Leagold Files Los Filos Mine Expansion Feasibility Study; Increases Net Cash Flow to $884 Million
(All amounts in US dollars, unless otherwise indicated)
Vancouver, March 12, 2019 – Leagold Mining Corporation (TSX:LMC; OTCQX:LMCNF) (Leagold or the Company) announces that it has filed the report entitled “Independent Technical Report for the Los Filos Mine Complex, Mexico” which presents the results of the Expansion Feasibility Study (Expansion Feasibility Study) under the Company’s profile on SEDAR at www.sedar.com. The Expansion Feasibility Study was prepared by independent consultants and incorporates the potential for: development of the Bermejal underground mine, enlarging the Los Filos open pit, re-phasing of the Bermejal open pit into two distinct sections (Bermejal and Guadalupe), and constructing a carbon-in-leach (CIL) processing facility to complement the existing heap leach facilities.
Highlights of the Expansion Feasibility Study include:
- Gold production of 3.2 million ounces (Moz) over a 10-year mine life (2019 to 2028) at an average AISC1 of $740/oz
- Post expansion (2021 onwards):
- Average annual production of 350,000 oz at AISC1 of $694/oz
- Average annual production exceeding 420,000 oz from 2021 to 2024
- Proven and Probable mineral reserves of 104.2 Mt at 1.31 g/t containing 4.5 Moz2
- Capital cost of $180 million to develop Bermejal underground and construct a new 4,000 tonne per day (tpd) CIL plant with related infrastructure
- Current operations to fund capitalized stripping during the initial expansion phase (2019 to 2020) at the Guadalupe and Los Filos open pits
- At $1,250/oz gold price:
- NPV0% of $884 million
- NPV5% of $679 million
- IRR of 86%
Leagold CEO Neil Woodyer commented: “Since providing the summary results of the Expansion Feasibility Study in January 2019, our team working with the independent consultants has continued refining the new operating strategy which includes re-phasing the Bermejal open pit, expanding the Los Filos open pit, operating two high-grade underground mines, adding a CIL plant to process the higher-grade ore, and continuing heap leaching of the lower-grade open pit ore. The result of this work is a significant increase in net cash flow to $884 million. The Los Filos expansion is clearly a project we should proceed with, and we are advancing with construction planning, optimizing the sequencing of the major expansion projects as part of our financial planning, and discussing the social and economic benefits created by the expansion with our employees, contractors, unions and community members.”
Figure 1: Expansion Feasibility Study Gold Production and AISC Profile
Bermejal underground has an approved environmental impact assessment (EIA) and the restart of development is fully permitted. The EIA for the CIL plant and tailings deposits has also been approved, subject to confirmation of final locations of both facilities, and the EIA for the Guadalupe phase of the Bermejal open pit has been submitted for approval. With many of the required approvals in place or well advanced, the Los Filos Expansion can start shortly after Leagold makes its final investment decision.
Summary results of the Expansion Feasibility Study were previously announced on January 16, 2019 (January Summary Results) and, during the completion of the Expansion Feasibility Study report, several more opportunities to enhance the plan were identified. The open pit designs have been further optimized leading to a 10% increase in open pit ore grades to 0.89 g/t from 0.81 g/t, with a 9% reduction of total open pit material mined. While total gold production is minimally reduced, the optimized open pit designs reduce mining costs and improve cash flow generation. Processing costs were also reduced with lower volumes of low-grade material being processed and from unit cost reductions due to a refined costing approach that recognizes the current heap leach costs at Los Filos will normalize to lower levels over time.
At $1,250/oz gold price, the expanded Los Filos Mine Complex’s life of mine is expected to generate net cash flow of $884 million, which has increased 18% or by $132 million as compared to the $752 million reported in the January Summary Results. The mineral reserve estimates are based on a gold price of $1,200/oz gold and were evaluated by SRK using cashflow modeling at that price and found to be economic.
Figure 2 illustrates the key updates that contribute to this increase in net cash flow and a summary description of the key updates is included below.
Figure 2: Reconciliation of net cash flow (NPV0%) from January Summary Results to Expansion Feasibility Study Technical Report, at $1,250/oz gold price
Optimization of Open Pit Designs: The open pit Mineral Reserves have been updated following disclosure of the January Summary Results as a result of further work undertaken to optimize the pit designs by reducing the amount of lower-grade marginal material being mined. With the refined designs, the average gold grades of the open pit Mineral Reserves have increased to 0.88 g/t or by 10% as compared to the previous 0.80 g/t. In addition, the total open pit material mined has been reduced by 50 million tonnes. Table 1 states the Los Filos Proven and Probable mineral reserves as of October 31, 2018, and for the avoidance of doubt, the majority of discussion of the Expansion Feasibility Study in this news release relates to the period of January 1, 2019 to the end of the mine life.
Table 1: Los Filos Mine Complex Mineral Reserve Statement (Effective Date of Oct 31, 2018)
|Proven and Probable||Open Pit||95,927||0.88||2,708|
|Proven and Probable||104,220||1.31||4,395|
|Probable Leach Pad Inventory (recoverable)||114|
|Total Proven and Probable||4,509|
1 CIM (2014) definitions were followed for Mineral Reserves.
2 Mineral Reserves for Bermejal Underground were prepared by SRK Consulting (Canada) Inc. Mineral Reserves for all other deposits were prepared by the Los Filos Mine Complex and reviewed by SRK.
3 Mineral Reserves are quoted using a NSR break-even cut-off grade approach with minimum block NSR of $149.4/t for Bermejal underground. Cut-off grade for the Los Filos underground is 2.59 g/t. Mineral reserves for Los Filos, Bermejal and Guadalupe open pits are based on variable break-even cut-offs for ore revenue as generated by process destination and recoveries. Variables for revenue calculation include process cost, recovery, and estimated gold, copper and sulphur grades.
4 Mineral Reserves are based on Measured and Indicated Mineral Resources.
5 Metal price assumption for gold was US$1,200/oz.
6 Tonnage and grade measurements are in metric units. Contained gold are reported as troy ounces.
7 Summation errors may be present due to rounding.
8 See the Expansion Feasibility Study Technical Report for further information.
Decreased Gold Revenue: As a result of the open pit mine plan optimization to maximize cash flow generation, the LOM total gold production has decreased by less than 1% to 3.240 million ounces (Moz) as compared to January Summary Results. At $1,250 gold price, this is a reduction of approximately $37 million in life of mine gold revenue.
Increased Silver Revenue: The increase of $16 million in revenue from silver sales is primarily the result of increased silver production to 5.3 Moz as compared to 4.1 Moz from the previously announced summary results. The increase in silver production is primarily due to increased silver recovery rates from heap leach processing to between 9 and 14%, which are in line with current performance on the heap leach pads and supported by metallurgical test work required by the independent consultants.
Reduced Mining and Processing Costs: Total mining and processing costs have been reduced by $78 M and $146 M, respectively. The reduction in mining costs is directly related to the 50.0 Mt reduction in open pit material mined with the optimized design. The reduction in processing costs is attributable to both the reduced volume of material processed and a reduction in the LOM average unit processing costs for the heap leach pads from $5.5 to $4.4 per tonne processed. This unit cost improvement is primarily due to a refined costing approach that recognizes the current costs at Los Filos will normalize to lower costs levels once the practice of applying additional lime to raise the pH level of previously leached ore within the heap leach pads and the need to apply additional cyanide leaching solution is reduced. Cyanide consumption and lime addition are the major contributors to the processing cost. Lime addition is currently added at double the required quantity to address the low pH and subsequent cyanide losses through volatilization. Cyanide losses are also attributed to solution application to leached areas of the heap. Operational measures are being implemented to reduce the cyanide consumption by eliminating solution application to leached areas of the heap and the creation of an inter-lift liner through compaction of the previously leached heap surface. Reduction in over-irrigation of leached areas has reduced the daily cyanide consumption from 60 tonnes per day to 45 tonnes per day. The compaction of the leach surface and the installation of new solution collection pipes will allow pregnant leach solution to report directly to the pregnant solution ponds without having to percolate through the entire heap. This in turn will result in a higher pH solution with excess cyanide reporting to the pregnant solution ponds. This impact will increase the entire heap solution pH and circulating free cyanide resulting in a reduction of lime and cyanide addition.
Table 2 summarizes the key mine plan changes and Table 3 summarizes the key cost changes as compared to the January Summary Results. The financial analysis in the Expansion Feasibility Study has been performed on an after-tax basis, and Appendices A and B of this news release contain mine production and cash flow details, which are summarized below.
Table 2: Highlights of the Expansion Feasibility Study compared to January Summary Results (from Jan 1, 2019 to LOM)
|Proven and Probable mineral reserves||4,509 Koz1||4,477 Koz2||Less than +1%|
|Total gold production||3.240 Moz||3.269 Moz||Less than -1%|
|Total silver production||5.337 Moz||4.122 Moz||1.2 Moz more Ag|
|Total open pit material mined (ore+waste)||512.1 Mt||562.1 Mt||50.0 Mt reduced|
|Total open pit ore mined||92.7 Mt||99.8 Mt||7.1 Mt reduced|
|Open pit, average mined gold grade||0.89 g/t||0.81 g/t||10% increase|
|Total underground ore mined||8.2 Mt||8.2 Mt||No change|
|Underground, average mined gold grade||6.33 g/t||6.33 g/t||No change|
|Total ore tonnes processed||100.8 Mt||108.0 Mt||7.2 Mt reduced|
|LOM Average AISC3||$740/oz||$795/oz||$55/oz improvement|
|Net cash flow (after-tax), NPV0%4||$884 million||$752 million||+$132 million or +18%|
|NPV5%4||$679 million||$565 million||+$114 million or +20%|
1 Proven reserve of 26.2 million tonnes at 0.91 grams per tonne containing 0.768 Moz gold plus Probable reserve of 78.1 million tonnes at 1.44 grams per tonne containing 3.626 Moz gold plus an additional 0.114 Moz gold in Probable leach pad inventory (effective date of October 31, 2018, SRK Consulting (Canada) Inc.). Additional notes are in Table 1.
2 See news release dated January 16, 2019.
3AISC is a non-GAAP measure. See AISC in the Cautionary Notes.
4 Using $1,250/oz gold price.
Table 3: Reconciliation of the Los Filos Average Operating Costs of the Expansion Feasibility Study compared to January Summary Results (Jan 1, 2019 to LOM Average)
|Mining cost – open pit||$/t material moved||1.36||1.38|
|Mining cost - underground||$/t ore||93.5||93.5|
|Processing costs – heap leach||$/t placed||4.4||5.5|
|Processing costs – CIL plant||$/t processed||15.0||14.8|
|Site G&A, community, land access||$M/year||28||30|
|AISC per ounce (1)||$/oz||$740 /oz||$795 /oz|
1 AISC is a Non-GAAP measure. See AISC in the Cautionary Notes.
Increased Mining Duties and Taxes: Due to the increase in the forecasted margin generation and profitability, the calculated income and mining taxes payable also increase by $94 million over the life of the mine.
The $180 M total expansion capital cost estimate is comprised of Bermejal underground mine development for $65.4 M, construction of the 4,000 tpd CIL plant for $76.3 M, and $38.4 M for site infrastructure including a tailings filtration system, 40MW substation, and transmission line (Table 4), which is not significantly changed from the January Summary Results. However, the optimization of the open pit design has significantly reduced the investments needed for capitalized stripping to $37.1 M from $50.4 M.
Table 4: Los Filos Expansion Capital Cost Summary
|Item Description||Expansion Feasibility
|Bermejal underground – development capital||$65.4||$65.4|
|CIL plant, including contingency||76.3||76.3|
|Tailings filter system||26.1||26.1|
|Preparation of Tailings Deposition Area||4.0||4.0|
|Total, expansion capital costs||180.1||179.7|
|Guadalupe open pit, initial cut-back||29.0||30.5|
|Los Filos open pit, capitalized stripping (2019/20)||8.1||19.9|
|Total, capitalized open pit stripping||37.1||50.4|
|Operating cash flow, 2019 to 2020 (credit)1||(97.7)||(83.3)|
|Surplus operating cashflow (credit)||(60.6)||(32.9)|
|Expansion capital costs, net current operations||$119.5||$146.8|
1 Operating cash flow using $1,250/oz gold price. See Appendix B.
The mineral resources and mineral reserves reported in the Expansion Feasibility Study and summarized herein were prepared in accordance with standards as defined by the Canadian Institute of Mining, Metallurgy and Petroleum ("CIM") CIM Definition Standards on Mineral Resources and Mineral Reserves, adopted by CIM Council on May 10, 2014. The technical information contained in the Expanded Feasibility Study and summarized herein was prepared by and, or, reviewed and approved by the following independent “Qualified Persons” as defined by NI 43-101, and they have reviewed and approved the contents of this news release.
|Qualified Persons||Company||Scope / Responsibility|
|Dr. Gilles Arseneau,
|Bermejal underground mine production, cost estimates and Mineral Reserves. Overall project risk assessment, implementation and economics, overall report compilation|
|Los Filos underground, Los Filos, Bermejal and Guadalupe open pit mines production, cost estimates and Mineral Reserves|
|Eric Olin, RM SME||Heap leach metallurgical testwork review and interpretations, heap leach process plant review and cost estimates|
|Neil Lincoln, P.Eng.||Lycopodium
|CIL metallurgical testwork management and interpretation, process plant and related process infrastructure design, process capital and operating cost estimates, risk assessment, project implementation|
|David Nicholas, P.E.||Call & Nicholas||Bermejal underground mine geotechnical|
This news release has been reviewed on behalf of Leagold by Doug Reddy, Leagold’s Senior Vice President, Technical Services, a “Qualified Person” as defined by NI 43-101.
There are no known legal, political, environmental or other risks that could materially affect the potential development of the mineral resources or mineral reserves. Additional information on the Expansion Feasibility Study is included in the NI 43-101 compliant technical report entitled “Independent Technical Report for the Los Filos Mine Complex, Mexico” dated March 11, 2019 with an effective date of October 31, 2018, a copy of which is available on the Company’s website at www.leagold.com and under the Company’s profile on SEDAR.
About Leagold Mining Corporation
Leagold is building a mid-tier gold producer with a focus on opportunities in Latin America. The Company is based in Vancouver, Canada and owns four operating gold mines in Mexico and Brazil, along with a near-term gold mine restart project in Brazil and an expansion opportunity at the Los Filos Mine Complex in Mexico. Leagold is listed on the TSX under the trading symbol “LMC” and trades on the OTCQX market as “LMCNF”. For more information on Leagold please visit www.leagold.com or contact:
Meghan Brown – Vice President, Investor Relations
email: [email protected]
Cautionary Note Regarding Forward Looking Statements
This news release contains “forward looking information” or “forward looking statements” within the meaning of applicable securities legislation. Forward-looking information and forward-looking statements include, but are not limited to, statements with respect to the results of the Expansion Feasibility Study, anticipated production, mineral reserves and resources, expected NPV, AISC and operating costs, potential for increased gold and silver revenue and reductions in mining and processing costs. Generally, these forward looking information and forward looking statements can be identified by the use of forward looking terminology such as “plans”, “expects” or “does not expect”, “is expected”, “budget”, “scheduled”, “estimates”, “forecasts”, “intends”, “anticipates” or “does not anticipate”, “will continue” or “believes”, or variations of such words and phrases or state that certain actions, events or results “may”, “could”, “would”, “might” or “will be taken”, “occur” or “be achieved”. Statements concerning mineral resource estimates may also be deemed to constitute forward looking information to the extent that they involve estimates of the mineralization that will be encountered. The material factors or assumptions used to develop forward looking information or statements are disclosed throughout this document.
Forward looking information and forward looking statements, while based on management’s best estimates and assumptions, are subject to known and unknown risks, uncertainties and other factors that may cause the actual results, level of activity, performance or achievements of Leagold to be materially different from those expressed or implied by such forward-looking information or forward looking statements, including but not limited to: risks related to international operations; risks related to general economic conditions and credit availability, unanticipated reclamation expenses; changes in project parameters as plans continue to be refined; fluctuations in prices of metals including gold; fluctuations in foreign currency exchange rates, increases in market prices of mining consumables, possible variations in mineral reserves, grade or recovery rates; failure of plant, equipment or processes to operate as anticipated; accidents, labour disputes, title disputes, claims and limitations on insurance coverage and other risks of the mining industry; delays in obtaining governmental approvals or financing or in the completion of development or construction activities, changes in national and local government regulation of mining operations, tax rules and regulations, and political and economic developments in countries in which the Company operates, actual resolutions of legal and tax matters, as well as those factors discussed in the section entitled “Description of the Business – Risk Factors” in Leagold’s most recent AIF available on SEDAR at www.sedar.com.
Although Leagold has attempted to identify important factors that could cause actual results to differ materially from those contained in forward-looking information and forward-looking statements, there may be other factors that cause results not to be as anticipated, estimated or intended. There can be no assurance that such information or statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such information or statements. The Company has and continues to disclose in its Management’s Discussion and Analysis and other publicly filed documents, changes to material factors or assumptions underlying the forward-looking information and forward-looking statements and to the validity of the information, in the period the changes occur. The forward-looking statements and forward-looking information are made as of the date hereof and Leagold disclaims any obligation to update any such factors or to publicly announce the result of any revisions to any of the forward-looking statements or forward-looking information contained herein to reflect future results. Accordingly, readers should not place undue reliance on forward-looking statements and information.
All-in Sustaining Costs
This news release refers to expected AISC per ounce which is a non-GAAP (generally accepted accounting principles) measure however is a measure the Company believes more fully-defines the total costs associated with producing gold. This measurement has no standardized meaning under International Financial Reporting Standards (IFRS) accordingly there may be some variation in method of computation of “all-in sustaining costs” as determined by the Company compared with other mining companies. AISC reported by Leagold includes mine cash costs, land access payments, royalties, and sustaining capital expenditures, but excludes non-sustaining capitalized stripping and end of life reclamation costs. The LOM AISC of $740/oz increases to $756/oz if end of mine life reclamation costs are included in accordance with the World Gold Council guidance on AISC.
This measurement is intended to provide additional information only and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS.