On December 26, 2022, we wrote that Cerrado Gold (CERT.V) had significant turnaround potential based on an aggressive growth profile that envisions putting in place by 2024 one of the lowest cost gold mines in the world.
Based on the announcement of additional stream financing and CEO Mark Brennan’s recent comments, Cerrado Gold appears to be on track to accomplish its goals.
Friday, March 3, 2023
In “A Tale of Two Deposits”, SGL explained that while investing in Cerrado Gold has resembled a Charles Dickens (It was the best of the times” and “it was the worst of times”), the company was posed for better times ahead.
On 2 March 2023, Cerrado Gold announced that they topped up their cash position through an amended agreement for US$10 million equalization stream financing with Sprott Private Resource Streaming and Royalty on its Minera don Nicolas Mine in Argentina. The agreement incorporates additional concessions acquired by Cerrado Gold in Argentina in 2020.
Last month, CEO Mark Brennan updated the market in a Red Cloud Securities interview and announced that Cerrado Gold expected to bring in this new financing, while also confirming our outlook that better times for the company were ahead.
While the entire interview is worth a listen, the bottom line is that Cerrado Gold is on track to put its Monte Do Carmo (MDC) into production by 2024.
Monte do Carmo Timelines
In terms of timelines for MDC, in the interview Cerrado anticipated:
- A preliminary license for MDC being issued by end February 2023 (this has not been issued yet);
- A construction license being granted 90 days later (i.e., end of May 2023);
- Results of the Feasibility Study (FS) being announced by the end of May;
- Announcement of project financing for MDC hopefully by July 2023
- Construction to begin on MDC sometime in Q3 2023;
- Cerrado expects a 12-month build, which should put production to begin in Q4 2024.
In terms of cash, Cerrado Gold had around C $7 - 8 dollars before the announcement of an additional US$10 million in funds from Sprott.
Cerrado expects the FS to have a lower after-tax IRR than the 2021 PEA that achieved a 95% IRR, but not drastically lower, so the FS will still be “very exceptional” among gold producers.
The capital expenditure for the build should be C$ 125M, whereas the project should return 150M cashflow and 110M free cashflow in the first five years of production.
Discussions about mine financing are ongoing and Brennan believes that the rapid return of capital due to the MDC’s project economics makes investment in the project very attractive.
In terms of exploration potential at MDC, Cerrado will conduct around 25,000 meters of drilling in 2023. Last week it announced visible gold in its first exploration step out drillhole, FNE-01, for which assays are pending. The hole targeted a structure located more than 500 meters to the northeast of the current resource outline.
While Cerrado does not expect to discover 10 million ounces of gold at MDC, they nevertheless believe that 4 or 5 projects of scale like the Serra Alta Deposit could be discovered. This could lead to a project totaling more than 5 million ounces.
Argentina Operations Update
In relation to its operations in Argentina, Cerrado is targeting 60 -70k ounces of gold production in 2023 at 1,200 AISC. For 2024, it is targeting 70 – 80k ounces at $1,000 AISC, based on having its two heap leach projects in place. The first pour of the first heap leach project will take place in April 2023. The second heap leach will come into production by the end of the year.
Cerrado will also spend C$ 6.5M on exploration drilling in Argentina this year in the hopes of discovering some 10 g/t rock for future underground mining.
In terms of capital controls, Cerrado Gold believes that the upcoming presidential elections in 2023 may bring into power a politician who will drop Argentina’s capital controls.
In any event, Cerrado also reiterated that it will not dilute shareholders to grow Argentina and yesterday’s announcement of US$ 10 million in non-dilutive financing shows that they are delivering on this commitment.
Disclaimer: SGL does not provide investment advice and is not a registered investment advisor. Always do your own due diligence before making an investment. Investing in securities, especially junior miners, can be risky and never invest money you cannot afford to lose. SGL cannot guarantee the accuracy of the information in this post. SGL has attempted to present the information fairly, but it may own shares of Cerrado Gold so bias cannot be excluded. It has no relationship with Cerrado Gold. SGL's writers may buy or sell shares at any time.
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