• Superior Gold operates the Plutonic operations in Western Australia and is experiencing a strong year with increased production, improving significantly from 2020.
• Despite challenges in the broader economy such as inflation and geopolitical issues, Superior Gold managed to maintain a steady state production between 70,000 to 85,000 ounces. They also focused on equipment reliability and productivity.
• The company did a 15-day shutdown on the mill which affected quarterly production. However, after restarting, they observed improved vibrations and an increased annualized rate from 1.56 million tons to 1.8 million tons.
• The company aims to maintain an average grade of around three grams per ton from the underground, improving its mill grade. Their production guidance remains between 80,000 to 90,000 ounces for the year.
• Superior Gold is actively exploring new opportunities, both on its own property and across borders. They are also closely monitoring the potential of the Indian Access area, with promising drill results and its proximity to the portal.

Superior Gold On Track to Meet Full-Year Guidance Despite Challenges

Superior Gold is an Australia-based gold producer focused on its wholly-owned Plutonic Gold Operations in Western Australia. Despite some setbacks from COVID-19 impacts, flooding, and mill maintenance shutdowns earlier this year, the company appears on track to meet its full-year guidance of 80,000-90,000 ounces of gold production.

Interview with President & CEO, Chris Jordaan

Several factors point towards a stronger second half of 2022 for Superior Gold

• Higher grade open pit ore coming online
• Underground mine productivity improvements
• Exploration success demonstrating resource growth potential

With these catalysts, Superior Gold presents a good investment case as a prospective turnaround gold producer story in a stable mining jurisdiction.

Turnaround Story Building Momentum

Superior Gold acquired the Plutonic Gold Operations in 2016 when production was declining below 60,000 ounces of gold annually. The company has aimed to steadily increase production back towards a sustainable 100,000 ounce per year rate.

After initially struggling operationally and suspending guidance, the arrival of new CEO Chris Jordaan in May 2021 marked an inflection point. His focus has been on building a strong operational foundation, upgrading key mining equipment and processes, and re-evaluating the resource potential.

Production rebounded to over 80,000 ounces of gold in 2021, achieving the upper end of revised guidance. Superior Gold guided to 80,000-90,000 ounces again for 2022. Q1 production was 19,252 ounces, positioning the company to deliver on full-year targets.

Mill Maintenance Completed, Higher Capacity Now Online

A major mill maintenance shutdown was completed in Q1 2022, the first major overhaul in the mill's history. New bearings were installed and vibrations were reduced to below detectable levels.

The mill can now operate at an annualized rate of 1.8 million tonnes, up from 1.56 million tonnes last year. This expanded capacity sets the stage for increased throughput as higher-grade open pit and underground ore is delivered in the coming quarters.

Underground Mine Productivity Improvements Underway

Underground mining forms 55% of the mill feed, with productivity improvements a focus for management. The aim is to increase underground mining rates from 850,000 tonnes per annum currently to over 1 million tonnes by Q4 2022.

Additional equipment like a new jumbo drill are being deployed, along with an optimized maintenance strategy. The higher underground volumes will help sustain the increased mill throughput.

Higher Grade Open Pits to Deliver in the Second Half

Open-pit ore accounts for 45% of mill feed. The Perch open pit concluded strip mining in March 2022, after averaging 0.6-0.7 g/t gold grades. Mining has transitioned to the higher grade Main Pit Deeps area, with first ore samples grading 1.99 g/t gold. While COVID-19 and flooding impacted Main Pit Deep development in Q1/Q2, operations are now ramping up to full capacity.

Main Pit Deeps is expected to deliver between 1.5-2.5 g/t mill grades over the coming quarters. This substantial increase in open pit grades, combined with expanded underground mining, provides the clearest catalyst for Superior Gold to meet guidance.

Exploration Demonstrating Resource Growth Potential

Beyond its existing reserves, Superior Gold has continued finding new zones of high-grade gold mineralization through its exploration program. This points to potential resource growth at Plutonic over the longer term. Recent drilling at the new Indian Access zone intercepted exceptional results like 17.6 g/t gold over 3.2 meters and 58.9 g/t gold over 1 meter. The zone covers a 500 meter x 300-meter area that remains open at depth and along strike. It is located close to existing underground infrastructure, which allows relatively quick access for mining.

In addition, exploration work is ongoing to evaluate possible extensions of mineralization linking the historic Perch open pit with the Plutonic East underground zone. This underscores the expansive nature of the gold system on the property. Superior Gold also plans to test three new surface targets east of Hermes South, called Polaris, Seaborg and Central Bore. Each target offers similar open pit potential for new sources of mill feed in 2024 and beyond once Main Pit Deeps concludes.

Stable Jurisdiction

Superior Gold operates in the safe and stable gold mining jurisdiction of Western Australia. It is aiming to deliver a third straight year of 80,000+ ounce production in 2022. And the company is demonstrating the potential to sustain this production rate while growing its resource base.

After substantial investment in previous years under new leadership, Superior Gold’s operations need to demonstrate that 2022 can be an inflexion point. The improved mill capacity, transition to higher-grade feed sources, and strong exploration results could position the company for success in the second half of the year.

Superior Gold does still face risks typical of smaller gold producers, including volatile costs and maintaining adequate operational cash flow. However, with its production outlook improving in a bullish gold price environment, the company has the chance to present itself as an attractive investment case at current valuations.

The Investment Thesis for Superior Gold

Cash Flow Generation Potential

If Superior Gold achieves its production and cost guidance for 2022, it should generate robust cash flows, especially at current high gold prices. This provides funds for debt repayment, exploration, and potential shareholder returns.

Takeover Target Potential

As a relatively small producer in a safe jurisdiction, Superior Gold could attract takeover interest from a mid-tier or major gold producer looking to bolster reserves. The improved operational performance makes it a more attractive M&A target or merger of equals in what are difficult circumstances for gold juniors. This will not guarantee success and sometimes merely provides a welcome but temporary distraction for shareholders.

Experienced Management

CEO Chris Jordaan and his team have strong track records operating and optimizing underground and open pit mines around the world. Their operational expertise provides credibility to execute the turnaround.

Jurisdiction Safety‍

Australia is a highly favourable and stable mining jurisdiction with minimal political, regulatory, or social risks. Investors can have confidence in Superior Gold's mining licenses and ability to operate safely.

Portfolio Diversification

As a small-cap, pure-play gold producer, Superior Gold offers exposure to gold uncorrelated from majors and diversification from larger Australian gold miners. This can complement portfolio holdings in the gold space.

Risks remain, and whilst Superior Gold is slowly improving operations, and exploration potential, the leverage to gold prices gives it a high risk-reward profile. For investors bullish on gold or seeking turnaround stories, you may want to look closer, but for those who understand that operational risk is still a feature of this investment, you may want to wait until the company demonstrates quarter-on-quarter improvement before considering investing.