We’ve entered some pretty interesting times for the gold mining sector. This is especially true for any junior explorer/developer that has been busy checking off on about 20 “boxes” that need to be checked off on prior to its first official day of production. First of all, the bad news: The average timeframe needed to complete this laundry list of necessary tasks is estimated by mining analysts and the World Gold Council (WGC) to be in between 17 and 24 years from the commencement of exploration to the actual first day of production.
This is a somewhat scary statistic to many, but the mere knowledge of this reality does help investors create valuation models for junior developers that are at the brink of completing that laundry list and commencing production. When the price of gold breaks out to the upside, a junior developer that has successfully checked off on, let’s say, only 8 of those 20 “boxes”, can’t just decide to take advantage of the breakout in the POG and go into production.
Now for the good news: A junior explorer/developer that has already put in a couple of decades of work and successfully checked off on perhaps 19 of those 20 “boxes”, AT THE SAME TIME that the POG is trading at all-time-highs, (don’t even try to calculate those odds), has a solid chance of achieving something EXTREMELY exceptional. But you need to appreciate just how rare an accomplishment like this is. Historically, how often is gold trading at an all-time-high? When is the last time a brand-new junior “producer” just happened to enter into production at a time in which it could net $2,000 per ounce produced. I’ve never seen this in 45 years in this industry.
I think what we forget is that there are 2,500 other “junior mineral explorers/developers” out there right now competing for attention from a very small pool of individual investors. Nobody, but nobody, has a clue that Auryn even exists. Auryn management is the least promotional management group on the planet. Guys like Maurizio and Isac Burstein build stuff. They know how many “boxes” need to be checked off on before the real “payday” arrives. Instead of splitting a small pool of investors with 2,499 other junior miners via promotion, the correct approach is to concentrate your efforts on finishing checking off on your check list.
When courting new investors, the goal becomes to distance yourself from the pack. How do you do this in an industry characterized by 1-in-1,000 junior explorers ever making a significant discovery that gets put into production and for that one lucky explorer, it takes an average of 17 to 24 years to get it into production? You go out and make a legitimate discovery and then you work on your check list.
The price of gold has gone up about $900 in the last 12 months. That’s insane, but it mainly benefits those in “production”, which I feel that “mining and stockpiling”, while waiting for the completion of a froth flotation plant clearly qualifies for. This is a VERY fortuitous time for a junior explorer/developer to be mining and stockpiling high-grade ore while preparing for the commissioning of the new winterized camp, the new mill, the new ore processing facility, and the new on-site assay lab.
One of the keys to focus in on is whether or not the ingredients are present for this “junior producer” to have an ALL IN SUSTAINING COST (AISC) ranking in the bottom decile (10%) or quartile (25%) of all producers. The 2 main parameters for achieving an extremely low AISC are GRADES and the presence of their own on-site ORE PROCESSING FACILITIES that can further enhance GRADES. If you’re forced by circumstances to enter into tolling agreements with Enami, you’re not going to be a LOW-COST PRODUCER, period.
Part of those scary 1-in-1,000 odds and 17-24 years stats has to do with many mineral deposits have been worked on by a variety of mining groups over the years to no avail. Thirty years ago, JJ Quijano was busy trying to consolidate a large group of mining concessions with limited success. Twenty years ago, Quijano handed the baton to Medinah which entered the scene and advanced the project a measured amount but also with limited success.
Medinah was busy trying to successfully consolidate a large group of disparate mining concessions into a contiguous block. They had limited success, and it finally took Maurizio and his people 3 or 4 more years to re-do most of what Medinah and Quijano had (incorrectly) done and to bring in another 3,500 hectares to round out the “package” of properties to 10,500 hectares. This includes approximately 8 past producing small-scale mines. The key is not the number of hectares tied down, it’s whether or not the apparent extent of the various geological structures are successfully tied down.
About 8 to 10 years ago, Medinah and Auryn were in the “BASELINE ENVIRONMENTAL STUDIES” stage of development. This becomes the foundation for all further permitting activities. They hired a well-respected firm, IAL Ambiental Inerco, to execute all of these studies. During this timeframe, Medinah and Auryn were walking all of these groups of mining concessions through the necessary steps/stages in permitting in Chile known as the pedimento, manifestacion, and mensura stages. These “boxes” were finally checked off on.
Later came the stage of development in which a miner has to submit a “RECLAMATION PLAN” promising to fix any environmental damage it induced, and post a “RECLAMATION BOND”. Auryn completed this stage of development a few years ago. Now, after about 20 years of work, Auryn sits at the brink of commencing high-grade “float concentrate” gold production, including their own recently completed on-site camp that will accommodate about 50 workers, and including their own ore processing facility involving a mill plus a state-of-the-art froth flotation plant. An on-site geochemical assay lab is also present as is a “dry stack” environmentally friendly, Tailings Storage Facility or “TSF”.
The commissioning of the entire facility is scheduled to occur on or around 7/1/25. Auryn is also currently on track to have 20,000 tonnes of high-grade ore stockpiled and ready to be froth-floated by that date. Did the market “uptick” on any of these accomplishments or “boxes” being checked off on? Of course not. The “audience development” stage is just now coming upon us and that’s one of the few remaining “boxes” to check off on.
With Medinah having to clear up a little bit of debt by selling some of their 16.4 million shares of Auryn, management will FINALLY be incentivized to tell their story and put on their “promo” hat. Remember that Maurizio is also the largest shareholder of Medinah in addition to Auryn. Maurizio and the other BOD members are very bright and well-accomplished mining figures. So too are the various members of the Ashmore Group and the new Stracon partners of Auryn. “Stracon” operates 80 mines in Peru, Chile, Mexico and Colombia. New producers like Auryn have the option to “in-source” all of their mining operations and do things themselves or to “out-source” mining operations to a group like “Stracon/Ameco Chile” and hire a bunch of professionals to do this. They chose the latter. When mining professionals specialize in certain aspects of the mining industry like “OPERATIONS”, they get pretty good at it. The “Stracons” of the world will have business relationships with other mining professionals along the value chain and “producers” like Auryn can take advantage of this. Many of the groups who take over “OPERATIONS” have a funding arm as does “Stracon”. What gets spread around to all of these groups is the INCENTIVE to make Auryn successful.
They say that “TIMING IS EVERYTHING”, and it now appears that on Day 1 for the commissioning of the new ore processing facility, on or about 1/1/25, the price of gold is estimated by many mining analysts, to be in between $2,900 and $3,100 per ounce. With an estimated ALL IN SUSTAINING COST (AISC) of somewhere around $810 per ounce (an estimate), Auryn could THEORETICALLY clear around $2,000 for each ounce of gold produced. I don’t believe the mining sector has ever seen a brand new “producer” in a position to make profits like that coming right out of the gate. The next critical step is to prove to the investment world that Auryn has a clear “PATHWAY TO SCALE”. The presence of not 1 but 6 “Main Veins”, which compose a usually somewhat “HOMOGENOUS VEIN SET”, speaks to that end.
In the mining sector, there is a saying that when the price of gold breaks out to the upside, “A RISING TIDE LIFTS ALL BOATS”. A junior explorer/developer stuck on “box” number 3 of 20 because, it can’t get its exploration or a drill campaign funded, is not likely to get much of a “lift”. COMMODITIES CYCLES are just that, they’re “cyclical”. It’s the TIMING that is the key.
My prediction is that things at Auryn are going to be getting VERY BUSY, VERY SOON. You might have noticed in the last couple of updates that Maurizio has been hinting that ALL of the ADL Mining District is going into play as far as production opportunities. When the price of gold breaks out to the upside, especially when it looks like it’s going to be trading at high levels for an extended period of time, the producing miners will typically leverage their balance sheet and put as many of their available production opportunities into production ASAP. It becomes a race because nobody knows how long these breakout prices are going to last.
The key is can Auryn continue to do this without selling shares. Does Auryn have a relationship with deep-pocketed mining financiers willing to do debt financing? I think that question got answered recently. Have they already been incentivized?
The mining financiers love this type of environment because their risk diminishes markedly. As noted, in mining investing, there is a concept referred to as a “PATHWAY TO SCALE”. Does the company I am contemplating investing in, have a visible pathway to ramp up its production at a time in which the POG is breaking out to the upside? The exhaustive trench sampling program Auryn executed back in 2015 pretty much answered that question. This campaign identified over 5,000 lineal meters of 6 mineralized “Main Veins” that made it all of the way to surface. The recent drifting of the Antonino Adit revealed another 24 of these “structures/veins/faults”.
Even before the trench sampling program was completed, a hyperspectral satellite imaging survey (CSAMT) was completed by C.S. Perez, a “remote sensor analyst”. This revealed a “7 Km long swath of about a dozen intrusives oriented from SW to NE across the southern downslope of the ADL plateau”. What does this mean? It means that whatever is contained within these “intrusives”, there is a whole bunch of TONNAGE present.
So, what’s within these intrusives? What did Auryn find at “level 3”, at the 1,850 meters above sea level elevation, of the DL2 Vein? The first group of four channel samples came back at an average grade of 164 gpt gold equivalent. For comparison sakes, the average grade being mined worldwide in similar underground “narrow vein” operations is 4.18 gpt gold. That seems way too high, so they ran a second group of channel samplings. They came back at 150 got gold.
Management then chose to take larger samples of material taken “DIRECTLY FROM THE DL2 VEIN” to see how they graded out. A 2,200 pound (one metric tonne) sample was sent to Enami for “DIRECT SMELTING”. Their “net settlement offer” came back at 70 gpt gold equivalent (57 gpt gold, 987 gpt silver, and 3.23% copper) AFTER THEY TOOK OUT ALL OF THEIR FEES AND ANY PENALTIES. The question then becomes what was the original “intra adit head grade” of that ore. A 120 Kg (264 pound) sample of the VERY SAME MATERIAL was sent to the Plenge Lab in Lima, Peru for testing via smelting. It came back at 128 gpt JUST FOR THE GOLD ALONE. This translates into about 157 gpt “gold equivalent” when factoring in the contributions of the silver and copper.
That’s now 3 separate samples OF VEIN MATERIAL ONLY, coming IN AT ABOUT 157 GPT GOLD EQUIVALENT PLUS OR MINUS 7 GPT. The disparity between what Enami offered and what the Plenge Lab revealed to be the actual “head grade” of the DL2 Vein ore told Auryn that they need to take control of the ore processing at their new mine. Getting paid 44-cents on the dollar is not a good thing. The Auryn BOD unanimously (and wisely) opted to build their own froth flotation plant.
With the POG where it currently is, the question now becomes: Are there willing financiers or is there available cash flow expected to pay for any ramp up in production while the POG is through the roof? Are there near-term early production opportunities available at the other properties held by Auryn? This is where Auryn’s 6 Main Veins come in. To my knowledge, neither the Pegaso Nero nor the Las Dos Marias should be looked upon as “near term production opportunities” as these deposits, if deemed economic, are probably bound for development via open pit “bulk mining”.
It’s interesting what happens when the POG breaks out to the upside. A mineral deposit is either “ECONOMIC” or “NOT ECONOMIC” at any given level, depending upon the price of gold and the ALL IN SUSTAINING COST (AISC) to produce each ounce of gold.
In a given mining “district” like the ADL MINING DISTRICT, when the POG breaks out, all of a sudden, previously “MARGINALLY ECONOMIC” deposit become “ECONOMIC” and previously “ECONOMIC” deposits become “ROBUSTLY ECONOMIC”. The “ESTIMATED MINE LIFE” of a deposit goes up markedly in a scenario like this as does the “INTRINSIC VALUE” and the “NET PRESENT VALUE” of the entire Mining District. Has any of this been reflected in Auryn or Medinah’s market cap throughout time. Of course not, nobody has ever heard of the ADL Mining District, the “promo hats” have never been on before because the emphasis was correctly on checking off on “boxes”. When the time comes to allocate and distribute the 16.4 million “AUMC” shares held in Medinah’s corporate coffers, then there will be an incentive to put on the “promo hat”. This is because Medinah will need to sell a few of its “AUMC” shares in order to pay off any residual debts.
