Engineer Gold Mines Ltd (TSX.V:EAU) (WKN: A2JNAB) intends to bulk sample 5000oz Au per year.
Gold prices hitting new highs
2020 has been a good year to be a gold investor and by the looks of things, that won’t be ending any time soon. Thankfully, this favorable point in the cycle coincides with many positive developments by Engineer Gold Mines Ltd (TSX.V: EAU) (WKN: A2JNAB). As a high-grade operation that ceased limited production in 2011, most infrastructure has already been put in place. As such, Engineer is due to start processing its high-grade 1oz per tonne annual bulk sample at 30tpd upon reissuance of permits, taking full advantage of the bullish gold price. Management intends to utilize cash flow from the anticipated annual 5,000 oz au processed to fund project wide exploration with a focus on developing a large epithermal gold resource.
It has taken approximately 15 years to establish the land package they have today. To date, the company has assembled around 14km of strike length and they are now in a position to go in and bulk sample this high-grade asset. It is estimated that they will be able to mill around 5000oz per year at a grade of 1oz/t. This equates to ~$12 Mn USD top line revenue and ~$7 Mn of annual operating cash flow which will be spent on further exploration and development of the asset. Add to this the benefit of Canada as a top jurisdiction, and Engineer has all the makings for a successful gold project.
Key to the gold game: quality deposits
32Mn people in the US are unemployed, the federal reserve has been on a money printing spree and trillions of dollars are being committed to infrastructure, promising to balloon the national debt until those investments start paying off, which will take years to realize. Gold is up +26% Y/Y [1] and well surpassed the all-time high of $1,920 set in September 2011. With these strong fundamentals many are finding it an attractive time to relaunch high-grade projects. Engineer Gold Mines Ltd (TSX.V: EAU) (WKN: A2JNAB) are in possession of a bounty of gold resources and has a plan to extract value from them.
The property is a centred around an underexplored, historic epithermal gold mine that shares similar geological characteristics to major mining projects which have each realized significant gains to investors. These include:
- Newmont’s Cripple Creek Mine which is based in Colorado and boasts 27M oz Au
- Midas Mine, which is based in Nevada, has 2.2M oz. This company has seen its share price more than double since the start of the year.
- Emperor Mine in Fiji which is heralded as one of the largest gold mines in the world, with estimated reserves of over 7M oz Au!
Owners may change but fundamentals remain
Engineer Gold Mine shares many traits with the abovementioned mines and has long been regarded as a high-quality asset. With a storied history dating back to when BC was a new addition to confederation, in 1925 reports from the Engineer Gold Mine were so favorable, that the Engineer Gold Mines stock rose to US$100 per share on the New York Curb Exchange (which later became the American Stock Exchange that ultimately merged with the NYSE in 2008). The total documented ore production from 1910 to 1952 for the Engineer Gold Mine shows extremely high grades and records show production of 14,263 tonnes at 39.4 g/t Au and 19.5 g/t Ag (18,000 oz Au and 8,950 oz Ag) [2] . While the property has changed ownership multiple times, until falling into Engineer’s, the underlying fundamentals of this property has remained consistent. History has shown numerous, well documented periods of high-grade gold recovery from the property.
In 2017, Blind Creek Resources purchased the Engineer Gold Mine Property from Guardsmen Resources and Engineer Mining Corp (EMC). In 2018 Engineer Gold Mines Ltd. went public through a spin-out transaction where Blind Creek Resources Ltd transferred the Engineer Mine property and the adjoining Gold Hill Property.
So, what is the benefit of having all these properties joined together under the same ownership?
Prior to Engineer consolidating the property under the same ownership, the area was fragmented into smaller properties. Andrew H. Rees, Director and President of the company explained the benefit to shareholders of having these properties joined:
“What establishing the whole property will do is allow us to see where these ounces that came up to the surface…actually came from, what we can find if we go deeper, and how we can expand on it. 4km to the south of the mine, there’s a trench where grab samples up to 8oz/tonne gold were taken, and 4km to the north of the mine, grab samples were taken by a completely different ownership group with grades reported over 4 oz per tonne. So, we have extremely high grades reported throughout the trend…you’d be happy with 4-8 g/t gold never mind the 4-8 oz/t. seen throughout our project”
So why are they putting all these properties together? Well for 100 years, there have been different owners of various portions of the 14km trend. However, what modern geology has taught us, is that when you have a consolidated land package with more than a 14km strike length, it is incredible what you might find with a project wide development focus. It will allow Engineer Gold to endeavour to put together the pieces of the whole geological puzzle rather than just exploring a small portion of the trend which never allowed previous operators in the area to have a meaningful understanding of the geology to develop sizeable gold resources.
Another thing to keep in mind, is that having the full package with all the mineable areas under one ‘roof’, makes this project much more appealing in an eventual takeout of the whole asset rather than having smaller sections of the property. As such, in the event of a takeover, we expect that shareholders will receive a premium now that the property has been consolidated.
On December 10, 2019 the Company announced the conclusion of its 2019 surface drilling, mine dewatering and underground sampling program at the Engineer Gold Mine Property. During the 5 month program, the Company completed 14 surface diamond drill holes testing a number of near-surface epithermal quartz vein and shear zone gold exploration targets and de-watered the entire Engineer Gold Mine.[3] This confirmed significant gold mineralization.
“The sum is greater than the parts”
Having hired some of the top talent in Western Canada to take the 30,000-foot view with a fresh set of eyes, Engineer is poised to bring this property to it’s potential.
As of the time of writing, the full property is now 17,249 hectares and there is gold on all of it. The company had also just closed an $1,300,000 private placement and management is not wasting any time in continuing their exploration efforts.
Engineer Mines well positioned as a potential 2020 breakout stock
A major differentiating benefit of this project is the readiness to mine. The fact that they already have a mill on site saves years in the permitting processes. The expandable 30 tonne per day mill is expected to self-fund $35-50mn exploration over the coming years, reducing the need for dilutive financing rounds.
The property contains a high-grade gold resource, with similar geological characteristics to major gold mines. Engineer Gold Mines is in an advantageous position for investors with anticipated near-term gold sales and an enviable address. Now that management has consolidated ownership of the project over its 14km strike length, there is an even greater chance that this project will be able to yield a significant high-grade gold resource.
Engineer Gold Mines is a junior mining company, leveraged to take full advantage of the gold market rally. The property has a history of over a hundred years of production. As such, there is no doubt that the smart money will begin taking a closer look at Engineer as further exploration gets underway.
[1] Gold Fixing Price 3:00 P.M – 7/15-7/20 – https://fred.stlouisfed.org/series/GOLDPMGBD228NLBM#0
[2] Section 6.1 second last par – Jan 2018 technical report
[3] 2019 – MD&A
