Gold Seeker Issue #64 ~ This Week in Mining: Inflation finally shows up in the CPI, Earnings Season Continues

Gold and silver were about flat on the week, both of which look to be consolidating. Both metals have room to run higher a bit before running into resistance though both metals could retrace a bit before moving higher. The April CPI numbers were released, which should the heavily doctored data set up over 4% year/year, which is the highest "inflation" reading in a long while. Even though headline inflation ticked higher, it is still very disconnected from reality. The market still believes inflation won't be an issue because the Fed can raise rates to combat it, but this isn't the case in the least. The US economy is structurally unsound, and the economy can't handle high rates, let alone low rates (i.e 2.50% yield on the 10-years). Should the 10-yr yield move higher, reaching and surpassing 2.0%, it wouldn't be long until this caused economic havoc given the leverage in the system. Because the market still doesn't comprehend that the Fed can't do a thing about inflation should it accelerate, gold and silver didn't break out, but it will light a fire under precious metal prices when that time comes. Earnings season was in full force again this week but should slow down significantly going forward, as most companies have reported. If you are still on the sidelines, be sure not to miss what is one of the most asymmetric trades we've ever seen. 

$CXB, $CGAU, $EDV, $EXK, $FSM, $GCM, $LAB, $KGC, $LUN, $NSR, $OR, $PAAS, $ROXG, $SAND, $TXG, $VGCX, VZLA, $WDO.

Calibre Mining: Provided an update in respect of the Company's 2021 drilling program, highlighting both exploration and infill holes at high-grade underground targets within the Company's producing Limon Mine Complex. Resource expansion highlights include:

• 5.5m @ 4.85 g/t Au (Atravesada & Veta Nueva Underground)
• 7.1m @ 5.50 g/t Au (Atravesada & Veta Nueva Underground)
• 3.2m @ 13.35 g/t Au (Atravesada & Veta Nueva Underground)
• 2.0m @ 13.42 g/t Au (Panteon & Santa Pancha 1 Underground)
• 5.5m @ 3.24 g/t Au (Panteon & Santa Pancha 1 Underground)
• 1.8m @ 12.58 g/t Au (Panteon & Santa Pancha 1 Underground)
• 4.9m @ 5.95 g/t Au (Panteon & Santa Pancha 1 Underground)
• 2.3m @ 5.4 g/t (Panteon & Santa Pancha 1 Underground)

Centerra Gold: Produced 160k oz. Au in Q1 @ AISC of $745/oz., leading to operating and free cash flow of $153m and $72.1m. There is a great deal of uncertainty regarding its Kumtor mine, including a new Kyrgyz Republic law which could result in "external management" being imposed on Kumtor Gold Company (KGC), a $3b civil claim against KGC, various tax claims estimated at $352m and several new and re-opened criminal investigations. It isn't a coincidence this is happening given the higher gold prices, which may be an attempt by the government to nationalize it. Centerra shouldn't have divested its 50% interest in the Hardrock Project (now called Greenstone), as this could have allowed the company to reduce its geopolitical risk significantly.

Endeavour Mining: The largest West-African producer and top-10 global producer following the close of the Teranga acquisition posted excellent Q1 results. Though robust, Endeavour will be generating materially more cash flow in the coming quarters due to higher gold prices and a full quarter of contributions from the Teranga assets, which only contributed 5.5 weeks in Q1. Q1 production totaled 347k oz. Au @ AISC of $868/oz. Endeavour generated operating cash flow of $265m, which is approx. $30m lower relative to Q4, 2020, but this will reverse in the coming quarter.

Unlike its peer group, Endeavour has a deep pipeline of near-term growth assets, including the Phase I and II expansion at Sabodala-Massawa, Fetekro, and Kalana. With the Fetekro feasibility study scheduled to be released in 2H 2021, Endeavour will likely make a positive construction decision as early as year-end, with construction likely to commence in the 1H 2022, if not shortly after that.

Endeavour Mining is a deep value play, trading with a P/NAV of approx. 0.70-0.73x, which is well below its peer group and low relative to historic multiples for senior producers, 1.40x-2.0x NAV. When Endeavour closed the Teranga gold acquisition, it also took on $330m of debt. Endeavour has already significantly deleveraged and has a net debt position of $162. In Q2, Endeavour has paid down $150m of debt, which should translate into a positive net cash position by the end of Q2, if not Q3.

Endeavour Silver: Reported Q1 financial results. Severe weather events impacted production during the quarter, which resulted in higher operating costs which are expected to fall going forward. The company produced 1.039m oz. Ag and 10.9k oz. Au, up 26% on a silver equivalent basis relative to Q1, 2020. Cash costs and AISC were $7.86/oz. and $19.94/oz. Ag net of gold production. Operating cash flow was $12m. Endeavour exited the quarter with $86m in cash, which, combined with cash flow generation, should allow Endeavour to build Terronera without incurring more dilution. The Terronera feasibility is on track for completion in Q3, with a construction decision to follow and construction likely to commence in the 1H 2022.

Fortuna Silver: Aside from the big news regarding the pending acquisition of Roxgold, Fortuna reported an excellent quarter on the back of the first quarter of commercial production at its Lindero mine, partially negated by lower output from its San Jose Mine. During the quarter, Fortuna produced 1.9m oz. Ag and 34.55k oz. Au at AISC of $14.25/oz. and $1,055/oz. Fortuna generated adjusted free cash flow of $33m. Fortuna should set records again in Q2 and Q3, driven by the continued ramp-up at Lindero and the addition of the Yaramoko mine in the Roxgold acquisition. Fortuna’s cash position stood at $145.7m at the end of the quarter.

Gran Colombia Gold: Gran Colombia’s gold production totaled 49k oz. at its Segovia Operations in Q1, 2021 compared with 50.3k oz. in Q1, 2020. In April 2021, Segovia’s gold production was 17.47k oz., bringing the company's trailing 12-months total gold production at the end of April 2021 to 201k oz., up 2% over 2020. The company remains on track with its annual production guidance for 2021 of 200k- 220k oz. of gold. AISC remained elevated at $1,120/oz. It was lower relative to the prior quarter of $1,266/oz. The company only generated $13.6m in operating cash flow, but this was primarily due to a $7.2m increase in tax payments to Colombia, $8.8m of change of control payments in the Aris Transaction, and continued delay in receiving VAT refunds in Colombia due to the impact of CV-19 on the government's processing of claims. The company's balance sheet remained solid with cash of $73.6m with the aggregate principal amount of gold notes currently outstanding of $19.75m. The company completed a partial redemption in April of its convertible debentures, bringing down the amount outstanding down to C$18m.

Labrador Gold: Announced the initial assays from the first two holes of the 20,000m meter diamond drill program at its Kingsway Gold Project. Although the drill holes weren't similar to those of New Found Gold, they did show broad intervals of gold mineralization, including narrow intervals of moderately high gold values. The company believes these holes to be a halo to a potentially higher-grade zone, though time will tell. Drill results include: 19.5m @ 0.53 g/t Au, 0.90m @ 5.0 g/t, 7m @ 2.26 g/t and 3m @ 1.72 g/t.

Kinross Gold: Announced Q1 earnings. Kinross produced 558.77k oz. Au during the quarter at AISC of $975/oz. The company generated $280m in operating cash flow and free cash flow of $75m. Cash and equivalents stood at $1.05b at quarter-end with total liquidity of $2.6b. Its largest three mines accounted for 60% of production and were the lowest-cost mines in the portfolio, Paracatu, Kupol, and Tasiast. The Tasiast 24k and La Coipa re-start projects continue to advance and remain on schedule, with studies at other projects also advancing.

Lundin Gold: reports results for the first quarter of 2021, a quarter marking the first anniversary of the achievement of commercial production at Fruta del Norte. Highlights for the quarter include production of 104k oz. Au and sales of 81,8k oz. during the quarter, at AISC of $830/oz. Lundin generated operating cash flow of $75m, which would have been higher if not for the delay between production and sales. Lundin remains on track to meet its 2021 guidance of 380-420k oz. of production at AISC of $770-$830/oz. It would make a lot of sense for Lundin Gold to acquire Bluestone Resources, also in the Lundin Group of families, and this would fill the development pipeline with an excellent asset in Guatemala, Cerro Blanco.

Nomad Royalties: Announced it acquired an effective 0.28% NSR royalty on the producing Caserones mine in Chile for $23m in cash and two million common share purchase warrants. Caserones is a large, long-lived copper operation with a mine life of 19-yrs just based on reserves. This is a deviation from Nomad's strategy of acquiring precious metal royalty and streaming.

Osisko Gold Royalties: Following its Q1 production numbers, it was clear the company would post a good quarter. Osisko GR released Q1 financial results as it generated $36.7m in operating cash flow on the sale of 19.96k AuEq oz. Q1 was an excellent quarter regarding its assets as Aginico and Yamana made a positive construction decision for the Canadian Malartic underground. Osisko Development continues to advance two projects that Osisko GR has royalties, including San Antonio and Bonanza Ledge II/Cariboo. The expansion at Mantos Blancos was 79% complete at the end of Q1, with construction scheduled to be completed in Q2, with project completion scheduled for Q4. This will be a big boost for Osisko GR as silver deliveries will increase to approx. 1.2m oz. Ag for the first five years following commissioning. Osisko Mining also released an updated PEA, which illustrated an increase in production to 300k oz. Au for the first seven years of production. For Q1, it is also worth noting that its Eagle royalty contributed very little as ore stacking stops for the coldest three months of the year.

Pan-American Silver: Produced 4.6m oz. of silver in Q1, 2021, which reflects reduced production at La Colorada and Dolores. At La Colorada, the bottom 42 meters of the new ventilation raise from surface to the 345-meter level became blocked from sloughing of the raise wall during shotcreting and commissioning in Q1 2021, restricting mining rates. Pan American is currently working to bypass the blockage through drifting from a nearby ramp and additional raise boring. This work is expected to be completed in Q3 2021, enabling mining rates to improve later this year. The company also produced 137k oz. Au, which reflects reduced production at Timmins where the company adjusted mining to address geotechnical conditions in a section of the Bell Creek mine, and at Shahuindo from lower tons placed, grades, and extraction rates due to mine sequencing.

Pan-American's cash flow generation was greatly impacted by lower production and inventory build at La Colorada, generating operating cash flow of $77m, which includes $61.3m in income taxes paid. Silver and gold segment AISC was $17/oz. and $1,058/oz. Pan-American revised guidance to reflect the extended ventilation constraints at La Colorada while completing the bypass of the blockage in the new ventilation raise and a greater than anticipated CV-19 related production impacts at Manatial Espejo. Revised guidance for silver production in 2021 is 20.5-22m oz. @ AISC of $14.25-$15.75/oz. Gold production guidance remains unchanged at 605-655k oz. Au. The company's liquidity position at quarter-end consisted of $206m in cash and equivalents, equity investment in Maverix Metals valued at $134m, working capital of $513m, and $500m available on its revolving credit facility. Lastly, Pan-American released additional drill results at the La Colorada Skarn Project. Though this was a disappointing quarter, operations are expected to improve as the year progresses.

Roxgold: In Q1, Roxgold produced 35.3k oz. Au at an average grade of 8.0 g/t and AISC of $963/oz., generating $32.5m in operating cash flow. There has been no change to 2021 production and cost guidance. Q1 was an exciting quarter for the company. It published the feasibility study for Seguela, announced a new high-grade discovery, the Sunbird prospect at Seguela, and extended Koula down plunge with deeper drilling intersecting high-grade mineralization at least 300m beyond the conceptual pit limit. Lastly, the company received a bid to be acquired by Fortuna Silver, though a competing offer is possible.

Sandstorm Gold Royalties: Announced a new royalty acquisition and provided an asset update. While small, the addition of a royalty package from Waterton gives Sandstorm exposure to Nevada. In exchange for $8m, Sandstorm obtained 21 royalties on development, advanced exploration, and early exploration stage projects in Nevada and Montana. The most advanced project in the royalty package, the Converse property, is located in Nevada's Battle Mountain trend and is near SSR Mining's Marigold mine and Barrick Gold's Lone Tree mine. There is also a royalty on Coeur’s Rochester land package. During the quarter, Hudbay released the results of its PEA for the Mason project in Nevada, which outlines a 27-year mine life with average copper production of 140,000 tons over the first full ten years of production. Sandstorm holds a 0.40% NSR royalty on the project. Bonterra Resources announced the discovery of a new near-surface zone of gold mineralization located within two kilometers of the Bachelor Mill. Results to date indicate that the mineralized zone is open in all directions. Bonterra plans to mobilize a drill crew as soon as possible to begin follow-up work. Sandstorm has a 3.9%–4.9% NSR on the Moroy/Bachelor Lake project and a 3.9%–4.9% NSR on the Barry project.

Torex Gold: Produced 129k oz. Au in Q1 at AISC of $854/oz., which generated $$79.2m in operating cash flow and $9.3m of free cash flow ($49.3m before debt repayment). Torex is now debt-free after repaying $40m on the 2019 debt facility. The debt facility was amended, providing $150m of available credit and lower borrowing costs over the two-year term of the agreement. The company has a net cash position of $167m, which should start to grow much more quickly now that all of its debt is paid off. The cash build is necessary as the construction start at Media Luna is getting closer. Torex always trades at a significant discount to NAV, likely because it's a single asset company with operations in the Guerrero Gold Belt (GGB). With a relatively tight share structure and available debt, a smart move would be to acquire another company with producing asset(s) in another country.

Victoria Gold: Reported Q1 financial results, which as expected weren't remarkable given the company stops stacking ore during the coldest three months of the year. They are currently evaluating year-round stacking as part of its Project 250k, which is precisely what it sounds like, an expansion project to increase average annual production to 250k oz. p.a. In Q1, Victoria produced 26.78k oz. Au at AISC of $1,586/oz. As the year progresses, each quarter should see higher output and, in turn, lower AISC. Cash and equivalents stood at $21.6m at quarter-end. Lastly, Coeur Mining acquired a significant interest in Victoria Gold, which could mean they plan to make a bid to purchase the company in the future.

Vizsla Silver: provide additional results from twenty-three drill holes at the Napoleon prospect at the Panuco silver-gold project in Mexico. These holes extend the mineralization by over 230m and 65m deeper. The southernmost fence of four holes has an average width of 4.12 meters with a weighted average grade of 1,145 grams per ton silver equivalent, and mineralization remains open. Highlights include:

• 3.45m @ 1,274 g/t Ag and 25.97 g/t Au
• 10.30m @ 355.9 g/t Ag and 3.13 g/t Au
• 4.22m @ 391.9 g/t Ag and 3.89 g/t Au

Wesdome: Announced Q1 results and provided and updated at its flagship development project, Kiena. The Eagle River Underground Mine produced 53,540 tons at a head grade of 12.8 g/t Au for 21.4k of gold production. Eagle River grades were slightly below the low end of guidance; however, they increased throughout the quarter. The company expects to be within guidance for the year and remains on track to produce 92,000 – 105,000 ounces from the Eagle River Complex, plus an additional 15,000 – 25,000 from Kiena, pending a re-start decision. Wesdome generated operating cash flow of $22m compared to $33.5m in Q1 2020 and free cash flow of $0.1m, net of an investment of $12.6m in Kiena. The company's cash position increased marginally to $63.9m vs. $63.5m at the end of 2020. Cash flow generation was impacted by higher costs with AISC of $1,182/oz. due to lower ounces sold and higher sustaining capital.

During the quarter, Wesdome processed 7,032 tons from Kiena Deep A zone bulk sample. The bulk sample recovered 6% more than the MRE with a feed grade of 15.7 g/t versus the model grade of 14.7 g/t. The pre-feasibility study is progressing and expected to be completed in Q2, with a re-start decision to be made shortly thereafter.