AEX Gold (AEX) - 18 Months to Production with No Study! How?

How does a company get into production without a Definitive Feasibility Study (DFS), Feasibility Study (FS), Pre-Feasibility Study (PFS) or even a Pre-Economic Assessment (PEA)?

That is exactly what AEX Gold (TSX-V: AEX) intends to do. Eldur Olafsson is the CEO, and we recently spoke to him about this most accelerated of accelerated timescales. For those who want exposure to the gold bull market, this may be a company to watch.

Matthew Gordon talks to Eldur Oladsoon, August 2020

We spoke to Olafsson is May and he impressed us. He's smart, young and enthusiastic, but whilst these are admirable qualities, are investors going to be confident in his ability to get into production inside 18 months? He has never run a mining company let alone a mining operation before. Is this youthful enthusiasm and inexperience talking? One thing is for sure, he's well aligned with shareholders, owning c. 10% of AEX Gold before the most recent fundraising, so he is certainly committed to the cause.

AEX Gold is a gold explorer, developer and soon-to-be producer it would seem. Its sole focus is Greenland-based gold properties. It targets high-grade gold, with historical mined grades of up to an impressive 18g/t. They now need to prove scale.

AEX Gold's flagship project is the past-producing Nalunaq Gold Mine, with total inferred Resource of 446,900t at 18.7g/t. The company also has a land package of 'similar properties' (20-30). Nalunaq may not have a big gold Resource, but the grade could make this an economic prospect. The company can leverage the high grades for marketing purposes, and it can also go some way to offsetting the relatively small scale of the project.

Now, this is the point in the interview when a CEO would usually talk about de-risking their asset. This would likely take the form of a protracted drill programme, eventually arriving at a scoping study/PEA, PFS, FS and DFS. These studies may also be consolidated by historical data to reinforce the value proposition and give investors confidence. However, AEX Gold is far from treading a conventional path of development. Rather than conducting these additional studies to derisk Nalunaq, it is going for broke: straight for construction.

This is all very exciting, but what is the rationale behind this sprint to production? Olafsson was keen to explain how unique a project Nalunaq is and the reasons behind their decision to bypass the costs and comfort of economic/planning studies. Because it has historically produced, the level of data is more advanced than the market understands, or so he says, but that isn't all. Olafsson thinks Nalunaq exhibits the best geology his team has ever seen. If someone like Olafsson is going to make this remark, a young and vibrant Icelandic business entrepreneur, he needs to have an experienced team behind him.

Between 2004 and 2009, Nalunaq produced 350,000oz of gold: not a huge number, but not one to be sniffed at either, especially at today's prices. The deposit shows at-surface, with Olafsson suggesting there is no real need to conduct expensive studies on geophysics and geochemistry; "Nalunaq is already there for all to see." While Greenland is a very prospective area geologically, the lack of existing infrastructure and the challenging climate have slowed down AEX several times to this point and bumped up the cost.

Do you buy into this? Is the geology of Nalunaq really so idiosyncratic that no conventional studies are necessary? I wasn't sure I did, but Olafsson was keen to state that the risk profile of his flagship gold project may actually be reduced compared to most conventional gold mining projects. This is because the company isn't really trying to do anything new. It is simply restarting production with exactly the same process as was used over a decade previously. AEX Gold already has 12 months of production covered via at-surface ore and existing inventory. Interestingly, Olafsson does want to consider conducting a PEA or FS after production commences, and this is likely to shore up the value proposition and possibly add new ounces into the study, alongside reducing costs via optimisations. It looks like he wants to use the PEA/FS as a post-production marketing ploy rather than as the first step on the road to getting financed.

Most institutions will never fund on the back of a PEA; it is an early stage document with an undesirably large margin of error: ±20-30%. So, how has AEX Gold managed to finance its gold project? Institutions have thrown their money into the ring, but why were they happy to do so without more data?

At the end of July, the company dual-listed by joining AIM having already listed on the TSX-v. This is an unusual decision for a company this small. Clearly, the company wasn't getting all the attention it required on the CVE, so it felt London would give the company access to more European centric investors. Greenland might also be more understood as a mining jurisdiction by a European market considering its close proximity, and UK investors may better understand the concept of building a "full-cycle gold company." Whatever way you dress this dual-listing up, it doesn't look like the company is gaining traction with the market particularly well, especially considering management had to take the hit during its recent fundraising efforts...

On July 31st, AEX Gold closed a £42.5M financing, less than the company originally set out to raise. The total project cost (exploration and development of the mine) will consume £35M. The balance sheet looks strong and the company never runs below C$10M in the treasury. It is obvious that Olfasson runs a tight ship, and he has factored in the possibility of a 6-month delay, a drop in grade, a drop in volume and an increase in development costs. He says the permitting process should be simple. If Olafsson can pull off Nalunaq, he thinks he can bring similar operations to the market from the rest of AEX Gold's portfolio. Time to get excited or wait to see if youthful enthusiasm converts to share price appreciation? in this gold bull market, anything seems possible.

What did you make of Eldur Olafsson and AEX Gold?

Company Website: https://www.aexgold.com/