Categories: Precious Metals
Topics: General Precious Metals

Magna Gold (TSX-V: MGR)(OTC: MGLQF) VP Amandip Singh on Production, Exploration & M&A Opportunities in 2022

Gerardo Del Real: This is Gerardo Del Real with Resource Stock Digest. Joining me today is the Vice President of Corporate Development for one of my favorite gold plays in the entire space, Magna Gold, Mr. Amandip Singh. Amandip Singh, how are you today? It's a long time coming. I've been wanting to have you on.

Amandip Singh: Absolutely. Thanks for having me. Feels good to finally do this. I know we've been talking off the record for a while and you've been a great supporter of our company. Yeah, I really appreciate you taking the time and having me on.

Gerardo Del Real: No, listen, it's been very easy to support Arturo and the team at Magna when every time that Magna lays out a corporate objective or goal, that goal is met usually in shorter timeframes than promised and usually over deliver, whether we're talking production guidance, whether we're talking strip ratio, whether we're talking accretive exploration. And so I wanted to have you on today because Magna is one of those rare companies that actually has all of those things happening simultaneously. And so I think a good starting point for us would be talking about the most recent press release where Magna produced 34,601 ounces of gold in its first two full quarters of commercial production. And you're also guiding for 2022 at a more aggressive scale than anticipated before. A lot to get to, I'll let you provide the context.

Amandip Singh: Yeah, absolutely. So our tagline has usually been building Mexico's next mid tier gold producer. But I think more fittingly right now and based on our production, I think our tagline really should be the 70 to 80,000 ounce per year producer you never heard of. And I appreciate opportunities like this to get on with you and get that word out. But yeah, when we set out, we gave ourselves a very aggressive goal actually. I thought our 2021 guidance of 55,000 to 65,000 ounces in a year where you're bringing the product back into production, you have a ramp up, there's a lot of things that can go wrong, and I thought it was aggressive.

And the team, I could not be happier, could not be more proud of the team, because as you mentioned, in our first two quarters... So June 1st, we hit commercial production. And in our first two quarters, we did 34,601 ounces, which as I mentioned earlier, that is roughly a 70,000 ounce run rate for the next 12 months. Usually our production based on the way the mine plan is set out, it is usually back weighted. So I imagine that we will actually do more than that 70,000 ounces. And that's part of the reason why we increased our guidance for 2022. We saw all the efficiencies that we've managed to exploit at the mine, everything's humming along. We've gotten our new leach pads in place. The mining rates are good. The grades have stabled out and the strip ratio was going down. So we thought that we could provide guidance that would be more aggressive than obviously our first year because the ramp up for the most part has been completed.

So we're now guiding for 65,000 to 75,000 ounces. That guidance, a lot of it is based on the currently published technical report. So we took the metrics from that and applied a bit of a, I suppose an increase to that because of just how smoothly things are going. And to think that in our first full year of production that we took something from zero and are already guiding for 65 to 75,000 ounces, I think that in itself is tremendous. Again, as we all know that we are working on a new mine plan that should be released later this year. Hopefully, that new mine plan will envision 90 to 100,000 ounces per year. So there's a lot of growth that's there. And again, 65 to 75,000 ounces in your first full year, I imagine that, some could look at that as aggressive, but we've got the team to pull that off.

Gerardo Del Real: Healthy cash costs, and they look to be getting better. The strip ratio actually increased just a tad bit during the fourth quarter, but that strip ratio is expected to trend towards the life of mine average of 2.5 going forward, that I would suppose and assume is going to bring cash costs just a tad bit lower. That being said, cash costs were very, very decent, $1,123 per U.S ounce and $1,299 per ounce, respectively for Q4 2021 and for a full year 2021. What does that look like moving forward? What do you anticipate?

Amandip Singh: So we at this point in time, we are guiding... For next year, we're guiding our cash costs between $1,250 and $1,350 an ounce. Again, we're being cautious, we are going through that sort of... It's our first year. Again, those cash costs, if you notice the strip ratio went up, but the cash costs were still in line with what they were in Q3 where the strip ratio was lower. So clearly the operations are humming along and we've gotten a good handle on our costs.

You mentioned the strip ratio in Q4, it was high, but part of the reason that was high was we are transitioning from the old mine plan to what will be the new mine plan. And as a result of that transition, there're certain areas that we have to hit before to prepare for that new mine plan. That's part of the reason why Q4 production came in at 15,499 ounces. Some of those ounces were lost due to that transition. And we hope to make up for that as the new mine plan comes into place. In terms of costs for the new mine plan, again, we imagine that within the new mine plan, those costs will be in line with what we've seen so far.

Gerardo Del Real: The company name is Magna Gold. I've joked and I'm half serious and I've spoken with Arturo in the past, and I think I mentioned it to you and several large shareholders that I believe ultimately you want to spin out some of the non-core assets, Margarita in particular as an asset. It's a silver project that has already seen its first phase of exploration drilling. I believe the San Francisco mine is undervalued relative to peer comps just as a standalone operation, if that's all Magna had in its portfolio. When you throw in and add in some of these other projects that you're currently getting zero credit for, it's why I say it's one of my favorite gold speculations in the entire space. Can you speak a bit to the exploration and approach to a creative potential M&A that Magna is looking towards in 2022.

Amandip Singh: Yeah, absolutely. And you know what? Just before I get into that, you touched on the peer comps in the area. Starting off with that, I think one of the things that we should mention in terms of how does San Francisco get valued as a standalone operation? Well, let's look at the most recent precedent. You look at December of 2021, the Mercedes mine from Equinox was acquired by Bear Creek, $134 million US. It's very similar deposit. It's effectively in our backyard, but bear in mind, it's got lower annual production and a shorter mine life than us. So that's something to consider when you think about us, that valuation gap dwindling. If we were to look at another comp, look at the Caliber Fiore deal, that was October 2021, that's 50,000 ounces of production a year, $137 million.

Again, mine lives that are shorter than what we have at San Francisco. And this just ties in perfectly to the exploration upside the San Francisco mine outside of the current mine plan. I mean, there are tremendous targets near mine just outside the pit that can add ounces and replenish our reserves to extend that mine life, some of those targets for instance, we call it the Llano target. It's in between the mine and the highway. If you were to look at a plan view map, we can conceivably see adding, anywhere from a half million to a million additional ounces in that area with the right drilling. Overall, the San Francisco, mine is part of a huge land package.

There's a really exciting target called Beta Sierra. It's about four kilometers north of the mine. We've seen some phenomenal drill results in the past. We're going to do some follow-up drilling and for a nominal cost, a very... We could run a very effective exploration program there and again, add additional ounces. And these are just exploration targets that we have close to our operation that will hopefully feed the future of the San Francisco mine. But outside of that, we've got a portfolio of six different assets each one better than the last. However, for a company our size, we have to be very laser focused on building value for our shareholders. So at this time we prioritize the Margarita project in terms of a what we saw there in Margarita was when we acquired the asset, we had a very significant robust data set of drilling, mapping, geophysical work that stable resource has done.

They just never put together a main resource. It was just never put together. So for us, we thought, it's a project that, as you mentioned on our books is zero value. How can we put a tangible number to that? So we went out there and we set out to do our phase one exploration program, our phase one drilling, which will lead into our phase two drilling or phase one A and B, depending on how you want to name them. Again, fully funded programs. There's going to be about 10,000 meters, where that will feed into the maiden resource there, then will drive a PEA and given that PEA will have, whatever confidence you ascribe to a PEA is, it doesn't matter. It's immaterial because we're putting a number that is more than zero. So anything we do there it builds value for our shareholders. And that's why, we took that approach there.

Gerardo Del Real: You mentioned six projects, you mentioned the flagship. We talked about one, again, we haven't even touched on the rest of them. I can't let you go before asking you. I know the team is laser focused on to San Francisco and making the most robust cash profile for the company and for shareholders. But, again, I have to ask, are you and the company still on the M&A hunt, if the right accretive deal present itself?

Amandip Singh: Absolutely. So again, you opened up and you mentioned that we're a company that we set goals and we deliver them ahead of schedule or at the very least on schedule. And our corporate ambitions, they truly still lie in that, by the end of 2023, we would like to be producing more than 200,000 ounces of gold a year and have five million ounces in resource and reserve. Again, organically, as I mentioned with the San Francisco mine, we hope to get that to 90, to a 100,000 ounces, but to solve for that additional 100,000 ounces of production that we want to do. Yeah, it will have to be through M&A and it would have to be accretive.

If you look at the San Francisco mine, it's something we paid two million dollars for which based on spot gold prices is $180 million. Those are the type of deals we look for. And opportunities tend to present themselves in unique ways. I think one of the things you got to look at is there's a lot of companies that are trying to monetize Mexican assets to focus on assets that they believe are in safer jurisdictions, which I think that's a misnomer.

I think every jurisdiction carries its own specific risks, but nonetheless, there's corporate strategies that open up opportunities for guys like us that have the cache in Mexico and cannot only turn around operations, but improve them. And you look at companies like with the new Kirkland Lake Agnico merger, when you look at that, 5% of that NAV is derived from their Mexico assets as a whole. For 5% of your NAV, it almost doesn't make sense to invest in the infrastructure, the management teams and every thing you need that goes around an operation in Mexico when your focus is on other jurisdictions. I'm not saying those assets have come available or not, but it's things like that are interesting to think about in terms of what a unique M&A opportunity could be.

Gerardo Del Real: Well said. I love the thorough update. I could talk Magna for the next 45 minutes. I know you have to run, you have a lot going on. I suspect you and I will be chatting a whole heck of a lot more here. Anything else to add to that?

Amandip Singh: No, I think again, management is always available. You guys can always reach out to us. I'd love to do this as again, as soon as something exciting happens and we'll keep you updated. And again, I just appreciate you giving us the time and letting us get our story out there.

Gerardo Del Real: You're producing, you're profitable, you're exploring, you're on the M&A hunt. What's the market cap, again?

Amandip Singh: Depends on what day you look, but I'll tell you as of today, as it stands right now. Yeah. We are a $70 million market cap.

Gerardo Del Real: Y'all could do the math on the production guidance and the profitability, given the cost guidance everybody it's as good as it gets as far as compelling risk reward scenario for a producing company. Thanks again, sir.

Amandip Singh: Thanks Gerardo. And yeah, we'll talk soon.