Minnova (MCI) - Restarting Production at High-Grade Manitoban Gold Mine

September 2 2020, 18:54 GMT+01:00

Minnova (TSX-V: MCI)

  • TSX-V: MCI
  • Shares Outstanding: 37M
  • Share price C$0.49 (02.09.2020)
  • Market Cap: C$18M

"It might be small, but small can be beautiful."

Gold juniors are truly ubiquitous in the current environment. With gold hovering just below US$2,000/oz, even some quite flawed gold companies are being funded. Some investors will be more than happy to trade small amounts on a daily or weekly basis. For those of us who are less talented or who have more capital to deploy, perhaps looking for true fundamentals is the better route.

So, Minnova: is this another one of the uniform pack, or does it stand out in some discernible way?

Matthew Gordon talks to Gordon Glenn, August 2020

Minnova is an emerging CVE-listed gold developer, which is soon to become a producer. This is a story that is 10 years in the making and is perhaps one that could only see the light of day in today's ambitious gold market. The company acquired a gold asset, the PL Gold Deposit, located in Manitoba in 2011. PL operated briefly in 1988, but unfavourable gold prices soon put it out of action. Since 2011, Minnova has been "diligently" and systemically progressing the project through the various standard milestones to reach a point when the company can pull the trigger.

This is a strategy that we have seen deployed before on several occasions. Sometimes it is successful, but sometimes projects were shut down for a reason. If the PL Mine has the kind of potential Glenn and his shareholders are hoping for, this will be a de-risked operation with more detailed and relevant historical data than most gold development plays. However, it will still need the fundamentals and cash to back it up. Investors need to decide if this is one of the many gold juniors that it is worth taking a punt on. The share price has been volatile, falling off a cliff edge in January 2019, and it has only started to recover in recent months alongside the rising gold price environment. The company is worth c. C$15M today and investors are going to need to carefully consider whether this is an investment opportunity that can provide them with satisfactory returns.

So, what sort of potential does the PL Gold Deposit host? Let's take a look at the 2017 FS. Remember, these figures are using a base case of just US$1,250/oz gold:

  1. Post-Tax NPV5: $36.7M
  2. Post-Tax IRR: 53%. This is a profitable operation, even at more depressed gold prices and even if it is a small one right now
  3. Proven & Probable Mineral Reserves: 259,000oz gold of (1.27Mt ore grading 6.34g/t gold)
  4. Measured & Indicated Resources: 282,500oz gold (1.48Mt grading 5.93g/t gold).
  5. Minnova states that the FS excludes Inferred Resources of 301,700oz gold (1.84Mt ore grading 5.08g/t Au)
  6. After-Tax Payback: just 1.5 years after the plant is up and running
  7. Minimum Life Of Mine: 5 years, mining & processing 1.27Mt ore at an average grade of 6.34g/t, producing 232,462oz gold
  8. AISC: $942/oz gold.
  9. Cash Cost: $715/oz gold.
  10. Years 2-5 Mill Feed: 788tpd throughput resulting in 45,637oz pa gold production/
  11. Pre-production Capital Cost: $35.35M (including 10% environmental and initial working capital contingency).
  12. Year 1 CAPEX: $12.5M
  13. Year 1 Net Income: $38.5M
  14. Sustaining Capital Costs: $54.16M over LOM.

The first thing that catches one's attention is the short mine life. However, Glenn is insistent that this is simply the minimum and PL has significant exploration and resource expansion potential. This potential could be unearthed by converting inferred resources into the measured and indicated categories by conducting additional drilling along strike. Moreover, expansion and delineation to resources along strike at the northern end of the deposit could be a game changer. Mineralisation has been traced for a further 320m on surface.

Economically, this is a highly profitable, high-grade, small-scale gold play, and the current elevated gold price could further enhance its profitability. Just how much potential PL holds depends on how much you buy into the exploration upside component of this story. What is beyond question is that Minnova's ownership of an old processing plant, which can be recommissioned for c. $10M, is a definite value add for investors. This is a fully-researched, fully-permitted, shovel-ready operation that is ready to be financed. It could time its entry into the gold cycle at a great moment.

"Leverage Number 2" is the name prescribed by Glenn to a potential increase in the reserve grade, With many of these high-grade deposits, there is an observable "nugget effect." In the original FS back in 1987, SGS (Lakefield back then) conducted metallurgical testing, estimating a certain grade and a certain rate of recovery. They separated recovery into categories, with gravity recovery accounting for 60-70%, and total recovery hovering around 95%. When the mill was operating, the former owners struggled at around 40%. It is clear they struggled to understand the nugget effect of the deposit, and thus they couldn't optimise the liberation of free gold. During Minnova's infill drilling during its FS, the company's geologist would often notice very prospective mineralogy. However, the integral assays that were expected to grade very highly would often return a grade lower than expected. Eventually, the company looked at a total metallic screen fire assay, splitting the assay to capture all of the gold in the sample rather than just a 30g/t cut of what could be a 2kg assay. After conducting 60 samples across the deposit at strike and depth, the company was seeing a positive variance in its grade. The company initially saw a 20% positive variance, which has now fallen to 12-13%.

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There is the potential that the reserve resource rate has been understated because it mostly relies on traditional fire assay methodologies. Going forward, Minnova will be conducting total metallic screenings so it can try to eliminate the uncertainty surrounding this issue. This isn't a huge increase, but it appears to be somewhat meaningful for the company's bottom line. Glenn states that a 10% increase in the grade of the deposit would be almost equal to a 10% rise in the gold price. This enhances the company's optionality and means it can weather the storm in a reduced gold price environment provided Glenn and his team can improve the mine life.

The company should have little difficulty raising such a small CAPEX during a gold rush, but how will Glenn minimise dilution for patient shareholders? He states that any project finance facility comes with a "contingent equity component." He is aware that as things stand, the company does not have a sufficient market capitalisation to raise this money on favourable terms. Minnova has been in active discussions with private equity groups and financiers for a very long time, but Glenn has not yet signed the company up to anything. He's been readying the company at the capital structure level to full the trigger. There are more groups than ever interested in throwing their money into the ring. This is a small-scale project in a tier-1 jurisdiction that offers up reasonable exposure to the gold price. Once Minnova's share price increases a little more, Glenn is confident he can secure some concrete financial arrangement to the tune of c. US$25M in the near future.

At the end of this quarter, Glenn will own around 10% of the company, so he is reasonably aligned with shareholders. He hasn't "paid himself very regularly, if at all," which is always a good sign that this isn't a lifestyle company in disguise. He instead converts to equity "at a higher price than typical junior mining CEOs do."

Minnova's share register is mostly compiled of "big-book retail guys." These are "the usual suspects on the street" and he won't name names.

Do you like seeing a company without the challenges inherent in a big project getting cash flowing quickly and investing it back into the ground? Will it generate enough excitement to get the share price moving in the right direction in an accelerted timescale?

What did you make of Gordon Glenn and Minnova Corp? Comment below and we will respond.

Company Page: http://www.minnovacorp.ca/

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