Integra Resources (TSX-V: ITR) - New Strategy to Deliver 130,000oz pa Gold

Integra Resources is a development-stage mining company focused on the exploration and de-risking of the past-producing DeLamar Gold-Silver Project in Idaho, USA. The company is led by the management team from Integra Gold Corp., which successfully grew, developed, and sold the Lamaque Project in Quebec, for C$600M in 2017. Since acquiring the DeLamar Project, which includes the adjacent DeLamar and Florida Mountain gold and silver deposits in late 2017, the company demonstrated significant resource growth and conversion while providing a robust economic study in its Pre-feasibility Study. The company is currently focused on resource growth through brownfield and greenfield exploration and further de-risking the project.

Matt Gordon caught up with George Salamis, President, and CEO, Integra Resources. Mr. Salamis has over 30 years of experience in the mining and resource exploration industry. He has been involved in over $2Bn of M&A (Mergers and Acquisitions) transactions through assets sales or his involvement with junior mining companies. He was most recently Executive Chairman of Integra Gold Corp., which was sold to Eldorado Gold Corp. for C$590M. Mr. Salamis co-led the efforts behind the 2016 Integra Gold Rush challenge and the  2017 #DisruptMining initiatives that encouraged innovation and technology disruption in the mining industry. Mr. Salamis is a sought-after speaker on mining innovation. He holds a Bachelor of Science Degree in Geology from the University of Montreal - École Polytechnique and has had a successful career in mining and exploration. He has discovered, financed, built, managed, or sold more than 5 major mineral deposits around the world. He began his career working for two major mining companies (Placer Dome and Cameco Corp) over a 12-year period before transitioning into mineral exploration and junior mining in 2001. Mr. Salamis is currently a Director at Contact Gold Corp. and is also a member of the Technical and Safety Committee.

Company Overview

Integra Resources’ DeLamar and Florida Mountain Gold and Silver Projects are located in the historic and prolific DeLamar mining district in southwestern Idaho, 100 miles from Boise, the state capital. The projects were previously operated by Kinross Gold Corp. and produced gold and silver until 1998 when low metal prices led Kinross Gold Crop to place the project on care and maintenance. The company was founded in 1997 and is headquartered in Vancouver, Canada. Kinross DeLamar Mining Company, Limestone Basin Exploration Ltd., Massey Copper Company Limited, and Integra Resources Holdings Canada Inc. are the company’s subsidiaries. It is listed on the Toronto Stock Exchange (TSX-V: ITR) and the New York Stock Exchange (NYSE: ITRG).

Integra Resources is developing a project in southwestern Idaho. It is close to a $5M resource endowment. The project is at PFS (Preliminary Feasibility) level, and the company is moving toward permitting. Similar to a lot of precious metal companies, Integra Resources has seen a drop in its share price in recent times. Despite the setback, the company continues to focus on resource endowment. The deposit’s economics are phenomenal, and the scarcity of such deposits in the western US adds to the overall value. Notably, it is rare to have a big oxide heap leach resource that can produce over 100,000oz.

Permitting Considerations

Acquiring mining permits in Idaho is more challenging than in Nevada. There have been a few projects in the region that have faced difficulties in gaining permits based on the location. As Idaho has a long history of mining that dates back to the post-civil war era, the company anticipates that the projects will eventually get permitted. Notably, the state of Idaho funded all the mineral wealth of the western part of the US for a long period of time.

Idaho has some amazing phosphate deposits. The scale of earthworks involved in mining phosphate is substantially larger than open pit gold, silver, or copper mining operations. A number of phosphate projects have been successfully permitted in the state. These are big, open-pit operations with a lot of surface disturbance. There are a number of steps that a company needs to go through in order to obtain mining permits.

Cash Position

In July 2022, Integra Resources signed an agreement with Beedie Capital for a $20M convertible facility available in two tranches. The $10M first tranche of the convertible debenture will be advanced at the closing of the convertible facility, while the second $10M tranche will be available upon submission of an approved Mining Plan of Operations for the DeLamar gold-silver deposit. The net proceeds of the $10M equity financing and the $10M first tranche of the convertible debenture will be used to advance the development of the DeLamar Project, completing about 15,000m of shallow, oxide definition drilling, aimed at resource expansion for the proposed heap leach operation and working capital and general corporate purposes.

This is a 3-year term with the possibility of an extension of 1 year. The arrangement has an accordion feature that enables Integra Resources to tap another $10M at the end of next year, in case the equity markets continue to be uncertain. The coupon rate is 8.75%. The company can force conversion on a part of it, which can either be paid partly in stock or can be retired early.

Notably, Integra Resources’ CEO has known Ryan Beedie and the Beedie Group for a long time. The Group started as a very large, western Canadian commercial real estate development group that made substantial money in the business. As real estate took off in western Canada, the Beedie Group started making their first few investments in the mining business about 4-5 years ago. The group invested in Integra Gold. The Group made a lot of money on Atlantic Gold and its sale to St.Barbara, a deal that amounted to hundreds of millions of dollars. The Group has now started to make bets on companies that are sufficiently advanced, where it can see an opportunity to get into project development financing.

When Integra Resources first published a project PFS, it was looking to carry out two things in parallel, building an open-pit heap leach operation, and building a milling facility as an add-on to the sulphide, which gave the project a very long-life production scenario. The company came at a time when the market was very nervous about the inflationary pressures on all of the studies at the beginning of 2022.

The notion of heap leaching being low capital intensity and cheap to build was a welcome development. The milling add-on component was an extra $240M, which the market believed to be too risky. After having discussions with the shareholders and conducting an analysis in April 2022, the company pivoted its strategy. The company decided that it would put the milling part of the equation on the side for the time being. The company decided to start with a simple low-cost heap-leach operation that would allow for a 135,000oz/year production. The company anticipates that at a certain stage of the project, someone would want to build a big mill in order to process millions of ounces of sulphide.

Due to the inflationary environment, the company saw a 65% increase in earthworks costs along with a 40% increase in steel prices and a 35% increase in labor costs between the PEA (Preliminary Economic Assessment) and the PFS. The steep increase in costs was observed within a space of 2 years, having an adverse effect on all miners.

Mining is a capital-intensive business, to begin with, and a 50% increase in costs makes it significantly more challenging. Integra Resources has been fortunate to have the optionality to not go big straight out of the gate. The deposit can be started off as a low-cost heap leach and can gradually evolve into a larger operation that involves milling.

Ongoing Operations

Over the past 6 months, the company has been focused on low-grade material stockpiles. Notably, Kinross Gold had an on-site mining facility at the deposit for the better part of 20 years. The cut-off grade into the mill was 0.86 gold equivalent. In comparison, Integra Resources’ average grade is 0.62 with a 0.2 cut-off grade. Kinross Gold was cognizant that in the future, someone would want to process all the material between 0.2 and 0.86 grades, and as a result, it stockpiled the material. Integra Resources knows the location of the stockpiles, which are evident all over the project site. Based on a volumetric calculation, the stockpiles are estimated at 60Mt.

Based on assumed grades, the extracted and the stockpiled grades come to a 0.4-0.5 rough grade point. This means that there’s a 1Moz already-mined oxide material sitting at the deposit. The company is currently drilling in the area. On a fully-recovered basis, the company is estimated around 400,000oz. Adding these ounces to the mine plan adds a lot of NPV (Net Present Value) to the project and the production profile. This stockpiled material has already been scheduled into the company’s mine plan.

Integra Resources is looking to start mining at the Florida Mountain asset in order to optimize its cash flow. It is prioritizing mining the highest grade first. The company is modeling the lower-grade material in a way so that it either tacks to the end of mine life or can be blended in. Having this optionality is critical for the company.

Notably, the company is looking to deploy the generated revenue into the ground. This is the premise on which the DeLamar asset is being built. Since the company has deferred the mill construction, it does not need to raise $240M of sustained capital, significantly de-risking the project. The revenue generated during the first few years will go towards paying back the initial capital that was injected at the very beginning of the project. The timeline for the payback of initial capital is estimated to be under 2 years. The company isn’t looking to build a big milling facility at the project. It anticipates that a big mining company may be interested in building the facility in the future.

Targets 2022 and Beyond

Integra Resources is currently focused on acquiring permits for the project. This will significantly de-risk the project, especially from an environmental perspective. De-risking the project and getting through the initial hurdles will be a key catalyst for investors and potential M&A players.

At the same time, the company is looking to move exploration in parallel. The company is looking to avoid the Lassonde curve by focusing on both exploration and potential growth. Instead of going for new exploration, the company is focusing on low-grade stockpile material. Since the material is already mined and broken, the cost has already been accounted for. These ounces can be built into a mine plan quickly, adding a lot of value without significant cost increases.

Integra Resources is cognizant that the market is largely focused on project CapEx (Capital Expenditures) and OpEx (Operational Expenditures). However, it anticipates that there may be a point of inflection where the market sentiments change. This could lead to a point where the project can either be delivered or sold in an M&A transaction. The company is gearing up to be ready when the markets turn in the near future.

According to the company, dialing down the burn rate and not advancing the project can protect from heavy dilution, however, it will also affect the market’s outlook on the project due to a lack of activity. There’s a scarcity of shovel-ready projects, especially in tier-1 jurisdictions.

Heap leaching of oxide ores is the lowest cost means of gold extraction available. The company has this advantage and can potentially demonstrate a production scale that beats a lot of really good producers in Nevada. The company’s team has extensive experience with heap-leach gold operations in the past, which serves as an added advantage. The Group has carried out $2Bn worth of M&A transactions. The company also has access to capital markets which can help fund operations to reach the finish line. Integra Resources has $20M in current cashflow.

To find out more, go to the Integra Resources website