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Minera Alamos moving from developer to gold producer as all eyes on Santana

Snapshot

Santana is the group's "near term production opportunity" and very much in the spotlight now that construction is underway

Minera Alamos Inc -

Quick facts: Minera Alamos Inc

Price: 0.55 CAD

TSX-V:MAI
Market: TSX-V
Market Cap: $224.11 m
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  • Construction of Santana gold mine has begun

  • Proven mine-building team

  • Three successful mines put into production in last 12 years

What Minera Alamos does:

Minera Alamos Inc (CVE:MAI) is advancing quality projects in the Sonora and Durango states of Mexico and is currently on the road towards commissioning its first gold mine at the Santana open-pit.

The team, led by chief executive Darren Koningen and President Doug Ramshaw, is trying to repeat the success of Castle Gold, which advanced its El Castillo mine in Durango from generating around 30,000 ounces a year to up to 75,000 ounces, before the firm was sold ten years ago for C$130mln.Koningen was vice president of operations at Castle Gold and worked alongside Chester Miller, a huge figure in mining and the pioneer of heap leaching, to advance El Castillo.

Ramshaw was CEO of Corex Gold (CVE:CGE), which announced a merger with Minera Alamos in January 2018. That union added Corex's Santana gold project in Sonora to Minera's La Fortuna project and the Guadalupe gold property (now called Los Reyes).

Santana is the "near term production opportunity" and very much in the spotlight now that construction of the mine is underway (announced in January). The build is expected to take between six and eight months. Minera plans to develop Santana first, and use cashflow from that mine to advance its other projects.

Elsewhere, the company's La Fortuna project in Durango, also open pit, boasts a preliminary economic assessment (PEA), which showed robust project economics including an after-tax internal rate-of-return (IRR) of 93% and an all-in sustaining cost (AISC) of $440 per ounce.

The net present value of the starter pit, with a discount of 7.5%, was put at US$69.8 million. The report envisages a simple open-pit mine with an initial 40,000-50,000 ounce annual production and a low CAPEX start-up. The firm says a construction decision on La Fortuna could be made in late 2020 or early 2021.

In April last year, the firm optioned its rights to acquire the Guadalupe gold property (now called Los Reyes) to Prime Mining Corp, which was then known as ePower Metals, and in late August said it had acquired a 16% stake in Prime. Los Reyes is envisaged as an open-pit mine with heap leach processing.

In February, 2020, Minera Alamos brought in nearly C$1.2 million via the sale of nearly 3.4 million shares in Prime Mining but said it remained a "significant and supportive" shareholder, with nearly 6.1 million shares still under ownership. The proceeds will go towards the acquisition of a new crushing system and not impact available working capital for the ongoing construction of Santana, it said.

Overall, Minera Alamos's aim is to develop low capex, high margin assets with expansion opportunities while continuing to make strategic acquisitions.

How is it doing:

In December last year, Minera Alamos struck a C$14 million financing deal with Osisko Gold Royalties Ltd, allowing it to begin construction at Santana.

Osisko will buy 30 million shares of Minera for $6 million, plus a 3% net smelter royalty (NSR) for Santana for $5 million cash, and Minera will have the option to draw down from Osisko as much as $3 million more. Completing the financing will take Osisko’s stake in Minera to 18.7%.

In January this year, the firm said it had bought a complete crushing system for the Santana gold mine, which it said would significantly reduce longer-term capital and operating costs at Santana. The sellers of the equipment were Mako Mining Corp, Marlin Gold Mining Ltd and Oro Gold de Mexico S.A. de C.V.

Minera plans to start initial operations using portable contractor crushing equipment but the new system will allow it to transition to a larger capacity crushing operation capable of coping with the firm's future plans for significant increases in production.

In February, the firm reported encouraging drill findings from the Santana project, which showed significant widespread mineralization at the Divisadero area, which was discovered last year.

Two new holes confirmed the local continuity of this mineralization and also confirmed the presence of Nicho-style gold values over "considerable thicknesses in an area that appears to remain open in multiple directions", the firm said. Minera expects up to 3,000 metres (m) of drilling to be completed at Santana in each quarter of 2020.

Inflection points:

  • Construction progress at Santana and first gold
  • Exploration drilling news at Santana
  • Progress with La Fortuna

What the broker says:

In November, broker Roth Capital initiated coverage of Minera Alamos with a 'Buy' rating and C$0.35 price target for the shares.

Analyst Joe Reagor reckoned Santana should reach commercial production by year-end 2020 - a project on which Minera has completed a bulk sample to confirm a historical resource, but no NI 43 101 resource estimate.

"La Fortuna is further along on the technical side with a resource estimate and PEA. However, the project has a higher capital cost to develop and is nearing the end of the permitting process. We believe La Fortuna will enter production in 2022," the analyst said.

What the boss says:

Last month, Minera Alamos president Doug Ramshaw spoke to Proactive about the crushing system deal, saying it was not something the firm necessarily needed immediately, but that it will allow the firm ultimately to expand the Santana operation and cut costs. 

"It was too good of a deal to pass up on right now," he said."We're looking at six to eight months construction time. That takes us kind of to the end of Q3. Right on the cusp of Q3/Q4 we should enter the mining phase with first gold production sometime later in Q4 of this year."

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Watch

Minera Alamos makes change from explorer to producer in Q-3 2020

Minera Alamos (CVE: MAI) President Doug Ramshaw sat down with  Andrew Scott at the large mining conference in Toronto PDAC. Minera Alamos is a gold development company poised to join the ranks of gold producers in 2020.  The Company's 100%-owned Santana open-pit, heap-leach...

on 2/3/20

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