Alamos Gold Announces Phase III Expansion of Island Gold to 2,000 tpd

TORONTO, July 14, 2020 (GLOBE NEWSWIRE) -- Alamos Gold Inc. (TSX:AGI; NYSE:AGI) (“Alamos” or the “Company”) today reported results of the positive Phase III 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 (“tpd”) (“Shaft Expansion”). 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 United States dollars, unless otherwise stated. 

 

Phase III Expansion Study Highlights – Shaft Expansion

 

“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 III 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.   

 

Mineable Resource

 

A Mineable Resource totaling 9.6 million tonnes, grading 10.45 g/t Au containing 3.2 million ounces of gold has been included in the Phase III Expansion Study. This incorporates Mineral Reserves and approximately 80% of Measured and Indicated and Inferred Mineral Resources as of December 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 was generated.  The inclusion of 80% of the Mineral Resource is consistent with the historical conversion rate of Inferred Mineral Resource to Mineral Reserve which has averaged 83% 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.

 

Economic Analysis

 

The Shaft Expansion to 2,000 tpd has an estimated base case after-tax NPV of $1.02 billion and after-tax IRR of 17% using a 5% discount rate and assuming a gold price of $1,450 per ounce and USD/CAD foreign exchange rate of $0.75:1.

 

Assuming a $1,750 per ounce gold price, the after-tax NPV increases to $1.45 billion and after-tax IRR increases to 22%. The mine plan, operating parameters and capital estimates incorporated in the study are effective January 1, 2020. 

 

Phase III Expansion Scenarios Evaluated

 

Five scenarios were evaluated as part of the Phase III Expansion Study as follows:

 

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 pre-feasibility level. Costing was based on first principles and with a high degree of confidence given existing operating experience.

 

Phase III Shaft Expansion Overview

 

The Phase III 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 head frame. 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 & waste).

 

A conventional blind sink methodology will be utilized providing improved schedule reliability with minimal impact on existing operations. A combined raise-bore from the 840 metre level, and blind sink option below the 840 metre level was evaluated; however, this option would significantly impact existing operations. The cuttings from the raise bore 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 million4.

 

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%. 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, an in-situ value of $145 million at a gold price of $1,450 per ounce. Further, 56% 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 capital cost of $34 million4 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. Post completion of the shaft, a total of five haul trucks will be required to support a mining rate of 2,000 tpd. This compares to 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 green house 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 million4.

 

The flow sheet of the new circuit includes upgrades and expansions for the following major process operations:

 

Mill recoveries are expected to average 96.5% 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 underway 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% and 30% decrease from the mid-point 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 $1,310 million 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 C$178 per tonne of mill feed post completion of the project. This includes average mining costs of C$96 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.

 

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% over the life of mine. 

 

Capital Costs

 

Each scenario evaluated included several common infrastructure investments required to incorporate the Mineable Resource which is 165% 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:

 

The combined capital cost for these projects is $104 million.

 

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 above noted $104 million4 of capital for infrastructure projects that would be spent under every scenario, including maintaining the current 1,200 tpd operation. Other significant capital items include $40 million4 for the mill expansion and $232 million4 for shaft installation. Sustaining capital is expected to total $552 million, averaging $37 million per year.

 

Combined growth and sustaining capital are expected to total $1,066 million over the life of mine.  This is $118 million higher than the ramp 1,200 tpd 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.

 

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% 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 fall 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 timeframe. This is a well known jurisdiction within which Alamos has successfully operated for years, achieving various permitting milestones at both of its Young-Davidson and Island Gold mines.

 

Consultant Contributions

 

The Phase III 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:

 

 

Island Gold Phase III Expansion Study Webcast

 

The Company will be hosting a webcast on Wednesday, July 15, 2020 at 8:30 am ET to discuss the results of the Phase III Expansion Study.

 

Participants may join the webcast at www.alamosgold.com or by dialling (416) 340-2216 or (800) 377-0758 for calls within Canada and the United States.

 

About Alamos

 

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. The Company’s shares are traded on the TSX and NYSE under the symbol “AGI”.

 

FOR FURTHER INFORMATION, PLEASE CONTACT:

 

Scott K. Parsons

Vice President, Investor Relations

(416) 368-9932 x 5439