Categories: Precious Metals
Topics: General Precious Metals

Magna Gold (TSX-V: MGR) CEO Arturo Bonillas on Updated Pre-Feasibility at San Francisco Mine, Self-Funded Exploration Drilling & Organizational Structure Additions

Gerardo Del Real: This is Gerardo Del Real with Resource Stock Digest. Joining me today is the President and CEO of Magna Gold (TSX-V: MGR)(OTC: MGLQF), the very, very busy Mr. Arturo Bonillas. Arturo, buenas tardes. How are you?

Arturo Bonillas: Gerardo, muy buenas tardes. How are you?

Gerardo Del Real: I am well. It's an exciting gold and silver market to say the least. You have gold flirting with $2,000 again. Magna has been extremely busy. You've been very clear since you and I first met that the goal for Magna Gold is to become the next mid-tier producer from Mexico. You're working hard at achieving that. 

You just had some news that that was important, but I believe it's just a start. You announced the pre-feasibility study on the San Francisco mine. Can we go over some of those details?

Arturo Bonillas: Yes, correct. It was our second pre-feasibility update. It was mandatory for us to be able to provide guidance soon. The report is quite good. I'm very excited about all the work that was put in. The results are very, very encouraging. We have already posted the pre-feasibility study on SEDAR and the results are very good. The report shows a measured and indicated resource of 1.43 million ounces and, in addition to that, 170,000 ounces in the inferred.

So we have about 1.5 million ounces in the resource. The resource was run at $1,500 gold for our estimate. Out of that, we have a mine plan for the next 7 years and a half, almost 8 years. We are mining 758,000 ounces and we are producing 527,000 ounces over that period of approximately 8 years at a rate, between 2021 and 2028, of about close to 70,000 ounces per year.

Now, I'd like to tell you that those numbers are the using the current block model. Those numbers do not include all of the additional drilling that we've been carrying out over the last two months. It is our base case, our conservative case. The cashflows show on that plan, at $1,950 gold, an after-tax net present value of $231 million US, using a 5% discount rate.

The next step here is to finalize a drill program, a very aggressive drill program, so that by year's end we will be able to update the pre-feasibility study again and have a new business plan for the following years where I hope we will be adding at least a quarter of a million ounces into that plan. Then we may announce also as part of the business plan, a potential expansion to capacity. It's a bit early to talk about investment numbers, but the strategy here would be to accelerate the extraction and production of the gold that we are discovering and adding to the resource.

That's in general terms where we're at. Again, this plan is only for our base case, our conservative case, and it's published. We also began production from the underground mine and it's looking pretty good. We just started this month, in September. We prepared the mine in August, we started in September and it's looking very, very good. That's also a part of the production profile. Currently the production plan shows the underground mine only this year, but that will be extended.

Gerardo Del Real: Arturo, one question, and I know the answer, it's a rhetorical question but I'll ask it anyway. All of the exploration that's going on and the exploration plans that you have for other projects, including an exciting silver project, La Pima, all of this is self-funded, correct?

Arturo Bonillas: The operations are self-funded. The San Francisco mine turnaround is completely self-funded. For the other exploration properties, we are using the money that we raised in June. All of that money that was supposed to go to the San Francisco mine startup, we are using it for exploration in other areas. We're drilling La Pima. We began drilling La Pima last week. We'll continue drilling that silver property until the end of the year also. Again, it's important we are bootstrapping the operation quite successfully.

Gerardo Del Real: So, you plan just to be clear, on optimizing the all-in sustaining cash cost of $1,204 per gold ounce, correct?

Arturo Bonillas: Correct, yeah. There's two ways that we're going to reduce the costs. One is the addition of the underground mine. We have an M&I plus inferred resource at the underground mine up to 100,000 ounces. Of course, we have to drill off about half of them. The underground mine's production costs are less than $700 an ounce so. That is one factor that brings down the cash cost. Also by next year in our business plan, we are going to show reduction in costs by economies of scale by increasing capacity and by improving metallurgical recovery. Those are the two manners of reducing the cost.

Gerardo Del Real: Excellent. When can we anticipate asset results from the aggressive drilling that you're doing around the pit at La Pima? I know you have plans for Mercedes and San Judas. You have a lot going on.

Arturo Bonillas: Yes. I would like to complete all the drilling that we're doing, because it's not about discovering one hole. We need to do at least 50% of the drilling to be able to announce this. Once we finish, we will have a new block model. We will announce that by January, February next year. 

In the case of the other projects, La Pima, we should be announcing results in two months, the initial results for the first phase of drilling. Our Mercedes project in Sierra Madre, our original qualifying project, we are moving very fast to put it in production in Q1 of next year. We are going to extract what we found up to this point, without any further drilling. That is going to bring a considerable amount of cash into the company.

Gerardo Del Real: Is there still exploration upside at that project that you can self-fund again from what you've already found?

Arturo Bonillas: Well, yes. There's a lot of upside. We have a big land package there and we are acquiring more. The money that we generate there will be ample to explore the entire area and probably acquire more properties in the region. Yes, it will be self-funded.

Gerardo Del Real: Just to summarize, Arturo, you have heap leach production, underground production, exploration around the pits, exploration at La Pima for high-grade silver. You're going to drill San Judas and you want production from Mercedes and eventually San Judas?

Arturo Bonillas: Oh yes. San Judas is very important. San Judas, it's in an exploration stage. We need to drill it. But again, we are also making sure that we're not stretching too much. 

We are reinforcing our organizational structure also. We hired a VP Finance in Canada, a controller. We will soon have an Investor Relations Corporate Development person in Canada. Here in Mexico, we are also hiring or bringing back some of the people that worked with us before. A couple of months ago, we hired an underground General Manager who's doing a great job. Also we are expanding our geologist team to be able to do all of this. So we are moving ahead carefully, gradually, but sustainable as far as the human capital.

Gerardo Del Real: And because you're not busy enough, you're still on the M&A trail.

Arturo Bonillas: Well, it's the moment to do all of that. It's the window. As I said, I'm already delegating a lot of activities in production. We have a Country Manager also who began last last month. That Country Manager was part of the company for the last 12 years. He's taking care of every other aspect of the operations and administration here, including permitting, finance in Mexico, public relations administration, et cetera, union.

Again, it's important that I focus on growing the company. We have this new platform where we're producing gold, but growing the company implies also that we do M&A.

Gerardo Del Real: Arturo, a lot to like. I'm excited for the rest of the year. I'm really excited for 2021. I want to thank you for your time and hopefully we can check back in with each other soon.

Arturo Bonillas: Gerardo, thank you very much for this interview. I appreciate your work. Spreading the word of what we're doing is very important for us.

Gerardo Del Real: Magna's one of my favorite resource speculations in the entire resource space right now. I think if people really listen to this interview, they'll start understanding why, if they don't already understand. Thank you, Arturo.

Arturo Bonillas: Gerardo, thank you very much. Muchos gracias, buenas tardes.

Gerardo Del Real: Con gusto, de nada.