VANCOUVER (miningweekly.com) – The focus has turned to delivering on the impending catalysts for newly minted midtier gold producer Leagold Mining, as it assimilates the freshly acquired Mexico-based Los Filos mine and works to enhance and expand the flagship operation.

“Los Filos is an ideal cornerstone mine with which to launch Leagold’s ‘buy and build’ strategy in Latin America,” senior VP of technical services Doug Reddy told Mining Weekly Online on the sidelines of a recent retail investor presentation in Vancouver.

Leagold is following the same tenets that senior management – many of whom are Endeavour Mining veterans – have done before, building on their history of creating shareholder value and operational success, he said. The company is backed by Neil Woodyer, CEO and mining magnate Frank Giustra, who is chairperson of the board.

“It is important for us to update the market on where we stand today, because there is a lot of news flow coming down the line as we start achieving the milestones at Los Filos,” Reddy stated.

Los Filos produced 231 000 oz of gold in 2016 at all-in sustaining cost (AISC) of $878/oz, making it one of the largest gold mines in Mexico and an ideal platform for growth and regional consolidation.

Leagold acquired the mine for $350-million, when Goldcorp divested its noncore asset in April, transforming the junior into a low-cost gold producer in Mexico. Los Filos is the first step of Leagold’s gold growth strategy, targeting assets with existing or near-term cash flow, he said.

NEAR-TERM CATALYSTS
The Los Filos operations comprise two openpit mines, Los Filos and Bermejal, an underground mine at Los Filos, and the opportunity to develop a new underground mine at Bermejal as an expansion project.

Work started immediately to optimise the mine and drilling programmes and related preparation work for the development of a new underground mine at Bermejal are progressing. To date, Reddy reported, mine productivity has increased, the company has expanded the resource and it is leveraging further efficiencies by changing from contract mining to the owner-operator model.

The openpit operation started commercial production in 2008 and the asset has a strong record of mineral replacement through exploration. Gold is recovered from crushed and run-of-mine ore via a conventional, low-cost heap leach process.

The Los Filos mine is located 230 km south of Mexico City and is accessible by paved roads and a private airstrip. Grid power is supplied by InterGen with a 20 MVA substation at site.

Los Filos has a significant mineral resource base that includes measured and indicated resources of 422.5-million tonnes grading 0.86 g/t gold, for 11.5-million ounces of gold, and inferred resources of 162.7-million tonnes grading 0.76 g/t gold for four-million ounces as set out in a March technical report.

The Los Filos technical report and subsequent exploration drilling results have determined that the Bermejal underground project is an attractive expansion, with the potential to increase gold production, reduce AISC/oz and extend the mine life, Reddy pointed out.

He said the company is proceeding with a $7.7-million step-out and infill drilling campaign of 56 000 m to expand mineral resources at the Bermejal underground project, building on the recent exploration success at Los Filos.

He noted results from an infill and geotechnical programme completed in the first quarter yielded significant positive intercepts, including 18.5 g/t over 29.2 m and 12.4 g/t over 21.6 m (including 17.6 g/t over 9.2 m). Infill drilling results confirmed widths and grades in the widest and higher-grade portion of Bermejal underground deposit.

Mineralisation at the Bermejal underground deposit remains open in several directions, Reddy noted. Leagold makes use of reverse circulation drilling in the upper portions of holes, followed by diamond drilling ‘tails’ to the end of hole for quicker hole completion and reduced drilling costs.

The drill holes are planned to intersect oxide mineralised zones at the steeply dipping contact of the Bermejal intrusive with carbonate, and upper and lower contacts of the sill. The programme is expected to be completed during the second half of the year.

BERMEJAL IMPACT
The Bermejal high-grade underground deposit represents significant potential upside to the Los Filos operations, as it could potentially be developed and mined concurrently with tthose operations.

Leagold plans to spend about $47-million in capital expenditures on the Bermejal project in 2017/18, with operations slated to start in 2019.

While the current Los Filos reserves can support operations up to 2024, Bermejal will add about 175 000 oz/y and significantly lift the company’s output from about 230 000 oz in 2018, to about 375 000 oz in 2019, and offset the expected decline of Los Filos output up to its end in 2024. Barring any intervening merger and acquisition activity the company might undertake, Bermejal will continue to produce about 200 000 oz/y to 2025.

At its peak, AISC of the combined operations will fall to $410/oz, providing wide margins with which to pursue other opportunities in Latin America, Reddy noted.

He believed the company’s enterprise value will be rerated once it achieves higher output with the incorporation of the Bermejal underground project.

Among the important catalysts Leagold expects to achieve in the relative near term, is to graduate to the TSX main board within the next few weeks. The next stimulus will come from analysing the Bermejal exploration results, while also weighing a trade-off study to confirm whether Bermejal ore can be better treated on the existing heap leach facility, or whether the cost of a more advanced carbon-in leach plant is justified.

Permitting for Bermejal is ongoing and no surprises are expected.

Located in the prospective Guerrero gold belt of skarn deposits within carbonates, the large Los Filos land package contains “robust” exploration potential over about 150 000 ha of underexplored terrain.

Meanwhile, there are several brownfield targets that remain to be tested, including the Bermejal East and West, Guadalupe and San Pablo targets.