Troilus Gold (TLG) - Significantly Increased Economics

Troilus Gold is a Canadian-based junior mining company focused on the systematic advancement and de-risking of the past-producing Troilus gold and copper mine, moving into production. The company was founded in 1985 and is headquartered in Toronto, Canada. 

Matt Gordon caught up with Justin Reid, President, CEO, and Director, Troilus Gold. Justin is a geologist and a capital market executive with over 2 decades of experience with an exclusive focus in the mineral resource space. Justin started his career as a geologist with Saskatchewan Geological Survey and Cominco Global Exploration after which he became a partner and Senior Mining Analyst at Sprott/Cormark Securities, Toronto.

He previously served as the Executive General Manager at Paladin Energy and Managing Director Global Mining Sales at National Bank Financial. He also served as the President and Director of Sulliden Gold Corp. and Managing Director at Aguia Resources Ltd. His educational credentials include a B.Sc. degree from the University of Regina, an M.Sc. from the University of Toronto, and an MBA from the Kellogg School of Management at Northwestern University.

Company Overview

Troilus Gold is a development stage resource company focused on the mineral expansion and potential mine restart of the formerly producing Troilus gold and copper mine, located within the Frotêt-Evans Greenstone Belt in Quebec. The company is listed on the Toronto Stock Exchange (TSX-V: TLG), the OTC Markets (OTCQX: CHXMF), and the Frankfurt Stock Exchange (FRA: CM5R). 

Troilus Gold is a developing gold and copper producer in northern Quebec. The company has a strong balance sheet along with a large 8.1Moz equivalent resource that is currently under expansion. It has 5 drill rigs that are targeting a new resource. The company’s PFS (Preliminary Feasibility Study) is planned for mid-2022. 

Entering the Copper Space

The company has expanded its focus from gold to include copper. This decision was based on copper’s commodity pricing. The company is looking to develop a copper project based on the growing market demand. It intends to produce between 7,000t-10,000t copper each year. The production numbers will make Troilus Gold the largest copper producer in Quebec between Sudbury and Voisey’s Bay. A $3 copper pricing along with the company’s PEA comes out to $100M in NAV (Net Asset Value). At a $4.50 copper pricing, the company’s current position increases the NAV by another $150M. 

The company’s decision to expand into copper has an economic and financing standpoint as the company plans on building the project. As copper has high market demand, it provides significant optionality for the company. Multiple entities have approached the company for the same. 

The company intends to produce between 200,000oz-250,000oz gold for over 20 years. Multiple factors contributed to the company’s interest in copper. The fairly low global inventory for copper, paired with the Quebec and Canadian governments declaring copper a strategic and focus metal made it an attractive prospect. At a $3 copper pricing, 15% of the company’s revenue will comprise a copper-based, while at $4.50, 20% of the company’s revenue will come from copper. 

Troilus Gold intends to keep its gold and precious metals unencumbered. The company is primarily a gold producer, and copper provides an opportunity for non-diluted financing. Copper helps the company further de-risk its project. Additionally, copper has a positive impact on the deposit’s overall economics, making it better from a capital standpoint, leading to optionality for financing. The CapEx for this project is above $300M. 

The Quebec government is a partner and a shareholder in the Troilus gold and copper mine. As the Quebec and Canadian governments named copper a strategic metal, a larger part of their balance sheet will be directed towards increasing exposure to copper. Troilus Gold anticipates that this would help it become the largest copper producer in Quebec. 

Cash Position 

Troilus Gold has $40M in current cashflow. It has employed 5 rigs with planned drilling of 30,000m. The company expects to drill between 12,000m-15,000m every month for the first 2 months, followed by a tail off. 

The company recently published a press release that featured strong drill results. All 5 drill rigs are currently employed at the Southwest extension, bringing the Southwest’s overall footprint to 1.85km. Notably, Southwest now features a larger strike length than 87 in the J Zone, which has historically produced 2Moz Gold and 70,000t copper. 

The 30,000m drill program is directed towards chasing the visible at-surface grades, infilling the reserves, and including them in the Pre-Feasibility Study. 

The metallurgical work is nearing completion and the company is looking to publish these results along with drill data to the market shortly. The company has 14 years of historical data that shows good map recoveries. The company’s previous resource was published 1.5 years ago and since then, it has completed 150,000m of drilling.  It is looking to conclude the Pre-Feasibility Study before mid-2022. 

The company is seeking to convert its inferred resource to reserve through infill drilling. This will be a 43-101 compliant resource for the market and financing needs.  The South side of the property features several great intersections. The grade at this deposit is creeping up. In a scenario where the company can identify 20%-30% higher grades at Southwest for the first 4-6 years, it will have a massive impact on project economics, as this deposit is primarily a low-grade bulk tonnage operation. 

By increasing the cut-off grade from 0.3 to 0.5, the company has the potential of running higher grades through the mill early in the mine life. This would significantly accelerate the project’s payback while increasing the IRR (Internal Rate of Return), leading to a stronger project. The met work data is expected to be published by Q1, while the resource and reserve data will be available around mid-2022. 

Ongoing Operations

Following the increased focus on engineering, Troilus Gold built 5 teams with over 40 people for its 1,400 square kilometre asset. The team is working on applying the new mine model to the mining belt. The company seeks to present its entire regional program to the market that consists of extensive geophysics, drill data, and over 10,000 rock and soil samples. 

The company has carried out extensive work over the last 2 summers to demonstrate that Troilus isn’t a mine, but a belt that has been under-explored for the past 50 years. The company is looking to employ modern exploration techniques to the belt. 

At the mining front, the company already has its first permitting consultations. The pre-consultations for the environmental aspect of the project are underway. The company’s environmental team is working on completing the EIA (Environmental Impact Assessment) provincial permitting for the project. The company has a dedicated environmental permitting team that is working towards delivering the permits needed to build the mine. Notably, the company has 2 processes to cover both provincial and federal permitting. 

The environmental aspects of the project are headed by Jacqueline Leroux and her team. The company has concluded the engineering and geotechnical engineering studies, while the tailing studies for gold are underway. 

The company is working with Lycopodium Ltd. for its process plant, while G Mining is carrying out peer reviews for the ongoing processes. The company has between 6-7 different external consultants working with Richard Harrison, Troilus Gold’s COO. 

Ian Pritchard along with the entire engineering team is working on delivering the Pre-Feasibility Study. Blake Hylands along with the mine exploration team are looking to conclude the 30,000m drill program. In essence, the company’s advancing the project at full capacity. 

Project Timelines 

Troilus Gold is looking to conclude the Pre-Feasibility Study by mid-2022. The Geotech, tailings, and processing work is expected to be of an incredibly high standard, close to the full Pre-Feasibility scale. The company plans to expedite the Feasibility Study by the end of 2022 or Q1 2023. Following the PFS, the company will initiate IBA (Impact Benefit Agreements) with the First Nations.

The company isn’t worried about provincial permitting because it has an existing permitted site that needs to be amended. The company also has a permitted tailing that requires amendment. Notably, the site is brownfields disturbed.  The federal permitting can take from 12-18 months to 5 years. However, the company isn’t worried because these are the maximum timelines for each step, and the government offers windows for the processing timelines. 

Troilus Gold has a huge lobby with the Quebec government in the First Nations. It has an active mining history. The company has several measures to mitigate the timelines. It anticipates that the permitting for the entire project will be acquired within 18 months, enabling the company to break ground in 2024. 

Sale of Options

According to recent talks with company insiders, there were 2M options that were bought and sold. Troilus Gold offered clarification that the options were sold through shareholder approval. It was based on a standard compensation plan that was put in place by KPMG Global. Notably, Troilus Gold does not have options, but a standard RSU (Restricted Stock Units) plan similar to all major companies and advanced developers. The sale was counted as taxable income and the issued RSUs will be taxed. As per the company, a small amount of stock was sold, while the majority of the stock was bought. 

This procedure is standard for the majority of companies and is considered under best practices. Since the quantum law is below the 50th percentile of the company’s peer group, there aren’t any problems with the transaction. 

The Gold Market

Troilus Gold was dissatisfied with its performance on the market due to a drop in share price. The company underperformed the GDXJ (VanEck Junior Gold Miners ETF) by 5%-10%. Meanwhile, the company’s peers featuring other developers were either inline or outperformed the GDXJ by 10%. 

As per the company, the producers trading in low multiples have a strong cash flow. Meanwhile, the market has observed that the balance sheets are getting strong, debts are being paid off and dividends are going up. In the past 6-12 months, there has been a significant jump in M&A (Mergers and Acquisitions) activity in the gold space. 

Troilus Gold currently has a healthy cash flow and the risk of dilution for shareholders in near or midterm is zero. The company has a great project with a significant number of catalysts to deliver. 

The company is bullish on gold and anticipates that the capital will flow back to the developers. It forecasts that even though the market is fighting the inflation hedge trade, it will eventually break. Even though the equities are weak, gold is trading at $1,850, the highest price for gold in recent times. In fact, gold has been in the $1,800 range for the second half of last year. 

Troilus Gold anticipates that there’s going to be growth in the gold market and the money will flow back. The company believes that the massive retreat of tech in the New York and global markets will eventually lead to a switch back to hard assets, namely copper, nickel, and gold. 

M&A Considerations 

Troilus Gold is focused on value creation for its shareholders. In an event where the company is offered a high-premium, it would sell in the interest of its shareholders base. 

However, the company believes that an M&A at this point would be a missed opportunity to develop and deliver a billion-dollar asset. The company is currently working towards the methodical de-risking that will eventually lead to value recognition. The company seeks to deliver the major catalysts in the first of 2022, leading to major de-risking of the project, eventually leading to a significant value appreciation for the company. 

To find out more, go to the Troilus Gold website