SGO (Sonoro Gold): A Future Cash Machine?Coppied this from a reddit post, link at the end. some really good question, answers, & comments:
Sonoro Gold: a soon-to-be #Gold producer
• Management includes a Glamis Gold Alumini in other mine builders – basically some of the region's most accomplished mine builder- operators and so it will be no surprise if Cerro Caliche is yet another of the dozen or so gold deposits they have either discovered, developed or mined in the region;
• The project has already been vetted and approved by Major Chinese EPC companies and before the covid crisis put a halt to the process – and a s a result has several MOU’s signed for the project’s financing and development;
• Word is they have already done considerable engineering work to indicate the project's viability, which makes sense given the calibre of management and how advanced they are with the China-based engineering companies;
• in house metallurgical column testing was completed in 2019 and 43-101 compliant tests are currently underway to confirm the results - gold recoveries from the deeper gold mineralization was the final variable outstanding;
• however, just in 43-101 compliant bottle roll metallurgical tests (results – high 82% recoveries) have been received, and are an early confirmation of the earlier tests and that management is correct in their observation that the deeper oxide gold containing mineralization is the same material as the shallow;
• The targeted production as published by the company and which is to be addressed in its PEA in the coming months is 20,000 TPD, while the initial '43-101 compliant resource’ which was published in 2019 totals just over 200,000 ounces Au, averaging 0.5 grams per ton – this is enough for the first 3 years of production - and this is after factoring an earlier estimate of a 72% gold recovery;
• more than 14,000 meters of drilling beginning last September 2020, has produced some exceptional drill intercepts both infill drilling and expanding on known gold zones while establishing additional gold zones and as a consequence a new 43-101 resource estimate (scheduled to be completed this April-May) is expected to show a substantial increase in the gold resources;
• recent results indicate that two major gold zones: the Japoneses and the Buena Suerte are likely to become a single zone as they trend north.
•This increases the potential for a super pit that not only dramatically increases the project’s size but also further optimizes the project economics. From this perspective it is looking increasingly similar to Prime Mining as it developed its Los Reyes.
•As detailed in the last few months news releases the Cerro Caliche's multiple gold zones are, based on the drill results, linking up to make much larger zones. Only a year ago Prime shares were around $0.25 and since then it has traded as high as $2.80. Sonoro also has the potential of its massive cash flow from the mine development as a likely catalyst – so the upside is clear.
Putting the Prime-like gold resource increase potential aside, what does SGO's low risk development story mean for the company’s future share price potential?
Lets just use the 43-101 complaint results and information made public thus far and the costs of similar operations in the area.
•20,000 tpd at 0.5 grams is the equivalent of approximately 350 ounces of gold per day;
• using the cash costs of similar mines in the area its reasonable to expect a cash cost in the $1,000 per oz/Au range;
• this indicates, using a $1700 per oz gold price, a potential EBITDA of USD $245,000 per day or $80,850,000 per year;
To be conservative, If we increased cash costs to $1200 per oz/Au and then to be more conservative we reduce the production to 15,000 tpd, the daily gold production is still 267 ounces times a gross profit of approximately USD $500 per ounce Au. This in turn would generate a daily cash flow USD $133,928.00 for fulll year revenues (assuming 330 days operation) $44,196,000.00.
To get started an estimated USD $9 million with be required for CAPEX and start-up - this is based on the company’s plans to contract out the grinding, elution and mining. Using the low case revenues the CAPEX payback is still a phenomenal 67 days. Glamis Gold, which Sonoro’ head of development Jorge Diaz developed and operated mines for in its early days grew into a giant because of its ability to quickly build very low cost heap leach gold mines and operate them ultra efficiently. This is what he is an expert at doing. His last development was the Mulatos Mine which has produced more than 2 million ounces of gold and it is easily one of the area's most successful operations. Sorono’s Management also includes a former Senior executive from Argonaut Gold another highly successful low cost heap leach producer in the area – so their plans to develop the Cerro Caliche should be taken very seriously.
Critically Sonoro has a market cap of CAD $16 million (USD $12.8 million). The company expects to be in production next year which if successful, it should trade with a market cap of at least 2 times its indicated cash flow or USD $80 million (CAD$99.8 million) using the low case scenario. Or more aggressively if we assume the 20,000 tpd targeted rate and a $1,000 oz/Au cash cost the potential valuation is closer to a market cap target of USD $160 million (CAD $199 million). That’s a lot of upside from its current $16 million and yet it is a low risk development story an opportunity we rarely see. But let's face it 15,000 tpd higher cost ($1200 per oz Au) scenario is a huge win and more than justifies taking a position. But that is not the end of the story as the Cerro Caliche it also has exceptional exploration upside which could bring its resources in the the 2 million ounce Au range. And then it has a similar project called the San Marcial, which they are just getting started on. It's hard to say when the market will wake up to what looks to me like a massive profit opportunity, but once it does, its share price is likely to take off, as my Texas friends put it, like a scalded duck.
https://www.reddit.com/r/Baystreetbets/comments/ma5vy8/sgo_sonoro_gold_a_future_cash_machine_consider/