As many of my subscribers and readers know, I have been an avid supporter of Steppe Gold for many months. I have been fortunate to have seen it grow from its construction phase to a full-fledged production story.
Steppe’s evolution has been remarkable to watch, considering that the company’s producing asset was just purchased in 2017.
In a mere 3 years, the company’s management team has shown strong execution in planning, assembling, building, and now mining a robust gold operation that I feel is just getting started.
I believe 2021 will be the year the company officially transforms into a very well-known name in the precious metals market due to the mine’s extremely robust economics and its very exciting growth prospects, which should be on full display in the coming months.
For many of my new readers, I highly encourage you to check out my latest piece on Steppe, which includes a Q&A interview with Steppe’s Director and Executive Vice President, Aneel Waraich, for a brief catch-up on the story:
Gold and Mongolia:
As many of my followers know, I am extremely bullish on precious metals as I believe central banks around the world will go through a very serious phase of financial repression, which will result in negative real rates for a prolonged period of time, in order to keep the economy afloat to service debt.
With my bullish outlook, I believe countries like Mongolia will be major players in discovering and finding tier-one mining assets due to its untapped geology.
Mongolia is shifting away from an economy based on agriculture and herding to one based on mining.
But first, for some historical context on Mongolia, it is essential to point out that for nearly seven decades in the 20th century, Mongolia was a Soviet satellite with a centrally planned economy. Agriculture was the centerpiece of the nation.
Oyu Tolgoi Mine in Mongolia
During that time, industrial mining did exist, but it was not until the country transitioned to a free-market democracy in the 1990s that foreign investors could get involved.
What happened when foreign investment came to the country?
Mining started to boom in the country. In fact, by 2011, Mongolia had the fastest-growing economy in the world.
With this emerging commodity super cycle starting to come to fruition, I believe it will be another very prosperous period for Mongolia as a nation and for its strong in-country mining operators.
Steppe Gold has positioned itself to be the country’s premier precious metals company due to its portfolio of assets, its robust economics, and growth potential.
Steppe Gold’s Mining Operations:
Altan Tsagaan Ovoo “ATO” Gold Mine
As previously highlighted, Steppe Gold acquired the ATO project in September 2017 from Centerra Gold for net proceeds of US$20 million and turned the project into a full-scale mining operation.
In 3 short years, the company commenced commercial production, operating with a significantly high margin, which should continue to give the company extreme torque in this exciting gold market and help self-fund the company’s progression to its phase 2 expansion.
In the third quarter of 2020, Steppe reported and showcased the high margin component of its business.
2020 Third Quarter Highlights (all figures in US$000s unless stated)
- Revenue for the quarter was $19,360 on 11,352 gold ounces and 6,553 silver ounces sold with average realized prices per ounce of $1,930 and $24 respectively.
- Adjusted EBITDA for the quarter was $9,857.
- Cash Costs for the quarter were $572 per ounce sold.
- ATO Gold Mine All in Sustaining Cost (AISC) for the quarter was $794 per ounce sold.
- Over $37 million USD on its balance sheet at the end of the quarter.
Putting this all together, operation cash flow from the mine was $12.7 million, for a total of $24.2m in operating cash flow in the assets in their first 6 months of production.
This type of cash generation could be one of the reasons why the legendary Eric Sprott decided to invest C$15 million in Steppe in August, 2020.
However, I believe as the company continues to optimize its mine, the costs could come down even more, to even increase this margin and further strengthen its balance sheet to self-fund its aggressive growth strategy in 2021 and beyond.
Steppe’s Growth Potential:
Steppe is currently focused on numerous growth catalysts to help drive its valuation alongside its on-going cash flow generation from its mining operation.
The things to look out for are:
- Significant Resource Expansion
- Upcoming Feasibility Study
- Exploration Drilling and Discover Potential at UK
Significant Resource Expansion
In the coming weeks, it is expected that Steppe Gold will publish new resource upgrades at its ATO 1, 2, 4 deposits and an initial resource for its Mungu deposit.
Steppe is incorporating its extensive dataset of prior drilling alongside its 2020 drill program to calculate these upcoming resources.
From its latest drilling news release, the company announced 23 diamond drill holes for a total of over 9,482 metres and also reported 2019 infill drilling results in 2019 alongside its Mungu discovery:
Highlighted results for the 2019 drilling program include:
- ATO-357 22m at 2.4g/t gold from 85 metres
- ATO-367 10m at 4.59g/t gold from 219 metres
- MG-122 34.3m at 7.6g/t gold, 24.11g/t silver from 259.7 metres
- MG-130 33.5m at 2.07g/t gold, 181g/t silver from 286 metres
A new, very high-grade base metal zone has also been discovered underneath the ATO1 Deposit which is now subject to additional drilling in the 2021 drilling program.
- ATO-36448m at 0.46g/t gold, 40.69g/t silver, 1.39% copper, 4.66% lead and 20.88% zinc.
Better results from the 2020 drilling program received to date at the Mungu Discovery include:
- MG-139 19.3m at 6.77g/t gold, 28.6g/t silver from 219.2 metres
- MG-140 22.9m at 4.73g/t gold, 87.10g/t silver from 205.1 metres
- MG-141 11m at 4.83g/t gold, 249.03g/t silver from 168 metres
- MG-142 21m at 3.77g/t gold, 8.7g/t silver from 269 metres
- MG-143 38m at 1.32g/t gold, 78.44g/t silver from 257 metres
- MG-144 32m at 1.59g/t gold, 115.8g/t silver from 238 metres
This gives investors and new readers a taste of some of the bonanza grades that reside at these assets. Specifically, I am very excited for the resource at Mungu as that is an exceptionally high-grade system.
In fact, the first drill hole by Steppe at Mungu returned 46 metres grading 14.98 g/t and 82 g/t silver. This is an exceptional hole and highlights the potential here:
The Mungu gold and silver discovery is located immediately northeast of the current resource at the ATO Project. It is a structurally controlled epithermal gold-silver system with localized bonanza grades. It will be very interesting to see the size of this resource after its published to the market alongside its upgrade to ATO deposits to shore up its reserve profile in the coming years.
Upcoming Feasibility Study (Phase 2):
Steppe Gold is well underway with the development of the fresh rock phase 2 at the ATO mine, and the company is also engaging with lenders to help finance for Phase 2.
With a strong cash balance, the company is looking to secure long-lead items early in 2021, and Steppe is optimistic they can secure funding soon after the publication of the feasibility study.
The Bankable Feasibility Study (“BFS”) expects to showcase the ATO Gold Mine expansion into fresh rock ores with a planned production profile of approximately 150,000oz gold equivalent per year and an estimated ten-year mine life.
Steppe continues to get fantastic in-country support as it enters into its phase 2 stage. In September, Steppe announced that they secured an initial tranche of project financing for its expansion through the Gold-2 program facilitated through the Central Bank of Mongolia and was provided by the Trade and Development Bank of Mongolia (“TDB”) in the initial amount of MNT 30 billion, approximately US$10.5m).
The Deputy Governor of the Central Bank of Mongolia, commented:
“The Central Bank of Mongolia is supporting leading responsible mining companies and projects through commercial banks of Mongolia to accelerate gold production and export in Mongolia. Gold production and export plays a vital role in the Mongolia economy, and we are pleased to support and finance the second phase of Steppe Gold’s development programs through the Government’s Gold-2 Program.”
Exploration Drilling and Discover Potential at UK
As I pointed out a few months ago, I am very excited about Steppe’s pure exploration prospect, the UK project, which has the earmarks due to surrounding success of making a big discovery.
I encourage my readers to read the article, here:
In that report, I walked you through why Mongolia in itself is positioned extremely well to be a huge winner in this emerging commodity supercycle as the IMF identified Mongolia as one of the 29-resource-rich developing countries and is poised for lots of new discoveries in the coming years.
I also highlight the great success Erdene Resources has had and is currently developing a new-high grade gold district as the Khundii gold district resides in the central Asia Orogenic belt, which hosts some of the world’s largest gold and copper deposits.
Steppe’s never drilled UK is adjoining and between Erdene’s deposits and prospects. The exploration license covers significant ground as it covers 14,397 hectares.
The company has already identified 4 gold zones which will be drilled in 2021.
The company published some very interesting preliminary work on the property as at its Milky Way prospect produced trenching results showcasing 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.
I am personally very excited for the drilling campaign to commence here, as this exploration license might be a big driver of Steppe’s value proposition in the months and years to come through discovery.
2021 could very well be a transformational year for Steppe Gold as many moving parts will soon be put in motion with the on-going production, phase 2 expansion, exploration, and discovery potential.
I encourage my readers to watch Mr. Waraich’s latest interview with Proactive Investor, where he also gave a general update on the company:
I will be providing another update on Steppe and a Q&A with management as the new resource upgrade should be announced in early February.
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