JimmyP,
You posed a question recently as to the “value” of the ore stockpiled to date by Auryn, now that the price of gold is back over $2,700 per ounce. Without knowing the exact grade and tonnage of that ore as well as the “recovery rates” of the new froth flotation plant as well as the “concentration factor” of the new plant, it would be impossible to come up with a definitive answer. We also don’t know what a Glencore-type metals trader might pay per tonne for Auryn’s “float concentrate” containing “X” grams per tonne gold equivalent. A “float concentrate” is the highly concentrated product of a froth flotation plant. The currently stockpiled ore is the “raw feed” for a final product that is to be sold. The efficiency of the FF plant needs to be “married” to the intra adit “head grade” of the ore in order to determine profitability.
I would suggest that instead of focusing in on the “value” of that stockpiled ore, I’d concentrate on the potential profitability of selling the “float concentrate” that results from the processing of that ore on-site. That’s the metric you really want to know because the profitability brings into the equation the ALL IN SUSTAINING COST (AISC) to produce each ounce of gold contained in that “float concentrate” and the AISC drops precipitously because of the very presence of Auryn’s own on-site “mill”, state of the art froth flotation plant, their recently completed camp, tailings storage facility (TSF), and on-site geochemical assay lab. There’s a lot more going on here than the installation of an FF plant.
I haven’t seen any comments on it on this forum, but I think the key concept to keep in mind is that Auryn is currently on track to have 20,000 tonnes of ore stockpiled and ready to go on Day 1 for the commissioning of the new ore processing facility, froth flotation plant, dry stack tailings storage facility, and new geochemical assay lab. If you can recall what Auryn’s blue 20-tonne truck looks like, this amount of stockpiled ore would fill about 1,000 of those trucks.
The actual “value” of that stockpiled ore will be greatly enhanced by the fact that it will be immediately fed into a recently completed, state of the art froth flotation plant. That stockpiled ore will never have to be “TRANSPORTED” to somebody else’s froth flotation plant. Because of this, that ore will be rapidly “monetized”. Once the FF plant is commissioned, the task at hand will be to keep it busy so that its daily “throughput” ranking of 100 tonnes per day can be sustained and then later surpassed. If it takes the miners time to ramp up production from the adits being mined, initially the Antonino Adit, then the Caren South Adit and the Caren North Adit, this previously stockpiled ore will serve as “ore feed” for the FF plant in that interim timeframe.
On paper, 20,000 tonnes of ore should keep a froth flotation plant with a 100 tpd “throughput” busy for 200-days. In reality, there will be a ramp up process for the froth flotation plant as the engineers and metallurgists “dial in” the idealized flow sheet for maximizing the “recovery” and “concentration factor” of the plant. They will be tweaking things like the idealized concentration of the ethyl xanthate reagent used to maximize gold recovery, the idealized particle “grind size”, the PH of the “pulp” solution, the ideal size of the air bubbles, the “pulp” concentration, the ideal “residence time” within the “cells”, etc.
The “value” of 20,000 tonnes of ore sitting next to a fully dialed-in FF plant, that has already been successfully financed, will greatly exceed that of 20,000 tonnes of ore about to be shipped to an off-site “Enami-type” tolling facility. The superior economics of an FF plant is partly derived from the fact that a lot of the worthless “gangue” surrounding the sought after gold, silver and copper is removed from the raw ore, discarded and stored on-site in a dry stack “tailings storage facility” or “TSF”.
This discarded material will never have to be TRANSPORTED or SMELTED. Without an on-site froth flotation plant, all of that ore, including the discarded “gangue”, would have to be shipped and smelted at great expense. A froth flotation plant will cost about $10 per tonne of ore processed. This includes “CAPEX” and “OPEX” (operating expenses). TRANSPORTATION and SMELTING of one tonne of ore, on the other hand, costs about $225 per tonne in Chile. The economics of an FF plant partially come about by being able to spend $10 per tonne to save approximately $225 per tonne on the material that is discarded. This significantly decreases the AISC because the vast majority of the contents of even extremely high-grade stockpiled ore is worthless “gangue”.
Twenty thousand tonnes of ore is a lot of ore and we know that a certain percentage of it, that which was mined “directly from the vein” since July of 2023 when Auryn started mining in this manner, is probably very high-grade ore. In 3 separate quarterly updates, Auryn management cited that they were continuing to successfully “mine and stockpile” high-grade ore “directly from the DL2 Vein with minimal dilution”. The problem is that we don’t have any tonnage figures for the extremely high-grade ore mined and stockpiled in this fashion to date. All we know is that Auryn is currently on track to have 20,000 tonnes of ore stockpiled and ready to be froth floated on or about July 1, 2025, when the new ore processing facility (mill plus froth flotation plant plus TSF), is scheduled to be commissioned.
TRANSITIONING TO BECOMING A “JUNIOR PRODUCER”
The question arises as to what might change when a junior explorer/developer, like Auryn, successfully turns the corner and becomes a high-grade “junior producer” with its own on-site permitted ore processing facility, with its own recently completed camp, its own on-site assay lab, and its own “dry rack” tailings storage facility, at a time when gold is trading at or near all-time-highs and the issuer only has 70 million shares outstanding.
In retrospect, if Auryn would have spent the perhaps 5 to 10 years needed to fully drill out their various mineral assets, we don’t know what the price of gold would have been on Day 1 of production. We do know that the cash flow would have been deferred by those 5 to 10-years and there is a time value for money. In this example, that extra level of “certainty” would have cost the shareholders an extra 630 million shares of dilution as well as the use of that cash for 5 to 10 years. Maurizio took the “uncertainty” risk, not the shareholders. He rolled the dice and he won.
From an investment point of view, the “crown jewel” in that list of Auryn assets is by far and away the 70 million shares outstanding figure. Making it all of the way into production, with your own on-site ore processing facility, with only 70 million shares issued and outstanding, is insanely fortunate. That could easily have been 700 million shares issued and outstanding if Maurizio would have opted to sell boatloads of shares, often at steep discounts to the prevailing share price due to the implied risk in this sector, in order to drill out all of Auryn’s various assets.
It should be pointed out that there is indeed a trade-off involved. A fully drilled out deposit removes some “uncertainty”. For example, Auryn might have been able to intersect the DL2 Vein much quicker if they had fully drilled out the DL2 Vein.
Another question becomes what benefits might be derived from the recent passage of Chile’s “Small Mining Producers Statute” streamlining current and future permitting efforts for these “junior producers” as well as decreasing applicable tax rates. Chile’s President Gabriel Boric recently reinstated Aurora Williams as the Minister of Mining. She has been a staunch advocate for Chile’s “Small Mining Producers”. The Chilean Congress recently amended Rule No. 21,420 and increased taxes on the major miners in Chile and reduce them on the “junior producers”. The stated goal is to free up the mining concessions that the major miners are sitting on but not developing, so that junior miners can acquire them and start sincere efforts to develop them. It’s a very nice time to be a “junior metals producer” in Chile.
Yet another question becomes what benefit might be derived from Auryn’s landing a $4 million debt financing, a rarity for a junior miner, attached to a contract with a world-class mine operator “Stracon”, owned by the Ashmore Group, which manages about $68 billion through 17 funds while acting in the capacity of an “emerging markets investment manager”.
RECOGNIZING PROGRESS AND VALUE ENHANCEMENT WHEN IT DOES OCCUR
The list of tasks needing to be accomplished in order to put a high-grade gold mining operation into production is seemingly endless. The journey from “Development Stage A” to “Development Stage Z” can be so long that the investors in a company currently at, let’s say, “Development Stage W” may not be able to appreciate just how much has already been accomplished throughout one of these seemingly endless journeys.
Almost a decade ago, Medinah and Auryn hired a firm called EIA Environmental out of Santiago, Chile, to do what is known as a Baseline Environmental Survey. This has to be accomplished before any permitting progress can be made. I don’t think that there are two of us left on this “MiningPlay” investment forum that can remember Medinah and Auryn checking off on this particular “box”, but it represented the first step in a very long journey to being granted “Exploitation Permitting” through Chile’s “Mensura” process.
Upon completion of this one task, the overall “value” of this project went up a notch unbeknownst to those following progress at the time. A LOT OF THE VALUE ENHANCEMENT OF A MINING PROJECT HAS TO DO WITH THE INORDINATE AMOUNT OF TIME IT TAKES TO CHECK OFF ON ANY ONE OF A SEEMINGLY ENDLESS LIST OF “BOXES”. It’s the time that no longer needs to be spent on achieving a certain task that helps to create “value”. “The market” rarely appreciates this value enhancement because the participants within “the market” typically don’t realize the enormity of the steps involved.
If the price of gold is breaking out to the upside, it’s already too late to start a gold project sitting at Development Stage “A”. The World Gold Council’s statistics tell us that first of all, about 1-in-1,000 mining projects will ever make it into production. Secondly, their statistics indicate that for that lucky 1-in-1,000 junior explorer, it takes an average of 24 years to go from the commencement of exploration activities to the first day of production. When the price of gold breaks out to the upside, you can’t snap your fingers and go into production. The big fish end up eating the little fish that have persevered and have already checked off on a lot of “boxes” and have proved to the investment world that they have already commenced production or at least are on the brink of commencing production.
When you look at those 2 WGC statistics, you can recognize that if an investor is going to invest in a miner sitting at “Development Stage A”, then he is going to need the “patience of Job” to see that investment through. Others might intuit that the “sweet spot” for investing in this sector is obviously to wait for a mineral discovery to be validated AND THEN WAIT UNTIL THAT PROJECT IS AT THE BRINK OF COMMENCING PRODUCTION PRIOR TO INVESTING A NICKEL. I wish I would have learned this 44 years ago when I started investing in this sector.
The question then arises as to how does one confirm that a project is indeed “AT THE BRINK OF COMMENCING PRODUCTION”. In the Auryn scenario, the path chosen is vastly different from that taken by most mining juniors. Unlike the average junior explorer with a compelling mineral prospect, Auryn opted to finance and build their own on-site ore processing facility composed of a mill, a froth flotation plant, an on-site assay lab, and an ultra-environmentally friendly “dry stack” Tailings Storage Facility or “TSF”.
There was no need for a major miner’s technical capabilities and superior financial resources. The majors will typically make a junior miner with a prospective discovery “DE-RISK” the project so that the major and its shareholders, assume very little risk. They insist on the shareholders of the junior miner shouldering all of that risk. The “DE-RISKING” process typically involves vast amounts of diamond drilling paid for by the sale of shares of the junior miner, often at steep discounts to the prevailing share price due to the implied risk cited by the WGC. The result is typically massive DILUTION of the share structure of even the successful junior miners with a discovery of merit.
In reality, Auryn already entered into “PRODUCTION” back in July of 2023. This is when they started mining and stockpiling extremely high-grade ore “directly from the vein” so that when their new ore processing facility was commissioned, there would be plenty of “ore feed” present to keep the facility busy and the cash flowing. As noted, they are currently on track to have 20,000 tonnes of high-grade ore stockpiled and ready to go on the commissioning date for the new plant, on or around July 1, 2025. Thus, Auryn is not only on the “brink of commencing production”, they are already “in production”.
Auryn recently completed the construction of an all-weather camp that can house approximately 50 workers. They also recently inked a $4 million debt facility that is almost nonexistent amongst the junior miners due to the risk implications. They recently inked a deal with “Stracon”, a world class mine operating firm, that will take over “mine operations” and all that it entails. What’s left to be accomplished is the signing off on the “Technical Dossier” revealing the engineering details of the new plant. The fact that the money has already exchanged hands suggests that the lender is not too concerned about this final check off occurring in a timely manner. The completion of the new camp facility also suggests this.
The question arises as to how all of these recent accomplishments relates to the “value” of the project at a time when the price of gold is at or near all-time highs. The answer to that has a lot to do with what is known as the ALL IN SUSTAINING COST (AISC) to produce each ounce of gold equivalent that Auryn will produce and sell to Glencore or Trafigura. When a metals producer has expended the TIME and successfully landed the FINANCES needed to do the preliminary ore processing on-site, in order to avoid the expense of entering into “tolling agreements” with a party like Enami, the AISC gets driven downwards markedly resulting in a vastly increased “MARGINAL PROFIT” per ounce of gold equivalent produced.
As the number of gold ounces produced per unit of time naturally ramps up over time, then the TOTAL PROFITS will also ramp up accordingly. If all of these things can be accomplished without any added share structure dilution, resulting in only 70 million shares outstanding at the commencement of production, then the EARNINGS PER SHARE metric can reflect a very robust figure. It is true that aligning this many stars over a seemingly endless amount of time is highly unlikely, but it can be done.
The trick for an investor wishing to retain his sanity is to know what the development stages “A-Z” are and be able to gauge progress throughout the journey and be able to ascertain when being on the “brink of production” occurs.
In the mining sector, it is exceedingly difficult to place a valuation on a mining project in the exploration and development stages. Not many people speak “Geojibberish”, and it’s the GEOLOGY that is critical to evaluate at this stage of development. When transitioning into “PRODUCTION”, the visibility gets greatly enhanced for the average investor. Metrics like CASH FLOW and EARNINGS PER SHARE take precedence and investors feel much more comfortable with these than “Geojibberish”.
Auryn’s history is different than many of the other juniors. Most junior miners seek to gain the attention of a mining major or mid-tier player that might either take them out or enter into a joint venture relationship with them. Part of this process involves selling a massive number of shares at ridiculously low share price levels in order to raise the money needed to do the diamond drilling mandated by the major miner prior to appearing on their radar screen. Even after suffering all of this DILIUTION, there is still no guarantee that a major will notice you or be willing to fairly compensate you for your accomplishments. Since the juniors need to pay their monthly “burn rate” by constantly selling shares into the market, an interested major can simply wait the junior out until the constant dilution becomes too much for the junior miner and its shareholders and they cave-in to the demands of the major miner.
If the junior miner fails in gaining the attention of a major after a drill campaign, then they will typically sell yet more shares in order to continue the drilling. After a while, the share structure gets so diluted that even if the junior does make a breakthrough, then the beneficial effect for the shareholders gets muted from the previous share structure dilution.
Maurizio, Auryn’s CEO, took a different approach. He personally was willing to front all of the cash needed to get the project to the “POSITIVE PRODUCTION DECISION” stage of development without charging any interest. I’ve been investing in the juniors for 44 years and I’ve never seen this before, not even close. This bypassed all of that untoward dilution that almost all of the other juniors suffer. In a sense, Maurizio rolled the dice and he won. The willingness of a financier to underwrite the building of the ore processing facility WITHOUT DEMANDING ANY SHARES not only corroborates this victory but it also seals the victory because the need to sell shares in the future will be greatly lessened because an option appears to advance further exploration and development activities from the cash flow.
