By Steven Ralston, CFA
OTCQB:TGMGF | ASX:TGM
READ THE FULL TGMGF RESEARCH REPORT
Theta Gold Mines (OTCQB:TGMGF) (ASX:TGM) is a junior mining company on the cusp of becoming a gold producer by targeting high-grade, near-surface gold deposits in the brownfield Pilgrims Rest and Sabie Gold Fields in South Africa. Management plans to employ modern mining and gold processing techniques to produce approximately 353,000 oz. Au during Phase 1 of management’s Integrated Mine Strategy. The development approach is based on targeting higher-grade, near-surface, underground deposits. Over the past 6 months, management has focused on converting an easily accessible portion of the company’s substantial underground Mineral Resource into a Mine Reserve.
A Maiden Underground Mining Reserve and Pre-Feasibility Study (PFS) for the near-surface Beta, Frankfort and CDM (Clewer, Dukes & Morgenzon) mines were released in mid-April. The work for the completion of the PFS contributed to a significant increase in the company’s Ore Mine Reserve. In addition, the company’s Total Mineral Resource increased.
Maiden Underground Mining Reserve
The Maiden Underground Mining Reserve added 418,850 oz Au (average grade of 5.49 g/t) to the company’s existing Open Pit Mine Reserve bringing the Total Ore Reserve (Underground & Open Pit) to 579,460 oz Au (average grade of 3.98 g/t), of which 8,160 oz Au (at the Frankfort Mine) is classified as Proved and the remainder as Probable. The Open Pit Project Ore Reserve is 160,610 oz Au (2.31 g/t Au at a 0.4 g/t Au cut-off). The Ore Reserve calculation considered only Indicated Mineral Resources.
The upgrading of resources resulted in Measured & Indicated Mineral Resources most recently increasing 4.6% to 1,668,200 oz Au since May 2019 and up 130% since June 2014.
Theta Gold’s Total Mineral Resource (Measured, Indicated, and Inferred) is now 6.105 million oz Au.
Pre-Feasibility Study on Underground Reserve
The PFS included details of the modern mining methods that should dramatically improve rate of production and the grade of the recovered ore, along with reducing development costs and waste rock.
Modern Mining Methods
Historically, conventional manual (mining by hand) methods were utilized to extract ore from gold reefs in the Eastern Transvaal Gold Fields. Manual operations are time-consuming with low levels of ore extraction. The potential use of normal-sized mining equipment is not economical due to the ore’s average grade.
Modern methods employ mechanized equipment. In Theta’s case, the preferred method for large scale underground mining of large yet narrow, flat dipping gold reef systems (which are prevalent at Pilgrims Rest and the Sabie Gold Fields) is Mechanized Long Hole Stoping.
Production drill holes can be selectively drilled by low-profile drilling rigs in a predetermined pattern that takes into account varying ore thicknesses and dips. Low-profile mechanized equipment can accurately cut gold reefs, in the 60-cm to 6-meter range, and in some cases, reef systems that are narrower than 60 cm.
The planned mining process entails drilling 15m long blast holes with five holes being blasted at a time. Thereafter, stope cleaning is completed with low profile scrapers or by waterjet. Load-Haul-Dump (LHD) equipment then loads and transports the ore to underground conveyor belt systems, which transport the ore to the surface. Executed properly, the planned daily advance should be three meters.
The result is higher grade ore since only the channel width of the ore body is mined. The end result of processing higher grade ore is that cost efficiency per ounce improves dramatically. In addition, since less ore is transported to the mill (like the Sandvick low-profile LHD loader), intra-mine transportation costs are reduced. Furthermore, an added benefit is that the life of the tailings dam is lengthened, since less ore and post-processing waste are produced.
Modern Gold Processing Methods
Modern gold processing techniques are expected to enhance the gold recovery rate, including ultrafine grinding and Intense CIL. Select results of a metallurgical study from a 450 kg bulk sampling program were announced in November 2020. Average gold recovery rates between 91% and 94% for some of the bulk composites from the Rietfontein, Beta and Vaalhoek Mines were well above management’s expectations. Other metallurgical testwork was completed on the more complex ore from the Frankfort Mine. Based on the metallurgical testwork conducted to date, the PFS incorporates an expected recovery rate of 84%.
Management plans on upgrading and refurbishing the existing gold process plant in a flexible and modular manner so that it can to accommodate a variety of ores, each of which requiring different treatment solutions. The front-end (crushing) and back-end (CIL, elution, gold room and tailings) infrastructure is to be shared. Initially, the components to process ROM ore from the Beta Mine will be completed, which will follow the configuration of a conventional CIL (Carbon-in-Leach) process. Initially, the existing tailings facility will be re-commissioned and utilized. Metallurgical studies will continue to be conducted in order to further to refine the design.
By utilizing modern mining methods and gold processing techniques, the All-In Sustaining Cost (AISC) over the Life of Mine (LoM) is projected to be only US$905 per oz Au, or in the bottom quartile for South Africa producers. The prior extensive development of these brownfield mines and the advantageous location of near-surface, high-grade gold reefs also contribute to the expected low cost status.
Management plans on constructing a new gold processing plant on the already-approved plant & tailings facility footprint and initially producing at a rate of approximately 60,000 oz Au annually from nearby ore sources through shallow underground hard rock mining. Longer-term, over the ensuing five years, management anticipates increasing production rate to 160,000 oz Au annually from six mine locations.
Utilizing the Maiden Mineral Reserve, the PFS estimates that the Beta, Frankfort and CDM mines can recover 353,012 ounces Au over a Life of Mine (LoM) of 7.67 years, assuming an 84% process recovery rate of the 418,845 ounces Au ROM ore. Total capital costs are estimated to be US$78.5 million. The IRR (at a 5% discount rate) is estimated to be 82% at a gold price of US $1,570 per ounce. The average LOM all-in sustaining cost (operating costs and capital expenditures) is calculated to be US$905 per ounce Au. The PFS assumes ZAR/USD exchange rate of 15.9. The PFS anticipates a pre-production period of 23 months for rehabilitating existing and constructing new processing plant infrastructure, after which the pay-back period is estimated to be 13 months from the time the first gold is poured.
Although the Phase 1 underground mines are already permitted in most respects, regulatory approval for underground mining will require amendments to the Environmental Management Plan and the Environmental Assessment Statement. An amended mine works program and the related environmental authorizations will be submitted for approvals.
Revised Timetable
The open-pit permitting process is taking longer than anticipated, in part due to the COVID-19 pandemic delaying the approval process at various South African regulatory departments. In addition, the company’s April 2021 Investor Presentation indicates that gold production will be initially sourced from higher-grade feed from the underground Beta Mine with first gold pour occurring in about 23 months (see image below). The management team is currently refining the company’s development strategy in light of the delay in the open pit permitting process. Management plans to communicate further details during the upcoming months.
We expect the stock of Theta Gold Mines to react to upcoming announcements concerning
• advancement of a PFS on the Rietfontein Mine
◦ upgrade Indicated Resources to reserve status, increasing the Mining Reserve
◦ define new Inferred Resources
• progress toward refurbishing the CIL processing plant
◦ plant design
◦ metallurgical updates
Further Details of Maiden Underground Mining Reserve
On April 8, 2021, Theta Gold Mines announced the company’s Maiden Underground Mining Reserve for the Beta, Frankfort and CDM (Clewer, Dukes & Morgenzon) mines. Collectively, these underground deposits are now referred to as the TGME Underground Project. The Proved and Probable Underground Ore Reserves are estimated to be 418,850 oz gold (2,366 Kt with an average grade of 5.49 g/t).
Combined with the Ore Reserves for Theta Open-Pit Project, the company’s current total Mining Reserve is 579,460 oz gold (4,530 Kt with an average grade of 3.98 g/t).
The Total Mineral Resource (JORC 2012) increased slightly to 6.11 million oz Au (45.5 Mt grading at 4.17 g/t Au) as the new underground reserve was derived from a 63% conversion of the Indicated Resource in the easily accessible gold underground areas of the Beta Mine.
Roughly 95% of the Mining Reserve is situated within 3 km of the location of the central processing plant.
Next PFS Project – Rietfontein Mine
Management is now planning the Rietfontein Mine to be the subject of the company’s next Pre-Feasibility Study. Currently, the estimated Mineral Resources at the the Rietfontein Mine are 242,200 oz gold (grading 8.2 g/t Au) in the Indicated category and 537,600 oz gold (grading 14.0 g/t Au) in the Inferred category. As with the Beta, Frankfort and CDM Mines, management believes that a significant percentage of the Indicated Resource can be upgraded to Reserve status. In addition, metallurgical test work of bulk samples was recently completed in November 2020.
Management is targeting that the Scoping Study on the Rietfontein Mine (completed in February 2017 and revised in September 2018) can be upgraded to a Pre-Feasibility Study by the end of the third quarter of this year. It is expected that the PFS would be additive to Theta’s Mining Reserve and hence, would further increase the company’s potential production profile.
Valuation
Based on our calculation of share value of attributable resources, our target for Theta Gold Mines stock is $0.69. Our calculation of share value of attributable resources is based on the ascertained net asset value of each property, which is determined by adjusting the value of estimated resources for the expected recovery rate and mining/processing costs.
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