Allied Nevada Net Income Of $13.4 Million In Q3
RENO, NV - Allied Nevada Gold President, Scott Caldwell said, Hycroft operations showed a dramatic improvement in October. In October, we mined 4.8 million tons of ore containing approximately 30,000 recoverable ounces of gold. The mining rate has increased above design levels. The operation has all of the personnel and equipment in place to continue to achieve or exceed planned mining rates going forward.
Operational production ramp up at Hycroft has been increasing steadily, though the rate of increase in the third quarter did not meet our expectations primarily due to fewer ore tons being placed on the pad, reclassification of oxide/transitional ore in the model and a carbon adjustment. Management believes that these are short-term issues and that they have been resolved. An explanation of these challenges and their resolutions is as follows:
Ore reserve model reclassification. To date, based on blast hole assays we are seeing 3% more gold and approximately 20% more silver than the model predicted. However, in one of the areas mined in the third quarter of 2012, assay results from blast holes indicated a 15% reallocation of heap leach ore to mill ore. We made the decision to mine and stockpile this mill ore for later processing. We moved two exploration drills back into this area of the mine to increase drill density and ensure any further mill ore can be identified and left in place to be mined in the future. This drilling should be completed in November of 2012.
Reduced ore tonnage being mined and placed on the leach pads. Availability of equipment and personnel have been a challenge this year. Delays in delivery of equipment and the unexpected competition for staff resulting from the reactivation of a mine in the area. All of our equipment is now on-site and operational. Personnel challenges have eased significantly. We have aggressive recruiting and training programs in place and have successfully filled the vacant positions. Equipment deliveries have improved dramatically over the last few months. We have accelerated the delivery schedule for future major pieces of mobile equipment including haul trucks, production drills and electric shovels.
Carbon ounce adjustment. In early 2012, we were informed by the offsite carbon processing facility that they were no longer able to process our carbon. We made a decision to continue to operate the carbon columns and stockpile carbon with the intention of aggressively pursuing another offsite sales agreement while intending to construct our own plant. In September 2012, we were able to sell all of our carbon inventory. In the process of stockpiling the carbon, it was routinely sampled and reported as production. Prior to shipping the carbon, we resampled and determined that a slight underestimation in moisture content, magnified by the large amount of inventory, resulted in a reduction to production in the third quarter of 4,697 ounces of gold and 11,272 ounces of silver. The ounces remain in solution and have not been lost.
The carbon strip plant is now fully operational. The processing capacity of the carbon strip circuit is in excess of production and is expected to meet our future carbon processing needs. Operation of this plant is expected to dramatically reduce operating costs associated with processing the carbon, eliminate inventory build-up and return the silver to gold ounce sales ratio to historic levels.
Ongoing expansion projects at Hycroft include 1) increasing the mining rate through larger capacity haul trucks, shovels, and production drills, 2) expanding leach pad operations through increased pad size, additional solution processing capacity, and the addition of a gyratory crusher to enhance the exposure of ore to the leach process, 3) constructing a mill to process transitional and sulfide mineralization, and 4) upgrading infrastructure items to handle the milling demands, including power transmission and distribution and the construction of a railroad spur.
Construction, engineering and design, and equipment deliveries remain on time and as budgeted. We strengthened the project team, which is fully integrated with the Fluor engineering team and will manage the contractors being used throughout the project. Construction of the gyratory crusher continued following the August 2012 completion of the excavation mining. The foundation for both the reclaim tunnels was poured and wall embeds were set on reclaim tunnel #2. Management continues to expect the gyratory crusher will be operational in the second half of 2013. The mill excavation began during the third quarter of 2012, along with construction on the North leach pad, which includes additional process ponds and an additional Merrill-Crowe processing plant. The carbon strip circuit was installed in October and is fully operational. The processing capacity of the carbon strip circuit is in excess of production and is expected to meet our future carbon processing needs. In the remainder of 2012, the Company expects to also begin work on the South leach pad, the Merrill-Crowe expansion, and utility projects.
The capital cost estimate for the expansion project is expected to be $1.24 billion. As of September 30, 2012, Allied Nevada had spent or committed $550.2 million, which is in-line with the feasibility estimate and represents approximately 44% of the total capital estimate. Of the $500.2 million, the Company had purchase obligations totaling $363.3 million, a portion of which is expected to be financed through capital leases. The Company estimates that 2012 capital expenditures at Hycroft will total approximately $221.4 million, of which $89.3 million had been made as of September 30, 2012.
Drilling activities at Hycroft in the third quarter of 2012 totaled 39,770 feet in 72 holes and were directed towards facility condemnation, in-pit resource conversion, and obtaining additional material for ongoing metallurgical testing. The infill drilling program for 2012 has been completed and a resource update is expected in the first quarter of 2013.
Drilling at our advanced exploration properties ramped up during the third quarter of 2012. At the Hasbrouck and Three Hills properties, third quarter 2012 drilling totaled approximately 18,700 feet in 37 holes and was directed towards growing the mineralized material bases and further defining high grade zones. A total of 26,000 feet in 36 holes was drilled at Wildcat during the third quarter of 2012 as the initial first pass program commenced. We plan to update resource block models for each property in the fourth quarter of 2012.
The Company plans to complete the 2012 exploration programs and provide an updated resource for each of Hasbrouck/Three Hills and Wildcat in the first quarter of 2013.
The Company mined a record number of tons in the third quarter of 2012. The excavation for the gyratory crusher was completed in August 2012 and mining will focus on ore tons being delivered to the heap leach pads for the remainder of 2012. During the fourth quarter, we expect a decrease in the stripping ratio and increases in both the ore grade and ore tonnage placed on the pad. Additionally, increased ore placed on the leach pads over the last six months along with the larger area under leach expect to continue to benefit production during the fourth quarter and beyond. The Company expects production for 2012 to be approximately 150,000 ounces of gold and sales for 2012 of approximately 130,000 ounces of gold.
The expected improvements in production are anticipated to result in lower per ounce production costs during the fourth quarter of 2012 and beyond. The effects of the abnormally high expensed stripping during the year will continue to impact costs in the fourth quarter of 2012, resulting in adjusted cash costs of approximately $585 per ounce in the fourth quarter, for full year adjusted cash costs of just below $600 per ounce. We expect to work through the abnormally high stripping costs by the end of the year.
Caldwell said, Hycroft produced 30,179 ounces of gold and 188,166 ounces of silver in the third quarter of 2012, before adjustment. During the third quarter of 2012, we sold all of our carbon in inventory. Prior to shipping we resampled the carbon and determined that a slight underestimation in moisture content, magnified by the large amount of inventory, resulted in a reduction to production in the third quarter of 4,697 ounces of gold and 11,272 ounces of silver. The ounces remain in solution and have not been lost. Production was also adversely impacted by the inability to mine the planned number of ore tons due to equipment availability and competition for personnel, as discussed below. We believe the issues that created this shortfall have been resolved and, in fact, the tonnage delivered to the heap in October was 23% above expectation at 4.8 million tons and the waste to ore ratio declined to 0.26:1. We expect to maintain production at or above budgeted levels for the remainder of the year and beyond.
Hycroft sold 34,851 gold ounces and 177,844 silver ounces in the third quarter of 2012. Sales in the third quarter were adversely affected by the carbon adjustment and production shortfall. Additionally, the delay in delivering the planned ore tons to the heap leach pads will reduce our expected sales in the fourth quarter to approximately 60,000 ounces of gold.
During the third quarter of 2012, a record number of tons were mined at Hycroft, totaling 19.2 million tons, an increase of approximately 24% from the second quarter of 2012. Gold ounces sold in the third quarter were 96% higher than that sold in the second quarter of 2012.
Revenue from sales was $64.8 million, an increase of 31% compared with the same period in 2011 due to increased ounces sold and higher average realized prices. Ounces sold increased as we sold all of the accumulated unprocessed carbon during the third quarter of 2012 which contained 14,403 ounces of gold and 34,321 ounces of silver.
The company's address is 9790 Gateway Drive, Suite 200, Reno, NV 89521, (775) 358-4455, fax: (775) 358 4458, email: [email protected].