Auryn/Medinah - 2022 - 1st Half General Discussion

Hi CS,

I’ve never read about any mandate to send ore to Enami. Enami’s job is to take care of the needs of about 12,000 smaller miners and the Chileans they employ. As a consolidated group, these miners gain access to the world stage and to certain economies of scale just like the majors enjoy. Enami’s mandate is to not be a burden on the taxpayers of Chile so they are slightly profitable and not subsidized by the government. Many of the profits go back to the miners in the form of loans with extremely favorable terms for advancing their mining projects. The artisanal miners at the ADL received inexpensive loans made against future production from “CCM” to advance their mining project at the DL1 Vein. “CCM” (Credito Caja Minero) evolved into what we call Enami today.

Enami and CCM’s geoscientists did a tremendous amount of work on the ADL. One of their P. Geos, Luis Kaiser, did a lot of the work on geomapping and mineral potential. Later one of their P. Geos, a man named Waisberg, mapped pretty much the entire Fortuna Mine/DL1 Vein that was being mined at the time and a lot of very rich areas that never got mined. One of these was no doubt the intersection of Shaft A and Level 2 where Auryn’s recent 18 sample program revealed many intersections over 100 gpt gold and one of 1,220 gpt gold and off the chart silver. Don’t, however, expect the 1,200 gpt sample to be “representative” of the ore grades Auryn will be mining. We can only assume that this will be one of Maurizio’s initial targets. He made a vast number of recommendations to SMFL most of which they followed.

I’ve been running some models for quite a while as to some pro forma projections as to potential earnings based on a variety of conditions. The Jan. 7, 2022 quarterly update noted that on 11/30/21 management received a pre-liquidation value from ENAMI of $36,207 for the 48 tonnes of ore delivered to them recently. The accepted total was 15 g/t Au, 31g/t Ag, and 3% Cu. AURYN expects to receive final payout from ENAMI in January. Do not expect many shipments of ore from this vein system to be that low.

Based on a price of gold of $1,800, the gross value of 48 tonnes of 15 gpt (0.482 ounces per tonne) or 23.15 ounces of gold would be $41,672. If we assume that since the gold concentration was less than 25 gpt which is the threshold that necessitates that ENAMI also pay for the copper and silver components as “byproduct credits” then ENAMI’s fee would have been $5,465. This would represent $236 per ounce of gold or $114 per tonne of ore. The $236 per ounce figure represents 13% of the $1,800 price of gold. I think most would agree that this fee is not overly burdensome. If Enami did pay for the 3% copper as a “by product credit” then that 13% figure would be higher.

Enami does not provide trucks to the miners, so the miners need to provide their own. We don’t have the on-site operating expenses (“OPEX”) yet so we can’t compute an “All-In Sustaining Cost” (AISC) on a per ounce basis. We do know that the AISC average 2 years ago was $907 per ounce worldwide. Last year with inflation setting in the AISC was a little over $1,000. The average small miner in Chile is producing 7 gpt gold, shipping it to Enami and making good money at $1,800 gold.

What tends to happen with the new gold producers in Chile is that at first Enami will do all of the secondary and tertiary crushing, milling and processing of the ore. With time, the miners will learn that they can do certain tasks even cheaper than Enami. They’ll set up their own mill facilities once there is enough “mill feed” to make it economic. “Free milling” ore that is amenable to inexpensive simple gravity separation techniques will typically be done on site. Then that which is being sent to Enami is a much higher-grade “concentrate”. Transportation costs will go down as less loads will need to be sent in order to produce a given number of ounces of gold.

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