FenixOro Gold makes acquisition & continues exploring for high-grade gold in Colombia

It’s been a while since I last wrote about FenixOro Gold Corp. (CSE: FENX) / (OTCQB: FDVXF). News has been slow, but the latest update gives readers plenty to think about. Here are three highlights from 2022:

++ Continued exploration success at Abriaqui, including a significant update of an internal, indicative resource model
++ The identification of new high-grade targets in the Southern Block (“SB“)
++ Acquisition of the fully-permitted, operating, high-grade Escondida gold mine to generate a growing stream of cash flow

CEO John Carlesso commented,

“Fundamentally the Company accomplished many significant achievements in 2022. We are well-positioned & focused on continuing to build on these successes. With gold showing strength, now above $1,900/oz., we see tremendous opportunity to demonstrate the potential at Abriaqui and leverage the unique skill sets of our team.”

Recent press releases: January 12, 2023 & December 13, 2022

Through the end of 2022, 25 holes have been drilled and > 40 gold-bearing veins have been intersected, mineralization up to 7.7 m wide. In several areas, veins coalesce into, “vein-stockwork complexes” up to 20-meters in width.

The resource potential of four of the veins was estimated (internally) based on data from nine drill holes. The potential was estimated at 1.6 -2.4M ounces at a grade of 6.5 – 8.5 g/t gold. Below are the four sets of assumptions used in the calculation.

The Company is finalizing an updated (internal), indicative resource estimate based on the full drill hole database that includes 26 modeled veins. This new calculation will include depth extensions of up to 300 vertical meters from the initial resource model estimate from March, 2021.

Note: These “modeling exercises” estimate resource potential, but are not calculated based on NI 43-101 compliant resource categories, which would require more drilling / tighter spacing.

The new indicative model will not include any veins in the SB. Continuous channel sampling in the SB on the Prospera vein averaged 39 g/t gold + 254 g/t silver. There was also 3.06% zinc & 0.73% copper along 100 meters of that vein. Drilling focusing on the SB, including the Prospera vein, is planned for later this year.

Veins in the SB are thought to have average gold grades similar to those in the more heavily drilled Northern Block (“NB“), but with significantly higher silver, zinc & copper values. The SB is exposed at elevations 200-400 meters higher than the NB, leaving more depth potential.

FenixOro acquires permitted, operating, high-grade gold mine…

In December management announced the acquisition of the Escondida Mine, a fully-permitted, (small) producing gold mine. FenixOro intends to optimize & expand production. If successful, it will provide the Company with positive operating cash flow later this year.

Over a 3-yr. period, FenixOro will pay the vendor US$3M, $150k of which has already been paid.

Escondida includes underground development & high-grade mineralization open in all directions. Surface mapping indicates a minimum of five km of strike length on four main gold-bearing veins across the 1,050 hectare license.

More than 230 samples from the underground workings and on surface extensions of known veins were collected, and a bulk metallurgical sample from multiple mine faces. Vein samples averaged 22.9 g/t gold, (up to 178 g/t).

Significant mine & geological analysis has been done, resulting in a plan to introduce new technology & engineering to exploit multiple faces instead of just one, increase head grade through enhanced mining precision, and develop resource blocks through exploration drilling.

CEO John Carlesso points out that, “Current mining methods are rudimentary, limited to a single mine face, and utilize little-to-no grade control.” This leads to excessive dilution. Unsurprisingly, no extensive, deep or modern drilling has ever been done.

The mine has been producing ~100 oz./month with an average head grade of up to 10 g/t gold. The Company hopes to grow this to a 3,000-4,000 oz./yr., high-margin operation.

Management believes the Escondida project has potential to outline a significant gold resource, perhaps in the 100’s of thousands of ounces, subject to drilling success.

Carlesso commented,

“Finding high-quality assets worthy of ownership requires tremendous amounts of technical due diligence & negotiation. We’re extremely pleased to add Escondida to the FenixOro portfolio. While the Abriaqui project remains our flagship asset, we see Escondida as a valuable near-term contributor. Having a producing mine will be transformational, as a growing stream of cash flow will reduce the Company’s reliance on equity issuances…”

The question is how soon can operations be ramped up, at what upfront capital cost and how many years of production might lie ahead. Importantly, additional acquisition opportunities that meet management’s criteria for grade & expansion potential are being carefully evaluated.

A cash flow generating portfolio would provide stability for the ongoing development of the flagship Abriaqui project. Abriaqui is the closest gold project (~15 km) to Zijin Mining’s Buritica mine. The geological characteristics of Abriaqui & Buritica are similar.

FenixOro’s VP of Exploration, Stuart Moller, led the discovery team at Buritica in 2007-2011. As of 12/31/21 Measured + Indicated resources at Buritica totaled 10.3M ounces of gold at ~7 g/t. Gold production in 2021 reached nearly 200k ounces.

The Company’s enterprise value {market cap + debt – cash} of C$12M fails to capture the tremendous upside potential from BOTH near-term positive cash flow AND the blue-sky exploration & development potential at Abriaqui.

Map of newly acquired Escondida Mine in Colombia

Management is signaling that equity raises will become less frequent as cash flow starts coming in. Three thousand ounces produced next year at an US$1,000/oz. margin would generate ~C$4M in cash flow, much of which could be used to explore Abriaqui.

In the end, there’s no doubt that the combined Northern + Southern blocks at Abriaqui host high-grade gold. Yet, over the past few years FenixOro’s valuation has been pinned in the C$10-$20M range. Meanwhile, management is making slow but positive progress.

It would take years to replicate what management has accomplished at Abriaqui. Eventually I believe FenixOro will partner with a company like Zijin, AngloGold Ashanti, Aris Mining, GoldMining Inc. or Mineros S.A., all with assets in Colombia.

Next door in Brazil, the largest gold mines are owned by Vale, Kinross, Yamana & Equinox Gold. Yamana is being acquired by Agnico Eagle & Pan American Silver.

If one is bullish on gold, one should take a look at FenixOro or revisit the relative value proposition. The market hasn’t bought into this story yet, but if it does we could be off to the races.

Readers are directed to the chart of high-grade gold juniors that have maiden resources but are not yet at PEA stage. The average EV/oz. in the ground ratio is $50/oz. In my view, FenixOro is valued as if it has 500,000 ounces, and is discounted by half for being in Colombia and being pre-maiden resource.

Management maintains it has found north of two million ounces, which if officially booked in a NI 43-101 compliant resource estimate, should be worth $33/oz. Why that much? That figure takes a 1/3 discount from the peer average of $50/oz.

The discount for operating in Colombia will likely remain in place until management finds a strategic partner or proves up meaningful ounces in the Measured & Indicated categories. Either that, or the Company gets acquired.

Note: the peer group is not cherry-picked to make FenixOro look cheap. There are not that many publicly-listed, high-grade gold juniors listed in N. America & Australia with resources, that are pre-PEA.

In the next month or two, CEO Carlesso & VP Exploration Moller expect to release an updated internal, indicative resource estimate on 26 modeled veins. The number of estimated ounces could jump from 2M to 4 or 5 or 6M…

At today’s enterprise value of C$12M, investors should take a closer look at FenixOro. Even if the Company has less than what they hope to one day deliver in a NI 43-101 resource, it could be a very attractive target for a strategic partner or acquirer to get their hands on.

Recent Press Releases: January 12, 2023 & December 13, 2022

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