Scorpio Gold, near-term production in EPIC bull market

It seems that each time I write an article about a gold (“Au“) junior, I’m breathlessly describing Au price gains … And so it continues, Au is 39%! since October 29th, 2023. As I write this sentence we sit within 1% of an ATH, we’re currently at $2,769/oz., but ~19% below the Jan.-1980 inflation-adj. peak of $3,416/oz.

YTD, Au has averaged $2,330/oz., ~16% below the current price. Imagine the margins of producers in 2025-26. What will companies do after debt has been largely paid down, shareholder-friendly buybacks & increased dividends? They can’t pay out all excess cash flow indefinitely, they have to reinvest in production pipelines.

With Au so strong, M&A is a far better option than internal mine development, but both paths will be pursued. Dozens of brownfield projects in the U.S. & Canada have been the subject of rehabilitation efforts. In the four years from 1/1/20 to 1/1/24, Au averaged $1,829/oz., it was up +35% during that time.

The problem was, until about a year ago mine exploration & development costs were rising as fast (or faster) than the underlying Au price. Understandably, this stalled many projects. However, with Au +39%, and speed to market critically important, there’s a renaissance in the redevelopment of past-producing mines.

Think about how compelling these projects are now — on the cusp of being restarted a year or two ago at $1,900-$2,000/oz… Scorpio Gold {TSX-v: SGN} / {OTC: SRCRF} holds a 100% interest in the past-producing Manhattan & Mineral Ridge [“MR“] projects in Nevada’s world-famous Walker Lane trend.

The fully permitted MR could be back in production via conventional heap leach as soon as 2H/25. Unlike many restart scenarios where a new company has taken over a brownfield site, Scorpio is looking to restart its own mine, a mine that was operated in the 2010s when the Au price was half today’s level!

If all goes reasonably as planned, Manhattan will be developed with cash flow from MR. Scorpio’s consolidated and recently expanded Manhattan project is now a district play. It hosts the advanced exploration-stage Goldwedge, with a 400-ton-per-day gravity mill, and the adjacent Manhattan project centered on two past-producing pits acquired from Kinross Gold in 2021.

CEO Zayn Kalyan recently staked property that’s not only strategically important but has historical drill data on it. Management is compiling the new data and adding it to an extensive database spanning 30 years, including, “a full multi-element soil sampling program, plus ~100,000 meters of drilling & multiple geophysical surveys (gravity, magnetics & resistivity).”

The Manhattan district has produced ~640,000 ounces from underground lode mining, open-pit mining, and placer operations. Management is excited about a resource estimate that’s coming out in Q1/25.

Drilling 100k+ meters in Nevada today would take years and cost twice Scorpio’s current enterprise value {market cap + debt – cash} of ~$15.5M at $0.14/shr. The first batch of drill results at Manhattan was highlighted by an interval of 6.1 g/t Au over 9.4 m, (est. true width 2.8 m) from 168 m depth.

Scorpio has a history as a #gold explorer, developer & producer

Further assays are pending from Phase 1. This interval is a good one given that the goal is to delineate a large open pit resource. VP Exploration Harrison Pokrandt is cautiously optimistic about holes #9 & #10 which had strong drill core recovery.

This hole demonstrated the potential to connect high-grade Au mineralization from the Goldwedge underground area to the Echo Bay West & East Pits, a strike length of ~1.8 km. Hole 24MN-007 confirmed mineralization associated with the Reliance Fault.

The team is excited about places (contacts) where the Reliance Fault intersects the Caldera where Kinross has its world-famous, long-lived, Round Mountain mine. Readers are reminded that Scorpio completed successful RC programs in 2021-22, intercepting very significant mineralization.

In the results shown below, [16.8 m at 27.2 g/t Au, incl. 3.1 m at 145.7 g/t] and [5.6 m at 50.2 g/t Au, incl. 0.9 m at 260.9 g/t] are spectacular. Those holes were drilled recently by Scorpio, not decades ago by other companies.

In addition to Newmont, Barrick, Franco-Nevada, AngloGold Ashanti & Kinross, mid-tier producers incl.; Hecla Mining, Alamos Gold, SSR Mining, First Majestic, Coeur Mining, Calibre Mining, South32, Orla Mining, McEwen Mining & I-80 Gold, have investments across Nevada and could be interested in Scorpio.

Most of the 10 mid-tier producers shown above are looking for new projects in mining-friendly Nevada, they would be crazy not to. Scorpio’s two projects have significant potential and are fairly inexpensive to develop. How big an opportunity is MR?

Looking back to the 4-yr. period 2014-2017 when annual revenue averaged ~C$75M (at the current C$/US$ exch. rate), MR was not generating much cash. It’s no mystery why … Au averaged just US$1,234/oz. during that time. While operating costs are up a lot, today’s price of $2,769/oz. is up a lot more.

Mid-tier Au producers active across Nevada with mines/projects

If in 2017 costs were ~$1,175/oz., even if they’re up +50% to $1,762/oz., the margin would still be $1,007/oz. and annual EBITDA on 30,000 oz./yr. would be around C$42M. CEO Kalyan’s team believes that funding cap-ex at MR could (mostly) be done on a non-equity dilutive basis. 

I caught up with Mr. Kalyan when he was in New York last week. I asked several questions. Please continue reading for his responses.

Zayn, please share the latest update on Scorpio Gold’s flagship Manhattan project.

Our 100%-owned Manhattan project, or really the Manhattan district as we recently enhanced the project by staking more property, is a past-producing asset that we’re reenvisioning as a potential multi-million-ounce resource. Welcome to Scorpio 2.0.

The project was hindered by not being consolidated the way it is now after we acquired the Manhattan pits from Kinross in March 2021. Au is up > $1,000/oz. since we closed on that property package! We expect to have a mineral resource estimate (“MRE“) in Q1/25. While we don’t have the details yet, we think the market will like it.

With > 1,200 holes/~100,000 meters, we know a great deal about this project. Manhattan has a 400 tpd gravity mill that’s fully operational & permitted. We could potentially utilize it for toll-milling third-party ore.

The Project is 15 km, on the same caldera, from the world-famous Round Mountain mine owned by Kinross. We’re in discussions with multiple parties on partnering and/or funding Manhattan. With Au soaring, interest in our projects is growing by the day.

Manhattan sounds great, what about Mineral Ridge? You have said it has the potential (ample infrastructure in place, permitted) to be back in production fairly soon.

Yes, Mineral Ridge (“MR“) was Scorpio’s primary focus until Manhattan’s prospects rose to the top. MR is not as SEXY as Manhattan, it’s a restart of a roughly 30,000 oz./yr. heap leach operation with a 360k ounce resource. Yet, with Au above $2,750, the opportunity is compelling.

MR is a permitted mine with significant infrastructure and undrilled exploration potential to define a bigger system with higher grades and improved metallurgy.

We’re looking for funding, primarily non-equity sources of cash. We think we can get a short-term debt facility as payback could be under two years. We hope to have our value extraction activities underway at MR in 2H/25.

How might your team fund exploration & development activities at Manhattan & Mineral Ridge?

As mentioned, non-equity sources of capital are being actively pursued, so a combination of debt, selling minority investment interests at the projected level, royalty/streaming transactions, off-take agreements & equipment financing. As you can imagine, many companies would benefit from near-term production plus a potential multi-million-ounce resource.

Many companies in Nevada talk about a million ounces, but very few like Scorpio with extensive permitted infrastructure, and water rights, have a shot at a multi-million-ounce resource.

Peter, you mentioned a dozen companies with Au assets in Nevada, there are many more that would love to gain a low-cost footprint in one of the world’s greatest Au jurisdictions.

Thank you Zayn, I can’t wait to see what unfolds for Manhattan & Mineral Ridge over the next 3-6 months…

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