Tracker - July 23, 2021: Sonoro reveals Cerro Caliche resource expansion potential
Sonoro Gold Corp published news on July 20, 2021 which highlighted the resource expansion potential of the Cerro Caliche project in Mexico. Sonoro is guiding that the PEA for a 15,000 tpd heap leach operation it hoped to release in late July will now likely arrive during the second half of August. All the internal modeling and data compilation has been submitted to the independent consultants Micon International and DENM Engineering who are preparing the PEA. Tracker May 10, 2021 explained the reasoning behind the Outcome Visualization I created on May 7, 2021 which models what a 15,000 tpd heap leach mine processing 75 million tonnes of 0.55 g/t gold over 14 years would be worth at the prevailing gold price. The press release is important because the mineralized footprints tested by 433 drill holes (47,500 m) are expected to deliver a resource in the 25-30 million tonne range, sufficient for a mine life of 5-6 years. Sonoro plans to fast track development of the mine based on this limited resource with a goal of being in production in H2of 2022. The junior's VP of exploration Mel Herdrick has indicated that he sees conceptual potential for a low grade oxide resource in the 75-100 million tonne range which would be delineated with the help of cash flow once the mine is in production. But it has not been clear where Herdrick sees this expansion potential which I have assumed in my OV. Once the PEA is published the chairman John Darch will bring his financing expertise to bear to raise the USD $25 million I have estimated Sonoro will need to build a 15,000 tpd commercial scale heap leach operation. This financing could come through some combination of equity, debt and gold loan, but whatever the financing structure the sources of this capital will want to see resource expansion potential that extends mine life beyond 10 years, and evidence for a potentially longer mine life can only help pull support from local stake-holders (ie jobs for nearby communities), something permitting authorities do take into consideration. The update clarifies where Sonoro sees the expansion potential.
As part of the 2020-2021 drilling campaign Sonoro engaged in road building to access the southern and northeastern parts of the property which have received no drilling and very little exploration work due to steeper terrain and overburden cover. The diagram above features 6 cucumber shaped "corridors" that Sonoro has identified as mineralized trends and shows the locations of the 433 drill holes which include holes drilled by previous operators. I have added red ovals to indicate those areas which will furnish the resource which will feed the PEA's ore schedule. The Cabeza Blanca-El Colorado trend will feature an elongated pit. The larger oval encompassing the Buena Suerte, Japoneses-Cuervos and Veta de Oro-Abejas trends will feature several pits. The two rectangles labeled "Northeastern" and "Southern" corridors represent where Sonoro expects to find another 50-75 million tonnes of gold mineralization grading 0.3-0.5 g/t gold, while the area targeted by the PEA can also generate greater tonnage through more infill drilling. In light of this target grade provided by the company I may have to revisit the OV assumption of 0.55 g/t gold for the full 75 million tonne scenario. However, once a PEA is published I switch to an Excel based DCF model which can handle annual parameters such as the economic study's ore schedule while the OV system only deals with life-of-mine averages. The benefit of an optimized ore schedule is that the mining sequence can be front-loaded with the higher grade portions of a resource so as to speed up payback and, of course, boost the net present value.
The sample location diagram above features values from surface sampling done on the property. What matter are the values within the Northeastern and Southern corridors which are brand new and were generated from bedrock exposed by the road cuts. This sampling program is still underway and that set of vein traces between the San Quintin and Cuervos corridors in the diagram below may yet also prove to be mineralized.
Sonoro plans to resume drilling in late September starting with the La Ventana and San Quintin corridors in the southern rectangle. The immediate goal is not to deliver extra 43-101 resources but simply to find out the approximate grade and width of the mineralization within the extensions of the corridors already targeted for development by the PEA in order to provide confidence that the mine life can be extended beyond 5-6 years. The El Desprecio-Abel and La Magdalena-La Espanola corridors in the northeastern rectangle as the terrain rises toward the peak of the Caliche Mountain have high silver values unlike the main area that has seen the historical exploration focus.
In August 2020 Sonoro raised $8 million at $0.22 through a dual story which on the one hand attracted investors focused on the impact the gold price rally (it breached $2,000 in early August) would have on the economics of heap leaching the low grade gold resource, and on the other hand investors curious about the plan to core drill the deeper bonanza grade potential of this low sulphidation epithermal system. By October 2020 it was becoming clear to Sonoro that the deeper core drilling beneath the Japoneses zone for which an inferred resource of 11.5 million tonnes at 0.495 g/t gold and 4.3 g/t silver had already been estimated was not delivering bonanza grades. So the company allocated all its focus onto the low grade mine development scenario. When that financing came free trading in December the stalled gold price rally and disappointed high grade discovery hopes unleashed heavy clip and flip selling as placees bailed out. This paper has been absorbed by investors focused on the low grade development story, and when Sonoro raised another $3.1 million at $0.18 in late April, this money came from investors also focused on the development play. This private placement comes free trading in late August and may create another round of clip and flip selling. However, if the PEA delivers numbers similar or better than those in my OV after adjusting for the smaller resource, the rationale for participating in the recent private placement will be intact, and the rush to clip the warrant and flip the stock will be muted. The key upcoming milestone will be the results of the PEA some time in the second half of August, which will determine the reception Sonoro Gold Corp will receive in September when the summer doldrums come to an end. Sonoro remains a Fair Spec Value rated 2021 Favorite with a post PEA target in the $0.40-$0.60 range, and higher prices contingent on the results of Sonoro's CapEx funding efforts which will dominate the remainder of the year (the second upcoming milestone) while the junior's Mexican team pushes the PEA mining plan through the permitting process, with a permit in Q1 of 2022 the third key upcoming milestone.