Gold Seeker Issue #56 ~ This Week In Mining: M&A, Yields & The Fed

The metals and miners firmed a bit this week after the FOMC meeting. It was a nothing burger as Powell continues to utter the same nonsense regarding accommodative policy, keeping interest rates low through at least 2023 (and likely much longer). While gold was stronger this week, it is likely to continue its downtrend/sideways trading. 10yr yields spiked higher after the FOMC meeting as there was no mention of when the next operation twist/yield curve control will begin. There is no question the FED will cap rates; otherwise, a continued rise in the 10yr to 2% or higher could be far too much for the highly overleveraged economy to handle. Further, it would prevent the economy from "recovering", hindering growth, especially in the economy's more interest rate sensitive sectors such as housing/real estate. The FED will do anything not to pop the "almost everything" bubble.

10yr yields are likely to move higher, which will cause downward pressure on gold, which is why we aren't ruling out gold breaking below $1,670/oz. This wouldn't mean the mining stocks will do the same as we believe a bottom was put in place when the XAU mining index went to 128 +/-. Even if the mining stocks break to new lows, we have to be realistic regarding how much lower we could go. With the mining stocks trading with an approximate implied gold price of $1,450/oz. +/-, it is hard to imagine there is much downside (barring a market crash).

Has the crack-up boom begun? We think so….

$ABRA.V, $AYA, $BNAU, $EVN, $CXB, $EDV, $GROY, $GCM, $GBR, $JAG, $KL, $MUX, $MTA, $NFG, $OSK

AbraSilver Resources: Announced the best-ever silver intercept at the Oculto deposit located on its Diablillos project, Argentina. Drill highlights from this release include:

• 65m @ 150 g/t Ag and 1.88 g/t Au
• 103m @ 388 g/t Ag and 1.70 g/t Au
• 6m @ 181 g/t Ag and 1 g/t Au

Aya Gold & Silver: The company announced its M&I resource increased 340% vs. the February 2018 MRE to 44.4m oz. @ 282 g/t Ag at its Zgrounder mine in Morocco.

Battle North: The company will be acquired by Evolution Mining @ C$2.65/share in cash, for a total consideration of approx. C$343m. This represents a 46% premium over the closing price on March 12^th and a 54% premium based on the 20-day VWAP (volume-weighted average price). This expands Evolution's footprint to Red Lake and increased medium-longer-term production. Evolution's objective is to produce over 300k oz. Au p.a. from Red Lake. The Bateman gold project, per the FS, will have an initial mine life of 8yrs with average annual production of 74k oz. Au @ AISC of $865/oz. However, this is based on 1.25ktpd operations (currently permitted), but the 1,800tpd mill facility is expandable to 2.5ktpd.

Calibre Mining: Announced a positive pre-feasibility study (PFS) at Pavon. Pavon Norte is now in production with solid exploration potential. PFS highlights include:

• Initial mine life: 4yrs.
• Avg. annual production: 47k oz. Au
• Average LOM cash costs and AISC: $650/oz. and $711/oz.
• NPV5% @ $1,700/oz. Au: $106.4m

Endeavour Mining: The largest West-Africa-focused gold producer reported a blowout quarter and full year 2020. The company produced 344k oz. Au in Q4, a 41% increase over the prior quarter with AISC falling 11% to $803/oz. Full-year production totaled 908k oz. Au, a 40% increase over 2019, while AISC increased 7% to $873/oz. More importantly, the company generated $311m in operating cash flow in Q4, a 40% increase over the prior quarter. Endeavour generated operating cash flow of $705m for the full year 2020, a 145% increase over 2019. Endeavour is just hitting its stride as it completed the acquisition of Teranga Gold, and transitions into a senior gold producer.

Endeavour's balance sheet strengthened significantly in 2020, reducing net debt by $250m in Q4 and $603m in 2020. Endeavour also issued updated guidance for 2021 of 1.365-1.495m oz. (100% Basis) @ AISC of $850-$900/oz. Endeavour also continued to advance its growth projects with the Sabodala-Massawa phase I expansion expected to be complete by year-end, feasibility studies underway for Sabodala-Massawa Phase II, Fetekro, and Kalana. In all likelihood, the company will divest the Karma mine as it is a non-core asset with the highest costs.

Gold Royalty Corp: The recently listed royalty company announced it acquired a 1.20% NSR royalty on Roxgold's Seguela development project. The company will pay the royalty holder $15.5m in consideration. This adds near-term cash-flowing royalty on a project with production and mine life expansion upside. Roxgold recently announced, following some excellent drill results, it sees Seguela producing approx. 150k oz Au (on average) for 10+ years. The project is on track to come online in 2H 2022. Roxgold does have a 14-day right of first refusal to acquire the royalty.

Gran Colombia: M&A has been picking up in recent weeks, with Gran Colombia announcing it will acquire Gold-X Mining for its Toroparu development project in Guyana. Toroparu is an excellent asset with some scale. Currently, Gran Colombia owns approx. 18% of Gold-X. Total consideration for the acquisition is approx. C$315m on a 100% fully diluted basis (approx. C$260m net of the company's existing ownership. Under the terms of the agreement, all of the issued and outstanding Gold X shares will be acquired by GCM in exchange for common shares based on 0.6948 of a Gran Colombia share for each Gold X share.

Gran Colombia acquired a high-quality project very cheaply while also benefitting Gold-X shareholders with a 39% premium based on the closing share price on the value date and a 44% premium based on the 20-day VWAP.

Great Bear Resources: The company returned to the northwestern kilometer of the LP fault zone after a year of drilling elsewhere along strike and completed seven drill holes, four of which are located within a 200m long undrilled segment. Great Bear drill both new high-grade mineralization and expected bulk tonnage intervals. Highlights include:

• 4.25m @ 25.12 g/t Au
• 23.65m @ 1.1 g/t
• 53.6m @ 1.07 g/t
• 1.3m @ 19 g/t

Toroparu will transform Gran Colombia into a mid-tier gold producer with two cornerstone assets in Colombia and Guyana. The projects in shovel ready, and construction could begin as early as late 2021/1H 2022. The combined company will have $100m in cash and approx. $54m in debt. A portion, if not all, the approximate $21m in convertible debt will be exercised into common stock. Gran Colombia also announced it would exercise the early redemption option of its gold notes of $10m or approx. 33%.

At current gold prices, given the company’s cash position, its equity investment in Aria gold, the gold stream payment to be received by Wheaton when certain milestones are reached, the company should have enough capital to complete the mine build.

Jaguar Mining: Q4 production increased 13% to 22.5k oz. Au (vs. Q4 2019) with both mines increasing production. Cash costs and AISC fell vs. the comparable period in 2019 to $705/oz. and $1,200/oz. The junior producer also announced a quarterly dividend of C$0.08/share. For the full year 2020, production increased 23% to 91.12k oz. Au at cash costs and AISC of $647/oz. and $1,044/oz. Jaguar generated $49.2m in free cash flow vs. negative (-$7.4m) in 2019. The company's cash position at year-end was $39m.

Kirkland Lake Gold; Reported new wide, high-grade Intersections in Saddle zone at Detour Lake, confirms continuity of mineralization b/t Main and West pits. This is important as this gives more confirmation for the super pit. Key intercepts include (all well above reserve grade):

• 26.9m @ 13.95 g/t Au (mineralization b/t Main and West pits)
• 58m @ 3.63 g/t Au (mineralization b/t Main and West pits)
• 80.3m @ 1.27 g/t Au (mineralization b/t Main and West pits)
• 50.8m @ 1.67 g/t Au (mineralization b/t Main and West pits)
• 36m @ 2.68 g/t Au (mineralization b/t Main and West pits)
• 39m @ 2.17 g/t Au (eastern portion; Saddle zone)
• 27m @ 2.26 g/t Au (eastern portion; Saddle zone)
• 106m @ 1.21 g/t Au (eastern portion; Saddle zone)
• 119m @ 1.47 g/t Au (below west pit reserve)
• 59m @ 1.49 g/t Au (below west pit reserve)

McEwen Mining: Announced there is an illegal blockade of the main access to the property by members of the nearby communities at its El Gallo operation in Mexico. Certain individuals believe that the annual payments and infrastructure improvements made to local communities should increase significantly.  It is a bit odd this is happening now, given the long-standing track record of supporting local communities since operations started in 2012. 

Metalla: The junior royalty and streaming company announced two royalty acquisitions this week. Metalla agreed to acquire an existing 0.75% GV royalty from Sailfish Royalty Corp for $9m in cash on El Dorado's Tocantinzinho project in Brazil. Given El-Dorado's development pipeline, it is unlikely the project gets built by El-Dorado soon. Once in production per the feasibility study, the project has an initial mine life of 10yr with average annual gold production of 170k oz. Au. The company also announced it acquired a royalty on OZ minerals Centrogold project. Metalla entered into a purchase agreement to purchase a 1-2% NSR royalty in exchange for an upfront $7m payment and up to $11m in contingent post-closing payments, consisting of common shares and cash upon the achievement of certain milestone relating to Centrogold. When in production, per the PFS, production is expected to average 145-165k oz. Au p.a.

New Found Gold: The excellent drill results continue to pour in from its ongoing 200k meter drill program at its Queensway project in Newfoundland. Three assay results from three drill holes at the Keats zone were announced. These include:

• 7.9m @ 22.7 g/t Au
• 3.9m @ 24.5 g/t
• 13.7m @ 61.8 g/t

Osisko Mining: Expansion drilling adds new high-grade intercepts at Windfall (15 from surface, 3 underground). Of the 18 drill holes, all are located outside of the Feb 2021 MRE. Select highlights include:

• 4.6m @ 58.7 g/t Au
• 4m @ 11.1 g/t
• 2m @ 18.8 g/t
• 2.5m @ 39.2 g/t
• 2.3m @ 36.8 g/t
• 2m @ 24.7 g/t
• 2.5m @ 19.1 g/t
• 2m @ 36.2 g/t

The company also announced expansion drilling at Lynx zone on its Windfall project. Notable intercepts include: 3m @ 177 g/t Au, 2m @ 66.6 g/t, 5.3m @ 43.4 g/t, 3.2m @ 56.4 g/t, 3.4m @ 52 g/t, 2.2m @ 70 g/t and 4.8m @ 25.1 g/t.