Almaden Minerals (AMM, TSX)
39 cents | Market Cap $53 million
This is an interesting situation (lots of potential upside but also some “issues”) that speaks volumes about the challenges many companies are increasingly facing in the resource sector.
I’ve got no position in Almaden Minerals (AMM, TSX) but it’s top of mind for whenever I go on a shopping spree, as a lot of bad news has already been baked into the share price. Silver itself is shaping up nicely, too, after coming off its worst year in 7. Looks like a floor has been established. You know this market moves fast when it does, so be ready to move when the time comes.
Almaden’s technical pattern screams stay away – it looks UGLY, unless you’re up for one of those bottom fishing opportunities I’ve gotten pretty good at catching. Almaden does have the bargain “optionality” factor working (big time). After topping at $5 per share in 2011 the stock has dropped down, down, then down some more. Aside from brief blips higher AMM has been an absolute disaster.
Knowing the technical picture looks terrible, and the stock could even dip a little further to a new all-time low, why might AMM make a comeback and be worth buying?
Ixtaca is a Proven and Probable reserve. It’s large now, with 1.4 million ounces Gold and 85 million ounces Silver, and the property hosts several more look-alike targets (large clay alteration zones).
Hole 224, for instance, was a stellar intercept grading 3.7 g/t Au and 18 g/t Ag over 134 m.
For the first 6 years of operation, mill head grade is estimated to be 2 g/t Au. Over that same period annual production is estimated to be 108,000 ounces Gold plus 7 million ounces Silver – beefy enough for just about anybody besides the most major mining companies.
Ixtaca is very sensitive (in a positive way) to higher metal prices. Almaden’s Feasibility Study (2018) showed positive economics at price points most projects wouldn’t. Assuming $1,275 Gold and $17 Silver the after-tax NPV (5%) is $310 million.
Sensitivity analysis says Ixtaca has an after-tax NPV of $466 million using $1,475 Gold and $20 Silver.
Capex wasn’t out of this world at a build cost of $174 million. And capex could come lower from there thanks to a creative/smart acquisition Almaden made for a 7,000 tpd mill years ago when equipment was cheaper. The tricky part will be shipping that equipment from Alaska and reassembling in Mexico.
What’s the problem with AMM then? Sounds okay so far.
The environmental permit, and social licensing in general. The company’s December 20 news release outlines 4 ongoing key challenges: 1) Environmental permit application; 2) Human rights impact assessment (HRIA); 3) Mineral title lawsuit; and 4) Community engagement.
The above describes a scenario that a lot of companies are grappling with these days, and why metal prices should remain buoyant for years to come (significant future potential supply is being delayed, or in some cases wiped out entirely). This is also why we are so bullish on special de-risked situations like Atlas Salt (SALT, TSX-V) in western Newfoundland where approval of an underground Salt mine, swiftly with strong local and government support, is as close to a sure thing as the sun rising tomorrow morning. Jurisdiction is more critical than ever right now.
Below is some of what Almaden and its shareholders have had to deal with:
Ixtaca and Almaden are bogged down in a legal system running slower than usual. But unless Mexico becomes a no-go place for mining (not likely, but almost anything is possible these days) you’d think Almaden will receive environmental approval. Ixtaca is not remote and near infrastructure, paved roads to within 2 km of deposit. Local support for Ixtaca is said to be there.
I’d bet getting a green light is only a matter of time. Bad news is baked into the stock price. Any encouraging news could cause a dramatic turnaround. No need to buy tomorrow but this is a play we’ll be keeping an eye on as a lot of money could be made on this stock at some point during 2022.