Exclusive CEO Interview: Mexico's Next Premier Gold Mine

Written by Gerardo Del Real
Posted November 6, 2017

Publisher's Note: Morgan Poliquin is the CEO and President of Almaden Minerals, which is nearing production on a very unique deposit at its Ixtaca Project in Mexico. Below, he shares his story with our own mining expert, Gerardo Del Real. Read on to hear about Ixtaca, and how Almaden persevered through the downturn in the mining sector while positioning itself to turn Ixtaca into one of Mexico's premier low-cost operations. Keep an eye out for Part II tomorrow as well, which will focus on Almaden Minerals' plans going forward, along with how and when the Ixtaca Project will transition into production.

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Nick Hodge
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Gerardo Del Real: This is Gerardo Del Real for the Outsider Club. Joining me today is president and CEO of Almaden Minerals, Mr. Morgan Poliquin. Morgan, how are you today?

morgan poliquin

Morgan Poliquin: Excellent, thank you. I hope you're well. Thanks for having me on.

Gerardo Del Real: Absolutely. No, it's an absolute pleasure. I wanted to have you on because you had a news release today, and I want to get to that. Let me read the headline. The headline reads, "Almaden infill drilling confirms main Ixtaca zone, hits 25 meters of 4.08 grams per ton gold and 91.7 grams per ton silver, and 32.5 meters of 2.02 grams per ton gold and 109.2 grams per ton silver, all within 184 meters of 1.25 grams per ton gold and 54 grams per ton silver." Obviously, it's an infill hole, but a very good one that shows the continuity.

Before I get into the details — before we get into the details — of this specific news release and infill hole, I would love if you could provide an overview of the deposit, which I think is very, very unique.

Morgan Poliquin: Well, thank you very much for that opportunity. I'd be delighted to do that as well. We found the deposit in 2010, and it's a brand-new discovery. That is to say it's not a historic mining camp. It's the first time these claims were staked. We saw an alteration zone without gold or silver occurring at surface and thought it was the right environment and drilled a hole. Luckily, our first hole hit. We hit a very good intercept right into the main zone, so we got very fortunate with the first hole. By 2013, we had a significant resource. The resource covers this system of veins that have both gold and silver in them. The value is about half gold, half silver per ton. And we've completed several different PEAs [preliminary economic assessments] that looked at different sizes and scales of an operation, and that has culminated in April of this year, we produced a pre-feasibility study on the project.

In the last couple of years, in the really grim market that we've had, we purchased a plant, essentially, a brand-new plant. It was built for an operation in Alaska that only lasted for two-and-a-half weeks, I believe the plant was actually used, and it was fully decommissioned, and so we have a plant to go with the operation that's the right scale for the operation that we are just currently disassembling, with the idea of moving it to Mexico once we have our permits in place. We're about to fully permit the project, and we're working on a bankable feasibility study right now.

We're expecting, in the next 18 months, that the results of the pre-feasibility study were extremely robust that looked at, in gold equivalent terms, about a 2-million-ounce reserve of gold equivalent and had a 41% after-tax IRR [internal rate of return] with a capital cost of around $120 million and producing, thereabouts, 140,000 ounces, if I'm not mistaken, on average, there a year. It's a very robust deposit, and we're moving very rapidly towards a production decision, which we expect to be in a position to make sometime, perhaps, even next year. It's moved very rapidly, in the last little while, and really, from initial discovery from ground zero, that's what we've been doing the last seven years.

Gerardo Del Real: Excellent. Now, I want to backtrack even a little further back because you and your father pioneered exploration in this part of Mexico. Can you talk about how that came about, Morgan? I mean, you have almost a three-decade head start on everybody in this region, and it's led to multiple discoveries. You discovered Caballo Blanco. You discovered this deposit, and you're onto another discovery in Veracruz, Mexico, the El Cobre Deposit, with Almadex Minerals. Can you talk a bit about what led you to this region?

Morgan Poliquin: Sure. I think, geologically, Mexico has — obviously, they're connected, geologically speaking, Mexico to the United States, and there's a lot of similarities between the historic production in Mexico and the western United States. What I mean by that is that the big historic mines in the Sierras along the California and Nevada border, the Comstock Lode, and some of the operations that really led the development of California, and those were on the west side of the mountain range. It was later on in the 20th Century when far bigger gold deposits were found, like the Carlin Trend and Bingham Canyon in Utah, many of hundreds of miles to the east.

If you look at Mexico, you see very similar things, Guanajuato, Zacatecas, Fresnillo, these major silver deposits that made Mexico similar and brought about the development of much of Mexico in the 16th century and onwards. Those mines are quite far east from where we're working and making these discoveries. That was the initial geologic concept. In addition to that, we felt we had some very good, strong geologic reasons that there ought to be gold and, in the case of Almadex, copper-gold deposits out in this part of the world. I wound up doing my Ph.D in Geology on this whole region, so yes, we do have a significant head start. This is the third discovery we've made in this belt, and we think that our sister company, Almadex, has the potential to make many more. We've staked a number of properties, and we certainly are a first mover and pioneer of this area.

Gerardo Del Real: Excellent. Now, you mentioned the mill earlier. You were able to use a brutal, brutal bear market to shareholders' advantage. Can we talk a bit about the cost of that mill in mint condition, which it basically was when you purchased it, what it would have been had you paid retail for it, and then what you actually paid in cash and stock, Morgan?

Morgan Poliquin: Yeah. I mean, just to give you a framework for why we looked for those opportunities, is that that's really the silver lining to bad markets is they provide them. Fortunately, my father, our chairman, our founder of the company and leader here, he's lived through a number of these cycles. That's who you look to, those sorts of leaders, in those tough environments, which we've had, and to some extent, still have. The first instinct of this company was to look for the opportunities. In fact, earlier in his career, he had helped build a mine that utilized a used plant very successfully.

It was our first instinct to look for those opportunities, and we found this one, and it's a very unique one. Originally, the mine where this plant is located, which was unsuccessful and, as I say, the plant only operated for two-and-a-half weeks, unfortunately, that was built for $250 million. In an earlier PEA, we contemplated a new mill of the same scale, and we think our numbers were reflective of what a new mill would cost. After the purchase price upstaged payments of $6.5 million to buy this plant, we think it would bring about, based on our pre-feasibility study here, savings in the realm of about $70 million. It's a significant impact on the initial capital and, thereby, the payout and the risk of this operation.

Gerardo Del Real: I find it really interesting that Almaden has a market cap right now, in Canadian dollars, of $133 million. The mill was a savings of approximately $70 million. The cash position, as of the latest financials, I believe, was somewhere in the $20 million range. Is that accurate, Morgan?

Morgan Poliquin: It is, yes.

Gerardo Del Real: If you put those two numbers together, there's $90 million. For another $42 or $43 million, you end up with a poly-metallic deposit with great infrastructure that's easy to develop. That's the next part that I want to talk about. This is a project that any mid-tier or major should be lusting after because of the simplicity. Can you speak a bit to the mineralogy, and the recoveries, and the process by which you're looking to get this permitted and actually turned into a mine?

Morgan Poliquin: Yeah, happy to. The vein system that I described is not a single vein that's narrow. It's actually comprised of many veins, what we call a vein swarm. We use a word that's a Greek word in geology to describe how these veins — they're like the vascular system of the body. That's why they're called veins in the first place. The Greek word is anastomose, and it's used in medical parlance as well. What it actually means is the — look in the Oxford English Dictionary as we Canadians do — is that they branch and reconnect. These veins, if you can imagine them, they're branching and reconnecting with each other. What that does is it leaves a little bit of the rock that they're moving through between the veins. We have a broad zone of veining. We call it a vein swarm to characterize that there's many of these veins in there. They are moving around, almost flowing around little bits of the rock that they're passing through, the host rock, which in our case, is barren and totally benign limestone.

Because our vein swarm, as we call it, is near surface, we're able to open-pit mine it very cheaply and effectively. Because it's quite wide, this vein swarm, it is very amenable to low-cost mining. Now, the gold and the silver in the veins is in the form of electrum, which is an alloy of gold and silver, and that's readily recoverable from the rock using very simple density separation. We call it gravity, so it just — gold is heavy, has a high specific gravity — so it's easily separated from the rock. The finer gold and silver, we use a very old technique that's probably the most common technique in all of the mining industry to separate it from the rock called flotation. Essentially, you grind up the rock into a fine powder and then the sulfides and the remaining electrum float up to the top, and you create a concentrate. Our concentrate of what we call the gravity tails after you do gravity is running about 4 grams gold and about 400 grams silver. It speaks to the high-grade nature of the deposit.

What we're doing is we're separating all of the gold and silver minerals from the rock, very cheaply, very efficiently. All the little bits of limestone that I described that are between the veins are being separated out this way, and what remains is the high-grade veins as they occurred in the first place, except concentrated. Then, because the minerals in this deposit are in the form of very simple — like the alloy of gold and silver — very simple nature, not complicated, they're not combined in very complicated chemistry with the base metals. We have a very low base metal deposit. We're able to recover them on-site. We don't need a smelter. The geologic occurrence of the deposit, the distribution of the veins, on the one hand, and on the other, the occurrence of the gold and silver, make it amenable for very simple open-pit mining, very simple processing, and very high recoveries and producing a salable product we call doré on-site.

Those are very important contributions to the economics, those aspects of the deposit. You combine that with the infrastructure — we're located about 20 kilometers away from an industrial park where Kimberly-Clark has got a huge facility, and we're about an hour-and-a-half drive, mostly by highway, away from the largest Volkswagen facility outside of Germany, I believe, and a new Audi facility. We're in an industrial part of Mexico with fabulous infrastructure, but at the same time, we're in an excellent place to develop a deposit in terms of the geography in the immediate area. It's a unique combination of factors.

Stay tuned for Part II tomorrow, in which Gerardo and Morgan discuss Almaden Minerals' plans going forward, along with how and when the Ixtaca Project will transition into production.


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