viewSteppe Gold Limited

Steppe Gold building Mongolia's premier precious metals group and progressing ATO mine expansion plans


The company began producing gold at its flagship Altan Tsaagan Ovoo (ATO) mine in March 2020

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Quick facts: Steppe Gold Limited


Price: 1.24 CAD

Market Cap: $84.84 m
  • Building Mongolia's premier precious metals company
  • Flagship mine is generating cash flow
  • Advancing Phase 2 expansion plans

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. Also, the Mongolian economy is growing rapidly and the government knows that mining is 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) (OTCMKTS:STPGF) (FRA:2J9) began producing gold at its flagship Altan Tsaagan Ovoo (ATO) mine in the country in March 2020.

The ATO mine was built in just 14 months with less than US$20 million of capex and is now ramping up output. The firm is now bidding to expand production via a Phase 2 sulphide project, which will see it mine fresh rock ores to generate 150,000 ounces equivalent a year from 2023.

Steppe also has the Mungu gold and silver project, which lies northeast of the current resource at ATO and is a structurally controlled epithermal gold-silver system with localized bonanza grades. In addition, it holds 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 August 2021, Steppe said the first six months of the year had been busy, following several coronavirus (COVID-19) related supply chain challenges in 2020.

It said it plans to have a newly installed fixed crushing unit operational by October this year at the flagship ATO Gold mine, which is expected to have a capacity of 1,000 tonnes per hour (t/hr), which is more than three times the current crusher capacity. The company ceased leaching (but continued stacking) at ATO in early July this year due to issues surrounding cyanide supply.

To date, there is 1.6 million tonnes stacked on the leach pad and a further 450,000 tonnes on the ROM pad, adding to Steppe’s "strong gold and silver inventory build-up through the year."

Gold production in the three months to June 30, 2021 came in at 7,202 ounces (oz) and 762 ounces silver. Despite output being lower than projected, Steppe had said it was confident that with reagent supply resumed it will still finish the year strongly.

Steppe revealed that the Definitive Feasibility Study for the fresh rock expansion was nearing completion and Steppe expects to release headline numbers in the upcoming weeks with the final report to be filed shortly thereafter.

And in February this year, Steppe hit a key milestone at its ATO operation, with the release of an updated resource estimate that nearly doubled the ounces in the deposit. The measured and indicated (M&I) resources increased to 41.6 million tonnes, or 2.2 million ounces, at an average grade of 1.7 grams per tonne (g/t) gold equivalent ounces – 1.4 million gold ounces and 20.5 million silver ounces.

That doubled the amount of resources represented at the ATO Gold Mine to 2.45 million ounces of gold equivalent, up from 1.2 million ounces in the previous resource statement.

According to the company, the increase in the M&I resource was due primarily to significant expansion through drilling at the ATO 4 Deposit and incorporation of a maiden resource at the Mungu deposit. The ATO 4 Deposit, where mining recently started, shows an M&I resource of 15.7 million tons at 1.6 g/t for a total of 819,000 gold equivalent ounces, while the maiden resource at the Mungu discovery shows an M&I resource of 7.6 million tonnes at 1.7 g/t for 424,000 gold equivalent ounces.

In July this year, Steppe Gold said it received permission to cross-list on the Mongolian Stock Exchange in a move that will allow more Mongolian investors to trade in its shares.

Following the approval by the Financial Regulatory Commission of Mongolia, the gold mining company said it planned to raise 5 billion Mongolian tögrög (C$2.2 million). Proceeds of the placement will be used for the Phase 2 expansion of its flagship ATO gold mine, it said.

Inflection points:

  • New crusher in place
  • Completion of bankable feasibility and project financing for expansion at ATO
  • Uplift in output from ATO

What the broker says:

In August, Stifel GMP repeated a 'Buy' recommendation on Mongolia-focused producer Steppe Gold Limited (TSX:STGO, OTCQX:STPGF) following the miner's second-quarter results.

Analysts at the brokerage said they were looking forward to the results of the second phase feasibility study into expanding the group's flagship producing ATO project and the restart of leaching there. They also noted that the first results from exploration drilling at the company's Uudam Khundii (UK) property are ahead.

Gold production in the three months to June 30, 2021 came in at 7,202 ounces (oz) and 762 ounces silver, which was below Stifel's estimates for 9,700 oz gold and 4,100 oz of silver. The broker added it had "tempered" its near-term production expectations for the ATO mine to 14,000 oz gold for 2021 and 25,000 oz for 2022.

"The company has indicated that the Feasibility Study for the fresh rock expansion at ATO is nearly finished and is set to release key highlights in the coming weeks," analysts added.

"We have adjusted our model following discussions with management and have increased our initial capex to $125m, adjusted our throughput rate to 6,200 tpd (from 6,800 tpd) and increased our operating unit cost by 12% to $53/t processed," they said of the expansion project.

"This puts our model for the sulphides at 110koz/yr with a total cash cost of $1,125/oz (GEO basis). We have also pushed out the anticipated start of commercial production to Q4, 2023 given the ongoing logistical issues," they added.

Stifel repeated a 'Buy' on the stock but reduced the target price to C$2 a share (from C$3.70 previously) as a result of the broker's reduced net asset value (NAV).

What the boss says:

"While we are glad to report zero COVID cases at our mine site and uninterrupted mining activities through the first half of 2021, the pandemic continues to cause delays in our supply chain," said CEO of Steppe Gold, Bataa Tumur-Ochir in a corporate update on August 10, 2021.

"These issues are impacting most operating mining companies in Mongolia but we are optimistic that the China border issues will be resolved soon and we are working on contingency planning for further delays.

"On a positive note, our mining and stacking has continued at or near planned rates and grade reconciliation remains above budget. We now have over 2mm tonnes mined or around 50% of the planned leach pad tonnage, with approximately 34,000 oz of gold in inventory. Together with net cash of approximately $10m, this provides strong support to our liquidity position and our balance sheet," he added.

"We are also very excited to shortly announce the definitive feasibility study for our fresh rock expansion, following on from the very strong resource update released earlier this year. With heap leach production back on track soon, a new crusher to ramp up the stacking rate, and a positive new study for our fresh rock phase, we are very excited for the future."

Contact the author at giles@proactiveinvestors.com

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