It’s the big news thatshareholders of Golden Dawn Minerals Inc. (TSX.V: GOM) (Frankfurt: 3G8A) have been waiting to celebrate.
A mere 12 months after acquiring its foundation gold assets (including a modern mill) at fire-sale prices, Golden Dawn will start mining gold.
And with bullion prices flirting with US $1,300 an ounce once again, the company’s timing is optimal.
Starting in December, the small Vancouver-headquartered gold exploration and developmentcompany will breathe new life into the small, past-producing Lexington Gold Mine in southern British Columbia.
This is significant.
First, this will allow the company to start generating steady revenues (albeit modest ones in the early going). And this represents a major milestone towards becoming a low-cost Canadian gold miner at the heart ofthe richly-mineralized, yet under-explored Greenwood Precious Metal Project near the city of Greenwood, 500 kilometres east of Vancouver.
Notably, Lexington is a modern-day mine that only saw very limited production for a few months in 2008. It was then shut down and put in “care and maintenance” mode due to the onset of the global financial crisis, as well as deflated gold prices.
Second, thisamounts to a preliminary validation of the company’s scalable business model. This involves systematically revitalizing a cluster of historic gold/silver mines that were never extensively developed, and which still offer considerable untapped potential for commercialization using modern exploration methods.
Besides the Lexington Mine, the company’s growing portfolio of projects also includes a network of small historic mines that may be far from mined-out. This is mostly because these mines were previously run by small-scale, cash-constrained operators.
However, by acquiring the Kettle River Resources in early 2017, the company also became the beneficiary of the historic Phoenix Mine, which produced 1.1 million ounces of gold, 600 million pounds of copper, and six million ounces of silver intermittently from 1911 to 1976. This mine was eventually shut down because of low metal prices.
For a larger image of this richly-mineralized mining camp, please click on the following link.
Whereas the reactivation of these small gold mines represents the steak in Golden Dawn’s story, the sizzle comes in the prospect of also discovering an intrusive body which could be the feeder zone for all surrounding mines.
Chief geologist and COO for the company, Dr. Matthew Ball, theorizes that Golden Dawn may be onto a company-maker opportunity here. He believes that the surface of these historic gold fields has barely been scratched.
“The land package covers an exceptional abundance of mineral prospects, including 34 past mines and 78 mineral showings,” he says. “All of the historic mines are less than 150 metres in depth with the majority being less than 50 metres deep.”
“Therefore, the potential for extensions of known deposits is exceptionally high. Additionally, large areas of the property package, which consists of 16,000 hectares, remain unexplored.”
In particular, the Phoenix mine offers considerable potential in this regard. I will discuss this prospective “company maker” project later in this article.
The Birth of a Canadian High-Grade Gold Miner
It’s a perfectly scalable business model.
And it starts with the companyre-commissioning several proximal gold mines,namely the Lexington, Golden Crown and May Mac mines. Again, these key assets were acquired a year ago for a fraction of their true value after a protracted recession in the mining industry.
Additionally, the company’s modern processing facility – which has a capacity of 200 t/day (expandable to 400 t/day) -- is located a mere 15 kilometres from both the Lexington and May Mac mines and a mere two kilometres from the Gold Crown Mine (which has a resource of 70,000 ounces). All of these mines can potentially provide feed for the mill.
The first of these mines to be monetized by Golden Dawn is the Lexington Mine, which contains at least 100,000 ounces of high-grade gold averaging 6.6 g/t gold, as well as substantial quantities of copper.
Additionally, the advent of additional underground drilling into untapped gold veins is expected to further build upon this initial resource.
The company is currently dewatering the flooded Lexington Mine while also rehabilitating existing underground infrastructure, which includes an extensive network of tunnels that trace the direction of the mine’s high-grade gold/copper veins.
Again, it’s worth re-stating that the Lexington Mine first became operational in 2008 but it quickly became uneconomic as the global financial crisis set in, along with a slump in gold prices to around US $750/oz -- a significant discount to today’s buoyant prices.
Unfortunately for the mine’s previous owners, an accompanying mill that cost upwards of CDN $16 million to built, became a balance sheet write-off – that is until now.
The mill is now being refurbished by Golden Dawn, which acquired it for a fraction of its true value. All told, the cost of putting the Lexington Mine back into production, along with reactivating the mill, should cost Golden Dawn no more than $3.4 million – a veritable steal of a deal.
Of equal importance, the Lexington Mine is permitted, meaning that no regulatory roadblocks stand in the way of it becoming a turnkey-solution money-maker.
The company is starting out with trial mining after de-watering the Lexington Mine, and will be testing ore sorting, to increase the in-situ grades of mill feed.
Golden Dawn plans to initially process 5,000 tonnes, with initial revenues expected to commence in Q1 of next year. Once optimal mining methods for the Lexington Mine are established, the company will produce 200 tons per day in its processing plant.
Thereafter, the company plans to upgrade the mill to 400 t/d by installing a new ball mill at modest costs.
A preliminary economic assessment (PEA ) forecasts that the mine will generate an average of CDN $8.6 million a year in post-tax cash flow, based on cumulative revenue of CDN $157.8 million over five years (assuming a price of US $1,250 oz/gold). Notably, this does not factor-in the prospect of boosting the mill’s resource base by activating further mines, namely Golden Crown and May Mac.
Independent engineering studies also demonstrate that gold can be mined, processed and shipped to market for as little as US $786 per ounce in “all-in sustaining costs” (which includes all other corporate operating expenditures, as well as royalties).
This translates into a very enviable operating margin upwards of US $500/oz based on current gold prices.
Other attractive metrics in the PEA include the prospect of a pre-tax net present value (NPV) of CDN $19.7 million and an impressive internal rate of return (IRR) of 103.4%.
The projected payback on the capital expenditures (start-up costs including purchase price) is a little less than two years.
However, plans are underway to drill into a network of previously-untapped gold veins with a view to adding to the known resources on the Lexington and Golden Crown mines.
The May Mac Mine has been subject to a major underground and surface drill program for the past two years. And the company hopes to establish a resource on the mine sometime next year.
These exploration activities will serve to add additional mill feed, thus prolonging the mine life on the Greenwood Precious Metal Project from the current five years projected in the recent PEA.
For a larger image of the company’ portfolio of properties, please click on the following link.
An On-Site Mill Makes for a Turnkey Gold Mining Business
It’s also important to note that virtually all the necessary mining infrastructure is already in-place to service all of the company’s satellite deposits on its expansive 16,000- hectare mostly contiguous property. Again, this includes a permitted modern mill, with its supplementary tailings pond.
All of Golden Dawn’s revitalized mines, deposits, and other mineral showings benefit from ready access to a power grid, a water supply and a nearby highway. Plus, the nearby city of Grand Forks is where a skilled labour force and mining supplies can be easily sourced.
The Phoenix Mine: The Sizzle in the Steak?
As previously mentioned, Golden Dawn’s new assets include the past-producing Phoenix mine, which yielded in excess of one million ounces of gold, nearly 6 million ounces of silver and 600 million pounds of copper before the mine closed in 1978.
For a larger image of the Phoenix cluster of mines, please click on the following link.
Dr. Ball explains how he hopes to narrow down the search on the Greenwood Precious Metal Project by utilizing state-of-the-art geophysics such as deep penetrating V-TEM.The aim of this work is to identify extensions to known deposits, as well as finding new targets. This deep-penetrating geophysics will essentially allow Golden Dawn to explore beneath the known deposits for new ones.
Golden Dawn is on the cusp of doing something very rare for an exploration and development “mining junior”. It is graduating to the illustrious ranks of the world’s relatively few gold miners.
This newly-found credibility promises to make the company particularly attractive to speculators and value-oriented investors, alike. This is because it gives them all the best of both worlds: a leveraged proxy to rising bullion prices, as well as a chance to own shares in what promises to be a growing gold producer.
All told, the more past-producing mines that Golden Dawn revitalizes, the more cost-cutting synergies can be achieved to further strengthen the company’s bottom line.
Furthermore, all of the company’s gold projects are ideally located in one of the world’s most politically stable, well-established mining jurisdictions. In itself, this is a key de-risking dynamic that should benefit the company’s growth profile.
In fact, it is worth reiterating that Golden Dawn has systematically de-risked its gold assets on an expedited timeline — all within 14 months — on it way to becoming a low-cost producer of gold.
Additionally, the advent of potentially steady, growing revenues in 2018 significantly limits the downside risk for the company’s share price. In essence, it’s an ideal insurance policy for investors who are now becoming fractional owners of a revenue-generating mine— the first of at least several mines.
Accordingly, as the company continues to execute on its scalable business plan, its share price should be a strong performer on the back of ever-improving balance sheet metrics.
Finally, there also exists some so-called “blue sky” potential for a major discovery at the high-grade Phoenix Mine. This is where the company hopes to unearth a deep-seated feeder system. And if this occurs, then the company’s share price will surely be a star performer in in the years to come.
About the Author: Marc Davis has a deep background in the capital markets spanning 25 years. He is also a longstanding financial journalist, having worked for leading digital financial news agencies in North America and in London’s financial centre. He is also a former business reporter for CBC Television. Over the years, his articles have also appeared in dozens of digital publications worldwide. They include USA Today, CBS Money Watch, Investors’ Business Daily, the Financial Post, Reuters, National Post, Google News, Barron’s, China Daily, Huffington Post and AOL.
Disclaimer: This online publication is intended for information purposes only. No statement or expression of opinion directly or indirectly, is an offer, solicitation or recommendation to buy or sell any of the securities mentioned. The cost of Marc Davis’ research costs are defrayed by a nominal payment from Golden Dawn Minerals. Additionally Marc Davis has been issued stock options by Golden Dawn Minerals.