Superior Gold (TSX-V: SGI) - Confidence Growing in 100,000oz Target

Superior Gold Inc. is a Canadian 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 and central mill, numerous open pits projects including the Plutonic Main Pit push-back project, the Hermes open-pit projects, and an interest in the Bryah Basin joint venture. 

Matt Gordon caught up with Chris Jordaan, CEO, and President, Superior Gold. Chris Jordaan has over 3 decades of experience in international processing and the mining industry. He has worked extensively in management and operations in senior and mid-tier mining companies globally. He previously worked as a Program Director at Newcrest Mining Ltd. and General Manager at Lihir Gold Mine. He has also served as the CEO at International Ferro Metals Ltd. His educational credentials include Master's degrees in Mechanical Engineering and Business Administration. 

Company Overview

Superior Gold is a gold producer focused on expanding production at the Plutonic Gold Operations and building an intermediate gold producer with superior returns for shareholders. The company was founded in 2016 and is headquartered in Toronto, Canada. It is listed on the Toronto Stock Exchange (TSX-V: SGI). Billabong Gold Pty Ltd. is the company's subsidiary. 

Production Numbers

Tamara Brown took over the position of Director at Superior Gold in mid-2020. During this time, the company was facing a difficult quarter. It had a 60,000oz yearly production along with a $9M net cash flow. The company faced challenges with the business, including its underground mining operations and grades. 

Tamara took measures to reposition the organisation by setting a 70,000oz-85,000oz yearly gold production target. In 2021, the company had production guidance between 65,000oz-75,000oz. The company was able to achieve a 77,000oz production in 2021, it produced between 75,000oz-77,000oz between Q2 and Q3 last year. By Q4, the company was able to achieve 83,000oz gold production. These production numbers enabled the company to deliver the first goal of its 3 Gold strategy. The company’s second goal is to reach scale in its business. 

On 1st July 2021, Tamara stepped down as the Interim CEO while maintaining her position as the company’s Director. Chris Jordaan was appointed as the company’s CEO. 

Chris focused on the massive potential of the underground mine. The company was able to increase its production to 835,000t in 2021. It seeks to achieve a 900,000t production target this year through stoping development ore. Following this, the company expects to move to an annualised rate of a million tons per year starting mid-2022. Over time, the company is looking to achieve a production target between 1.25Mt and 1.5Mt. 

Superior Gold is also focused on Plutonic East where it recently finished the open-pits. It is currently operating in Perch where the main open-pit is located. The company has identified a target within the main open pit called the Main Pit Deeps. A benefit of this target is that the company does not have to wait for the Main Pit Pushback which is expected to take between 18-24 months. The target is early-entry and has a short life with good grades. The supply from this target will feed into the company’s goal of achieving between 80,0000oz and 90,000oz gold in 2021, a significant step up from the previous year. 

Funding Considerations

Superior Gold identified 2 key scenarios during its budgeting. The strategy is to grow the underground mine as fast as possible and unlock the potential of the open pit. This strategy requires a significant cash flow. The company intends to develop a budget that entails cutting back on expenses. This will enable the company to achieve a fair improvement in its cash position. The assumptions are based on the project costs and the market gold pricing. This strategy will also enable the company to deliver a strong base on which the next year’s growth strategy will be based.

The company is looking to publish its financials by early March. It has already published the guidance numbers from a cost perspective. The company was able to achieve a lower cost range than the previous year. 

Superior Gold is taking a measured and cautious approach to advance its operations. It seeks to build the foundation as operations progress. The investments made through the generated cash will be focused on 2 major things. The first is around recapitalization of some of its kits, and secondly, investing in additional kits to help increase overall production numbers. The additional kits are targeted towards the underground open mine and for unlocking the potential of the company’s open pits. The company is also planning to advance in the Main Pit Deeps target. 

Targets 2022 and Beyond

Superior Gold has set multiple goals this year as part of its growth strategy. Its goal is to build a business of a scale, achieving a 100,000oz yearly production. Over time, it is looking to achieve a 150,000oz annual production target. Reaching a 100,000oz production target will enable the company to improve its underground mining production to 900Mt per year. In addition, the company will be able to unlock the potential of Perch through the Main Open-pit Deeps and the Main Pit Pushback which is currently in the PEA (Preliminary Economic Assessment) phase. 

The company anticipates that over the course of the next 18-24 months, it will be able to achieve these targets and the material would be processed through the company’s first mill. Upon reaching a 250,000oz production target, the company is looking to move outside its borders to source additional ore. Since the company’s mills are running on a lighter capacity, it has the ability to process additional ore. The company is currently in conversations to acquire an additional supply for the mill feed. 

The company has made significant improvements in its guidance numbers. In the previous year, it spent between $30-$40 on exploration per gold oz produced. This year, it has increased the exploration spending to $90-$100/oz gold produced. In addition to underground exploration, the company is also looking to unlock the potential of the previously unexplored surface areas on the company’s land package. 

The Plutonic Gold Mine

Superior Gold’s Plutonic gold mine has a complex ore body that is convoluted in various directions. The Plutonic gold mine has an area called the Indian Access. The company previously drilled this area and did not attain any results. However, by changing the interpretation of the ore positioning and through additional exploratory drilling, the company was able to achieve a 100% hit rate. These findings were reported by the company in December 2021. 

The company is looking to expand its understanding of the spatial positioning or the form interpolation aspects of the underground mine. This has led the company to redefine its resource and reserve statement in key areas. As a result, the company was able to redefine its mine plan, providing a better indication of the underground mine’s growth rate and potential. 

The company is looking to spend $90-$100/oz produced on exploration and drilling. This is well in line with other companies operating within the region. It previously carried out all the drilling from current developments. However, the company now plans to put in the first purpose-built exploration drill drive on the western mining front. Notably, the western mining front is one of the company’s major mining fronts. The company is looking to ensure that it can identify the underlying resource and bring it into the reserved category. This will be included in the company’s mining plan as it looks to build a long-term life for its underground mine. 

For surface-based drilling, the company is working with external contractors. The surface drilling is planned for the company’s existing property in the broader basin along with 3 specific areas that are planned for drilling this year.

An Exploration-First Strategy

Superior Gold is currently prioritising exploration over an increased cash flow. The company anticipates that the asset’s mine life is longer than expected. It has a resource of 5Moz from an investors’ perspective. However, the resources currently stand at 380,000oz. As the company moves towards a 100,000oz yearly production, the resource will be exhausted in the next 3 years. To remedy this, the company is looking to move the majority of its resource into the reserved category. 

The company anticipates that a new resource and reserve statement will serve as key indicators for investors from a business perspective. One of the company’s major goals is to demonstrate the increase in mine life through proper technical analysis. The company has hired an external organisation to verify and validate the process. 

Legal Proceedings

In November 2018, Superior Gold’s wholly-owned subsidiary, Billabong Gold Pty Ltd. commenced legal proceedings against Vango Mining Ltd’s wholly-owned subsidiary, Dampier (Plutonic) Pty. Ltd. with respect to tenements to the northeast that are separate from its 100% owned Plutonic Gold mine property located 800km northeast of Perth, Australia. 

Billabong’s claims arise from an Ore Treatment Agreement (OTA) entered in September 2014, by Northern Star Resources Ltd., Vango, and Dampier, which Northern Star assigned to Billabong in October 2016. 

Billabong claims that it held the rights of first refusal under the OTA in respect to the tenements within Vango’s Plutonic Dome project in Western Australia and that these rights were breached with certain intended and actual transactions carried out by Vango and Dampier in 2016 and 2017. Billabong has sought a remedy from the Supreme Court of Western Australia for the alleged breaches.

It is important to note that the tenements under dispute are entirely unrelated to Superior Gold’s 100%-owned Plutonic Gold operations, including the Plutonic underground mine and the Hermes open-pit mine. 

The court case concluded on 14th December 2021, where the judge handed a decision that Billabong Gold be offered the binding term sheet that had previously been offered to Billabong Gold by Vango Mining Ltd. 

However, all the other claims made by Billabong Gold were unsuccessful. This includes its claim to an agreement that would enable the company to obtain 40% of Vango’s tenements. 

Vango recently made an announcement, the outcome of which is currently under discussion with the judge. Superior Gold intends to stand by its position. 

Operational Challenges

As a result of the pandemic-led border closures, Superior Gold has been operating in a bubble in Western Australia. The company’s day-to-day operations are running as expected. It backs the state government’s covid strategy which has supported the mining industry. 

However, the company is facing challenges when it comes to bringing in external labour from the East into Western Australia. The labour is either unable to come in or has to isolate for 2 weeks. In fact, the company’s chief Geologist is based out of Brisbane, and he has to isolate when visiting, leading to added difficulties. 

The company anticipates that the border movement restrictions will be removed in the near future. The removal of these closures will provide access to the broader Australian market from a labour perspective. 

As a part of the company’s sector transformation program, it procured new hires from Perth so that they could have on-site access. The company believes that the challenges are ongoing and it needs to devise a different strategy to secure services. 

Superior Gold is a single asset business. It has devised a strategy to incentivize a few key personnel to form very strong business relationships. In addition, the company is looking to minimise the increase in mining costs and inflation over time by hiring people from outside the mining industry. The company seeks people with partially-developed or transferable skills along with learning ability to take up new roles. 

The company focuses on bringing in younger people with potential and training them for various roles. This strategy provides new career avenues for the people while helping the company build a team from the ground-up, which in turn, helps keep operational costs low. 

To find out more, go to the Superior Gold website