Atlantic Gold Exceeds Production Guidance, Increases Resources, Focuses on Adding Ounces

Atlantic Gold Chairman & CEO Steven Dean discusses the company's stellar first year of operational results, its Phase 2 and Phase 3 expansion plans, and how they could be on to an entire corridor of low-cost gold mineralization.

Nick Hodge: Hi, this is Nick Hodge with the Outsider Club. I'm sitting down once again with Steven Dean, he's the Chairman and CEO of Atlantic Gold which trades the TSX-V under ticker AGB and over-the-counter under the ticker SPVEF. We won't do a lot of background or introduction you should be familiar with the story. This is one of Canada's newest open pit gold mines. Extremely low cost. I have to start off by saying congratulations Steven on getting the mine not only operational but exceeding your production guidance in the first year of operation. Which is very rare and a feat to behold and I think there is more to come. So first of all congratulations and thanks for coming on to give us an update.

Steven Dean: Thanks Nick always nice to chat with you. The team has done an awesome job of bringing the mine up to steady state from commissioning last year and we continue to have good outlook for 2019.

Nick Hodge: So let's talk a bit about that outlook, you've been producing from your Moose River Consolidated Project which includes the Touquoy Deposit and the Beaver Dam. But you have been executing brilliantly on multiple fronts, bringing new satellite deposits into the fold, as well as doing some resource expansion and exploratory drilling. Can you give us a recap of your phased approach, Phase 2 and Phase 3, what those were and how you executed on them?

Steven Dean: Yeah, Phase 1 as you correctly pointed out is the first stage of operation where we have two of our four deposits going into production, Touguoy followed by Beaver Dam. Phase 1 is largely executed and guidance is 92,000 to 98,000 ounces of production at cash cost all in of around C$695-C$750, which is about US$520 to US$566 an ounce. That gives us a base case mine life of 8 or 9 years. Then on top of that as I mentioned our Phase 2 expansion brings in the two other deposits being Fifteen Mile Stream and Cochrane Hill. We've been doing some drilling extending those two deposits in the last 12 to 18 months.

That drilling is what we call the Phase 3 resource expansion program, and we recently announced significant increases in resources and reserves at those two deposits. As well as, a nice edition of an additional year of mine life to our Touquoy Deposit. I think reserves increased by about 403,000 ounces. We announced that about a month ago. And what that means is that Phase 3 growth has now pushed our reserves out to 1.9 million ounces and in an excess of ten years of production. Which, is very rare and unusual in the junior space certainly in the gold business and we are very proud to be at that place of development. Then of course Phase 4, which is our targeting of our big Corridor Program, where we see the potential, real potential, to discover additional deposits in addition to the four that we have in our life of mine plan because the whole corridor as we call it is essentially undrilled.

Nick Hodge: There's a lot to unpack there I want to talk about your low cost production and of new resource discovery. But first, let's touch on some of the highlights of the recent drill campaign. Can you talk about some of the high grade highlights at Cochrane Hill and sort of a little bit about the new deposits you've got, the new discoveries you've got at 149, and why they're important?

Atlantic Cochrane Hill High GradeSteven Dean: Sure. I don't know if any of your subscribers have access to our PowerPoint document (Click here for presentation) we have what we call a long section of Cochrane Hill and that pretty well explains what we're talking about here. We've had some interesting high grade intercepts below the former pit outline and to the east. The northeasterly plunging high grade chutes are yet to be actually fully included in the reserve calculation that we put out a month or so ago. So there's some real potential to add there, as well as further drilling below that to define how deep those northeasterly plunging chutes might extend. It's significant because they're graded a little higher than we're seeing in the westerly part of the pit in that end of that mineralization.

So economics could potentially be stronger, as well as if we our successful in outlining some more mineralization in that easterly plunging direction at depth below the current pit floor, then that pit will drive much deeper and of course that means good things for reserves. We add more ounces to what will be recoverable in that pit.

Nick Hodge: So let's talk about the low cost and then we're going to tie it altogether on what's next with Phase 4. But before we get there let's talk about the cost. Can you talk about your two prongs of low cost? Can you talk about why you have such a low cost of production? And then can you also talk about why it's so low cost or economic for you to discover new ounces?

Steven Dean: Sure. In my experience of over thirty years of being in this business, and leading large multi-billion-dollar mining companies as well as junior ones, and start-ups like Atlantic... Is that it's seldom just one factor that drives costs, or low cost I should say. It's usually a combination of factors that enable lower costs to be achieved on any metal production. The principal drivers for us at Atlantic and Moose River Corridor is location. We're literally 45 minutes away from the Halifax International Airport. So we're close to infrastructure and a provincial capital, which means the service providers, contractors, we don't have a camp for the of people because 98% of our work force live within one hour drive of the mine site. That's very unusual in this business.

We have a medium grade deposit it's open pit it's low strip ratio of the order of 2:1 or 3:1, with the global average being closer to 8:1 or 10:1 waste to ore ratio. We've got as I've said a 2:1 or 3:1 strip ratio for most of the deposits. We've got really good metallurgy high recovers of 94%, 95%. And of course the final factor is this Canadian dollar. It's discounted to US dollar at around $0.74 to $0.75 cents in the last several years. So that means when you're selling gold essentially in US dollar denomination, you get the benefit of low cost being the discount of the Canadian dollar costs to the US dollar.

So all those things come together to result in a US$550 circa all in sustaining cash cost for our operations. I think that was the first part of your question.

The second part being how are we able to sustain a low cost or low reserve discovery costs. That's partly a function of the fact many of the ounces that we've added in lasted a while our additions to the existing resource or reserve. So they're simply bolt on or extensions to the existing mineralization and that always drives a low discovery cost.

The other factor is that most of all, if not all our deposits and all our targeted mineralization are within 150 to 200 meters of surface. Which means that our drilling cost per meter is low and our man power, and timing, and turn around of that drilling is lower than many of our competitors. So in a field where there is so much potential for undrilled mineralization like this because, as you know, this open pit style of mineralization model has never been exploited in the province before. It was always underground deep, deeper sort of never have been mineralization where targeting the dispersed mineralization principally. Typically, it's been 150 to 200 meters surface so that means it cheap to drill off.

Nick Hodge: It was those low costs that attracted me to the project several years ago. Or at least the projected low costs at the time and that has borne out in reality as the mine has come online. Now we're looking forward to adding years to mine life, increasing resources, etc. Can you talk a little bit about the slide in your presentation and I'll put up a link below this video about how you used the "Aussie Model" to add those reserves being funding from the mine?

Atlantic Aussie Model(Click to Enlarge)

Steven Dean: Yeah, what we mean by that and you're well studied in the industry here and so you'd be aware that the Aussie Gold producers are enjoying a better capital markets rating. The stocks traded up premium to their NAV, the market appreciates the capital discipline that's applied there versus North America,  at least in the last little while. What we mean by Aussie Model is a little bit about that capital discipline but also in this slide the context is most important in that what we're doing and what the Aussie do really well is we start off and get into business and get cash flow, and generate cash, and generate returns on our capital from an existing, smaller perhaps, sometimes shorter mine life. Then we grow it and we grow it with drilling which is funded in turn by the operating cash flow from the initial start-up operation. In our case, for example the Phase 1 stage of our development.

So we're using Phase 1 cash flow to then go and grow our business, grow our reserve base, grow our annual production, and grow our mine life withthe cash flow that we generate versus more of a North American model that's historically been... let's try and drill off as many ounces as we can before we even start production and use, in my opinion, a higher cost capital to do that because that's an explorer development costing capital versus an operating producer costing capital.

Nick Hodge: Agree with that 100%. It's been smart of Atlantic Gold to take the project into production and that's borne out in the value of the company. Which, I think is going to expand going forward. So let's talk about that now. What's become really important is the potential for corridor discovery. As I understood the story over the past couple of years. It's been a string-of-pearls model where you have Touquoy and Beaver Dam, and Cochrane Hill, etc. But let's talk about leveraging the corridor and what the potential is for corridor leveled discovery and what that would mean to Atlantic in terms of cash flow?

Atlantic Leveraging Corridor(Click to Enlarge)

Steven Dean: Right. So what we mean by leveraging the corridor is that we have a very large franchise being we own most of the key mineralize structure extending from south of Touquoy Deposit to north of our Fifteen Mile Stream deposit. That's about 45 kilometers of the same host rocks that host all of our deposits. And it's a structural corridor. It's well mapped out and understood. But from a geophysics it's an anticlinal structure and the ground we own hosts most of the axis or hinge zone of this anticlinal structure. For your subscribers who aren't geologists, what that means is that there's a big fold in the earth's crust. This is very basic lay geology. A big fold in the earth's crust which is creating this anticlinal structure and when the rocks in the earth's crust crack and bend and fold to as part of this structural event. It creates cracks in the rocks when those folds occur and those cracks form the plumbing for gold the mineralization to flow into and that's the typical host structure of all our deposits.

It's a combination of these quartz veins that contain once gold bearing fluids. Then there's a dispersed halo of mineralization in all the fine cracks, in particularly the rock which we call the argillite, which is like a mud stone. Very soft rock and so a very good, fine conduit and plumbing system for the gold mineralization of fluids. Along that whole corridor along that 45 kilometer strike length you could fit probably 50 to 70 Touquoy type deposits. We think that there's a good chance that certainly at least 1 or 2 and there, potentially might be several more than that along this whole piece of ground that holds this structure

And the really exciting thing is that up to a couple of years ago, probably closer to 3 years ago now. It was undrilled and we've only started to drill those gaps in between our pearls on the string of pearls you talk about. We've already had success we've identified what we call the 149 deposit at the northeasterly end of our ground holding. It's a deposit we don't know how big it is yet, but we're drilling it in fact, we're drilling it as we speak. It potentially could be another Touquoy.

What that means for your subscribers in terms of economics is that if we were successful in outlining in that 45 kilometer long Corridor. Another Touquoy let's say another 600,000 ounces of near surface mineralization open pitable at lowest strip ratio, similar cost at what we're experiencing at Touquoy. That could generate gold at similar cost to what we're experiencing at Touquoy on the order of C$750 Canadian an ounce. With a Canadian dollar gold price of around C$1700 or C$1800 an ounce, we have a potential margin for this theoretical discovery, the second Touquoy, Touquoy 2 as we call it, of 600,000 ounces at a thousand dollar an ounce Canadian margin. That's C$600,000,000 of potential operating cash flow... to put it into context that's against a company with a market valuation today of only C$500,000,000.

Nick Hodge: That's right, and so just to put a finer point on it just finding one of those would give you cash flow equivalent to your entire current market capitalization. And you're saying there's the potential to find 50 to 70 of them. So I'll just leave it there.

Steven Dean: Yeah I think it's unlikely we'll find anywhere near that, but I'm just saying let's be practical and let's be conservative and let's say we discover 1, 2, or 5. Let's just say we discovered one. One alone would have substantial financial leverage to our operating cash flow and balance sheet.

Nick Hodge: So given that and given all the other things we've described over the years and in the past twenty minutes on this interview, it's no secret that your well on your way to becoming a very successful intermediate gold producer, similar to a company like OceanaGold, for example. So I wanted to ask you about two things. One, I wanted to ask you sort of your current sentiments on the market. There's been a lot of M &A that start with a B- billion dollars. The Barricks and Newmonts, etc. You have really two options as it says in your slide deck, and I've been saying for a while now, you're either going to grow this thing and become a multi-billion dollar company or you're going to get taken out. Can you talk a little bit about maybe NDA's or any majors coming to see the project and talk about it in context of what you're seeing the broader gold space?

Steven Dean: Yeah I think M&A, it's certainly back on the table for the sector and as you pointed out it's certainly started in the bigger end of town at the Barrick, Goldcorp, Newmont levels. And, you know, there seems to be a lot of talk that intermediates need to do more, and I think the excitement for junior producers like is our rarity. There's only one other junior gold producer in all of Canada that we would call a peer and that means the supply for intermediate companies to acquire Junior companies is tight. We're certainly seeing some increase and interest from some of our bigger peers to do something whether it happens or not now or in a year or two's time, who knows.

But there's certainly a lot more M&A in the sector right now and frankly, as you know, we as board and management own in excess of 35% of the company. We're agnostic as to whether we get acquired or whether we grow the company. Our objective is to generate pay for our shareholders including us as some of the biggest shareholders. So we're not here for our jobs, we're here for shareholder value. And whether that comes from appreciation in our stock price as result of us growing, or whether it comes from being acquired, we're agnostic.

Nick Hodge: Great. Steven, I appreciate the update. You mentioned the drills turning. Now just briefly what can we expect in the next three months for catalysts or news flow?

Steven Dean: Yep. We got a fair amount of news flow coming down the pipe. We just released our Q1 production stats last week. We'll have our financials and cash costs reports out early in the first half of next month, May. We've been drilling at 149 and 149 East for about 6 weeks or so. We'll start to see some of those drill results flowing and we're about to wrap up our targeting of some the high priority targets in our Corridor Program. So lots of news flow coming, lots of drill results in the next couple of months, and operating results.

Nick Hodge: Steven, congrats again on exceeding guidance in your first year of production at the Moose River Consolidated Project in Nova Scotia. The execution has really exceeded much of what I've seen in my dozen or so years in the junior mining sector. Well done on you. I think there is a lot ahead not only with Atlantic, but for the gold space in general so I appreciate the update and I look forward to having you on in another couple of months to talk about even more success at your project. Thank you.

Steven Dean: Thanks, Nick.

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