Theta Gold Mines - An Emerging High-Grade Underground Gold Producer in South Africa

• Theta Gold Mines (TGM) is an ASX-listed company with a market cap of approximately 100 million Australian dollars, controlling a gold field in the eastern transport of South Africa spanning 62,000 hectares.
• The company has faced criticism for not delivering on its promises in the past, but under new leadership and direction, they are taking a practical approach to evaluate and exploit what's in the ground.
• TGM is moving from an open pit strategy to an underground mining strategy, which they believe offers better economic returns, even if it means a one-year delay in production.
• They are currently conducting a definitive study, which will be completed by the first quarter of 2022, aiming to raise project capital afterwards. A total of 10 million Australian dollars has already been secured to bridge the interim period.
• The project promises an Internal Rate of Return (IRR) of 82%, with a life of almost eight years, and they expect to be in full production by the end of 2023. They have a robust plan to ensure permits and financing are in place.

Theta Gold Mines (ASX: TGM) is positioning itself to become a profitable underground gold producer in South Africa. With several high-grade mines and over 6 million ounces of resources, Theta has a clear path to build a mid-tier gold producer over the next 5 years.

Experienced Management Focused on Execution

Theta appointed seasoned mining executive Mitford Mundell as CEO in 2021 to steer the company towards production. He approached the opportunity with cautious optimism, focused on fundamentals and execution.

The change in underground mining direction was a reset, adding 12 months to the production target. However, the superior economics and reduced dilution of mechanized underground mining convinced management it was the optimal path. The team combines operational experience from majors like AngloGold with project optimization expertise from mid-tier miners. This blend is welcomed by investors seeking evidence of execution capability.

High-Grade Underground Resources with Upside

Theta’s South African tenements contain over 6 million ounces of underground resources, with average grades between 4-5g/t. Underground mining was halted in the 1940s when ore grades dropped below 18g/t, leaving significant resources untapped by modern mining techniques.

The initial underground Pre-Feasibility Study focused on 3 mines (Frankfurt, CDM and Beta) with 420,000 ounces from Measured and Indicated resources. At $1,750/oz gold, the project generates an NPV of $100m with an 82% IRR and under 1-year payback.

The upcoming Definitive Feasibility Study (DFS) incorporates the Rich Fontaine mine and extends Theta’s initial 8 year 6,000tpm production profile. Importantly, inferred resources are excluded from these studies, providing significant upside as exploration continues.

Pathway to 70,000oz per Annum Production

Theta has a clear pathway to unlocking an initial 70,000oz per annum from its underground resources. The DFS will enable project funding discussions for development capital. At a US$800/oz All-In Sustaining Cost, the project can generate strong cashflows at current gold prices.

Early works underground and permitting activities have commenced. First gold production is targeted in early 2023, once financing is secured. The modular, staged ramp-up will steadily grow production beyond 70,000oz per annum as plant and tailings capacity expands.

Significant Exploration Upside Within Existing Tenements

Theta has huge upside potential within its 620km2 land package which has been underexplored. For example, sampling has begun at the high-grade Beta mine across 4km of strike length outside the current resource model.

Several satellite open pit deposits could supplement underground feed in the medium term. In addition, Theta will consider tactical M&A to consolidate regional gold resources and infrastructure.

These growth initiatives can expand Theta's production profile to 160,000oz per annum and extend the mine life beyond 10 years.

Building a Social License to Operate

Permitting is anticipated within 9-12 months, however, South Africa’s rigorous licensing processes mean timelines are unpredictable. Having community leaders integrated into the Theta team will strengthen government relations and accelerate approvals.

The project expects to create 2,000-3,000 direct and indirect jobs in a rural community with high unemployment. Gaining support from host communities and municipalities will be crucial to developing Theta's social license to operate.

Financing Discussions Advanced with Multiple Options

Theta has initiated project financing discussions with debt providers and private equity groups. With South African investors showing strong interest, innovative funding structures will be considered to minimize equity dilution.

The current depressed TGM share price means traditional equity financing is less attractive. However, early production could re-rate TGM shares and improve the viability of a capital raise. Until then, Theta will prioritize non-dilutive funding options.

The Investment Thesis for Theta Gold

Theta Gold Mines presents a compelling opportunity to invest in an emerging mid-tier gold producer. With experienced management, clear pathway to production, and significant exploration upside, Theta can create substantial value for shareholders at current gold prices.

The execution risks are real and will take time, but surmountable. However, once Theta unlocks early production, the rerating potential is considerable given the current discounted valuation. Patient investors could be rewarded with a multi-bagger return over the next 3-5 years.

Strong Economics at Current Gold Prices

• The preliminary feasibility studies indicate robust economics even at today's gold prices of around $1,750/oz. With an 82% IRR and under 1 year payback period, the projected returns are very attractive.
• The all-in sustaining costs estimated at $800/oz provide a large margin of safety against any future declines in the gold price.

Clear Pathway to Production

• An experienced management team is now in place, focused on delivering the initial 70,000oz per year production target.
• Theta has a straightforward path to production, with all required technical studies underway or planned. The definitive feasibility study will unlock project financing.
• The staged, modular ramp-up of production minimizes execution risk relative to larger-scale projects.

Significant Upside Potential

• Exploration upside within Theta's large 620km2 land package could significantly increase resources and extend the initial 8-year mine life.
• The current studies only use a portion of the 6 million ounces of resources identified so far. Additional exploration success could turbocharge Theta's production profile beyond 160,000oz per annum as infrastructure permits.
• Once the first production is achieved, the rerating potential of the currently depressed TGM share price provides leverage to the upside.

Discount to Peer Valuations

• Theta is trading at a steep discount to the average peer multiples for single-asset gold developers and explorers.
• Unlocking production could quickly close this valuation gap and generate a substantial re-rating of TGM shares towards peer multiples.
• Early works underway de-risk execution and provide share price catalysts as Theta progresses on the path to production.

Summary

Theta Gold offers a reasonable risk-reward proposition for investors willing to wait to seek leveraged returns. The company has an experienced management team focused on execution. The underground project boasts high-grade resources with over 6 million ounces, showing robust economics at current gold prices. Theta Gold Mines has a clear path to producing 70,000 ounces per annum with significant exploration upsides within their existing tenements. Project funding is underway as the definitive feasibility study nears completion. The path to unlocking value is clear, and patient investors could be rewarded if execution progresses on schedule.