Alamos Gold Inc. (TSX:AGI) (NYSE:AGI) reported that it has reached an agreement to acquire the surface rights for the Cerro Pelon and La Yaqui satellite deposits at its Mulatos mine allowing for the start of permitting and development activities. Closing of the agreement is subject to completion of due diligence and other customary closing conditions and is scheduled for the end of June 2014.
“We are very pleased to have successfully negotiated an agreement to acquire the surface rights for our Cerro Pelon and La Yaqui satellite deposits. Both deposits exemplify our development pipeline in that they are economically robust, technically simple, open pit, heap leach projects that are inexpensive to build and operate. Cerro Pelon and La Yaqui represent a significant source of near term, low cost, production growth that we expect will drive production at Mulatos back to approximately 200,000 ounces per year, while sharply lowering operating costs. With modest capital and very low operating costs, we expect these deposits to generate significant free cash flow,” said John A. McCluskey, President and Chief Executive Officer.
Cerro Pelon and La Yaqui Project Highlights

--  Incremental low-cost production starting in 2016 

--  Combined average production of 33,000 ounces of gold per year over a

    combined 5 year mine life with peak annual production of nearly 50,000

    ounces of gold 

--  Production is additive to Mulatos with Cerro Pelon and La Yaqui

    operating with independent crushing circuits and heap leach pads 

--  Combined average life of mine total cash costs (including royalties)

    below $500 per ounce 

--  Significantly higher combined mineral reserve grade of 1.6 grams per

    tonne of gold ("g/t Au"), nearly double the 2014 budget of 0.85 g/t for

    open pit, heap leach production 

--  Modest pre-production capital expenditures of approximately $21 million

    to construct both projects and minimal sustaining capital 

--  Significant exploration potential at Cerro Pelon

Cerro Pelon and La Yaqui are located approximately 3 kilometres and 7 kilometres (straight line), respectively from the existing Mulatos operation. The deposits are near surface, highly oxidized and amenable to open pit, heap leaching. With their combined mineral reserve grade of 1.6 g/t Au nearly double the 2014 budget, these projects are expected to significantly lower the overall cost profile at Mulatos.
Development plan – Initial Production Expected in 2016
The focus over the next 18-24 months will be on permitting and developing the two deposits with initial production expected in 2016. The near term focus will be on compiling environmental impact assessments (MIA) for both Cerro Pelon and La Yaqui with approvals expected in approximately 12-15 months. This will be followed by a 6-8 month construction period at La Yaqui and 8-10 month construction period at Cerro Pelon. Initial production from La Yaqui is expected in 2016 followed by Cerro Pelon in 2017. Each project will operate with stand alone heap leach pads and portable crushing circuits which will not displace existing throughput capacity from the main Mulatos crushing circuit and heap leach pad. Total initial capital to construct both projects is expected to be approximately $21 million. In conjunction with the completion of the environmental baseline studies, the Company intends on performing further detailed economic analysis, including securing updated input cost quotes.
Mining and Processing
Both Cerro Pelon and La Yaqui will be mined via conventional open pit methods utilizing traditional drill, blast, loading and hauling. Ore from Cerro Pelon will be mined and stacked at a throughput rate of 2,200 tonnes per day (“tpd”) over a 4 year mine life based on current reserves. La Yaqui will be mined and stacked at a rate of 1,500 tpd over a 3 year mine life based on current reserves. Contract mining and crushing will be employed at both operations. Following leaching, the gold-bearing solution will be processed through independent carbon columns at each project and the loaded carbon will be transported to the existing Mulatos plant for final processing. Both deposits are highly oxidized with initial metallurgical test work demonstrating recoveries above 80%. The Company is budgeting more conservative average combined life of mine recoveries of 75%.
Exploration

Given the lack of access, very little exploration activity has taken place at Cerro Pelon and La Yaqui in recent years. Additionally, both reserve pits remain based on designs utilizing an $800 per ounce gold price with Cerro Pelon offering the most exploration potential through further drilling. Cerro Pelon will be a focus of exploration efforts in the second half of 2014 and into 2015 with an initial 12,000 metre (“m”) drill program planned.
Gold mineralization at Cerro Pelon is primarily controlled by sub-vertical hydrothermal intrusion breccias. Four distinct breccia zones have been identified to date; North, South, West and Cliff Zones. The North and South Zones are well defined by drilling, have strong silica alteration and contain the bulk of the mineralization that has been defined to date.
A new review of the geology and controls on mineralization is underway and this has shown that mineralization is open to the SE and SW. Exploration drilling in 2014 will therefore target a possible 200m strike extension to the deposit in a southerly direction. In addition to this, another 100m of (previously untested) strike extension between two of the zones themselves will be drilled. Infill and definition drilling to tightly define all zones makes up the remainder of the planned 12,000m.

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                                     La Yaqui     Cerro Pelon    Combined   

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Initial Production                     2016          2017            -      

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Mine Life                Years           3             4             5      

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Life of Mine                                                                

 Production              oz Au        60,000        105,400       165,400   

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Average Annual                                                              

 Production              oz Au        19,800        26,100        33,000    

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Total Ore Mined         tonnes       1,574,000     2,673,000     4,247,000  

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Throughput                tpa         550,000       800,000          -      

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Throughput                tpd          1,500         2,200           -      

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Waste-to-ore ratio                     0.17          2.13          1.38     

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Average Grade           g/t Au         1.58          1.64          1.62     

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Recoveries                 %            75%           75%           75%     

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Total Cash Costs        US$/oz         $435          $525          $490     

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Initial Capital          US$mm          $7            $14           $21     

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About Alamos
Alamos is an established Canadian-based gold producer that owns and operates the Mulatos Mine in Mexico, and has exploration and development activities in Mexico, Turkey and the United States. The Company employs more than 550 people and is committed to the highest standards of sustainable development. Alamos has approximately $400 million in cash and cash equivalents, is debt-free, and unhedged to the price of gold. As of May 27, 2014, Alamos had 127,357,488 common shares outstanding (139,110,887 shares fully diluted), which are traded on the TSX and NYSE under the symbol “AGI”.