Almaden Minerals: A Silver Target?

06/06/2017 2:50 am EST

Focus: COMMODITIES

Adrian Day

Chairman and CEO, Adrian Day Asset Management

Almaden Minerals (AAU) announced, as expected, its pre-feasibility study for its Ixtac deposit in Mexico, notes resource sector expert Adrian Day, editor of Global Analyst.

The initial capex is estimated to be higher than projected in December 2015’s Preliminary Economy Assessment ($117 million up from $100 million). But otherwise, the new mine plan improves the economics considerably.

Payback of initial capital is shorter (2.2 years, down from 2.6 years), with a much higher after-tax internal rate of return of 41%, up from 30%.

Average production for the first nine years will be about 88,000 ounces of gold, and nearly 5.5 million ounces of silver, for life-of-mine production of over 1 million ounces of gold and 70 million of silver (up from 714,000 and 49 million respectively).

The revised numbers still show a very low initial capex (Almaden has already purchased a used mill) and very robust project.

The company is now developing the project with permitting underway, as well as continued drilling of portions of the deposit that remain open, and new targets, as it moves towards a full feasibility by 1st quarter 2018.

We would not be surprised to see an offer for the company, perhaps once permitting is underway or the feasibility completed.

With about equal contribution from gold and silver, the project is particularly attractive to silver mining companies, which are having difficulty finding primary silver deposits.

In our view, a new $15 million equity raise puts the company in a strong negotiating position. Almaden is a buy recommendation at the current price level.

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