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Theta Gold Mines (TGM) - Methodical Gold Developer 6Moz Resources nears FS (Transcript)

September 17 2020, 14:32 GMT+01:00

Theta Gold Mines (TGM)

  • ASX: TGM
  • Shares Outstanding: 458.92M
  • Share price A$0.24 (17.09.2020)
  • Market Cap: A$117.02M

Theta Gold Mines is an Australian gold developer with assets in South Africa and over 6Moz of resources. Theta Gold Mines is an extremely methodical vessel that has moved its gold projects forward cautiously, with a 5-year ramp-up strategy taking centre stage.

Theta Gold Mines recently raised around $4M and this will be used to complete a feasibility study for Theta Gold's 74%-owned Theta (open cut) high-margin, low CAPEX gold project. Theta Gold Mines will still need around $30M-$40M to get into production but with a gold resource this large and a gold bull environment as positive as it is right now, we see no reason why the company will have any difficulties.

This is a gold mining story done sensibly and correctly. It is clear that Theta Gold Mines believes it can become a successful gold mine builder. The board is predominantly comprised of mine builders and technical experts rather than bankers. In fact, Guy would like someone to pull this gold project out of his hand for a lot of money. A lot of work has gone into this, and investors will be hoping Theta Gold Mines can monetise its hard work and gain optimal value.

We Discuss:

  1. 2:16 - Company Overview
  2. 2:45 - History and Development: Do People Understand the Story?
  3. 5:32 - Moving it Forward: Money & Timeline for Deliverables
  4. 8:19 - Mining in South Africa & Impacts of COVID-19
  5. 11:24 - The Assets: What's There & What's the Plan?
  6. 16:13 - Generating Value: Exit Plans and Options
  7. 19:50 - Considerations, Conversations, & Evaluations
  8. 24:37 - Exploration Potential and Considerations
  9. 26:20 - Capital Needs & Expendature Plans
  10. 27:37 - The Team and Potential Opportunities

Matthew Gordon: Bill, how are you doing, sir?

Bill Guy: Very good, Matt. How are you going?

Matthew Gordon:  Not too bad. You're joining us from what, Sydney? Near Sydney today. How are things?

Bill Guy: Very good. Weather is good, it's very sunny and Gold price is high – it is all good.

Matthew Gordon: As long as the Gold price is high, you wouldn't care if it was raining, would you? Whereabouts, are you? You are slightly North of Sydney?

Bill Guy: Yes, Terigal is on the beach. It's a coastal town. It's about an hour out of Sydney.

Matthew Gordon: Today we are going to hear about your project, Theta Gold. First time we've spoken, first time we've met, first time we'll have heard this story. Why don’t you kick off, give us a one-minute overview of what you have and then we'll pick it up from there.

Bill Guy: Theta Gold Mines is an explorer-developer. We're a near-term production story. We're listed on the ASX. We're listed on the ATC QB in the U.S. and North America. The project sits in South Africa. There's 620km2 under management. We have 43 historical Gold mines, and we're aiming towards production in 2021.

Matthew Gordon: How long have you been at this then?

Bill Guy: I joined about three years ago. Essentially, my main background is geology exploration. Since I've joined, we've added about 3Moz to this story. We started off we about 3Moz. We've completed about 20,000m of drilling over that period. And really what I've asked the team to focus on is open-pit material in South Africa. They're very keen to go on the ground all the time, but really what we've been developing is the open pit story first.

Matthew Gordon: You've seen some nice growth in the share price recently, but the accusation that's been thrown at you a lot is the lack of communication. People just don't know what you're up to. What do you say to that?

Bill Guy: I think it's really about us being in a position to really market the company hard. Recently, we have really been concentrating on restructuring it, rebuilding it, getting the resource space up, we've completed the Feasibility Study in May 2019. We actually got a good lift for the share price for that process, bringing on more believers into the marketplace. South Africa is an unusual jurisdiction for Australians in a way; there are only four companies on the ASX that are listed and working in South Africa. It's hard for them, the market, to draw comparisons to us. That's why we look to the ATC QB, effectively, when you're looking North America. Most of the majors, Gold players out of South Africa are listed on that exchange.

Matthew Gordon: When you say rebuilding reconstructing, what are you fixing?

Bill Guy: It's not so much about fixing, we're just about a change in direction for me. We have a lot of shallow open pit resources here. Historically, they've always concentrated on the underground aspect of it. And really, with the geometry of the reefs and the hills, we saw an opportunity to look at doing some open-cast material. They have been mining here for 150 years, but there are no open pits, we're one of the first ones that came up with this idea and concept.

Matthew Gordon: While you've been rebuilding, and reconstructing did you lose sight of all the other components that you need to do? Have you been too inward looking?

Bill Guy: There's no point coming to the market until you're ready until you're ready to tell the story until you are very close to that process. We had drill results through 2019. We completed a Scoping Study, that didn't really move the market. It wasn't until we put out the Feasibility Study that the market really moved at price, that was a great catalyst for us. And it just tells us really the market's working; when you've got something very meaningful to say the market will listen. We just needed to get to those points. I think we're at a very exciting time now.

Matthew Gordon: Let's talk about your corporate structure:  you've got what? 454 million shares out? How much cash are you sitting on today?

Bill Guy: This month we raised USD$4M to complete the final bit of working capital to finalise a few things. We're currently doing our geotechnical drilling. We are doing our financing, we're doing our payment thing, all that's in train and at the moment we've got cash on hand.

Matthew Gordon: You've got about USD$4M, because you've raised USD$4M, or have you got a bit more?

Bill Guy: There's probably a little bit less than that.

Matthew Gordon: Talk us through the timeline to deliver all of those things: permitting the Feasibility Study, et cetera.

Bill Guy: The Feasibility Study has been delivered. We have announced our preferred mining contractor. We're finalising that contract. We've just completed our geotechnical drilling to go with that Feasibility Study. We've currently got five plant builders tendering for this process. There are five guys tending to this process and we're in talks with a number of parties for financing the project. We expect to have all of this completed over the next two quarters.

Matthew Gordon: You've raised USD$4M, but what are you expecting that to do for you in terms of people's perception of how you move this thing forward?

Bill Guy: For us, before we go back to the market to raise money, we expect to have the mining contract completed. There'll be some trial mining. The permitting should be in place. All these key factors that we always look to try for with as little dilution as we can for the shareholders. The more we deliver before we have to raise money again, the better bang for the buck, for the shareholders.

Matthew Gordon: What's the plan going forward? What are you? Are you a mine builder?

Bill Guy: We're in the development phase now. We have an open-pit project. We call it to phase one, the Theta Starter open pit project. That's on MR 83. We have another 500,000oz ready for conversion for phase 2 on a different mining lease.  In South Africa, you have to deal with the project farm by farm. You can't, like in Western Australia, we just draw a circle around the bit we want, and we will go and get a mining rock permit for that. However, in South Africa it is a very sort of funny old-style system: you have a farm, you've got to get that one permitted and then can do it farm by farm. You can't just cookie-cut the bit you want out of that mining run. So that's why we are taking this approach.

The other approach really is we see unlocking the value for the shareholders is okay, once this permanent finance is ready to go then everyone's going to put a real value on that whole 6Moz

Matthew Gordon: South Africa is suffering a lot with COVID conditions, like a lot of places, but they have really locked things down. How is it affecting your ability to do business in-country at the moment? I know you're in Perth, but you've got a team over there.

Bill Guy: Theta has an office in Johannesburg and about 30 people on the mine site. The guys have been basically operating like this on Zoom. We have 11, 12, 15 consultants that have been working on this process. That's all gone through. We're dealing mainly with soft issues at the moment, not the construction and building phase so that hasn't been a problem for us, the lockdown. Probably the only impediment we had with the lockdown was the Mines Department was closed for a while. That held up the permitting a little bit, but we're through that process now. The site is operational, and the guys have completed their covert regulations. 900 pages of the documents at the mine site is now operational and it has been for over a month. The guys are in drilling and exploring there today.

Matthew Gordon: South Africa, this is an unusual place for an Aussie company to be operating and junior companies, without having a history of operating, it can be a tough place to operate. We've interviewed several South African companies who deal with strike action, union action disruption at the local and federal level. What's your experience?

Bill Guy: I’m sort of a bit weird; I like it. South Africa to me seems a little bit like 1970s Australia. There are all the problems we had in Australia back then that we solved. People don't give South Africa much credit, to be honest. It's got a new president now. He went hard with the lockdown. He actually shut everything down when other countries were going, yes, no, maybe. He just said, no, we are shut. And he took control of the situation.

I think you know that guy, Cyril Ramaphosa? is a billionaire. He brought McDonald's to Australia.  He made his first money out of mining. He understands mining. The Mine Minister is an ex-miner. He understands mining. There's a very different vibe in South Africa now.

Matthew Gordon: They're struggling to get cash. The IMF are having to step in and help get things going. Does that make mining even more important to the economy?

Bill Guy: Yes, the Mining Minister recently, about three, four weeks ago, he gave a presentation to the Minerals Council, which is effectively the industry's representation body over there, basically, during his speech, he told the Minerals Council that South Africa is going in mining again, and that's what they want to do. The challenge is there for the government, they were more than happy to meet the challenge. We're excited about it. I really see South Africa as relatively unexplored on a number of fronts, particularly in terms of Gold and where we are, so we see a lot of upside with the project going forward as well. We just want to be developing. We will be exploring as well.

Matthew Gordon: Let's start talking about the assets here: you are up in the Transvaal area, is that right?

Bill Guy: We are about 370kms Northeast of Johannesburg. We're out in the country, it looks very similar to New South Wales. A very small population base. It's relatively isolated out there, there's not a lot of people, which is great because a lot of times the problems in South Africa, they talk about the Wits, the Wits is actually in Johannesburg. Johannesburg is the city of Gold, it is built on that mine, and the city basically outgrew the mines. Effectively, Johannesburg is almost a megacity now, and you're trying to mine, like for us, we are trying the mine in parameters? is pretty hard work. But where we are is very gentle, rolling hills countryside, small population.

Matthew Gordon: Tell us a bit about what you have got, what are the numbers?

Bill Guy: 6Moz. Really, the idea is to capitalise on the first 2.75Moz. That's 4 mines so there'll be 4 phases. One phase is the first project we're getting permanent now - the feed open-pit project, it's a very shallow open-cut mine. On average, it's about 60m. It goes down to 113 at its deepest point. That will all be done for through a process of contour haul back.

As we have a face that goes up a hill, the dirt is pushed behind us so a lot of that original contours will be restored to the people. The population is very supportive of this process. They'll get their money, their jobs and their hill back. And then we'll move into phase 2 on 3.41, which is another extension. There's 500,000oz of inferred material over there, ready to be converted into a mining reserve.

We will also be looking at the underground. There’s a thing called Rietfontein contains that 8.5g at nearly 800,000oz. Vertical vein, very similar to Western Australia. Quartz sulphide. There's about 3.5km of strike link there. The old mine was discovered. Effectively, Rietfontein sits in a 16km-long structure. We see potential to the North and to the South when we get into that.

We have a mine called Beta, which sits just across the road from the plant. 1.1Moz at about 6g, and it's a flat reef and it tips about seven degrees. And that will be the last of the stage four projects. And that'll give us access to the first 2.75oz. Hopefully, we are building up to a production profile of around 160,000oz over the next four or five years.

Matthew Gordon: Your plan of attack is, you will get through this next phase, spend your USD$4M. You're going to go to the market, raise more capital to actually move things forward. What's the plan of attack on the ground? What's the number one target? Number two target?

Bill Guy: Effectively, tomorrow we will be submitting the permitting. That'll go into the DMR. On the ground, the guys are currently looking at the underground, what the board wants to do with this high Gold price is looking at ways to accelerate that five-year program and shrink it down. We have brought in consultants with a lot of underground experience in South Africa, and they're currently going for all their mines looking at what can and can't be done. And we'll be enunciating that vision and their results in October when they've completed their work.

In the meantime, the open pit goes forward relentlessly. So as far as we're concerned at the moment, probably do some reserve drilling towards the end of the year for the phase two program.

Matthew Gordon: Are you tempted to try and accelerate this process, given the current Gold environment?

Bill Guy: Yes, we are. I'll be honest, probably when I joined about three years ago, there wasn't a lot of interest in the Gold space.  We have been a bit hand to mouth, to be honest, to push it forward. But the board has always had a great deal of belief in the project. They have always pushed forward with everything. If you look at the last 24 months of announcements, there has been a significant release nearly every month so there's been a good steady stream of news flow. Really, the market is really looking for those key items at the moment. We're always active. We don't sit on the money, we moved the project forward and we're pretty excited about it, to be honest. And we think, yes, at the higher Gold price and if the share price does what we hope, and the money at the right price, then you would accelerate this program for sure.

Matthew Gordon: I’m just trying to understand the mind of the management team here. You have a decent-sized resource. Where's the ultimate value lie for you as a business? The Gold environment is like it is, it's not going to get better than this. Why not sell this thing? There are people sniffing around. There are always people sniffing around when you have got a big resource like this. That's what we've been hearing for the last two years. Majors are running out of resources. Have you got the stomach to go and be a mine builder?

Bill Guy: Yes, I think we do actually. If you look at the board structure, we are not so many bankers, don't get me wrong, we have a banker on the board, Finn Behnken, he was the director of Gemfields. He worked with me on Jupiter Mine, so we have worked together. I was on the exploration side of Australia. He built the Tshipi mine as the CEO there. But for me, if you really want to get great value for something, the market has, and you have got to believe you're actually going to build it. I want someone to pull this out of my cold, dead hand for a lot of money, if that's what they want to do, there's a lot of work gone into this, we're not stopping for anyone. If someone wants to play catch up, that's up to them.

Matthew Gordon: Looking at the AISC, it is pretty attractive, especially in today's environment. Once you get going, you'll make money, but it's not a particularly large target you're going for in the first few years, right?

Bill Guy: There's a number of natural advantages here because there are 150 years of mining history, we have roads, we have water and we have electricity. We have a core staff, we have a plant that's actually oversized in South Africa, for the permit, the plant footprint. What we're basically doing is getting started, putting the plant on the footprint that's fully permitted, the tailings dam that's fully permitted already. And then we can expand it as we go along. I guess, currently in the Gold environment, there's really only one model and they get bigger, bigger, bigger and sell out, which is great. That's one model, but we feel, in South Africa with our environment, then the way the market is perceiving us, we'll get a better bang for our buck for our shareholders once we start to pull Gold, then people are going to really, literally translate to the whole 6Moz.

Matthew Gordon: In this Gold environment, why are you starting with the starter pits optimisation, Feasibility Study? It seems quite modest in relation to what you've got, but are you continuing to look at that?

Bill Guy: For us at the moment, it's about a stage process. Like I said, during what we're talking about at the moment is really looking at that underground component, particularly Rietfontein and Beta. The guys are doing some work on that. And then look to see where we can accelerate that. We've got the permits ongoing, the financing going on, as an investor, once those two boxes are ticked, you want to be very confident about what's going on. Then when we go into the extensions, all this stuff requires a fair amount of capital. And the question is, what price are you going to be buying that capital? I'd rather be buying at a higher price than the cheaper price.

Matthew Gordon: You've got to have a sense of what you think your investors and the board is going to be comfortable with. Now's the time to take advantage of that. Money is being thrown around; it is cascading down from a lot of these big producers at the moment. Have you had conversations or approaches from strategic partners? Have you had any of those conversations?

Bill Guy: Yes, I'll be honest: that used to be the case where we're ringing everyone. Now people are ringing us, which is nice. I don't really want to go out into an experienced market that we're going to just sell it. That's not really our goal here. Obviously, if the price was right, we would certainly look at it. We can make money and have value for the shareholders, whatever the best option is for the shareholders at the time. If you look at Cardinal, we sat for ages on a USD$100M market cap. It wasn't until it was permanent that everyone started fighting over it.

Matthew Gordon: What are the sort of considerations that the board is discussing each month? What are you evaluating? In this market, it's really dynamic. Things are changing relatively quickly. There's a lot of M&A, there's a lot of fundraising going on. You must be looking either over your shoulder or slightly jealous at some of the companies out there.

Bill Guy: For us, it's really about that growth story. If we look at how the share price has been steadily going up, the volume in the shares is steadily going up - it's a growing story. We've got a pipeline of projects at the right price and the right time in the cycle, which is probably not far away to what can be accelerated and what can't. We would love to get in phase two probably a little bit earlier. For me, probably the exciting thing really long term is the underground because the underground resources there is immense, there is about 4.5Moz there already. And when you think about that, the replacement cost of Gold now is about USD$40 p/oz. There is a lot of value on those resources. We have pretty good access to, particularly the upper levels in the mine, and they're all relatively shallow so nothing goes below about 350m. It's a very shallow mine and even the underground. 

The guys are on the ground now in the underground looking at what can and can't be done so we can come out with a central plan to accelerate that process, get the data, get the results, and let's see where we are.

Matthew Gordon: Clearly the dynamics are going to change between the open pit and the underground, with the grades you've got, the numbers are going to change. The grades aren't particularly high, they're okay. You're not chasing high-grade underground veins. Does that mean the AISC is going to change? Does that mean some of the economics are going to change?

Bill Guy: No, actually, underground mining in South Africa is relatively cheap.  When you sat the grades aren't particularly high, I find that a little strange. Beta is about 6g. Riff*? contains about 8.5g.

If you look at some of the companies on the ASX now, like Bellevue, they've got 11g and they're already cap nicer and fairway from mining.  I think the grades are perfectly acceptable and quite high in part. And those grades are also diluted. They're diluted grades from mining. They're not the reef grades so that is one of the things we'll be looking at in the coming months to see what needs to be done there.

We have also, with our current geology and exploration models we developed, and we see potential around the areas that need to be explored and are underexplored. I brought in a top-tier firm from Australia called CS Global, a very good geological consulting company.

We are next to the world's largest igneous intrusion, a big source of metal and heap, the richest metallogenic province on earth. And what they really identified for us was the key structure for delivering that metal. There are other opportunities we can look at as well.

Matthew Gordon: You have a decent sized resource. You are looking at open pit. You're looking at the underground mining. You're talking about raising money at reasonable values.  Exploration is me ways off isn't it? You don't need to be looking or talking about that happening anytime soon?

Bill Guy: The market is a funny thing. The market at the moment is loving exploration and drilling results. We're aware of that, but we are focused on the main game, which is bringing the first phase into production. All the energy and effort go into that, but we don't want the market to think, oh, this 6Moz either.  I don't really think that's going to be the case. And even if you look at the first four mines we will be tapping into 2.75Moz in the first four mines, that doesn't include our biggest mine. Our biggest mine is Glenn's, which is about 1.6Moz on the book, historically it was the largest mine in the region and produced over 34 tons of Gold. We basically control our own Goldfield, and what has killed a couple of companies, historically in this process is, they tried to do everything at once. They were too greedy if you know what I mean.

We're really just trying to stage the approach and the growth, and with the current environment, we can look to accelerate as well. But we got to go about our business in a logical manner.

Matthew Gordon: That's what I'm intrigued about: whether you want to mine this thing or are you building it to a certain point of development, advanced development because you've got to leave something on the table for the next guy as part of the negotiation. How do you plan out your capital needs and your capital expenditure?

Bill Guy: For the moment we know we need a total CAPEX and working capital to get in production is about USD$40. It's a very low CAPEX project, that includes about USD$10 million of working capital to get through those phases. Really, our goal is to finance our last component of that CAPEX. There's an opportunity with Project, there are all sorts of things that can be done there at the moment. We're looking at all those things. I would park that separately. Then if we looked at underground, the original idea was to actually drive the underground from profits and the open-pit mining. And then do that, if you start to see the share price, good and working capital there available, then you would look to accelerate that on the ground program. Then you would shorten that five-year program down to maybe three, four years. And then you're a mid-tier producer in four years. I still think that would be a great result.

Matthew Gordon: You are sitting in Perth. You've got the Aussie team, the South African team, what are you bringing to the table? You talked earlier about reconstructing the company, but are they fairly self-sufficient over there?

Bill Guy: Yes. The South Africans are very good engineers, they are very good geologists. There are no issues with that. I guess if you really think about it, the Australian/South African side of things has been very successful in the government space historically. The Wits - the South Africans don't like you reminding them, but that was discovered by an Australian. Our Goldfield?, which is, I think the third one discovered, the first official Gold rush in South Africa was discovered by an Australian. It seems a very good combination I find. Australia is a very big producer of minerals. If people don’t always understand it. It doesn't always have the best resources, but it's very conceptual about how we go about our business. And I think it's that conceptuality we bring to South Africa.

Matthew Gordon: Thanks for that overview and run through the company. I think that's an interesting story you've got there and you're obviously managing the way you take this forwards in the most effective way for your shareholders. You should come back on and tell us how you're getting along, how you're spending that USD$4M and let's see if you can move that share price. I appreciate it.

Bill Guy No worries. We will. Thanks for your time, great to meet you. And thanks to all your viewers.

Company Page: http://thetagoldmines.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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