Novel method offers alternative for cash-strapped explorers
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As tight capital markets force Canadian explorers to get creative with fundraising, Gold Bull Resources Corporation (TSXV:GBRC, OTC:GBRCF) has unveiled plans to look inward for sustained exploration financing.

The Vancouver-based explorer’s latest move is focussed on its 100%-owned Sandman Gold Project located 30km northwest of Winnemucca, Nevada. Despite a successful 2021/22 drilling program that grew Sandman’s estimated resource by 60% to 494koz Au, Gold Bull CEO Cherie Leeden remains firm that the project’s true resource will be measured in millions, not thousands, of ounces. This ambition was bolstered by the recent completion of Gold Bull’s 2022 drill program, which revealed a new mineralized zone that is open in all directions. The best widespread gold intersections came from drill hole SA-0052 at Silica Ridge, which returned 83.8 m @ 1.50 g/t Au from the surface and included high-grade intersections of 3m @ 14.67g/t gold and 1.5m @ 15.53g/t gold.

To unlock Sandman’s exploration potential, Gold Bull must overcome the obstacle faced by most North American explorers, which is a lack of capital access due to depressed valuations across the sector. Leeden, an Australian industry veteran, admits that “the current market in the junior space isn’t great,” she seeks to circumvent this barrier through the use of the ‘Australian Model’ that monetizes Sandman’s existing resources to sustain exploration.

“The Australian model tends to be ‘start small and grow,’” said Leeden in conversation with Gold Newsletter, “To essentially generate cash flow from small operating mines and re-invest that cash flow into both mine expansion and exploration.”

On September 12, 2022, Gold Bull advanced this initiative with the release of a scoping study, which investigates the economics of an open pit mining scenario targeting the oxidized gold that permeates the shallow zones at Sandman.  The consistency of high-grade oxide mineralization over tens of meters is very encouraging and makes it a good candidate for a near-term production scenario. Small-scale production would take place above the water table and encompass only half of the 500k-ounce mineral resource estimate. This starter mine approach is designed to fast-track mine development and generate cash flow from 35,000 ounces per annum over the project’s 5-year timeline.    

While this production seems paltry compared to that of large producers, its financial implications on Gold Bull’s bottom line are profound; the study forecasts a recovery of capital expenditures in 1.1 years and an NPV of US$77.2M. Combined with low operating costs, these production targets are poised to yield a staggering 99% IRR for Gold Bull.

This latest development plays nicely into Leeden’s big-picture approach to Sandman. Organic revenue generation through small-scale production can finance finding a monster gold deposit without the dilution of shareholder value.

Lessons from Down Under

While the Australian method of small-scale production to fund further exploration may seem intuitive, it remains novel in the North American market, where explorers are more compelled to keep drills turning and focus on producing news flow before any development is considered.

A 2020 report by the Prospectors & Developers Association of Canada illustrates the resulting liquidity constraints that have increasingly hampered Canadian explorers since 2011. Lack of access to short-term capital restricts companies’ ability to grow resources through extensive exploratory drilling. The ensuing absence of big finds serves to cool investor enthusiasm in the sector, dampening share prices and further tightening capital constraints.

Australia’s growing trend toward exploration financing is one of many factors that have given them an edge over their Canadian counterparts. The result has been a tidal wave of consolidation in the sector, with cash-flush Australian miners acquiring North American mining assets through M&A. Some major cross-the-pond takeovers included:

  • Northern Star Resources Ltd. (ASX:NST) acquired Alaskan Pogo Gold Mine from Sumitomo Metal Mining Co. Ltd. (OTCMKTS:SMMYY) in September 2018. The lucrative mine site has produced since 2006 at a rate of roughly 1koz Au per day.
  • St. Barbara Ltd. (ASX:SBM) acquired 100% of Vancouver-based Atlantic Mining Corporation in May 2019. The purchase gave St. Barbara control of the Nova Scotian Tourquay Gold Mine in addition to 3 other East Coast mines in development.
  • Newcrest Mining Ltd. (ASX:NCM) gained exposure to British Columbia’s Golden Triangle with a 70% stake in the Red Chris Gold-Copper Mine, acquired from Imperial Metals (TSX:III) in August 2019, and a complete buyout of Pretium Resources and its Brucejack Gold-Silver Mine in March, 2022.

While Australian majors snatch up large-scale producers, Australian juniors are bringing their unique approach to the North American sphere with prospective acquisitions. Such a case is currently unfolding in Gunnison County, CO, where Dateline Resources (ASX:DTR) has gradually acquired the 2,000-acre Golden Links Project since 2016. The Australia-based, small-cap explorer announced a maiden extraction of 12t Au in April 2022. The next quarter’s total grew by 40t Au with financial proceeds set to further Dateline’s underground exploration in the region.

Precedent for Small-Scale Success in Nevada

Gold Bull’s latest venture at Sandman echoes the approach taken by Fiore Gold at the Nevadan Pan Mine, 300km from the southeastern border of the Sandman Property. Fiore (formerly GRP Minerals Corp) acquired the Pan Mine from bankruptcy in 2016 amidst operational troubles that had plagued the project.

In two years, new ownership managed to correct the course of the ailing project with a number of operational changes and initial capital investments. By 2017, Fiore had commenced small-scale production at Pan Mine with 33,000oz Au in its first year. By 2020, production at Pan had risen to 47,000oz Au.

Fiore referred to the Pan Mine as its ‘cash engine’; a safe, steady source of income to reinvest into the exploration of its Gold Rock and Illipah properties in Nevada and its multi-million ounce Golden Eagle project in Washington State.

Fiore’s approach was vindicated just 5 years after taking ownership of Pan Mine when it was acquired by Calibre Mining Corp. (TSX:CXB) in January 2022. The acquisition was a big win for Fiore shareholders, who pocketed a 44% premium on their equity holdings while retaining ownership in the new venture.

Start Small to Win Big 

In the face of a risk-averse market with depressed valuations across the exploration spectrum, Leeden and her team at Gold Bull Resources are steadfast in their belief in the Sandman Project as the next major find in Nevada’s rich mining history.

In a June 2022 interview with Gwen Preston at the Metals Investor Conference, Leeden confirmed the completion of Gold Bull’s 2022 drill program in search of the high-grade feeder zones in the largely unexplored depths below Sandman.

For Leeden, the question is not if but when the bonanza-grade vein is revealed. The only question that remains is how drilling will be funded in the current market cycle.

“For us, the endgame is not a small-scale operation,” said Leeden, “But if we can still fund additional exploration to find that sleeper cell discovery, then why wouldn’t we consider that instead of diluting our shareholders at the current share price?”

The level-headed, investor-focused approach of Leeden and her leadership team bode well for Gold Bull’s long-term prospects at Sandman.

With the first economic study complete and an NPV of $77M, which only covers half of the Sandman project resource, it is without a doubt that Gold Bull Resources is trading in deep value territory. Despite the consistent drilling news and a positive scoping study, shares have lost about half of their value since June 2022.  In fact, they are barely trading above the sum of their cash, US bond account, and equity holdings which means the market is giving zero value for the 500k oz asset. While North American exploration shares are still in a recessionary rut, investors may find a golden opportunity in the discount

aisle.

Turning Hard Times into Good Times

Watch the latest interview with CEO Cherie Leeden

Disclaimer: I am not a certified financial analyst, licensed broker, fund dealer, exempt market dealer nor hold a professional license to offer investment advice. Always conduct your own thorough due diligence and talk to a licensed investment adviser prior to making any investment decisions.

References:

Prepared on behalf of Gold Bull Resources Corp., a Stockhouse Publishing client.


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