Tesoro Gold (TSO) - Goldfield Invests + Resource Update

Tesoro Gold (Formerly Tesoro Resources Limited) is an Australian public company with exploration-stage gold assets in Chile. The company is focused on acquiring and developing high-grade gold assets that have the potential to be district-scale mining projects. The company's flagship project is the El Zorro Gold project in northern Chile.

Merlin-Marr Johnson caught up with Zeffron Reeves, Managing Director, Tesoro Gold. Zeffron is a geologist with over two decades of experience in the resources sector including exploration, discovery, feasibility, construction, production, and closure. He previously served as a Managing Director for Kopore Metals Ltd (formerly known as Metallum Ltd.) and has worked on multiple developments and operational projects in Chile. He has also held senior management positions with companies developing projects in Brazil. He has had precious exploration success in identifying and delineating new gold districts in Brazil and Chile. His educational background includes a Bachelor of Applied Geology (Honors) and an MBA from Curtin University. He is also a member of the Australia Institute of Geoscientists.

Company Overview

Tesoro Gold is an exploration-stage company managed by mining professionals with a strong geological and finance background. The company was founded in 2017 and is headquartered in Australia. The company is listed on the Australian Stock Exchange (ASX: TSO). Tesoro Gold has the rights to acquire up to 80% of the El Zorro Gold Project.

Tesoro Gold is developing the El Zorro gold project in the Atacama region of Chile. The project is shaping up to be a special gold asset. The past year has been rough for the gold market. The gold sector has been battered through a period of market instability, affecting both major and junior producers. The company anticipates that once the central banks stop hiking interest rates in 2023, there would be an uplift in the gold price, which has continued to maintain a relatively strong position. Despite a good market price, gold hasn’t been flowing through to the equity market. There are expectations that the new year will bring a renewed interest in gold equities.

Tesoro Gold’s major shareholders have been highly supportive as the company continues to grow the project and delivers on promises. The company is in the process of completing its entitlement issue capital raise. As part of a broader capital raising strategy, the company was able to bring in Gold Fields as a strategic investor.

Shareholder Registry

The Board and the Management collectively hold about 10% of the company. Tesoro Gold has two small institutional funds on its register along with a number of HNWIs (High Net Worth Individuals). The majority of the investors have been with the company ever since it was listed in February 2020. The investors have been highly supportive and have assisted with each capital raise. Based on the investors’ feedback, there aren’t a lot of invested companies that have been successful in delivering continuous positive results as Tesoro Gold. The company was quick to establish a highly-robust 1Moz+ resource in a world-class location right on the coast in the Atacama Desert of Chile. The investors are cognizant of the market challenges and the fact that a lot of things are outside the company’s control. They recognize the underlying value of Tesoro Gold’s assets and the fact that the company’s been able to deliver despite the market conditions.

The majority of the investors and shareholders are participating in the ongoing capital raise. The results of the raise are expected to be announced within the next 2 days. Once the results of the entitlements issue are out, the company will be in a strong position. Following the raise, the company expects to have over AUD$9M in cash flow. Gold Fields has been secured as a strategic investor.

The company recently announced that it is planning to drill the major extensions to the Ternera deposit. The new gold district is growing as the company continues to drill. The deposit’s potential is a key factor in enticing Gold Fields as a strategic investor. The district not only has the potential to host another Ternera deposit but multiple similarly-sized deposits or an even bigger gold deposit. As the company becomes well-capitalized, it will continue to grow and evolve the project going into 2023.

Ongoing Operations

Tesoro Gold drill around 30,000m in 2022. In total, the company has drilled close to 105,000m on the project. The majority of the drilling was focused on the Ternera deposit. The company recently announced a couple of drill holes 5km north of the deposit in a new target area called Calderillas. The target has returned highly-interesting results so far, especially from the 2 isolated scout holes, which indicate a big gold system. The company is cognizant that there is still a lot of work to be done.

Zeff Reeves, the company’s Managing Director recently visited made 2 trips to Chile where he spent time with the team on the ground. Based on the geologist’s reaction, the company is highly-optimistic that there could potentially be something much larger to discover at El Zorro.

The El Zorro Gold Project has a 70% outcrop, and the company has a strong handle on mineralization controls. The mineralized rock is sticking out of the ground and the company is in the process of identifying and collecting rock samples. The strategy is backed by some initial drilling which points to mineable widths and grades of contained gold mineralization. The data collected so far suggests a potential for a new discovery at the Calderillas target.

The El Zorro Gold Project is considered a standalone asset. It is made up of all the company’s concession holdings. At the Ternera deposit, the company has a 1.1Moz current resource that is JORC-compliant. It also has multiple targets outside the Ternera region that have the potential to be additional gold deposits. One of these is a new discovery. The Ternera deposit and the Calderillas prospect are situated 5km apart. Between the two assets, the company has 2 major targets, namely Toro Blanco and Kitsune. The company anticipates that the entire system has the potential to be continuously linked with gold mineralization. This assumption is based on outcrop rock mapping and sampling. In recent months, the team has been carrying out extensive work on the area between Calderillas and Ternera in order to collect additional information. This data will be used to determine the locations for targeted drilling.

Targets 2022 and Beyond

Tesoro Gold is looking to achieve growth by way of a two-pronged strategy.

The first point of focus is to continue the ongoing growth at the Ternera deposit. Some of the results announced in the last 6 months have been the best drill results out of Ternera, including some big expansion step-out holes to the south. At the deposit, there’s a larger area featuring an additional 200m-300m strike length that extends the deposit further to the south. The company anticipates that this could potentially push the resource to 2Moz. The company intends to carry out additional drilling in this region. At the same time, it is working through preliminary engineering studies along with financial analysis to demonstrate the deposit’s economic viability. It is also looking to carry out some infill drilling in the area. The additional drilling will form the mining inventory that would become a part of the upcoming studies. The company anticipates that it now has a clear pathway to get the Ternera deposit to a 2Moz resource.

The second part of the growth strategy is to seek additional targets. Goldfields coming on board has served as a strong validation for the company’s technical team and their efforts in discovering a new gold system in Chile. As the company continues to drill, it has found more targets emerge along with widespread gold mineralization at the surface.

The company intends to systematically work through the targets throughout the year and drill them if warranted. A couple of these targets are reasonably advanced at the moment. The Calderillas target was drilled recently and the company intends to carry out additional drilling in early 2023. It is also firming up the target at Kitsune and Toro Blanco. These target areas appear to be highly promising, and the company is looking forward to drilling. 35km north of the Ternera deposit, the company has found some gold mineralization at surface in the same rocks and structural systems.

The findings indicate that the targets can potentially be a part of a big system. While the company has a lot of additional work planned, it believes that the system is a 2Moz+ gold deposit that continues to grow with each drill operation.

Cash Position

As part of the Gold Fields’ investment in Tesoro Gold, there’s a minimum of AUD$3.6M allocated to the district exploration effort where the funds will be spent over an 18 months period. Gold Fields will have input on where and how the money is spent. This would still leave a significant chunk of capital for the company to grow the Ternera deposit. The company is also expecting additional capital to come in through tax refunds. The company has a claim with the Chilean tax authorities for a refund on the VAT tax that was paid over the last 4 years. A lot of the expenditure has been claimed as a fixed asset, which means that the company will get around AUD$3M in VAT refund.

Collaborating with Gold Fields

Tesoro Gold was introduced to Gold Fields through the company’s global business development team in Perth. Gold Fields has been increasingly active in Chile, developing the large Salares Norte deposit, which is located 80km from Tesoro Gold’s operation. Once it enters full production, the Salares Norte deposit is going to be Chile’s largest gold-only mine. Tesoro Gold anticipates that the mine will produce around 300,000oz a year out. On the back of this development, Gold Fields has ramped up its activities in Chile.

In addition to Tesoro Gold, Gold Fields recently made another investment in Torque, a Canadian junior company for a project located close to Salares North. Tesoro Gold anticipates that over the past 1.5-2 years, Gold Fields looked at the data and drill operations from the Ternera deposit and the El Zorro project. Based on this, Gold Fields decided to get involved with Tesoro Gold.

The company is working closely with Gold Field’s technical team. The team was supposed to visit the project site, but this was postponed due to covid-related issues. Notably, Goldfields underwrote the entitlement issues, and Tesoro Gold anticipates that once the capital raising issues are ironed out, the technical teams will get together to further explore the deposit’s potential.

Drilling Operations

Currently, Tesoro Gold has halted drill operations. The company’s technical team is working on a reinterpretation of the Ternera deposit through resource modeling, hoping to publish a resource update by the end of the year. Interestingly, some of the drilling was directed at proving a part of the resource classification and at the same time, combining some of the high-grade areas that have been identified in the deposit.

The company is excited to restart drill operations in early 2023, targeting the big southern extension. It is looking to kick off drilling at Ternera in January 2023, and probably in February or March, the company will get an additional rig to drill the district targets as well. This will be the first year where the company has given the team a full 2 weeks break from Christmas time to the end of the first week of January.

Tesoro Gold has a AUD$30M current market cap. Ever since the Gold Fields investment was announced, the company has received a lot of institutional interest in potential collaboration and involvement. As Gold Fields has carried out its due diligence, it serves as a tick of approval and validation for the technical team.

If the central banks back off from increasing the interest rates, there would be a certainty around the monetary policy, which could lead to money coming back into gold equities at some point in 2023.

The company’s previous MRE (Mineral Resource Estimate) was up until April 2022. Since then, the company has drilled an additional 7,000m-8,000m across the targeted holes, with 6 of the holes drilled on a different orientation to help with the resource classification. Notably, one of these holes was a 450m odd drill intercept.

These types of drill holes achieve two major goals. First, it helps stitch together the deposit and increase the resource classification as it gets a lot of coverage crossing other holes. It also plugs a lot of holes and gaps in the resource model with more grades, providing continuity through the deposit, especially for the high-grade areas.

Interestingly, one of the drill intercepts had 434.6m at 1.22g/t gold. It included grades of 20.8m at 9.19g/t in one section and 89.95m at 3.07g/t in another. Since holes provide extensive technical information, the company has spent a lot of time revisiting the holes, refining the 3D mineralization models and the geology with a view to re-estimate the resource classification. This would enable the company to announce some financial metrics across the deposit via either a Scoping Study or a PEA (Preliminary Economic Study). Notably, there are a lot of regulatory rules in Australia with regard to how the resource is classified and put into production schedules.

The company expects to publish updated MREs every 6 months as long as the drill operations continue. This way, the market can see the deposit’s growth and the improvement in resource classification along with the distribution of the resources as the company prepares the deposit for mining. In recent times, the company has spent a lot of time looking at geology. This has led to a significant re-logging and remodeling of all the geological models. The company working on publishing a resource estimate before the end of 2022 or early 2023.

According to the company, the Ternera deposit serves as a clear pathway to get the resource up over 2Moz through additional drilling. While the true scale of the project remains to be determined, there’s a lot of gold mineralization presence. The company will continue to systematically work on the deposit throughout 2023. The Calderillas target has returned quite exciting drill results so far, and the company intends to carry out additional drilling on the target. The company has sent a large number of samples from Kitsune and Toro Blanco to the lab in order to pinpoint some of the locations for targeted drilling.

Tesoro Gold has been happy with the progress so far. The land package is growing and shaping up to be a compelling gold asset in a fantastic location. The jurisdiction and the supporting infrastructure make it a highly favorable place to build a gold mine. The company is focused on getting the asset to the critical stage in terms of the resource size. Following this, the company will continue to advance the asset.

To find out more, go to the Tesoro Gold website