I've Never Seen a Gold Miner Like This One

Written by Gerardo Del Real
Posted June 8, 2020

Finding an economic deposit that eventually becomes a mine is a long shot by any metric and can take decades from exploration to production.

Yet in less than a year since going public, Magna Gold (TSX-V: MGR) (OTCQB: MGLQF) CEO Arturo Bonillas and his team now sit in the enviable position of owning a mine that I believe will likely produce approximately 25k gold ounces this year, over 50k gold ounces next year, and at least 75k gold ounces (from the San Francisco mine) a year for the rest of the decade.

I caught up with Arturo recently to talk to him about the exciting developments at Magna. Read on for the transcript.

Also, keep your eyes peeled. There are a lot of great opportunities in the market these days.

To your wealth,

gerardo-sig

Gerardo Del Real
Editor, Junior Mining Monthly and Junior Mining Trader


Gerardo Del Real: This is Gerardo Del Real with the Outsider Club. Joining me today is the CEO of Magna Gold (TSX-V: MGR)(OTC: MGLQF). Mr. Arturo Bonillas. Arturo, muy buenos dias. Como estas?

Arturo Bonillas: Muy buenos dias, Gerardo. It's always a pleasure to talk to you and your audience. Thank you very much for the opportunity.

Gerardo Del Real: Thank you for taking the time, Arturo. I have to start by congratulating you. You finalized and you closed the acquisition of the San Francisco Mine, a project that you put into production back in the day. So first off, congratulations on your, frankly, immediate graduation into becoming a producer. Right?

Arturo Bonillas: Thank you very much, Gerardo. It was a team effort and everyone had really worked very, very well just getting here. We are very happy working, also very motivated.

Gerardo Del Real: The stock has responded very positively to the acquisition. The acquisition, I believe, is one of the best deals for us shareholders in the junior space in recent memory. However, I've had a lot of readers and subscribers asking me with the recent run-up in the share price, is there still an opportunity? 

I want to try to provide some context on that opportunity today because I don't believe you're being priced as a producer. Let's go over the share structure really quick. You have, I believe, approximately 84.5 million shares outstanding and 85.6 million fully diluted. Is that accurate, Arturo?

Arturo Bonillas: That is correct. Those are the precise numbers, Gerardo.

Gerardo Del Real: Excellent. Your share price today is trading right around the $0.68 level. So you still have a market cap of sub-$60 million Canadian. That hasn't gone unnoticed. You just closed a financing that caught the attention of Eric Sprott, amongst others. I believe that the market is not completely understanding what the opportunity is. 

Can we talk about what the remainder of the year looks like for Magna Gold, just specific to San Francisco? Then we can talk about some of Magna's goals moving forward.

Arturo Bonillas: Yes, I agree with you. We have not had time to spread the word and tell what we are doing and going to do. So I will try to cover all those points today with you. Yes, two months ago, our market cap was around $10 million Canadian. So now we're six times that and very sustainable. It's not a promotional deal here. We do have the backup to be there. So yes, we are now a new company. 

We have evolved from being an exploration company to a gold producer and explorer and developer, and soon a builder of mines. We got there through M&A. We really were a startup with experience and by becoming now the growing gold producer in Mexico in record time. We acquired the San Francisco mine, which contains 1.4 million ounces of gold in the ground. That is information from the latest 43-101 report, which was published on July 1, 2018. Most of that gold there, that 43-101 and those ounces were estimated at a gold price of $1,350 an ounce. So, the gold is still there. 

With the acquisition also of the San Francisco mine came an amazing exploration package of gold and high-grade silver. It is a package of 41,000 hectares of mining concessions. They're all adjacent to each other. Do you know what's most important here, Gerardo? It's that with the package came an amazing group of people. We acquired human capital, which is really being added to the shareholders of Magna and the company. We're very, very happy for that.

What follows now, that's very important because people have to know what's next and then go by quarters. We are now at Q3. So in the short term, we began preparing an initial prefeasibility study, the PFS, to put out guidance in this quarter, Q3. We need to put out guidance. We have a very interesting mine production plan, but we have to have it certified by an independent engineering firm. And we're doing that. 

In Q3, we're also continuing leaching the residual ore on the leach pads. We're projecting to bring in 15,000 ounces from the residual leaching this year at a very low cost. That's information that was published by Alio Gold in their guidance for this year. I want to tell you that our first month of operations we did very, very well with that. We had an excellent month and we shall be putting out numbers later when we announce our quarter-end.

So we continued with the residual leaching in Q3 and the rest of the year. Also on Q3, we will restart mining, crushing, and processing of fresh ore. We have a plan and we will be allowed to do that as soon as we put out the technical report that was produced for the acquisition of the mine. So there's various reports. One is a report that we should put out in about two weeks, and that didn't change anything. We needed to create that to get approval from the change and then we start producing. 

Now, as I said, we'll restart mining in Q3. Also in Q3, we will infill drill the existing pits. We have two open pits, the San Francisco pit, and the other one that's called La Chicharra pit. The objective is to add ounces in the very, very short term. So that means that we shall be updating our prefeasibility study in Q4 with the new drilling and those new ounces that we will be for sure adding to the current pits.

Gerardo Del Real: Excellent.

Arturo Bonillas: That's very important. And also on Q3, we are preparing to drill one of the targets that came with the package. It's not part of the San Francisco pit. These are silver targets located about 30 kilometers northeast of the San Francisco mine. That is very exciting. It's called La Pima. We already submitted the request for permitting, and we are negotiating with surface owners, which shall be easy. So we should be getting interesting news from the drill program. So that is what are we doing immediately.

Gerardo Del Real: That's a lot of news, Arturo. I want to summarize really briefly. So you're producing from the residual leach. You got 12 months of residual leach production. Is that correct?

Arturo Bonillas: That is correct. Yes.

Gerardo Del Real: Then you're also targeting a resumption of the processing of the low-grade ore stockpile. That's happening here, or you're getting ready for that to happen here shortly, also. Correct?

Arturo Bonillas: Yeah, that is correct. I forgot to mention that we, in addition to restarting the pits, we have 800,000 ounces of low-grade stockpile, which gave very good results in the previous year to Alio Gold. So there's a few ounces there that certainly add to our bottom line.

Gerardo Del Real: Fantastic. So nearly 1.5 million ounces in measured and indicated, over 850,000 ounces in historical 43-101 reserves. You have a very ambitious goal in your presentation. Between now and 2023, you want to become a multi-mine gold producer with an annual production profile of at least 200,000 ounces a year, and a gold resource in the portfolio of approximately 5 million ounces of gold. Obviously, with the current production profile, you're going to be able to self-fund a lot of that, which is really going to minimize dilution. 

What is the plan to achieve those very ambitious but, I have to believe, realistic targets? I say that because you've been able to deliver on everything you said you'd deliver when you and I first spoke about Magna going public. Again, full disclosure, I'm biased. I participated in the initial financing. I participated in the most recent one, and I'll likely be adding to my position here in the open market. So the floor is yours, Arturo. How do we get to 200,000 ounces a year and 5 million ounces of gold in the portfolio?

Arturo Bonillas: We will get there. That target, that mission is ingrained in everyone in the organization. We will become a multi-mine gold producer. We have mapped it out. Immediately after we drill La Pima, the silver target, we will begin drilling the San Judas project. 

One of the venues to getting to that gold is to grow organically because we do have an amazing package. So we will drill San Judas, which was not part of the package that we acquired. It came with the original Magna Gold. I expect there and I'm very optimistic that we will eventually reach another San Francisco pit. We are actually working on the drill program now. We have to do a bit more sampling. So, you know, there is another San Francisco pit. La Pima, in equivalent ounces that shall be very, very, very, very good for the additional, those ounces.

The M&A process will continue. I think it's very important. We're currently working on two different fronts. M&A takes a long time, that's all I've found out. But we already started the talks with a couple of groups and we are targeting producing or near-producing mines. That's our target for M&A. That shall be part of those 5 million ounces and those 200,000 ounces per year. 

Let me go back to what we're going to do immediately after Q4, because we need people to see what we're doing. So in Q4, we should have an updated prefeasibility study. That's a third study based on the new drilling that we will generate. Also between Q4 and Q1-Q2 next year, we shall have the initial results of drilling the San Judas project. As I said, I'm very, very optimistic about it. 

Remember our original Mercedes property up in the mountains in the Sierra Madre?

Gerardo Del Real: Absolutely.

Arturo Bonillas: So we had our very successful first round of drilling, though limited because of funding. However, we see a great opportunity there. We are in the process of developing a pilot plant to extract the initial ounces that are on the top of a hill. That looks very interesting. 

We've already done a small pit on paper. We have already done our block model. Then we have designed a small initial starting pit, which shall bring an initial, interesting flow of cash. It's supposed to be a pilot test program that shall generate enough money to have that big area self-finance for future exploration. So we are on our way there to get to those 200,000 ounces a year in 2023. We're all excited, we're all really well motivated. 

We will need also to support our organizational structure. So I'm working on that. We shall have a renewed organizational structure in Canada for marketing and finance. We also have been interviewing some people here, locally good, good miners, in case we need to start quickly on some of the goals for production. So it's all a part of the well-planned-out disciplined plan, a growth program.

Gerardo Del Real: A total congratulations again, you're producing from one property. You're looking to drill the exciting silver target here in the next quarter to you're setting up pilot studies for a second property, San Judas. You are revising the 43-101. You're working on a PFS and you're on the M&A trail. 

This is fast becoming one of my favorite stories in the gold space. Oh, and by the way, you're doing this with the gold at $1,715 an ounce and likely headed much, much higher in the next couple of years. Is there anything else that you'd like to add Arturo? Thank you again. Congratulations again. And I've got to say it's been impressive thus far.

Arturo Bonillas: Well, thank you very much again. I think to be right, we are not being rated as a producer yet. But also we have not — you know it's too early — we have not had time to inform the public and investors what we're doing. So thank you for this opportunity to tell your audience what we're doing. 

I'm also always available to respond to any questions. We are full speed ahead. The cycle is right there. We're growing a gold price which I think is at the beginning. So that's why we're moving pretty fast to take advantage in bringing those ounces in that production closer to the present. So thank you again, Gerardo.

Gerardo Del Real: Yeah, thank you. Judging by the news flow, we're going to be chatting a lot. So thanks again, Arturo. Thank you for your time and we'll chat with you soon.

Arturo Bonillas: Excellent. Thank you. Have a great day, Gerardo.

Gerardo Del Real: Same to you, Arturo.


For the past decade, Gerardo Del Real has worked behind-the-scenes providing research, due diligence and advice to large institutional players, fund managers, newsletter writers and some of the most active high net worth investors in the resource space. Now, he is bringing his extensive experience to the public through Outsider Club, Junior Mining Monthly, and Junior Mining Trader. For more about Gerardo, check out his editor page.

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