Hycroft Mine project seeks to reduce investors’ risks | nnbw.com

Hycroft Mine project seeks to reduce investors’ risks

Rob Sabo
rsabo@nnbw.biz

Last year was admittedly a difficult year for Allied Nevada Gold Corp., but 2014 brings new direction for the company that's working to become player in the Winnemucca-area economy.

Led by new President and Chief Executive Officer Randy Buffington, who came aboard in February of 2013 to help Reno-based Allied Nevada streamline and improve its operations, the company has revamped its ambitious expansion plans at its flagship Hycroft mine 54 miles west of Winnemucca.

Though the new plan requires a total of $1.3 billion to put into place, it poses much less risk to potential investors, says Tracey Thom, Allied Nevada's vice president of investor relations.

Allied Nevada's original expansion plan involved expanding the plant's crushing capabilities and building a mill that would further pulverize ore into a fine powder. That powder would be floated in tanks with reagents to release the gold and silver from waste material to produce a concentrate that would be sold to smelters or companies with autoclaves or roasters for further refining.

The problem, Thom says, is that the concentrate would have to be sold to customers around the world, because processing sites located in Nevada don't have capacity to treat the additional volume from the Hycroft mine. And that presented a great deal of uncertainty with managing a large portfolio of contracts spread over different continents.

"It would really tie up your working capital because you have got this stuff shipping all over the world all the time," Thom says.

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Soon after joining Allied Nevada's executive team, Buffington wasted little time changing the management group at Hycroft and proposing alternatives to the current expansion plan. Allied Nevada changed the plan to pursue an additional oxidation process for the gold concentrate that would allow the company to produce gold doré bars onsite. Allied Nevada already produces doré bars from its heap leach operations, but that's a slow process. The mill and additional circuits would allow the company to produce doré bars from raw ore in about 36 hours, which should help Allied Nevada increase its working capital position.

Parts of the original plan still remain in place. The expanded crusher already is built. Allied Nevada already owns the SAG and ball mills and motors to drive them for the planned mill, as well as the primary floatation circuit. It still needs to add oxidation and leach circuits.

The $1.3 billion price tag includes construction of the mills, flotation cells, concentrate oxidation circuit, concentrate and tails leach plants, powerline, a rail spur, grinding media and other reagents, additional infrastructure, new tailings management facility, as well as $150 million to hire an EPCM (engineering, procurement, construction management) contractor and $200 million for contingency costs.

Allied Nevada has engaged M3 Engineering & Technology Corp. as its EPCM to provide expertise to the expansion project.

"It's a big project, and you really need to have someone who has built big systems," Thom says. "They are beholden to getting it running properly."

The next big step for the company is getting financial backing.

Allied Nevada is working with Credit Suisse First Boston and Scotia Bank, the third-largest banking institution in Canada, to help fund the project.

Thom says likely funding scenarios including forming a joint-venture partnership with a top-tier mining firm or a forward-purchase partner for sales of silver since Allied Nevada would produce on average about 21 million ounces of silver annually. That volume of silver production would place the Hycroft mine in the top five in the world, Thom says.

Allied Nevada engaged the bankers in late May and hopes to have a financing solution in place by year's end.

"Having the backing of Credit Suisse and Scotia Bank, two really big banks, that gives us a lot of confidence," she says. "Banks won't back you if they think you are dead in the water."

Thom did not rule out the possibility of a takeover, an idea that has been floated by more than one industry analyst.

"It could happen," she says. "If the market starts to strengthen … it definitely could be a (possibility)."

Investor confidence in 2013, Thom admits, was at an all-time low. But Allied Nevada has hit its production guidance for the past three quarters, and investors have more faith that Allied Nevada's current management team is on the right track.

"Getting funding for the expansion will be driven less by investor sentiment in the marketplace and more by investor confidence in the gold industry," she says. "If gold price starts to lag and people aren't interested in getting into a big build like this, it is because they aren't interested in any big build."

If Allied Nevada can't secure funding and isn't an acquisition target by a much larger mining firm, it's got a plan in place to continue operating Hycroft as a heap-leach mine for the next five or six years with average annual production of 225,000 to 250,000 ounces of gold and 1.5 to 2 million ounces of silver.

It also would do more exploration drilling to expand the resources at Hycroft until a time that the marketplace might be more amenable to the expansion plan.

All-in costs to produce an ounce of gold from Hycroft currently run between $1,050 and $1,100.

"We have enough margin where we can pay our debts and pay our bills," Thom says. "We also have a $75 million credit facility if things get more stressful. Right now, between where the gold price is we are pretty comfortable to get through either a financing or coming up with a shorter-term plan and waiting for the market (to turn).

ALLIED NEVADA HOUSING UPDATE

Allied Nevada took on some large-scale housing plans in east Winnemucca in 2012 — plans that ultimately proved untimely.

Allied Nevada backed construction of 29 single-family homes and 26 townhomes built by Homecrafters of Reno. Those units have since been sold back to the developer or to current employees and on the open market.

The company also constructed a man-camp with triplex units that can house a total of about 450 people. The camp, however, currently sits completely vacant.

The man camp eventually will be used — Allied Nevada’s employment is about 450, and the mill build out should require an additional 150 workers, says Tracey Thom, vice president of investor relations.

“Everything was staged with that mill build, but then we delayed it.”

Rob Sabo

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