Gowest Gold (TSX-V: GWA) - Things Finally Moving Forward for this Gold Developer?

August 20 2020, 02:27 GMT+01:00

Gowest Gold (TSX-V: GWA)

  • TSX-V: GWA
  • Shares Outstanding: 73M
  • Share price C$0.32 (20.07.2020)
  • Market Cap: C$23M
We interviewed Romain in April and he was candid about the mistakes his company has made in the past. The share price has only crept up slightly relative to its gold developer peers, and there is still a huge way to go.

Gowest Gold is a long-running Canadian gold development story: 12 years, in fact. During much of this time, the Gowest Gold management team has made mistakes and missed several deliverables and targets. If one expects the market to trust and invest in your company, this isn't a recipe for success. A sense of nervousness around Gowest Gold stock is tangible.

Matthew Gordon talks to Greg Romain, August 2020

So what are the positives? Gowest Gold has a large land package in Ontario, which is regarded as 'the city with a heart of gold,' within the Abitibi Greenstone belt. The primary focus? The development of the 100%-owned Bradshaw Gold Deposit into the next gold mine in the larger North Timmins Gold Project, which covers a total of 109 square km in the Timmins gold camp. The Bradshaw Gold Deposit is advanced-stage, and the last we were told was that the company intended to process its bulk sample by Q3/20 and start production by mid-2021. It was an ambitious deliverable, but is COVID-19 going to be the excuse for the company missing another target? That looks to have slipped already.

After drilling and analysis in excess of 65,000m of core, Gowest Gold released its PFS in 2015. The project appears to have room for an exploration upside, but what are the key figures right now?

PFS Highlights at US$1,200/oz gold (USD):  

Gold Price $1,200/oz
Pre-tax Net Present Value (“NPV”) (5%) $39.8 million
Pre-tax Internal Rate of Return (“IRR”) 32%
After-tax NPV (5%): $29.2 million
After-tax IRR 27%
Initial Capital $21.5 million
Sustaining Capital $21.4 million
Pre-tax Payback Period 3.5 years
Life of Mine (“LOM”) Operating Cost $821/oz
All-in Sustaining Cost $891/oz
Ore Mined 1,787,295t
Avg. Mineable Ore grade 4.82g/t
Development Rock Mined (additional mineralized rock) 666,253t
Avg. Development Rock grade 1.31 g/t
Initial LOM (includes bulk sample) 8.5 years
Total Gold (extracted in initial phase) 305,058oz
Total Gold Recovery 93%
Avg. Annual Recovered Au Production 40,500oz
Gross Revenue to Operation $341 million
Source https://www.gowestgold.com/north-timmins-gold-project/overview/

The project has likely become much more economic at a gold price now touching US$2,000/oz after today's long-overdue correction, and the AISC is good. However, this is a small scale, average grade gold project that is unlikely to excite the market when investors could be throwing their money at more prospective gold plays.

What has Gowest Gold been up to since April, then? The bulk sampling and financing arrangements were active priorities. The company is currently gearing up to start the ore sorter on the bulk sampling front. There has been a little delay because a "technical person" was required from the U.S, and (you guessed it) COVID-19 created some delays. The ore sorting will start in the "next couple of weeks." On the back of that, the company will start shifting ore to the mill and the end of Q3/20. The mill needed permission from the Canadian government, which Gowest Gold expects to have by mid-September. All things considered, it does appear that Gowest Gold should fulfil its bulk sampling deliverable. Hopefully, this is a sign of things to come.

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On the financing side of things, the company had just raised US$1.6M from a couple of its Chinese partners when we last spoke, and now it has raised more in debt. Now, Gowest Gold has raised an additional US$1M in debt; it expects to close a further US$1.5M by the end of this week. The company has now raised US$4.1M. It has a little over US$1M in the treasury right now. The company's burn rate is quite high considering what it has: US$400,000 per month. The company is planning to conduct another raise to see the project through to production and to fund some exploration programmes. The company claims its main Chinese partner is fully in support of its attempts to raise capital. The ore sorter has been up and running over a year ago, but because of delays, the company shut everything down. It has had to spend some capital to get things back online, and this looks like a strategic error/waste of money to me.

The bulk sample will be up to 30,000t. The company currently as c. 28,000t of mixed development ore at surface at roughly 2.5g/t. The plan is to sort this ore, get it into the mill whilst simultaneously starting the underground development.

Is the recent accretive growth down to the company or the gold market? Romain is once again honest, stating that more companies have been knocking on his door recently than at any time in the 12 years previously. It is clear the maniacal bullishness of the gold market is fully in play here. The company has been working on restructuring its balance sheet, and Romain projects some catalyst moments going forward beyond the bulk sampling, though what these moments will be is unclear. The main option available will be converting the debt, because investors are clearly concerned that Gowest Gold will be using any incoming capital to service its debt rather than create growth. Romain claims that his shareholders and lenders like where the company is at. It is time to see some evidence.

The company is definitely an advanced stage developer, and Romain was keen to emphasise this. It has completed over 2km of underground development and expects to have its production permits in order within the next "month and a half." He is confident on the permitting front because of support from the local first nation communities and favorability with the government.

The bulk sample should take 3-4 months. Then, the 6-month pre-production process begins, based on many internal models, which will tie the technical data with financial and commercial arrangements. Within 14-16 months, the company expects to be in production at 50,000oz pa, though he expects to do more than that based on what he knows. What does he know and why can't he tell us? There have been murmurs of up to 100,000oz pa, and this appears to be an eventual target for the company, though quite how it gets there remains to be seen.

Moving forward, the aim is to find a strategic partner, ideally a North American one, that can add nicely to the Chinese component and would spread the risk. The figure that has been earmarked is "conservative," US$20-30M. between On the technical side of things, it doesn't look like there will be any more hitches; the mill needs its permission to process, and should have it by mid-September, but that is about it. Even a Biden presidency shouldn't be detrimental to things.

In order for this bulk sampling to be truly successful, the recovery rates will need to be what Gowest Gold predicted: 98% after the smelting, all-in inc. processing 93-94%. However, if the company doesn't hit these numbers, Romain doesn't think it will be a failure.

What did you make of Greg Romain and Gowest Gold? Comment below and we will respond.

Company Website: https://www.gowestgold.com/

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