Chris Marchese
Chief Mining Analyst, GoldSeek & SilverSeek
Week Ended April-10, 2020
$BTG, $CXB.TO, $DPM.TO, $EXK, $EGO, $FNV, $WPM, $OR, $SAND, $RGLD, $GFG.V, $GBR.V, $GPL, $HL, $KL, $KORE.V, $KNT.V, $MOZ.TO, $PG.TO, $AUY, $CG.TO
It’s looking the suspension of mining activities have tapered off for the time being, though the mining industry has already been severely impacted. Approximately 500 mining companies have announced the suspension of at least one mining operation. There could be a shift toward countries declaring mining an essential business. This recently happened in Argentina and could very well be the case in other countries which rely heavily on mining for tax revenue. There are some places (countries, states, provinces, etc.), which haven’t mandated a shutdown of operations (of have declared mining an essential business) such as West African countries, Australia, Brazil the U.S., etc. and other countries where the mandate is about to expire i.e. Peru (ex-Lima). There are companies which haven’t been impacted at all and others which have had the majority of operations shutdown, reinforcing the importance of liquidity and geographic diversity.
B2Gold: Reported record quarterly production of 262k oz. Au, generating record quarterly revenue of $380m in Q1. The company remains on track to meet annual guidance of 1-1.055m oz. Au for the full year 2020. Record production was driven by its largest asset, Fekola, which produced 164k oz. Au during the quarter. The company remains free of any shutdowns, with the exception of a very short-term suspension at Masbate, which didn’t impact production.
Calibre Mining: Announced exceptional drill results from the Panteon deposit at its El Limon operations. The drilling results confirm continuity of high-grade mineralization along down-plunge projection of the deposit. Prior to Q4 drilling, the deposits had only been tested 120m along strike and a depth to 115m form surface. Highlights from this 2,625m drilling campaign include:
· 4.4m @ 17.96 g/t Au
· 4.7m @ 10.64 g/t Au
· 5.2m @ 54.67 g/t Au
· 10.8m @ 17.77 g/t Au
· 9.1m @ 6.28 g/t Au
Dundee Precious Metals: Announced strong Q1 production results from each of its three operations. The company will pay its inaugural quarterly dividend of $0.02/share in April. Production from its two-mining operation (excluding anything attributable from Tsumeb) was 68.3k oz. Au (38.8k oz. Au from Chelopech and 29.6k oz. from Ada Tepe).
Endeavour Silver: The company reported Q1 production, which was inline with guidance prior to the suspension of mining activities. The company produced 857k oz. Ag and 8.5k oz. Au. Operational issues continue to linger for Endeavour. While Guanacevi outperformed its plan, Bolanitos unperformed. If the price of silver doesn’t get back towards $18/oz or higher in the next couple of months, there could be some liquidity issues, especially is the mandated suspensions are extended beyond the end of April. These of course can be easily resolved i.e. an equity financing but that comes at a cost.
Eldorado Gold: Preliminary production for the first quarter was 116k oz. Au. Production increased 40% relative to Q1 2019, driven primarily by Kisladag and Lamaque.
Franco-Nevada: While the company will be impacted by a temporary shutdown of operations upon which it has streaming interests, Franco’s portfolio is so incredibly diversified, that even the temporary suspensions of mining operations at its largest asset will be rather muted. Similar to its peer group ($WPM, $OR, $SAND, $RGLD), it will be looking to make additional streaming acquisitions during what will be a very opportunistic time over at least the next 12 months (primarily on the base metal byproduct side). When operations begin to normalize, the higher gold prices should make up for cratering of the oil price.
GFG Resources: The company intersected a significant high-grade gold system at the Nib prospect on its 100% owned Pen Gold Project. The company intersected 71.27 g/t Au over 8.5m at a vertical depth of 50m below surface. The project is located 40km west of the prolific Timmins gold district in Ontario. In Q1 2020, the company completed seven holes (2,751m) as part of its 2020 phase I drill program. The company is currently drilling the final hole of the program at the HGM prospect and expects to finish the hole in the coming week.
Great Bear Resources: The company continues to impress with drill results at its Dixie Project in Red Lake. The company has completed 83 of 300 planned drill holes into the LP fault target, as part of its 5km long by 500m deep drill program. Drill result highlights include:
· 52.15m @ 4.24 g/t Au
· 3.5m @ 23.17 g/t Au
· 42m @ 5.28 g/t Au
· 6.5m @ 9.35 g/t Au
· 6.4m @ 4.91 g/t Au
· 4.15m @ 16.80 g/t Au
Great Panther: Announced Q1 production results of 35k AuEq oz. (134% increase over Q1 2019). Tuscano saw a 12% year/year increase, producing 26k oz. Au due to higher throughput and improved recovery rates. The junior producer is in fairly good shape, despite struggling with costs at its flagship asset, Tuscano. The gold price has risen to a level where the company should start to generate material cash flow, at least relative to its size. The company has a strong liquidity position, with $37m in cash.
Hecla Mining: The company has taken a short-term blow, as its most profitable operation, Cases Berardi, was forced to temporarily suspended mining operations until April 13th, which was subsequently extended to May 4th. The company’s smallest operation, San Sebastian has also been placed on care and maintenance at least through April 30th. The company will make it through this as it does have a low-cost silver operation and some gold production from its Nevada mines, which should allow the company to damped the impact of Casa Berardi and lower silver prices. Furthermore, the company was very fortunate in the timing of the refinancing of its debt in early February (through the issuance of bonds maturing in 2028), which has materially strengthened its liquidity position. As at quarter end, the company has cash and equivalents of $215m, with the ability to draw down an additional $40m from its revolving credit facility.
Kirkland Lake Gold: The company announced record Q1 production of 330.8k oz. Au, an increase of nearly 99k oz. relative the same period in 2019. 91.5k oz. of this is related to production from the recently acquired Detour Lake mine [from Jan 31]. Fosterville saw robust output of 160k oz. Au courtesy of a 46% improvement in head grade to 42.4 g/t! The company also repurchased a whopping 9.7m shares for $329m during the quarter, leaving the company with a cash position of $530m and no debt at quarter end. Look for the company to implement optimization measures at Detour Lake, while also looking for an expansion of output over the coming years. The company will also be looking to divest the Holt Complex as it will be focused on its three cornerstone assets.
KORE Mining: The company announced an excellent preliminary economics assessment for its Imperial Oxide Gold Deposit. A low capital intensity project ($142 initial capital costs) with robust economics. Using a $1,600/oz. gold price deck yields an after-tax NPV and IRR of $450m and 52%. Located near the Mesquite Mine in California (owned and operated by Equinox Gold ($EQX), the project is set to produce an average of 146k oz. p.a. over an initial 8-year mine life, with cash costs of $647/oz. and all-in sustaining costs of $852/oz. (inclusive of $124m of closure costs).
K92 Mining: One of the higher quality junior producers had fine Q1 production results, with production of 19.24k oz. Au, 340 lbs. Cu, and 7k oz. Ag (19.9k AuEq oz.). The company achieved record tonnage in Q1, a 76% increase from the same period in 2019. Head grades were in-line with guidance at 13.58 g/t. The company is financially sound with $22m in cash (at year 2019). The company also had significant concentrate receivables in transit and current surface stockpile of 18k tons @ 11.5 /t Au. Mining operations remain uninterrupted with the majority of the phase II expansion capital already spent. In the second half of the year, the Kainantu mine will see significant production growth.
Marathon Gold: Announced a positive pre-feasibility study (PFS) for its flagship asset, the Valentine Gold Project. With relatively initial capital costs (205m), the project generates an after-tax NPV and IRR of $354m and 36%, using a gold price deck of $1,350/oz. Given the macro-environment, the reckless monetary and fiscal policy on a global basis, it is more reasonable to assume a base case scenario using a $1,650/oz. gold price deck. This increases the after-tax NPV to $550m and the IRR increase to 55%. The initial mine-life will be 12-years, with average annual output of 145k oz. Au or 175k oz. Au over the first 9-years and 54k oz. Au in years 10-12. Cash costs and all-in sustaining costs, per the PFS, will be in the lowest 30% on the industry cost curve of $633/oz. and $740/oz.
Premier Gold: The company announced its $205m offer to acquire Centerra’s interest in Greenstone Gold Mines partnership was not accepted.
Yamana Gold: Announced strong Q1 production results of 192k oz. Au and 2.73m oz. Ag (221.7k AuEq oz.). The company’s balance sheet continues to improve following the sale of Chapada and robust free cash flow generation due in in part to significantly higher gold prices. In March, the Argentine government ordered that all non-essential mining activities be shut down, a blow to Yamana as it started to ramp down operations at the highly profitable Cerro Moro mine. Shortly thereafter, the government declared mining an essential business and Cerro Moro was able to restart. Yamana has also been hit by a suspension of operations at another highly profitable operation, Canadian Malartic, which as of now, is expected to recommence operations after May 4th.
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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