Steppe Gold’s ATO mine went into production in 2020. How are things currently progressing?
We are very proud to be able to bring production online during a global pandemic. Steppe Gold (STGO) has now completed three quarters of production and produced over 30,000 ounces of gold, while selling an equivalent amount to the Mongolian Central Bank.
We generated over US$24 million of operating profit in our first six months and overall, it has gone well given restricted travel. Our operating team is 100% local, very skilled and we have shown that a local skilled labor force exists. Importantly, by having a local team in place, we do not need to rely on expats to run our business. This means we have not had to curtail or delay production.
What was the motivation behind adding a night shift at ATO to increase production by 50%?
As we work on optimization and the start-up and ramp-up completes, we will have worked out all the kinks in operations so that we are producing at the highest level. By increasing the mining rate, it allows us to process more tonnage, which means more gold. Our goal for the next twenty-four months is to produce as much gold as possible from the phase one mine and get as much cashflow as we can out of it in order to fund and fuel our growth. Three years from now, we will be running at a higher production rate with the expansion complete.
What is the pathway to building the Fresh Rock plant?
Our margin is quite high on the phase 1 oxide project. The strategy of taking cash flow out from phase 1 is working and we think it will continue to work out over the coming eight quarters or so, while we expand on feasibility studies. We come from a position of strength, in that having more cash and build up as we get to our expansion project means we should be able to lower the cost of capital on our project financing for Phase 2.
How much do you expect to produce at ATO?
We are set up to produce 50,000-60,000 oz for 2021, and similarly for 2022. The run rate for production once Phase 2 is up and running will be ~150,000 oz on a gold equivalent basis, which we believe will translate into a 10 year mine life to start.
Where does the Uudam Khundii (UK) project fit into the portfolio?
The UK project is exciting, and we are the first owners of this license that has had exciting and successful drilling all around it but never on our package. We have completed the groundwork, and we have commenced trenching at the UK project where we have four discoveries highlighted to focus on in the new year. We have seen encouraging trenching results, with 1.5 g/mt gold, 450 g/mt silver, 4% copper, 2-3% lead.
What are the benefits and challenges of operating in Mongolia?
STGO does not see a lot of the challenges that others do because of the way we run our business. We consider ourselves a Mongolian company. Our CEO and half of our board are Mongolian, as well as 99% of the staff in country. By being a Mongolian entity, we receive support from all levels – local, provincial, and federal. As a result, we received endorsement from the newly established sovereign fund, called the Mongolia National fund, which put US$3 million into Steppe in January 2020.
The Central Bank-backed Gold 2 program, which was created to encourage increased gold production from primary sources, also awarded Steppe US$10.5 million in debt financing to extend our Phase 2 program. We have been able to mitigate potential risks by operating locally.
What are some of the major catalysts for the business over the next year?
We will get a maiden resource update on Mungu, as well as the other three ATO deposits in early 2021. On the back of that, we will release a revised feasibility study on the Phase 2 expansion and break ground on that in the second half of the year. We will also have new drill and exploration programs going on both projects and first time drilling on the UK project.