Heliostar Metals (HSTR) - Big Step Change Could Deliver Rewards

Heliostar Metals Ltd. is a Canadian exploration and development company with projects in both Mexico and Alaska. The company’s Flagship project, the Unga project in Alaska, is a high-grade gold project which covers both the Unga and Popof Islands along the Aleutian Island chain of Alaska. The project has a land position of approximately 240 km² with its mineralisation consisting of an intermediate sulfidation epithermal gold deposit

Heliostar Metals Ltd. on the 5^th of December 2022 announced that it had entered into definitive agreements with Argonaut Gold Inc. to acquire the Ana Paula Gold project and option the San Antonio Gold project in Mexico. Heliostar Metals Ltd. does not plan to monetise its flagship Unga project in the future, with the acquisitions serving as a stepping stone for the company to grow to the necessary size required to advance the Unga project.

The agreement to acquire the Ana Paula Gold project consists of the company acquiring all the issued and outstanding shares of Aurea Mining Inc., a wholly-owned subsidiary of Argonaut Gold Inc. The Ana Paula Gold project is an advanced-stage gold development project located in Guerrero State, Mexico. The project holds a permit to build and operate as an open-pit mine with a preliminary feasibility study conducted on it in 2017. The mineral resources of the project consist of 13,440,000 tons of mineralisation at an average grade of 2.36 g/t gold and 5.22 g/t silver in proven and probable reserves totalling 1,021,000 ounces of gold and 2,254,000 ounces of silver. The measured and indicated resources of the project total 1,461,800 ounces of gold and 3,269,000 ounces of silver.

The San Antonio Gold project is an advanced-stage, gold development project, located in Baja California Sur State in Mexico. The project holds a mineral resource estimate of 1,735,000 ounces of gold in the measured and indicated category and 67,000 ounces of gold in the inferred category. The pre-tax NPV8% from the project’s 2012 PEA is USD$ 293 million based on a gold price of USD$ 1,500 per ounce. The project has a payback period of 1.5 years and a life of mine of 15 years. The option agreement with Argonaut Gold Inc. is dependent on Heliostar Metals Ltd. obtaining an environmental permit from Secretaría del Medio Ambiente y Recursos Naturales (SEMARNAT) within three years for the project.

Heliostar Metals Ltd. will primarily be focused on the advancement of the Ana Paula project in the future, with the company planning to re-scope the preliminary feasibility study of the project. The company will from the re-scoping advance the project rapidly through a feasibility study and towards a construction decision.

Newly acquired gold projects

Heliostar Metals Ltd. on the 5^th of December 2022 announced that it had entered into definitive agreements with Argonaut Gold Inc. to acquire the Ana Paula Gold project and option the San Antonio Gold project in Mexico. Charles Funk, CEO and Director of Heliostar Metals Ltd., explains that due to the current market conditions, Heliostar Metals Ltd. was able to acquire these quality projects at a discounted rate.

“We faced two choices like most small companies. You batten down the hatches and survive which we have done and most gold juniors are doing. You also look to take advantage of that. And so, you can pick up assets at much cheaper prices than you can when Gold is in favour. And so, we thought we could find some good assets and we had one key view which is they have to have robust reserves and that's what we think we found with Ana Paula and that's why I've proceeded with the transaction”

Heliostar Metals Ltd. does not plan to monetise its flagship Unga project in the future, with Funk explaining that for the ultimate value of Unga to be unlocked, the company will need to be a larger company with a lower cost of capital. The acquisitions serve as a stepping stone for the company to be able to grow to the necessary size required.

“We're certainly not going to monetize Unga. We really believe in Unga. We think it's an excellent growth project. And so, this will slow it down a little in its advancement relative to what it would have had if we were standalone but I think the way we view it is Unga needed a bigger company with a lower cost of capital to show what it can ultimately become and so, we've gone out to try and become that bigger company. So, it will be our growth project in our portfolio. We'll have 3 projects now and I think it represents an excellent growth target for the company.”

Ana Paula Gold project

The agreement to acquire the Ana Paula Gold project consists of the company acquiring all the issued and outstanding shares of Aurea Mining Inc., a wholly owned subsidiary of Argonaut Gold Inc. Minera Aurea S.A. de C.V. is a subsidiary company of Aurea Mining Inc., which held the 100% indirect interest in and to the Ana Paula Gold project. Funk explains that the company was able to acquire the Ana Paula project for a discounted price at strong terms. The company believes that the value of the project supported by exploration initiatives to date supports the acquisition.

“Ana Paula is the key to this transaction. We're acquiring it for a USD$ 10 million payment and ultimately USD$ 30 million in total. So, the remaining USD$ 20 million in milestone payments. If you go to our website, you can see the breakdown, extension of a Permanent Feasibility Study, and construction decision for commercial production. And so, they're incredibly strong terms. When you look, the project had USD$ 75 million spent on it in the last 15 years. It was transacted for over USD$ 100 million, 7 years ago. So, you know, we're getting a very good asset for a very cheap price”

The Ana Paula Gold project is an advanced-stage gold development project located in Guerrero State, Mexico. The project holds a permit to build and operate as an open-pit mine with a preliminary feasibility study conducted on it in 2017. The mineral resources of the project consist of 13,440,000 tons of mineralisation at an average grade of 2.36 g/t gold and 5.22 g/t silver in proven and probable reserves totalling 1,021,000 ounces of gold and 2,254,000 ounces of silver. The measured and indicated resources of the project total 1,461,800 ounces of gold and 3,269,000 ounces of silver.

Ana Paula Gold project plans

Funk explains that the company plans to develop the project into an underground operation, away from a previously envisioned open-pit operation. The transition to an envisioned underground operation enables a lower capital cost requirement as well as a simpler processing system.

“Our focus on Ana Paula is we see it differently. So, there's a million-ounce reserve, just under 2.4 g/t. It's been seen as an open pit and what we recognized was different. There's a very high-grade core to this. We had a bit of inside knowledge with JDS. It had worked on this. It had done the decline that's into the project and when we looked at the resource, when we talk with JDS, looked at as an underground scenario and it's much more capital efficient, much lower cost to put into production, much smaller mill, much simpler process, and that's when we decided that we wanted Ana Paula”

The infrastructure that the project holds is one of the biggest strengths of the acquisition according to Funk. He explains that the project has a 54-person camp, with a decline already constructed. The project is also accessible by roads and has access to high-tension power lines.

“That's one of the real strengths of this, in that there is a 54-man camp. There is a 400 m decline already into this ore body. There's been a huge amount of money spent on it. There's power, there are roads, and there's a high-tension power line a couple of km away. Torex is literally operating just down the road. You can see the high wall of Torex from the plant. One of the due diligence steps we took was a community baseline study and the asset does enjoy very good community support. It's always been a well-supported project.”

San Antonio Gold project

The San Antonio Gold project is an advanced-stage, gold development project, located in Baja California Sur State in Mexico. The project holds a preliminary economic assessment conducted in 2012, which is based on the project’s mineral resource estimate of 1,735,000 ounces of gold in the measured and indicated category and 67,000 ounces of gold in the inferred category. The pre-tax NPV8% from the project’s 2012 PEA is USD$ 293 million based on a gold price of USD$ 1,500 per ounce. The project also has a payback period of 1.5 years and a life of mine of 15 years.

The option agreement with Argonaut Gold Inc. to acquire the San Antonio Gold project is through its subsidiary Compañía Minera Pitalla S.A. de CV and is dependent on Heliostar Metals Ltd. obtaining an environmental permit from Secretaría del Medio Ambiente y Recursos Naturales (SEMARNAT) within three years for the project. Should the company be successful in obtaining the environmental permit for the project, it will thereafter have 18 months to obtain 100% of the project through the payment of a value dependent on the gold price at the time.

Funk explains that the company has been able to acquire a low-cost option to acquire the project, with it showing great potential should it be permitted.

“We've also got what's called a fetch, a very low-cost option on the San Antonio deposit in Baja. It's a 1.7-million-ounce deposit at 0.8 oxides. Homerun project that we think in the long term would be capable of 10 to 15 years of 200,000 ounces a year but Argonaut couldn't get a permit for it. So, we've got 3 years to get that permit on an asset that's either worth nothing or worth a lot of money.”

Future initiatives

Heliostar Metals Ltd. will primarily be focused on the advancement of the Ana Paula project, with the company planning to initiate re-scoping the preliminary feasibility study of the project. The company plans to advance the project rapidly through a feasibility study and towards a construction decision according to Funk.

“It was nice to pick up on that good work that was done by previous operators. So, we're not continuing on with that PFS with this different view. We'll re-scope it for about USD$ 3,000,000 for 6 months and then we can complete a Feasibility Study for another 12 months, in another 12 months for USD$ 7,000,000 which is 10 total. So, we can be at a construction decision in 18 months for an additional USD$ 10,000,000 beyond the deposit.”

Heliostar Metals Ltd. will raise the required funds necessary to advance the Ana Paula project, with funk explaining that it aims to not dilute its shares too much at this stage.

“We think we're in for a significant rewrite from that. So, it doesn't make sense to dilute massively at this level. We need to raise enough to do that re-scoping and then look to see what we're at once we've completed that all the way down that pathway.”

The company will also investigate potential royalties on the project in the future, pending the re-scoping of the project.

“We talked to a couple of royalty companies about the potential to increase the royalty on the deposit and we were getting very heavily discounted because we didn't have an underground mine plan. So, by completing the re-scoping, that opens that up as a competitive option. So, there's a number of things that we can do or ways that we can approach this”

To find out more, go to the Heliostar Metals website