Mining’s old guard needs strong medicine
A new report details subpar investor returns in the mining industry over the last decade, particularly big cap diversified companies which have not adapted to new realities.
Golden Minerals Company (TSX: AUMN) has announced that it plans to restart silver-gold mining operations at its Velardeña properties located in Durango state, Mexico, subject to the receipt of sufficient capital.
The Velardeña properties consist of two past-producing underground silver-gold mines and two processing mills. Mining was suspended in November 2015 when a combination of low metals prices, mining dilution and metallurgical challenges rendered operations unprofitable.
Golden subsequently leased one of Velardeña’s two mills to Hecla Mining Company, beginning late 2015 and ending in November 2020, to provide cash flow for its exploration activities. The oxide mill at Velardeña is currently being used to process gold-silver material from the company’s Rodeo mine.
Over recent years, Golden has been evaluating and testing various mining methods and processing alternatives that could potentially enable sustainable profitable operations at Velardeña, including the use of Outotec’s bio-oxidation process.
According to the company, the decision to begin operations again at Velardeña was primarily based on vastly improved sales terms it has secured for the gold-rich pyrite concentrate produced from flotation processing of mineralized material.
The company believes the improved sales terms would permit the restart of operations without the significant expense of the previously planned bio-oxidation facility, which was initially estimated at a capital cost of $6.5 million, but then more than doubled to $14 million.
The new plan calls for underground mining starting with four active stopes with processing at Velardeña’s Plant I flotation facility at an initial throughput rate of approximately 80 tonnes per day. As underground development progresses, the number of stopes is anticipated to steadily increase until 15 to 18 stopes are ultimately in continuous production, reaching a steady-state processing rate of approximately 325 tpd by the end of the year.
All required permits are already in place, Golden says, and because Plant I has recently been in use and processing previously mined Velardeña sulfide material, after startup as development costs continue to exceed net revenue, the maximum cash outflows of about $2.3 million, inclusive of the initial $500,000, are predicted to be paid back within the first nine months of operations.
The company, through engagement with an independent engineering firm, intends in the third quarter of 2023 to update the March 2022 technical report for Velardeña that was previously completed (including plans for the previously contemplated but no longer required bio-oxidation facility).
Current company-developed forecasts for mining a portion of the published resource over an approximate seven-year life of mine (LOM) estimate processing 700,000-800,000 tonnes of material at Plant I, with LOM payable gold production of 60,000-70,000 ounces and LOM payable silver production of 5.5-6.5 million ounces. Operating costs are estimated at $225-$275 per tonne.
“Since the start of 2023, we successfully processed 3,000 tonnes of material mined in our test mining activities in 2022, and we sold approximately 600 tonnes of these concentrates under the improved terms with net receipts of approximately $1.5 million or about $500 per tonne of mined material. These recent sales augur well for the potential success of our restart plans,” Warren Rehn, Golden Minerals’ CEO said in a news release.
“We anticipate that we can start mining operations with minimal initial capital of approximately $500,000. Our internally developed mine plan projects the production of approximately 400,000 silver-equivalent ounces during 2023, with the potential to ramp up to approximately 1.6 million silver equivalent ounces per year thereafter,” he added.
However, Golden cautioned that it does not currently have sufficient resources to initiate the restart of mining operations at Velardeña, or to otherwise meet its expected cash needs during the 12 months ending May 31, 2024. As of May 31, 2023, its total cash resources were approximately $2.4 million, with accrued accounts payable of approximately $1.7 million.
The company also noted that mining operations at Rodeo have ceased, and although it continues to process ore from the Rodeo stockpile, that is not expected to generate a significant amount of positive operating margin going forward.
Therefore, Golden said it needs to raise additional cash in the very near term, whether through the sale of non-core assets or equity financing. In the absence of sufficient asset sales, equity financing or other external funding, its cash balance is expected to be depleted early in the third quarter of 2023. If financing or asset sales are not available, it could be forced to liquidate the business, the company added.
Shares of Golden Minerals rose 3.3% by 12:50 p.m. EDT Monday, giving the company a market capitalization of approximately $20.9 million.
