Samso Insight Episode 108
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Samso's driven purpose
The Samso experience has always been about identifying a good story and then sharing that on our platform with uniquely acute insights. We are fast approaching the end of 2022 which would mark our 4th anniversary. Time has passed so fast. The first official Samso blog was published in August 2018 but there were some articles that were written as far back as 2016.
As Samso developed, one thing has never changed. The motivation has always been to share our Insights with a purpose to showcase the potential of every story that will allow readers, viewers and listeners to understand and DYOR.
This is the first of a new series for the Samso community where I share my thoughts on the market and the companies that I feel may be relevant.
As the market gets complicated and investors are running for cover, I felt it would be a good opportunity to share my thoughts on companies that have been largely ignored due to a lack of market love. It's something that I feel will give an extra viewpoint that may be of use to readers :-)
The Tale of Two Journeys
For those readers who have been following the Coffee with Samso series, they would know of Aurumin Limited (ASX: AUN). I have been covering Aurumin for a while and I am now more optimistic on their story. We at Samso are not recommending Aurumin as investment (we are not authorised to recommend any financial products), but rather, we are showcasing them to create awareness in the community.
As an exploration geologist and thinking in that kind of space consistently, I have said it many times in the videos what I like about Aurumin.
What I like about Aurumin Limited (ASX: AUN)
The company's latest announcement (Released 31st October 2022) should give readers good reasons to get some research happening. The basic information is the upgrading of the Two Mile Hill Underground resource to 574koz @ 1.6 g/t Au. Why is this significant? Well, when the company took on the project, the Two Mile Hill UG resource was 500,000 ounces at a grade of 1.1 g/t Au.
This upgrade is the first step to making the Sandstone project a legitimate mining proposition. When I talk to people about the potential of this acquisition, the consensus was on the ability of Brad Valiukas and his team to show that the Two Mile Hill UG resource could be upgraded.
According to Brad, what will be required to make Two Mile work is this:
800oz/vm at 2g/t works well. So long as we can keep the bulk (30m high, 20m wide stopes). We are currently at 1,400 ounces per vertical meter at 1.6g/t, but there is no allowance in that for extraction percentage (pillars). Cut off grade at current gold prices is about 1g/t (plus or minus depending on the mill size), so both the resource and target have some margin. We are close, hence we will start some internal scoping work. I think there is still upside with the UG. There is room for some extension north and south, and more data could bring the grade up again.
As the company manages its exploration activities, one of the main questions is, what are the steps moving forward? What will Aurumin be doing in the coming 12 months?
2Mile Hill is currently still inferred. I really want to see what I can get out of some scoping work before making a call on the next expenditure. The best place to drill it from is UG, probably from in the tonalite and drilling perpendicular to the ore zones and veins, hitting the contacts both east and west.
At the moment, drilling from UG is as cost effective as drilling it out from surface, plus we would be UG at the top of the ore body, ready to mine. Some big calls to make.
One of the most important aspects of any mining proposition is the combination of grade and resource. I was curious about this and I asked Brad this question, in regards to the Sandstone/Two Mile Hill project. HIs comments were as follows:
On a macro scale, it is mostly about grade. But more is always better. More surface resource gives me space to mine the UG while pits are filling the mill. And, as above, some sweeteners would be good.
Aurumin is now all about the Sandstone project. According to the website, the Central Sandstone Project is located 12km south of the township of Sandstone, ~520km northeast of Perth, and located on a sealed highway between the mining towns of Mt Magnet and Leinster in the East Murchison Mineral Field of Western Australia.
The Central Sandstone Project comprises granted tenure covering 112km2, including two granted Mining Licenses. The Central Sandstone Project also includes a non-operating 500,000tpa CIL processing plant, all associated infrastructure, operating licenses, permitted tailings storage facility and bore field, and camp facilities located on freehold title within the nearby town of Sandstone.
History of the Central Sandstone Project
In excess of 1Moz of gold has been produced from surface, open pit and underground operations in the Sandstone area since the 1890s. In addition to historic mining activities, more recent gold production is variously attributed to Herald Resources Limited in the 1990s and Troy Resources Limited (Troy) from 1999 to 2010.
Troy extracted and processed a combined total of approximately 4.4Mt open pit of ore at an average grade of 3.6g/t Au for production of 508,000oz gold before the operation was placed on care and maintenance in September 2010. Middle Island Resources (Middle Island) acquired the Project in 2016 and explored the Project up until 2021.
In December 2021, Aurumin entered into an agreement to acquire the Central Sandstone Project from Middle Island for $12 million in cash and shares. This acquisition came with a complete package of a largely disjointed region of ownership previously.
Geology of the Central Sandstone Project
Gold mineralisation is hosted within the Sandstone greenstone belt within the Southern Cross Province that forms the central spine of the Archaean Yilgarn Block. The Sandstone greenstone belt forms a classic ‘hourglass’ structure at the northern end of the Diemals Dome, where two major trans-current structures, the Edale and Youanmi faults, respectively confine the eastern and western margins of the belt.
The Story of Aurumin
Aurumin is a low market capitalisation company that has hallmarks of greater things. As I write, the market cap is around AUD11M. This is a company with nearly 1M ounces of gold in which over 500K ounces is in the Two Mile Hill deposit.
I like the gold industry and it is very rare to find a story like Aurumin. I titled this blog "The Tale of Two Journeys" because I feel that Aurumin has two journeys to complete. The production path is very clear but I think the consolidation of all the exploration upside will make them achieve the miner status much faster.
The exploration that Aurumin is doing is not grassroots but to consolidate the known resources. The upgrading of the Two Mile Hill resources will continue to take place. Conversations with Brad on our Samso platform are proof that the management of Aurumin has implemented a plan and has executed it well, at this time.
When Brad and I had the very first conversation in March 2021 (COVID never existed), there were valid reasons to doubt the company strategy. The plans were new and the potential upside were vague and felt a bit far away. It was not that they could not achieve, it was more about time to complete the task at hand.
If you have been in this game as long as I have, you will know that acquisition was in the air. The time to do things in this industry is measured in months, otherwise, your hare price is going to move in the wrong direction, and if that happens, it normally ends in the wrong place.
The Solution to the Problem
Forward to 2022, the scene is very different. The sentiment for gold may not be as flavourful as Lithium. However, one has to remember that Brad Valiukas comes from big company thinking. Big company thinkers are always looking at expansion and creating economies of scale.
The recent upgrade in resources at Two Mile Hill is showing that the numbers will make the league. It's just a matter of drilling and creating more data points. The numbers will improve if the recent drilling program is a precursor of what's to come.
The competitive advantage for Aurumin is the potential plus 500K ounces (Two Mile Hill Underground) of near 2g/t dirt and the Mill. Some may say that the Mill is worthless and should be replaced. However, the location of the Central Sandstone Project makes it strategic to offer a central processing center.
If anyone has been in business, location is everything. The figure above will show that a central processing hub is best in the middle. It would make total sense if the central processing Hub has a good resource of gold itself.
If you expand the story to include the ounces that may come up from Southern Cross and Johnson Range, you have ounces that cannot be replaced. Here is a good take away -Sandstone is in between the Gidgee and Youanmi region. A centralised processing center that only really works well for the guy in the middle.
The final point is that Brad worked with Northern Star and Focus. Look at how those two companies (different fortunes) grew as a company. Northern Star had Paulsens Gold Mine and that was like a starter project.
Do Your Own Research and reach out to management. Aurumin is currently doing a Rights Issue and this may be a great time to approach the company and get the facts.
The information or opinions provided herein do not constitute investment advice, an offer or solicitation to subscribe for, purchase or sell the investment product(s) mentioned herein. It does not take into consideration, nor have any regard to your specific investment objectives, financial situation, risk profile, tax position and particular, or unique needs and constraints. Read full Disclaimer.
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