TSO fair value? Short term target 30c, medium term 60c!

This post is speculative and should not be used as financial advices!

What is TSO fair value?

“Grade is king” is a well-worn adage in mining circles, the assumption being that the higher the grade, the more financially robust the mine will be.

But a quick look at some of the big gold mines in Alaska’s multi-million ounce Tintina Belt tells you the adage does not hold true in every circumstance as geology and geometry come first.

Operations such as Kinross Gold’s Fort Knox mine in Alaska and Victoria Gold’s Dublin Gulch mine in Canada run at grades well under a gram of gold per tonne (g/t). In Fort Knox’s case, the resource grade is 0.32g/t.

Yet they are highly profitable at US$1500 gold, each producing more than 200,000 ounces of gold a year at all-in sustaining costs (AISC) of US$570-850 an ounce.

Short term target: 30c
My short term target is based on broker's coverage.

Professional broker's report
PAC partners used a peer based comparision and our peers' EV have all increased dramatically to an average of 2.57x since the last report. Therefore, using a very conservative assumption: Ternera = 1Moz (ignoring all of our superiror advantages like low cost, open pit, large scale, etc), TSO would still be valued at 29.2c/share.

Please keep in my that this peer based valuation method is purely an ounce to ounce comparision. It's like assuming a 100m2 house in a remote town near Darwin is worth the same as a 100m2 house in Darling Harbour.Medium term target (3 to 6months until the night before MRE is released): 60c

The more work we put on El Zorro, the more pleasant surprises it brings us. Phase 2 surely needs to be extended and MRE could be delayed until we have some ideas about the scale of this enormous system. Before phase 1, we were hoping for 1Moz at Ternera. But with some exceptional findings recently, I think it would be fair to guestimate a conservative figure of 1.5-2Moz. Soon the market will also realize that TSO is a monster in the making and excitement together with the SP will build up gradually before the official MRE is released.

My SP target is based on peers with 1.5M-2Moz and share some similarities: mining jurisdiction, mineralisation system, and most importantly still very much undervalued. We should stay conservative so I would not compare TSO with DEG,CHN or MGV or any fair valued goldies).

1. Fenix Gold (similarities: same region, low grade bulk tonnage mineralisation system).
Advantages of Fenix Gold to TSO: More advanced stage of exploration.


Note: the X is TSO
Disadvantages:

• Fenix is high altitude while TSO is low altitude
  
• Fenix Gold - Water: transported by 30 tonne capacity water tankers, at a distance of approximately 158 km.
  
• TSO: Pacific Ocean, 20km away. Big difference!
  
• Fenix: Workforce is 140km away. TSO: 53km away.
  
• Fenix: high grade zone is 0.57g/t. TSO should be 1.5-2.3g/t
  
• Fenix: Gold Recovery is 75%. TSO is up to 99%.

Fenix's SP is severely punished in the years due to:
- water issue (solved)
- management issues (solved)
- FS: reduce scale from 4Moz to 1.4Moz
However, it has escaped its down trend to sit at 154M MC at the present (should be much higher if not because of the above issues). A 154M MC would give TSO 34c/share.

2. BDC (similarities: superior mining jurisdictions).

• BDC is in WA, most probably one of the best mining jurisdictions in the world.
• BDC is at a more advanced stage of exploration than TSO.
• Resource can be up to 3Moz. Reserves is 800koz. Current drilling campaign aiming at upgrading reserves.
• Among those with 500k+ reserves, BDC has cheapest EV in the WA region.
• 
  

Disadvantages:

• High Strip ratio 6:1, 14:1, 16:1. TSO strip ratio could be as low as 0.5-1:1. I will not explain why again.
• Pits are far apart. Construction & logistics cost. For TSO: Ternera, Toro Gordo, Toro, Blanco, Drone Hill, Buzzard are all major gold bearing system but in close proximity.
• Not so good history

BDC, IMO is very undervalued, recently it reached 10.5c but got a pullback due to a massive $24M CR at 7.8c. Currently sitting at 145M MC. TSO at 145M = 32c/share.

3. TIE (similarities: highgrade central pit, low AISC, mineralisation from surface, great exploration potential).
Advantages:
More advanced stage of exploration
Resource: 2.2Moz


Disadvantages:
In Africa, Côte d'Ivoire

TIE reached 73c not long ago (nearly 300M MC) but consolidated to 55c (215M) after it's massive 62.5M CR. Let's take the middle range, a 250M MC would give TSO a SP of 56c/share.

Considering the all of the above advantages & disadvantages, I think it would be fair to give TSO a medium term target of 60c/share (with a guestimate of 1.5M-2Moz at Ternera).
Bonus:
- Superior location
- District scale, IRGS
- Proven Tier 1 management. Probably one of the most effective team on the ASX.

Longterm target (after MRE & scoping): $1.5++

H8 and his computations showed us 10Moz++. 123david321 also upgraded resources at Ternera from 1.7Moz to 8.3Moz with the recent data. Corgi computed 670kozbasing on only 1 out of 13 faults.



Well, lets be conservative and say we have 5Moz at Ternera. A fair EV/oz is $180. 5M x 180 divided by a fully diluted SOI with performance right = 622M SOI = $1.45/share.

PFS/DFS: a superpit is forming!
Im very interested in the pit design of Ternera. We do share a few features with Kalgoorlie.

Kalgoorlie Super Pit is Australia’s largest open cut gold mine. At 1.5 km wide and 570 metres deep. The mine produces up to 800,000 ounces of gold per year and has a gold reserve of 7Moz.

So far we know that Ternera has 13 CC faults with high grade of up to 10g/t. If we use the same cutoff 0.3g/t as Fort Knox (very likely because of similar IRGS, high price of gold, superior location), the halo 0.3-2g/t could also be part of the superpit and be feeded into the mills. So literally there would be no waste!



Yes, we aint see nothing yet! Looks like a super pit here. Strike length confirmed by IP & surface trenching >1.5km. I think the pit might be extended to the north, engulfing Toro Blanco, and to the South, heading towards Buzzards as well.

Also, another question is how deep can this pit goes for its economic feasibilty to remain high? Obviously it would become more expensive to go deeper therefore grades should also become higher.

As david321 already mentioned, hole 24 drilled down to 167m depth but only managed to touch the edge of this tasty orange. The grade from 160m downward was 6.97g/t to 19.72g/t. What if we try to drill another 100m-150m to reach for the core? Will it make our Max depth = 310m? Would that be too deep for an open pit?



Keep in mind that hole 24 was drilled at an angle of approximately 30 degree. So the actual vertical depth is cos30° x 310m = 286m. Also, we are an IRGS with gold protruded into mountains of 80m in height above the ground level. So we would have at least another 50m bonus. The true vertical depth would be 236m max! Hence that orange is surely within our reach and its economic value is well preserved. And how many oz it alone might contain?



This superpit design (if ever possible) would greatly enhance the economic value of El Zorro. We could become one of the most profitable gold mines not only in the ASX but worldwide.

With all of the above, I would give TSO a longterm SP of $1.5++

If you have read all the facts, do your own research and believe in the story, just buy and hold! The road ahead requires a bit of faith and patience but we will get there! Dont worry about the daily/weekly fluctuations. Smart money would move in NOW! Once the MRE and DFS/BFS are released, faith is no longer required as what left are just facts!