Publisher's Note: Today, we're bringing you a conversation between our junior mining expert Gerardo Del Real and the president and CEO of Almaden Minerals (TSX: AMM)(NYSE: AAU), Mr. Morgan Poliquin.
Gerardo sees Almaden as one of the best speculative plays in the entire resource space right now. Read on to learn why.
To your wealth,
Nick Hodge
Publisher, Outsider Club
Gerardo Del Real: This is Gerardo Del Real with the Outsider Club. Joining me today is the President and CEO of Almaden Minerals (TSX: AMM)(NYSE: AAU) - what I believe is one of the best bargains in the resource space, even in this tough bear market - Mr. Morgan Poliquin. Morgan, how are you this morning?
Morgan Poliquin: I'm excellent, thank you very much. And yourself?
Gerardo Del Real: I'm doing well also, Morgan. Thank you for asking. I mention off the top here that I believe Almaden presents one of the best speculations in the entire resource space. Just a little context. You have a U.S. market cap of approximately $60 to $62 million. You have a mill that if you were trying to procure it, in mint condition at today's prices, would exceed the entire market cap. And, oh by the way, you also have 4.5 million gold equivalent ounces in a part of Mexico which, frankly, has some of the better community relations and excellent infrastructure.
You had some important news over the summer that I don't believe the market quite grasped. You achieved 39% gold and 47% silver mill feed grade increases from bulk ore sorting tests at Ixtaca. Can you explain to the market what that means and why it's important, not just for the upcoming feasibility study, but for what it tells you about the geology of what's going on down at the Ixtaca project, Morgan?
Morgan Poliquin: Well, thank you very much for the opportunity and for noticing. That's right, the ore sorting technology basically has come a long way. I think it'll be a major technology of the future. You're right in that it in and of itself, it bodes very well for our ability to reduce costs and increase the grade of the material that's ultimately going to go to the mill.
But it also speaks to the underlying geology. That's why we think it's shown these results. That is this, our geology, the gold and the silver are hosted in fractures we call veins. And these veins, we have a fancy term much like other professions. Geologists have their fancy terms, and these veins anastomose, which means that they branch and reconnect. So the veins individually can be finger thickness and up to 20 meters thick, 60 feet across or so locally. They split up and then reconnect. The vein zone itself can be around 100 meters wide, the main vein zone.
So within there, there's a bunch of places where the veins branch and reconnect and enclose a piece of barren rock. And that barren rock in our case is limestone in the main part of the deposit. So that barren rock is also benign. So what we're doing without ore sorting is we're sending the veins that are quite high grade relative to the average resource grade, which includes the barren limestone, because we can't model out of our geologic model the irregular bits of barren limestone that are within the vein swarm we call it.
We send the higher-grade veins and the barren limestone to the mill. The mill, with gravity and very simple flotation, is able to separate out the limestone. Then we're actually leaching - that is the chemical way of getting the gold out of the rock after 50% of the gold and 20% of the silver comes out in gravity - something that runs life of mine about 4 grams gold and 400 grams silver.
So that was the old way, which still works very, very well. That was what was in the pre-feasibility study. So what we're doing with ore sorting is we're saying, well this is the perfect geologic setting for seeing if we can get those limestone chunks which are totally barren and benign as I say. Limestone is an alkaline rock, it doesn't create acid, it's not a problem rock.
What if we can get those chunks of limestone out before we actually give it to the mill gravity and flotation? That precludes us from having to grind up a lot more rock. So indeed it did work because how this ore sorting works, it depends on your minerals. But in our case, the only sulfides we have - basically the gold and other metals in this type of environment are associated with sulfur and we call those sulfides - the only sulfides we have are associated with the gold and the silver.
The sulfides show up as very kind of dark areas in an X-ray scan. So you put all the rocks that you mine on a big conveyor. You put them under an X-ray scanner and little air puffs with an air compressor get rid of the ones that don't have the dark dots in them, which are the sulfides. That's the barren limestone.
So we get it out before we have to grind. So what you're putting into the grinding mill for all the secondary efforts of getting the gold out chemically as I was describing earlier. You put way less rock in, having removed all the rock that has no gold and silver in it. So in effect, the rock that is going to the plant is higher grade by virtue of the fact you've taken out these barren bits. You ultimately are able to, with the same amount of mining, you have the potential to produce more gold because you're milling much less material.
It's a great opportunity for us to realize. But I think at the same time it's a great opportunity for us to reflect on the underlying geology, which is actually comprised of much higher-grade distribution in the veins of the gold and the silver then. It's reflected in the resource. Happily we're able to mine this in an open pit in a bulk fashion. And while we're not able to separate out the limestone when we're modeling it up, we know we will be able to with this ore sorting technology.
But also we expect to be able to do so visually as we're mining in the pit. I think the same thing that you're seeing with the ore sorting, much of that is likely to be achieved with what's called a grade control program, whereby geologists say, "Hey this is vein, this is gray, benign limestone." This should go to the mill, this shouldn't go to the mill kind of a thing. We call that grade control. It's very good news for us but it's news that I wouldn't say that we knew we'd get these results with the ore sorter, but they're not a surprise given the geologic context.
Gerardo Del Real: Well to me it's the equivalent frankly of a new gold-silver discovery, right, to supplement what was already there. I know you're working on a feasibility study, Morgan, and before I ask you how that's coming along and before I let you go, I want to provide a bit of context. Because we already have some numbers attached from the pre-feasibility study to the Ixtaca deposit. This bulk ore sorting, the tests at Ixtaca are expected to increase the average annual metal production above what already has been defined as approximately 148,000 gold equivalent ounces.
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It's also expected to improve the project economics such as IRR and the payback as outlined in the news release, which again are already robust and excellent on an after-tax basis. It's 41% and 2.2 years respectively. So with all that being said, how is the feasibility study coming along?
Morgan Poliquin: It's coming along very well. Obviously we're incorporating these new results. They're significant and they need to be put in. We are going to be removing this limestone early and happily, it's very benign. There's considerations, there's less tailings and more waste and there's different things to incorporate, as should be obvious for those reading this.
But it's pretty straightforward stuff that we're able to put into the feasibility study. We're expecting that to come out this year and at the same time obviously the information and these improvements feed into our environmental submission. So that also is incorporating these new results and we're anticipating to submit that this year as well.
Gerardo Del Real: Fantastic. Morgan, I want to thank you for the very thorough explanation. I hope that readers are able to process exactly what this means. I know it's a tough resource market but again I have to believe with the exploration upside, which we didn't even touch on today, but what we know about the geology and the asset as it stands and the upcoming feasibility study, Almaden is an absolute bargain at these levels if you're able to ride out the volatility that comes with speculating in this high-risk, high-reward market.
Morgan, is there anything else that you'd like to add?
Morgan Poliquin: Well, you know metal prices have been challenging the last little while in the overall market as being really tough for everyone, particularly the producers I would argue. But new resources have to be found, developed, and created. While you'd always like to be doing them in a better environment, we really believe that this is one of the resources of the future and it's got lots of attributes like the distribution of the grade and the amenability to processing techniques like this.
We're very excited to report our feasibility in the next little while and get our permit submitted, so we can move through in the next steps, which are obviously developing this towards making a production decision we hope in the near future.
Gerardo Del Real: Fantastic. Morgan, I'm looking forward to having you back on as we get closer to that feasibility study being published.
Morgan Poliquin: Excellent. Thank you so much for having me on today.
Gerardo Del Real: Thank you.
For the past decade, Gerardo Del Real has worked behind the scenes providing research, due diligence, and advice to large institutional players, fund managers, newsletter writers, and some of the most active high-net-worth investors in the resource space. Now, he is bringing his extensive experience to the public through Outsider Club, Junior Mining Monthly, and Junior Mining Trader. For more about Gerardo, check out his editor page.