Almaden Minerals is a Canadian single-mine gold and silver miner that is seeking to gain approval to begin production at its wholly-owned Ixtaca mine, discovered by the company in 2010.
Although the resource-rich project is able to be developed into an open-pit mine with lower capital expenditures than similar projects, the company’s valuation has been punished by investors in recent months due to the recent denial by the Mexican government of an environmental permit needed to begin production at the site. Our view is that it is not worth getting onboard until we see some movement in the reapplication process.
A feasibility study conducted of the project in 2018 boasted attractive results, showing that the site contains an estimated 85 million oz of silver and 1.39 million oz of gold.
With annual production expectations higher than other established mines in Mexico, it appears that the only major factor holding the company back is its permitting issues.
The Ixtaca project has a low development capital expenditure requirement of $174 million relative to its NPV of $310 million (assuming a discount rate of 5%). The company’s corporate presentation shows that the project will generate a 42% IRR at much lower gold and silver prices than we see today, indicating that the true IRR is likely even higher. However, the riskiness of the project is now much greater due to recent permitting challenges.
In December of 2020, SEMARNAT, Mexico’s federal permitting body, denied Almaden’s application for the Ixtaca gold-silver project due to concerns regarding the impact that open-pit mines may have on the environment. The company’s stock fell in reaction to the news and still has not recovered to November levels.
In February, the company announced that it is working on a revised application that will include new data from additional field studies. This process will likely take a substantial amount of time and still does not guarantee success for the project.
Despite these challenges, it still appears that the company is sitting on a very attractive asset based on feasibility study results. We recommend keeping an eye out for developments in the reapplication process and getting on board once there are clear signs that the company will be allowed to begin production.