Golden Independence Mining; a Nevada heap leach gold OR high-grade underground story

NoteGolden Independence is earning into a 75% interest in the Independence gold project. It’s assumed for the purposes of this article that the Company achieves an initial 51% interest later this year. Golden Independence will then have three years to earn up to an additional 24%, by spending a total of US$10M (more) on exploration / development.

Golden Independence Mining Corp. (CSE: IGLD, OTCQB: GIDMF) is well underway in its efforts to earn (up to) a 75% Interest of a brown fields project in Nevada. Last month, management delivered a NI 43-101 compliant mineral resource estimate of 684,600 Measured & Indicated + Inferred ounces gold [plus 9.4M ounces silver] (on a 100% project-level basis). Including silver, that same figure — in gold equiv. ounces, is 817,700.

Another resource estimate and a Preliminary Economic Assessment (“PEA“) are expected by year end. As a reminder, the project’s 796,200 (Inferred) deep underground ounces, (grading 6.53 g/t gold) will not be incorporated into the mine plan of the upcoming PEA.

The Property benefits from > $34M in past exploration, including over 210 holes drilled. It’s adjacent to Nevada Gold Mines’ (“NGM“) Phoenix-Fortitude mining operations, (~180,000 ounces/yr. @ an attractive AISC of ~$1,000/oz.) just 0.5 km to the southwest, on the Battle Mountain-Cortez trend.

In fact, it’s more than adjacent, the Property sits inside NGM’s Environmental Impact Statement & Permitted Plan of Operations. NGM is a 61.5% / 38.5% JV owned by Barrick / Newmont. NGM is a Major, it will produce ~3.5M ounces of gold this year, it has 12 open-pit mines & 10 heap leach facilities.

This location is ideal, near Majors NGM & Kinross and mid-tiers Coeur Mining & Hecla Mining — in a brown fields setting, in the heart of Nevada’s incredible gold & silver abundance. Did I mention that Nevada ranked #1 of nearly 80 global jurisdictions in this year’s Fraser Institute Mining Survey?

Management is pursuing a simple, low risk, heap leach project that (subject to a PEA) could produce ~50-70k ounces of gold/yr. for 7 – 9 years. Based on four peer heap leach projects in the western U.S., (all at PEA-stage), it seems reasonable that Golden Independence’s property could develop into a project with an after-tax NPV(5%) of C$90-$100M.

However, the heap leach approach could be replaced with an entirely different, much more sexy project, if gold prices remain elevated. In addition to soon owning 51% of the shallow open-pitable resource, Golden Independence has a much deeper mineral resource of 796,200 (Inferred) ounces of gold. These ounces carry a grade of 6.53 g/t.

So here’s the thing about those high-grade, much deeper ounces –they’re valuable as a starting point to what could become a larger deposit. However, they’re worth tremendously more to a mid-tier or Major with the cash to drill dozens of very deep holes.

If only there were a large giant gold producer nearby that might be interested in 6.53 g/t gold material… Wait! Of course there is, that would be NGM. There’s a slight problem though.

It’s safe to assume NGM would not want to get involved with the project unless/until it was 100%-owned by IGLD. With that in mind, mgmt. may well be trying to strike a deal to obtain 100% ownership sooner rather than later. As it stands, IGLD has three years to earn into a 75% Interest.

I said earlier that the heap leach plan could be scrapped. If NGM were to take a keen interest in IGLD’s project (after gaining 100% control of it), they would likely want to develop the more profitable high-grade deposit right away.

NGM could perhaps reach production from underground in 3 or 4 years. How so fast? NGM is one of the largest gold producers in the world, and IGLD’s property is within NGM’s existing plan of operations.

To be clear, the immediate focus is on the oxide mineralization amenable to heap leaching. The resource delineated 817,700 gold equiv. ounces, but that’s before recoveries. There will be slippage, as the range of recoveries for gold & silver is 40%-85%. A lot will depend on the mix of transitional, sulphide & oxide zones.

Management will learn more about that through the PEA process. I estimate that 500,000 heap leach recoverable, gold equiv. ounces is a reasonable estimate for the project as it stands. That would be a very nice outcome, 7-9 years at 56-71,000 ounces/yr.

Finding more higher-grade (still shallow, open-pitable) oxide material has the potential to add tens of thousands of ounces, but it won’t be a game-changer unless the high-grade intervals found to date are more widespread than currently understood.

The best intercept was shocking; 9.1 g/t gold over 24.4 meters! While exciting, mgmt. does not yet know how extensive this high-grade zone is.

If Golden Independence only had the heap leach project, I think the upside would be attractive, but not exciting. However, one has to access the potential value of the 796,200 ounces of 6.53 g/t gold in the hands of a mid-tier or Major.

One way to do that is to compare the size & grade to peer North American gold juniors. In the chart below, one can see a number of examples.

The five highlighted names (in green, all pre-PEA) have an average Enterprise Value [“EV” {market cap + debt – cash} to oz. of gold in the ground [EV/oz.] ratio of ~$72/oz. The average resource size & grade is 585,000 ounces at an avg. 6.4 g/t, figures that are very close to IGLD’s high-grade, underground resource.

Since IGLD’s resource is 100% Inferred, (peers are a mix of Measured + Indicated + Inferred), I ascribe a $50/oz. valuation estimate to IGLD’s 796,200 ounces. That’s a 30% haircut to the $72/oz. avg. mentioned above. At $50/oz., IGLD shares have an implied value of C$0.65.{note: this is not a price target, merely a thought experiment). The current share price is C$0.26.

I believe that if the gold price remains elevated, a rising tide will lift all boats. Consider that a year ago, PEA & Feasibility reports were using $1,400-$1,450/oz. long-term gold assumptions. In recent weeks I’ve seen three with $1,600/oz. and two with $1,650/oz. gold price assumptions. A year from now, I suspect the price might be $1,750/oz.

A heap leach operation of say 60,000 ounces/yr., for 7-8 years, would be very profitable at today’s spot price! Sixty thousand ounces x [US$800/oz. operating margin] = C$58M/yr. in operating cash flow. Add M&A to the mix and valuations of operating mines could soar.

Regarding the deep high-grade scenario (funded by NGM or another mid-tier or Major), the sky’s the limit on how that could potentially unfold. I imagine Golden Independence being free carried through a Bank Feasibility Study, while maintaining significant ownership in the project, (say 30%).

Owning 30% of a high-grade underground mine operated by a Major would be quite valuable. NGM in particular has the experience, deep pockets and mining infrastructure in place to significantly grow & exploit the current 796,200 ounce resource.

While it’s impossible to say if NGM will ever build a mine (or develop a satellite deposit) from Golden Independence’s high-grade resource, if it’s meant to be, I imagine the operation could be 150,000+ ounces/yr. NGM’s adjoining Phoenix mine is operating at ~180,000 ounces/yr., and is now processing lower grade material than it has in the past.

Therefore, 30% ownership of 150,000 = 45,000 ounces/yr. attributable to IGLD, with perhaps a US$1,000/oz. profit margin — that would be C$54M in free cash flow per year, for possibly 10+ years, starting in 2024 or 2025, with far less equity dilution, and far less operating risk.

In conclusion, Golden Independence is highly tied to a strong gold price. It benefits very nicely from increases, but below $1,650/oz., robust profitability would start to wane. The Company is undervalued in an open pit, heap leach mining scenario, and very undervalued if mgmt. can partner with a Major to develop its high-grade underground gold ounces.

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