Gold continues to showcase its strength as it is on track for its biggest monthly advance since July due to inflation expectations.
Interest is starting to come back into the sector, with hedge funds and other large speculators boosting their net-long position in gold to the highest since early January.
This brings me to one of my favorite gold producers, Steppe Gold (TSX: STGO), which continues to unlock value and generate free cash flow after completing its first year of production at its 100% owned ATO Gold mine in Mongolia.
For my new readers, Steppe Gold is Mongolia’s premier precious metals company projected to produce 50,000 to 60,000 ounces of gold from its phase I heap leach operations.
Operating cash flow from operations in 2020 was $32.6 million, and revenue was $52.1 million in 9 months of production. The company has showcased the high-margin component of its operations, with cash costs coming in at $607 per ounce for the year, which represents an industry-low.
The company showcased the strength of its balance sheet with $32.6 million in cash as it progresses to its stage 2 expansion of the ATO gold mine to produce 150,000 ounces equivalent per annum from the development of underlying fresh rock ores.
Four strong pillars guide the company:
- Proven in-country team
- Reoccurring cash flow from production at ATO
- Successfully showcased its expansion by doubling its resource base to 2.45 million ounces of gold equivalent at the ATO gold mine.
- Steppe has major exploration potential with its Uudam Khundii (“UK”) Project, which is located in the Bayankhongor gold belt. Drilling is planned this year on four new discoveries.
I will be doing a pure commentary article on the company in the coming weeks, but today I am pleased to be joined by the Executive Vice President and Director, Aneel Waraich, for a general update on Steppe.
Hey Aneel, thank you for taking the time to provide an update to the Gold Telegraph readers on Steppe Gold. It has been a few months since our last update.
I noticed the company reported strong cash flow in its latest financials. Can you touch on Steppe’s first year of production as it prepares for stage 2 expansion?
Thanks, Alex. It is always a pleasure to catch-up with you, and share Steppe’s story with your readers! And this time is even more exciting. Our team just celebrated our one-year anniversary of starting production at our ATO gold mine, our 3rd anniversary of listing on the mainboard of the Toronto Stock Exchange, and as you mentioned, released strong 2020 financials.
Our first year of production really brought unanticipated challenges, as it did for everyone around the world. Despite the pandemic, Steppe was able to go online and start production and all of that is thanks to our long term operational vision. We are proud of being a Mongolian success story, a local employer and what that really means is that we have always ensured that our employees are predominantly Mongolian. So, when borders completely shutdown, Steppe was able to function with its workforce of 99% Mongolian nationals. And we had to make adjustments along the way: there were bottleneck issues such as with our crushing capabilities, and we had to bring in a secondary crusher to address that issue. Steppe is also proud to report a zero accident safety record at the project, and our exemplary environmental record has been recognised with a 93% result on the latest government environment audit.
We are really pleased at our solid start in 2021: with only 9 months of production, we still ended the year with an operating cash flow of $32.6M, on revenue of $52.1M. With money in the bank, we have direct control over our growth and expansion plans – and we’re pretty excited about our Phase 2 expansion plans.
As we head into those Phase 2 expansions this year, we still put our people first. Our entire team has received its full, double vaccinations, and everyone is safe and healthy.
In February, the company knocked off another fantastic milestone by doubling the ATO gold mine resource to 2.45 million gold equivalent.
Can you touch on this fantastic milestone which also includes a maiden resource at the exciting Mungu discovery?
I appreciate your recognition of how significant that piece of news is for Steppe and its shareholders, Alex. We have consistently worked towards the long-term game, at a steady pace, and developed plans that are feasible, attainable and timely. Steppe has always been committed to sharing information with our team and shareholders responsibly, without raising expectations. So to receive resource updates that not only reinforced that we have what we’ve been saying we have, but showed a doubling of our resources was truly exhilarating for our team!
This is a great source of motivation for us, as we embark on our Phase 2 expansions and increase our drilling to between 10,000m – 20,000m at the ATO and Mungu projects. And as you already mentioned its maiden resource, it is difficult for me to not share our excitement that it showed Mungu with an M&I resource of 7.57 Mt at 1.74g/t for 424,000oz Au Eq in our recent update.
Is the Bankable Feasibility Study still on track to be released in the coming months?
The short answer, Alex, is yes. But as you know, there are always moving parts within mining operations. The upcoming release of our BFS results is integral to our Phase 2 plans, and is one of many things that are on Steppe Gold’s horizon. We are in the midst of listing on the Mongolian Stock Exchange, to reinforce our presence as a Mongolian company and to ensure that our nationals can share in our successes, too. Mongolia is also having a Presidential election at the beginning of June. We plan to share our results for the Bankable Feasible Study, that is already in motion not far after. I think it is safe to say we expect this summer out to the market, so not too far away at all and expect construction to start immediately after that release.
In addition to the ongoing production at ATO, what does exploration look like for the remainder of the year?
You’ve already heard me mention the excitement of Steppe’s Phase 2 expansions, several times, especially since the recent doubling of resources spurred our expansion plans. Our Phase 2 expansions are our focus for 2021, and exploration is at the heart of that focus. With a new fixed crusher in place in Q3, we are planning a record year for stacking in 2021. I mentioned the purchase of this new crusher earlier, and with a capacity of 1,000t/hr, it will provide us with more than 3 times our current crusher capacity which may bode well for production.
I know that you specifically asked about our exploration plans, but it is all tied into the Phase 2 program, and we are all ramped up to unlock additional value on our ATO site, with an internal target of 3 – 5 M oz across all of our licences.
I would expect that drilling will re-commence in just a few weeks at both ATO/Mungu and also the exciting and undrilled UK license where our colleagues at Erdene have had a lot of exploration success all around us.
This re-commencement of drilling should lead to strong news flow on both of our projects while expanding our production profile, so quite exciting to have this drilling/exploration news flow in short order in addition to all the other updates we have. Currently, we are budgeting for about 20,000 meters of drilling (~10k per license) and on the back of some success through the drill bit we could increase that further.
If you don’t mind, Aneel, for new Gold Telegraph readers, can you touch on Steppe’s incredible team that has been assembled alongside the fantastic support from all levels of the Mongolian government?
I’m happy for us to end this exactly the way we started this conversation: talking about our people.
The strength of Steppe’s strategy and operations, from Day 1 has been in our team. We have the leadership of Matthew Wood, as Chair, with decades of in-country experience and a seasoned geologist, as well our CEO, Bataa, an inspiration especially in how we navigated new challenges through a pandemic, and so widely-respected at all levels of government.
This is a great segue to mentioning the importance of our trusting relationships with all levels of Mongolian government. That took time, and was in part due to the confidence that Mongolian government officials had in our leadership team. Everyone that is involved in interfacing with each level, be it national or at our local community levels, has a credible professional track record and the confidence of our government partners. When industry folks in other jurisdictions question Mongolia as a mining jurisdiction or investment destination, I think the most important consideration is: how much time are you willing to spend on developing trust and buy-in in-country, before even embarking upon your operational plans? Steppe Gold has done it the right way, and it shows in the evolution of our story.
And last, but certainly not least, we are proud of Steppe’s incredible team across the entire organization. We have a workforce that is 99% Mongolian nationals, our management team is 60% female and Steppe continues to invest in our emerging talent at the local level, through skills training and scholarships. In 2020, every single member of the Steppe team rose to the occasion, and our each success can be attributed to all 350 individuals.
Thanks Aneel, I am looking forward to catching up with you again in the coming weeks.
Steppe Gold trades under the symbol STGO on the Toronto Stock Exchange and currently has a market capitalization of $150 million CAD.
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