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Precipitate Gold (PRG) - Exciting Developer near Barrick's Top-5 Global Gold Asset

September 29 2020, 12:31 GMT+01:00

Precipitate Gold (PRG)

  • TSX-V: PRG
  • Shares Outstanding: 106M
  • Share price C$0.16 (04.06.2020)
  • Market Cap: C$16M

Precipitate Gold is another gold mining story looking to take its place in the gold bull environment. Precipitate Gold is a gold developer that owns 3 gold assets in the Dominican Republic: the flagship Pueblo Grande gold project, the early-stage Ponton gold project and the parked Juan de Herrera gold project. What is the latest news?

The ground magnetics geophysical survey conducted at the Copey Hill epithermal gold target of the 100%-owned Ponton Project has reported highlight values of 53g/t gold and 17g/t gold. In general, this project could have some good geological potential. Ponton's tenement measures 3,250 ha and it is excitingly situated just 35km east of Barrick's 'world-class' Pueblo Viejo mine and 20km east of Pueblo Grande Project. Investors should note that Pueblo Viejo is the largest active gold mining operation in Latin America and is one of the top 5 global gold assets. One couldn't really wish for better company. Things appear to be lining up nicely and the share price has been on the rise impressively. It is clear than Precipitate Gold is trying to leverage the under-explored, highly-prospective nature of Dominican geology to develop Ponton into a de-risked, district-scale gold resource before selling it to a mid-tier/major gold mining company.

Having reached an agreement with Barrick Gold this year, Precipitate Gold has sufficient capital to continue drilling at Ponton whilst developing the 9,863ha Pueblo Grande land package. Work includes selective surface geochemical sampling, systematic rock-clay alteration surveying (via portable spectral mineral analysers), geological mapping and, most importantly, an initial 2,500m of exploration drilling. Precipitate Gold has recently signed an agreement with gold giant Barrick Gold for Pueblo Grande: a $10M earn-in agreement for 70% interest.

Precipitate Gold has US$2.3M of cash to conduct its drill programme alongside Barrick at Pueblo Grande, while keeping Ponton as the second priority. Juan de Herrera still has regional licensing issues and sits on the back-burner.

We Discuss:

  1. 1:43 - Company Overview
  2. 3:09 - Mining in the Dominican Republic: Change of Government Beneficial to Companies?
  3. 7:27 - Progress & Potential: The Business Plan
  4. 12:38 - Financing it All: Options Available
  5. 13:44 - Progress with Pueblo Grande: Deal with Barrick Gold & Terms
  6. 18:55 - Ponton Project: Challenges and Progress
  7. 25:40 - Cash Position, Allocation and Debts
  8. 27:08 - Acquisition of Equipment: How are They Sharing with Barrick?
  9. 29:44 - Bull Market's Impact on Timeline, Strategy, & Raises

Matthew Gordon: What have you been up to? 

Jeff Wilson: It's been interesting times, and lots have been happening, not only for the company but certainly here in the market, and the Gold space has been a very exciting spring and summer.

Matthew Gordon: Your share price has doubled since we last saw you.

Jeff Wilson: We had a few news catalysts that came together late spring, and we've seen some nice trading volume and some nice movements here, but it's a little bit of rising tide. We've also had some fairly progressive good news into the market and been rewarded for it, which is nice.

Matthew Gordon: Give us that 1-minute overview of what you have and then we'll pick it up from there.

Jeff Wilson: We're a junior exploration company focused in the Dominican Republic as a jurisdiction. We have got 3 key projects or assets all in the Dominican Republic at various stages of work, one of our first forays into the country was a project called Juan de Herrera, which is adjacent to an existing resource held by a company called Gold Quest. We've done a couple of drill programs there, delineating the number of targets, many of which are drill ready. We've parked that over the last couple of years due to some circumstances with respect to politics. We then shifted over to the central part of the country where there's much more mining activity. It's a little bit more mining-friendly and we picked up 2 key projects in that part of the country:  Pueblo Grande & ponton. Pueblo Grande is very strategically located; adjacent to one of the largest mining operations in the world run by Barrick. Ponton was a very interesting, early-stage but quite significant untested project about 25km away. Those are the main 3 properties that make up our property portfolio and we're looking forward to seeing work on all 3 of those projects between now and year-end.

Matthew Gordon: How have things been since the new government stepped in?

Jeff Wilson: Things have been quite positive. We did have some stalls with the previous government. Nothing major as far as we are concerned. There were some hang-ups with certain projects. But our experience was we were able to get our permits and do our work, get the necessary green license needed. But this change in government has shifted to a much more business-friendly economy, and in turn, pro-mining mandate. Obviously, with what's happening with COVID in the economic downturn that creates in a very tourist-centric economy like the Dominican Republic we're seeing much more of a push towards the upside and the potential economic benefits of mining. We're hearing a lot of that commentary from the new inbound president and the government so that's been very positive for us.

Matthew Gordon: You must be pleased, but imagine not as pleased as Gold Quest on the Juan de Herrera project,

Jeff Wilson: Correct. As some people may know, Gold Quest and their Juan de Herrera project is a several million-ounce resource project at a Prefeasibility stage. It's got lots of exploration potential and was one of the catalysts for our entry into the country back in 2012. It's been hung up on some politics and really a permitting or a license to get through into exploitation from exploration, that's been a long-drawn-out process under the previous regime. There were some issues related to the outgoing president that it just seemed to sit on his desk, and I think with the change in politics, as you say, I think this shines a very positive light for Herrera and hopefully getting that that license that it needs to move this project through development and any forward movement there will benefit us as well.

Matthew Gordon: What are the economics looking like for you if the project gets going? When do your shareholders get some benefit?

Jeff Wilson: Again, it is a great unknown in terms of when a license would be granted by the government. There are lots of shuffling, as you can imagine, with respect to cabinet appointments and new ministers and that kind of thing. We're going to have a little bit of a transition period here compounded by what's happening in the COVID world that we're still living in so I'm not under the impression that something's going to happen tomorrow. I think in due course there will be some positivity. That would allow Gold Quest to move that project into Environmental Impact Studies and marching down the path towards a proper Feasibility Study deposit.

The positive impact on that for us does not only do they have a significant existing resource; they have a lot of exploration targets within their property package as well. We're sitting immediately adjacent to them, right up against their claim boundary for about a 40km strike. In the same geological terrain, many of their existing exploration targets butt-up against our claim boundary and seemed to coincide with some areas where we'd identified some significant mineralisation as well, whether geochemistry or drill results of our own. You've got this potential of this underexplored exploration potential throughout the belt. I think for anybody to go in and want to really push hard on exploration to try to find Gold in an area, you want to know that the guys that have already found it can be successful in extracting it; that paves the way for investors to be more comfortable, for our company to be more comfortable and Gold Quest similarly, in continuing to invest in the exploration upside and identifying more known mineralisation.

Matthew Gordon: What are you relying on now happening?

Jeff Wilson: We've got an extensive amount of data. We were there operating fairly actively again. The market wasn't great so there were some fits and starts with respect to access to capital etc. But we were there from 2012 and quite active up until 2016-2017, so we've got an extensive number of targets. We've done an extensive amount of soil and rock sampling, geochemistry, geophysics and delineated a number of targets. In fact, we've got drill permits for multiple target areas within our land package.

 Gold Quest, when they put the brakes on, they had just received about USD$23 24M equity investment from Agnico Eagle whose mandate with that investment was the exploration upside. They believed that Gold Quest had a nice deposit in a nice attractive possible mining operation, but the exploration potential within the district was really what attracted them. I think that's validation. I think when a mid-tier major comes in and invests in the exploration upside, it's a validation of the potential to find more in this belt and district.

We feel as if our land package is as prospective as many of the targets that Gold Quest delineated, yet our market cap is significantly lower. We don't have the anchor or the foundation of several million-ounce deposits in place, but we think there's lots of potential in this belt and really, it's a matter of getting the social comfort and the licensing comfort to justify investing back into the exploration of this district.

We've got multiple, very advanced targets that we've delineated through several stages of work and are keen to, at the right time, to deploy our crews back into the field and try to bring these targets to a drilling stage very promptly. Again, many of them are permitted already.

Matthew Gordon: Have a conversation with Gold Quest?

Jeff Wilson: Yes. There's been a lot of talk about that since 2012 frankly when we entered into the fray and picked up the ground adjacent to them. One little sidebar to that is the Dominican Republic had a policy under the previous government about a certain number of hectares that any company could own so we were often asked: why were you able to get this very strategic land package immediately adjacent to a brand-new discovery? The reason was that they were maxed-out on their landholding, so we were able to slide in ahead of the crowd and pick up a pretty extensive land package in the same geological terrain. So yes, there's been a lot of talk about the potential coming together or consolidation of that land package, and we'll see.

Matthew Gordon: Is this something you would want?

Jeff Wilson: It would have to be in the best interests of shareholders. For us currently, there's lots of upside for us to add value within our own land package. We really only drilled 2 targets, maybe a total of 25 drill holes, something like that, so there's still a lot of work to be done on our ground to really delineate and get a better understanding of what we have. Doing something like that today might be a bit premature. But anything's possible, I suppose.

Matthew Gordon: Do you know what your plan is yet?

Jeff Wilson: Right now, the best path forward for that land package is to advance some of these targets, get some of the primary targets within our land package better tested, get a better handle on what we have. With respect to - what you're insinuating here - to a consolidation. I think it may be the kind of thing wherein the current Gold environment Gold Quest has a fairly attractive Prefeasibility-staged asset in a jurisdiction that has suddenly become a little more attractive or de-risked to some extent in the eyes of the bigger industry. You may start to see some mid-tiers or maybe even some majors starting to look at what Gold Quest has, look at the surrounding ground in the land package. Maybe that's where the consolidation could come. Something like that might make more sense.

Matthew Gordon: Where are you going to get the money to do further work on it from?

Jeff Wilson: Up to this point we haven't really raised money or sought money because, for the last few years, it's kind of been passive and been sitting on the sidelines. The money that we have in the treasury and the money we raised was largely for Ponton, but this emergence of Juan de Herrera and the upside of Romero we saw coming because we knew that the presidential election was coming and that going to be a change and we were monitoring the polls. What we'd like to do if we're going to start to contemplate getting back and getting active there again, it's a big land package, lots of targets so it will require a little bit of cash. We would go back and revisit some of those targets, revisit some of that prior data, which was quite impressive, and maybe start to shine up the potential of that project, perhaps look to do financing specific to what that budget or those needs might be.

Matthew Gordon: Can we talk about Pueblo Grande? How much money have they spent so far, and have they spoken to you about it?

Jeff Wilson: It has moved on. I don't have a number for you in terms of what they've spent so far. I will admit right off the bat, they were affected a little bit by COVID restrictions in terms of boots on the ground and doing work. Because the exploration of Pueblo Grande was outside of the mining operation at Pueblo Viejo, which is their operation right next door. They were able to continue mining at Pueblo Viejo under very strict policies but getting boots on the ground on our project was delayed a little bit. That's since been relaxed. They can get going again. We've been informed by Barrick, and in fact, we put a news release this effect a couple of months ago, is that they had started data evaluation and revisiting some of the geochemical and geophysical work that had been done. They were going to initiate some of their own ground surveying. My understanding is they are currently altering some of the drill permit applications. We had drill permits for it ourselves. They're maybe going to drill it a little bit differently than we had initially planned so they're altering and dealing with the government and altering some of the permits. The message from them is they expect to do a minimum of 2,500m of drilling at the primary target where we were focused, which is the Lithocap zone, between now and year-end.

Under the terms of the agreement, they have to provide us copies of any approved budgets, work programs and quarterly reports of any work that's been done. The question always arises once you do a deal with a major, you're never going to get any news flow. You're never going to know what's going on. In this case, we've got a fairly good handle on keeping ourselves informed and therefore being able to keep our investors informed. We expect some things to come between now and year-end. If that drill program gets conducted, we should have results by the end of the year.

Matthew Gordon: Are you going to cut them any slack, given that Covid has happened? Do the terms change?

Jeff Wilson: We cut them a little slack in the final stages of negotiating of the deal because COVID was upon us at that time, and the initial deal put their feet to the fire pretty quickly to spend in year 1. We agreed to push that out, instead of USD$1M in year 1, we made it USD$2M in the first 2-years in order to compensate for the fact that the whole COVID thing was a bit of an unknown. I think they've been given a reasonable amount of slack and we would expect them to uphold the terms the deal.

Matthew Gordon: Within the 6-year time frame, can they opt out at any point? Are there any kind of punitive charges for them doing that?

Jeff Wilson: A couple of quick things: one is they have to spend a minimum of USD$1M regardless if they want to cancel the deal tomorrow. The way that that manifests itself is if whatever they have not spent to get to USD$1M, they pay us in lieu of cash. Let's say they spent USD$500,000. They kill the deal. They write us a cheque for USD$500,000 and walk away. After the first USD$1M, they have the right to walk away at any point in time. What we like about this deal is that it really is an all or nothing on that 70%. There's no spend USD$3M, get to 51% and then take the hammer and delay in this instance. It's spent the USD$10M over 6-years to earn 70%. They must deliver Prefeasibility otherwise they get nothing. For those who don't know, it's no small task to spend USD$10M in the Dominican Republic, when you have a central operation right next door, you have people, equipment, you're not shipping things in from other places. It's a big spend to spend USD$10M in the DR, and to deliver Prefeasibility in 6-years, so I don't see a lot of room for them to delay. Again, we feel as if we have got, not their feet to the fire, but it's a deal that keeps them on track. If at some point it doesn't deliver for them, we will get it back 100%.

Matthew Gordon: What was happening at Ponton?

Jeff Wilson: It's actually come together quite nicely since we last spoke. That was a project that initially when we did the deal with Barrick, they had inquired about including Ponton in the Greater Pueblo Grande earning agreement because it's only about 25km away from Pueblo Grande and Barrick’s Pueblo Viejo mining operation, in the same geology. We elected to keep it. My technical team, my Vice President exploration, Michael Moore, really liked the project in spite of the fact that we hadn't really done a lot of work with it ourselves. We inherited a data set from the previous operators that we hadn't spent a lot of time looking at because were very focused on the big prize next to Barrick. When were force with do we want to keep this or make it part of the Barrick deal, we dug a little deeper and recognised that there's a really compelling geochemical target here: there is Gold in soil anomaly that's never been drilled? It is peripheral to a fairly interesting, what appears to be a Gold-Copper porphyry. All of this speaks to what could be a pretty compelling epithermal system.

We kept it ourselves and when we did the deal with Barrick, we got a USD$400,000 injection of capital from Barrick in the form of a private placement so we were nicely cashed up with USD$2.5M or so in the till at that time. We set out to better understand this project and some of the prior work.

We inherited some geochemical anomalies on the property package, but our first phase of work was to go in send crews in, which were able to do because of our existing tenure in the Dominican Republic, in spite of the COVID restrictions. We had a good network of in-country geological expertise and field crews that we're able to send locals into the project, again a little bit later than we had initially expected because of early restrictions. We basically collected soils over that Copey Hill Zone within the property and we expanded that anomaly. There was already a fairly sizable 1km by 0.5km Gold anomaly in soils. We expanded that out to the north and northwest and tightened up the spacing. Where prior operators had collected soils every 50m, we collected soil samples every 25m to really get a better density and understand the concentrations. That has returned some nice Geochem in soils, but also along the way we collected some fairly compelling rock samples as well. We were collecting many high-grade rock samples: 7 g/t, 17g/t, 53g/t Gold in rock samples all within a fairly consistent and concentrated area within the Copy Hill.

Now, just as a bit of a sidebar, the Dominican Republic in our experience hasn't delivered a lot of that kind of surface mineralisation. A lot of the projects in the targets that we've delineated, just based on the country's geology has been a little bit more benign and you get these subtle anomalies. But in this case, to get these high-grade numbers was quite unusual.

The next phase of work that we are finalising now is to run ground magnetics over that. Again, it's the same sequence of work that we conducted at other projects that have been successful. We will get the Geochem, get an idea where there's Gold at the surface and then run ground magnetics or ground geophysics over that to see if you get some indication of what the geophysical signature might be. And we're hoping to have those geophysical results in the coming weeks, which will give us an additional layer of data that we will utilise for drill targets.

Matthew Gordon: What do you hope to know at the end? What do you want to be able to go to the market and say about Ponton?

Jeff Wilson: If you were to ask my geologist, even 6-months ago, when we shifted gears from Pueblo Grande to Ponton, I think his words were, ‘If you put a gun to my head, I could drill this project tomorrow.’ It's compelling enough. It's a fairly straightforward model. In fact, one of my geologists on the board, Quinton Hennigh, said early on in this project when some of this geochemical data came up, he said, ‘This is a walk-up drill target. You don't have to over-science this; this is pretty straightforward stuff. We have a very concise and simple geochemical anomaly and model, but what we like to do and we've done this in the past with Juan de Herrera, with target delineation and with Pueblo Grande, we add layers of data that help us vector so that we know where within a broader anomaly where we actually want to put a drill hole. For us, we see the characteristics of an epithermal Gold system here early on, and if the geophysics pan out and we get some magnetic lows coincidental with these rock samples and high-grade concentrations of Gold, that will be that second layer of data that vectors us to where we might set up a drill rig.

The goal here is to get this drill-ready in the coming months, sometime in the next couple of months seems realistic to me. It will be a compilation of geochemical results, geophysical or magnetic results and some mapping, just understand the geology. We layer those 3 together and start to plot up a drill plan.

Matthew Gordon: When will you next need to come back to market and raise some capital?

Jeff Wilson: We are in a fortunate position. I'd like to give ourselves credit for it; we own all of our projects 100%, so we don't have any underlying option payments where we've got a dole out hundreds of thousands of dollars every 6-12-months. Along with that, we don't have any work commitments where you've got to spend USD$500,000 in year 1. The projects are owned by 100%. Holding costs are minimal in the DR so our treasury is fully discretionary, and we can spend this money as we see fit. Right now, we're focusing the majority of our efforts towards a drill play for Ponton in the months ahead.

We're currently sitting on a little over USD$2M, that could get us through a couple of phases of drilling at Ponton, and/or some drilling at Juan de Herrera if we decide to do that. Although, as I said earlier, I think the better plan would be to raise capital specifically for that, so our drill costs are quite low in the Dominican Republic. We purchased drill rigs earlier this year, in January.

Matthew Gordon: You talked previously about 50% acquisition costs and maintenance shared with Gold Quest. Is that still the case?

Jeff Wilson: Yes. We acquired those out of receivership for pennies on the dollar. We got what equates to about USD$800,000 worth of drilling equipment for USD$80. We split that cost with Gold Quest on a 50/50 basis and formed a little Dominican subsidiary to hold those assets. We've got full access to, if you were to piece it all back together because it's in parts, 1 fully operational rig right now, we've got it all spit-shined and ready to go and then a couple of others that can be updated if we needed to if, at any point in time, we both want to be drilling at the same time. Up until now and maybe in the near term anyway, Gold Quest is not doing any drilling. They've been fairly passive while we await this license. We expect to have, essentially, full access to the drill and are hoping to deploy that, get it turning at Ponton in the months ahead.

Matthew Gordon: How do you work that? How do you guys sort that out?

Jeff Wilson: We've got some mechanisms in there. One of the key issues is that there are multiple drill rigs so if/when, say Gold Quest wants to ramp up and get 3 drills turning on at Romero while we want to get 1-2 at Ponton or somewhere else, there's a capacity to, essentially, it’s a bit of a cash call and we would inject a little bit of capital to get these things up and running and go from there. We've got some mechanisms in the way that we've set up the deal with respect to costs. Essentially, if you're using the drill rigs, you're paying for in terms of the personnel and that sort of thing. You pay for your own costs, but we expect there to be fairly significant cost savings. We've also got some high-level guys in-country, a drill crew headed up by a Canadian foreman who lives in-country, and so we get the good people, we get the equipment and we can do this at a fraction of the drilling cost of what it would have cost us to contract out and do the same work. It's the same drill rigs we've used, and Gold Quest has used for years, so we know it very well and it's the right equipment for these projects

Matthew Gordon: What it's doing at the moment with Gold are you not tempted to go to market and just raise a little bit more money?

Jeff Wilson: It's a conversation that we've had internally for a few weeks. As you and I have talked about previously, the amount of money that was coming into the system over the last several months was staggering quite frankly, and I think when you see a market like that your first response is, this isn't going to last, and then it continued to last and more and more money came in. Some of the dialogue I've had with some of the banking guys that I deal with is, we're starting to see some generalist money, so you can't help but think to yourself, should we put our hand up here and make a case for getting a little bit of capital into the treasury - strike while the iron's hot.

We felt, however, and I do feel, and I always have that certainly raising money when the money's there makes all the sense in the world, and I don't dispute that ever. But I've always taken the view that we like to, or I like to, raise money at a time where we've got a very clear and focused rationale for it. And in the last couple of months, we were working on relatively inexpensive low-level work to get Ponton ready. As things start to unfold there and as Juan de Herrera starts to see some daylight, which happened in July and August, I think that creates an opportunity to say, maybe there's an opportunity here to revisit some of those targets at Juan de Herrera, that's going to require a little added capital that we didn't already have in the treasury and didn't have budgeted. This now is the rationale for it. I think people want to see that if you're going to raise money, it's not just to top up the treasury. It's with a specific purpose that can bring about a return on investment for those investors. I'm going to raise money, here's how I'm going to deploy it. And here's the timeline for us to find out if we're heroes or zeros based on the results of that work.

Matthew Gordon: Did you have those sorts of conversations internally?

Jeff Wilson: Certainly. And again, we wouldn't be where we are with regards to our landholding at Juan de Herrera adjacent to Romero if we didn't believe 3-months ago, 6-months ago 12-months ago, that the political environment was going to work favourably in that things were going to work in favour of that permit. If that was to us a complete dead Issue, we would have abandoned the ground. But we've always believed that the Dominican government understood the importance of mining and was going to recognise the importance of Romero and the economic benefit that it could bring.

We saw this development coming. I didn't see this coming in the Gold market or the Gold price. I don't know how many people saw that per se, but we saw that the landscape in the Dominican Republic was going to improve and we could see that there would be the potential to spend more money on more targets and be more active on multiple fronts. We definitely had those conversations in the summer when things were really rocking and rolling. I think that our strategy was - let's advance a couple of these targets. The Ponton target - let's get it to drill ready. Let's get the final layers of work pulled together so that we're going out and saying this is where we're going to drill, this and how we're going to drill. This is going to require these many metres, these many holes, similar to Juan de Herrera.

I think we're very close now to starting to revisit some of the previous work that we've done there, perhaps reintroduce people, because I think a lot of people have bought Precipitate in the last couple of years solely for Pueblo Grande and are not particularly aware of the prior work that we've done at Juan de Herrera. If we're able to reintroduce some of those anomalies, those targets, the prior drill results, people will recognise that in the right Gold and right political environment in the DR, which I think we're in right now, there's a justification for a fairly sizable budget of that project. We're definitely thinking about that. But again, right now we're trying to play out our strategy and bring these things to a point where hopefully we get a little bit more value. That’s a great unknown in the market and it could go the other way anytime soon. But if we lay out some of the fundamentals on a couple of projects and target areas perhaps that's the opportune time to strike and raise the capital.

Matthew Gordon: Jeff, thank you very much for that. It seems to work elsewhere, stay in touch.

Jeff Wilson: I really appreciate the opportunity, Matt. Thanks again.

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

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Any advice contained in this website is general advice only and has been prepared without considering your objectives, financial situations or needs. You should not rely on any advice and / or information contained in this website or via any digital Crux communications. Before making any investment decision we recommend that you consider whether it is appropriate for your situation and seek appropriate financial, taxation and legal advice.

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