Treasury Metals (TSX: TML) - $20M Financed Through to Construction Decision

Treasury Metals Inc. is a Canadian-based exploration and development company. The Goliath Gold Complex is a wholly-owned asset that features the Goliath Gold Project, Goldlund Mine Project, and Miller Mine Project in northwest Ontario. The company’s projects are slated to become some of Canada’s next producing gold mines. The company has announced results from a PEA (Preliminary Economic Assessment) on all 3 projects and has highlighted the growth potential along a prospective 65km trend in a 330 km² land package. 

Matt Gordon caught up with Jeremy Wyeth, President, Director, and CEO, along with Orin Baranowsky, CFO, Treasury Metals. 

Mr. Wyeth previously served as an Operations Director (2017-2020) at Wood Canada Ltd., a large engineering company, where he led the Oakville office with a strong focus on both local and international projects. He started his career with De Beers (1988-2009) and worked on mines in Canada, Russia, Brazil, and South Africa. While working with De Beers, he moved to Canada to lead the development, construction, commissioning, and ramp-up of the Victor Diamond Mine in Northern Ontario. He took the Victor Project from Pre-Feasibility Study to nameplate capacity. Notably, the Victor Project had a $1Bn capital budget and under Mr. Wyeth’s leadership, it was completed under budget and 9 months ahead of schedule. He has also held various senior management positions with Excellon Resources and Anglo American. He previously served on the boards of Vector Resources Inc, DRA Americas Inc, DRA Brazil, and the Ontario Mining Association. His educational credentials include a B.Sc. in Mining Engineering from the University of Witwatersrand. 

Mr. Baranowsky brings over 2 decades of finance and capital markets experience to Treasury Metals. He has served as the CFO for Blue Thunder Mining, Inc. He also served as a CFO for Stornoway Diamond Corporation, where he was instrumental in helping raise more than $1Bn for the construction of the Renard Diamond Mine in northern Quebec. His educational credentials include a Bachelor of Business Administration degree (Honors) from Wilfrid Laurier University. Orin is a member of the Chartered Professional Accountants of Ontario and a CFA Charter-holder. 

Company Overview 

Treasury Metals was founded in 1997 and is headquartered in Toronto, Canada. The company is listed on the Toronto Stock Exchange (TSX: TML), the OTC markets (OTCQX: TSRMF), and the Frankfurt Stock Exchange (FSE: TRC1). Goldeye Explorations Limited is the company's subsidiary. The company's flagship asset is the Goliath Gold Complex located in Ontario, Canada. It features a first-rate infrastructure with gold mineralization that extends to the surface. 

The Sprott Deal

On 14th Feb 2022, Treasury Metals announced $20M in royalty financing to fund Goliath Gold Complex to a construction decision. This financing will be carried out through the sale of royalty to an affiliate of Sprott Resource Streaming and Royalty Corp. It is expected to fund the completion of economic studies, permitting, and community engagement, including corporate G&A (General and Administrative expenses). 

This funding is expected to take the company through different studies, permitting, community consultation, all the way to a production decision and construction decision in 2023. Treasury Metals will get a $20M upfront payment for 2.2% of NSR (Net Smelter Returns) revenue of all minerals produced on the properties comprising the Goliath Gold Complex. 

Notably, Treasury Metals has the right to buy back 50% of the Royalty through cash or shares until December 31, 2028. Once the company achieves 1.5Moz in commercial production, there’s an automatic 50% step down of the Royalty. Since the company’s land package is a growing project with multiple targets, the upside cap on the Royalty is an important factor. 

This deal is a highly attractive financing opportunity for the company. It was completed at a significant premium and the deal was completed with minimum shareholder dilution. The deal not only provides the company with funding but also serves as an approval and an endorsement for the company and its new management team.

It is important to note that the equity market has been difficult for developers in the gold and the mining space. Treasury Metals was looking for ways to fund its project since last summer. Since the equity market was unfavourable, the company chose the Royalty path. 

As per the company, there are certain risks when choosing the path of incremental funding. This is because the funding is highly dependent on the market at that point in time. Having upfront funding serves as a risk mitigation measure as funds can be deployed as needed, without having to assess the market conditions. As a result, the company can carry through and take longer-term decisions to enhance the project build. 

The markets have observed a challenging environment in the last 12 months. Even though gold seems to be picking up, it still carries a risk as the landscape may change over the next 6 months. The recent funding has ensured that the company can focus on project advancement, without worrying about funding for the next 6-12 months. 

This deal provides the company the flexibility to buy back half of the royalty and either resell or retain it for economics. Additionally, There’s a step-down provision on 1.5Moz, as the production profile increases, the royalty will automatically step down to 50%. This means that a 2.2% current royalty can turn into a 0.55% royalty with a buyback and step-down. This enables the company to take 75% of the royalty burden off the asset. The asset evaluation is multiples higher than the company’s current equity trading. The company anticipates that it's likely in the range of $20M at 0.9 times NAV (Net Asset Value) or 0.95 times NAV. 

The company is getting cash today for the royalty and has minimum payments associated with it. These minimum payments can be made by the company through cash or equity. The equity is issued at a 5% discount to the 5-day VWAP (Volume-weighted average price). In comparison, an equity deal would have been issued at a 15% discount on the share price and would also require a warrant or a half warrant. This means that the cost of capital on equity is far higher.

Treasury Metals is looking to publish a PFS (Pre Feasibility Study) later this year along with a resource update and trade-off studies. As it moves closer to construction, it anticipates that the equity price will further increase. The equity issuance is being done at higher than current prices, further minimising the dilution. The company is confident in its ability to advance the project, hit the required targets, and make the minimum payments as required. 

Treasury Metals has 100% ownership of an early-stage exploration target. The company plans to carry out grassroots exploration work on this target in 2022. It also has a 49.9% interest in another property, though the company is focused on the Goliath Gold Complex. The funding acquired through Sprott will cover the non-exploration side along with funding the study, taking the projects through the required stages to enter construction. 

Commercial Production

Treasury Metals defines commercial production as 60%-70% of the nameplate capacity. This equates to a 5,000t a day mill, which is a 70% capacity over a 30-day average. Once the company reaches a 3,500t a day capacity from the plant over a month-long period, it will declare commercial production. 

The company is looking at Q4, 2023 for a construction decision and Q4, 2025 for initiating production. The company expects to enter commercial production around 2025 end, or 3-6 months after entering production. The company has spent 6 months assessing the process at both the board and management levels. It has gone through every aspect in absolute detail to ensure that the targets are achievable and that the deal is beneficial. 

2021 Highlights

Following the capital raise last year, the company set a 60,000m drill target. It was able to achieve the target by drilling 60,085m, concluding the drill program on 20th December. 

Although Treasury Metals faced various challenges including summer fires, it was able to overcome these setbacks. At the end of last year, the company had 3 drill rigs running. The drill data is currently in the labs and the company is awaiting the assay results. Although the company has observed delays in the assays, the turnaround times have improved in the past 2 weeks. The company has plans to publish a resource in Q1 2022, which is currently on track. Notably, a large portion of the funds was spent on drilling. 

The trade-off studies are carried out on 2 major aspects, revenue and cost. On the revenue side, the company carried out extensive metallurgical work for Goldlund and Miller. This test work is nearing completion and highly positive results have been observed on both Goldlund and Miller. 

At the revenue end of the trade-off study, the company started silver testing. By mid-2021, the company found that the Goldlund and Miller assays featured silver. Since then, the company has sent 3,500 samples to the labs, and it seeks to include these results into the PFS and FS (Feasibility Study). It is important to note that these assays won’t be included in the next resource as the labs lack the processing capacity for such a high volume. 

At the cost end of the equation, the company has faced multiple trade-offs, including haulage. The company is currently looking at options that were tracked in the PEA, including conveyor, pumping, and more. The company is currently waiting for the resource so that the metrics can be updated with the new data. 

Notably, the company’s PEA had $10M outlined for the mine’s infrastructure development. The company bought a tree farm at Goliath from the government. This farm has a robust infrastructure. It previously had 400 people working here. The company expects to save between 60-70% of the $10M by remodelling the facility instead of building a new one. 

Treasury Metals looked into tailings in 2019 following Economic Assessment. At this time, the company was looking at subaqueous tailings. Currently, it is looking at sub-aerial tailings, going from saturated to non-saturated as a better technical solution. This would make it easier and cheaper to construct, operate, monitor and close. This serves as another opportunity for the company to feed into the cost side of the trade-off study. 

In Q4 2021, the company started assessing a large number of exploration targets. The first half of 2022 is focused on the conversion of these targets. Both the company’s models were brought together by Maura Kolb, Director of Exploration, Treasury Metals. This has led to highly-prospective targets for 2022. 

Based on the results in the past 2 weeks, the company has observed highly-positive results from the Far East and Fold Nose areas. It is looking to include some of these areas in the upcoming resource update. 

The company previously looked at the Goldlund mine as a greenfields exploration. Goldlund was an operating mine in the 80s that was never closed. The company currently has the permits for Goldliund and has carried out digging to uncover material that dates back 40 years. It is currently looking to turn this into a brownfields operation rather than a greenfields operation. The company previously expected the Goldlund project to be a year behind the Goliath project, however, this is no longer the case. The company anticipates that the Goldlund mine can become another opportunity. The company is working extensively to further improve the revenue source, the cost, scheduling, and finances for its assets. 

Resource Estimates

Treasury Metals’ previous resource was 2.5Moz, out of which 1.1Moz was included in the mine plan. The company is focused more on the mine plan than the resource as the former is responsible for generating value. 

Originally, the company didn’t expect to get the 60,000m exploration results back on time to be included in the resource. It is now dealing with resource conversion at Goliath, Goldlund, and Miller assets. It believes that as it found Miller in the last resource update, the current resource could also offer significant opportunities. In fact, the company anticipates that the historically drilled Nose Fold and Far East zones offer exciting opportunities. At the same time, the company is pushing to achieve a higher than 50% conversion rate in the PFS, similar to its PEA. 

The Shareholder Base 

Treasury Metals expects an increase in institutional ownership as the Sprott deal has served as a stamp of approval that the management team is going to move the project forward. The First Mining shareholders that invested in Treasury Metals were focused on the project advancement. 

Notably, the First Mining’s share ownership with the distribution is down to under 15%, while the First Mining shareholders have an additional 17% shares. Previously, there were concerns that the distribution could lead to significant volatility. However, it wasn’t the case. A lot of the shareholders bought into the project for its development story.  

Targets 2022 and Beyond

Treasury Metals is looking to publish the resource in Q1, 2022. By the end of Q2, it will publish a PFS. This would be the first time when the company’s resource would be converted into a mine plan and ultimately into the financial model. The silver assays will be included in the next stage, including the remnant data. 

It is important for the company to achieve growth in the resource as it moves from PEA through PFS to FS. The growth in the mine plan and reserves will help drive the company’s revenue. The company is waiting for the pending results before putting out the resource update. 

The company plans to drill 25,000m in 2022 with a focus on exploration targets. Over the last month, the company observed up to -40 degree temperatures in Dryden. It is currently clearing the snow to access the underlying areas, pushing the project into the next stage. 

Treasury Metals raised $6.5M by way of flow-through-funding in November last year. This capital will be utilised to fund the company’s 25,000m exploration program. The company scaled down drilling this year due to the delayed assay results. It is now focused on attaining the best value for money for its drill program. To achieve this, the company plans to drill a few holes, await assay results before moving forward. 

The company is looking to achieve good results back from the Nose Fold, Far East, and the Interlake areas. This would, in turn, enable it to raise additional capital by way of flow-through funding. Meanwhile, the Sprott money will be used for the studies, permitting, community work, and corporate work. An additional capital raise is planned to fast track the project and get into a Feasibility Study. The company is focused on taking a systematic approach towards drilling and exploration. 

To find out more, go to the Treasury Metals website