RE:Pasofino Gold Announces $10.0 Million Bought Deal For Specia Pasofino Gold Ltd. (VEIN-TSX.V)
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Basic SO (MM), Pro-forma post ARX acquisition Fully Diluted SO (MM)
$0.35 $0.42 / $0.035
243,405 274 276 $96 $0 $0 $96
Dugbe Gold Liberia 49% 3.6 $27
Stephen Dunn Ian Stalker
$0.45 $0.40 $0.35 $0.30 $0.25 $0.20 $0.15 $0.10 $0.05 $0.00
Quick Hits
1. Dugbe is an advanced stage development project in Liberia, significantly derisked with US$70 MM in historical expnditure, a recent robust resource update of ~3.6MM oz of 1.5 g/t Au, detailed metallurgical work and a 2013 PEA. 2. MDA with government confirms fiscal stability over 25 years (extendable) at accommodative terms with taxes at 25% and royalty at 3%.
3. Further project optimization could approx. double production to 225k oz/year (125k oz in PEA), without significant increase in capex (US$265 MM Clarus conceptual vs US$212 MM 2013 PEA). Bolsters conceptual NAV (5%) to ~US$850 MM at US$1,600/oz (long-term clarus price deck) or +35% from 2013 PEA estimate .
4. US$10 MM exploration could add another ~2.0MM oz from the current resource areas - another +40% incremental NAV. 140 prospective targets on the large land package offer optionality.
5. Strong value proposition with potential for 10x returns from current market cap, eventually. Currently trading at a 40%-80% discount to its developer peers.
Asset Summary - Dugbe Gold Project
Located in one of the least explored parts of the prolific producing Birimian geological province of West Africa. The Dugbe shear zone is possibly a crustal-scale shear zone that passes through the project . Large land package of 2,355 sq.km with current resources defined within 2 large deposits - Tuzon (~1.8 km in strike) and Dugbe F (~2.8 km in strike). These are ~4 km apart and outcrop at surface over most of their lengths.
US$70 MM in exploration work by HUM from 2006-2014, comprising propertywide airborne mag. survey, LiDAR, 26,400 soil & stream sediment samples, 33,600 m of trenches, & 74,497 m of DD in 499 holes . Historic global resource of 4.2MM oz at 1.39 g/t (~60% Tuzon & 40% Dugbe F) , also identified ~140 prospective targets . Only Sackor prospect drill tested (3.21 g/t over 11.0 m; 1.9 g/t over 12.8 m) & no defined resource yet.
HUM also completed a PEA in 2013 : OP mine (strip - first 5 years 2.4:1 & LOM 4.37:1) utilizing a 3.5 Mtpa conventional CIL operation with production of 125k oz/year and US$904/oz opex (US$759/oz first 5 years) over a 20 year mine life for an initial capex of US$212 MM. Generates +US$100 MM/year in FCF , after-tax NPV (5%) of US$1.0 Bn at US$2,000/oz (using 2013 PEA). Comprehensive metallurgical testwork including 600 composites samples across the extent of both ore bodies indicated 88%-90% recoveries using CIL .
In August 2020, updated historic resource estimate under more conservative operating cost assumptions and pit- constraining Dugbe F (at US$1,700/oz, previously Dugbe F unconstrained using US$1,500/oz). Updated global resource showed an 8% improvement in grade to 1.49 g/t (from 1.39 g/t), global inventory declined slightly to 3.6MM oz (from 4.2MM oz). ~65% in indicated at 1.5 g/t .
Management now focusing on further resource expansion through drilling (US$10 MM budget) and optimization of the project economics for a definitive feasibility study (DFS) expected in H2/21 - potentially demonstrating 200k - 250k oz/year production profile .
Investment Thesis
A strong value proposition: Trading at C$29/oz and 0.26x NAV (Clarus conceptual at US$1,600/oz), a 40%-80% discount to developer peers trading at an average of C$134/oz and 0.45x. We eventually see potential for over C$1 Bn market cap as the Company unlocks value at the Dugbe project - a potential 10x increase from current levels . In our opinion, the immense value proposition offsets the jurisdictional risk.
Project optimization could unlock significant value: potential for 30%-35% improvement in NAV (US$1.1 Bn at US$2,000/oz - Clarus est. based on 2013 PEA) through project optimization:
Contractor mining, a pragmatic option & saves capex: 2013 PEA based on owner mining. Lack of skilled labor makes contractor mining a more pragmatic choice. Potential initial capex savings of US$50 MM .
50% increase in plant size for only 25% increase in capex: Capex savings from contractor mining should partially offset the higher capex for a larger plant. Expect capex of US$265 MM for ~5.2 Mtpa plant (vs US$212 MM for 3.5 Mtpa in PEA). Combined with higher grade of 1.5 g/t (vs 1.31 g/t in PEA), expect production to be bolstered to ~225k oz/year (+80% from 125k oz in PEA).
Potential for 5%-10% cash costs savings: we expect the unit cost savings from larger plant & equipment, ~15% higher grade and lower oil price environment (vs 2013 PEA) to offset the higher unit costs from contractor mining, with our conceptual cash cost of ~US$843/oz (-7% from US$904/oz in PEA).
Overall, we see potential for a project NPV (5%) of US$1.3 Bn for the project at US$2,000/oz (vs US$1.0 Bn using 2013 PEA). We expect VEIN to be the 90% owner of the project, eventually.
US$10 MM exploration program could unlock further value: Both Tuzon and Dugbe F remain open along strike for expansion. Some interesting intersects from southern end of both included 50 m at 2.0 g/t (Tuzon); 15.8 m at 1.64 g/t (Dugbe F). Management plans to drill test potential extensions at both as well as infill existing resource. We note that an incremental 2.0MM oz in mineable inventory could further bolster the NPV (5%) by 40% towards ~US$2.0 Bn . Further optionality from 140 targets, including Sackor.
While jurisdictional risk in Liberia is moderate to high, we note positive developments including stable democracy since 2013, pro-mining government, a growing mining industry with companies such as ArcelorMittal and Avesoro (New Liberty gold mine) already active in country, and an accommodative fiscal regime. Most importantly, the Company already has an MDA in place that provides long-term (25 years, extendable) fiscal regime stability with 25% tax rate and 3% royalty (no sliding-scale). Just ~70 km from port lowers risk further.
Table 1: Project Summary - Dugbe, Liberia
Market Cap. (C$ MM) Cash (C$ MM)
Debt (C$ MM)
Enterprise Value (C$ MM)
Company Information
Flagship Project
Project Location
Pro-forma ownership
Global Resources (MMoz AuEq) EV/oz Valuation (global, C$/oz)
Management
Interim CEO
CEO, ARX Resources
Shareholders
Management & Insiders
2,500 2,000 1,500 1,000
500
0
Aug-19 Nov-19
Company
Feb-20
May-20
Pasofino, through its proposed acquisition of ARX Resources, will have an option to earn a 49% interest (excl. 10% gov. interest) in HUM-LON's advanced stage Dugbe Gold project in Liberia. Key earn-in terms include (1) US$2 MM non-refundable deposit to HUM; (2) US$10 MM initial funding to support exploration; and (3) once earn-in complete, conversion of HUM's 51% Dugbe interest into a 51% controlling interest of VEIN. At which point, VEIN will be the 90% owner of the project . Dugbe was discovered by HUM and has seen US$70 MM spent on exploration that resulted in a global resource of 4.2MM oz at 1.39 g/t. Management has recently updated the resource to a more robust pit-constrained resource with 3.6MM oz at a higher grade of 1.49 g/t. Management plans to grow the resource with drilling and optimize the project.
Catalysts / News Flow
(1) Announcement of consultant for DFS study - imminent;
(2) US10 MM exploration program - ongoing;
(3) Completion of DFS, followed by investment decision - Q4/21.
VEIN Comps
AGC-TSX.V BSX-TSX CDV-TSX MKO-TSX.V ORE-TSX.V PRYM-TSX.V THX-TSX.V WAF-ASX
Group VEIN-TSX.V
0.26x
0.64x $61 0.49x $50 0.45x $237 0.41x $41
Ticker P/NAV EV/oz (Global) C$/oz
NA
NA $186 NA $258
0.45x $122
0.25x $27
$27
$114
Global Resource (OP) Au MM oz (g/t) 3.6MM (1.49 g/t)
2013 PEA (owner mining) - Initial capex US$212 MM; 100% basis
Mine Life
Annual Production NPV (10%) at $1,700 IRR at $1,700
Years
Au k oz/year US$ MM
%
20
125 at 3.5 Mtpa
$489 57.0%
(Clarus conceptual NAV for VEIN)