viewSteppe Gold Ltd.

Steppe Gold is now in production in Mongolia; on track for 60,000 ounces this year


The Mongolian economy is growing rapidly and the government knows that mining is a key to sustaining growth

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Quick facts: Steppe Gold Ltd.

Price: 1.47 CAD

Market: TSX
Market Cap: $74.13 m
  • Working in rapidly growing Mongolia
  • On track to generate 60,000 ounces of gold this year
  • Plans to expand

What Steppe Gold does:

Mining is nothing new in Mongolia but it wasn't until the 1990s, and the transition of the country to a free-market democracy, that the industry was opened up to foreign investment.

The famous Oyu Tolgoi property in the country, operated by London-listed major Rio Tinto (LON:RIO), is one of the largest copper and gold mines in the world, and spans five deposits. The Mongolian government also owns a 34% stake in the property.

The Mongolian economy is growing rapidly and the government knows that mining is a key to sustaining growth. The country's mineral riches are valued at between US$1 trillion and US$3 trillion across coal, copper and gold.

Against this backdrop, one junior firm which is looking towards the country's next major gold project is Steppe Gold (TSE:STGO).

Steppe describes itself as Mongolia’s premier precious metals company and it is on track to produce 60,000 ounces of gold from its Altan Tsaagan Ovoo (ATO) gold mine in the East Asian country this year.

The company is also completing a feasibility study into expanding the mine to generate over double that, at around 150,000 ounces of gold per year.

Steppe also has the Uudam Khundii (UK) gold project, which is an 80:20 joint venture between Steppe and the Bayankhongor provincial government.

How is it doing:

A few years ago, the Mongolia government launched the Gold-2 program - which Steppe Gold is part of - aimed at doubling the country's annual gold production by 2020, and which sees perks for mining firms in terms of royalties and taxes and an accelerated mine permitting process.

On March 25, Steppe announced the start of gold production at ATO mine after the firm had mined, crushed and stacked around 533,000 tonnes of gold ore at a grade of 2 grams per ton (g/t).

There are 24,000 ounces on the pad and, at an expected recovery rate of 70%, the firm said it has around US$38 million of recoverable gold based on a price of US$1,600 per ounce.

The miner said it remained on track to produce around 60,000 ounces of gold this year at cash costs of circa US$500 per ounce from its heap leap operations.

Cash flow from ATO will go towards studies to expand the open pit and processing facilities for Steppe to increase production to a targeted 150,000 ounces of gold per year, the group added.

The miner also plans to continue exploration on the Mungu Discovery and at the ATO deposits where all deposits remain open at depth. A revised resource and reserve statement is earmarked for the third quarter this year.

Inflection points:

  • Exploration finds
  • Gold price moves
  • Updated resource estimate

What the broker says:

Stonegate Capital Partners recently started coverage on the stock. It puts a valuation of between C$0.50 and C$1.81 on the shares with a mid-point at C$1.13 (current price around C$0.78).

Analyst Shane Martin said he sees further upside potential for ATO as Steppe has three diamond core exploration rigs focusing on resource extensions at AT01 and AT04 as well as Mungu, a high grade, near-surface gold and silver discovery northeast of current resources.

"These expansion projects could lead to an increase in resources and expanded 150,000 oz per annum fresh rock crush and CIL operation," he noted.

Martin also pointed out that the group's newly appointed CEO, Bataa Tumur-Ochir, has extensive experience operating in Mongolia as CEO of Wolf Petroleum -  an oil and gas exploration company, and Hunnu Coal Ltd, a Mongolian coal firm.

What the boss says:

Speaking to Proactive in late January this year after closing a US$3M convertible debenture financing with the Mongolian National Strategic Investment Fund, Steppe Gold's co-founder and executive vice-president Aneel Waraich said the funds would be used as a working capital cushion as the firm goes into production.

"There's always knowns and unknowns in the startup of a mine so it's good to have additional capital," he said, though he made the point that he didn’t see any particular potential 'storms' ahead.

"We are comfortable to start the processing when the weather permits, that will get us into gold production, gold sales, and cash flow so, yes, we are in a very good situation," he said.

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