It’s been almost 6 months since we here at Investornytt had the spotlight at Cabral Gold which has an advanced exploration and development gold project in Brazil. So what has been happening since then? Well there have been some pretty significant developments as the company pushes forward with its PFS on the near surface and weathered gold-in-oxide material. The study is due by the end of 2023 and if positive will form the basis for a construction decision during late 2023 / early 2024.
These developments can be summarised as follows;
- Commencement of a PFS on the near-surface oxide material
- US$5M deal with Osisko Gold Royalties
- Changes to the Cabral Board
- Recommencement of Drilling at Cuiu Cuiu
So let’s delve a little deeper into each of these developments and consider the implications for Cabral.
Commencement of a PFS on the near-surface oxide material
On 5th April 2023, Cabral announced that it had engaged Ausenco to commence work on a Pre-Feasibility study on a trial mining and heap leach processing of the near-surface gold-in-oxide saprolite material at the Cuiú Cuiú project in northern Brazil. This is a very exciting development for the Company and, if positive, should form the basis for a construction decision. The study is expected to be complete by the end-2023.
This follows the completion of several months of internal scoping work by Cabral on the possibility of developing a trial mining operation and heap leach recovery circuit on the near-surface free digging gold-in oxide saprolite material. Whilst we do not know the results of this internal scoping work, the fact that the company has hired Ausenco to move forward with a PFS would suggest that the internal studies were positive.
The Pre-Feasibility study will be NI 43-101 compliant and will include mineral processing, mechanical, electrical and infrastructure design, hydrogeological and geotechnical studies and a detailed financial analysis.
Alan’s comments in the 5th April press release are as follows “This is a major milestone in the development of the Company and builds on extensive internal work undertaken over the past six months. It is aimed at exploiting the extensive free digging saprolite resource which sits above the much larger hard rock gold resources at Cuiú Cuiú. Ultimately, the objective is to eliminate the dependency on expensive and dilutive private placement financings in order to fund further exploration and drilling within the Cuiú Cuiú district aimed at expanding the current resource base.”
Soon after this announcement the company announced on 23rd June 2023 that it was conducting additional metallurgical tests which will provide news in the near future. We expect an update regarding progress on the PFS in the next few weeks.
US$5M deal with Osisko Gold Royalties
Cabral announced on 12th July 2023 that it had sold a 1% NSR royalty to Osisko Royalties for a total consideration of US$5M or C$6.6M. This is a very positive development for the company. The payment was made in two tranches of US$2.5M during July. There was obviously no dilution to the capital structure as a result of this deal and together with cash in the bank, it brought the cash balance to approximately C$8.4M prior to the payment of legal fees associated with the transaction. This cash position is more than enough to complete the PFS and will probably allow the Company to order long lead items for the Trial Mining operation, assuming of course the PFS is positive.
Osisko already holds a 0.75% royalty on the adjacent TZ project, which is under construction and will be Brazil’s third largest gold mine, so acquiring a royalty on Cuiú Cuiú is a good fit for them. It is also important to note that the Osisko management team have had a lot of success and are highly regarded in the industry.
Alan and the Cabral team regard this deal as a major endorsement of the Cuiú Cuiú project and of the strategy of fast tracking the near surface oxide material into production in the near term resulting in positive cash flow. Once in production the Trial Mining operation should throw off the cash to more than drill off the 2 new deposits at Machiche and PDM, as well as fill in the gaps in the resources at the MG and Central deposits. It should also allow the company to fully evaluate the dozens of other targets on the property
Changes to the Cabral Board
The Cabral Board has been expanded to 6 members from the previous 5. Rod Cooper and Derrick Weyrauch left the Board in June (for different reasons) just prior to the announcement of the Osisko deal and Alan has used the opportunity to significantly strengthen the Board.
Jon Gilligan, Ian Gendall and Larry Lepard have all joined the Board of Directors ( see press release dated 8th August 2023). All of these guys have reportedly known Alan for a long time. Jon Gilligan in particular has wide experience and knowledge building and operating mines, including heap leach projects, and that is expected to be invaluable as Cabral progresses the PFS at Cuiu Cuiu.
Ian Gendall has a wide industry network and led the Billiton exploration team that discovered a whole new copper district in southern Peru. He also knows the Tapajos region well and was involved with the discovery of the Coringa gold deposit in Brazil.
Larry is a respected fund manager focused on investing in the gold sector and runs a US$60M investment fund. He was on the Board of Amarillo Gold, a company with a project in Brazil which was acquired by Hochschild Mining in 2021, and he is very active on X (previously twitter) with 145,000 followers.
We agree with management that attracting these guys to the Board of Directors is another significant endorsement of what Cabral is doing at the Cuiu Cuiu project.
Recommencement of Drilling at Cuiu Cuiu
Most recently and on 15th August 2023, the company announced that it had started drilling again at Cuiu Cuiu and specifically within the weathered gold-in-oxide material above the MG and Central gold deposits. A total of 25 RC holes and 21 short power-auger holes are planned with drilling initially at the MG gold deposit, which is targeting higher-grade mineralization within the shallow gold-in-oxide blanket and saprolite gold resources.
Once this program is complete the rig will move to the Central gold deposit where 19 RC holes are planned with the objective of upgrading the Inferred portion of the current oxide resource at Central to Indicated
This work is designed to better define and expand the higher-grade shallower portion of the oxide resources within the near-surface saprolite and blanket material, to improve confidence in the current oxide gold resources, and to aid in the mine planning and sequencing as part of the ongoing Prefeasibility Study on Trial-mining of the oxide resources at the MG and Central gold deposits that is currently being conducted by Ausenco.
It’s important to note that previous drilling by Cabral within this oxide material has returned some excellent results including DDH214 at MG, which returned 60m @ 3.5 g/t gold from surface in blanket and saprolite (see press release dated May 19, 2022), and DDH306 at Central which returned 20.9m @ 4.2 g/t gold from surface (see press release dated July 7, 2022).
The clear intention of the company is to better define the higher-grade oxide material which will be mined first (assuming a positive PFS and construction decision). This could result in a very profitable operation and the quick payback of capital.
Investment Rationale
Finally, let’s just review the fundamental reasons why we beleive Cabral is an excellent investment opportunity.
- Valuation – the current market cap of Cabral is C$25M which is equivalent to an enterprise value of just US$12/oz of gold (from the most recent resource base). Gold is now trading at US$1900 per oz. During positive market cycles companies including Cabral with projects at this stage in Brazil and similar jurisdictions were trading at US$50-100 / oz. That was before GMining announced the acquisition of the adjacent TZ project. Once that mine enters production, companies with projects in trucking distance of the TZ mill (Cabral is the only one!) could be expected to trade at US$150 – $200 / oz
- Management – management has been involved directly in the grass roots discovery of 5 gold deposits in Brazil and we think they will find more. Added to that, the CEO has previously been involved in the sale of companies to much larger mining companies like Stillwater Mining and Equinox Gold. Finally, and most importantly, the CEO has invested $2.8M of his own money in Cabral to date, and is the largest shareholder
- Near-term production – the PFS that is in progress now regarding the economic viability of mining and heap leach processing of the gold-in-oxide blanket material should be complete by end-2023 and if positive will lead to a construction decision during Q4 2023 / Q1 2024. Based on similar heap leach operations, margins are likely to be significant. This will likely mean that once the company is in production, it will no longer need to contemplate dilutive equity financings. It will have enough cash to finance the ongoing drilling and exploration of all of the other targets which is certain to increase the resource base
- Existing Resource – the company has existing resources that total 1.14 million oz of gold in the ground which were calculated by SLR which is a very conservative engineering group. Those resources are sure to grow
- Upside potential – the historic comparisons (in terms of placer gold production) with TZ and the significant number of targets and new discoveries at Cuiu Cuiu all point to Cuiu Cuiu being a major gold deposit with multi-million ounce potential. This will require time but is likely to result in a constant stream of drill results
- Location – Cuiu Cuiu is immediately adjacent to Brazil’s largest new gold mine development which will enter production in late 2024, and by most measures discussed above, Cuiu Cuiu should ultimately prove to be a lot larger than TZ. This will inevitably result in speculation regarding synergies, a possible take-over or JV’s
