As banks are getting into trouble left and right, with central banks saving bank customers (SVB) and lending up to US$54B (Credit Suisse) at the last minute in order to avoid a financial Armageddon, gold is doing well as the fear trade is on again, Goldshore Resources (TSXV:GSHR)(OTCQB:GSHRF)(FWB:8X00) keeps on churning out solid drill results at their fully owned flagship Moss Lake project in Ontario. The company has been drilling at 3 different target zones, Southwest Zone, Main Zone and the QES Zone, in order to expand the open pit mineralization, and according to the results Goldshore keeps hitting targeted parallel shear zones, widening the current mineralization.
The current NI43-101 compliant Inferred resource stands at 4.17Moz @ 1.1g/t, and management expects to increase this figure meaningfully in the upcoming resource update which is scheduled to be announced at the end of April, followed by a Preliminary Economic Assessment(PEA) later this year. In this article I will do an attempt to estimate the upcoming resource envelope, hear from management about strategy, and discuss of course exploration and financing plans.
All presented tables are my own material, unless stated otherwise.
All pictures are company material, unless stated otherwise.
All currencies are in US Dollars, unless stated otherwise.
Please note: the views, opinions, estimates, forecasts or predictions regarding Goldshore Resources’ resource potential are those of the author alone and do not represent views, opinions, estimates, forecasts or predictions of Goldshore or Goldshore’s management.
Goldshore Resources has not in any way endorsed the views, opinions, estimates, forecasts or predictions provided by the author.
Before I start digging into the last series of drill results and the potential impact they might have on estimated mineralized envelopes, it is equally as interesting at this point in time what Goldshore management has in mind regarding the current financial position, combined with the low share price levels of late.
The cash position is estimated at C$2M at the moment, and as Goldshore has nonexploration G&A of C$1.1M for Q4, 2022 and is working on the resource update, the treasury could be almost empty by the end of April, when the resource update is completed. A good thing is management started cutting back on salaries in December 2022, fees and stock based compensation in the last quarter, as can be seen in the last financials.
As a direct consequence of not having generous budgets to their disposal, Goldshore had to cut back on drilling as well, spending significantly less in Q4 (C$2.2M vs C$8.75M in Q2/Q3) although fees for consulting, geochemistry and geophysics stayed at the same levels or even increased.
I asked VP Ex Peter Flindell about this higher spending when drilling went down at the same time, if this had much to do with the 3D modeling, or more geotechnical drilling, environmental baseline data collection towards the resource update, relogging of historic core where possible, and/or extensive metallurgical test work to significantly improve on the 2013 historic met test results (85%), and/or other reasons. He told me the following: “Mobilizing drill crews was difficult last year, there was a scarcity of geologists but we overcame these challenges. While we have stopped drilling now and have reduced staffing levels, we are maintaining a core team and camp facilities ready to restart once the market recognizes the value of the Project. To this end, the team is fully engaged in relogging and sampling of historical core, 3D modelling of geological parameters in support of the upcoming MRE update and working with Ausenco on the metallurgical test program to optimize gold recoveries. This is all in support of the upcoming PEA, which will evaluate several mining and processing options to develop an operating plan to maximize the economic value of the Project. We expect the results to “put the project on the map” and necessitate the infill drill program required to take us into Pre Feasibility. Also, the team is developing the thirty exploration prospects to a drill-ready stage, so that we can move to discover additional resource targets once the Moss Project has reached critical mass. We also have VMS- and IOCG- style deposits on Moss Lake at North Coldstream, Vanguard, Iris and Hamlin, maybe spinning these out or drilling up to a resource could be another catalyst.”
Notwithstanding this, it will be clear a raise is needed soon. As a reminder, management is looking to substantially bring down the Wesdome position via a strategic partner, preferably a mid-tier or major with useful skillsets, and the ability to help further develop Moss Lake. Goldshore also fully controls the selling of shared held by Wesdome, so there is no active overhang. Such a strategic partner could be a welcome vote of confidence, just like Snowline Gold (SGD.CSE) catapulted on the B2Gold investment. As I wondered if CEO Richards wants to go from (relatively) small raise to small raise in order to prevent as much dilution as he can while waiting for gold to break US$2,000/oz and use that momentum to raise more at a higher price for example, or wants to raise big now in order to establish a more robust treasury and create more stability towards investors, being more independent from the market/gold dynamics, I asked Richards about his strategy and options in this regard, and the reasons for this. The result was an interesting discussion.
Brett Richards (BR): “I think the financing strategy is a difficult one in these turbulent capital markets. Yes – GSHR will go back and do a small raise in the near term. A small raise, simply because we are doing everything we can administratively and technically to preserve capital and buy time. Hence, a large raise at this time doesn’t make sense and can kill both the equity story, as well as the interest of the committed and loyal shareholders who have been with us since the very beginning. So I am very sensitive to dilution, and I want to preserve any further dilution to a strategic partner who adds value; creates momentum and send a message to the market that there will be no more open market raises of hard dollars, as the strategic partner would have rights to further financings. In general: speed to market is important, advancing is important. The market seems to have bottomed but not turning yet it seems, to the point a lot of liquidity comes into gold equities. Majors have recovered but juniors not so much.”
The Critical Investor (TCI): So you are buying time, but for what exactly, higher gold prices? The concern that I (and others) have, is that a small raise doesn't do enough for investors, so the resource update might have zero effect as a consequence, as this year’s drill results also had zero effect. Could you address this? Also and probably related: why you think the share price is trading where it is right now? Regarding killing the equity story and existing shareholder interest, don't you think these shareholders rather own 60-70% of a 2-3-bagger than 90% of a sideranging stock? Do you have additional views on this why you feel preserving capital at this stage is better?
BR: “We have two options – blow out the equity story now with a big raise at the company’s lowest share price in history; or do a small raise and continue discussions with strategic corporates (senior and mid-tier producers) to see if there is a financial transaction that can be made with a strategic partner, so as we do not have to access the capital markets for retail again (or for a long period).
What am I waiting for ?
• I am waiting for better capital markets………..
• I am waiting for a higher share price………….
• I am waiting for a strategic corporate mining companies to sit up and take notice – and participate in our development (financially)……….
• I am waiting for the right like-for-like / at market merger of equals – with a project we feel is equally as robust as ours, and whereby there are synergies by combining the two ………..(if the first three do not materialize)
I am sick of waiting, but I have to wait – I am going to wait this out; preserve as much capital as we can; put out the two biggest catalysts we have coming (MRE / PEA), and be on high alert for M&A opportunities in our space. Over the next 4 months, we will find a solution to one or more of the bullet points above. I just don’t think it is going to be 1 or 2, so my emphasis is on getting to a partnership conclusion in one way or another.
If none of the above options can be executed on; then Goldshore (and this entire Canadian junior mining space) is in the worst place I have seen it in my 37 years, and we will need to consider “nuclear” options. I think preserving capital at this stage is the only possible tactical / current option (versus blowing out the equity story with a C$15M-C$20M raise @ C$0.17), given our current cash position and the availability of capital in the market.
Majors and Mid Tiers need to start getting seriously interested in assisting the best junior mining projects go through their development phase(s). Currently, very few are in the gold space – there are a few, but not many:
• Kinross / Great Bear
• B2 Gold / Sabina
• B2 Gold investment into Snowline
• Plus there are small others
But for now, the majors seem to be more concerned in locking up behemoth companies: Newmont and Newcrest / AngloGold and Goldfields……….and rumours on others. Barrick have said repeated this is a mistake, and I agree.
The junior mining pipeline should be the focus, as this is where value will be created……….not making a $25B company larger in size and scale by merging with a $20B peer, and for a large premium. This is where value gets destroyed for shareholders – big premium – big mergers……………rarely do they ever deliver on their ”synergies” or their value creation for shareholders. I can cite so many examples, it is not funny.
When I heard Newmont was making an offer to Newcrest…………I sold all of my Newmont shares, as that kind of growth strategy destroys value. Supporting good junior projects go through their phases of development is akin to internal organic growth, and the best way to create value.
There are others in our space who have more cash and can wait this out, but minimize costs / drilling (priority drilling only). There are those who decided taking on debt was a strategy that made sense. There are others that are trying to minimize raises to buy time. There are others that look to the alternative financing market. There may well be those that go into distress and must be sold in a trade sale.
At this stage – I don’t have any of those luxuries, and we have decided strategically we would try to minimize risk; maximize the equity story – and continue to push hard for a “dance partner”. The music hasn’t stopped yet, and this song will be followed by another………..and I think there are many partners to choose from, and many partners to be chosen by. So we will dance when we can, but only to the right song, and before we have to make different decisions for the company.”
TCI: Ok this makes sense, so what type of strategic investment are you looking for? At a MC of $30M, a 9.9% or 19.9% stake would mean just $3-6M. How do you preserve future upside, as JVs dilute interest?
BR: “You allow a strategic to come in, in stages. $3M-$6M now - $3M-$6M in six-eight months (after PEA is out) and the $5M to $10M at the end of the year or early 2024 to allow for us to do a winter drilling program to assist the PFS modelling. Doing this in stages – and (hopefully) incrementally higher share prices, is the best way to prevent any retail investors from doing what they did in December 2022 (participate in the prospectus financing for $0.25 and blow the stock right back out for $0.25 or less, and keep the free half warrant at $0.40). We need to create market tension – we need to create retail pressure whereby they can only buy through the market to gain exposure to GSHR. Again – this is “perfect world” and we always need to be nimble and alert to changing strategies to market conditions and other dynamics.”
TCI: But that would mean well over 19.9%? Not an option or preference to get instos in as well, so you don't get big control blocks?
BR: “It is dancing to 9.9% then 19.9%..........all the while bringing institutions in as well for the ride………….and then the strategic has an option to go to 29.9%, which is a sign that an offer would be forthcoming once the project was permitted / financed etc. I don’t see another option that maximizes shareholder value.”
TCI: A strong strategic would attract funds and retail interest, so it sounds like a good option. With projects like this it is tempting to prove up economic resource size potential as big as possible first before high grading and advancing, but for this you need lots of cash. Banyan is doing this too, the markets don't appreciate them the way they deserve either, I can't really figure out why. But they have cash. Maybe the markets are awaiting heap leachability and economics. For Goldshore maybe economics are a question mark too for the markets, with the royalties, strip, low grade part. Now I think of it, going to a robust PEA asap combined with Tier I size production potential (let’s take Barrick’s 5Moz 2P at 500koz pa) is probably the best way to convince producers, instos AND retail of the thesis. Your two staged PEA (150-200koz Au pa focusing on high grade and lower capex in the first 3-4 years, 500-600koz pa thereafter, expansion capex financed by internal cashflow) might give you options although I am not sure what mid tiers-majors prefer. Then at higher gold prices building out the insto base, broker coverage and then start expanding to 10-15Moz, does this make sense?
BR: “A two staged PEA would give us more than one exit option, build or M&A. If we just scope to 65K tpd and 600K oz pa, then we could never finance that given our equity price, and we are stuck with only M&A as an exit option. It is just the same as saying “we will scope something we can finance and build, and if you want to go to Phase Two (double production) or to Phase Three (triple production) – then parallel what can be parallel and spec the layout to accommodate Phases 2 and 3 (and 4). Right now, we can illustrate what we know – and that is we have a very large gold endowment that can easily be viewed to exceed 10M+ oz Au in the future. We can say that because the current resource and updated resource in April 2023 represent only about 25% of the strike length and lateral area of Moss Lake with known mineralization – so the potential for large resource growth is very high.
But overall we have only drilled out about 10% of the total Au, Cu, Co, Pb, Zn, Mo, Ag targets on the land package, so there is extraordinary optionality down the road. But for today, in these difficult capital market environments, where capital is at a premium, we need to focus on expanding / proving up and putting a project around what we know, and that is Moss. Taking a look beyond what we are working on now is of course subjective and speculative, but not unbelievable when you have a generational size resource. So when people ask me whether I think Moss will be a 500K oz producer with a 10M+oz resource base in the medium term future, you can pretty easily put together a geological, technical and infrastructure argument that supports that thinking. I have been in every financing and I am fully invested for a reason, as I believe it could be my next homerun, and I truly believe the opportunity has never been better.”
TCI: It sure makes sense to have options, and I am happy to delve further into the 10M+oz resource potential with Peter another time. Midtiers-majors also have the knowledge and expertise in-house to engineer the most profitable mine plan from a given resource for themselves, having no issues funding corresponding capex anyway. This concludes our discussion for strategy, I too believe a strong strategic joining Goldshore could make all the difference, combined with a robust PEA. Let’s see what they can achieve on both fronts this year.
Once the second mineral resource estimate update will be published, the company will prepare the scope for a PEA, with completion of this study estimated at the end of September for now, which is later than earlier anticipated, caused by a number of factors. CEO Richards commented: “First, we would have liked to take our drill program up closer to the 100,000m with a winter ice drilling program; and some additional step out and infill at Moss. This appeared like it was not going to be possible back in September 2022, given the dynamics in the capital markets then – and understanding we needed to get as much done as we could (with the capital constraints we had) and let’s call it – and put out the maiden resource, which we did on November 15, 2022. This was about 5 months earlier than originally planned. The results were tremendous, but the market had no reaction to it. Second, as a result of calling the drilling program (end of January), we naturally accelerated the time frame for everything else (especially since there was a limited winter drill program).
This meant we actually broke the MRE into two pieces – Maiden Current Resource (November 2022) and Update Current Resource (April 2023), due to assay turnaround time and wanting to get the largest, most robust resource to put a project around. We will achieve that in April, and move to commencing a PEA, with the results / economic outputs coming out in September 2023. There will need to be another 30,000m of drilling to advance the project to PFS level of certainty, and once completed - another resource update will be scheduled. In an ideal world, this resource update could be anticipated around early- to mid-2024 once all results are back from the infill drill program, which will upgrade the Mineral Resource to Indicated, and form the basis of the PFS, which could be completed in H2, 2024. However, all of these activities are a function of being able to access adequate pools of capital, and are not guaranteed to happen on these dates, but this is what we are planning for.”
This discussion on strategy, financing and scheduling should be sufficient to cover these topics for now, but if investors have more questions about this they could always turn to CEO Richards as he is happy to answer anybody. On a sidenote, I wanted to know potential ramifications of the extensive 8.75% net profit interest (NPI), besides the normal sized 1% NSR to Wesdome. CEO Richards commented: “It is really what I call a “nothing burger”. NPI – Net Profit Interest, will most likely be “Zero” for at least the first 10 years of the mine operation, due to the application of depreciation: Phase One CapEx depreciation; future exploration appetite (and there will be a lot of it); Phase Two of production capacity increases (CapEx); Spin Outs; Earn Ins, there will be little or no consideration to showing profit for the first 10 years, as all of the proceeds will be reinvested to increase the equity value of the company. With a potential generational size mine, one can easily see where this mine will be sustainable for 30+ years. As a result of that, there will be no NPI payable for at least 10 years, discounting the liability to zero. Hence – the nothing burger.”
In a staged development scenario this is relevant, for a non-staged scenario it could still be a significant burden. If a midtier or major was to buy Goldshore in the future, it would probably intend to buy back most of the royalties from the holders. Let’s have a look at the Moss Lake project now, and more specifically the drill results from the last few weeks, which came in from the Southwest Zone, the QES Zone (both zones from Moss Lake) and East Coldstream.
The last results from March 14 came from infill-drilling the QES Zone, with the following highlights:
o 0.86 g/t Au over 120.65m from 593.0m depth in MQD-22-104, including
▪ 1.33 g/t Au over 54.45m from 657.0m, and 2.41 g/t Au over 8.5m from 112.7m depth
o 1.06 g/t Au over 44.3m from 591.15m depth in MQD-22-099, including
o 1.55 g/t Au over 27.1m from 594.0m
o 0.48 g/t Au over 185.55m from 208.4m depth in MQD-22-0100, including
▪ 1.67 g/t Au over 12.75m from 346.25m, and 2.23 g/t Au over 11.2m from 119.05m depth
o 0.81 g/t Au over 61.35m from 614.65m depth in MQD-22-101, including
▪ 1.18 g/t Au over 14.65m from 623.35m, and 5.90 g/t Au over 2.6m from 91.0m
o 0.74 g/t Au over 80.95m from 193.05m depth in MQD-22-102, including
▪ 1.43 g/t Au over 20.0m from 246.1m
o 0.71 g/t Au over 77m from 190.0m depth in MQD-22-103, including
▪ 1.43 g/t Au over 16.0m from 203.0m
These intercepts aren’t true width, but I estimate them at 65-85%. You might be inclined to think lots of the intercepts are too deep for the grade, but CEO Richards and VP Ex Flindell are anticipating a 600-700m deep open pit shell now, as the current pit outline already goes 500m deep. These holes are not just infill holes, providing more data regarding poor historic drilling, but are also adding new shears laterally, with most of the shears running down continuously from close to surface. VP Ex Flindell added: “We have been conservative with our shear zone modelling, so these results infill at depth in and around the pit bottom where we had been conservative with our modelled shears”. My added light blue line represents a realistic pit expansion according to Flindell.
VP Ex Flindell was enthusiastic about the results: "These results confirm our belief that the Moss Gold deposit is wider and deeper than previously thought - now filling a 600-700- meter-wide corridor - and that there are many more shears hosting high-grade gold mineralization. This will assist our goal of expanding the mineral resource and improving its quality in April 2023."
When looking into additional mineralized potential for QES/Main, this is complex but I believe Goldshore could be looking at adding 0.4-0.6Moz Au here.
As we discussed the high grade shear zone – low grade intrusion mining model before (low grade ore would be stacked for Phase 2, the high grade ore would be processed in Phase 1), management will be investigating the possibility of heap leaching or dump leaching the low grade ore in an effort to: a) pull gold production forward (versus stockpiling for end of mine life or Phase 2 and thereby significantly improve economics); and b) allowing for an overall lower global cutoff grade (adding significant tonnage and ounces to the mine plan. I was wondering if the strip ratio could be below 4 or 5 : 1, when the low grade ore gets treated as waste basically in the first say 3-4 years. According to VP Ex Flindell and CEO Richards: “Earlier on in the mining sequence, the strip ratio will probably be lower than 5 – later on in the mine plan it could average around 5, and deeper towards the bottom of the pit it would likely be over 5. We will have a better and more realistic view of the stripping ratio after the PEA, when we will have a design pit. For now, the estimated 5:1 strip ratio is just a measure of what the gold model justifies given the economic parameters, which have been conservative”
East Coldstream had very interesting, more high grade results:
• 3.49 g/t Au over 26.35m from 76.85m depth in CED-22-010, including
o 5.64 g/t over 15.65m from 87.55m
• 1.12 g/t Au over 21.9m from 206.5m
• 1.07 g/t Au over 31.0m from 288.0m depth in CED-22-011 and
• 1.48 g/t Au over 18.45m from 357.0m, including
o 4.68 g/t Au over 4.85m from 370.6m
• 0.94 g/t Au over 25.05m from 218.95m depth in CED-22-014, including
o 1.10 g/t Au over 16.0m from 226.0m
• 1.23 g/t Au over 35.15m from 338.45m depth in CED-22-017, including
o 2.19 g/t Au over 11.55m from 338.45m
It can be seen that East Coldstream also contains almost vertical running shear zones with substantial mineralized widths, containing higher grade zones within. CEO Richards sees potential to add East Coldstream as a satellite pit in the PEA mine plan. A 3D wireframe shows the mineralized envelope as follows.
According to VP Ex Flindell, East Coldstream appears to be significantly larger compared to the historic resource envelope, and he is happy to include this satellite into the April resource update for Moss Lake. As a reminder, the Coldstream block sports a historic resource estimate as well, and although it is historic in nature (0.09Moz @ 0.85g/t Au Ind. and 0.76Moz @ 0.78g/t Au Inf.), it has the potential to also become quite sizeable.
Estimating a mineralized envelope for East Coldstream is complex as well. The existing historic resource is low grade, and recent drilling indicated significant zones of higher grade shear zones as well. It also depends on the open pit depth, as East Coldstream doesn’t seem to be as laterally expanding as Moss. All in all my estimate would come in at 1.0-1.4Moz Au.
Drilling at the Southwest target also delivered interesting results, with the following highlights:
o 1.60 g/t Au over 57.5m from 230.5m depth in MMD-22-063 including:
▪ 9.46 g/t Au over 7.45m from 234.0m, and 1.18 g/t Au over 18.25m from 387.75m
o 0.93 g/t Au over 126.0m from 467.0m depth in MMD-22-059 including:
▪ 1.64 g/t over 48.0m from 513.0m, and 3.67 g/t Au over 13.65m from 612.35m
o 1.05 g/t Au over 34.0m from 257.0m depth in MMD-22-088 including:
▪ 1.51 g/t Au over 15.0m from 276.0m, and 1.84 g/t Au over 14.95m from 483.05m
When looking at the complete table of results, it appeared to me as if this zone contained more narrow veins, although higher grade, compared to QES, providing less tonnage/ounces. When asking VP Ex Flindell about this impression, he stated: “The Southwest Zone is larger than previously understood and we are finding the shears to be more significant than previously thought. Results are coming in for the remaining holes, which are all in this area, and are very encouraging. We are going through QA/QC checks and reassays now, so I hope to have press release ready for early April.
It is actually still very early to tell, as we tighter spaced drilling to make a true determination. As we continue to model these shears in the entire deposit, we are finding there are much more prevalent than first thought – and there is a high probability of potential parallel shears to Moss Lake (possibly at East Coldstream as well).”
The higher grade highlights over significant widths looked nice, but the short intercepts dominated at Southwest. Therefore I would like to add an estimated potential of 0.5-0.7Moz Au to the resource. In total this would add between 1.9-2.7Moz Au to the existing resource. Management is more conservative, and is targeting a new total resource of 6Moz @ 1.1g/t Au, and contained within the global resource to be a higher grade part of 3.0Moz @ 2.0 g/t Au. It probably depends on East Coldstream and its parameters, as the entire 2100x500m volume could generate 2.5-3Moz Au as well not looking at open pit parameters.
At the moment, Goldshore has completed 122 holes for 68,732m of drilling at Moss Lake, of which 48 holes (27,852m) was sufficient to convert the formerly Moss Lake historic resource into the Nov 2022 NI43-101 compliant current resource, with a 33% increase. Since this resource, the company has released the results from a 58 holes (33,548m) including the most recent one from March 14, 2023. VP Ex Flindell estimates that results from the final 16 holes (7,332m) will be received soon. This will be the last set of results and is due to be released in early April once the company has completed its QA/QC checks and required reassays. Therefore, all of the 122 holes drilled at Moss, plus the 16 holes (7,958m) Goldshore drilled at East Coldstream, will find its way into the April 2023 mineral resources estimate (MRE).
There will not be any new drilling starting before the PEA comes out, probably in September of this year as mentioned. At the moment, management is aiming at resource expansion via the Southwest Zone and QES Zone at Moss Lake. The PEA will be based on the outcome of this updated resource, and there is no doubt in my mind and with management that economics will be much better compared to the outdated 2013 PEA (After tax NPV5 of US532$M @ 1,700 gold, IRR of 24%, capex of US$542M).
The company further anticipates lots of mineralization at depth, but chooses not to drill deeper than about 550m for now, as it would require significant additional funding and take more than six months, thereby further delaying the PEA. VP Ex Flindell notes that there is already an exploration target of 0.8-1.4Moz Au at depth below the Moss Lake open pit resource and is looking for a portion of this to make its way into the MRE update. This potential is indicated by lots of historic drill holes, but since lots of information was lost, these cores can’t be used to define a compliant resource at depth. A downhole survey at depth indicated a 50-60% success rate, which is promising but needs more drilling obviously. As just about 30% of the historic cores can be used for a compliant resource overall, the PFS will need 30,000-40,000m of redrilling/verification drilling.
Goldshore is also working hard at metallurgical test work. Management anticipates 90% recoveries for the low-grade intrusion ore, and 90-92% recoveries for the higher-grade shear zone ore, which is much better than the 2013 PEA figures for overall recovery (79% and 84% - south and north). Management is also doing the first tests for eligibility of heap leaching, which would indicate a real gamechanger for economics if successful. The results of the ongoing met work are expected back at the end of Q1, so I asked VP Ex Flindell if this timeline is still achievable: “Yes – we are still working to this timeline.”
It is still too early for production scenarios which could generate DCF calculations and NPV figures, but it is probably good to show where Goldshore stands if it would indeed announce a 6Moz gold resource, compared to its peers. For this the peer comparison gets an update, still showing the 4.17M resource.
Although the EV/oz metric doesn’t say anything about profitability of ounces, the next table already shows an indication of valuation potential, and at the moment Goldshore seems really cheap.
Treasury has a slightly lower EV/oz metric, caused by their significant cash position. Otherwise, the EV/oz metric of Goldshore is the cheapest of all peers, but at a better average grade compared to for example Moneta and Troilus. Assuming 6M ounces as management does, this would lower the EV/oz metric to 4.6. This bodes well for the PEA coming up, as a staged PEA has the potential in this case to generate strong economics, as 3Moz of the 6Moz would likely have an average grade of 2g/t Au, which is excellent for on Ontario open pit project. With a good PEA in hand, a double should be very realistic in my view.
I didn’t include Freegold (FVL.TO) yet but this will happen the next time, from the top of my head they would come in with an EV/oz of about 7 which is very low as well, although there is discussion about economics (part of the ore being refractory, strip ratio). To be fair, Gold Terra also has refractory ore close to the Con Mine, but the average grade is much higher, and there is lots of experience from the production days, how to blend the ore etc.
Because of the rampant inflation, it is likely that studies before 2022 need significant updates in the cost department, probably resulting in (much) lower NPVs and IRRs. At the same time, the gold price is trading higher on average as well, so an average base case gold price of US$1650/oz or even US$1750/oz wouldn’t be unrealistic. I used US$1500 and US$1650 for comparison.
An indication of increased capex is Marathon Gold, which updated their FS at the end of 2022. Their April 2021 FS reported a capex of US$229M, and AISC of US$833/oz Au. The updated 2022 FS came up with a capex of US$401M and AISC of US$1046/oz Au, with the same throughput and mine plan, although they added another deposit which enables them to produce more gold. Perpetua Resources already has a very high capex, due to the refractory nature of their ore, demanding an expensive autoclave for pressure oxidation for recovery method. As Marathon and Moneta for example have an underground component, I will probably have to look further to find more useful peers when doing my own DCF calculations after the resource update and met work test results have been announced. As many major producers report strong increases of opex as well (+20-30%), and inflation isn’t going back to 2% anytime soon, this environment of high costs is likely to stay with us for quite some time. Goldshore probably has a robust resource coming soon with hopefully a high grade component of 3Moz @2g/t Au, but we have to see how this all works out in the upcoming PEA.
Conclusion
As most of the drilling at Moss Lake has been completed now, Goldshore is receiving a steady stream of drill results, and is on schedule to come out with an updated NI43-101 compliant resource around the end of April. According to management, this updated resource could contain about 6Moz Au, with a high grade part of about 3Moz Au, hopefully enabling the company to base a PEA on these numbers for now around September. Another resource update is planned around the end of Q2, 2024, being subject to further drilling, and much will depend on the amount of capital raised, which will likely commence around the release of the updated resource in April. I would love to see them bringing in a well-known strategic party, produce a convincing resource update and later this year a robust PEA. This will undoubtedly trigger interest from funds, producers and retail, and further indicates undervaluation based on the most important metrics. Stay tuned!
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Disclaimer:
The author is not a registered investment advisor, and currently has a long position in Goldshore Resources, Gold Terra and Moneta Porcupine. Goldshore Resources and Gold Terra are sponsoring companies. All facts are to be checked by the reader. For more information go to www.goldshoreresources.com and read the company’s profile and official documents on www.sedar.com, also for important risk disclosures. This article is provided for information purposes only, and is not intended to be investment advice of any kind, and all readers are encouraged to do their own due diligence, and talk to their own licensed investment advisors prior to making any investment decisions.
The current NI43-101 compliant Inferred resource stands at 4.17Moz @ 1.1g/t, and management expects to increase this figure meaningfully in the upcoming resource update which is scheduled to be announced at the end of April, followed by a Preliminary Economic Assessment(PEA) later this year. In this article I will do an attempt to estimate the upcoming resource envelope, hear from management about strategy, and discuss of course exploration and financing plans.
All presented tables are my own material, unless stated otherwise.
All pictures are company material, unless stated otherwise.
All currencies are in US Dollars, unless stated otherwise.
Please note: the views, opinions, estimates, forecasts or predictions regarding Goldshore Resources’ resource potential are those of the author alone and do not represent views, opinions, estimates, forecasts or predictions of Goldshore or Goldshore’s management.
Goldshore Resources has not in any way endorsed the views, opinions, estimates, forecasts or predictions provided by the author.
Before I start digging into the last series of drill results and the potential impact they might have on estimated mineralized envelopes, it is equally as interesting at this point in time what Goldshore management has in mind regarding the current financial position, combined with the low share price levels of late.
The cash position is estimated at C$2M at the moment, and as Goldshore has nonexploration G&A of C$1.1M for Q4, 2022 and is working on the resource update, the treasury could be almost empty by the end of April, when the resource update is completed. A good thing is management started cutting back on salaries in December 2022, fees and stock based compensation in the last quarter, as can be seen in the last financials.
As a direct consequence of not having generous budgets to their disposal, Goldshore had to cut back on drilling as well, spending significantly less in Q4 (C$2.2M vs C$8.75M in Q2/Q3) although fees for consulting, geochemistry and geophysics stayed at the same levels or even increased.
I asked VP Ex Peter Flindell about this higher spending when drilling went down at the same time, if this had much to do with the 3D modeling, or more geotechnical drilling, environmental baseline data collection towards the resource update, relogging of historic core where possible, and/or extensive metallurgical test work to significantly improve on the 2013 historic met test results (85%), and/or other reasons. He told me the following: “Mobilizing drill crews was difficult last year, there was a scarcity of geologists but we overcame these challenges. While we have stopped drilling now and have reduced staffing levels, we are maintaining a core team and camp facilities ready to restart once the market recognizes the value of the Project. To this end, the team is fully engaged in relogging and sampling of historical core, 3D modelling of geological parameters in support of the upcoming MRE update and working with Ausenco on the metallurgical test program to optimize gold recoveries. This is all in support of the upcoming PEA, which will evaluate several mining and processing options to develop an operating plan to maximize the economic value of the Project. We expect the results to “put the project on the map” and necessitate the infill drill program required to take us into Pre Feasibility. Also, the team is developing the thirty exploration prospects to a drill-ready stage, so that we can move to discover additional resource targets once the Moss Project has reached critical mass. We also have VMS- and IOCG- style deposits on Moss Lake at North Coldstream, Vanguard, Iris and Hamlin, maybe spinning these out or drilling up to a resource could be another catalyst.”
Notwithstanding this, it will be clear a raise is needed soon. As a reminder, management is looking to substantially bring down the Wesdome position via a strategic partner, preferably a mid-tier or major with useful skillsets, and the ability to help further develop Moss Lake. Goldshore also fully controls the selling of shared held by Wesdome, so there is no active overhang. Such a strategic partner could be a welcome vote of confidence, just like Snowline Gold (SGD.CSE) catapulted on the B2Gold investment. As I wondered if CEO Richards wants to go from (relatively) small raise to small raise in order to prevent as much dilution as he can while waiting for gold to break US$2,000/oz and use that momentum to raise more at a higher price for example, or wants to raise big now in order to establish a more robust treasury and create more stability towards investors, being more independent from the market/gold dynamics, I asked Richards about his strategy and options in this regard, and the reasons for this. The result was an interesting discussion.
Brett Richards (BR): “I think the financing strategy is a difficult one in these turbulent capital markets. Yes – GSHR will go back and do a small raise in the near term. A small raise, simply because we are doing everything we can administratively and technically to preserve capital and buy time. Hence, a large raise at this time doesn’t make sense and can kill both the equity story, as well as the interest of the committed and loyal shareholders who have been with us since the very beginning. So I am very sensitive to dilution, and I want to preserve any further dilution to a strategic partner who adds value; creates momentum and send a message to the market that there will be no more open market raises of hard dollars, as the strategic partner would have rights to further financings. In general: speed to market is important, advancing is important. The market seems to have bottomed but not turning yet it seems, to the point a lot of liquidity comes into gold equities. Majors have recovered but juniors not so much.”
The Critical Investor (TCI): So you are buying time, but for what exactly, higher gold prices? The concern that I (and others) have, is that a small raise doesn't do enough for investors, so the resource update might have zero effect as a consequence, as this year’s drill results also had zero effect. Could you address this? Also and probably related: why you think the share price is trading where it is right now? Regarding killing the equity story and existing shareholder interest, don't you think these shareholders rather own 60-70% of a 2-3-bagger than 90% of a sideranging stock? Do you have additional views on this why you feel preserving capital at this stage is better?
BR: “We have two options – blow out the equity story now with a big raise at the company’s lowest share price in history; or do a small raise and continue discussions with strategic corporates (senior and mid-tier producers) to see if there is a financial transaction that can be made with a strategic partner, so as we do not have to access the capital markets for retail again (or for a long period).
What am I waiting for ?
• I am waiting for better capital markets………..
• I am waiting for a higher share price………….
• I am waiting for a strategic corporate mining companies to sit up and take notice – and participate in our development (financially)……….
• I am waiting for the right like-for-like / at market merger of equals – with a project we feel is equally as robust as ours, and whereby there are synergies by combining the two ………..(if the first three do not materialize)
I am sick of waiting, but I have to wait – I am going to wait this out; preserve as much capital as we can; put out the two biggest catalysts we have coming (MRE / PEA), and be on high alert for M&A opportunities in our space. Over the next 4 months, we will find a solution to one or more of the bullet points above. I just don’t think it is going to be 1 or 2, so my emphasis is on getting to a partnership conclusion in one way or another.
If none of the above options can be executed on; then Goldshore (and this entire Canadian junior mining space) is in the worst place I have seen it in my 37 years, and we will need to consider “nuclear” options. I think preserving capital at this stage is the only possible tactical / current option (versus blowing out the equity story with a C$15M-C$20M raise @ C$0.17), given our current cash position and the availability of capital in the market.
Majors and Mid Tiers need to start getting seriously interested in assisting the best junior mining projects go through their development phase(s). Currently, very few are in the gold space – there are a few, but not many:
• Kinross / Great Bear
• B2 Gold / Sabina
• B2 Gold investment into Snowline
• Plus there are small others
But for now, the majors seem to be more concerned in locking up behemoth companies: Newmont and Newcrest / AngloGold and Goldfields……….and rumours on others. Barrick have said repeated this is a mistake, and I agree.
The junior mining pipeline should be the focus, as this is where value will be created……….not making a $25B company larger in size and scale by merging with a $20B peer, and for a large premium. This is where value gets destroyed for shareholders – big premium – big mergers……………rarely do they ever deliver on their ”synergies” or their value creation for shareholders. I can cite so many examples, it is not funny.
When I heard Newmont was making an offer to Newcrest…………I sold all of my Newmont shares, as that kind of growth strategy destroys value. Supporting good junior projects go through their phases of development is akin to internal organic growth, and the best way to create value.
There are others in our space who have more cash and can wait this out, but minimize costs / drilling (priority drilling only). There are those who decided taking on debt was a strategy that made sense. There are others that are trying to minimize raises to buy time. There are others that look to the alternative financing market. There may well be those that go into distress and must be sold in a trade sale.
At this stage – I don’t have any of those luxuries, and we have decided strategically we would try to minimize risk; maximize the equity story – and continue to push hard for a “dance partner”. The music hasn’t stopped yet, and this song will be followed by another………..and I think there are many partners to choose from, and many partners to be chosen by. So we will dance when we can, but only to the right song, and before we have to make different decisions for the company.”
TCI: Ok this makes sense, so what type of strategic investment are you looking for? At a MC of $30M, a 9.9% or 19.9% stake would mean just $3-6M. How do you preserve future upside, as JVs dilute interest?
BR: “You allow a strategic to come in, in stages. $3M-$6M now - $3M-$6M in six-eight months (after PEA is out) and the $5M to $10M at the end of the year or early 2024 to allow for us to do a winter drilling program to assist the PFS modelling. Doing this in stages – and (hopefully) incrementally higher share prices, is the best way to prevent any retail investors from doing what they did in December 2022 (participate in the prospectus financing for $0.25 and blow the stock right back out for $0.25 or less, and keep the free half warrant at $0.40). We need to create market tension – we need to create retail pressure whereby they can only buy through the market to gain exposure to GSHR. Again – this is “perfect world” and we always need to be nimble and alert to changing strategies to market conditions and other dynamics.”
TCI: But that would mean well over 19.9%? Not an option or preference to get instos in as well, so you don't get big control blocks?
BR: “It is dancing to 9.9% then 19.9%..........all the while bringing institutions in as well for the ride………….and then the strategic has an option to go to 29.9%, which is a sign that an offer would be forthcoming once the project was permitted / financed etc. I don’t see another option that maximizes shareholder value.”
TCI: A strong strategic would attract funds and retail interest, so it sounds like a good option. With projects like this it is tempting to prove up economic resource size potential as big as possible first before high grading and advancing, but for this you need lots of cash. Banyan is doing this too, the markets don't appreciate them the way they deserve either, I can't really figure out why. But they have cash. Maybe the markets are awaiting heap leachability and economics. For Goldshore maybe economics are a question mark too for the markets, with the royalties, strip, low grade part. Now I think of it, going to a robust PEA asap combined with Tier I size production potential (let’s take Barrick’s 5Moz 2P at 500koz pa) is probably the best way to convince producers, instos AND retail of the thesis. Your two staged PEA (150-200koz Au pa focusing on high grade and lower capex in the first 3-4 years, 500-600koz pa thereafter, expansion capex financed by internal cashflow) might give you options although I am not sure what mid tiers-majors prefer. Then at higher gold prices building out the insto base, broker coverage and then start expanding to 10-15Moz, does this make sense?
BR: “A two staged PEA would give us more than one exit option, build or M&A. If we just scope to 65K tpd and 600K oz pa, then we could never finance that given our equity price, and we are stuck with only M&A as an exit option. It is just the same as saying “we will scope something we can finance and build, and if you want to go to Phase Two (double production) or to Phase Three (triple production) – then parallel what can be parallel and spec the layout to accommodate Phases 2 and 3 (and 4). Right now, we can illustrate what we know – and that is we have a very large gold endowment that can easily be viewed to exceed 10M+ oz Au in the future. We can say that because the current resource and updated resource in April 2023 represent only about 25% of the strike length and lateral area of Moss Lake with known mineralization – so the potential for large resource growth is very high.
But overall we have only drilled out about 10% of the total Au, Cu, Co, Pb, Zn, Mo, Ag targets on the land package, so there is extraordinary optionality down the road. But for today, in these difficult capital market environments, where capital is at a premium, we need to focus on expanding / proving up and putting a project around what we know, and that is Moss. Taking a look beyond what we are working on now is of course subjective and speculative, but not unbelievable when you have a generational size resource. So when people ask me whether I think Moss will be a 500K oz producer with a 10M+oz resource base in the medium term future, you can pretty easily put together a geological, technical and infrastructure argument that supports that thinking. I have been in every financing and I am fully invested for a reason, as I believe it could be my next homerun, and I truly believe the opportunity has never been better.”
TCI: It sure makes sense to have options, and I am happy to delve further into the 10M+oz resource potential with Peter another time. Midtiers-majors also have the knowledge and expertise in-house to engineer the most profitable mine plan from a given resource for themselves, having no issues funding corresponding capex anyway. This concludes our discussion for strategy, I too believe a strong strategic joining Goldshore could make all the difference, combined with a robust PEA. Let’s see what they can achieve on both fronts this year.
Once the second mineral resource estimate update will be published, the company will prepare the scope for a PEA, with completion of this study estimated at the end of September for now, which is later than earlier anticipated, caused by a number of factors. CEO Richards commented: “First, we would have liked to take our drill program up closer to the 100,000m with a winter ice drilling program; and some additional step out and infill at Moss. This appeared like it was not going to be possible back in September 2022, given the dynamics in the capital markets then – and understanding we needed to get as much done as we could (with the capital constraints we had) and let’s call it – and put out the maiden resource, which we did on November 15, 2022. This was about 5 months earlier than originally planned. The results were tremendous, but the market had no reaction to it. Second, as a result of calling the drilling program (end of January), we naturally accelerated the time frame for everything else (especially since there was a limited winter drill program).
This meant we actually broke the MRE into two pieces – Maiden Current Resource (November 2022) and Update Current Resource (April 2023), due to assay turnaround time and wanting to get the largest, most robust resource to put a project around. We will achieve that in April, and move to commencing a PEA, with the results / economic outputs coming out in September 2023. There will need to be another 30,000m of drilling to advance the project to PFS level of certainty, and once completed - another resource update will be scheduled. In an ideal world, this resource update could be anticipated around early- to mid-2024 once all results are back from the infill drill program, which will upgrade the Mineral Resource to Indicated, and form the basis of the PFS, which could be completed in H2, 2024. However, all of these activities are a function of being able to access adequate pools of capital, and are not guaranteed to happen on these dates, but this is what we are planning for.”
This discussion on strategy, financing and scheduling should be sufficient to cover these topics for now, but if investors have more questions about this they could always turn to CEO Richards as he is happy to answer anybody. On a sidenote, I wanted to know potential ramifications of the extensive 8.75% net profit interest (NPI), besides the normal sized 1% NSR to Wesdome. CEO Richards commented: “It is really what I call a “nothing burger”. NPI – Net Profit Interest, will most likely be “Zero” for at least the first 10 years of the mine operation, due to the application of depreciation: Phase One CapEx depreciation; future exploration appetite (and there will be a lot of it); Phase Two of production capacity increases (CapEx); Spin Outs; Earn Ins, there will be little or no consideration to showing profit for the first 10 years, as all of the proceeds will be reinvested to increase the equity value of the company. With a potential generational size mine, one can easily see where this mine will be sustainable for 30+ years. As a result of that, there will be no NPI payable for at least 10 years, discounting the liability to zero. Hence – the nothing burger.”
In a staged development scenario this is relevant, for a non-staged scenario it could still be a significant burden. If a midtier or major was to buy Goldshore in the future, it would probably intend to buy back most of the royalties from the holders. Let’s have a look at the Moss Lake project now, and more specifically the drill results from the last few weeks, which came in from the Southwest Zone, the QES Zone (both zones from Moss Lake) and East Coldstream.
The last results from March 14 came from infill-drilling the QES Zone, with the following highlights:
o 0.86 g/t Au over 120.65m from 593.0m depth in MQD-22-104, including
▪ 1.33 g/t Au over 54.45m from 657.0m, and 2.41 g/t Au over 8.5m from 112.7m depth
o 1.06 g/t Au over 44.3m from 591.15m depth in MQD-22-099, including
o 1.55 g/t Au over 27.1m from 594.0m
o 0.48 g/t Au over 185.55m from 208.4m depth in MQD-22-0100, including
▪ 1.67 g/t Au over 12.75m from 346.25m, and 2.23 g/t Au over 11.2m from 119.05m depth
o 0.81 g/t Au over 61.35m from 614.65m depth in MQD-22-101, including
▪ 1.18 g/t Au over 14.65m from 623.35m, and 5.90 g/t Au over 2.6m from 91.0m
o 0.74 g/t Au over 80.95m from 193.05m depth in MQD-22-102, including
▪ 1.43 g/t Au over 20.0m from 246.1m
o 0.71 g/t Au over 77m from 190.0m depth in MQD-22-103, including
▪ 1.43 g/t Au over 16.0m from 203.0m
These intercepts aren’t true width, but I estimate them at 65-85%. You might be inclined to think lots of the intercepts are too deep for the grade, but CEO Richards and VP Ex Flindell are anticipating a 600-700m deep open pit shell now, as the current pit outline already goes 500m deep. These holes are not just infill holes, providing more data regarding poor historic drilling, but are also adding new shears laterally, with most of the shears running down continuously from close to surface. VP Ex Flindell added: “We have been conservative with our shear zone modelling, so these results infill at depth in and around the pit bottom where we had been conservative with our modelled shears”. My added light blue line represents a realistic pit expansion according to Flindell.
VP Ex Flindell was enthusiastic about the results: "These results confirm our belief that the Moss Gold deposit is wider and deeper than previously thought - now filling a 600-700- meter-wide corridor - and that there are many more shears hosting high-grade gold mineralization. This will assist our goal of expanding the mineral resource and improving its quality in April 2023."
When looking into additional mineralized potential for QES/Main, this is complex but I believe Goldshore could be looking at adding 0.4-0.6Moz Au here.
As we discussed the high grade shear zone – low grade intrusion mining model before (low grade ore would be stacked for Phase 2, the high grade ore would be processed in Phase 1), management will be investigating the possibility of heap leaching or dump leaching the low grade ore in an effort to: a) pull gold production forward (versus stockpiling for end of mine life or Phase 2 and thereby significantly improve economics); and b) allowing for an overall lower global cutoff grade (adding significant tonnage and ounces to the mine plan. I was wondering if the strip ratio could be below 4 or 5 : 1, when the low grade ore gets treated as waste basically in the first say 3-4 years. According to VP Ex Flindell and CEO Richards: “Earlier on in the mining sequence, the strip ratio will probably be lower than 5 – later on in the mine plan it could average around 5, and deeper towards the bottom of the pit it would likely be over 5. We will have a better and more realistic view of the stripping ratio after the PEA, when we will have a design pit. For now, the estimated 5:1 strip ratio is just a measure of what the gold model justifies given the economic parameters, which have been conservative”
East Coldstream had very interesting, more high grade results:
• 3.49 g/t Au over 26.35m from 76.85m depth in CED-22-010, including
o 5.64 g/t over 15.65m from 87.55m
• 1.12 g/t Au over 21.9m from 206.5m
• 1.07 g/t Au over 31.0m from 288.0m depth in CED-22-011 and
• 1.48 g/t Au over 18.45m from 357.0m, including
o 4.68 g/t Au over 4.85m from 370.6m
• 0.94 g/t Au over 25.05m from 218.95m depth in CED-22-014, including
o 1.10 g/t Au over 16.0m from 226.0m
• 1.23 g/t Au over 35.15m from 338.45m depth in CED-22-017, including
o 2.19 g/t Au over 11.55m from 338.45m
It can be seen that East Coldstream also contains almost vertical running shear zones with substantial mineralized widths, containing higher grade zones within. CEO Richards sees potential to add East Coldstream as a satellite pit in the PEA mine plan. A 3D wireframe shows the mineralized envelope as follows.
According to VP Ex Flindell, East Coldstream appears to be significantly larger compared to the historic resource envelope, and he is happy to include this satellite into the April resource update for Moss Lake. As a reminder, the Coldstream block sports a historic resource estimate as well, and although it is historic in nature (0.09Moz @ 0.85g/t Au Ind. and 0.76Moz @ 0.78g/t Au Inf.), it has the potential to also become quite sizeable.
Estimating a mineralized envelope for East Coldstream is complex as well. The existing historic resource is low grade, and recent drilling indicated significant zones of higher grade shear zones as well. It also depends on the open pit depth, as East Coldstream doesn’t seem to be as laterally expanding as Moss. All in all my estimate would come in at 1.0-1.4Moz Au.
Drilling at the Southwest target also delivered interesting results, with the following highlights:
o 1.60 g/t Au over 57.5m from 230.5m depth in MMD-22-063 including:
▪ 9.46 g/t Au over 7.45m from 234.0m, and 1.18 g/t Au over 18.25m from 387.75m
o 0.93 g/t Au over 126.0m from 467.0m depth in MMD-22-059 including:
▪ 1.64 g/t over 48.0m from 513.0m, and 3.67 g/t Au over 13.65m from 612.35m
o 1.05 g/t Au over 34.0m from 257.0m depth in MMD-22-088 including:
▪ 1.51 g/t Au over 15.0m from 276.0m, and 1.84 g/t Au over 14.95m from 483.05m
When looking at the complete table of results, it appeared to me as if this zone contained more narrow veins, although higher grade, compared to QES, providing less tonnage/ounces. When asking VP Ex Flindell about this impression, he stated: “The Southwest Zone is larger than previously understood and we are finding the shears to be more significant than previously thought. Results are coming in for the remaining holes, which are all in this area, and are very encouraging. We are going through QA/QC checks and reassays now, so I hope to have press release ready for early April.
It is actually still very early to tell, as we tighter spaced drilling to make a true determination. As we continue to model these shears in the entire deposit, we are finding there are much more prevalent than first thought – and there is a high probability of potential parallel shears to Moss Lake (possibly at East Coldstream as well).”
The higher grade highlights over significant widths looked nice, but the short intercepts dominated at Southwest. Therefore I would like to add an estimated potential of 0.5-0.7Moz Au to the resource. In total this would add between 1.9-2.7Moz Au to the existing resource. Management is more conservative, and is targeting a new total resource of 6Moz @ 1.1g/t Au, and contained within the global resource to be a higher grade part of 3.0Moz @ 2.0 g/t Au. It probably depends on East Coldstream and its parameters, as the entire 2100x500m volume could generate 2.5-3Moz Au as well not looking at open pit parameters.
At the moment, Goldshore has completed 122 holes for 68,732m of drilling at Moss Lake, of which 48 holes (27,852m) was sufficient to convert the formerly Moss Lake historic resource into the Nov 2022 NI43-101 compliant current resource, with a 33% increase. Since this resource, the company has released the results from a 58 holes (33,548m) including the most recent one from March 14, 2023. VP Ex Flindell estimates that results from the final 16 holes (7,332m) will be received soon. This will be the last set of results and is due to be released in early April once the company has completed its QA/QC checks and required reassays. Therefore, all of the 122 holes drilled at Moss, plus the 16 holes (7,958m) Goldshore drilled at East Coldstream, will find its way into the April 2023 mineral resources estimate (MRE).
There will not be any new drilling starting before the PEA comes out, probably in September of this year as mentioned. At the moment, management is aiming at resource expansion via the Southwest Zone and QES Zone at Moss Lake. The PEA will be based on the outcome of this updated resource, and there is no doubt in my mind and with management that economics will be much better compared to the outdated 2013 PEA (After tax NPV5 of US532$M @ 1,700 gold, IRR of 24%, capex of US$542M).
The company further anticipates lots of mineralization at depth, but chooses not to drill deeper than about 550m for now, as it would require significant additional funding and take more than six months, thereby further delaying the PEA. VP Ex Flindell notes that there is already an exploration target of 0.8-1.4Moz Au at depth below the Moss Lake open pit resource and is looking for a portion of this to make its way into the MRE update. This potential is indicated by lots of historic drill holes, but since lots of information was lost, these cores can’t be used to define a compliant resource at depth. A downhole survey at depth indicated a 50-60% success rate, which is promising but needs more drilling obviously. As just about 30% of the historic cores can be used for a compliant resource overall, the PFS will need 30,000-40,000m of redrilling/verification drilling.
Goldshore is also working hard at metallurgical test work. Management anticipates 90% recoveries for the low-grade intrusion ore, and 90-92% recoveries for the higher-grade shear zone ore, which is much better than the 2013 PEA figures for overall recovery (79% and 84% - south and north). Management is also doing the first tests for eligibility of heap leaching, which would indicate a real gamechanger for economics if successful. The results of the ongoing met work are expected back at the end of Q1, so I asked VP Ex Flindell if this timeline is still achievable: “Yes – we are still working to this timeline.”
It is still too early for production scenarios which could generate DCF calculations and NPV figures, but it is probably good to show where Goldshore stands if it would indeed announce a 6Moz gold resource, compared to its peers. For this the peer comparison gets an update, still showing the 4.17M resource.
Although the EV/oz metric doesn’t say anything about profitability of ounces, the next table already shows an indication of valuation potential, and at the moment Goldshore seems really cheap.
Treasury has a slightly lower EV/oz metric, caused by their significant cash position. Otherwise, the EV/oz metric of Goldshore is the cheapest of all peers, but at a better average grade compared to for example Moneta and Troilus. Assuming 6M ounces as management does, this would lower the EV/oz metric to 4.6. This bodes well for the PEA coming up, as a staged PEA has the potential in this case to generate strong economics, as 3Moz of the 6Moz would likely have an average grade of 2g/t Au, which is excellent for on Ontario open pit project. With a good PEA in hand, a double should be very realistic in my view.
I didn’t include Freegold (FVL.TO) yet but this will happen the next time, from the top of my head they would come in with an EV/oz of about 7 which is very low as well, although there is discussion about economics (part of the ore being refractory, strip ratio). To be fair, Gold Terra also has refractory ore close to the Con Mine, but the average grade is much higher, and there is lots of experience from the production days, how to blend the ore etc.
Because of the rampant inflation, it is likely that studies before 2022 need significant updates in the cost department, probably resulting in (much) lower NPVs and IRRs. At the same time, the gold price is trading higher on average as well, so an average base case gold price of US$1650/oz or even US$1750/oz wouldn’t be unrealistic. I used US$1500 and US$1650 for comparison.
An indication of increased capex is Marathon Gold, which updated their FS at the end of 2022. Their April 2021 FS reported a capex of US$229M, and AISC of US$833/oz Au. The updated 2022 FS came up with a capex of US$401M and AISC of US$1046/oz Au, with the same throughput and mine plan, although they added another deposit which enables them to produce more gold. Perpetua Resources already has a very high capex, due to the refractory nature of their ore, demanding an expensive autoclave for pressure oxidation for recovery method. As Marathon and Moneta for example have an underground component, I will probably have to look further to find more useful peers when doing my own DCF calculations after the resource update and met work test results have been announced. As many major producers report strong increases of opex as well (+20-30%), and inflation isn’t going back to 2% anytime soon, this environment of high costs is likely to stay with us for quite some time. Goldshore probably has a robust resource coming soon with hopefully a high grade component of 3Moz @2g/t Au, but we have to see how this all works out in the upcoming PEA.
Conclusion
As most of the drilling at Moss Lake has been completed now, Goldshore is receiving a steady stream of drill results, and is on schedule to come out with an updated NI43-101 compliant resource around the end of April. According to management, this updated resource could contain about 6Moz Au, with a high grade part of about 3Moz Au, hopefully enabling the company to base a PEA on these numbers for now around September. Another resource update is planned around the end of Q2, 2024, being subject to further drilling, and much will depend on the amount of capital raised, which will likely commence around the release of the updated resource in April. I would love to see them bringing in a well-known strategic party, produce a convincing resource update and later this year a robust PEA. This will undoubtedly trigger interest from funds, producers and retail, and further indicates undervaluation based on the most important metrics. Stay tuned!
I hope you will find this article interesting and useful, and will have further interest in my upcoming articles on mining. To never miss a thing, please subscribe to my free newsletter at www.criticalinvestor.eu, in order to get an email notice of my new articles soon after they are published.
Disclaimer:
The author is not a registered investment advisor, and currently has a long position in Goldshore Resources, Gold Terra and Moneta Porcupine. Goldshore Resources and Gold Terra are sponsoring companies. All facts are to be checked by the reader. For more information go to www.goldshoreresources.com and read the company’s profile and official documents on www.sedar.com, also for important risk disclosures. This article is provided for information purposes only, and is not intended to be investment advice of any kind, and all readers are encouraged to do their own due diligence, and talk to their own licensed investment advisors prior to making any investment decisions.
