Tesoro Resources (TSO) - Higher Grades & Larger Scale Changes Outlook

Morgan Leighton
December 17, 2021

Matt Gordon caught up again with Zeff Reeves, managing director at Tesoro Resources. Reeves shared with Crux Investor the recent work going on at the El Zorro Project in Chile. In a nutshell, he conveyed that the ore body that is being explored there just continues to get bigger as drilling continues.

Company Overview

Tesoro Resources is an Australian junior gold explorer with assets in the Coastal Cordillera region of Chile. Founded in 2017, the company specializes in acquiring and developing high-grade gold assets that have the potential to be top-level, district-dominant mines. The company trades on the ASX and has over 600,000,000 shares outstanding. The company has a market capitalization of A $57 M.

Tesoro Resources (TSO) - Higher Grades & Larger Scale Changes Outlook

Tesoro’s Leadership

Experienced mining professionals lead Tesoro. The leadership boasts strong geological and finance backgrounds, as well as significant in-country expertise. In addition to Reeves, management and direction are comprised of John Toll, Chairman; Geoff McNamara, Non-Executive Director; Kristie Young, Non-Executive Director; Linton Putland, Executive Director–Mining and Development; Sergio Uribe, Country Manager; and Shannon Coates and Sarah Wilson, Joint Company Secretaries.

El Zorro

The El Zorro Gold Project, Chile’s most recent gold discovery, represents the company’s main focus. This asset is nestled among numerous world-class gold mines. Tesoro owns 85 percent of the El Zorro Gold Project. It covers over 500 km2 and is located 140 km by road from the city of Copiapo in northern Chile. El Zorro is an intrusive-related gold system (IRGS).

El Zorro comprises a number of prospects. A maiden resource of 660,000 oz. of gold was announced in July 2021 at the Ternera deposit. Additional targets include Ternera East, Ternera North, Toro Blanco, Toro Gordo, Drone Hill, and Buzzard. The El Zorro vicinity boasts numerous benefits including an established infrastructure, supportive governmental policy, and its neighborhood of nearby world-class mines.  

Tesoro Resources (TSO) - Higher Grades & Larger Scale Changes Outlook

Ternera Keeps Growing

The Ternera deposit just keeps growing as Tesoro continues to drill it. The company hasn’t found the edges of it and is chasing a potentially very large system. All the indicators suggest that there's further growth to be had. There is quite a bit of additional infill drilling yet to do. 

Because of this, Reeves will push back an announcement on resource numbers until early 2022. In their most recent press release, an additional 400m of strike length was announced by drilling a couple of extensional holes. 

The economic driver for Tesoro is a determination on just what size of an ore body is needed to develop the project? The words that it uses internally are 'critical mass' for the resource size. Considering the location of the project and its excellent metallurgy, how many ounces are needed to warrant pushing this through to a feasibility study? The company’s ambition is to get something up around 80,000 oz. per annum of gold production, which means it probably needs 1.5 M oz. or better in resource size. At the moment, the company doesn't know if it has achieved that or not, but there's certainly been massive growth in the deposit since it delivered the maiden resource announcement. An additional 120 holes have been drilled at Ternera since then. 

Since the maiden resource announcement, Tesoro has received assay results on an additional 80 holes or more. The drilling has encountered a number of high-grade zones, and these are big: 20 -30 m wide and over 750 m long. The deposit is also growing at depth. In its most recent release, the company announced a high-grade intercept 100 m deeper than anything that's been previously drilled. 

In addition, the company has made a new discovery at Ternera East, which is in the hanging wall of a fault bounding the main deposit. That hanging wall was originally thought to be waste rock but is now known to contain ore. That changes the stripping ratio and clearly adds economic value to the greater Ternera occurrence. Ternera East is connected to Ternera and it will all be part of the same mine pit. 

Tesoro Resources (TSO) - Higher Grades & Larger Scale Changes Outlook

A Review of Tesoro’s Strategy

Reeves reviewed Tesoro’s basic strategy.  The project the company sees in front of itself is one that has a high probability of going through to production. That is what Tesoro was always set up to do. Furthermore, the company intends to do it at a low production cost. 

Tesoro wants to achieve a deposit size, at the grades that it has, that warrants and meets the economic hurdles needed to go into production. At the moment, Tesoro doesn’t know where the end of the deposit is. It just stepped out 400 m with its drilling and is still getting solid gold results. The deposit is 700 m wide in places as well. 

Tesoro thinks there's a lot more ore to add into the total resource. Additional drilling continues, which will make a step-change difference to the scale of the project. What remains to be seen is whether this is a 1.5 M oz., a 2 M oz., or a 5 M oz. gold deposit. The company doesn’t yet know. 

Tesoro Resources (TSO) - Higher Grades & Larger Scale Changes Outlook

Capital Review

Tesoro Resources is well funded and has sufficient capital for the work that it wants to do, according to Reeves. At the time of this interview, it was in the process of completing a US $7.3 M capital raise. At this point in time, funds are not a major concern. Expanding the resource at El Zorro is what the company is focused on. At the moment, around 90 percent of the company’s capital is going into Ternera, including for the preparation of a scoping study. 

The Year in Review

The past few years have been quite different than most, especially because of the pandemic and associated supply-chain issues. Reeves felt that the biggest concern overall was the volatility and choppiness of the general market action. He believes that there has been a decoupling of the traditional things that used to go hand-in-hand. Those traditional relationships seem to be broken a bit. 

Tesoro Resources (TSO) - Higher Grades & Larger Scale Changes Outlook

For example, Reeves cited the relation between gold price and bond yields, and between interest rates and inflation. These relationships have not been behaving as people would expect. He believes that some of the world's banks are struggling because their levers don't work as well as perhaps they did in the past. He mused: “Who knows what's going to happen next year?”  

Getting a mine into development is a medium- to long-term process. The markets are entertaining to watch sometimes, but as far as Reeves thinks, they don't affect the overall trajectory of where the company is going with the project. It's really just a matter of focusing and pushing through all of those market fluctuations, according to the managing director. 

Tesoro Resources (TSO) - Higher Grades & Larger Scale Changes Outlook

Activity at Other Targets and Regional Work

Beyond Ternera, the company has been doing some initial drilling at Drone Hill and Toro Blanco. It hasn't got assays back from those holes yet. In addition, over the last three months or so, Tesoro’s geological teams have been engaged in more district-scale regional and sub-regional exploration, consisting of mapping and sampling and so on. The geoscientists are getting quite excited because that work is proceeding very well. 

There is also a surface sampling program north of Ternera up to and past Toro Blanco. Tesoro thinks this greater area will become a new gold district for Chile. It is certainly starting to get a pretty serious gold footprint about it.

In the company’s most recent corporate presentation, there is a satellite image that shows a large area of rock alteration, indicating a 20 km prospective zone. Tesoro is now just “starting to nibble away at the southern part of that”. Indeed, the company is looking into the next valley north and seeing the same rocks, potentially with gold in them. 

Tesoro Resources (TSO) - Higher Grades & Larger Scale Changes Outlook

Supply Chain Situation

Reeves has not seen too much of a supply chain problem with the activities that the company is conducting. He is certainly aware that in Australia there's been an exploration boom and there have been constraints around labor and even the consumables required by the drill rigs. Tesoro hasn’t started to see those concerns bite into the Chilean exploration or minerals industry as deeply as it has in Australia.

 The company is just now starting to see some wage growth for professionals and a little bit of delay around things like assays and supplies such as core trays and bags. Overall, however, there has not been a direct impact on Tesoro’s operations in Chile so far. 

Political Update

Chile is currently engaged in a national election and the country was in the second round of that at the time of this conversation. There's a socialist presidential candidate and a conservative presidential candidate, but the conservatives have got control of the Chilean senate. So if the socialists get in, probably nothing much will happen. Tesoro doesn't expect there to be any major governmental changes to mining industry laws or economics, certainly not before the next electoral cycle. 

Looking to 2022 and Beyond

All indications are turning quite positive for El Zorro. It is getting big, so it needs more drilling. It's in the shareholders’ and management’s best interest to drill on so that the resource gets to the bigger size that is envisioned at this time. 

In addition to the resource estimate, Reeves indicated that investors should look for the following in 2022: 

·         A scoping study right after the resource estimate.

·         A Feasibility Study (FS) toward the end of 2022 or early in 2023.

·         Then, a Final Investment Decision (FID), followed by obtaining the funding to build a mine. 

Tesoro Resources (TSO) - Higher Grades & Larger Scale Changes Outlook

To find out more, go to the Tesoro Resources Website