Xali Gold’s flagship project is the Pico Machay high sulphidation epithermal gold project in the Santa Ana district, Castrovirreyna province, Huancavelica, Peru, roughly 60 km north of Minera IRL’s Corihuarmi mine. Xali also holds the El Oro gold-silver package in Mexico, which is on hold for the time being. This interview covers the acquisition from Pan American Silver, the historic resource and why it was never developed, the plan to twin holes and update the resource and PEA, permitting, community and artisanal miner issues, and how they intend to fund it.
TL;DR
Xali recently bought a project that Aquiline Resources took to a 2009 feasibility study and a production decision at US$700 gold, and they think they can restart that work cheaply. The deal is a share purchase agreement with Pan American, not an option, so they own 100% and owe US$15 million over five years, or sooner if they get into production, plus a contingent US$2.5 million if measured and indicated resources exceed 1.25 Moz. Next payment is US$1.5 million in December. The historic resource is about 720,000 oz total, roughly a quarter million oz measured and indicated and about half a million oz inferred. CEO Joanne Freeze wants a PEA out before Christmas and first production three and a half years from January, which she herself called aggressive. To get there they need roughly US$4 million including the December payment, and they do not have it. They plan to raise, with US$5 million mentioned as a minimum and some parties talking US$5 to US$8 million. The whole thesis rests on 200,000 oz of oxide they say they have high confidence is leachable at 70% recovery.
What have they done for shareholders lately?
Since closing the acquisition they have been sampling the old underground workings left by artisanal miners and running surface channels across the central zone, and she says the first assays confirm continuous oxide gold where the historical model predicted it, with some grades higher than expected. They are relogging the old chips, rebuilding the lithologies and geological logs and constructing their own 3D model in Leapfrog, which she wants done before drilling starts. They did an internal scoping study and had metallurgists and other specialists re-check the 2009 feasibility work during due diligence. They have a signed vote from the community at a special general assembly granting permission for all planned drilling, with the agreement details still being finalized. They also resolved the cease trade order from last August, which came from late financials after their Mexican lawyer delivered a title opinion two days before filing showing several El Oro claims had been cancelled. The Mexican liability on the books is now down to C$1.5 million and she says it keeps declining each quarter.
How much money do they have and what are they spending it on?
She did not give a treasury number. The last raise was a non-brokered private placement in June of about C$1 million at 25 cents, and she said before that they had not done an equity financing in two or three years. Stock is around 24 cents with about 169.5 million shares out, a roughly C$40 million market cap, 7.3 million warrants and 11.8 million options taking it to about 189 million fully diluted. On spending, drilling is roughly US$300 per metre, they need 2,000 m to twin 10% of Aquiline’s 20,000 m but are budgeting 3,000 m, so about US$1 million. The PEA work is about US$250,000, met testing about US$125,000 (needed for feasibility, not the PEA), and marketing a couple hundred thousand. All in, including the US$1.5 million December payment to Pan American, she said about US$4 million to get a PEA out. They plan to raise on news flow rather than in advance, and are also talking to large offtake groups who have been in the data room since PDAC in March and are running their own debt books.
Upcoming catalysts
Corporate: details of the community agreement, then a financing of at least US$5 million, with US$5 to US$8 million discussed. Operational: FTA drill permit submitted and then approved, with permits hoped for end of August or early September and approvals reportedly taking as little as three weeks lately; drilling started, one rig initially with the option to add a second or third; start of the EIA for operations and installation of the meteorological station, with news on the met station described as possibly any day. Technical: first 2,000 m of twin holes and assays, an additional 1,000 m testing structural controls and higher grade, an updated 43-101 resource, then an updated PEA with the first public IRR, NPV and capex numbers, targeted before Christmas. Longer term she is pushing for feasibility straight after the PEA and production three and a half years from January.
Risks
The obvious one is funding. They need roughly US$4 million and do not have it, and the December payment to Pan American is fixed, though she says late payments simply accrue interest and Pan American does not want the asset back. The timeline is the second risk. The CEO herself admits that PEA before Christmas is aggressive, and it depends on an FTA permit that has not been submitted yet, a new Peruvian government that just took office, and drilling that has not started. Third is resource confidence. The historic estimate is almost entirely RC with only 11 density samples, and while she expects grades to hold or improve, that is unproven until the twins come back. Metallurgy is a real variable given the whole case rests on heap leach recoveries around 70%, though she says clay has been studied and their metallurgist is talking about going to 80% rather than down to 60%. Then there is the usual Peru risk. Community and water sensitivities, informal miners on site, and the political backdrop.
Xali Gold CEO Interview
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