Chris Marchese
Chief Mining Analyst, GoldSeek & SilverSeek
Week Ended April-24, 2020
$AUN.V, $BSR.V, $CDE, $GORO, $GPL, $KL, $PG.TO, $SAND, $SILV, $SKE.V, $VGCX.TO
There has been a considerable lack of news flow recently as a result of on-going mining suspensions due to COVID-19. This should change over the next couple of weeks as companies report Q1 results. The Mexican Federal Government has extended the mandated shutdown of mining activities by an additional month, through May 30th. At this time, the earliest possible resumption is May 18th in areas where there are no new reported cases of the virus. This will start to have an impact in many silver companies and maintenance costs will lead to material cash outflows should it be extended until the end of June. On the other hand, mining might be declared an essential business in Mexico at any time.
Aurcana: Further to its press release issued April 15th, it closed a private placement issuing 9.34m units, for total proceeds of C$2.52m. Each unit consists of a common share and a one full warrant with a C$0.35/share strike price for a period of 36 months.
Bluestone: The company continues to advance the Cerro Blanco project in Guatemala toward a production decision, which is expected before year end. It announced a C$80m (US$57m) bought deal financing and will issue 45.72m shares. There is an over-allotment option for the underwriters to purchase an additional 6.858m shares at any time prior to 30-days following the closing. If exercised in full, this would bring in an additional C$12m (US$8.5m) for a total of C$92m (US$65.8m). This should be the last time equity will be issued as the remainder can be covered via debt.
Coeur Mining: Reported Q1 2020 results. The company generated $30.1m in operating cash flow (before changes in non-cash working capital - which was negatively impacted by the suspension of mining activities at Silvertip and a couple one-time expenses). Gold accounted for a record high 74% of total revenue (85k oz. Au), and Coeur’s 3 US operations accounting for 56% of revenue. Coeur has a significant hedge book through 2020 and 2021 and is okay if gold doesn’t appreciate beyond $1,826/oz., which is unlikely. Palmarejo was the company’s top performing operation. Driven by a 10% increase in gold output. It generated $29m of operating cash flow during the quarter and $22m of free cash flow. The company commenced its largest exploration program in company history. The increase is primarily related to expanded drilling underway at Palmarejo and he ramp up in drilling at the Sterling and Crown deposits in southern Nevada. Expanded drilling also commenced at Kensington and Silvertip. The company remains in strong financial shape with $53m in cash at quarter end and subsequently drew down an additional 100m from its credit facility, bringing the total amount drawn to $150m.
Gold Resource Corporation: Reported Q1 preliminary production of 10.14k oz. Au and 407k oz. Ag. This included production from the Isabella Pearl’s lower variable grade Isabella zone. The company remains on schedule to access the upper portfolio of the higher-grade pearl zone by mid-year. In turn, production in the 2H 2020 should gradually ramp up as costs fall. This will be more heavily weighted towards Q4.
Great Panther: Announced a new CEO in Rob Henderson, three new directors including David Garofalo as chairman. Refreshing the management team and BOD should lead to gradual improvements in operations. Great Panther, a lower-quality gold producer could outperform significantly going forward as the gold price increases due to much higher leverage to gold price (as it has a high-cost structure). If it can successfully reduce Tuscano’s AISC profile toward $1,000-$1,100/oz. consistently, the company’s stock should easily double or triple assuming an 1,800/oz. gold price deck.
Kirkland Lake Gold: Never failing to impress, Kirkland announced it identified a new large corridor of high-grade mineralization along Main Break east of the Macassa mine. This is close the #4 shaft (which will increase annual production in excess of 400k oz. beginning in 2023). The key intercept was 2.4m @ 141.3 g/t Au. The company identified a 700m long by 300m high corridor of high-grade mineralization open along strike and to depth. Drilling on SMC east intersected high-grade mineralization up to 75m outside of current resource, illustrating the potential for continued growth of SMC. Drill highlights include:
· 2.1m @ 43.1 g/t Au
· 2.3m @ 31 g/t Au
· 2.1m @ 16.4 g/t Au
· 4.2m @ 19.3 g/t Au
Premier Gold: Announced Q1 2020 production results from South Arturo in its second full quarter at the El Nino underground mine. Production totaled 18.317k oz. Au and 52.8k oz. Ag, 11.6k oz. Au and 52k oz. Au from the Mercedes mine and 7.5k oz. Au and 625 oz. Ag. Premier is a severely undervalued (On a P/NAV basis) junior producer but the majority of its value is derived from its development projects. As such, it will take some time to get a market re-rating.
Sandstorm Gold: The mid-tier royalty and streaming company successfully completed its early warrant exercise program as all 15m unlisted warrants were exercised generating proceeds of $50.25m. The company now has just over 189m shares outstanding. Sandstorm has significant liquidity relative to the size of the company with up to $300m available under its credit facility, roughly $25-$30m in net cash, over $80m in investments (shares, convertible debt, warrants), and approx. $45m of in the money warrants (expire in November 2020) and options for a total of roughly $450m (assuming early exercise of warrants) plus ongoing cash flow generation. Realistically speaking, this gives the company to comfortably spend $300-$350m or so on new royalty and streaming transactions by year end.
SilverCrest Metals: The company closed an over-subscribed non-brokered private placement for C$101m (approx. US$79m), originally announced on April 13th for C$75m. The company issued a total of 13.465m shares @ C$7.50/share. Subsequent to this, SSR Mining (a potential future bidder for the company) exercised its participation rights with a C$27m (approx. US$19.2m) private placement, increasing total gross proceeds to C$128m (US$98.2m). With the oversubscriptions and adding proceeds from SSR Mining as well as approx. $70m or so in cash on hand, the company is well financed to continue aggressive exploration and make a production decision before year end. It is looking like the company may not need additional financing to bring Las Chispas into production, but if it does, it would only require a small revolving credit facility (i.e. <=$30m).
Skeena Resources: The company continues to “re-discover” Eskay Creek as exploration id delivering very robust results. The Phase I surface drilling program highlights include:
· 22.08m @ 3.62 g/t Au and 41 g/t Ag
· 36.19m @ 2.61 g/t Au and 10 g/t Ag
· 19.6m @ 3.91 g/t Au and 21 g/t Ag
· 8.43m @ 4.61 g/t Au and 203 g/t Ag
This surface drilling program is complementary to high-grade open-pit per the 2019 PEA. At a $1,325/oz. and $16/oz. gold and silver price and initial capital expenditures of $233m, the After-tax NPV5% and IRR are $491m and 51%. Average annual production over an initial 8.6-Yr. mine life is estimated at 236k oz. Au and 5.81m oz. Ag (306k AuEq oz.). Life of mine AISC net of silver byproduct of $615/oz.
Victoria Gold: Ramping up Canada’s newest gold mine, Victoria announced a C$20m private placement as commercial production is taking longer to achieve than initially planned and is on track to reach commercial production late Q2-early Q3. The underwriters, BMO Capital Markets and PI Financial agreed to buy on bought deal financing 2.615m shares @ C$7.65/share.
Chris Marchese for the Gold Seeker Report
Chief Mining Analyst at GoldSeek & SilverSeek
Chief Mining Analyst with GoldSeek and SilverSeek. Previously he was the Senior Mining Equity and Economic Analysis at The Morgan Report. He was a Co-Founder and Director of Lemuria Royalties, before it was acquired in March 2018. He also co-authored The Silver Manifesto with David Morgan in 2015.
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