Steppe Gold

Cash flow + development + exploration = Mongolia’s premier precious metals company

During a Mines and Money Online Connect event earlier this year, Steppe Gold’s director and executive vice president Aneel Waraich revealed how the precious metals explorer and producer considers itself a Mongolian company that is listed on the TSX. Building an in-country company has always been Steppe’s mission from the outset, but the fruits of this endeavour have become crystal clear in the last 12 months, after the company successfully commissioned and brought into production the Phase 1 of its ATO (Altan Tsagaan Ovoo) Gold Mine in Eastern Mongolia during the height of a global pandemic. “I think it’s important in any jurisdiction you do business - not just Mongolia – to be as local as possible,” Waraich tells RGN’s editor. “You need to show both locals and provincially/federally that there’s a benefit to that country or economy. That’s very important because you get the buy in. The more local you are, the more direct and indirect jobs you create, the more tax revenues you generate and crucially, you educate people; converting unskilled labour into a skilled permanent labour force, which we’ve done at Steppe.”

Country-wide support

Of Steppe’s entire workforce, 99% are Mongolian nationals, with 65% coming from Dornod province where the ATO mine is located. This preponderance towards local employment at the project has succeeded in attaining buy-in from the village level all the way to government, according to Waraich.

In fact, the level of political support for the project was encapsulated last year when the Mongolian government actually provided capital to Steppe in order to get ATO into production via its sovereign wealth fund – an unprecedented move and one that had never been done before in Mongolia’s mining sector.

“We’ve seen the benefit twofold: first from the support we’re getting in-country, and second we’re able to operate having a local staff without depending on expats. That’s allowed us to bring production online during the toughest times in recent memory, become a producer, generate our own cash flow and strengthen our balance sheet.”

And the employment opportunities provided by Steppe in the province are set to increase exponentially as the company expands the ATO resource in the years to come. In addition, during the last few years the company has set up scholarship programmes for 185 students from the region, helping them on the path to higher education.

Steppe has also sponsored promising athletes in-country and set up a meat and dairy procurement scheme to supply the mine camp with local produce while supporting

STEPPE GOLD

AT A GLANCE

STOCK TICKER:

TSX:STGO

MARKET CAPITALISATION:

US$113.9 million (as of May 04, 2021)

a j local farmers, as part of its role as an integral player in the province.

“We’ve donated masks and educated people in this region during the crisis. We’re doing what we can and that will grow as we have more cash flow in availability to better lives permanently for those in the country,” Waraich pledges.

On the environmental side of the now ubiquitously adhered to corporate principles of ‘ESG’, Steppe has gone to considerable efforts to ensure the highest possible environmental standards at the ATO Phase 1 heap leach operation – a mining method which often holds negative connotations due to the use of hazardous chemicals to extract the gold.

Despite the project already possessing high quality environmental permits and licencing left by former owner Centerra Gold, Steppe added to that work and completed new environmental approvals to

the latest global standards. As a result, when a government agency recently completed an environmental inspection of the mine, Steppe received a score of 93% - the highest such score recorded across the Mongolian mining sector.

“We’re doing things to Western standards. Sometimes you can cut corners in these emerging markets, but we don’t do that. We always want quality and safety; our people come first. That goes with how you prevent spillages of chemicals, all the way to keeping everyone safe on site.”

Bringing ATO online

Looking back a year, Waraich reflects on the major achievement that was Steppe reaching commercial production at the 50-60,000 gold equivalent (Au eq) ounces per annum Phase 1 ATO mine, which was constructed in just 14 months with a capex of US$20 million. All the more impressive, it opened during the height of the COVID-19 pandemic, when Mongolia’s borders were closed last April.

“Not many outfits can build mines and bring them online successfully, globally. It doesn’t matter where you are, pandemic or not, very rarely do mines get built on a percentage basis of all the junior miners out there,” Waraich points out.

“Being able to build our first mine in 14 months and bring it online at the toughest time possible was a big win for us

and our methods. I feel we’ve always had an uphill battle at this company given we’re in an emerging market. We had to manage perceptions of risk, but we’ve built a mine and brought it online successfully, where is that risk people were worried about?”

Steppe’s executive VP is proud to report that the company is looked at as one of the prime examples of how to invest, employ and build a mine in Mongolia. “We’re a tax and royalty payer as well as an employer, and importantly we’re a producer of gold and silver that is sold into the domestic bank and other approved banks, so we’re actually helping the country increase its gold reserves and the currency as and when needed [i.e. through converting gold to currency with FX].” Now, a year after reaching commercial production at ATO, Steppe plans to mark the achievement with an imminent secondary listing on the Mongolian Stock Exchange, which will allow the domestic community to trade shares and own a piece of the asset that is located in their own backyard.

Resource expansion

While Steppe was capital constrained during the two years prior to the opening of the mine, the company was still able to run an exploration drilling programme with the aim of growing ATO resource. The 40,000+ metres programme focused on infill and extensional drilling at the four deposits which comprise the ATO project, and the outcome of the exploration task was a doubling of the resource from 1.2 million ounces (Moz) to 2.45 Moz Au eq – a remarkable result given the minimal focus outside the currently defined resource base.

The February 2021 drilling update included a maiden resource on the Mungu (the word for silver in Mongolian)

“We’ve donated masks and educated people in this region during the crisis. We’re doing what we can and that will grow as we have more cash flow in availability to better lives permanently for those in the country” – Aneel Waraich, Steppe Gold executive vice president and director

discovery, which has measured and indicated resources of 7.57 Mt at 1.74 g/t for 424,000 ounces Au eq.

In total, the ATO resource includes 41.6 Mt of measured and indicated resources with an average grade of 1.67 g/t Au eq, figures that support the Phase two expansion plan for which a bankable feasibility study (BFS) is currently in the works. “These four deposits are still open at depth and have only been drilled down to about 400 metres,” says Waraich. “What the recent resource update does is set the stage for a much bigger company with a bigger resource base in the coming years. Actually we think we can increase that again by multiples in the years ahead through further exploration.”

Set to be released by mid2021, the BFS will assess the economics of an extended 150,000 ounces per annum Au eq operation with a focus on fresh rock ores, over an additional 10+ years of production on the current mine plan.

All going well, construction of the Phase 2 operation should commence in the second half of the year using the cashflow from the first year of production from the Phase 1 mine. Execution of this plan would validate the first two stages of Steppe’s CDE (Cashflow + Development + Exploration) value building model, while its ownership of

one of the largest exploration licences in the Bayankhongor gold belt will provide the opportunity to develop an entirely new project.

Exploring in the West

Steppe owns 14,400 hectares of prospective ground at the UK (Uudam Khundii) project in Western Mongolia. Located in and amongst gold discoveries but having never received drilling itself, UK is an exciting prospect that Steppe picked up along with ATO back in 2017.

RGN editor Jacob Ambrose Willson interviews Steppe Gold executive vice president and director Aneel Waraich, April 27, 2021

“Being able to build our first mine in 14 months and bring it online at the toughest time possible was a big win for us and our methods”

“Erdene Resource [Development Group] has had some great success over the last few years, delineating over 1 Moz between their two licences that adjoin ours. We’ve done trenching and magnetic IP soil sampling at some of the prospects and now they are drill ready.”

The next step is for the company to

ANEEL WARAICH, STEPPE GOLD EXECUTIVE VICE PRESIDENT

get down to drilling at the Milky Way prospect in May, which is one of four new gold discoveries that should yield some very exciting exploration results at UK in the near future, according to Wariach.

On the back of any exploration success Steppe would move to mobilise a second drill rig at UK later this year, with a maximum of 20,000 metres planned for the project, fully self-funded. “The same goes for exploration at ATO and Mungu. We have identified some targets with the resource and 3D modelling and aim to get back to drilling by June/ July, alongside drilling at UK.”

And with some of the sampling results from UK showing additional base metals mineralisation with the likes of copper, lead and zinc, there is an opportunity for Steppe to diversify its commodity and revenue bases via this project. “Obviously with copper hitting new heights and just getting started, that is quite interesting. We will definitely look beyond the precious metals in terms of extracting value. It can be a very significant part of our revenue stream when you bring these assets online, both for ATO and Mungu and down at UK,” Waraich concludes.