Cerrado Gold Inc. (TSXV:CERT) (OTCQX:CRDOF) recently announced solid economic numbers from a long-awaited feasibility study for the Monte Do Carmo Gold Project, located in Tocantins State, Brazil.
We came away from the study more excited than ever about the upside potential of this deep value and underfollowed gold mining stock. The market may not have understood the positive impact the project will have on Cerrado’s financials in the near term, but we at Capital10x were paying attention.
With a feasibility study in hand that showed best-in-class mine economics, low capital costs and total free cashflow generation of 13x the current market cap, Cerrado has some of the most attractive upside potential in the gold industry in our view.
Below is a video highlighting the important parts of the feasibility study and the deep, deep valuation discount Cerrado now trades at. Regardless of your view on gold, Cerrado needs no help from gold prices to be worth far more than where it trades today. With the project funded and moving forward, the valuation gap will close in the next 12 months one way or another.
Value always emerges.
Brazil: Robust Economics
The feasibility study highlighted the robust project economics of Monte Do Carmo, with an after-tax Net present value of $369 million US. All In Sustaining Costs (AISC) of $711 per ounce, 32% project internal rate of return over a 9-year mine life and a payback period of 2.4 years.
Monte Do Carmo has outstanding margins as well; $711 per ounce AISC places the project within the 1st decile of cash cost in the industry.
MDC Feasibility Cashflow Forecast
The project is rapidly advancing with construction scheduled to begin as early as next quarter and first production on track for the first half of 2025.
Most importantly, Cerrado is close to lining up all US$187 million of upfront capital needed to bring the project online. The 70% debt portion has export credit agency backing and the lead arranger will be announced shortly.
Management has said publicly they are very confident they can fill the equity portion with royalty financing in the next 6 months meaning the project continues to move ahead smoothly, yet is not priced in by the market.
There’s also significant upside, beyond the current $369 million Net Present Value; the land package is extensive and underexplored. There are multiple targets over the 30 plus kilometers of known mineralized trend that could reach the size of what’s been delineated at Serra Alta.
Cerrado Gold is the deep value name among junior gold producers, with top tier production growth over the coming years, trading at a fraction of the valuation multiple.
Cerrado offers 100% upside if it simply trades up to the value of its closest peer, with 400% upside to the junior production group average discount to NAV.
Details about the Monte do Carmo Project
The principal deposit, Serra Alta has been the focus of exploration and development at the Monte do Carmo Project. Cerrado Gold has been working on infill drilling at Serra Alta to support the Feasibility Study. Sara Alta contains a proven and probable resource of 895 thousand ounces with an average grade of 1.66 grams per ton of gold.
The Project benefits from excellent access to essential infrastructure including paved roads, energy, 69 kV electrical power line, water supply, and an international airport, and is well supported by the local community.
Monte do Carmo is expected to start production at a rate of 1.92Mtpa from the open pit for total production of 709,920 ounces.
In Year 4, simultaneous underground development will be initiated contributing an additional 143,252 ounces over five years of operation.
Mineral Resource Estimate
The open-pit resource estimate for the Serra Alta deposit includes Measured and Indicated Resources of 15,304 kt @ 1.65 g/t Au for 812 koz, and Inferred Resources of 345 kt @ 1.36 g/t Au for 15 koz.
The underground portion includes another 3,054 kt @ 2.03 g/t Au for 199 koz measured and Indicated and additional inferred resources of 708 kt @ 2.24 g/t Au for 51 koz.
MDC Mineral Reserve Estimate from Feasibility Study
The resource estimate uses a marginal cut-off grade of 0.26 g/t Au for the in-pit resources; underground resources include low-grade blocks falling within underground reporting shapes to reflect realistic mining logistics.
Both the open-pit and underground resources are reported using a gold price of US$1,850.
Cerrado Gold is a market awareness client of Capital 10X.
