Metals Update 30/03/2021

Steppe Gold talks 2020 revenue, omits P&L from NR

Steppe Gold Ltd. has released its financial results for the fourth quarter and year ended Dec. 31, 2020.

The full version of the condensed interim consolidated financial statements, and management’s discussion and analysis can be viewed on the company’s website or under the company’s profile on SEDAR. Amounts are expressed in U.S. dollars unless otherwise noted.

Steppe Gold president and chief executive officer, Bataa Tumur-Ochir, commented, “We are very pleased to report a strong start to production at the ATO gold mine with operating cash flow from mine operations in 2020 of $32.6-million, on revenue of $52.1-million, in an approximate nine months of production.

“Most importantly we are proud to report a zero accident safety record at the project, and our exemplary environmental record has been recognized with a 93-per-cent result on the latest environment audit.

“Cash costs remain at market-low levels at $607 per ounce sold for the year and this allowed us to build up a solid cash balance, ending the year at $32.6-million. Discussions with Mongolian and international lenders are progressing well and this supports our optimistic outlook for a timely debt financing for the phase 2 expansion now under way.

“We have now mined approximately 1.7 million tonnes of ore and 1.25 million tonnes stacked on the leach pad. With a new fixed crusher in place this summer, we are planning a record year for stacking in 2021. We have paused production in the first quarter with extreme cold weather conditions and we expect to resume production shortly. We have seen some bottleneck in supply of critical reagents and this will impact second quarter production as we conserve supplies for the important summer months. Hopefully this issue is temporary and will be resolved shortly.

“With the ATO resource now at 2.45 million ounces gold equivalent, and procurement of long lead capital items under way, we are focused on increasing our production run rate from the oxide phase through 2021 and 2022 and executing the phase 2 expansion which has already begun.”

Year ended Dec. 31, 2020, highlights (all figures in thousands of U.S. dollars unless stated)

  • Revenue for the year ended Dec. 31, 2020, was $52,097 on sales of 31,733 gold ounces and 13,710 silver ounces with average realized prices per ounce of $1,822 and $20 respectively;
  • Operating income from mine operations, before depreciation and depletion, was $32,551;
  • Consolidated group adjusted earnings before interest, taxes, depreciation and amortization for the year were $24,399;
  • Year-end cash, restricted cash and savings accounts balance was $32,605; bank debt is $10,610;
  • Cash costs for the year ended Dec. 31, 2020, were $607 per ounce sold;
  • All-in sustaining cost (AISC), before expensed exploration, for the year ended Dec. 31, 2020, was $839 per ounce sold;
  • During the year ended Dec. 31, 2020, 1,138,209 tonnes of ore were mined and 699,204 tonnes of ore stacked with an average gold grade of 2.03 g/t and an average silver grade of 8.88 g/t;
  • The company expects to pay minimal income tax in respect of the 2020 financial year due to COVID-19 pandemic related tax exemptions;
  • The company announced a resource update on Feb. 24, 2021, for the ATO gold mine. This update shows a doubling of the resource to 2.45 million ounces gold equivalent and now supports a planned production profile of approximately 150,000 gold equivalent ounces per year and an estimated 10-year plus mine life;
  • Work is well advanced on the Bankable feasibility study for the phase 2 expansion of the ATO gold mine. Incorporating the recent resource update and a detailed series of new metallurgical work, the BFS is due for release in summer 2021;
  • The company completed an active period of drilling at ATO and Mungu in 2020, with drilling continuing into early December, 2020. The focus was on extension and infill drilling and contributed to the resource upgrades on the existing ATO deposits and the maiden resource on the Mungu discovery.

Fourth quarter highlights (all figures in thousands of U.S. dollars unless stated)

  • Revenue for the quarter was $13,217 on sales of 7,923 gold ounces and 3,429 silver ounces with average realized prices per ounce of $1,882 and $23 respectively;
  • Operating income from mine operations before depreciation and depletion was $8,349;
  • Consolidated group adjusted EBITDA for the quarter was $5,553;
  • Cash costs for the quarter were $604 per ounce of gold sold;
  • All-in sustaining cost, before expensed exploration, for the quarter was $902 per ounce sold;
  • During the quarter, 291,455 tonnes of ore were mined and 206,703 tonnes of ore were stacked on the leach pad with an average gold grade of 2.26 g/t and an average silver grade of 9.22 g/t.

Details of non-IFRS performance measures can be found in the company’s management’s discussion and analysis.

Operational and financial summary

The ATO gold mine is the sole operating mining asset of the company. Prior period comparables have been included where appropriate in relation to commercial production beginning in 2020.

Outlook

The company has continued to mine and stack throughout the winter months at planned rates. It now has approximately 1.25 million tonnes of ore stacked on the leach pad.

The company paused leaching and gold production in the first quarter of 2021 as cold weather made leaching conditions less favourable. This cold weather disruption will be remedied for the 2021/22 winter season with the installation of a boiler plant to heat process water nearing completion. The company also wanted to conserve key chemicals and reagents for the coming warmer months given the COVID-19-related supply constraints. The company plans to resume leaching and production in April, 2021.

It is targeting annual production in 2021 and 2022 of between 50,000 to 60,000 ounces and then a transition to the fresh rock ores in 2023. Production forecasts for 2021 are dependent on a restart of leaching in April, 2021, and no further delays on procurement due to COVID-19.

The company is now stacking ore on cell 3 of the leach pad. Stacking of the first level of the leach pad (cells 1 to 5) will continue through 2021. Completion of the boiler house, used to warm the barren solution, is planned for summer 2021.

In March, 2021, the company purchased a new crusher through a loan from Capitron Bank. The new crusher will have a crushing capacity of 1,000 tonnes per hour, more than three times the current crusher, and it will fully support planned mining rates for the fresh rock phase where the company has estimated throughput rates of two million to 2.5 million tonnes per annum. Construction of foundations and installation of the new crusher will start in early April and it is scheduled to be operational by July, 2021.

In conjunction with the start of procurement of long lead items, the company continues discussions with Mongolian and international lenders on a multitranche project debt facility to finance the phase 2 expansion, expected to include a grinding circuit, a leach/CIP plant and a flotation circuit. Metallurgical testing is progressing well with encouraging results and the bankable feasibility study is on track for completion in summer 2021.

DRA Global has been retained for the BFS and Base Metallurgical Laboratories has been retained to complete related metallurgical test work. The BFS is based on the updated resource announced in late February. A full 43-101 report will be filed shortly.

An upgraded power solution will be required for the fresh rock phase and a power study was completed in December, 2020, with recommendations now being reviewed. The plan is to use a diesel genset solution initially for the fresh rock expansion as the company executes on grid-based power options.

Kootenay signs Two Times Fred option deal with Centerra

Kootenay Silver Inc. has signed an option agreement with a wholly owned subsidiary of Centerra Gold Inc., whereby Centerra is granted an option to earn a 70-per-cent interest in the Two Times Fred property located in the Nechako plateau of central British Columbia.

A total of $6-million in exploration expenditures and $500,000 in cash payments must be incurred and made over a four-year period for Centerra to earn a 70-per-cent interest. The first year requires a work expenditure of $1-million with a minimum commitment of $650,000. Current plans for this year’s work include up to 1,000 metres of trenching and 20 drill holes. Upon the fulfilment of these conditions, the two companies will enter a standard joint venture agreement with Kootenay retaining a 30-per-cent interest, and financing of further work will be done on a pro rata basis amongst the joint venture partners.

James McDonald, president and chief executive officer of Kootenay Silver, states: “We are very pleased to have signed an agreement with major gold producer Centerra Gold Inc. We look forward to benefiting from Centerra’s expertise and consider their participation via the option agreement a reflection of our belief that Two Times Fred has the potential to host a gold deposit of significant size.”

Two Times Fred

The Two Times Fred property is host to a large classic low-sulphidation epithermal gold vein system. It is a grassroots discovery made by the Kootenay Silver team. Over the past several years Kootenay has advanced the project with limited drilling, mapping, sampling and geophysical surveys. The project comprises numerous northeast-trending veins over a 1.5-by-three-kilometre trend. Select rock chip sampling at surface has returned assays as high as 12.8 grams per tonne gold and 194 grams per tonne silver. Limited drilling (2,628 metres over 13 drill holes) shows the main identified veins occur as classic vein and vein breccia zones from a few metres to 40 metres wide. Best drill results to date include 7.6 metres of 1.69 g/t gold and 29 g/t silver.