Allied Nevada Ramping Up Production At Hycroft
RENO, NV - Allied Nevada Gold Corp. reported production from the Hycroft mine in the first quarter of 2012 met expectations with 32,473 ounces of gold and 166,156 ounces of silver produced. Production is expected to ramp up through the remainder of 2012, and is on track to meet previously stated guidance of between 180,000 and 200,000 ounces of gold.
The Company provided an updated mineral resource estimate for the Hycroft mine in the first quarter of 2012. Proven and probable mineral reserves increased to 12.7 million ounces of gold and 481.9 million ounces of silver (1.1 billion tons grading 0.011 ounces per ton (opt) gold and 0.42 opt silver).
Allied Nevada provided an updated Hycroft Mill Feasibility Study with improved economics. The revised study indicates a 19-year mine life with the initial ten-year (2015-2024) average annual production of 582,260 ounces of gold and 29.1 million ounces of silver at an average annual adjusted cash cost of $166 per ounce. There has been no change to the initial capital cost estimate of $1.2 billion. The updated study estimates a net present value of $1.6 billion (6% discount) and an internal rate of return of 37% at conservative metals prices ($1,000 per ounce gold price and $18 per ounce silver price(1).
Hycroft mined 11.5 million tons of material including 4.0 million tons of ore grading 0.016 opt gold and 0.524 opt silver in the first quarter. Gold and silver grades exceeded expectation for the quarter by 11% and 74%, respectively. Better than planned grades offset lower than expected tons placed on the leach pad, resulting in production of 32,473 ounces of gold and 166,156 ounces of silver. This production was consistent with expectations for the first quarter of 2012. The variance of gold and silver produced compared with sales is due to the timing difference in ounces in process, on carbon and in solution, and sales of that inventory.
As previously announced, the Company received notification in the fourth quarter of 2011 that the company that processes the gold and silver laden carbon would no longer accept additional shipments for processing. Allied Nevada is working to develop a strategy to process the gold in carbon in order to improve the timing of sales for those ounces in carbon including entering into an agreement with off-site processing facilities to process the carbon and permitting an on-site carbon stripping plant. If an agreement cannot be reached with an off-site processing facility, it is expected to take 12 months before an on-site plant can be complete, due to the timing of the necessary permits. The gold on carbon is currently 13,000 ounces and is expected to grow at a rate of 2,000 ounces per month until processing recommences.
The majority of construction and development efforts in the first quarter were directed towards completion of the 3.0 million square foot Lewis leach pad expansion. Ore is currently being stacked on the new areas of the leach pad. The Company received the permits to begin construction of the crushing plant ahead of schedule. A contract miner is being utilized to complete excavation and ground work preparation for the crushing plant.
Two of the nine Komatsu 930E haul trucks slated for delivery throughout 2012 arrived on site slightly ahead of schedule.
Drilling activities at Hycroft in the first quarter of 2012 totaled 39,628 feet in 46 holes and were for engineering in support of the expansion projects at Hycroft. The drill fleet has been reduced to one core rig and one rotary rig in the second quarter, and drilling activities will be primarily directed towards facility and infrastructure condemnation work and in-pit inferred resource conversion drilling.
Production is expected to ramp up through the remainder of 2012, and is on track to meet current guidance of between 180,000 and 200,000 ounces of gold. The success of Hycroft in achieving production and cost guidance for 2012 is highly sensitive to a number of events taking place as scheduled, including delivery of major mining equipment. The Hitachi EX5500 shovel, which was expected to depart Japan in late March, shipped about a month late due to logistical issues at the port stemming from damage created by the March 2011 tsunami. The 2012 mine plan assumed the shovel would be in operation in the beginning of June, 2012. The Company will make every effort to construct and place the shovel into operation upon its arrival at site, but expects that it will be at least a month behind schedule.
Adjusted cash costs of $531 per ounce in the first quarter of 2012 were as expected. Hycroft is completing a larger than average stripping campaign for which costs are expensed and expects adjusted cash costs per ounce to be higher in the second quarter and to decline in the second half of the year. For the year the Company continues to believe that the adjusted cash cost per ounce will be within the previously stated guidance of $475-$495.
The assumptions used in determining the 2012 production and cost guidance: gold price of $1,400 per ounce, silver price of $25 per ounce, and costs associated with $100 per barrel fuel.
Capital expenditures in 2012 are expected to total approximately $225 million. Significant capital projects include the following: ongoing condemnation and engineering drilling, permitting, progress payments for long-lead fixed and mobile equipment, engineering for the mill and gyratory crushing projects and infrastructure improvements.
The Company is currently expanding Hycroft operations to include increasing the mining rate, improving the metal recovery with crushing and ultimately milling processes and adding the potential to process sulfide material. The expansion project is the combination of three previously related projects; Allied began implementing an accelerated heap leach mine plan in mid-2010 with a goal of increasing the mining rate utilizing a larger capacity mining fleet and upgrading existing processing facilities; In 2011, the decision was made to accelerate construction of the large gyratory crushing unit to be utilized in the heap leach operation; In 2011, the Company completed a positive feasibility study on the Hycroft mill expansion option. Under this project, a milling process will supplement the heap leach operations. The mill will process the higher grade fractions of the oxide mineralization and all of the transitional and sulfide mineralization. The Board has approved the capital expenditures to complete detailed engineering to construct the mill and the ordering of long-lead time items critical to the proposed construction timelines.
The current expansion project from this point forward is best described in four related activities: Mine Expansion. The current expansion project requires the Company to increase its mining rate from the 34 million tons of material mined in 2011 to 80 million tons of material by the end of 2014. This stage involves implementing larger capacity haul trucks, shovels and production drills along with ancillary mining equipment. By the end of 2011, a significant portion of the larger mobile mining fleet was in operation including two smaller and two larger capacity hydraulic shovels, seven 320-ton haul trucks and additional support equipment; Leach Pad Expansion. Until a mill is constructed, the increased oxide mineralization mined will be processed on leach pads. To accommodate the oxide ore, the existing leach pad system needs to be expanded. The addition of the gyratory crusher will benefit the ultimate recovery of gold from the leach pads. In 2011, the Merrill Crowe plant was expanded to increase the solution processing capacity from 3,500 gallons per minute to 5,000 gallons per minute. The Brimstone leach pad expansion was completed increasing the pad size to 9.1 million square feet. In addition, preparation of the Lewis leach pad, located directly adjacent to the Brimstone pad, began and is expected to add 3.0 million square feet of leach pad space in the second quarter of 2012. To date, the primary, secondary and tertiary units have been ordered including a gyratory crusher, cone crushers and screens. It is anticipated that the gyratory crushing plant will become operational mid-2013. The effect of this phase of implementation is to increase annual gold production to approximately 300,000 ounces by the end of 2013; Mill Construction. Based on the completed feasibility study, the economics of the project could be increased by constructing a mill to process the higher grade oxide mineralization along with the transitional and sulfide mineralization. The Company is currently completing the detailed engineering and has begun ordering long-lead time items critical to the construction schedule; Infrastructure. The future expansion plans require the company to upgrade the infrastructure at the Hycroft Mine. Major infrastructure items include the upgrade of the power transmission and distribution system to handle the milling demands and the construction of a rail siding.
The initial capital cost estimate for the expansion project is expected to be $1.2 billion. As of March 31, 2012, Allied Nevada had spent or committed $398.8 million, which is in line with the feasibility estimate for this equipment and represents approximately 32% of the total capital estimate. All equipment pricing is firm and includes freight and taxes. In the case of the mining equipment, the pricing also includes on-site assembly and commissioning. The Company anticipates that additional financing, in addition to future operating cash flows, existing cash and cash equivalents and capital lease commitments, will be required to meet the capital needs of the ongoing Hycroft expansion project.
The company's address is 9790 Gateway Drive, Suite 200, Reno, NV 89521, (775) 358-4455, fax: (775) 358 4458, email: [email protected].