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"Mexico is a country full of tailings"

Brad Langille gave a brief rendition of, ‘what doesn’t kill you makes you stronger’ at this year’s Denver Gold Forum. The veteran Mexico company promoter said a testing year on the long-life Parral gold-silver tailings project in Chihuahua would stand GoGold Resources (TSX: GGD) in good stead heading into 2019.
"Mexico is a country full of tailings" "Mexico is a country full of tailings" "Mexico is a country full of tailings" "Mexico is a country full of tailings" "Mexico is a country full of tailings"

Langille and co have made a killing on several silver and gold property transactions in Mexico over the past 25 years, and through companies such as Gammon Gold and Mexgold Resources in recent times.

In September GoGold completed its exit from the Santa Gertrudis project in Sonora with its US$12 million royalty sale to Agnico Eagle Mines, which earlier paid $80 million for the property. In three years GoGold snared about a $70 million return on the asset.

Langille said he'd been involved with companies that had raised more than $1 billion over the past decade to build a succession of projects in Mexico.

He described Parral, based on historic tailings within the Parral city municipality in southern Chihuahua, as the most difficult project he'd been involved with to date. Pre-feasibility study projections based on lab-scale column testwork and the extensive experience of leading engineering consultancies hadn't exactly translated into real milestones as the $45 million project developed before and during the two years Langille had been CEO of GoGold.

"Parral is certainly a different project," he said.

"It's a very large tailings retreatment project - 20 million tonnes in the middle of the city.

"Mexico is a country is full of tailings; there's hundreds of millions of tonnes.

"We built a brand new agglomerated heap leach, 14km away, and that's where we're processing.

"As far as I know we're the first people in the world to use agglomerated heap leaching to process tailings. Why would we do that? Well, [it was] low capex per tonne at $45 million, low opex, and at the high [combined gold and silver] grade and about 67% recovery, all looked well.

"We followed that feasibility study for about the first two years when we discovered … things just didn't scale up as per the lab, as it would with a normal heap leach."

Repeating lab-scale agglomeration as GoGold pushed production rates beyond the planned 5,000t/day to 8,000t/d, with the prescribed 15m-high pad lifts, proved impossible.

Langille said projected recovery rates ended up taking more than three-times longer to achieve, tying up capital in inventory that was barely dripping cash. Two years ago a decision was taken to "reboot the project", and trial and error followed on the agglomeration (different cement volumes) and cyanide dosing rates.

"The first quarter this year we had our best quarter and produced 420,000oz [silver-equivalent], and we were drawing down our inventory and making cash," Langille said.

"The only thing we still had to test was how to do a multi-lift heap. We can't build 5m lifts as far as the eye could see because the sustaining capital would kill the project. So we had a choice to go the conventional way [and] stack the second lift on spent material, and leach down through it … or put in an intermediate liner which means every lift is basically a brand new first lift.

"We tried the [first option] and unfortunately the answer to that test was, it didn't work [with too much gold getting caught up in the top of the spent, bottom lift].

"It wasn't a real problem; we lost about 4.5 months … nothing happens real fast on a heap. You don't know until you see the results. So what we're doing now is we're doing the second lift but we put an intermediate liner in there and it's working just great. It performs just like the first lift.

"Some of the pads are now returning up over 75% [metal recovery] where 67% was the projected recovery level.

"That liner adds about 28c/t -about 20c/oz in cost, in equivalent-silver. But we're getting right back on track. We suffered two bad quarters because of the test, but this next quarter will be looking more like the first quarter of the year.

"We're on our way to where we're ultimately going to get to next year, which is about 550,000oz-eq per quarter and making good cash flow, on top of a strong balance sheet."

 arral in southern hihuahua Parral in southern Chihuahua

Langille, GoGold's second biggest shareholder, said the company had more than $20 million in the bank and no debt. If it could hit its production target, at current metal prices, it could generate $12-14 million of free cash flow a year.

"We have 10 years of mining and processing ahead of us [at Parral]," he said.

"We've also developed an expertise here in heap leaching tails at low capex, low opex [levels].

"We have [other] targets in Mexico that we're looking at, and some of them are potentially other public companies who would like to have … some of our team's experience, the technology, and [the] cash on our balance sheet.

"Small producers need to come together … there is not a lot of reason for us to spend that G&A on single-mine companies. We're at the bottom of the market and as a shareholder I'm interested in those 15 million shares … I'm not really here for a salary. I want to see consolidation in the industry.

"But we also have some great opportunities in the area where we've done well in the past, which is [negotiating with] private families [for assets]. There are mines that I've followed for 10 years that have been the subject of legal battles and so on, and those have now been cleaned up.

"There's some real opportunity there.

"I think by this time next year I would say that GoGold will look much different than it does today - in a better way."