Things got a little more expensive for Argonaut Gold on its Magino mine project, under construction outside of Dubreuilville.
The Toronto-based mining company announced this week that capital spending to build the surface mine has risen from $ 510 million to $ 800 million, and that its chairman and CEO, Pete Dougherty, founder of Argonaut , is out.
In a web call with mining analysts on December 14, the company did not say whether the two events were related, but attributed a third of the project’s cost overruns – around $ 94 million – to problems beyond their control, namely inflation. and the impact of COVID-19.
Company management said it had made some changes to its original construction plans, including how it would fuel the mine. They also had to deal with unforeseen and costly land issues when preparing the site for the construction of a 10,000 tonne per day treatment plant and tailings pond.
Argonaut chairman James Kofman called the cost increase “disappointing”, but inflationary costs of goods and services are hitting the mining industry as well.
The company maintains that this is not a hindrance for Magino, not even a delay, as they pledge to stay on track for the first gold pour, scheduled for the end of the first quarter of 2023.
The market’s reaction to the project’s sticker was understandable – Argonaut’s stock price fell from $ 3.14 on Monday to a low of 2.06 on Wednesday – but it was a blow as the company said it ‘she was willing to accept to be more open with this information.
Kofman and Dan Symons, vice president of corporate development, said the company remains debt-free, the balance sheet is good, and reassured investors and analysts that they will be able to fund these costs in a “prudent and shareholder-friendly” manner. . “
Both said that a review of “all funding and strategic alternatives” was underway and that they would present a plan of action for a viable funding solution shortly.
Argonaut will end this year with $ 290 million in total liquidity between cash and the revolving credit facility, or $ 230 million.
The Magino Mine Project is located on a former underground mine site, historically of the same name, located 10 kilometers south of the town of Dubreuilville and 195 kilometers north of Sault Ste. Married. The company has assigned a life of 17 years to the operation. Hundreds of construction jobs are created. When surface mining begins in 2023, there will be 350 jobs.
The timing of these cost overruns, fundamentally, stinks as the Magino project enters a peak construction phase in 2022.
Most earthworks and civil works are coming to an end, and large components for the processing plant will arrive on site in the New Year to begin bolting together when construction of the processing plant begins. .
Instead of delaying the project, the company chooses to stick to the deadline. They will “condense” the schedule, which means more of the on-site contractors are working with each other.
There were soil condition issues when contractors cleared space, down to bedrock, for the processing plant and tailings management facility, which needed to be addressed with aggregate, concrete and “mud slurry” that took time, money and materials.
A big change in scope for the project that was not in the original October 2020 budget was that Argonaut needed to build 11 dams – required by its permits – to handle construction water. In addition, some site dewatering costs had not been budgeted for.
All of this drastically increased development costs from $ 63 million to $ 138 million.
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A big deviation in the plans feeds the operation.
Argonaut has chosen to use liquid natural gas (LNG) for operations instead of relying on grid feed. They had planned to upgrade a power line that once served the original Magino mine, but after much discussion with a local utility, costs were rising and the infrastructure would not be ready in time for the project to start.
Fortunately, installing an on-site LNG plant is relatively easy to do, the company said.
“The good news for us is that these plants are pretty straightforward in terms of design,” Symons said.
Like many employers, Argonaut said inflationary costs appear in materials and supplies to construct a maintenance building and warehouse; in camp services such as catering, accommodation for workers; by recruiting in a tight labor market; and all costs associated with their on-site COVID testing program, required by Health Canada to prevent an outbreak.
Some items carried over are an on-site truck store and an office complex. Instead, Argonaut bought and renovated a building in Dubreuilville for offices.
Symons said they overcame many unknowns about the project. The factory site issues have been resolved and they feel confident to move the project forward on time.
“We think we have a very good handle on this.”
All the trees were cut and the site was completely opened with the ground cleared to the bedrock.
Surface mining is currently underway and rock is being excavated to construct the tailings pond.
Argonaut maintains that there remains substantial potential for Magino to build on its 4 million ounce gold resource, measured and indicated, with mine expansion likely, perhaps sooner rather than later.
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The company is “optimistic” about the results of deep drilling at Magino which could enlarge the pit and lead to a return to underground mining at the site.
As a resurrected historic mining site, the original Magino gold mine was developed during World War II and operated sporadically for decades before the site was decommissioned.
“Expansion is something that could be seriously considered very early in the life of the mine,” Symons said.
The company expects a new resource estimate to be released in the first quarter of 2022 that will incorporate all new drill results and paint a picture of what will happen at each phase of the mine, as well as some costs. updated investment.
“We really believe that this is a world class ore body in a Level 1 jurisdiction and that it will be a business builder for us,” Symons said.
On the leadership side, Kofman said what they look for in a CEO is someone with a “strategic vision” who can take Argonaut to the “next level”, recognizing that they have grown into a mining company. Intermediate grade that is now operating mines in three countries, with Magino now on the path to development.