Gold Supply


2019 was a stellar year for gold producers and, despite lockdown restrictions impacting production levels, 2020 has followed suit. Tier-one companies led the way, with the share prices of the top two gold producers, Newmont and Barrick, appreciating by more than 40% from January to May. As free cash flow was boosted by rising gold prices, the majors were the first to receive generalist attention. “The funds were seeing generalist money coming into the large and mid-caps, and from their perspective it was riskier to pick a micro-cap that could double when some of these intermediates have been doubling,” observed Ryan Matthiesen, managing director of investment banking at Haywood Securities.

This sentiment was shared by Keith Spence, president and CEO of Global Mining Capital Corp: “As gold rises, the generalists are tepidly coming back, and the big funds focus on companies with a name and quality,” he said, opining that the major companies and the next level down, such as Kinross, still have a long way up to go.

By July 2020, the year-to-date (YTD) returns of the VanEck Vectors Gold Miners ETF ($GDX) had reached 28.86%, in comparison to the Junior Gold Miners ETF ($GDXJ) which sat at 22.39% YTD. However, in the 13-week period from April to the start of July, the GDXJ outpaced the GDX by 62.28% to 44.61%, a stark indication that the tide has finally turned for the long-suffering junior community. While gold’s rising tide should benefit the full value chain from exploration to production, the time has come for the smaller producers, developers and juniors to join the party.

In this article, Global Business Reports will feature the new generation of gold producers, covering those that have come into production in the last twelve months, development companies due to move into production in the next twelve months, and an exploration company advancing one of the world’s next major gold deposits.

New production comes online

In recent years, mid-tier gold producers have been the standout performers in the mining sector. Of the eight mining companies to make the inaugural TSX30 in September 2019 – a list that recognizes the top 30 performing stocks on the Toronto Stock Exchange over a three-year period – six were intermediate producers. If we look at the three gold-focused companies on the list – Kirkland Lake Gold (#4), Gran Colombia Gold (#17) and Wesdome Gold Mines (#19) – a couple of similarities become apparent.

Firstly, grade is king. In 2019, estimates of consolidated, proven and probable mineral reserves reported grade averages of 22.1 grams per tonne (g/mt) at Kirkland’s Macassa mine; 13.5 g/mt at Gran Colombia’s Segovia operations; and 14.4 g/mt at Wesdome’s Eagle River mine. Secondly, investment into exploration has been foundational to success. “Kirkland leads its peer group by investing more money on a per ounce of production basis into exploration,” stated president and CEO, Anthony Makuch, a philosophy shared by Wesdome president and CEO, Duncan Middlemiss, who remarked: “We believe that the only way to show value to our shareholders is through continued exploration success.”.

"From the start, we knew all eyes were on us, so we had to develop Fruta del Norte responsibly, protecting the environment, involving the local communities and creating sustainable development. What the Ecuadorian government needs to do now is reopen the country’s cadastre system and to bring some clarity on the consultation process to be implemented.”
Ron Hochstein, President and CEO, Lundin Gold

One of the new gold producers with both high-grade reserves and exploration potential to grow is Lundin Gold (TSE: LUG), which commenced commercial production at its Fruta Del Norte mine in Ecuador in February 2020. However, the company shut down operations on March 22nd due to COVID-19, restarting on July 6th. Despite suspending its activities, Lundin Gold’s stock appreciated from C$8.35 to north of C$12 during this period, an increase of nearly 50%. While the gold price has helped drive this recent success, LUG has been out-performing its peer group since the acquisition of Fruta Del Norte from Kinross in 2014. “The company’s market cap when it acquired Fruta del Norte was about C$40 million. Our market cap is now close to C$3 billion, which shows the ability of the Lundin Group to create wealth for shareholders,” stated president and CEO, Ron Hochstein.

Regarding Lundin Gold’s strategy for growth, Hochstein pointed to operational improvements including a ventilation raise that will be important for 2021 mining production, the commissioning of a paste backfill plant in Q3 2020, the first raise of its tailings dam, and engineering studies to look at the economic feasibility of expanding the mine and mill throughput to 4,000 or 4,500 mt/d.

The other aspect that Lundin Gold is evaluating is exploration growth, according to Hochstein: “If you look back at Aurelian’s first resource, it was 13 million oz at Fruta del Norte. It was scaled back, but now the near-term opportunity is to do infill drilling and convert some of our indicated resource to reserve,” he said, noting that the probable reserve at Fruta Del Norte is only 67% of the indicated resource right now. Speaking of exploration targets, Hochstein elaborated: “Our primary target, Barbasco, is close enough to Fruta del Norte, so its ore could be trucked and processed at the existing facility. Any other deposits that are further south would probably require their own milling and tailings infrastructure.”

On the other side of the globe, in Mongolia, Steppe Gold (TSE: STGO) began ore processing at its ATO gold mine on March 25th, 2020. After its final cyanide permit had been granted in December 2019, Steppe raised capital through the Mongolian National Investment Fund in January 2020 – the fund’s first investment in a mining company and indicative of the support the company has at all levels in Mongolia, according to executive director Aneel Waraich. Indeed, in contrast to many mining companies listed on the TSX, Steppe has emphasized its position as a Mongolian entity, with a 98%-national workforce led by Mongolian president and CEO, Bataa Tumur-Ochir.

The combination of a local workforce and waiting out the worst of the winter to start production played into Steppe’s hands, as strict travel restrictions did not impact its operations and the company’s first gold sale came after gold had rebounded from its mid-March dip. “The gold price is more than US$500 higher than when we acquired and started building the mine two years ago. This has given us a great base to grow from,” said Waraich, affirming the company’s intent to grow its production profile to a mid-tier level.

When asked to outline the next steps in the company’s growth strategy, Waraich pointed to an organic pipeline with 11,000 meters of pending exploration results that will provide a maiden resource update for Steppe’s Mungu project, and an update for ATO deposits 1, 2 and 4. “This data, alongside Steppe’s first earnings in call in August, will show the market we have upscale potential as well as downside protection as a producer,” he explained, adding the company’s intention to expand from a heap leach to a CIL plant in 2021.


Development companies in the spotlight

The model of advancing low-capex gold projects has been honed by the Minera Alamos (TSXV: MAI) management team, who have built three mines in the last 12 years in Mexico, including Castle Gold’s El Castillo heap-leach gold mine, acquired by Argonaut Gold for C$130 million in 2009. Doug Ramshaw, MAI’s president, pointed to “industry-leading capital intensity” as one of the group’s core competencies: “We have built mines for what seems like crazy-low capex figures before, to the point that I would get a lot of incredulous looks when explaining we could produce 25,000 oz/y for C$10 million.”

A construction package worth C$14 million for MAI’s Santana project was agreed with Osisko Gold Royalties in December 2019, blending C$6 million in equity with a C$5 million life-of-mine royalty and a C$3 million optional royalty. When quizzed on the company’s financial philosophy, Ramshaw stated: “You do not want to be a single-asset company taking on debt and running the risk of getting the cycle wrong or having technical issues,” acknowledging that MAI would consider taking on debt to build mine number two.

With construction of Santana due to be completed by the end of Q4 2020, MAI will not be on the wrong side of the cycle by any stretch of the imagination, but the company’s business model is not predicated on higher gold prices, according to Ramshaw. “We stress test everything at US$1,000/oz and run our models at US$1,200/oz – so if we are lucky enough to get into a US$1,700 market, that love will be shared with our shareholders,” he explained, adding: “For too long the mining industry has been fixated on the wrong metrics, such as headline production and the amount of ounces in the ground, rather than focusing on the bottom line.”

Luis Rivera (@EconomicAlpha) compared MAI’s characteristics to an early-stage Wesdome Gold Mines: Santana funding the company’s next project (La Fortuna), free cash flow funding exploration and the potential for a bolt on acquisition. The potential to acquire an additional asset was confirmed by Ramshaw, who revealed: “I would not be surprised if we look to add a pipeline development asset in the second half of 2020.”

North of the Mexican border, in Utah USA, private company Tintic Consolidated Metals is in the process of restarting the high-grade, gold-silver, underground Trixie mine, located in the East Tintic mining district. Thomas Bowens, Tintic’s president and CEO, detailed that Trixie will be a small operation of 300 mt/d, and the modest US$14 million investment for the refurbishment was possible because there was a lot of infrastructure already in place as Trixie was mined up until 2002. “The idea is to take a significant amount of the Trixie profits and apply them to further exploration because the district is very large,” he explained, adding that Trixie can be put into production for a cost of US$300/oz.

"For too long the mining industry has been fixated on the wrong metrics, such as headline production and the amount of ounces in the ground, rather than focusing on the bottom line.”
Doug Ramshaw, President, Minera Alamos

Bowens expects production at Trixie to start by the end of 2020, initially using toll milling before the mill Tintic owns is set up, with initial cash flow forecast by February 2021. From an exploration standpoint, the company has budgeted US$6 million in 2020, after identifying targets by taking old data and incorporating it into three-dimensional models for a mining district that has been active for over 100 years, with more than 20 mines in the area. “We will start exploring Eureka Standard first, drilling that from surface and also via an underground access from Trixie with an underground drill. After that, we will also drill North Lily,” said Bowens, revealing that both Eureka Standard and North Lily have gold content of over 32 g/mt, going up to 60 g/mt in some areas.

Also following the low-capex start up model is Altamira Gold (TSXV: ALTA), which signed a definitive gold forward purchase agreement with Metalstream Ltd for US$6 million on April 27th, 2020. The agreement was followed by the May announcement of a second environmental license for trial mining at its Cajueiro gold project in central western Brazil, putting the company in position to build a 1,000 mt/d processing plant aimed at mining oxide material. “During the first five years of production, we pay back Metalstream 2,000 oz/y, at a strike price of US$600/oz. If the gold price goes above US$2,000, we split the difference 40/60,” explained Michael Bennett, Altamira’s president and CEO, who outlined plans to start work on the installation of the plant as soon as lockdown restrictions have been lifted, with production expected by June 2021.

Discussing the company’s decision to adopt a small-scale bulk sample strategy, Bennett highlighted the cash flow from processing 200,000 mt/y of material will be boosted by taking out the oxides, which will be a higher grade than the 1.2 g/mt average of the general resource, and there will also be less stripping ratio due to the small volume. “Furthermore, we will be able to go through the full environmental licensing process over the next two years to be able to ramp Cajueiro up to a much bigger operation,” added Bennett, concluding: “This is the ideal springboard to get Altamira to the next phase without having to dilute the company’s share structure.”

Across the Atlantic from Brazil, Thor Explorations (TSXV: THX) is currently building Nigeria’s first large-scale gold mine, due to come into production in the first half of 2021, according to CEO Segun Lawson. Construction of the company’s flagship Segilola gold project has been fully funded to the tune of US$104.5 million, which is quite an achievement for a small-cap junior operating in a country with no formal gold mines. However, Nigeria does have a mining heritage. As the largest exporter of tin globally in the 1900s, and sitting on the same geological belt as Africa’s top gold producer, Ghana, the Segilola property was mined prior to 1930, explained Lawson. Despite its mineral endowment, Nigeria had neglected mining in favor of hydrocarbons, an industry with a shorter gestation period and easier revenue opportunities. “A few years ago, when the oil price dropped to US$30, the government made clear it would diversify the economy and kick start the mining industry,” said Lawson, listing incentives introduced such as zero tax on profits, 100% ownership of projects and 100% repatriation of dividends.

Thor Explorations rose to prominence as the 2018 winner of Mining Indaba’s Investment Battlefield, which led to project funding from Africa Finance Corporation (AFC), which has US$6.6 billion in assets. In October 2019, AFC provided a secured credit facility of US$54 million, an extra US$11 million in equity, and the pre-payment of a stream of 10% of the gold for US$21 million. A bankable feasibility study for Segilola from February 2019 shows open pit production grading 4.2 g/mt and in the bottom quartile AISC at US$662 per ounce. “We ran the feasibility study at a US$1,300 gold price, with an NPV close to US$140 million, a payback period of 1.4 years and an IRR of 50%,” detailed Lawson, adding: “Having to raise US$90 million to get to approximately US$50 million free cash flow was a transformational opportunity and a route we decided we had to take. At today’s gold price we pay back the project capital in less than one year.”

An elephant in Ontario

“Over the last 10 years, there have been approximately 200,000 drill holes drilled in the global mining industry. Only 38,000 of these drill holes actually made a significant intercept. This means that four out of five drill holes drilled in the last 10 years were useless and a significant amount of money has been wasted,” observed Terry Harbort, president and CEO of Talisker Resources (CSE: TSK), before summarizing: “The discovery rate in the industry is 0.6%.”

At such a rate, the probability of a junior making a discovery that becomes a mine is minimal. However, when an “elephant” is found, it can have a transformational impact on a local economy, creating tax revenue and employment, attracting investor interest, and it can even spin out billion dollar companies from the royalties it creates. This was the case with Canadian Malartic, the Québec mine discovered by the original incarnation of Osisko Mining, before being sold to Agnico Eagle and Yamana Gold in 2014 and spawning Osisko Gold Royalties.

Chris Taylor, president and CEO of Great Bear Resources (TSXV: GBR), referenced Canadian Malartic when explaining the rationale behind the creation of Great Bear Royalties Corp with a 2.0% net smelter return (NSR) royalty agreement. “In terms of size, Canadian Malartic is similar in dimensionality to what we have at Dixie; about a 12 million oz deposit but at a much lower grade,” he said, noting that when GBR purchased the project, it bought out the existing royalties early on - a rarity in the exploration business.


“GBR’s 100% owned Dixie project has turned into what is widely regarded as one of the largest gold discoveries of recent years,” stated Taylor, and the share price has responded accordingly, increasing from under a dollar in August 2018, to C$5 in August 2019, and over C$18 by July 2020. Where has such value creation come from? In short, the drill bit. GBR’s current 110,000 m, 300-hole program will be finished by about the end of December 2020, according to Taylor, and by the middle of 2021, the company expects to publish its initial inferred resource. In the meantime, drill results such as the June 11th announcement of 31.33 g/mt gold over 20.55 m, including 576.00 g/mt gold over 1.00 m at the LP Fault have been grabbing the attention of a market usually focused on free cash flow.

Considering the potential scale of the deposit, Taylor is in no rush to come to a construction decision before Dixie has been thoroughly explored: “The LP Fault is one of the largest gold targets in Canada considering strike length and depth potential, and it behooves us as a company to show what a discovery of this magnitude can deliver,” he said, adding that while exploration highlights are important, the real target now is to show continuity and grade over distance. “By June 2021, we should have 500 drill holes in addition to what we currently have as part of one of the largest exploration campaigns in the world,” detailed Taylor, and with over C$50 million in the bank, GBR has enough capital to drill and advance Dixie well into 2022. “This will take the pixelated view of the project we have now and turn it into something which is high definition,” he concluded.