Steppe Gold building Mongolia's premier precious metals group as it presses ahead on ATO expansion plans

Building Mongolia's premier precious metals company Flagship mine already generating strong cashflow Advancing Phase 2 expansion plans What Steppe Gold does: Mining is nothing new in Mongolia but it was not until the 1990s, and the transition of the country to a free-market democracy, that the industry was opened up to foreign investment. The famous Oyu Tolgoi property in the country, operated by London-listed major Rio Tinto (LON:RIO), is one of the largest copper and gold mines in the world, in which the Mongolian government also owns a 34% stake. The Mongolian economy is growing rapidly and the government knows that mining is a key to sustaining growth. The country's mineral riches are valued at between US$1 trillion and US$3 trillion across coal, copper and gold. Against this backdrop, Steppe Gold Ltd (TSE:STGO) (OTCMKTS:STPGF) (FRA:2J9) began producing gold at its flagship Altan Tsaagan Ovoo (ATO) mine in the country in March 2020. The ATO mine was built in just 14 months with under US$20million of capex and is now ramping up output. Steppe also has the Uudam Khundii (UK) gold project, which is an 80:20 joint venture between Steppe and the Bayankhongor provincial government. At ATO, Steppe is targeting annual production in 2021 and 2022 of between 50,000 and 60,000 ounces. It is also now bidding to expand production via a Phase 2 sulphide project, which will see it mine fresh rock ores to generate 150,000 ounces equivalent a year from 2023. How is it doing: Steppe hit a key milestone at its ATO operation in February, 2021 with the release of an updated resource estimate that nearly doubled the ounces in the deposit. According to the report, measured and indicated (M&I) resources increased to 41.6 million tons or 2.2 million ounces at an average grade of 1.7 grams per ton (g/t) gold equivalent ounces – 1.4 million gold ounces and 20.5 million silver ounces. That doubled the amount of resources represented at the ATO Gold Mine to 2.45 million ounces of gold equivalent, up from 1.2 million ounces in the previous resource statement. According to the company, the increase in the M&I resource was due primarily to significant expansion through drilling at the ATO 4 Deposit and incorporation of a maiden resource at the Mungu deposit. The ATO 4 Deposit, where mining recently started, shows an M&I resource of 15.7 million tons at 1.6 g/t for a total of 819,000 gold equivalent ounces, while the maiden resource at the Mungu discovery shows an M&I resource of 7.6 million tons at 1.7 g/t for 424,000 gold equivalent ounces. Then on March 24, the group said it had begun procuring major long lead items and was continuing talks on a multi-tranche project debt facility for its Phase 2 expansion project into fresh rock. The aim is to lift output from the ATO mine to 150,000 ounces of gold equivalent a year in 2023. The company said it had bought a new crushing plant from a leading international supplier for US$5 million, including its installation and construction, which has a capacity of 1,000 tonnes per hour (t/hr), more than three times' the current capacity. Construction of the foundation of the new plant is set to begin in early April this year, and it is scheduled to be operational by July. Alongside the procurement of capital items, the company said it was continuing discussions with Mongolian and international lenders on a multi-tranche project debt facility to finance this Phase 2 expansion, which is expected to include a grinding circuit, a leach/CIP plant, and a flotation circuit. On the financial front, for the first quarter of 2021, the miner said COVID-19 challenges and the cold weather had impacted output in the three months but that the feasibility study into expanding the project remains on track to be finalized this summer. In the three months to March 31, the company mined 179,130 tonnes versus 291,455 tonnes in the previous quarter to December 31, 2020. Revenue for the three months was US$1.634 million (Q4: US$13.2 million) on sales of 945 gold ounces and 861 silver ounces, with average realized prices per ounce of US$1,938 and US$26 respectively. Steppe also noted that it had filed a prospectus to list its shares on the Mongolian Stock Exchange. The miner is targeting at ATO annual production in 2021 and 2022 of 50,000 ounces and then to transition to the fresh rock ores in 2023. Inflection points: New crusher in place Completion of bankable feasibility and project financing for expansion at ATO Uplift in output from ATO What the broker says: Following the first quarter results, Stifel GMP repeated a 'Buy' rating and put a C$4 price target on the stock. "As expected, ATO did not have any production through Q1. However, stacking activities continued with grades stacked from the low strip ratio open pit remaining strong (1.91 g/t Au + 10.1 g/t Ag) and the company finishing the quarter in a durable liquidity position," analysts said in a note. "Leaching resumed in early April, and we expect Q2 and Q3 production to benefit from the tonnes stacked through Q1.  Steppe Gold put a $1m deposit down on a new crusher that will quadruple capacity and is the first step in the construction of the Phase 2 Sulphide expansion. The Bankable Feasibility Study for the expansion remains on track to be delivered this summer." What the boss says: In its statement with the 1Q results, Steppe CEO Bataa Tumur-Ochir told investors: "There has been a slow start to production in 2021 and the achievement of full year production forecasts are dependent on no further delays on procurement due to COVID 19. Reagent supplies are currently unpredictable and any further delays will reduce production forecasts for 2021. We have now mined over 1.8 million tonnes of ore with 1.4 million tonnes stacked on the leach pad." He added; "With a new fixed crusher in place this summer, we are planning a record year for stacking in 2021. We paused production in the first quarter with prevailing cold weather conditions and we resumed leaching in early April with a successful gold pour in late April." Contact the author at giles@proactiveinvestors.com