Altaley Mining (ATLY) - Net Cash Flow Points to More Acquisitions

Altaley Mining Corporation is a Canadian gold, silver and base metals producer with its assets located in Mexico. The Tahuehueto gold project of the company has a mineral reserve of approximately 490,000 ounces of gold and 8.4 million ounces of silver in measured and indicated resources. The project is located in Durango, Mexico and is set to be one of the top 3 producing gold mines in the country. The project further possesses the exploration potential to lengthen its operational lifetime substantially.

Company Overview

The Campo Morado mine of the company is the 6th largest zinc concentrate producer in Mexico and hosts approximately 1.9 million gold equivalent ounces in measured and indicated resources. The operation has an estimated life of mine (LOM) of 20-years based on its current mineral resource as well as an all-in sustaining cost (AISC) of USD$ 0.87 per pound of zinc.  

The company recently announced its 2021 financial highlights, which include a 121% increase in gross revenue to an amount of USD$ 98.4 million. The company also announced that its Campo Morado Mine was operating at a profit of USD$ 34.2 million, an improvement from its loss of USD$ 138,000 in 2020.

The company also announced that it had initiated pre-production mining and mill commissioning operations at its Tahuehueto Gold project in Durango, Mexico. The initiatives at the project have enabled the company to startup and commission one of the two planned ball mills at the project, which coupled with the facility’s flotation cells, concentrate thickeners and concentrate filters to enable the processing of up to 500 tons of ore per day.

Campo Morado project

The Campo Morado project of the company is an underground multi-metal mine with infrastructure installations and equipment capable of processing up to 2,500 tons of ore per day. The project is fully operational and possesses approximately 16.6 million tons of measured and indicated resources at a grade of 4.01% zinc, 0.80% copper, 0.93% lead, 123 g/t silver and 1.70 g/t of gold. The company is currently underway with metallurgical test work at the project, which is aimed at optimising the recovery rates of the processing facility. Ralph Shearing, the President and CEO of Altaley Mining Corp. explains the metallurgical initiatives as follows:

“We've been at it for 6 months and we likely have another 3-4 months before we figure it all out. We've had really good success with pneumatic flotation for increasing concentrate grades and recoveries. We've done a really good job on lead, so we expect to be able to get better recoveries and a higher concentrate grade with lead. That'll bring more silver and gold into the play. We've also just started production with coppers, we are now making a copper concentrate. That's another revenue source that we didn't have last year, and with these precious metal improvements that we are working on, we're looking at forced oxidation of leaching and we've been able to go into the tailings and do regrind and pneumatic flotation tests on that. We've been able to make a precious metal-rich pyrite concentrate, which is ideal for reducing the mass in those tailings to be able to go to forced oxidation and leaching.”

The metallurgical optimisation work will lead to larger revenue for the company, with Altaley Mining Corp. believing that the optimised works will ensure the Campo Morado project is immune to lower metal prices. The company expects an increase of between 30% and 50% in its gross profit at the project due to the metallurgical initiatives, with Shearing explaining the outcome of the initiatives as follows:

“I could put it into perspective by saying that in 2021, our company had an operating profit of USD$ 26 million. That's a good number, and we've been using some of that cash for our other projects. Where this can go with the added revenues, we won't know exactly until we've finished all the testing, but it's going to increase and it is going to increase significantly.”

The company also announced in the middle of May 2022, that the Campo Morado mine had shown a profit of approximately USD$ 34 million in the 2021 financial year. The highlights for the Campo Morado mine in 2021 include an all-in sustaining cost of USD$ 0.83 per pound of zinc, with it producing 45,778 tons of zinc concentrate with an average grade of 46% zinc, 2.12 g/t gold and 658 g/t silver. The company sold 45,860 tons of zinc concentrate in the 2021 financial year. The mine further produced 9,936 tons of lead concentrate with a grade of 22% lead, 1.65% copper, 6.08 g/t gold and 776 g/t silver, with the company selling 9,657 tons of lead concentrate in 2021.

Tahuehueto Project

The Tahuehueto project is a high-grade gold project located in Durango, Mexico, and is set to be one of the top three gold mines in production in Mexico. Altaley Mining Corp. is currently underway with the construction of the project’s processing facility, which will be able to process 1000 tons of ore per day upon completion. The company recently announced that it had set one of the ball mills of the processing facility into operation, which coupled with the facility’s flotation cells, concentrate thickeners and concentrate filters enable the processing of up to 500 tons of ore per day. Shearing explains the progress of the project as follows:

“We're just going through the commissioning process. We are producing a concentrate. We're starting off with a bulk concentrate for maybe 2-3 weeks and then we'll start separating into a lead and zinc concentrate.”

The underground mining contractor for the company has been able to develop access to four stopes at the project with two of the stopes at the El Creston structure and two at the project’s Perdido structure. The access will enable the company to have a surplus of mill feed for the mine’s start-up phase. The development of the project’s underground operations is ongoing with the aim being to have access to two additional stopes at the Perdido structure and four additional stopes at the El Creston structure. The project is forecast to have robust economics with it being able to produce gold at an average cost of USD$ 845 per ounce. The profit possible with a USD$ 1,800 price of gold and 1,000 tons per day processing capability is an exciting thought to the company.

The project will be able to produce 26,000 ounces of gold on an average annual basis, with its life of mine estimated to be 10.9 years based on the current mineral reserves. The exploration potential of the project is high according to the company, with it believing that the current known resources may enable an 18-year life of mine. Shearing, who started his career as an exploration geologist, is highly optimistic regarding the project’s potential and states: 

“… the mine plan shows that the grades will be going down a little bit during the subsequent years. However, as soon as we get exploration going again, it can add to that quite easily. The exploration potential at Tahuehueto is fantastic…”

Debt and ESG

The company currently has USD$ 30 million in debt. Altaley Mining Inc. plans to either pay the full amount of debt back within the next two years or may look into restructuring the debt, which would delay the payback of the debt by five years, opening up immediate cash flow. The increase in immediate cash flow will allow the company to pursue its exploration initiatives earlier. Shearing explains the company’s approach regarding its current debt as follows:

“It's really easy to explain where I think we're going. We expect to pay all of this debt back within 2 years if needed. If we can restructure that debt, which we are seeking to do now, we could put it off for 5 years, that would free up immediate cash flow and we could then commence exploration sooner than we could have done if we didn't do that. Then it's a question of expanding the projects that we have but also looking for additional acquisitions.”

The labour force of Altaley Mining Corp. consists of approximately 64% to 65% of the local community. The company believes that through this as well as its training programs aimed at the local community and its employees, it mitigates any social risks. Shearing explains the company’s approach regarding its ESG aspects as follows:

“For example, to mitigate some of our operating risks at Campo Morado, we employ about 64%-65% of our workforce made up of local people. We have training programs to bring them in. That's the ESG component of it. We're looking at bringing in solar power to help our costs and be more green. In as far as the country risk goes, there is risk in any country you work in; less in Canada or the US, but we know how to operate in Mexico. We've got a very good operations team and they continue to move things forward.”

Future

The company plans to install the second 500 tons per day ball mill at the Tahuehueto gold project by the end of the third quarter of 2022. The necessary equipment has been acquired, with the majority thereof already obtained and stored on site. The company further plans to replace the current temporary crushing circuit at the project with a permanent crushing circuit, which will contain a primary jaw crusher and secondary cone crusher with associated vibrating screens and storage hoppers. The crushing equipment is currently being installed with its completion expected by the end of August 2022.  The tailings facility of the project is scheduled to be fully operational by the end of August 2022.

Altaley Mining Corp. will also pursue cost-saving initiatives, which include solar power as well as energy-efficient motors at its Campo Morado project. The initiatives may lead to a 15% to 20% reduction in the operations energy costs. Shearing sums the company’s initiatives up as follows:

“We're working on a number of initiatives to lower our costs. In fact, we have a proposal now for solar power at Campo Morado. We will also get one for Tahuehueto, which would work really well because we're trucking fuel in there to generate power. Therefore, if we can have half a day of solar power, that's going to reduce our costs substantially. At Campo Morado, we're also looking at saving power on the current operating electrical motors. It's a technology we've had tested through the first phase that shows these motors operate to the load, that without this technology they operate at a constant rate.”

Altaley Mining Corp. may also look into the possible acquisition of another Mexican asset. The company believes that its know-how of the Mexican mining environment, coupled with its new cash flow has placed it in the correct position to do so, Shearing explains the company’s approach as follows:

“We aren't afraid to get another Mexican project, and we're actually looking right now. There's no reason why we couldn't get a project in a different jurisdiction as well. We're going to be on an acquisition hunt early next year, as the company gets its cash flow going and gets a better market cap. We can maybe use our equity to help acquire an asset and seek out institutional support.”

To find out more, go to the Altaley Mining website