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Corporate Profile
Allied Nevada is a US-based gold mining and exploration
company, which operates its wholly owned open pit Hycroft Mine,
located near Winnemucca, Nevada. The Company also owns a number
of advanced and early-stage exploration properties located
throughout the State of Nevada.
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.
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
“cost of sales per ounce of gold sold” and “cost of sales, net of
byproduct credits” in this overview. The Company believes that, in
addition to conventional measures prepared in accordance with United
States generally accepted accounting principles (U.S. “GAAP”),
stakeholders use these non-GAAP measures to evaluate the Company’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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