Things just got a tad more expensive for Argonaut Gold at its Magino Mine project, under construction outside Dubreuilville.
The Toronto mining company announced this week that capital expenditures to build the open-pit mine have ballooned from $510 million to $800 million, and that its president-CEO, Pete Dougherty, the founder of Argonaut, is out the door.
In a webcall with mining analysts on Dec. 14, the company didn't specify if the two events had any connection, but chalked up a third of the project's cost overruns — about $94 million — to beyond-their-control issues, namely inflation and the impact of COVID-19.
Company management said they've made some changes to their original construction plans, including how they'll power the mine. They also had to address some unforeseen, and costly, ground issues when preparing the site to build a 10,000-tonne-per-day processing plant and the tailings facility.
Argonaut chairman James Kofman called the increased costs "disappointing," but the inflationary costs in goods and services is hitting the mining industry, too.
The company maintains it's not a showstopper for Magino, not even a delay, as they vow to remain on track for the first gold pour, scheduled for the end of the first quarter of 2023.
The project sticker-shocker reaction from the market was understandable — Argonaut's stock price dipped from $3.14 on Monday to a low of 2.06 on Wednesday — but that was a hit the company said it was willing to take to be more forthcoming with this information.
Kofman and Dan Symons, vice-president of corporate development, said the company remains debt-free, the balance sheet is good, and they reassured investors and analysts they'll be able to finance these costs in a "prudent and shareholder-friendly way."
Both said a review of "all financing and strategic alternatives" is being conducted and they'll come forward shortly with an action plan for a viable financing solution.
Argonaut will end this year with $290 mlllion in total liquidity between cash and revolving credit facility, which is US$230 million.
The Magino Mine project is on a former underground mine site, historically of the same name, located 10 kilometres south of the town of Dubreuilville and 195 kilometres north of Sault Ste. Marie. The company has pinned a 17-year mine life on the operation. Hundreds of construction jobs are being created. When the open-pit operation starts in 2023, there will be jobs for 350.
The timing of these cost overruns, basically, stinks as the Magino project heads into a peak construction phase in 2022.
Most of the earthworks activity and civil engineering work is wrapping up, and big ticket processing plant components will be arriving on site in the new year to start being bolted together as construction of the processing plant begins.
Instead of delaying the project, the company chooses to stay on schedule. They'll be "condensing" the schedule, which means more contractors on site, working around each other.
There were ground conditions issues when contractors were clearing space, down to the bedrock, for the processing plant and tailings management facility, that needed to be addressed with aggregate, concrete and "slush grout" that took time, money and material.
A big scope change for the project that wasn't in the original October 2020 budget was that Argonaut had to build 11 dams — required by its permits — to manage construction water. As well, there were some site dewatering costs that they hadn't budgeted for.
All that substantially boosted development costs from $63 million to $138 million.
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A big deviation in plans is powering the operation.
Argonaut is electing to go with liquid natural gas (LNG) for the operation instead of relying on grid power. They had planned to upgrade a power line that once serviced the original Magino Mine, but after many discussions with a local utility, costs were escalating and the infrastructure wouldn't be ready in time for project startup.
Fortunately, setting up an LNG plant on site is relatively easy to do, the company said.
"The good news for us is that these plants are fairly cookie cutter in terms of their design," said Symons.
Like many employers, Argonaut said inflationary costs are showing up in materials and supplies to build a maintenance building and warehouse; in camp services like catering, worker accommodations; in recruiting in a tight labour market; and all the costs associated with their on-site COVID testing program, required by Health Canada to prevent an outbreak.
Some items being deferred are an on-site truck shop and an office complex. Instead Argonaut bought and renovated a building in Dubreuilville for office space.
Symons said they've gotten through many of the project's unknowns. The plant site issues have been sorted out, and they feel confident in advancing the project to completion on time.
"We think we have a really good handle on this."
All the trees have been cleared and the site has been completely opened up with the ground cleared down to bedrock.
Open-pit mining is actually underway with rock being excavated to build the tailings facility.
Argonaut maintains there remains substantial upside at Magino to build on its 4-million-ounce, measured and indicated, gold resource, with a mine expansion likely in the cards, maybe earlier than later.
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The company is "bullish" on the results of deep drilling at Magino that could expand the pit and lead to a return to underground mining at the site.
As a revived historic mine site, the original Magino gold mine was developed during the Second World War and ran sporadically over the decades before the site was decommissioned.
"Expansion is something that could be seriously considered very early in the mine life," said Symons.
The company expects a new resource estimate will be published in the first quarter of 2022, which will incorporate all the new drill results and paint a picture of what's coming at each phase of the mine, plus some updated capital costs.
"We really do think this is a world-class ore body in a tier 1 jurisdiction and it's going to be a company-maker for us," said Symons.
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," recognizing that they've grown into a quality mid-tier mining company that's now operating mines in three countries, with Magino now in the development track.
