collaboration with the following third party consulting firms in their respective areas of expertise:
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Hatch: overall infrastructure design/engineering;
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Cementation: sinking engineering and design;
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Airfinders: ventilation engineering;
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Golder: paste fill plant and UDS design; water management and tails dam; and environmental baseline monitoring and permitting support;
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Halyard: mill expansion;
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SRK: mine simulation consultant;
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DMC Estimating: third party master estimate review.
Island Gold phase 3 expansion study webcast
The company will be hosting a webcast on July 15, 2020, at 8:30 a.m. ET, to discuss the results of the phase 3 expansion study.
Participants may join the webcast at
the Alamos website or by dialling 416-340-2216 or 800-377-0758 for calls within Canada and the United States.
Technical disclosure
Chris Bostwick, FAusIMM, Alamos Gold's vice-president, technical services, has reviewed and approved the scientific and technical information contained in this news release. Mr. Bostwick is a qualified person within the meaning of Canadian Securities Administrators' National Instrument 43-101.
The company will file a technical report prepared in accordance with NI 43-101 on SEDAR within 45 days of the date of this release.
About Alamos Gold Inc.
Alamos is a Canadian-based intermediate gold producer with diversified production from three operating mines in North America. This includes the Young-Davidson and Island Gold mines in Northern Ontario, Canada, and the Mulatos mine in Sonora state, Mexico. Additionally, the company has a significant portfolio of development-stage projects in Canada, Mexico, Turkey and the United States. Alamos employs more than 1,700 people and is committed to the highest standards of sustainable development.
We seek Safe Harbor.
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