Gold continues to showcase its strength in times of economic uncertainty. The precious metal has been on a relentless run these past few weeks, with spot gold trading as high as $2070 an ounce this past week.
Gold continues to rally as global central banks continue to print an abundance of money and monetize government debt. At the same time, fiscal spending on a global basis to support local economies is unprecedented as well. All this debt has many market participants preparing for extreme inflation in the years to come.
In fact, U.S yields continue to fall into deeper territory by the day, which clearly is a very bullish catalyst for gold moving forward:
In saying that, a company that looks to benefit with elevated gold prices is Cornerstone Capital Resources (TSX-V: CGP). Cornerstone is the founding partner of Cascabel, the only available Tier 1 copper-gold asset in the world not owned by a global, multi-national mining company.
Cornerstone owns a 15% carried interest in Cascabel and 7.6% of project operator SolGold (LSE/TSX: SOLG) or effectively 21.4% of the world-class Cascabel project. The Alpala deposit is the main target in the Cascabel concession, located on the northern section of the heavily endowed Andean Copper Belt, the entirety of which is renowned as the base for nearly half of the world’s copper production.
The project area hosts mineralization of Eocene age, the same age as numerous Tier 1 deposits along the Andean Copper Belt in Chile and Peru to the south.
Alpala has produced some of the most significant drill hole intercepts in porphyry copper-gold exploration history, as exemplified by Hole 12 (CSD-16-012) returning 1560m grading 0.59% copper and 0.54 g/t gold including, 1044m grading 0.74% copper and 0.54 g/t gold.
The 2019 Cascabel PEA showcased the world-class economics behind the project:
The company owns a 15% carried interest in Cascabel – resulting in a free ride until completion of a bankable feasibility study.
The PEA showcases the robust nature of the asset as when Casabel is eventually in production, in its first 25 years it will produce on an annual basis:
- 207,000 tons of copper
- 438,000 ounces of gold
- 1.4 million ounces of silver
The PEA was done with the assumed metal price of:
- $3.30/lb copper
- $1300/ounce gold
- $16/ounce silver
Presently, copper is trading at about $2.85/lb. However, gold and silver are currently much higher than the assumed metal prices when the PEA was completed.
Spot gold is now near $1925 an ounce, and spot silver is at nearly $26 an ounce. This only improves the economics of the project as the NPV only increases, and the payback period is reduced.
The current share price reflects a 60% discount to the C$8.60/share price that the 3 major shareholders acquired their shares at. The present market capitalization of the company today is $116 million.
We recently caught up with Brooke Macdonald, Chief Executive Officer of Cornerstone, to talk about the company as well as plans for the remainder of the year.
Alex Deluce: Thanks Brooke for taking the time. I am excited to introduce the Gold Telegraph readers to the Cornerstone story. Most notably, the company is the founding partner of the world-class Cascabel copper and gold project, can you give readers and bit of a history of the company and how the company got involved with this world class asset?
Brooke Macdonald: Cornerstone has been involved in Ecuador since 2005. In early 2011 we acquired the rights to the 5,000 hectare Cascabel concession in an area of NW Ecuador that had tremendous geological potential but little systematic exploration.
Cornerstone was the operator of the project in the beginning stages right through to the discovery hole # 5 in February 2014 when we intersected over 1.3 kilometres grading > 1% copper equivalent. We handed over operatorship of the project to SolGold in September 2014 pursuant to an earn-in agreement.
As you know, we are a prospect generator following the joint venture model typically bringing projects to the drill-ready stage and then look for a funding partner to earn-in to the project by funding the drilling and “carrying” us to completion of a bankable feasibility study. As no majors were working in Ecuador back in 2011, we brought in SolGold Plc as a partner. Although SolGold is a junior, we had worked with their then CEO successfully on another project in central Ecuador and they were keen to become our partner. Ecuador has since become a more mining friendly jurisdiction attracting meaningful interest from the majors.
BHP and Newcrest each own 13.6% of SolGold. Franco-Nevada has conditionally agreed to provide feasibility study funding to SolGold in return for an NSR royalty on SolGold’s share of the project.
Alex Deluce: The PEA showcases the incredible scale and life of the Cascabel asset, with the company having a 21.4% interest in the project. What is the next step for the project? Is it the feasibility study?
Brooke Macdonald: The Alpala deposit at Cascabel hosts a world class resource of over 21 million ounces of gold, over 21 billion lbs. of copper, and over 92 million ounces of silver in the M&I resource category with almost two-thirds of that in the measured category.
The Alpala deposit PEA outlines a base case 55-year block cave operation with an after-tax NPV at an 8% discount rate of US$4.3 billion and an IRR of 25.9%, and initial capex of US$2.7 billion.
Cascabel is the only Tier 1 copper-gold asset in the world not owned by a major mining company. The Alpala deposit comprises less than half of the initial 13 or so porphyry targets on the property, which have not yet been drill-tested.
SolGold is currently working on a Pre-Feasibility Study scheduled for completion by the end of the third quarter this year. The next milestone after that will be the definitive Feasibility Study which SolGold has announced should be completed in the second half of 2021. Cornerstone’s 21.4% interest includes a 15% interest carried through to completion of the definitive feasibility study, which is repayable out of our share of project earnings at LIBOR+2%, plus a 7.6% shareholding in JV partner SolGold.
Alex Deluce: Cornerstone has significant insider ownership; can you talk about your equity structure alongside who are some of you key supporters?
Brooke Macdonald: We have 32.4 million basic shares outstanding or 35.8 million shares on a fully diluted in-the-money basis.
Our largest shareholders are Maxit Capital/Bob Sangha, the leading M&A advisor to the mining business on Toronto’s Bay Street, with nearly 20%; our Chairman Greg Chamandy, who is the co-founder of Gildan Activewear and its former Chairman & CEO and the former Executive Chairman of Richmont Mines, owns 10.8%; Rosseau Asset Management, a highly successful group of funds run by Warren Irwin, owns 10.5%; and Sprott/Global and clients have around 5%.
Cornerstone is currently trading at a significant discount to the C$8.60/CGP share that Cornerstone’s top shareholders acquired their shares at. BHP’s cost base of 33 pence/SOLG implies C$11/CGP share. Newcrest’s block purchase in December 2018 at 40 pence/SOLG implies C$13/CGP share.
We believe our 21.4% interest in Cascabel provides an attractive opportunity for a potential acquirer to secure a strategic position in the project superior to any other SolGold shareholder.
Alex Deluce: With gold at an all-time high and with the resource being so rich in gold, silver and copper the company obviously has extreme leverage to the prices of these elements with the material in the ground. On top of the Cascabel asset can you also talk about some of the company’s other assets?
Brooke Macdonald: We have a strategic exploration alliance (SEA) with Ecuador’s state mining company ENAMI and are earning into an 84% interest in 9 highly prospective concessions in the same general area of NW Ecuador as Cascabel. We are still at an early stage, but the the size and intensity of the anomalies and the outcropping mineralization are similar to those we identified at Cascabel back in 2012-2013 when Cascabel was at a similar stage of development. Cascabel totals around 5,000 hectares; the 3 concession blocks in the ENAMI – Cornerstone SEA (Espejo, Rio Magdalena and Playa Rica) total around 42,000 hectares, and none of the targets on the 9 concessions within the 3 blocks have ever been drilled.
The Espejo, Rio Magdalena, and Playa Rica blocks were identified and ranked by Cornerstone in 2015-2016 as highly prospective after an exhaustive analysis of public and private information available at the time, reserved by Cornerstone Ecuador S.A. (CESA) after the opening of the cadastral map and then transferred to ENAMI for inclusion in the SEA. We believe we have secured some of the best areas in this largely unexplored region of north west Ecuador.
We have 100% of the Bella Maria gold project that borders the NE corner of Lumina Gold’s Greater Cangrejos gold property, where they have announced an indicated resource of 10.4 m oz Au in the indicated category and 6.3 m oz. Au in the inferred category. Bella Maria has exceptionally high gold content in stream sediment and free gold panned samples over the entire property. Soil geochemistry has outlined a 3 km x 2 km gold – copper in-soil porphyry style anomaly in the center of the concession, and 7 mineralized prospects. The project is almost drill ready. It has an environmental registration for surface exploration granted in January 2020, that we will apply to amend to permit for drilling once final drill targets are identified.
We have an option to own 100% of the Caña Brava property that hosts epithermal gold-silver targets on top of shallow porphyry gold-copper style mineralization. This project is drill ready, it has an environmental registration for scout drilling, only the water permit and social license are pending, following receipt of which a Phase 1 drill program of 15 holes/6,000m is planned for early 2021 by our funding partner, Newcrest Mining, which is earning an interest in the project. Details of the arrangement can be found on our web site.
We also have an interest in the Bramaderos Au-Cu project in southern Ecuador. Sunstone Metals of Australia is project operator with an 87.5% interest, and is funding 100% of drilling on multiple targets. Cornerstone has a 12.5% interest carried by Sunstone through to the start of commercial production repayable at LIBOR+2% out of 90% of Cornerstone’s share of earnings or dividends from the Bramaderos project. A phase two drill program is about to start on the project.
And in Chile we have the Miocene gold project targeting epithermal gold-silver and porphyry gold-copper deposits along the interpreted northern extension of the Maricunga magmatic belt which hosts several world-class gold deposits. The Miocene claims were selected using a proprietary database and we feel Miocene offers tremendous potential for discovery. This project is also the subject of a farm-in arrangement with Newcrest, details of which can be found on our website.
It is anticipated that, subject to COVID-19, during the 2020-2021 austral summer Newcrest will initiate a Phase 1 diamond drill program at Miocene.
As you can see, we have more than enough other projects for a SpinCo when we sell our 21.4% interest in Cascabel.
Alex Deluce: For the remainder of the year, what types of things should investors look for when following Cornerstone? Will there be any work programs at the other assets?
Brooke Macdonald: We are looking to increase shareholder value through our initiative to requisition a shareholder meeting of SolGold to be held after October 27th to change the SolGold Board. We expect all sophisticated shareholders plus Newcrest and BHP will support a capable board put forward by Cornerstone at that time. We would then look to convince the new Board to launch a joint strategic review and sale process with Cornerstone to open up the data room to a wider universe of companies and get competitive tension to maximize value for shareholders. The sale process could be structured in such a way as to allow third parties to competitively bid given the concentrated ownership that would support a friendly deal and ensure success. BHP will be released from its standstill and shareholder support obligations with SolGold on October 19th and free to discuss strategic initiatives. They are likely interested in owning Cascabel given that so very few assets of this size are available in the world.
With copper prices moving up, and gold above $2,000 an ounce, we believe someone will make a move towards end of the year.
On the other projects, we expect further drilling results from Bramaderos, possibly the start of a drill program at Miocene in Chile, and possibly the start of a phase 1 drill program at the Espejo and/or Rio Magdalena blocks in our ENAMI strategic alliance in the 4th quarter, but all of this is subject to the COVID-19 pandemic allowing us to get back into the field, and to us securing a funding partner for the drilling at the ENAMI projects.
Alex Deluce: We would like to thank Mr. Macdonald for his time, we will be following up with him in about a month to provide another update.
The company trades on the Toronto Venture Exchange under the symbol CGP. The company’s present market capitalization is $121 million.
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