viewSteppe Gold Limited

Steppe Gold has the cash and the resources to emerge as Mongolia's premier mining operation


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

Rio Tinto PLC -

Quick facts: Steppe Gold Limited

Price: 2.41 CAD

Market: TSX
Market Cap: $165.9 m
  • Building Mongolia's premier precious metals company
  • Flagship mine already generating strong cashflow
  • Plenty of exploration upside

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) (OTCMKTS:STPGF) (FRA:2J9) began producing gold at its flagship Altan Tsaagan Ovoo (ATO) mine in March, 2020.

The ATO mine was built in just 14 months with under US$20million of capex and is now ramping up output. Steppe also has the Uudam Khundii (UK) gold project, which is an 80:20 joint venture between Steppe and the Bayankhongor provincial government.

At ATO, which is projected to produce 60,000 ounces of gold a year in phase 1, the company is also now bidding to expand the production in another project through mining fresh rock ores to 150,000 ounces equivalent a year.

How is it doing:

Steppe hit a key milestone at its ATO operation in February with the release of an updated resource estimate that nearly doubled the ounces in the deposit.

According to the updated resource estimate, measured and indicated (M&I) resources increased to 41.6 million tons or 2.2 million ounces at an average grade of 1.7 grams per ton (g/t) gold equivalent ounces – 1.4 million gold ounces and 20.5 million silver ounces, according to a statement.

That represents double the amount of resources 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 Canadian-listed mining company, the increase in the M&I resource is 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 tons at 1.7 g/t for 424,000 gold equivalent ounces.

The new resource supports Steppe’s Phase 2 expansion project and shows plenty of additional resources for a nearly 2.5 million-ton per year fresh ore development. Steppe is optimistic that the bankable feasibility study will reveal robust economics and extend the operation another 10-plus years at 150,000 ounces.

On the financial front, the company ended its fiscal 3Q with cash flow of US$12.7 million and cash reserves of more than US$37 million.  

Revenue for the quarter came in at US$19.4 million with All in Sustaining Costs (AISC) of US$794 per gold ounce sold, while adjusted EBITDA for the period was US$9.9 million.
Steppe also applied to list on the Mongolian Stock Exchange.

Inflection points:

  • More drilling and exploration news at ATO
  • Completion of bankable feasibility and project financing for expansion at ATO
  • Targeting annual production in 2021 and 2022 of between 50,000 to 60,000 ounces
  • Transitioning to the fresh rock ores in 2023

What the broker says:

Stifel GMP on February 25 upped its price target on Steppe Gold to C$4.00 from C$3.90 a share, a day after the miner doubled the resource at its ATO gold mine.

“Overall, gold and base metal grades were lower than we had expected, but silver grades beat our expectations, driven by the maiden resource at the Mungu sulphide deposit,” the Stifel analysts said in a note to clients.

Repeating a ‘Buy’ rating on the stock, they added: “We have increased our target to C$4.00 and continue to rate the stock as one of our Top Picks in the gold space. STGO offers excellent value, in our view trading at a discount to peers on spot P/NAV and 2021 P/CF metrics.”

Steppe Gold's stock trades around US$2.10 a share in New York and around C$2.65 a share in Toronto. 

What the CEO says:

Commenting on the positive resource update at ATO, CEO Bataa Tumur-Ochir said: “Our drilling efforts since 2018 have clearly demonstrated the great promise shown for this project and the potential we saw at the outset.”

He added: “This dramatic increase in the ATO resource further underpins the long life attributes of the project. Internal studies and our drilling analysis have long supported the growth potential of ATO Gold Mine and sampling during mining has also shown strong positive grade reconciliations. This resource update validates this.”

Contact the author: patrick@proactiveinvestors.com

Follow him on Twitter @PatrickMGraham

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Steppe Gold (TSE: STGO- OTCQX: STPGF) Executive Vice President Aneel Waraich joined Steve Darling from Proactive with news the company has released an updated resource on their ATO Deposit. Waraich telling Proactive about doubling the resource. He also mentioned the company is now listed in...

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