Allied Nevada Gold Corp

Company Profile

Allied Nevada is a US-based gold mining and exploration company, which operates its wholly owned Hycroft gold mine located near Winnemucca, Nevada. The Company also owns more than 100 advanced and early stage exploration properties located throughout the State of Nevada. The Company's focus is on internal growth strategies, including the development of the Hycroft mine from a run-of-mine heap leach operation to a world-class, large-scale heap leach a milling operation. This will be accomplished through a logically staged growth plan involving the acceleration of the current mining rate for the heap leach operation, nearly tripling 2009 production by 2012. The ultimate goal is to construct a milling operating to process the large sulfide mineralization. The Company is following up the positive results of the 2010 scoping studies with an initial feasibility study, expected the third quarter of 2011.

Beyond Hycroft, the Company has developed exploration programs at a number of its advanced exploration properties. A drill program was completed in 2010 at the Hasbrouck project, located near Tonopah, Nevada, with encouraging results. The Company is completing a preliminary economic assessment with the goal of expanding our production portfolio. It is currently believed that Hasbrouck may support a heap leach operation similar to the one at Hycroft, prior to its expansions.

Hycroft Operations
In September of 2007, the Company reactivated the wholly-owned Hycroft Mine which was placed on care and maintenance in late 1998 due to low metal prices. Initial production was achieved in the fourth quarter of 2008 and the mine achieved commercial production rates by the end of 2009.
More about our Hycroft Operation

Operations at Hycroft currently involve open pit mining and run-of-mine heap leaching of oxide ore from the Brimstone deposit. In mid-2010 a crushing system was added to the operation as the mine transitions from the acid leach material currently being mined to harder siliceous ore. As per the mine plan, approximately 30% of all ore mined is expected to be crushed to improve gold and silver recoveries. In 2010, we expect to sell approximately 100,000 ounces of gold at a cost of sales per ounce of gold sold of $400-$450*.

The Company has completed a number of exploration programs, successfully expanding the oxide and sulfide resource at Hycroft. In 2010, a 30,500 meter exploration program at Hycroft has been designed with a focus on expanding oxide and sulphide resources, converting oxide resources to the reserve categories and inferred sulphide resources to the measured and indicated categories and testing the extent of high-grade silver anomalies encountered at the end of the 2009 drill season.

Capital expenditures in 2010 are expected to be approximately $25 million. At Hycroft, we expect to begin construction on phase three of the Brimstone leach pad expansion in the second quarter of 2010. This phase will increase the available heap leach pad space by a further 3.5 million square feet at a capital cost of approximately $10 million. Construction of this third phase of the expansion is expected to be completed by the end of the third quarter of 2010. In addition, we announced our intention to begin crushing ore at Hycroft in 2010 with the purchase of a mobile crushing system, expected in the first half of the year. Crushing ore is expected to improve gold recovery from current run of mine performance of 56.6% to 78% and silver recovery from current run of mine performance of 10% to 30%. Hycroft will also expand the mining fleet with the addition of a second production drill, a D-11 dozer, primarily to be used for the reclamation of the historic Crofoot leach pad, and other ancillary mining and production equipment.

In May 2010, the Company announced plans to accelerate mining of oxide mineralization from 25 million tons of material per year to 80 million tons of material. This accelerated plan assumes an average mining rate of 80 million tons per year will be achieved by 2012, and includes 37 million tons of ore and 43 million tons of waste with approximately 30% of the ore being crushed. It is expected that this accelerated mining rate would be phased in over the next two years, with expected production increasing from approximately 100,000 ounces in 2010 to over 250,000 ounces of gold in 2012 and peaking at over 300,000 ounces in each of 2013 and 2014. Average annual silver production is expected to be in excess of 1 million ounces. The current oxide reserve of 2.4 million ounces of gold and 32 million ounces of silver, announced April 1, 2010, is sufficient to support this mining rate until 2015; however, management believes that ongoing exploration will continue to convert oxide resources, extending mine life.

Cost of sales per ounce of gold sold, assuming silver revenue as a byproduct credit, is expected to average between $425 and $450 per ounce. The life of mine average strip ratio has declined to 1.15:1 compared with 1.27:1 in the life of mine case presented in the May 2009 technical report. Further optimization opportunities, such as in pit backfilling and a conveying system, may be implemented should a review provide positive results.

The total capital required over the life of the mine to implement this accelerated mining plan is expected to be approximately $212 million. This is favourable in comparison with the $221 million in capital required over the current life of the mine, if we were to continue mining the 2.4 million ounces of oxide reserves at our current rate. The initial capital of approximately $180 million, spent over the first three years, is for the inclusion of a larger capacity mining fleet ($130 million), leach pad expansions ($20 million), mobile crushing units ($14 million) and modifications to existing infrastructure such as the process plant and refinery ($12 million). The mobile mining fleet may be purchased with capital lease financing through the equipment manufacturer.

The expansion of the Hycroft mine necessary to accelerate the mining as per this plan requires Allied Nevada to obtain all permits, approvals and consents of the regulatory agencies responsible for the use and development of mines in Nevada.

The April 1, 2010 NI 43-101 compliant technical report contains further information regarding the oxide expansion and can be accessed on this website or at www.SEDAR.com.
Capital expenditures for 2010 are now anticipated to be approximately $45 million. It is anticipated that two 320-ton haul trucks and a larger capacity shovel will be ordered immediately. This will allow for the stripping campaign, originally scheduled for 2011, to be moved forward to the fourth quarter of 2010, accelerating access to the next mining phase of the Brimstone pit.

The accelerated rate is expected to begin to impact operations in 2011. In 2010, we expect to mine approximately 19 million tonnes of material, including approximately 11 million tonnes of ore at an average grade of 0.56 g/t gold and 9.7 g/t silver. Based on this operating plan, gold sales are expected to be approximately 100,000 ounces at a cost of sales per ounce of gold sold of between $400-$450 in 2010. Projected cost of sales per ounce of gold sold for 2010 was determined assuming a gold price of $900/ounce, a fuel price of $90/barrel and takes into account revenue from silver production as a byproduct credit based on a 2:1 production ratio of silver to gold and a $15/ounce silver price. Projected costs for 2010 are expected to be higher than 2009 actual costs due to anticipated lower grades mined through the second half of the year, higher fuel prices (representing approximately $20/ounce) and increased cyanide consumption (representing approximately $19/ounce) in 2010. Based on current life of mine plans, a $10 per barrel movement in the price of West Texas Intermediate (type of crude oil used as a benchmark in oil pricing) will impact the annual operating costs for fuel and lubricants at the Hycroft mine by approximately $1 million (or $10 per ounce).

At Hycroft, construction of the Brimstone leach pad expansion is underway. This phase is expected to increase the available leach pad space by a further 3.5 million square feet and is expected to be completed by the end of the third quarter of 2010. In addition, we announced our intention to begin crushing ore at Hycroft in 2010 with a mobile crushing system capable of crushing four million tonnes of material per year (or approximately 30% of ore tonnes mined). This crusher is expected to be on site and operating by mid-year 2010. With the addition of this system, gold and silver recovery of combined run of mine and crushed ore is expected to increase to 60% and 14%, respectively (from current run of mine performance of 56.5% recovery for gold and 10% recovery for silver). Having received the approval of the Board to move forward with the accelerated mining rate, ordering of long-lead time capital items such as larger capacity 320-ton class haul trucks and a 36-yard shovel will commence in the second quarter of 2010.

A 30,500 meter exploration program at Hycroft has been designed for 2010 with a focus on expanding oxide and sulphide resources, converting oxide resources to the reserve categories and inferred sulphide resources to the measured and indicated categories, aligning the silver resource with the gold resource where no historical drilling and assay data exists, attaining further samples for ongoing metallurgical work and testing the extent of high-grade silver anomalies encountered at the end of the 2009 drill season. Exploration spending at Hycroft is expected to be approximately $16 million in 2010. In addition, the Company intends to conduct targeted surface exploration and drilling on certain of its advanced and exploration properties where the Company believes encouraging exploration opportunities exist.

Metallurgical test work has begun on oxide mineralization to assess the potential benefit of milling oxide material to improve gold and, more importantly, silver recoveries.

The Company continues to review near and long-term opportunities to improve upon recovery rates for gold and silver, increase production and reduce costs at Hycroft. Some of these initiatives include:

Milling option for oxide material: As mine optimization continues, a review of different treatment options for oxide ore to improve gold and, more significantly, silver recoveries may warrant a change in operating structure. Metallurgical work has commenced to assess the potential benefit of grinding and milling oxide ore. Should the test work result in a positive impact to recoveries, economics and engineering assessment will begin to determine the economic impact of moving from a heap leach to grinding and milling operation.
Sulphide resource development: Preliminary metallurgical testing completed in 2009 indicated that sulphide material is amenable to simple flotation concentration, and that gold and silver recoveries are approximately 79% and 77%, respectively. We are in the initial stages of preparing a feasibility study to determine the economic viability of mining this sulphide mineralization. It is currently expected that this study will be completed by mid-2011.

* Allied Nevada provided the non-GAAP measures of â€œcost of sales per ounce of gold soldâ€ and â€œcost of sales, net of byproduct creditsâ€ in this overview. The Company believes that, in addition to conventional measures prepared in accordance with United States generally accepted accounting principles (U.S. â€œGAAPâ€), stakeholders use these non-GAAP measures to evaluate the Companyâ€™s performance and its ability to generate cash flow. The above non-GAAP measures do not have any standardized meaning prescribed by GAAP and, therefore, may not be comparable to similar measures presented by other companies. Accordingly, the above measures are intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with GAAP.

Projected cost of sales per ounce of gold sold for 2010 was determined assuming a gold price of $800/ounce, a fuel price of $90/barrel and takes into account revenue from silver production as a byproduct credit based on a 2:1 production ratio of silver to gold and a $14/ounce silver price. Projected costs for 2010 are expected to be higher than 2009 actual costs due to anticipated lower grades mined, higher fuel prices (representing approximately $20/ounce) and increased cyanide consumption (representing approximately $19/ounce) in 2010. Based on current life of mine plans, a $10 per barrel movement in the price of WTI oil will impact the annual operating costs for fuel and lubricants at the Hycroft mine by approximately $1 million (or $10 per ounce).

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