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

Morgan Leighton
December 15, 2021

Tesoro Resources (ASX: TSO) is an Australian public company with exploration stage gold assets in Chile. The company is focused on acquiring developing high grade gold assets that have potential to be district scale mining projects.​

Tesoro is managed by experienced mining professionals with strong geological and finance backgrounds as well as significant in-country expertise.

Tesoro was established with a strategy of acquiring, exploring and developing mining projects in the Coastal Cordillera region of Chile. The Coastal Cordillera region is host to multiple world class gold mines, has well established infrastructure, service providers and an experienced mining workforce. Large areas of the Coastal Cordillera remain unexplored due to the unconsolidated nature of mining  concession ownership,  but Tesoro, via its in-country network and  experience has been able secure rights to the emerging El Zorro Gold Project inline with the company’s strategy.

Tesoro owns 85% of the El Zorro Gold Project.

We Discuss:

00:00 – Company Overview

00:27 – Putting Out Resource, Drilling, Million-ounce Benchmark

03:12 – Maiden Resource, Base Strategy, Raising Capital,  

09:02 – Catalyst Movement, Changes in Market, Volatility

12:31 – Massive Changes, Scaling, Allocation of Resources

15:41 – Resource Expansion, Accessibility, Motivation

19:29 – Tenera Project, Updates, Impact, Scoping Study

23:31 – Outro

Zeffron Reeves: Hi. I'm Zeff, Managing Director at Tesoro Resources, listed on the Australian Stock Exchange. We're developing The El Zorro Gold project in Chile, where we're currently drilling away, expanding our gold resource. 

Matthew Gordon: Zeff, good to see you. We last saw you back in the beginning of October. You told me then that you might be putting a resource out by the end of this year. Are you going to do it?

Zeffron Reeves: No, I don't think we are going to do it. The simple reason for that is that Ternera, the deposit we're drilling at El Zorro, just keeps growing. Therefore, there's a lot more drilling work ahead of us. The foot is still firmly planted, drilling away, but the more we drill the bigger it's getting. Our most recent announcement really underlines the sort of scale that we're dealing with here. We've added another 400m of strike with a couple of extensional holes. We've got a lot of infill drilling to do and we are receiving some big extensions in the high-grade zones as well within the actual deposits. There's plenty more drilling to do and it really gives us a material increase in scale with some additional drilling sites. We will probably just suck it and see, see where it lands, but it'd be nice to get something out by the end of Q1 next year. Ultimately, it just comes down to size. 

Matthew Gordon: Let's talk about that, I think the market punished you a little bit because you didn't come back with your maiden resource at over 1Moz. You came out with around 660,000oz. There was an expectation which wasn't met and the market was disappointed. I saw the release that you’re talking about. You have some really high-grade stuff in there, significantly higher than you've been drilling to date. Do you think that gives you permission to delay it to the end of Q1 or beyond? Or do you think you still need to just get that 1Moz resource, or updated resource out there? 

Zeffron Reeves: We don't need permission for anything. I think that's a different question, I think the question is, internally, what do we need to make us want to develop the project? The words that we use internally are 'critical mass' for the resource size. Considering the location of the project and the excellent metallurgy, etc, how many ounces do we think we'll need to warrant pushing this through to a feasibility study? I've said before that our ambition is to get something up around 80,000oz per annum production, which means you probably need 1.5Moz or better in resource. So how big is it going to be? We still don't know, but there's certainly been massive growth in the deposit since we made that maiden resource announcement, keeping in mind that we've drilled now another 120 holes into it. 

Matthew Gordon: These high-grade results came from the outstanding assays from around the time of the maiden resource that you weren't able to get in there. Is that right? Or is this from new drilling? 

Zeffron Reeves: This is all new drilling. In that maiden resource, there were 145 holes used up until more or less the day that was released. Now we've drilled 260 holes, but we've received assays on an additional 80-odd holes since then, that we've been releasing to the market continuously. All of those press announcements have had some exceptional drill results in them. What we're saying is that within the deposit itself, there are a number of high-grade zones, and these are big - 20m-30m wide and over 750m long. They've been drilled down to 400m, and we've actually been drilling underneath a couple of them. In this most recent release, we had a good high-grade hit 100m underneath anything that's been previously done. So this thing is just growing at depth, growing along strike, and we've got a new discovery out in Ternera East, which is up in the hanging wall of the main deposit. That will be really important for us as well in terms of economics, because that means that all that material that needs that was once in a barren pit wall now, now has some gold in it. 

Matthew Gordon: It's quite interesting to me: how you feel confident enough to delay it. If the drill results that have come back had been more of the same, would you have decided to put out a resource? Or is the fact that it's higher grade given you extra impetus and confidence to say, hang on a sec; this could be much more valuable than we realized, and therefore delaying it. I think it's really important to understand your thinking on what you have here. 

Zeffron Reeves: Going back to the base strategy that I've spoken about before, which is that the project we see in front of us is one which has a high probability of going through to production. That is what Tesoro was always set up to do. We want to achieve a deposit size at the grades that we have, that warrants and meets those economic hurdles needed to go into production. The grades that we have to get to that 80,000oz production level, you want to be having a 1.5Moz+ deposit. That's not to say that what we've got is mineable already, but that's what our internal targets are. We don't know where the end of the deposit is. We just stepped out 400m and we're getting solid gold results. 

That rolls off the tongue pretty easily, but this deposit is 700m wide in places as well, so to drill another 400m of strike length is a lot of drilling, and we think there's a lot of ore to add into that resource with that additional drilling, which will make a step change difference to the scale of the project.

We will step out again and we're hoping that we'll hit more of the same. Whether this is a 1.5Moz or 2Moz, 3Moz, 5Moz deposit, we don't know. There's also the potential to add resources from additional deposits between the rocks that host Ternera over a much larger distance. Our teams have been out in the field, doing some mapping and sampling and we're finding that system extends a long way to the north. 

Matthew Gordon: I want to talk about Toro Gordo, Toro Blanco and Joan Hill in a minute, but first of all, we talked in the past about the North American model of 'drill this thing out to find the edges of the envelope.' The Aussie model of: get it into production as quickly as possible. That's a more anti-dilutive approach to it, but maybe the money's a bit more expensive at the beginning because projects don't have that kind of scale initially. And that was a great discussion, but I felt that that was what you were toying with and thinking about here. Now you are talking about continuing to drill. Have you completed the USD$7.3M capital raise?  

Zeffron Reeves: We've done the placement component of them. The purchase plan actually closed yesterday. That will be announced tomorrow, but obviously, they've struggled to get away due to the share price being below the issue price of those shares, but that's okay because we have got a fairly strong treasury anyway. Also, with that placement money, we've still got 3 months to place any shortfall out of that purchase plan anyway. We are certainly well funded and we're certainly funded for the work that we want to do.

Going back to your question, this comes back to the critical mass of the deposit. We want to get the resource to a size where we can then put economics around it, that make those economic hurdles make a decision to mine. We're well on the way to that, obviously, and when we announce the next resource, that's not the end of the economics on it, we will continue drilling if it's still open in all directions. We will continue to add back into that resource. We need to approach that critical mass, we're probably not far off it given the recent results, and we think that we can add a lot more to the business. 

Matthew Gordon: The past 2 years have been funny years, for slightly different reasons, in that the normal rules don't seem to apply, certainly for precious metals. In that regard, have you had to adjust your thinking or expectations around what you believe the catalyst moments are, or what you need to deliver into the market? It used to be 1Moz grade, maybe now it's 2Moz. What did you notice this year that was different from your experience? 

Zeffron Reeves: For me, the big thing in the general market, whether it's metals, commodities or equities in general, was the volatility and the general choppiness. There's certainly been a decoupling of the traditional things that go hand-in-hand; where with a one goes up and the other goes down, or vice versa. Those traditional relationships seem to have broken a little bit. What I mean by that is things like the gold price and bond yields, interest rates and inflation, and all of those sorts of things that have not been moving how people would expect them to. I think some of the world's banks are probably struggling because their levers don't work as well as they perhaps used to, or react in the way that they thought they might. Who knows what's going to happen next year? 

All I know and how we view the world is that we've got a long-term view to get this into production at a low production cost. When I say that, I mean a sub-USD$1,000 production cost. If the gold price is USD$1,500, $1200, $1300, we're still making money and still going well.

Getting a mining into development is a medium to long-term process. The markets are entertaining to watch sometimes, but I guess they don't affect the overall trajectory of where we're going with our vehicle. 

Matthew Gordon: You haven't then had to adjust the way that you come at this? Obviously, precious metals share prices have been deflated for the past 6 months, or since the middle of the year, I don't think your chart is much different to most precious metal charts at the moment. Your mentality is: this is a longer-term play. We're not going to look at the dips in the market. We've got to do what we can do, hence you raised money when you did. 

Zeffron Reeves: We can see massive value in this project and it's got plenty more value to be given. I think I've touched on that with resource growth, taking it through to production and all of those things. It's really just a matter of getting our heads down and pushing through all of those market fluctuations. 

Matthew Gordon: By pushing out the resource update, where you need to reach +1Moz, which we've talked about ad infinitum, you need to do that soon because people want you to start putting some economics on this. It's all well and good you saying: we really think we can be a 100,000oz/year producer here. We think we can be a sub-$1,000 ASIC producer here. People want you to start putting labels on those things and back it up with studies and so forth. It seems there is a slight change in confidence?  

Zeffron Reeves: I don't think it's a massive change. It's a slight delay because there's potentially a material change in the scale of the project. It's just getting big. Before we might have been looking at a scale where we thought: we can probably drill that out by the end of the year and get a resource update out, we've finished that drilling now, we've done some more step outs and we've decided that we've got to keep drilling because this is going to add a whole bunch more material, which is going to materially affect the scale and the economics of this project. 

At the end of the day, the takeaway is that it is getting big, so we need to drill it. It's in our shareholders and our own best interest to drill it, so that resource gets to the size that we think it can. 

Matthew Gordon: Talk to me about the money that you've got. At the end of Q3 you had about USD$7M. You have raised USD$4M of the $7.3M, or something near that. Hence, you have a chunk of change, which you're going to put 100% into Ternera. Toro Blanco, Toro Gordo, Ternera East, that all happens later, is that the plan? 

Zeffron Reeves: No, we've actually been doing some initial drilling at Drone Hill and Toro Blanco. We haven't got assays back from those holes yet. Additionally, over the last 3 months or so, our geological teams have been doing some more district-scale exploration, which is mapping and sampling and so on, and they're getting pretty excited because that's going really well. The rocks that host Ternera, we've now mapped them for about 5km to the north. That's right up north, past Toro Blanco, they looked like they should have gold in them. Therefore, we're rolling out a big surface sampling program as well. That comes back to what I've said in previous interviews: we think this is a new gold district for Chile. It is certainly starting to get a pretty serious footprint about it. 

If people have a look at our most recent presentation, there's actually a satellite image in there which shows some alteration, there's a colour in one of those satellite images which shows a 20km prospective zone, so we're just starting to nibble away at the southern part of that. We've moved into the next valley north and seeing the same rocks again, potentially with gold in them. We've got a fair bit of work there to do, but it's certainly getting pretty exciting in terms of the ability to produce more gold deposits in this ground package. 

Matthew Gordon: What percentage of the remaining couple that you've got is going to go into this resource expansion, which you can put in the next resource update?

Zeffron Reeves: At the moment, around 90% of our capital will go into Ternera, including a scoping study. We're not just drilling away, we've already commenced a lot of the scoping study work. A lot of it is internal stuff that we can't speak to the market about yet, but as soon as that resource update comes out, that'll have a higher proportion of indicated material in it, that we can use for scoping work. All of our detailed metallurgical work will be back in our hands by then as well and we'll have a scoping study out in pretty short order as soon as that next resource update is out. 

Matthew Gordon: What altitude are you working at? 

Zeffron Reeves: We're low: 600m, up to about 800m max. 

Matthew Gordon: And you are nearer the coast? 

Zeffron Reeves: Yes, we're only 15km inland. 

Matthew Gordon: Have you experienced any of these supply chain issues or have you had any difficulty with access to simple things like water? 

Zeffron Reeves: No. Not in Chile. One thing that we've just started to notice, in Australia there's been an exploration boom and there's been constraint around labour, professionals and drill rigs, and even the consumables on the drill rigs. We haven't started to see that bite into the Chile exploration industry or the minerals industry like it has in Australia, we're just starting to see some tightness in some of those areas. We're starting to see some wage growth for professionals, we're starting to see a little bit of delay around things like assays and also delay in supply of some of our consumables, like core trays, bags, etc. We did investigate getting some plastic core trays from Australia sent over, because they don't have plastic ones in Chile, they use wood, and they don't last forever. The shipping cost was extravagant and the shipping time was unknown. That's probably more of an indictment on international conditions rather than Chile itself. We haven't seen a direct impact on our operations in Chile so far, we're going okay at the moment, but certainly things have cranked up a bit in terms of activity. 

Matthew Gordon: The recent elections are done and dusted, so people can understand the lore of the land.

Zeffron Reeves: They are not quite done and dusted. We're into the second round now. There's a Socialist candidate and a Conservative candidate, that's on the 16th of December, but the Conservatives have got control of the Senate. So if the Socialists get in, probably nothing much will happen.  

Matthew Gordon: That's my point: the kind of slightly wilder claims around being able to do business and being able to mine in Chile seem to have settled down, that is what I was referring to. 

Zeffron Reeves: Yes. We don't expect there to be any major changes, certainly not before the next electoral cycle. It's all the more motivation to define and build a goldmine during that time. 

Matthew Gordon: A few people have written in asking for clarification in terms of the budget: 90% is going to Ternera. With regards to Ternera East, it's been stated that over 600m of strike and open and all directions. Remind me of what you are you going to be doing at Ternera specifically? 

Zeffron Reeves: We've got what looks like, not a huge, but certainly a consistent gold zone there. That sits in the pit wall of the optimized pit shell for Ternera. We haven't modelled it yet, but it's starting to hang together really well. We've defined it. We've drilled it over 800m along that pit wall now, so all of a sudden, that changes the stripping ratio for the main it as the waste material is getting converted to ore now. We are quite encouraged by that. 

Matthew Gordon: You are encouraged by it but you haven't done enough work, nor are you planning to do enough work to be able to bring that into the resource update? 

Zeffron Reeves: Some of it will probably end up in the resource update, as it's basically the same deposit. It's all connected and it will all be in the same pit. 

Matthew Gordon: Some of that will make it in. 

Zeffron Reeves: We think it could make a pretty major Impact on the economics of the pit as well. The other encouraging thing is that where we say those rocks, they have gold in them, and where we've drilled them at Ternera East, and it follows a predictable zone, they've come back with decent results. So it would be nice to find some wider zones of that, and we think we're onto some, particularly up in the north of the main Ternera deposit, with that recent announcement. There's plenty more drilling to do up in that direction as well. 

I haven't worked on a project like this before. The more we drill the bigger it gets. It hasn't got a hard-and-fast boundary. We haven't found the edges of it. We're onto a potentially very large system. The more work we do in the district, the bigger it gets. All the indicators suggest that there's further growth to be had. And in the meantime, we've got a pretty attractive gold deposit sitting in the middle of the whole thing. 

Matthew Gordon: Looking into 2022, you've given us a sense of what you're going to be aiming at in 2022. With regards to the resource update, what else should we expect to see from you?  

Zeffron Reeves: We'll have that scoping study out in fairly short order, straight after the resource. That will be the impetus to roll straight through into feasibility. If things all go to plan, by the end of next year/ early 2023, we would probably be coming close to the feasibility. We will look at a final investment decision, start looking at funding to build a mine.

Matthew Gordon: You want to do this as rapidly as you can? 

Zeffron Reeves: Absolutely. There's access to capital. We're obviously in a high gold price. When I say a high gold price, I used to work in a goldmine here in Western Australia that was 1,500m deep, and the gold price was USD$350/oz. I don't know what your view is but I think we're going to be above USD$17,000 for quite some time, potentially years. And that's a pretty healthy gold price. 

Matthew Gordon: I'm happy with where it's at quite frankly. If you're producing gold at today's prices, you're ecstatic. Yes, who knows where it will get to, but I think the general indications are very positive. A lot of people are talking about pushing gold, and let's see how the equities fare from that in 2022. 

Zeff, I appreciate the catch up. I'm pleased for you about the drilling and the increasing grades. Well done on that one. More importantly, I'm eagerly looking forward to the resource update when it comes through. 

Zeffron Reeves: Yes, I think we all will be and hopefully everyone will be pleasantly surprised.

To find out more, go to the Tesoro Resources website