Haywood Securities has initiated coverage of Minera Alamos (TSXV: MAI) with a buy rating and 12-month target price of C$0.40 per share—a 281% return from the junior’s current share price of C$0.11.
“Minera Alamos holds two development projects in its project portfolio that can be quickly ramped up to production, with the potential to produce ~ 100,000 ounces of gold over the next few years,” mining analyst Kerry Smith states in a research note. “The company’s strategy of finding, building and expanding low capex, near term projects in Mexico is something that the management team has successfully done before. With permits expected shortly, construction could begin in Q3/19 at Santana, and we suggest clients position themselves while the company is undervalued.”
“Minera Alamos holds two development projects in its project portfolio that can be quickly ramped up to production”
In addition to Santana, an open-pit heap leach development project in Sonora state, Minera Alamos is advancing La Fortuna, an open-pit project in Durango state, and has an option to acquire Guadalupe de Los Reyes in Sinaloa state.
The management team is headed up by CEO Darren Koningen, who was a founding member and vice president of mine development of Castle Gold Corp., and was involved in the development and commissioning of the El Castillo heap leach gold mine in Mexico. Castle Gold was acquired by Argonaut Gold (TSX: AR) in 2009 for C$130 million.
Minera Alamos’ vice president of project development, Federico Alvarez, and its vice president of exploration, Miguel Cardona, were also part of the Castle Gold success story. Alvarez served as vice president of operations at Castle Gold and Argonaut Gold and supervised production at El Castillo, while Cardona managed exploration for Castle Gold, overseeing resource expansion at El Castillo from 400,000 ounces of gold to 1.2 million ounces prior to its acquisition in 2009.
Smith estimates the company could bring Santana into production at initial capital costs of about $10 million. If it receives its final permits before the end of June, he reckons the project could be brought into production within nine months.
“We envision a potential 30,000 to 40,000 ounce per year heap leach operation in Phase 1 with all-in sustaining costs expected to average ~ $785 per oz. over a 10-year mine life,” Smith forecasts. “Expansion opportunities, as additional resources are added, can be relatively quick and cheap given the modest capex for incremental leach pad space and use of a mining contractor.”
Smith notes that while a resource estimate has not yet been completed, test mining has started and estimates a 300,000 to 500,000 ounce deposit grading about 0.8 gram gold per tonne.
Meanwhile at La Fortuna, Minera Alamos completed a preliminary economic assessment last year, which outlined annual production of 43,000 ounces of gold over a five-year mine life. The open-pit operation is projected to run at 1,100 tonnes per day with average AISCs of $577 per oz. and initial capex of $27 million.
“With final EIA approval expected in Q2/19 and a six-month construction window,” Smith writes, “production could start up in 2020, although this project would be built after Santana.”
The junior acquired La Fortuna from Argonaut Gold in May 2016 for $2 million in cash and a 2.5% net smelter return royalty.
La Fortuna’s measured and indicated resources currently weigh in at 3.47 million tonnes grading 2.78 grams gold per tonne, 16.5 grams silver per tonne and 0.22% copper for 309,800 ounces of contained gold, 1.84 million ounces of silver and 7,600 tonnes of copper. In the inferred category, La Fortuna contains an estimated 156,300 tonnes grading 1.72 grams gold, 8.5 grams silver and 0.09% copper for 8,600 ounces of gold, 42,700 ounces of silver and 100 tonnes of copper.
Finally, Guadalupe de Los Reyes, where Minera Alamos is earning a 100% stake, has a indicated resource of 6.84 million tonnes grading 1.73 grams gold per tonne and 28.71 grams silver per tonne for 380,100 ounces of gold and 6.32 million ounces of silver. Inferred resources add 3.2 million tonnes grading 1.49 grams gold and 34.87 grams silver for 155,200 ounces of gold and 3.64 million ounces of silver.
Osisko Gold Royalties (TSX: OR) owns 13% of Minera Alamos’ common shares outstanding.
Over the last year the junior has traded in a range of C$0.085 and C$0.145 per share, and has roughly 320 million common shares outstanding for a market cap of C$33.6 million.
(This article first appeared in The Northern Miner)
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