The gold mining industry finds its South African origins around 130-years ago. Theta Gold Mines claims to be 'bringing back' open-pit mining to a large and historical shallow underground mining goldfield: The Transvaal Gold System. Transvaal is located on the eastern side of the Bushveld Complex. Theta regards the complex as the 'largest igneous intrusion on earth.' In fact, 40-50% of the world's total gold production came out of the renowned Witwatersrand Goldfield. The geological potential of the region is obvious.

A Map of the Region that Theta Gold Mines occupies (SOURCE: THETA GOLD MINES)

Theta Gold Mines occupies an enormous land package within this complex. With a 62,000ha goldfield and 43 historical mines, Theta Gold Mines refers to this 74%-owned (via its subsidiary, Transvaal Gold Mining Estates Ltd) package as the TGME Project. In just 3 years, the mineral resource estimate has doubled through systematic, logical exploration. The company has 1.3Moz open cut resources (13.08Mt grading 3.12g/t gold), and 4.5Moz underground resources (26.3Mt grading 5.4g/t gold). This is an impressive total of 6Moz gold (44.8Mt grading 4.18g/t gold). Moreover, these mines are allegedly shallow with adit entry underground, or they require a simple open-pit methodology.

The rapidly expanding Resource reflects the company's strategy.

Moreover, the geology of the TGME appears to be quite unique. It is rare for a gold project of this scale to have vertical and horizontal reef systems. In addition, the combination of structure traps and chemical traps creates a significant deposition of gold.

However, there will always come a point when chasing additional ounces in the ground adds more problems than value. There is such a thing as too big to finance, and this has been proven by gold mining companies like Rio2, which intelligently cut its Resource in half, and Western Copper and Gold, which has struggled to monetise its enormous 15Moz gold and 6.2Bn/lbs copper Casino Project. Building a sizeable resource is great, but without a clear path to production, it will be meaningless.

This lack of fulfilled potential is evidenced by the company's mediocre share price and trading volumes. With such an solid resource, one might expect the company's stock to be soaring, especially in the current gold bull environment. However, the lack of growth this year has been underwhelming for shareholders.

Having already delivered 3 resource upgrades and a feasibility study for the Theta Starter-pits Project, Theta Gold appears to have been doing all the right things. Let's take a quick look at the 'positive' 2019 FS for the Theta Project: a gold project that includes the Columbia Hill deposit and a section of the Theta Hill Deposit (within Mining Right 83). The project would require a CAPEX of around $30M to get into production, primarily for a new metallurgical plant, which Theta has already been working on. Post financing and permitting, Theta Gold would need 9-months of construction/refurbishment to get things ready. Permitting approvals are currently underway, and the company is hoping for a fast, smooth outcome.

FS Highlights (at $1,500/oz gold)

  • Potential for an excellent AISC: $764/oz.
  • EBITDA: A$234m
  • Whilst the project is in the bottom quartile for cost amongst South African gold producers, the 5-year life-of-mine is underwhelming.
  • First-year production of 46,300oz at 2.85g/t gold with strip ratio of 15.0.
  • The mill feed head grade for the LoM settles at 2.71g/t gold. This is nothing remarkable, but it is a solid grade within a low-cost operation.
  • The recovery rate is excellent: 92.6% metallurgical recovery for the first year of production, falling slightly to 91.6% over the LoM.
  • 1.2-year payback period.
  • Maiden probable ore reserve estimate: 205,000oz gold (excluding the 7% inferred mineral Resource).

This is a relatively uninspiring project, but the promise of 'significant resources development upside' is clearly the pathway to value creation. Investors will have to decide how much they buy into the geology of the region and how much they trust the management team to deliver these ounces to the market.

The absolute, central a strategy for this company is its 5-year ramp-up strategy. It intends to unlock a total of 2.75Moz of its 6Moz resources by bringing 4 mines into production within the next 4 to 5-years.

To start off with, the aforementioned Theta Starter-pits will get the ball rolling and cash flowing.

The Company plans to initially unlock approximately 2.75Moz of its 6Moz Resource by bringing 4 mines into production within the next 4 to 5-years, starting from the Theta Starter-pits (MR83). Then, it will be the turn of the Theta Southern Extention open-pits to be brought through to production, followed by the Rietfontein shallow underground section of the land package. Lastly, the Beta shallow underground will bring more ounces into this story.

These 4 planned mines appear eminently feasible, especially in this gold environment where anything seems possible. I am a big fan of ramp up strategies because it means companies can fund exploration, development, M&A and other corporate activities form cash flow rather than through dilutive raises. This is a systematic approach of development and investors will need to decide if it is one that they appreciate. Will Theta Gold time its entry to this gold cycle well, or is it going to miss the peak? What do you think?

This company could eventually be churning out 160,000oz of low-cost, at-surface gold per annum. Interestingly, the board is predominantly comprised of mine builders and technical experts rather than bankers. This appears to be why there is such a fascination with the unique geology of Theta's land package. Someone would need to pull this project out of Non-Exec. Chairman Guy's hand for an awful lot of money after all the work he and his team have put in, but it could happen.

Theta has a permitted CIL plant footprint, a permitted tailings storage facility, permitted UG mining programs and is hard at work to secure environmental clearance for its startup open-put gold mines.

Having raised $4M in July through an oversubscribed share placement to accelerate the development of the Theta Project ahead of potential financing, investors will be watching eagerly for the next milestones as this projects edges towards the commencement of production.

What did you make of Bill Guy and Theta Gold Mines?

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