Superior Gold (SGI) - Pragmatic Turnaround Process Underway

Superior Gold is a Canadian based gold producer that owns and operates 100% of the Plutonic Gold operations located in the world class goldfields of Western Australia.

The Plutonic Gold operations include the Plutonic underground gold mine, the Hermes open pit projects and an interest in the Bryah Basin joint venture. The Plutonic mine has been in continuous production since 1990 and, having produced ~6.0Moz of gold, is one of Western Australia's largest historic gold producers.

In 2021, the Company is targeting production of between 65,000oz to 75,000oz and remains focused on establishing the Plutonic Gold operations as a producer capable of delivering at least 100,000oz of gold annually.

We spoke to Tamara Brown, Interim CEO of Superior Gold. We first heard the Superior Gold story in April 2019 and haven't spoken since, but Brown came on board in the middle of 2020 to get a plan together to turn things around so we are now excited to hear what is happening for Superior Gold.  

Company Overview

Superior Gold is a Canadian-based TSX-listed Gold producer which owns 100% Plutonic Gold operations in the northern part of the Western Australian, Archaean Gold belt. Plutonic has been in operation since 1990, in continuous production. It has produced around 6Moz Gold and is 80km long by 10km wide. Superior Gold has a clear optimization expansion plan which they now need to execute as a significant resource base and a compelling re-rate opportunity for investors.

Time for a Turnaround: Maximizing Shareholder Value

Brown was brought in to turn things around for the shareholders as Superior Gold had been one of the lowest-value Gold producers on the TSX having had a 2-year period of not hitting their guidance. The board needs to identify the opportunities at Plutonic as there is a significant amount of Gold in the ground, they have a whole gold belt to consolidate and the infrastructure is already there.

Plutonic had gained the reputation of an old mine because they hadn’t accomplished enough exploration drilling and development to find future reserves. In 2020, Superior came out with a PEA on an open pit project that had never been put into a technical report. 

The Assets: Goals, Progress, & Model

Superior has the Plutonic underground mine which has a lot of infrastructure and inherited 450km of development 7,000t of drilling. There are 2 mills at the operation, a 1.8Mt mill and a 2nd mill at 1.2Mt per annum that's currently on care & maintenance. Also worth noting that there is low cost gas fired power, the camp and air strip. 

As an underground-only mine, the production had reduced to below a profitabile level in 2020. The aim is to return Plutonic to what it had been for many years under Barrack and Homestake, which was an open pit and underground that supplemented with grade. 

In 2021, Superior will be bringing back the Plutonic East open pit which is a previously mined pit, close to the mill and is very simple and ready to go. When they bring that online they will start to take the pressure off the underground and focus on grade.

Beyond Plutonic East, there are 3 other deposits on the Plutonic mine property, Salmon Perch and the Main Pit. The Main Pit is a larger project with around 1.5Moz in the total shell but they have come out with a PEA that is quite constrained, a smaller pit size of 300,000oz, which gives Plutonic 6-years of 1.2Mtpa to supply the hungry mill, and be the steady base load of production. A big part of future strategy is to optimize the underground, but bringing the open pits online is a very important part for Superior Gold.

The next step in the strategy is to utilize the second mill. The idea is to consolidate the belt and there are about 12 different Gold deposits with outlined resources within 150km of Plutonic. 

There are current underground operations that should be around 70-80,000oz/year, then 100,000oz from the open-pits, and then there is the opportunity to use that second mill to go up to 150,000oz. The company also has expectations on the exploration side.

Financing it All: Cost of Money & Options Available

Superior raised CAD$15M back in October. Following the 2020 production, they are pleased that they delivered on their guidance, which will win back the trust from the market. They also released their cash position as CAD$17.3M. 

Superior are aiming for increased productivity and a more profitable operation going forward so they have made investments in eliminating their Royalty on the property and invested in a third drill rig that is solely dedicated to exploration to open up new mining fronts and create new stope inventory. They have also invested in revitalizing the underground fleet this year, adding 2 new trucks, completed a tailing storage facility raise and upgraded their airstrip.  

Exploration Programme & Potential

The company released some good exploration results last year at the Indian Zone where they found 56g/t of 15m, within 100m of existing infrastructure. Also in the Baltic, which was around 40g/t over 6.5m. These areas of mineralization should be quickly put into resources, reserves and into the mine to become profitable for the company.

The ore body is a complex one. It's not a simple continuous zoned mineralization. It's folded in a series of narrow layers. With a new drill rig dedicated to exploration drilling, the exploration programme will continue in that ore body.

Changes to the Team: Keith Boyle Appointed as COO

Keith Boyle is improving the frontline planning and scheduling, focusing on dilution and the mining practices. He understands the mine plan comes first, but also the need to take account of his actions which has improved the culture and safety of the operation. This has resulted in Superior reaching their guidance, proving that they have their operation under control and can deliver their guidance going forward.

2021 Targets & Goals

The Superior story is starting to tell itself. The underground is obviously there and will have to deliver on the production side. Superior needs to deliver positive exploration results to prove that there is life ahead at Plutonic Underground. They've already come out with a PEA with significant value for the shareholders with CAD$120M NPV, 35% IRR, and relatively low capital of CAD$82M, which is all pre-strip. This deposit dips down, so there is little complexity, simply stripping off the waste with low risk. The target adds 60,000oz/year in production for 6-years and is fundamental in showing the market that Plutonic has a strong future ahead.

Exploration at Plutonic is key. The ore body is showing no signs of coming to an end so with the right investment and the right strategy they will be able to find new resources to improve production. The addition of the open pit production gives Superior the ability to work underground without having the pressure to fill a mill at the same time.

The market is very interested in the drilling results from the Baltic and the Indian so it is critical that these results come out as soon as possible. The company needs to pay off the Gold loan, which will come out of their production in June. They need to advance the open-pit projects and will see the first production in 2021 coming in from Plutonic East and then will be advancing the Hermes project and the main pit push back. All of these projects have their own catalysts along the way.

The main project has a small pit due to surface physical constraints so a Heritage Survey needs to be completed which would potentially remove those constraints and add a significant amount of ounces and improve the value of the project. There is opportunity to move some of the mill infrastructure because this project butts-up right against the mill. The company has a lot to do over the coming year, first and foremost will be continuing to improve production and costs for each quarter.

The goal for 2021 is to unlock value for shareholders, to see the share price start to reflect the true value of Superior Gold. The company has CAD$2.5Bn in infrastructure, a significant reserve, 5Moz now in total resources and are trading at CAD$80M. The PEA for the main pit and hitting the guidance were both very important in starting to deliver and the company can now start to talk to the market about their plans for the future. 

Options for Growing the Value of the Company  

Plutonic is a strong Goldmine in a great mining jurisdiction which had been lowly valued so they needed to come clean to the market. Now they have a strategic process in place for the company which will improve the share price going forward. 

Superior realises that their current valuation is low enough to attract external M&A proposals but believes that there's significant opportunity for shareholders with the new strategy and they plan to deliver on their consolidation before they consider any external offers.  

Superior Gold knows and understands the ore body at Plutonic and believes they will find higher-grade material on a more consistent basis going forward. They just have to drill to find the material and until now, the company hadn't been drilling. Now they have an exploration programme, they will be drilling intensely and are looking ahead to exciting results. 

Brown has the air of someone who knows what she wants to do and how to do it. She inherited a difficult situation and it is hard not to admire the candour. There was no promotional language, just a clear message of 'we are focused on what we need to be focused on and will not be distracted'. We love a turnaround story and are looking forward to hearing more from Superior Gold with their exploration results and new strategy for the company. 

To find out more, got to the Superior Gold Website