After three straight years of declining prices, spot gold gained value in 2016 and is holding an upward path again so far in 2017, lending to the idea that the low of $1,045 late in 2015 indeed may have been a rotation out of a downtrend for the precious yellow metal. Savvy investors know that the best way to make money is at the bottom of a cycle. If you’re looking to juniors with a lower risk profile, turning to companies with a near-term cash flow plan to fund other long-term project development is a good way to go. That means companies like MX Gold (TSX-V: MXL)(OTCQX: MXLGF), who just acquired a near-term producer in Mexico for a song should generate revenue in the not-too-distant future.
For Vancouver-based MX Gold, near-term, low-cost production can be achieved through tailings projects that failed to use modern technologies to process ore, ultimately leaving dollar bills in the scrap pile. Mine tailings are the part of the rock leftover after the economic mineral concentrates are removed from unearthed ore. The quality of the tailings can vary greatly depending on what degree of mechanical or chemical (or both) processes were employed to remove the gold and other minerals the first time around.
In many cases, perhaps even the majority of mining operations in the past two hundred years worldwide, inefficient methods were used relative to today’s techniques, taking only the gold of the highest grade that was easily extracted. After all, when gold was only fetching $20 an ounce, as it was 100 years ago, artisanal miners didn’t even have the technology available to economically collect all the gold in the ore, so it was sent to the tailings pile, dam or dump.
That means there’s a lot of good gold still to be had if you’re looking in the right places; it just needs to be reprocessed with modern technology. In many cases, the tailings pile is not small, it can cover hundreds of thousands of tonnes of material. The process is similar to conventional approaches to proving reserves, conducting studies to determine the best extraction method, sampling, assays, etc., only there is not the extensive resources spent on the initial discovery, leading a much quicker time to production.
MX Gold has a project portfolio focused on mining friendly jurisdictions with infrastructure intact, including paved roads, electricity, rail, skilled workers, etc. The company’s flagship project is the high-grade Willa gold and copper project located 12 kilometers south of Silverton, British Columbia. Two years ago, the company acquired the Willa gold/copper project and the Max molybdenum mine and mill complex, comprised of the property and a 1,000 ton per day mill and tailings facility with all requisite permits in place. The projects have since been consolidated into the “WillaMax” project.
There is about 2,600 meters of underground workings, nearly 600 drill holes and more than $18 million has been spent in the past four decades exploring the Willa property. A NI 43-101 report in 2012 showed 42,024 ounces of gold Measured, 126,351 ounces gold Indicate and 26,760 ounces Inferred from the West Zone at a 3.0 g/t cut-off, without consideration for the North and East Zones.
At Max, $80 million has been spent on mine development and expansion in the last 10 years. Production began in 2007, but was slowed and halted due to stubbornly low molybdenum prices. As prices cooperate, MX Gold could expand throughput, which would lower costs, and re-start production while seeking to further delineate and expand resources across the complete WillaMax project.
Perhaps even more immediately intriguing is the $2.5 million MX Gold spent for 50% participating ownership interest and a 45% net profit participating interest in the Magistral Del Oro tailings project in Santa Maria Del Oro, Durango, Mexico. MX Gold acquired its interest late in 2016 through a partnership with Gracepoint Mining, a subsidiary of Firma Holdings Corp. (OTCPK: FRMA). Adding to the Durango prospect, MX Gold followed that up last month with a binding option agreement with American Metal Mining S.A. de C.V., whereby for $1.525 million it earned a 50% stake in the company holding a past producing gold smelter, three acres of surrounding land and various permits and equipment associated with the property (truck scale, metallurgical lab, crushing circuit, etc.).
MX Gold has already completed the $2.5 million payment and made payments of $650,000 towards the smelter and assets.
In aggregate, MX Gold for less than $4 million has substantial ownership in Durango of a (non-NI 43-101 compliant) reserve estimate for the tailings of 1.215 million tonnes averaging 2.06 g/t gold. That’s equal to roughly 79,000 ounces. At an 82% recovery rate – as confirmed by independent mining firm Kappes Cassiday & Associates – that’s more than $75.0 million in gold.
They also have half ownership of a 500 tonne-per-day dynamic cyanide countercurrent system plant that cost $4.5 million to build, which was completed four years ago. Generally speaking, countercurrent washing circuits are more expensive that traditional systems, but more effective than filtration systems, improving yield and saving resources, while lessening the environmental impact. MX Gold believes the plant can be operating in 4-6 months.
The fully permitted smelter, built to receive and process high-grade ores and concentrates, was completed in 2014 and has a capacity of 50 tonnes per day. The smelter, which was a project of Durango State Senator Rosa Isela De La Rocha, was designed to provide jobs and revenue for the Durango mining community by processing material from miners all across Durango and surrounding states. The initiative of the Senator speaks to the commitment of Durango to foster mining operations.
Gold looks to be turning the corner and slowly making its way back in the direction of 2011 record highs above $1,900 per ounce. The path will not be linear, it will take time and experience dramatic swings, just as gold always does. Depressed prices in slow economies present opportunities, though, and that is what MX Gold appears to have presciently aligned itself to do by capitalizing with the acquisitions in Mexico at very favorable prices. If the company can achieve near-term production at low costs from the tailings, it’s a strong hedge to cope with any gold fluctuations in the coming years while providing cash flow for the large WillaMax property.
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