It continues to be very volatile in the precious metals space, but its core fundamentals remain very bullish. Fiscal and monetary expansion continues to be perused globally which is only bullish for precious metals such as gold and silver as investors look for ways to preserve their wealth.
Interestingly, this week the CEO of Barrick Gold, Mark Bristow, warned that the gold industry was headed towards a “serious reserve crisis” and called for consolidation within the industry. Gold production across the industry has only increased by 1.6% every year for the past two decades and there have been numerous reports that we are approaching “peak gold” which will see annual global output decrease.
As I have written extensively this past year, the world’s newest gold producer Steppe Gold could not have timed a better year to declare commercial production. Its flagship asset is the Altan Tsagaan Ovoo “ATO” Gold Mine.
The last 5 months have been extremely busy for the company as:
- July 6: Production at ATO Gold Mine Passes 15,000 Oz Gold in First Three Months Commercial Production Achieved – read
- July 9: Steppe Gold Announces $15 Million Strategic Investment by Eric Sprott to Accelerate Growth – read
- July 21: Steppe Gold Commences Drilling Programs – read
- July 29: Steppe Gold Provides Update on ATO Gold Mine Expansion – read
- Aug 6: Steppe Gold Announces Completion of $15 Million Strategic Investment by Eric Sprott – read
- Aug 17: Steppe Gold Announces Strong Operating Cash Flow in Second Quarter Results – read
- Sept 15: Steppe Gold Provides Drilling and Exploration Update – read
- Sept 29: Steppe Gold Secures Initial Tranche of Debt Funding for Phase 2 Expansion – read
Clearly, the company is moving at a very fast rate and has plenty of catalysts for the remainder of the year:
1. Reoccurring Cash-Flow
- On-going high margin production at ATO where the AISC was $739 per ounce signifying strong operating cash flow to persist in the quarters to come
2. The company is actively drilling:
- The company currently has three diamond core drilling rigs operating at the ATO Gold project on a 24hr basis.
- The drilling rigs are undertaking a program of infill and extensional drilling at the ATO1, ATO4 Deposits and the Mungu Discovery.
- Drilling programs at the ATO Gold Project will be ongoing for the remainder of 2020 and a substantial amount of results are pending that will be reported in the next 30 days.
3. Beginning Exploration at UK Asset
- Exploration has commenced exploration programs at its Uudam Khundii Gold Project located in the exciting Bayankhongor Gold Belt of Southern Mongolia. The license surrounds the deposits owned by Erdene Resource.
- At the Milky Way Prospect initial trenching results have highlighted a mineralised system of at least 700 metres in length and up to 12 meters wide with individual meter sampling results up to 1.49g/t gold, 450g/t silver, 2.98% copper, 3.98% lead and 0.31% Zinc.
- A drill program is planned in 2020
4. New resource upgrades at ATO and an initial resource estimate coming at the Mungu discovery in 2020
5. Commenced feasibility study to produce 150,000 ounces per annum.
We recently caught up with Bataa Tumur-Ochir, President and CEO of Steppe Gold, and asked about production and expansion plans for the remainder of the year:
Alex Deluce: Thank you for taking the time Bataa to provide subscribers and readers of the Gold Telegraph an update on Steppe Gold. It has been a very busy yet exciting year for the company as it has officially transitioned from developing the ATO mine to now being in commercial production.
How are operations going at ATO now that the company is operating at full capacity?
Things are going well at the ATO mine. We reported a strong second quarter which was our first quarter since declaring commercial production. Our cash costs were under $600 and generated significant cash flow. Group adjusted EBITDA for the quarter was $10.4 million with over US$34m cash on our balance sheet today.
We are going to have a very active remainder of the year as we are finalizing the ATO resource update, publishing a resource estimate on the Mungu discovery, and the Bankable Feasibility Study (“BFS”) Update at the fresh rock phase of the ATO Project. We are excited to be entering the second phase of this long life, low cost project.
With the closing of a $15 million strategic investment from mining investing legend, Eric Sprott, this certainly puts the company in a strong position cash-wise (+US$34 million) to aggressively pursue expansion and growth. What are milestones and catalysts the company is hoping to achieve by the end of 2020?
Absolutely. The investment from Eric Sprott is a great endorsement of our team and our assets and allows us to accelerate our exploration programs as well as production expansion initiatives.
As noted above, we have the resource upgrades coming for our deposits residing at the ATO mine and we will publish an initial resource estimate at the Mungu discovery by the end of the year.
We recently published a news release which showcased some of our highlighted 2019 drilling results at ATO and Mungu in addition to results in 2020 at the Mungu discovery. The drilling showcases the high-bearing nature of the system that we are very excited to aggressively look to expand on. In fact, a new, very high-grade base metal zone has also been discovered underneath the ATO1 Deposit which we will be drilling in 2020.
Drilling programs at the ATO Gold Project will be ongoing for the remainder of 2020 and a substantial amount of results are pending that will be reported in the coming weeks.
The company recently announced Q2 earnings, which showcased the high-margin nature of the ATO mine, with the all-in sustaining costs coming in at $739 per ounce.
With the gold price currently over $1800 dollars an ounce in U.S denominated terms, this showcases a very healthy margin. Is the company confident it can keep AISC around these levels in the quarters to come?
Yes, we are confident. Plus all our operational expenses are in Mongolian local currency Tugriks, which also helps with the overall costs.
I noticed Mongolia’s central bank has purchased another 1.1 tons of gold in the month of August. How has the Central Bank of Mongolia played a role with Steppe Gold to date?
The central bank of Mongolia has played a very big role in our evolution to date. We sell all of our gold and silver to the central bank which helps contribute to its foreign exchange reserves.
Additionally, we recently secured the initial tranche of debt funding for our phase 2 expansion. The Gold-2 Program financing, facilitated through the Central Bank of Mongolia, was provided by the Trade and Development Bank of Mongolia in the initial amount of approximately US$10.5m. We would particularly like to thank the Government of Mongolia and the government agencies for facilitating this program in support of safe, responsible gold production in Mongolia.
Alex Deluce: With the company now beginning exploration programs at the UK project situated between Erdene’s high-grade gold deposits, do you anticipate drilling will commence? Also, is there certain discovery zone, the company, is going to focus on, or is the company focused on all four?
The company has now commenced the exploration program at the UK project and we are very excited about the potential.
To date the company has completed 18 trenches for 933 metres in 2020 at the Milky Way Prospect and the Altan Sum Prospect. This work is ongoing with more trenching planned across all four prospects discovered.
At the Milky Way Prospect initial trenching results have highlighted a mineralised system of at least 700 metres in length and up to 12 metres wide with individual meter sampling results up to 1.49g/t gold, 450g/t silver, 2.98% copper, 3.98% lead and 0.31% Zinc.
Early showing at the project are very positive and we look forward to updating all shareholders in the months to come as we get closer to drilling.
Alex Deluce: Thank a lot Bataa for your time, looking forward to checking in with you or Aneel in about a month’s time.
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