viewSteppe Gold Limited

Steppe Gold building a premier gold player in mineral-rich Mongolia


Steppe Gold began producing gold at its flagship Altan Tsaagan Ovoo (ATO) mine in March this year

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Quick facts: Steppe Gold Limited

Price: 2.32 CAD

Market: TSX
Market Cap: $159.7 m
  • Already generating cashflow
  • Focusing on low-cost production assets with strong exploration upside
  • Eric Sprott's strategic investment gives him over 11% stake

What Steppe Gold does:

Mining is nothing new in Mongolia but it was not 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, in which 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, Steppe Gold  Ltd (TSE:STGO) began producing gold at its flagship Altan Tsaagan Ovoo (ATO) mine in March this year.

The ATO mine was built in just 14 months with under US$20million of capex. 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:

In July this year, Steppe announced a C$15 million investment from famous Canadian resource investor Eric Sprott - a notable endorsement from the gold bull - which closed in early August.

Net proceeds from the placing will be used to advance exploration and development projects as well as for working capital, the firm said.

On August 17, Steppe said it was seeing good cashflow from ATO in the country as it posted its second-quarter results to June 30, 2020 - the first quarter after start-up and ramp-up. The group said it remains on track to generate around 60,000 ounces of gold in its first year at cash costs of around US$500 per ounce

Production for the three months to June 30 came in at 15,389 ounces of gold and 4,978 ounces of silver. The firm sold 12,458 gold ounces and 3,728 silver ounces in the period with average realized prices per ounce of US$1,714 and US$15 respectively, making the firm C$19.5 million in sales.

Steppe said it is now working up a bankable feasibility study (BFS) on the ATO project, which looks at expanding production to around 150,000 ounces of gold equivalent per year with an estimated ten-year mine life.

The group has completed a substantial amount of drilling at the ATO gold mine since resources and reserves were last calculated. It has drilled 1,840 metres at ATO1, 1,662 metres at ATO2, 14,760 metres at ATO4 and over 26,573 metres have been drilled at the Mungu Discovery.

The company is targeting first production from the ATO Gold Mine Expansion in mid to late 2022.

Inflection points:

  • Completion of feasibility and financing for expansion at ATO
  • Resource upgrade
  • More operational results from the mine

What the analyst says:

Following the second quarter financial results, Haywood Capital Markets, which rates Steppe shares a 'Buy', lifted its target price on the stock to C$4 from C$3 previously, on the back of the miner's growing cash flow and key milestones, which are expected be reached in forthcoming months.

Haywood also expects the company to continue to improve on costs in the second half at ATO, trending to US$500 per ounce, as operations reach steady-state.

The key milestones that Hayward refers to are the updated resource estimate expected in the fourth quarter of this year and the  completion of a bankable feasibility study in the first quarter next year.

This will assess an expanded operation costing US$100 million with output of 150,000 ounces a year, a ten-year mine life and all-in-sustaining costs (AISC) of US$1,000 per ounce

"STGO’s first quarter of gold production positions the company to achieve steady state production. In anticipation of growing cash flow, and reaching key milestones in 2H20 and 1H21, we are increasing our target price to $4.00 from $3.00," said analyst Pierre Vaillancourt in a note.

What the boss says:

On July 13, Steppe Gold's executive vice-president Aneel Waraich explained to Proactive's Steve Darling that the firm's strong finances due to ATO, along with the Sprott investment meant the firm did not need to raise any new capital.

"Already we're on the path to being fully funded for exploration on both of our projects and paying for our feasibility study on the expansion on the ATO and ending the year with a cash balance of circa US$20 million. With Eric's additional funding here, it allows us to be progressive on exploration and still be fully funded and strong balance sheet at the end of the year," he said.

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Steppe Gold prepares to list shares on the Mongolian Stock Exchange

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