Transcript: Tesoro Resources (TSO) - Resource Update By Year End
Tesoro Resources is an Australian public company with exploration stage gold assets in Chile. The company is focused on acquiring and developing high grade gold assets that have potential to be district scale mining projects.
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. 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 and is rapidly expanding and progressing the project.
The share price for Tesoro has shown a recent downturn for several reasons. With upcoming Chilean elections, investors are concerned about what to expect for the future of mining in the country. Tesoro believes that there are unlikely to be any major changes for Chile in the forthcoming elections and the company is treating the situation as business as usual.
Secondly, the maiden resource released by the company was disappointing and has also caused concern for investors. This maiden resource estimate however was presented by the company as a stepping stone for something much larger in the future as the company is motivated to make the El Zorro project work.
Tesoro had about AUD$13M in the bank at the end of the last quarter. The company is using between $1.5-1.8M per month with 6 drill rigs drilling to further develop the project. Recent metallurgical work has shown exceptional recoveries with a reduced cost and risk to the company. Tesoro is pleased with recent assay results and is starting to see a good, conventional, simple mining project emerging at El Zorro.
Tesoro is aiming for a resource update at over a million ounces with a potential increase in grade by 5-10% and the company aims to produce the resource update by the end of the year.
0:00 – Company Overview
0:30 – Share Price, Performance, Covid Impact on Valuation
4:00—Cash Position, Recent Announcements, Update on Resource
9:44 – Models: ASX & North American, Production, Mining Operations
13:29 – Commercial Imperative, Feasibility Study, Breathing Room for Expansion
16:04 – Size of Resource, Attracting Investors, Recent Network
20:21 – Recovery Cost, Risk Reduction, Business as Usual
22:39 – Outro
Zeff Reeves: Hi, I'm Zeff Reeves, Managing Director of Tesoro Resources. Tesoro is a Chilean focused gold company exploring and developing the El Zorro gold project in Region 3 of Chile and we're rapidly expanding and progressing that project.
Matthew Gordon: Zeff good to see you again, saw you back in August. I thought I’d take the chance to speak to you because we saw some of the met test work results come out and I do want to talk to you about that but first I've got to address share price. You're getting a lot of stick at the moment, you're getting a bit of stick because Chilean elections just coming up, people not sure what to expect and secondly they're a little bit disappointed with the resource that you put out previously when we spoke back in August and they said that's all connected to your performance rights so how do you answer and address those 2 issues?
Zeff Reeves: Yeah look in terms of the Chilean political situation what we've said is business as usual, they're about to have an election and the left side of politics, the Socialist Party have elected a fairly central left guy so it looks as though it's going to be a fairly vanilla election and I don’t see any major changes there politically. But Chile going forward and the Constitutional Congression, looking at the Constitution they're still busily working away and I think they've got about another 8 or 10 months before we see anything come out of that. Look we've got elections coming up as I said towards the end of this month, early next month I believe and let's see where things go from there, but the message that we're getting out of Chile is that it's business as usual and that's how we're treating it. And look, in terms of our Maiden Resource Estimate, we obviously had telegraphed pretty well to the market we thought and being in the market for quite a long time, that it's going to be a stepping stone to something larger. And in regards to the performance rights, look there was a deadline on those but again you're looking at a company that was set up by the founders. We put up $10M of our own money into the company pre-listing and that had taken quite a bit of equity off the table so you know the Directors wanted to, and the founders are obviously aligned well with the shareholders to plenty of the company and advance the project forward and I guess that's where we're at today. Where you've got a Board and the founders own a fair chunk of the company and we're very motivated to make El Zorro work and it's starting to tick all those boxes.
Matthew Gordon: So was that a case of that deadline came up sooner than you'd hoped given COVID, given Chilean elections, so were those things not in the plan?
Zeff Reeves: No there always, obviously the company got listed right at the beginning of the pandemic so it was pretty tough to get capital at the time and we had to, didn't really bring the valuation down on the company, hence we took all of our equity off the table at that point in time to do that but to the teams credit in Chile we haven't missed a beat So no I guess what we’ve seen is that the project's just going to be bigger than we ever first imagined, when we first got involved and even from when we listed and we drilled 16 holes into the project prior to listing and made a number of payments to the vendor and so on prior to listing and you know, when we first got our hands on it, it looked as though it might be a nice neat little ½Moz gold deposit in a pretty favourable location to mine. And obviously the more drilling we've done just the bigger it's getting so they're incremental steps to a resource which we think is going to support a project that's of significant scale.
Matthew Gordon: So talk to me about the cash position at the moment, because you along with a lot of other precious metal companies have got to get through this period until the market picks up again, whenever that may be. Are you good for money for now?
Zeff Reeves: Yeah well at the moment, we're at the end of the last quarter so we've got a quarterly obviously just come to an end so we'll be reporting soon but end of last quarter we had about AUD$13M in the bank still. We're burning between 1½ and 1.8 per month but that's you know, foot firmly flat to the floor with 6 drill rigs drilling and committed to our work programme to develop the project so you know there's some flexibility in that to adjust those if needed but at the moment, you know we don't see us backing off at all. We've got a fairly good head of steam up in terms of moving the project along and it really is stacking up to be a very simple, straightforward project. Particularly with those recent met results that we announced.
Matthew Gordon: Okay, so given that you've got 6 drills going, I mean can you give, I think you put out a press release about expanding Ternera. What can you tell us about what you're seeing there because obviously the resource came, it was sort of within the range that you had indicated but I think as I said, the market was a little bit disappointed by that, even though you'd signposted it. What do you think you're starting to see there now?
Zeff Reeves: These recent announcements that we've had, so one thing the resource was calculated using 148 drill holes. I think they've collared up to the 242nd or something so there's a lot of data to add into the next iteration of the resource. The last 2 announcements regarding drill results since the maiden resource, I mean they're just so consistent. We're just hitting gold in good widths every single time you know, 100m, 200m widths at a modest rate but they've all got multiple signs of high-grade in there so when I say high-grade generally better than 2g but some exceptional results. We've seen 30m at 5g type material and that's reflective of these multiple high-grade zones that we see through the deposit. So there's been a focus to lineate those a bit better and the really positive thing which is giving us lots of confidence with the deposit and really de-risking it is those high-grade zones are really hanging together well in 3D. They're mineralised from surface we've defined 4 of them really well now. They're 1km long each, they've been drilled down to 400m and they just are persistent and they're predictable and we're hitting them when we go and drill them and that's reflected in the drill results that we're putting out in the market. So at the moment those rigs are focused on infill drilling to increase the, not only increase the resource but also to increase the classification of the resource, got more of it indicated so we can then start to use that for Economic Studies and Scoping Studies and the like and we're also doing some extensional drilling, we're seeing some beautiful material coming out. Particularly in the south of the deposit so we're continuing to drill down there but the really exciting part is that we've attacked a few of the other targets outside of Ternera now which we believe are part of the same system so Ternera East and Drone Hill and Toro Blanco and we're seeing some good material come out of those holes. We haven't seen any of the assays come through yet but all those holes have hit the right ingredients. The right host rocks and the right alteration in structure so I think, you know once you start to look at Ternera sitting in the middle as this like, I guess, base load deposit and then there's potential for other deposits around it which are part of the same system. You're starting to look at a pretty significant gold project that, you know I haven't been involved in anything like this before, where just about every hole we drill's got mineralisation in there you know. It's quite astounding really.
Matthew Gordon: So I mean, from an investors perspectives the sort of moments that we look for are obviously hitting 1Moz right, that's a great one, getting into production, all of these moments which you typically get rerates on. Can you give us any indication with regards to these extra 100 holes which were not on the first resource, when will they start coming in, you know you've talked about some step-outs, you've talked about some infill and how quickly would you look to update the resource first of all? Start with that.
Zeff Reeves: Yeah, well we're hoping to get an update out by the end of the year. Hopefully sooner rather than later, just depends on how quickly the assay can come back to us. If we can get them all into the model, you know and we think that resource will then form the basis for a Scoping Study and move it fairly rapidly through into Feasibility next year. But that won't stop us drilling, I, you know I think there's significant growth in the deposit and significant growth in the actual project in the district. I mean we've really only just scratched the surface in terms of how big this new district is potentially looking. I mean I think I mentioned before, last time we spoke, our geology came on site and now are sort of giving me messages that they think Ternera might not be the main it could be the edge. But we don't know that yet but we're starting to test those other targets now to really see you know, where this goes but so far some of the core that we're seeing out of some of these other areas is looking really promising so we're quite excited by that.
Matthew Gordon: So talk to me, I always talk to our subscribers about the different models countries employ. The ASX companies seem to like to get into production sooner rather than later the North Americans seem to want to drill the thing out until they hit the edges of the orebody so what is the model? Just confirm it for me, I know you said you will continue to drill but is the plan, move this thing through the studies and get into production, start the cash flow process whilst trying to work out the size and the scale of this?
Zeff Reeves: Yeah look it's always been our intention to take this into production. I mean the company was set up by guys who've got production backgrounds and part of the attraction of El Zorro is where it's located you know. There's no better place in the world really to build a gold mine and there's power close by and roads, water, workforce, highly-skilled workforce and all the ingredients are there within close proximity to have a good mining operation so we always wanted to take it to production and we're at the point now where we're seeing, so it's got that infrastructure, we're seeing this superb met come out of it. Which is you know a really big material difference that we see between El Zorro and a lot of other gold deposits and we can talk a bit more on that if you like and just the next step really is to, and we have almost the beauty of back-engineering the size of this deposit. We've got a recent Board appointment, Linton Putland, he's a mining engineer and he's come on us an Executive and he's doing all that work and he's basically saying, look at the grades that you're seeing, this is how big the project needs to be resource size to make the economic decision to go into production.
Matthew Gordon: Which is what? What's he saying?
Zeff Reeves: Well we don't know that, what the final numbers are yet but you know it's going to be 70-100,000oz per annum production rate probably at the grades in the met recoveries that we're seeing, you know for where the project's located. So to support that you're going to need somewhere between 1.2 and 1.5Moz to form the basis of a Feasibility Study to go through to production; what the ultimate size of the deposit is, we simply don't know. As I said the more we drill the bigger it's getting, we haven’t found the edges of anything yet. Certainly not the edges of the district and certainly not the edges of the deposit and you know, it's one of the unusual positive problems that we have with Ternera is that it's not a simple, orebody with a fine geological edging, you step off that edge and there's nothing there. You know, we're seeing repeats of the host rocks and where they are they've got gold in them and we've now identified those hosts rocks in a large district and we're systematically going through our work identifying where the best chance of having another deposit is or an extension to Ternera so very unusual gold system in that regard and it's one of the problems that Linton has to deal with. Because he says, well we'd like to put a tailings dam over here and a waste dump here and the geos say, well no there's probably some more gold that we find over there. We need to do some more work before you start building stuff on it so, you know it's an exciting problem but…
Matthew Gordon: But help me Zeff, help me with this though okay because I need to grip, I get what you're saying that you can just keep drilling this thing out and it kind of keeps giving etc and I do want to come back to the met work because I want to understand the 'so what' factor there. Which is, you talk about systematic drilling but there's systematic drilling which geos love and they do things the right way and you give them enough time, enough money they'll keep going but you've got a commercial imperative and your commercial imperative is wanting shareholders to drive that share price up and market cap and all of those things so this Feasibility Study that you're talking about. You've given us indications it's got a big 1.4, 1.5 how do you get those numbers done quickly so that you can feed it into the Feasibility Study? Given the money that you've got, the financial constraints you've got, when I say constraints you've got $13M as of last quarter but how do you make that happen quickly so that gives you breathing room to do all of the other expansion work?
Zeff Reeves: Well we've already started a lot of that work so that's been going on in the background for the last 6 months and you know collecting data on mining costs and contractors and infrastructure studies, environmental studies and permitting and all of those things that are required to build a mine in Chile have all been going on in the background. And in the meantime which is the, I guess the part that our investors and shareholders want to see is how big this is and that's been shown by the drill bit you know, it keeps punching out pretty excellent results and you know we do have a responsibility to prudently spend the capital so we don't just run off and drill you know complete guess work holes. So for example we've just started drilling Toro Blanco but it's taken about 12 months of solid work to define that target properly and decide where we'd like to put the first few holes because it's always important I think as well from a, to you know help with that share price and to build more confidence in what we're doing is that those first few holes into a new target did come back with positive results and you know I think Toro Blanco really is going to be important to us. If that comes back with positive results that's a material step change in the scale of the project because that sort of opens up another 3km of strike to the north and we'll have a lot more drilling to do and instead of 1½M who knows how big we could be looking at.
Matthew Gordon: Right, but the big number the next number people are going to be looking for is the size of the resource, if you think that's before the end of the year or early Q1, what's the number that you think you've got to aim for there? I know you haven't got a lot of your assays back but what are you going to come back to market with? Given what you just saw, given what you saw, the reaction that you saw for the last resource you're going to need to delight people. How are you going to do that?
Zeff Reeves: Yeah I think a couple of ways. One is probably to nudge it up over that 1Moz hurdle, everyone likes to see that number but the other thing that we're seeing is potential increases in grade so you know if we squeeze another 10%; 5, 10% in the grade profile out of the project. As I spoke to you before, those fault zones are really standing out as good, sweet, high-grade spots and they're at surface so when you throw a cheap open-pit mining operation at them it makes a lot of financial sense.
Matthew Gordon: Okay well let's talk about the met work that you've done recently, so you made an announcement, what does that tell you? I'm trying to work out what the 'so what' from me is as a shareholder.
Zeff Reeves: So the so what is just, I mean the key takeaway from the met work is that at a coarse grain size, so in a, I'll make some comparisons in a minute but at 200 micron grain size a lot of mine sample… so we took 10 samples, about 500kg of samples, 50kg of each one. Took a bit of each one and blended it together to come up with a, what we called a life of mine sample, something that was representative for the entire deposit at about the grade that we'd expect to mine at which was 1.1, 1.12g/t and had some test work done on it. That test work showed us that at 200 micron grain size, it recovered 94% gold, 40% of it was recovered to gravity so don't need to do anything more to it, granted it's 200 microns put it through gravity concentrate and then the other part of the recovery was through cyanide leach. Only for 8 hours recovered it up to 94% so that's like the ore only has to look at cyanide and it wants to dump the gold out and the important part of it, the really important part of it was the tails grade that we got was 0.07g. So what that tells us is that anything that's got the faintest trace of gold in it, is going to be recoverable through that very conventional process. So when you go and look at a gold deposits in Western Australia for example a lot of those deposits are grinding down to 70 microns, 100 microns, you know they're pulverising it to dust. Our problem isn't going to dust and the reason that 200 microns was chosen was that's the coarsest, just about the coarsest that the mets, metallurgist think that we can actually keep suspended in the cyanide tanks without it all settling out and causing issues, so it's literally like beach sand. That opens up all sorts of cheap economic ways to extract gold out of the deposit and at this stage you start to look at primary crushing, crush it once and put it in a sag mill, so you're not using a bore mill. So a sag mill so that's got light consumables costs, lower power costs, you can have larger throughputs at a much lower power cost and all of those sorts of things and it makes it a much cheaper processing operation in getting these massive gold recoveries. So that's really opened up a good avenue of de-risking for the project and it's starting to see us have opportunities to really leverage off that metallurgy in terms of including a lot more lower grade material in our mine plan.
Matthew Gordon: Brilliant, okay so it reduces the cost of the recovery, recoveries are good, or exceptional but the cost of doing so is much lower so the 'so what' for me is you make more money?
Zeff Reeves: And not only the cost, it's reduced the risk so this is not, this is conventional standard metallurgy, we're not using pressure leaching, we don't need to oxidise the ore. It's not refractory, it's just this beautiful behaving metallurgical recovery that is through a conventional well known process that is easily engineered and easily operated so it really reduces the risk around you know, recovering gold out of the deposit and as I said them sort of circles back around into the engineering and the resource because you've got a low tails grade. You can pull the head grade down and increase the resource inventory and pretty well mine everything that's got gold in it, so it has advantages in how the stripping ratio looks and how the overall mine planning looks so it's all poly-advantageous.
Matthew Gordon: Okay, so look Zeff I appreciate the update. I just wanted to come at with some of these criticisms that I've seen you get in the market place and you know, your answers fair enough but more importantly for me is it's business as usual for you guys and what you're seeing through the met work actually you're quite pleased with it seems to be.
Zeff Reeves: Yeah well that's right and look the more we drill as well the bigger it gets and so you know I think we're seeing a good conventional, straightforward, simple mining project emerge out of this. We've had some recent Board appointments, I mentioned Linton Putland, he's actually been working as a consultant on this for us for the last 4 or 5 months before he came on board so he had a good look at it and he's a mining engineer and one of the, you know his main reason for coming on board is he sees a real project here that is simple and straightforward. There's no red flags in it technically so it's starting to, and it's starting to grow so all that the geology team has to do now is get that resource to a size where we say that's it, let's go and mine it.