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(Source: Exploration Insights)

Introduction

If you’re into investing in the mining sector, you should know the above chart very well. This series covers the three projects with the most significant drill interceptions over the past week as well as the prospects of the companies which own these projects. I will use data from the weekly bulletin of opaxe, which can be found on its website. Note that the drill interceptions are converted into grades of gold equivalents using the following formula:

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(Source: opaxe)

Opaxe has chosen gold as the metal equivalent for all conversions, as it considers gold to be the most widely used and best-understood benchmark to determine or appreciate the grade tenor of a drilling intercept.

(Source: opaxe)

1) Island Gold mine in Canada

On July 13, Alamos Gold (AGI) released new results from surface and underground exploration drilling at its Island Gold mine and the best interception was 18.45m @ 52.1g/t Au from 291.75m in hole 84056601. This is equal to 961(AuEq.)m and the true width was estimated at 10.31m.

(Source: Alamos Gold)

Alamos said that these drill results have extended high-grade gold mineralization in all three areas of focus. It now plans to expand the operation to 2,000 tonnes per day, which should boost annual output to 236,000 ounces of gold from 2025 and reduce all-in sustaining costs 30% to $534 per ounce.

Island Gold is located in Canada and is among the three operating mines of Alamos:

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(Source: Alamos Gold)

This is a high-grade and low-cost underground mine with a rapidly growing reserve base. There’s significant room for growth as resources stand at close to 2.5 million ounces of gold at the moment.

(Source: Alamos Gold)

The expansion of the operation to 2,000 tpd is expected to cost $1.07 billion but comes with a net present value of $1.02 billion at $1,450 per ounce of gold. I think the internal rate of return of 17% at that gold price is decent.

(Source: Alamos Gold)

What I like about this expansion project is that it will transform Island Gold into one of the lowest-cost operations in the world, which means it can generate significant free cash flow even if gold prices drop to levels of $800 per ounce.

(Source: Alamos Gold)

2) Luna Roja gold project in Nicaragua

On July 13, Royal Road Minerals posted an update on its diamond drilling campaign at the Luna Roja project and the best drill result was 65m @ 6.9g/t Au from 90m in hole LR-DDH-22. This is equal to 449(AuEq.)m and the hole aimed to test the downdip extension of hole LR-DDH-3. It passed through a hanging wall of low-grade skarn mineralization before intersecting a higher grade breccia body at depth.

(Source: Royal Road Minerals)

Luna Roja is a 50:50 joint venture between Royal Road and Hemco, a subsidiary of Colombian mining group Grupo Mineros. It’s located in the Golden Triangle in the northeastern part of Nicaragua, which has produced around eight million ounces of gold over the past century.

(Source: Royal Road Minerals)

Hemco owns the Bonanza gold mine, which is located around 26km northwest of Luna Roja.

Royal Road and Hemco completed a 17-hole scout drilling program for 2,472 meters at Luna Roja in 2019 and there’s a 3,000-meter diamond drilling campaign underway. The latter is aimed at locally extending known gold mineralization and exploring newly identified and deeper geophysical targets.

3) Khundii gold project in Mongolia

On May 15, Erdene (OTCPK:ERDCF) released an exploration update for its Khundii project and the best drill result was 22.1m @ 20g/t Au from 0.9m in hole BKD-292 at the Bayan Khundii deposit. This is equal to 442(AuEq.)m and the hole was drilled at the Striker SW Zone. The company announced several other near-surface, high-grade gold intersections in all targeted areas of the project, namely Midfield SE, Striker SW and Dark Horse.

(Source: Erdene)

Khundii is situated in southern Mongolia in the Central Asian Orogenic Belt, an area with rapidly expanding infrastructure.

(Source: Erdene)

The project consists of the Altan Nar, Bayan Khundii, and Zuun Mod deposits, which have combined measured and indicated resources of 839,000 ounces of gold.

On July 20, Erdene released the results of a bankable feasibility study for the Bayan Khundii deposit.

(Source: Erdene)

This is not a long-life mine and the strip ratio is high. However, the operating costs are very low and the project has a decent net present value and an excellent internal rate of return at gold prices of $1,400 per ounce and above.

Conclusion

Alamos has been doing a tremendous job at optimizing the Island Gold mine since acquiring it in 2017 and I think reserves and resources are set to continue to grow at a rapid pace. The key financials for the expansion of the mine look good and Island Gold is on track to become one of the top low-cost gold mines in the world. However, Alamos overall seems overvalued as its market capitalization is over $4.3 billion.

Royal Road’s Luna Roja project is at a very early stage but I think there’s good promise for extending gold mineralization at depth. If the company manages to find enough gold, I think the project could be combined with the Bonanza gold mine as it’s within trucking distance. On July 14, Royal Road announced a C$10 million ($7.4 million) bought deal financing, which means the company is well-funded in the near future. I see this one as a high-risk high-reward investment. If you want to get exposure to Royal Road, you’ll have to go to the TSX Venture Exchange as the company is not listed in the US.

Erdene released another batch of good drill results from its gold deposits in Mongolia and I think the bankable feasibility study for Bayan Khundii looks very promising. It’s a relatively small project but the AISC is low and the net present value is compelling. I’m not a fan of gold projects with an annual output of less than 100,000 ounces, but this one looks like a keeper.

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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I am not a financial adviser. All articles are my opinion – they are not suggestions to buy or sell any securities. Perform your own due diligence and consult a financial professional before trading.



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