Steppe Gold Ramping Up Production and Exploring New Deposits

• Steppe Gold Limited is a gold and silver producer based in Mongolia, listed on the TSX. They are currently transitioning into their phase two operation and are set to double production in the next two years.
• In Q3, the company saw an increase in production, going from just over 10,000 ounces in Q2 to over 13,500 ounces in Q3. They aim to produce 50,000 ounces annually in phase one and hope to achieve 100,000 ounces in phase two.
• Despite challenges such as the fluctuating gold price and inflationary costs, the company expects to remain profitable. Their forecast for the next 12 months indicates production costs around $850 an ounce.
• The Mongolian government has been buying gold from Steppe Gold, even at a premium. This is part of the government's strategy to build up foreign exchange reserves.

Steppe Gold Ltd (TSX: STGO) is a Canadian-based precious metals mining company focused on exploration, development and production in Mongolia. The company currently operates the ATO Gold Mine in Mongolia and is expanding production to 100,000 ounces of gold per year by 2024. With a strong balance sheet, no dilution in 2 years, and significant exploration potential, Steppe Gold presents an attractive investment opportunity.

Producing Over 50,000 Ounces in 2022

The ATO Mine is projected to produce over 50,000 ounces of gold in 2022. In Q3 2022 alone, Steppe produced over 13,500 ounces of gold, a 30% increase from Q2 production of 10,000 ounces. The company has steadily increased production over the past 6 months and expects to maintain this momentum. At current gold prices near $1,800/oz, 50,000 ounces equates to $90 million in annual revenue.

Steppe Gold’s all-in sustaining costs (AISC) is approximately $850/oz. Even if costs rise, this provides a healthy margin at current prices. The ATO mine is generating strong operating cash flows to fund the phase 2 expansion.

Doubling Production by 2024

Steppe Gold is advancing the phase 2 expansion of the ATO mine, which will double its annual production capacity to 100,000 ounces of gold. The phase 2 feasibility study outlined an $850/oz all-in cost. However, a recent agreement with the Mongolian government for grid power will save over $100/oz.

The phase 2 expansion has an initial capital cost estimate of $130 million. However, the Bank of Mongolia has already committed $60 million in debt financing for the project at favorable terms for Steppe Gold. This means under half the capex requires new funding.

Steppe Gold plans to fund remaining costs through operating cash flow and inventory. The company has over 70,000 ounces of gold inventory stockpiled, worth over $125 million at current prices. The ATO mine is fully permitted for phase 2 with key equipment already procured and development activities underway.

Funded Through Cash Flow - No Dilution

A key attraction of Steppe Gold is the company’s strong balance sheet and lack of dilution. Steppe has not raised equity financing in over 2 years. The last financing was done at over 2X the current share price.

Insider ownership is approximately 20%, creating alignment with shareholders. The company is focused on minimizing dilution as it internally funds expansion plans. This includes utilizing operating cash flows, leveraging its existing gold inventory, and bringing in debt financing.

Significant Exploration Upside

In addition to the currently defined gold deposits, Steppe Gold’s licenses host numerous exploration targets that provide significant upside. Steppe has only explored about 10% of its mining licenses to date. Recent drilling has intercepted high-grade zinc and lead outside of the current mine plan.

The Phase 2 mine plan only includes reserves down to 400 meters in depth, but mineralization is open at depth. Steppe is also advancing exploration on near-surface oxide targets that could feed the existing heap leach operation. The company sees potential to extend the ATO mine life well beyond the current 10 years outlined in phase 2.

Stable Mongolian Jurisdiction

Steppe Gold is the only Western mining company producing in Mongolia. The country has seen past challenges but recently made strides to attract foreign investment. The government has demonstrated support for Steppe Gold through favorable policies, financing and approvals.

Relations between Mongolia and bordering China continue to strengthen. This provides Steppe Gold access to critical infrastructure, equipment, expertise and project financing. The company already has all the necessary permits and licenses to support expansion plans.

Proven Operational Track Record

Since acquiring the project in 2017, Steppe Gold has executed on plans to build and expand the ATO mine. The company has invested over $60 million on capital and exploration to increase production. Today, Steppe Gold employs over 300 Mongolian workers and provides important economic benefits to local communities.

Management has adapted to challenges like COVID-related supply chain disruptions that temporarily halted production. The company successfully optimized its supply chains and inventory management. Steppe Gold is led by a veteran management team with decades of experience operating and building mines around the world.

The Investment Thesis for Steppe Gold

Steppe Gold offers investors an attractive risk-reward investment opportunity:

• Growing gold production and cash flows
• Fully funded expansion plans with minimal dilution
• Tremendous exploration of upside potential
• Supportive government jurisdiction
• Proven mine operations and development track record

With growing production, a clear path to 100,000 ounce per year output, and significant exploration potential, Steppe Gold has an exciting outlook over the next several years. For investors seeking leverage to rising gold prices with limited risk, Steppe Gold warrants consideration.

Growth Potential

• Production is ramping up steadily and is set to double to 100k ounces per year by 2024. This significant growth in output should drive increased cash flows.

Funded Expansion Plans

• Expansion is fully funded through operating cash flows, existing inventory, and debt financing. No dilution is anticipated.

Margin Protection

• All-in costs are expected to remain around $850/oz even with inflationary pressures. This provides healthy margins at current gold prices.

Exploration Upside

• Significant exploration potential on the majority of license area that remains untested. New high-grade discoveries could extend mine life.

Supportive Jurisdiction

• Mongolian government has demonstrated support through funding, permits, licenses, and favorable policies.

Proven Operator

• Management has experience successfully building and operating mines around the world.

Limited Downside Risk

• Mine already built and ramping up production provides lower risk than an early exploration play.

Gold Leverage

• Increasing production profile provides strong exposure to rising gold prices.

The combination of funded growth plans, strong cash flow generation, exploration upside and supportive jurisdiction provides investors with an attractive risk-reward opportunity with Steppe Gold. The company offers gold leverage with lower risk relative to early-stage explorers.