Sonoro Gold Stands Out in the Junior Gold Mining SectorBy Paloma Duran | Tue, 07/27/2021 - 15:45
Gold production is slated to begin at Sonoro Gold’s Cerro Caliche project during the first half of 2022, an event that makes it one of Mexico’s most promising new mining developments. Its location – in the municipality of Cucurpe, Sonora state, between two mining districts: the Sierra Madre Gold Belt and the Sonora-Mojave Megashear – puts it in the midst of one of Mexico’s mining sweet spots. The company's management points out that the abundance of gold mines in the region speaks volumes about what an ideal mining environment it is, while emphasizing that the last three years of drilling should demonstrate, in a soon to be announced independent technical report, that it has the gold resources required to transform the company into a successful gold producer.
These are observations that their associates in the industry take seriously, owing principally to the fact that Sonoro’s storied executives have collectively, already either discovered or developed and subsequently operated more than a dozen mines over the past three decades. With these decades of past successes already achieved, the executive leadership is confident it has the management team and business plan to transform itself into Mexico’s next high growth gold producer.
That they have been able to fast track Cerro Caliche’s development, industry observers note, is indicative of the company’s diversified, highly motivated and success-driven management and operations team, which includes seasoned experts in all the disciplines required to find and develop gold deposits and subsequently operate profitable mining operations. A great example is Sonoro’s Vice President of Exploration, Melvin Herdrick. Herdrick has discovered or developed several major gold deposits during his 25 years as an exploration geologist in Mexico. Another example is Jorge Diaz, Sonoro’s Vice President of Operations. Beginning in the 1980s, Diaz has been overseeing the design and construction and later operation of low operating-cost heap-leach gold mines, including between 2002 and 2005 Alamos Gold’s Mulatos Mine. Curtis Turner, a member of Sonoro’s Board, was a Senior Executive at another highly successful low-cost heap leach gold producer, Argonaut Gold.
Sonoro management’s track records make it clear what they can do, and their collective ownership of the company tells us why they would do it. Sonoro’s directors and officers currently hold more than 18 percent of all issued and outstanding shares. As telling, they keep investing more of their money into the company. Of a recent CAD$3.11 million (US$2.52 million) private placement financing management invested another 14 percent. The net proceeds from the offering are being used to finance further development plans at Cerro Caliche, including metallurgical testing, a 43-101 resource update, Preliminary Economic Assessment (PEA), property maintenance payments and corporate expenses.
Cerro Caliche is Sonoro’s flagship property and their strategy is to use the cash flow they expect it to produce to fund further drilling, resource growth and any future mine expansion, while they begin developing another similar nearby project called San Marcial. Sonoro’s Cerro Caliche database now contains 47,557m of drilling data, including more than 25,000m acquired since September 2020. The drilling has confirmed a broadly mineralized low-sulfidation epithermal vein structure containing at least 18 northwest-trending gold mineralized zones along the trend and near surface.
The company has identified four main parallel northwest-trending gold zones with several additional parallel zones targeted for further drilling to demonstrate their potential. Infill drilling along the adjacent boundaries of two of the four main zones, the Japoneses and the Buena Suerte indicates they may converge into a single body of shallow, oxide gold mineralization. The evident merger of the two zones makes it possible for them to be mined as a single larger pit. If this is the case it should not only increase the size of the project, but also optimize its economics. The reason is that the material between the two zones that was once considered waste rock and only an expense if removed, instead may contain enough high value gold mineralization that it is profitable to mine. Because of this the merger of the two zones, it holds the potential to significantly increase the project’s size and cash flow and improve operating margins.
The details of this potential development will be included in an updated independent NI 43-101 Technical Report and PEA the company expects to file in August. The PEA is expected to confirm the viability of a Heap Leach Mining Operation (HLMO) with a conceptual throughput of approximately 15,000 tonnes per day (tpd). In addition, metallurgical testing is underway and bottle roll testing has recently confirmed mineralization is amenable to cyanide leaching with recoveries averaged at 80.3 percent. The results of the column leaching testing are expected towards the end of this month.
The project's potential to get much larger is clear, as less than 20 percent of the areas of shallow oxide gold mineralization have been drilled. What this could mean for the company is contained in the Cerro Caliche 2020 Project Development Report, which concludes that based on the expectation that the tonnage and grade of mineralized zones within these trends is likely to be replicated along strike and to depth with additional drilling, the trends which have yet to be drilled have the potential to contain between 75,000,000 to 100,000,000 tonnes with an average grade of between 0.3 and 0.5 g/t gold.
This multi-million tonne estimate is in addition to the 200,000 gold ounces already calculated in 2019 in the project’s maiden NI 43-101 technical report. It also does not include the property’s potential for deeper high-grade gold vein systems similar to those found at the neighboring Mercedes Mine. The shallow gold zones within Cerro Caliche have a known extent at this point covering an area over 3 km long and 4 km wide and there remains the potential for the shallow gold mineralization to continue expanding. It is a large area and to drill it all is likely to take years, the flip side being that if successful, this drilling would provide years of growth for Sonoro. And this is exactly what the company plans to do: produce gold and cash flow and use part of the resulting cash flow to continue unleashing the value of the project over the next several years.
More immediately, the mine’s development is expected to provide a series of share price catalysts for Sonoro. The first big catalyst is the approaching PEA followed by the project’s permitting, securing project finance and so on.
It all points to the company becoming a self-sustaining cash flow gold producer that can then fund its future growth. To do this Sonoro is not re-inventing the wheel. There are plenty of similar gold deposits that are now profitable heap leach gold mines in the region with the necessary very low operating costs, and they demonstrate that it is more than reasonable to expect that the Cerro Caliche operating costs should be low too.
Low costs are one thing, daily throughput, or size of a mine is another. At the Mines and Money conference, Kenneth MacLeod, President and CEO of Sonoro, stated that the drilling results continue to reflect grades similar to the 0.5 g/t grades demonstrated in the 2019 maiden NI 43-101 technical report, which was based on approximately 22,000m of drilling to that date. A key take-away is that with an increase in total drilling to over 47,500m, Sonoro’s management is now confident that the resource can support a 15,000 tonnes per day (tpd) mine.
Sonoro’s plans for its ‘conceptual' 15,000 tpd operation, make for an already very substantial mining development. Yet management is looking to the future and one consequence is the operation is being designed so that it is relatively easy to keep expanding. This is just one of the many pieces of the well-defined business plan Sonoro’s storied management has developed. It is all part of its fast-track execution strategy to generate revenue in the first half of 2022 and many of the plan’s details will be available when the PEA is released in August.
As Sonoro starts mining it will be a standout, because virtually of its peers have already been taken over by larger companies who have acquired them for their gold reserves, principally because large gold deposits have become so difficult to discover and develop.
This makes the Cerro Caliche project even more attractive and increases the possibility that Sonoro’s long term growth plans may be cut short by a takeover bid which is too good to refuse. This is what happened to Mel Herdrick’s last company, Pediment Gold, when it was taken over at a big premium by Argonaut Gold. Now what was Pediment’s La Colorada Mine is one of Argonaut’s most important sources of gold production. Like Pediment, it is easier to give examples of deposits which have been acquired by mid-sized gold companies than to find existing Sonoro-sized miners the have not yet been acquired. Of the acquired companies, some mines are making money with gold grades far lower than Sonoro’s – as low as 0.3 grams gold per tonne – a reality which may put Sonoro on the radar screen as a company worth acquiring.
Whether or not Sonoro becomes a fast-growth mid-cap gold miner as management intends, or it is acquired along the way, we should not be surprised by management’s evident best in class execution. All told, Sonoro’s senior management’s years of finding and developing successful mines add up to more than two centuries of experience. Will Cerro Caliche be yet another of management’s big successes? Time will tell. But all indications are that this is the case. And consequently, it appears very likely that Cerro Caliche will be the next prominent Mexico-based gold producer, with all the attendant benefits to its shareholders, a growing number of Mexican employees and the local Sonoran community.