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AMARILLO
MINING | AMARILLO GOLD
GOLD Brazil’s next gold producer
TSXV and OTCQB-listed Amarillo Gold was formed in 2004 specifically to purchase the Mara Rosa Property – a greenstone belt, shear hosted meso-thermal gold mineralised system of Neo-Proterozoic age – located in the Brazilian state of Goiás. Mara Rosa is comprised of 2,600 hectares of mining permits, of which the main accumulation of gold is inside what is known as the Posse Deposit.
“We did a 15,000 metres
Posse was discovered by BHP in the 1980s, mined by Western Mining in the 90s and eventually sold to Amarillo by a troubled Metallica. Torontobased Amarillo soon acquired a second Brazilian project in 2006 before conducting around 40,000 metres of drilling at Mara Rosa over several years up to 2011, when it published a pre-feasibility study (PFS) for the project. Further geotechnical work was conducted and used to update the +1 million ounces (oz) resource and PFS in 2016-17, before some upheaval resulted in several corporate changes.
strong position to finish the
Rowland Uloth joined as executive chairman in mid2017, Hemdat Sawh was appointed CFO later that year and in early January 2018 Mike Mutchler became Amarillo’s new CEO. “Since then we’ve been busy getting Mara Rosa back on track,” says Mutchler.
Finalising the feasibility
drill programme in 2018-19, moved all of our inferred and measured into indicated resources, updated our PFS in late 2018 and started our feasibility study early in 2019. We put it on hold later in the year, but a $15 million capital raise in August put us in a feasibility study in 2020.” Unbeknown to the company was the onset of an unprecedented global pandemic this year, which necessitated a shift in work patterns for Amarillo’s office and field-based staff in Canada and Brazil, as well as for the engineering teams working on the feasibility.
However, the feasibility work was finalised in May with staff working remotely and the findings published at the beginning of June. Before delving into the results, it
MINING | AMARILLO GOLD
would be remis not to discuss
Fortunately, the areas where
There have been few recorded
the impact of COVID-19
Amarillo’s sites are located
infections near the Mara
on Amarillo’s operations,
have been relatively untouched Rosa project, which can be
particularly given that Brazil
by the virus, which allowed
partially attributed to the
has the second highest
the company to continue
swift reaction of the GoiĂĄs
recorded infections in the
operating throughout the
State authorities, according
world and was closing in on
peak of the pandemic, albeit
to Mutchler. Existing mines
a million cases at the time of
in line with social distancing
in the state were initially
writing.
measures.
shutdown before reopening again, and despite not being in
MINING | AMARILLO GOLD
POSSE GOLD DEPOSIT - CROSS SECTION LOOKING NORTH
operation, Amarillo continued
same time and all staff were
switch from multiple indicator
with around a dozen field
quickly set up to work from
kriging (MIK) to ordinary
technicians on-site throughout
home. “Our engineering
kriging for resource and
the pandemic.
groups Ausenco, SRK and
reserve estimates.
GHT Engenharia also started It is a similar situation at
working from home. There
Amarillo’s Lavras do Sul
may have been a couple of
property in Southern Brazil.
weeks of disruption, but it
There have been few recorded
didn’t slow us down and we
cases near the project, and
were able to continue with our
only six employees have been
feasibility work.”
working on-site shipping core from an earlier exploration programme.
Key recalibrations
AM ARIL LO GOL D
AT A G L A N C E
STOCK TICKER
Two significant changes to
TSXV:AGC, OTCQB:AGCBF
The company’s Toronto team
the project were outlined
was already working from
in the Mara Rosa feasibility
MARKET CAPITALISATION
home, but its Belo Horizonte
study, compared to the 2018
office closed around the
PFS, the first of which being a
US$33.2 million (as of June 18, 2020)
j
“We’re highly leveraged to the gold price. A 10% change in the gold price changes our NPV by about 30%” Mike Mutchler, Amarillo Gold president and CEO
“Our infill drilling was
well for veiny deposits, but
delivering lower grades than
that the Posse Deposit is more
previous drilling had, based
strata-bound into a shear
on MIK models. So we did a
zone and there are chemical
jack knifing study, which is
alterations within the shear
where you drop a hole out
zone that affect the grade, but
of the database and let the
not quite what you would call
model predict the grade at that
a vein.
point and then compare that to the actual grade. We saw
“While the switch to ordinary
further evidence that MIK was
kriging dropped the grade by
overstating the grade.”
about 20%, from 1.4 g/t in the PFS to 1.2 g/t in the feasibility,
Mutchler points out that MIK
the new model provides
is a reliable tool that works
much greater confidence in
MINING | AMARILLO GOLD
AERIAL VIEW OF THE POSSE DEPOSIT SHOWING POSSE NORTH AND POSSE SOUTH PITS
the resource and we feel we
operations near Brumadinho
deemed it impractical to
have a much higher chance of
in Minas Gerais early last
evacuate the open pit within 30
reconciliation in the mine plan
year. The disaster prompted
minutes of a warning message.
when we do get started with
a deep rethink of health and
In addition, Amarillo foresaw
the operation.”
safety protocols relating to
delays to the permitting
tailings dams and led to new
process if it were to go
The second major change in
regulations, including the
ahead with the original plan
the feasibility study concerned
provision of an exclusion zone
and move the tailings dam
the decision to switch to dry
that is reachable by all staff on
downstream.
stack tailings as opposed to a
foot within 30 minutes of an
downstream construction dam
audible warning.
at the Mara Rosa project.
“I think you’re going to see Brazil leading the world in
In Amarillo’s case, the
switching to dry stack tailings.
Brazil’s mining sector was
permitted location of its
The technology has caught up
rocked by the fatal dam
tailings dam is upstream from
with industry such that you
failure at one of Vale’s iron ore
the open pit, so the company
based on different gold prices. The base case used a gold
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price of $1,400 per oz, which predicted an after-tax NPV5 of $183 million and IRR of 25%. However, when using the gold price at the time the study was published – around $1,700 per
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oz – the NPV increased to $360 million and the IRR reached 50%, which represents a big
can use dry stack tailings now
swing in the value of the
on a large plant. We’re going
project.
to build a 7,000 tonnes per day carbon-in-leach (CIL) plant
“We’re highly leveraged to the
and it’s entirely feasible to use
gold price,� says Mutchler. “A
dry stack tailings.�
10% change in the gold price
Leveraging the high gold price
changes our NPV by about 30%. We also showed a middle of the road consensus case
The feasibility study supports
which gave an attractive NPV
an open pit mine and CIL
of $272 million.�
operation over a 9.6 year mine
CEO MIKE MUTCHLER (THIRD IN FROM
like with the gold price, the feasibility compares different
life, with gold production of
In addition, 60% of the project
exchange rates and highlights
102,000 oz annually for the
costs are based locally in
the economic advantages
first four years of the operation
Brazilian reais, which has
available to Amarillo with a
and average annual production
fallen in value compared to the
favourable rate.
of 84,500 oz over the full LoM.
US dollar in recent months and
The study offered three cases relating to project economics,
provided an opportunity for a
“Brazil is getting control of
lower project capex figure. Just
their economy and has a business and industry friendly government in place. But in
MINING | AMARILLO GOLD
M THE RIGHT) WITH THE AMARILLO GOLD TEAM
the meantime, I think we
several key individuals
which began in 2016 when
have an opportunity to take
from the local government,
the company was awarded
advantage of that higher
Amarillo received a Protocol of
its preliminary licence (LP)
exchange rate to build the
Intent to build the Mara Rosa
– the first of a three-step
project for a lower overall
project from the governor of
process for all mining projects
capex.”
the State of Goiás in June.
in Brazil – on the back of an environmental baseline
Permitting progress
The Protocol of Intent is
study and a series of fruitful
another key step in the
community meetings.
Following a formal digital
project’s progression through
meeting in May involving
the permitting timeline,
“Mara Rosa is a brownfield site
which is around 10 km from
model. Amarillo completed
and so there used to be mining
the mine. 10,000 people live
this work and applied for the
jobs in the town of Mara Rosa,
here and there is no other
licence back in December
“We think we’ll lock in the construction financing in September or October. That roughly lines up with when we expect to receive the LI.”
major industry, so they want
2019, and expects to receive
to see the mine reopen and
the permit at some point in Q3
jobs come back into the
of this year.
community. We learnt this
The LI will give Amarillo the ability to build and commission the plant, with the final operating licence (LO) awarded after a formal inspection of the plant takes place once it reaches commercial production.
during public meetings in 2016 and have maintained good local support since then.” The next step of the process is the installation licence (LI), which requires basic engineering and a financial
MINING | AMARILLO GOLD
Mike Mutchler, Amarillo Gold president and CEO
The home straight Amarillo is shaping up well for this next crucial phase of development at Mara Rosa. The company is working with Auramet International on project financing and evaluating different debt-equity ratios for the construction period.
in April next year, following
same time, the company will
the end of the rainy season.
drill some of its 22 targets at the Lavras do Sul project,
“From then it will take 15
which Mutchler believes will
months to complete the
eventually become a multi-
plant. So, we’ll be ready to
million oz district. The future
commission the plant in mid-
is bright and golden for
2022, with first commercial
Amarillo in Brazil.
production by the end of the year.”
“We think we’ll lock in the
Alongside this, Amarillo will
construction financing in
also be undertaking regional
September or October. That
exploration at Mara Rosa
roughly lines up with when we
and extensional drilling at
expect to receive the LI. This
the Posse Deposit to further
will allow us to break ground
grow the resource. And at the
Published by Anderson Murray Media Ltd
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