Dubreuilville mine construction price tag balloons

Argonaut Gold executives blame inflation and pandemic for driving up Magino mine development costs

Things just got a little more expensive for Argonaut Gold at its Magino Mine project, under construction outside Dubreuilville.

The Toronto mining company announced this week that capital spending to build the open pit mine has risen from $510 million to $800 million, and that its chairman and CEO, Pete Dougherty, the founder of Argonaut , left.

In a web call with mining analysts Dec. 14, the company didn’t say whether the two events were related, but attributed a third of the project’s cost overruns — about $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 will power the mine. They also had to resolve some unforeseen and costly land issues while preparing the site for the construction of a 10,000 ton per day processing plant and tailings facility.

Argonaut chairman James Kofman called the rising costs “disappointing”, but inflationary costs of goods and services are also hitting the mining industry.

The company maintains that this is not an obstacle for Magino, not even a delay, as they are committed to staying on track for the first gold pour, scheduled for the end of the first quarter of 2023.

The project’s shock market reaction was understandable — Argonaut’s share price fell from $3.14 on Monday to a low of 2.06 on Wednesday — but it was a success the company said it would. was willing to take 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 strong, and they reassured investors and analysts that they would be able to fund those costs. in a “prudent and shareholder-friendly manner”. .”

Both said a review of “all financing and strategic alternatives” was underway and they would present an action plan for a viable financing solution shortly.

Argonaut will end this year with $290 million in total liquidity between cash and revolving credit facility, or US$230 million.

The Magino Mine project is on a former underground mining 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 pinned a mine life of 17 years on operation. Hundreds of construction jobs are created. When surface mining begins in 2023, there will be 350 jobs.

The timing of these cost overruns, by and large, stinks as the Magino project enters a peak construction phase in 2022.

Most of the earthworks and civil works are nearing completion, and major process plant components will arrive on site in the new year to begin assembly as construction begins. processing plant.

Instead of delaying the project, the company chooses to stick to the schedule. They will “condense” the schedule, which means more contractors on site, working around each other.

There were ground 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 “slush slurry” which required time, money and materials.

A big change in scope for the project that was not in the original October 2020 budget was that Argonaut had to build 11 dams – required by its permits – to manage construction water. Additionally, there were site dewatering costs that they had not budgeted for.

All of this dramatically increased development costs from $63 million to $138 million.

A big gap in the plans fuels the operation.

Argonaut chooses to use liquefied natural gas (LNG) for operation instead of relying on the electricity grid. 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, setting up an LNG plant on site is relatively easy to do, the company said.

“The good news for us is that these factories are quite simple in terms of design,” Symons said.

Like many employers, Argonaut said inflationary costs were showing up in materials and supplies to construct a maintenance building and warehouse; in camp services such as catering, worker accommodation; to recruit in a tight labor market; and any costs associated with their on-site COVID testing program required by Health Canada to prevent an outbreak.

Some carryover items are an on-site truck shop and an office complex. Instead, Argonaut purchased and renovated a building in Dubreuilville to accommodate offices.

Symons said he overcame many project unknowns. 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 grasp of that.”

All trees have been cleared and the site has been completely opened up with the soil cleared to bedrock.

Open pit mining is currently underway and rock is being excavated to construct the tailings management facility.

Argonaut maintains there remains a substantial upside to Magino to build on its 4 million ounce measured and indicated gold resource, with mine expansion likely in the cards, perhaps sooner rather than later.

The company is “bullish” on deep drilling results at Magino which could enlarge the pit and lead to a return to underground mining at the site.

As a revitalized historic mine site, the original Magino Gold Mine was developed during World War II and operated sporadically over the 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, which will incorporate all new drilling results and paint a picture of what is happening at each phase of the mine, as well as costs. updated investment.

“We really think this is a world-class ore body in a Tier 1 jurisdiction and it will be a business builder for us,” Symons said.

On the leadership front, Kofman said what they’re looking for in a CEO is someone with a “strategic vision” who can take Argonaut to the “next level”, acknowledging that they’ve grown into a mining company. mid-grade which is now operating mines in three countries, with Magino now in development.

Eleanor C. William