Gold Seeker Report #34 - This Week in Mining: Production Results Begin To Roll In

We had an up and down week. Initially the metals got hit when President Trump said there would be no stimulus package before the election. It was hard to imagine that there would be one even without him confirming it but it nonetheless caused a sharp one-day sell-off in most asset classes. However, in the same statement, he arrogantly said when I win, there will be a stimulus package very quickly afterward.

But this couldn’t hold the metals down and they recovered the following day and through the remainder of the week, ending Friday on a strong note. This also marked the beginning of earnings season in a sense as several companies started reporting Q3 production results, with some also mentioning how much its cash position increased, so you were able to deduce the free cash flow generation of such companies rather easily. Earnings season, however, won’t be in full force until the first or second week in November.

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Blackrock Gold Corp: Announced additional significant RC drill hole intercepts at its Tonopah West project in the Walker Lake trend of Western Nevada. Highlights include:

• 1.50m @ 26 g/t Au & 2,030 g/t Ag within 3.1m @ 14 g/t Au & 1,070 g/t Ag.
• 1.50m @ 2.80 g/t Au & 220 g/t Au
• 1.50m @ 3.2 g/t Au & 232 g/t Ag
• 1.50m @ 4.8 g/t Au & 5 g/t Ag

Calibre Mining: Reported very robust Q3 production numbers and through simple deduction, will release and excellent earnings report. Its cash position increased by $31m, so we can assume free cash flow generation was around that number and operating cash flow was likely closer to $35-$40m. The company also provided multi-year guidance at both its mining complex’s. This is company, however, has set it self up to beat its guidance.

Dolly Varden Silver: Announced silver assay results from its initial step out drilling from the current resource area of the past producing Torbit Silver mine, in addition to infill holes to expand the high-grade zones within the known deposit. Highlights include:

• 12.75m @ 351 g/t Ag (step-out)
• 37.50m @ 135 g/t Ag (step-out)
• 31.95m @ 302 g/t Ag (infill)

Dundee Precious Metals: The company reported yet another strong quarter regarding production and likely set another new record for cash flow generation. In Q3, its Chelopech mine produced 49.8k oz. Au (37.9k oz. Au payable metal in concentrate sold), 30k oz. Au from Ada Tepe (31.3k oz. oz. Au payable metal in concentrate sold), and 55kt of complex concentrate smelted at Tsumeb.

Endeavour Silver: Announced Q3 production numbers. The company produced 942k oz. Ag and 10.26k oz. Au. Notable in this release was continued outperformance (grade wise) at Guanacevi. However, throughput was affected by significant rainfall in August and September. Over 24k tons of ore were stockpiled at the plant during the quarter and management anticipated achieving throughput rates of 1.2ktpd in Q4.

While we won’t know until the earnings release and more likely when we see Q4 results, it looks like the turnaround at Bolanitos continues, achieving throughout in Q3 of 1,075tpd, though silver grades remained lower than plan. Output from San Miguel is expected to increase in Q4 as mine development is completed and grades are expected to rise. At El Compas, throughput remained steady at 260tpd, with gold grades aligned with plan and silver grades remained lower than plan. During the quarter, the company also filed an at the market prospectus for up to $60m. It is unfortunate the company will be diluting shareholders given the significant rise in the silver price in Q3 as well as higher gold prices. Instead, obtaining a revolving credit facility may have been a better option.

Equinox Gold: The company increased mineral reserve at its Mesquite mine by 28% and M&I resources by 94%. 2P reserves increased to 658k oz. Au (net of mining depletion). M&I resources (exclusive of reserves) increased to 837k oz. Au, while inferred resources increased 38% to 703k oz. Au. This was not unexpected and while reserves at Mesquite usually imply a 3-4yr remaining mine life, this has been the case for quite some time as it replaces the nearly every year.

Gold Resource Corp: The company announced the intent to create two independent, strategically focused companies with the Nevada Mining Unit (NMU) to be spun-out to shareholders (Spinco). This makes a lot of sense as the Oaxaca Mining Unit (OMU) will focus solely on its prospective portfolio of assets in Mexico, while the Spinco will be able to focus on its Nevada Gold assets. This should unlock shareholder value as the Spinco should receive a premium as it will be focused entirely in Nevada, one of the best mining jurisdictions in the world. Further, in 2021, the NMU will see material production growth at lower costs as it accesses the higher-grade Pearl deposit, compared to Isabella, which has been the focus in 2020. The OMU will continue to trade under the ticker GORO, and it will be able to re-invest all cash flow back into the ground and likely increase production over the coming years.

Great Bear Resources: The good news just keeps pouring in from its drill program. The company announced this week it drilled 19.25m @ 18.58 g/t Au (which was part of wide interval of 54.55m @ 7.04 g/t Au) and that it reached 100,00m drilled in 180 holes at the LP Fault. Of the 151 drill holes along the 5km grid drill area: 151 of them returned gold assays >1 g/t, 107 of them returned >5 g/t, 83 of them returned >10 g/t, 65 of them returned >20 g/t, and 55 of them returned >30 g/t. These are excellent results.  

Great Panther: Announced a decent quarter of production from its flagship asset, Tucano in Brazil of 31.8k oz. Au. At its Topia mine, the company produced 213k oz. Ag during the quarter, down 22% from the comparable period in 2019. Lastly, at its Guanajuato mine complex, the company produced 161.9k oz. Ag during the quarter.  What really matters for Great Panther, which is unknown at this time, is whether it was able to keep costs the same at Tuscano relative to Q2 and ideally lower.

Hecla Mining: The company reported Q3 production numbers and it looks as though the ramp up at the Lucky Friday mine is going smoothly. It is expected to be fully ramped up or very close thereto by year end, if not early 2021. Over the next 48 +/- 12 or so months, production will ramp up from 3m oz. Ag p.a. to 5m oz. Ag p.a. as the company begins mining at depth, where grades increase.

In Q3, Hecla produced 3.5m oz. Ag and 41.17k oz. Au, along with lead and zinc production. Its cash position increased to $97m, and the company expected to increase exploration activities in Q4. The company provide and updated 2020 full year outlook with Greens Creek producing 10-10.3m oz. Ag, Lucky Friday production of 1.6-1.8m oz. Ag, and 800-900k oz Ag from San Sebastian (mining has ceased and milling will continue through year end). On the gold side, its primary gold asset, Casa Berardi is projected to produce 114-124k oz. Au for the full year, 32k oz. Au from its Nevada operations and 47-48k oz. Au from Greens Creek.

Hecla has multiple growth projects in the near, medium, and long-term. Near-term production will be driven by Lucky Friday as it ramps up to 3m oz. Ag in 2021, and medium-term growth to 5m oz. Ag. Other short- and medium-term growth asset are its Nevada Gold operations (Fire Creek, Hatter Graben, and Midas), as well as increased production from the higher-grade underground at Casa Berardi. Hecla also has two excellent assets for longer-term growth in Montanore and Rock Creek, which are among the largest undeveloped copper-silver deposits in the U.S. Hecla also has exploration assets such as Heva-Hosco, which hosts >3m oz. of M&I gold resources along the Cadillac break.  

New Found Gold: Reported two excellent drill holes in a new high-grade discovery at the Lotto zone, located 2km north of the high-grade Keats discovery at its Queensway project, Newfoundland. Two separate near-surface, intervals of strong quartz veining with significant sulfide and visible gold were assayed on a rush basis returned: 4.75m @ 41.2 g/t Au (starting at 35m) and 5.15m @ 25.4 g/t Au (starting at 57m). These are still very early days in a very aggressive drill program so it is fair to expect many more drill results to be released in the near future.

Osisko Gold Royalties: There has been a 12-18-month hangover on the stock price of the company as the market believed the company was deviating from being a pure royalty and streaming company as it acquired Barkerville Gold last year for its large and highly prospective Cariboo project.

Osisko Royalties will transfer certain mining properties, including the Cariboo Gold Project, and a portfolio of marketable securities valued at approximately C$116 million, to Barolo in exchange for common shares of Barolo, which will result in a Reverse Take-Over of Barolo under the policies of the TSX.

Sean Roosen, Chair and Chief Executive Officer of Osisko Royalties stated: "We eagerly await the launch of Osisko Development, to advance a rare set of near-term producing and flagship gold assets. Our vision is to develop the Cariboo Gold Project into one of the predominant mining camps in Canada. Our belief in that vision has only strengthened in the past year and I couldn't be more excited about leading this new company with the catalysts in front of us. We always said we would separate and streamline Osisko Royalties, and this transaction accomplishes that and should result in a meaningful re-rate for both sets of assets."

Osisko Development will target near-term gold production of over 100,000 ounces per year from Bonanza Ledge II and the San Antonio Gold Project, followed by production from the company's flagship Cariboo asset. The following mining properties and marketable securities will be transferred by Osisko Royalties to the Resulting Issuer:

• Cariboo Gold Project
• San Antonio Gold Project (Sonora, Mexico)
• Bonanza Ledge II (Permitting and Construction in BC, Canada)
• James Bay Properties
• Guerrero Properties
• A portfolio of publicly-listed equity positions with a current value of approx.  C$116m

The Cariboo Gold Project is advancing through permitting as a 4,750 tpd underground operation with a feasibility study on track for completion in the second half of 2021, full permits expected in 2022, followed by a short construction period given the significant infrastructure already at site. The Cariboo Gold Project is an extremely scarce asset with current resources totaling 3.2 million ounces in the measured and indicated resource category and 2.7 million ounces in the inferred resource category on a brownfield site in British Columbia, Canada.

Osisko Royalties facilitated the acquisition of the San Antonio Gold Project in Sonora, Mexico for US$42 million to provide Osisko Development with near-term production and significant upside potential. In return, Osisko Royalties will retain a 15% stream on a fully-funded, high-grade, gold asset with a current inferred mineral resource of 1.05 million ounces at 1.2 g/t capable of producing more than 50,000 ounces of gold per year.

The San Antonio Gold Project is a past producing mine that went into receivership as an oxide copper mine. The gold potential of the asset has never been properly evaluated, and Osisko Development will focus on amending existing permits to transition the mine production to a gold heap leach operation. Recent metallurgical testing has shown that the sulphide resources are highly-amenable to heap leaching.

Osisko Royalties will retain the following royalty or stream interests in the assets:

• 5% NSR royalty on the Cariboo Gold Project and Bonanza Ledge II
• 15% gold and silver stream (with ongoing per-ounce payments equal to 15% of the prevailing price of gold and silver, as applicable) on the San Antonio Gold Project
• 3% NSR royalties on the James Bay, Coulon, and Guerrero Properties

Upon closing of the RTO, Osisko Royalties is expected to own approximately 88% of the outstanding shares. Osisko Royalties expects the advancement of the assets held by Osisko Development to be funded through the public markets. This will significantly augment Osisko Gold Royalties production profile over the medium and especially longer-term, and create value via its interest in Osisko Development. This will also make it easier for Osisko Gold Royalties to acquire royalties and streams in the future as Osisko Development acquires new assets and exploits the prospective Cariboo land package. This can be looked at as the evolution of sorts of the accelerator model.

Relative to its primary competitor, Sandstorm Gold [which is of similar size], Osisko Gold Royalties also has an anchor asset but it doesn’t and won’t account for over half its NAV as Hot Maden does for Sandstorm. It also has several sizeable growth assets such as its Horne 5 silver stream, its 5% NSR on Cariboo, The 15% San Antonio PM stream, its Back Forty PM stream, growth from its Mantos Blancos stream, and royalties on Windfall and Hermosa. Its reserve life index is also quite a bit higher relative to Sandstorm and the biggest thing that separates it apart from all the other larger royalty and streaming companies, approx. 80-85% of its NAV, the U.S. accounting for about 7.50%, and rest primarily in Chile.  

Sandstorm Gold Royalties: The company announced Q3 sales numbers and provides asset updates. In Q3, Sandstorm sold approx. 12.1k AuEq oz., generating revenue of $23.3m. It realized record cash operating margins of approx. $1,670/oz.

Asset Updates:

Lidya Madencilik, the majority owner and operator of the Hod Maden project in Turkey, has been steadily advancing the project during 2020. A draft of the final Environmental Impact Assessment (EIA) is expected to be submitted in the fourth quarter of 2020 and a final EIA completed in the first quarter of 2021. Road upgrades are expected to begin in the fourth quarter of 2020. Due to COVID-19 related delays, the Feasibility Study is expected to be completed by the end of the first quarter of 2021, with first production projected for the fourth quarter of 2023. This is Sandstorm’s soon to be largest and most valuable asset both from a Net Asset Value and attributable production point of view.

Lundin Mining Corporation announced that processing activities have been interrupted at the Chapada mine in Brazil after the operation suffered a power outage on September 27, 2020. When the power was restored, the protection system at the operation’s main electrical substation failed, resulting in significant damage to the SAG and ball mill motors.

The company anticipates it will be able to resume partial processing within one week using two spare motors and expect that the rate of production would be approximately 30% of normal production capacity, based on past experience operating the SAG mill circuit without the ball mill. A return to full capacity is currently expected to be achieved within 60 days. Sandstorm has a copper stream agreement to purchase 4.2% of the copper produced at Chapada up to a maximum of 3.9 million pounds annually. When 39 million pounds of copper has been delivered to Sandstorm, the copper stream will reduce to 3.0%. Once 50 million pounds of copper have been delivered to Sandstorm on a cumulative basis, the stream will reduce to 1.5% of the copper produced for the life of the mine.

Torex Gold: Reported Q3 production numbers, the second-highest quarter on record. Torex produced 131.80k oz. Au from its ELG operations. The company sold 133k oz. Au during the quarter at an average realized price of $1,880/oz., and YTD production of 229.83k oz. (selling 304k oz. Au) at an average realized gold price of $1,735/oz. The company is on track to achieve full year guidance of 390-420k oz. Au.

Yamana Gold: Announced strong Q3 production results. It also increased its dividend by a further 50% and sets a new dividend floor of $100/oz. AuEq. Preliminary Q3 production results were 201.77k oz. Au and 3.04m oz. Ag or AuEq production of 240.46k oz. The company increased its 2020 guidance from 890k AuEq oz. to 915k AuEq oz.