VANCOUVER — Leagold Mining (TSXV: LMC; US-OTC: HTXFD) envisions itself as the next Latin American intermediate gold producer, and that journey began with a bang in early 2017 via a US$350-million deal for Goldcorp‘s (TSX: G; NYSE: GG) Los Filos mine, roughly 230 km due south of Mexico City.
The acquisition may appear ambitious for a gold junior, but the company has the development and mining experience to make the vision a reality. Leagold’s entire management team was involved in Endeavour Mining (TSX: EDV; US-OTC: EDVMF; ASX: EVR), which grew into a leading West African gold miner.
The company emerged in mid-2016 with US$25 million in cash. CEO Neil Woodyer holds a 20.4% equity stake, while financier Frank Giustra maintains an 11.5% share interest.
“We’d been through this experience before, and we started by looking for new jurisdictions where we could apply our business model. Latin America emerged as an obvious choice,” Woodyer said by phone from London, England.
“First, the size of the mining industry and opportunities there are much bigger. Second, there are a number of seniors that may be divesting properties and a number of juniors that may be struggling. We’re hoping it’s a better situation in terms of capital markets and gold prices than we lived through five or six years ago,” he added.
Leagold will acquire Los Filos for US$279 million in cash and US$71 million shares, which will result in Goldcorp holding a 22% pro-rata equity interest.
The company has arranged a US$150-million senior secured loan facility from a fund managed by Orion Resources Partners, and recently closed a $175-million equity offering wherein it issued 63.6 million subscription receipts priced at $2.75 each.
Los Filos consists of the Los Filos and El Bermejal open-pit mines, an underground mine at Los Filos, and the opportunity to develop an underground mine at El Bermejal. Gold is recovered from crushed and run-of-mine ore through heap leach processing. The operation generated 194,000 oz. through the first nine months of 2016 at all-in sustaining costs (AISC) of US$854 per oz.
“Los Filos is obviously a large asset to acquire for a company of our size,” Woodyer continued. “But it’s small when compared to some of the assets in Goldcorp’s portfolio and things are getting a bit more complicated as operations move toward a second underground mine. So it was on the market. I think they could see the benefit of Los Filos growing, however, and they will have a significant share position in our company to maintain exposure to that upside.”
Los Filos has proven and probable reserves of 40.7 million tonnes grading 1.3 grams gold per tonne for 1.71 million contained oz. The reserves-only mine plan has an 8 year life and will produce 1.3 million oz. gold at an average AISC of $803 per oz. Leagold plans to expedite the development of the Bermejal underground deposit.
Mineralization is hosted by, or spatially associated with, marble and skarn alteration formed during contact metamorphism of the carbonates. Massive magnetite, hematite, goethite and jasperoidal silica, with minor associated pyrite, pyrrhotite, chalcopyrite, and native gold typically occur in the veins and metasomatic replacement bodies that developed at the contacts between the carbonates and intrusive rocks.
Bermejal extends to at least 400 metres below open-pit operations. The deposit hosts measured-and-indicated resources of 4.7 million tonnes averaging 6.65 grams gold and 22.37 grams silver for 1.01 million contained oz. gold and 3.4 million oz. contained silver. There is an additional inferred resource of 4.2 million tonnes averaging 5.05 grams gold for 0.68 million contained oz. that has been the focus of recent infill drilling
On Feb. 8, Leagold released a preliminary economic assessment (PEA) modelling an underground expansion at Bermejal that would require around US$47 million in capital expenditures. The development could add [1.4 million oz.] of gold production over an 8-year mine life at an average AISC of US$439 per oz.
“We’re going to start a program to expand the Bermejal underground right away, but there is also significant additional potential to extend the mine life way beyond its current nine years,” Woodyer elaborated.
“The underground exploration is obviously a priority since we need to make sure our feasibility study is optimal. Goldcorp is completing a drill program right now, but we’ll be adding some step-out and in-fill of our own. There is also regional potential we have to realize, however, so I would expect us to spend more on exploration moving forward,” he added.
Woodyer also explained that a “smaller, perhaps less traditional mining company” can look at the asset from a “different perspective” than a major.
Leagold could contemplate the economic potential of an additional process facility, as well as an agglomeration circuit. The company intends to fund the Bermejal expansion, and auxiliary operational improvements, via its starting capital position and future cash flows.
“The Bermejal underground has had a permit application submitted and received for the portal and decline that would access the deposit,” said senior vice-president technical services Doug Reddy. “We’re just going through the final phases of reviewing the project designs at the moment. We think that development could commence in the second quarter. When it eventually becomes part of the full production schedule there would likely need to be a permit revision, but that shouldn’t be a big deal because it’s all within the footprint of the existing mine and facilities.”
Leagold also hopes to take advantage of additional near-mine and regional exploration upside at Los Filos over the longer term. The company cited potential in the “immediate vicinity of the Bermejal [open pit], and the San Pablo prospect.” Reddy estimated that there is over “30-km of strike of intrusive contact” on the broader property package, and noted prospectivity at the past-producing Guadalupe deposit.
“I think more people are looking for assets right now. Clearly it’s very market driven in terms of the availability of capital, and there was competition for this asset,” Woodyer concluded. “There are a number of other seniors that may be looking to divest similar projects, and that plays into our feeling that this is a great time to be developing a new company. We took a look at Los Filos and basically dropped everything else because it’s such a good mine. We can see the expansion upside, and that makes it a great asset for us to get a head start.”