Translating Atlantic Gold's Recent Updated Resource Estimate

Not only has Atlantic Gold upgraded its resources, the strip ratio has been improved which can lead to greater cash flows over the life of the mine.

Nick Hodge: Hi. This is Nick Hodge, editor of Wall Street's Underground Profits. I'm sitting down with Steven Dean. He's the Chairman, CEO, and Director of Atlantic Gold (TSX-V: AGB)(OTC: SPVEF), which trades under the ticker AGB on the Toronto Stock Exchange and under the ticker SPVEF over the counter.

It hasn't been all that long since we sat down the Steven Dean and talked about Atlantic Gold and its Moose River Consolidated Project, which is headed into production very soon, next month, in fact. Steven, can you give us a quick update and overview of the project and the construction status before we get into the recent news release?

Steven Dean: Yeah. Sure, Nick, and thanks for having me on your call. Yes. We are close to commencing, commissioning production on the plant at our Moose River Consolidated Project. As a reminder, Moose River Consolidated is a series of deposits — four in total to date — starting with the Touquoy deposit at nearby Moose River, where we will process ore initially from that deposit, and then followed by Beaver Dam. We're doing some work on the two other deposits and bringing them into the life of mine plan later in the year.

Nick Hodge: It's the Touquoy deposit that's headed into production next month, but after a very robust drilling campaign this past summer, this current summer, you were able to upgrade the measured and indicated resources at Cochrane Hill and Fifteen Mile Stream — two other deposits that will potentially come online later in the mine life. Where do the resources stand there now after the new resource update?

Steven Dean: Yes. That's right, Nick. The Cochrane and Fifteen Mile Stream deposits are now in measured and indicated status, which is the two higher statuses of confidence in resource estimation. We have around 850,000 ounces in measured and indicated (M&I) status for those two satellite deposits. And it's worth noting that they both are constrained within a pit shell, which means that's better than a global resource, because that's the ounces that we hope to be able to mine.

Nick Hodge: Explain a little bit more of what that means to the listener. Because it's in a pit shell, you have more confidence that those ounces will ultimately be mined, and because you're constructing a mine right now, you're able to do some back of the envelope calculations and apply economics to them. Not all resource estimates do that. Can you just explain that a bit further?

Steven Dean: That's right, Nick. We are, as operators and developers, we prefer to constrain our resources to the real ounces that we believe we will produce from those deposits. Not everyone takes that approach. It's a more conservative approach. It applies economics, as you indicated, but it gives us a better confidence in those resources and allows us to then do the final engineering of the deposits, which we're currently undertaking. And in Q4, we will release the feasibility numbers and a new life of mine plan for the four deposits in a consolidated life of mine plan.

Nick Hodge: Great. There's another piece of information in the press release that I think needs to be better articulated, as well, at least for the retail investor. That is, that while the size of the deposits increased, the grade actually went down just a little bit. But, ultimately, the strip ratio was greatly improved. Can you explain what that means to the listener, what the strip ratio is, and why improving it ultimately means higher cash flows over the life of the mine?

Steven Dean: Good point, Nick. Actually, Fifteen Mile Stream, the grade at the same cutoff was slightly higher, but the more exciting news was that the pit shell that constrains that deposit, the waste-to-ore ratio, the strip ratio as it's called, was reduced and it's around 2.2. At the Cochrane Hill deposit, the grade is a little lower at the same cutoff, but the strip ratio is more than half what it was in the previous study. What that translates to is stronger economics. It means that we do not have to move anywhere near as much waste to mine the same amount of ore. And so, the economics are as robust as previous studies. In fact, even better in the case of Cochrane Hill, because the strip ratio is lower. For Fifteen Mile that wasn't the subject of any previous studies, but the market was estimating that it would have something of the order of five or six times strip ratio. It's now 2.2, which translates to really much stronger economic outcome and lower operating costs for those ounces produced.

Nick Hodge: What does that mean in terms of dollars and cents? If you cut the strip ratio in half, does that ultimately mean you double the cash flow from that particular deposit? Do I understand that correctly?

Steven Dean: It can mean that. We're still doing the final engineering for the pit design. As I said, we'll release those numbers in Q4 of this year, but what it can mean is, instead of a pit at, say, six- or seven-to-one strip ratio, instead of mining costs being $60 million a year, that can translate to a $40 million dollar savings and mining costs can be reduced to something of the order of $20 million. So, that $40 million difference will go straight to the bottom line because we're moving less un-mineralized material to achieve the same ore production.

Nick Hodge: That's great. I'm glad that we were able to clear that up and spell it out a little bit for readers and listeners. Can you tell me a little bit about what the next steps are? You mentioned that there's a PFS coming up in the next few months, and you're also going to conduct a bit more additional exploration drilling as I understand it. Can you talk about those next steps a bit?

Steven Dean: Yeah. The first big next step is commissioning of our phase one operation, as I mentioned earlier, that commenced in August, and in September, we'll be feeding first ore through the mill and that will get us into production and ultimately operating cash flow as we ramp up that production phase. But, in respect to Cochrane and Fifteen Mile, the study would involve capital and operating costs estimates and engineering design within plus or minus 15%, and that study will come out in Q4, and it will incorporate those additional ounces, which have the potential to even double our phase one production ounces.

The other point you make, though, is that there's still a lot more drilling to be done, both at Cochrane and at Fifteen Mile. Fifteen Mile in particular we see the potential for mineralization extensions down through what we call the Plenty zone, from the edge of MacLean to the Plenty zone. The Plenty zone itself, west of the Hudson zone and more drilling at depth. We're fairly confident that there's going to be more ounces to come from Fifteen Mile as we drill and test the exploration potential further in the next six to 12 months.

Nick Hodge: There's plenty going on. You'll be producing gold here in the next month or so. You have improved economics, likely, coming out via a PFS, in the next couple of months, as well. And then, there'll be additional exploration upside. Before I let you go, can you remind us where the current global resource stands?

Steven Dean: The global resource for all four deposits is around 2.1 million ounces in total. The phase one operation of mining, both Touquoy and Beaver Dam deposits have us produce just under 90,000 ounces a year for the next 8.5 years, for something of the order of 700,000 750,000 ounces in total. And then, of course, with the bolting on of the Cochrane and Fifteen Mile Stream deposit, we hope to have a life of mine plan that shows us producing an excess of 1.5 to 1.6 million ounces over the next 10 to 15 years.

Nick Hodge: Steven, I appreciate you taking a couple of minutes out of your day to update us on the project and helping to spell out for us what the reduced strip ratio means with the recent resource that you put out, so best of luck headed into the next month and commissioning. I'll be watching closely. Thanks again.

Steven Dean: Thanks, Nick.

Nick Hodge: Take care.

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