Putting a mine into production is no easy task. Throw in an unexpected coup and resulting turbulence that forced mine construction to shut down for a time, and the odds are particularly long.
Oxygen Capital boss Mark O’Dea and his team at True Gold Mining (TGM-V) faced down those odds, and they did it in about three years. O’Dea may be sporting a few more grey hairs, but True Gold announced Monday morning they have poured gold at Karma. The flagship Burkina Faso gold mine is expected to produce 97,000 ounces of gold annually once production is ramped up.
So why sell out now, at the point of production in a rising gold environment? On March 4 Endeavour Mining announced it would purchase True Gold in an all-share $240-million deal valued at about 57 cents/TGM share (.044 of an Endeavour share per True Gold share). Both boards agreed to the deal.
I stopped by Mark O’Dea’s office last week for updates on True Gold as well as Pure Gold Mining (PGM-V) and Pilot Gold (PLG-T), the other Oxygen companies. O’Dea, who made his name with a second-place finish in Rob McEwen’s Goldcorp Challenge and his fortune with Fronteer Gold’s $2.3-billion sale to Newmont in 2011, had Karma on his mind.
The rationale behind selling Karma, O’Dea told me, has as much to do with West-Africa-focused Endeavour as True Gold. Shares of fast-growing Endeavour Mining offer greater leverage to a rising gold price than does the equity of a smaller producer such as True Gold Mining. True Gold shareholders will own an estimated 22% of Endeavour shares, post-deal.
“Endeavour will re-rate faster and stronger than True Gold,” O’Dea said, noting that Endeavour’s price/cash flow is less than half of peers including B2Gold and Centamin. The re-rating is already happening -- Endeavour shares have more than doubled since the company consolidated its shares 10:1 in late November. The stock is also up about 22% from the close last week Wednesday, the day I interviewed O’Dea.
O’Dea owns more than 2.6% of True Gold’s shares (not including options and warrants). He notes Endeavour is rapidly becoming a gold powerhouse that -- once production at its 90% owned Hounde ramps up in 2018 -- will be producing 900,000 ounces a year. Construction on Hounde, which many consider Endeavour’s best asset, began Monday.
Following the True Gold tie-up, billionaire Naguib Sawiris’s La Mancha elected to maintain its 30% ownership of Endeavour, O’Dea pointed out. That means another $83 million in cash to help Endeavour build the new mine, expected to produce 190,000 ounces annually for 10 years at all-in sustaining costs of US$709/oz.
Big changes from the last time I was in O’Dea’s office, back in early June 2014 as a mining reporter for the Vancouver Sun newspaper. True Gold had just held a groundbreaking ceremony at Karma, its Burkina Faso project, and this is the story I wrote.
True Gold has a new-ish CEO -- Christian Milau, who was Endeavour’s CFO before taking over just a year ago. The Endeavour deal means he’ll be out of a job soon and he told me he has no plans to go back to his former employer. Pure speculation on my part, but perhaps he’ll land at another, new Oxygen Capital deal? Time will tell.
CHANGE OF CREW
There’s also a new boss at Pilot Gold (PLG-T), which has shifted its focus from Nevada’s Kinsley Mountain to its Goldstrike project in Utah under the leadership of Cal Everett.
I enjoyed a brief meeting with Everett at his office, where a brass sculpture he calls his “due diligence dog ” keeps watch, one of its rear legs aloft. He’s an economic geologist and mining veteran who comes to Pilot Gold from the capital markets side.
Everett replaces interim CEO Rob Pease, who replaced original CEO Matt Lennox-King in November 2015.
The focus has shifted along with the C-suite at Pilot. The company and its chief geologist Moira Smith discovered high-grade gold but not enough of it at Kinsley Mountain, which was spun out from Fronteer. It raised $4.47 million and has $14 million to drill its Carlin-style Goldstrike project in southern Utah, near the Nevada border. Goldstrike was picked up with the 2014 acquisition of Cadillac Mining for $7.2 million in shares.
The property includes a past-producing open-pit, heap leach mine that produced 209,000 ounces from several shallow open pits between 1988 and 1994, at average grades of 1.2 g/t. The property covers 96 square kilometres and there are multiple oxide gold occurrences throughout that have never been followed up, Everett says.
The first batch of results was released this morning -- 8 holes and 1,364 metres -- and seven of them intercepted oxide gold. Hits included:
- 2.10 grams/tonne gold (g/t Au) over 35.1 metres, including 4.42 g/t Au over 13.7 metres in PGS019
- 1.07 g/t Au over 30.5 metres, in PGS020
- 1.56 g/t Au over 27.4 metres, including 1.98 g/t over 19.8 metres, in PGS025
The plan at Goldstrike is aggressive, Everett says, with a goal of formulating a resource estimate by the end of the year. Drilling is possible year-round, and at least 100 drill holes are included in the Phase 1 drilling budget. According to the corporate presentation, “the scope of the program is open-ended and dependent on results.”
At Kinsley, Pilot plans a May drill program based around a new IP anomaly target. The company’s Turkey projects, Halilaga (60% Teck, 40% PLG) and TV Tower (60% PLG, 40% Teck) are on hold and Pilot is considering strategic alternatives.
My final stop was Pure Gold Mining (PGM-V), the Red Lake, Ontario gold developer helmed by Darin Labrenz. Like Goldstrike, Pure Gold’s Madsen project is an exploration play in an area of historic gold production. Madsen produced 2.5 million ounces at an average grade of almost 10 g/t. The property has permitted infrastructure, including a 500-tonne-per-day mill, a 1,275-metre shaft and portal and decline.
Pure Gold’s high-grade hits from a 16,000-metre drill program keep coming -- on Monday morning the company announced intercepts including 56.2 g/t over 1.3 metres and 22.1 g/t over 3.5 metres at Russet South. That’s about 1.5 kilometres away from the main zones of mineralization.
But what Labrenz and O’Dea were most excited about was a brand-new geological model for high-grade exploration at Madsen, one they say has been confirmed by new drilling.
Most of the historic production at Madsen came from the Austin zone, which was mined to depths below a kilometre. Exploration is focused on the parallel McVeigh zone, which was only mined to a depth of 230 metres.
Labrenz says Pure Gold has discovered that the McVeigh is a folded continuation of the Austin horizon, which produced more than 2 million ounces of gold over 36 years of mining. The mineralized shoots of the parallel McVeigh horizon share similar characteristics, including widths and grades, as the Austin horizon. That makes the exploration potential of the McVeigh huge, Labrenz says.
A preliminary economic assessment at Madsen is expected in Q2.
There was no backslapping during my visit to the Oxygen Capital offices but there could have been, given the performance of gold and gold equities in 2016. True Gold is up 164% year-to-date, Pilot Gold has risen 120% and Pure Gold shares are up 230% YTD.
True Gold Mining
Shares outstanding: 399 million
Market cap: $247.4 million
Shares outstanding: 125.3 million (149.7M fully diluted)
Market cap: $84 million
Cash: $14 million
Pure Gold Mining
Shares outstanding: 125.8 million (173M fully diluted)
Market cap: $47.8 million
Cash: $5.5 million