Cerrado Points to Significant Production Growth and Catalysts Ahead in Q3 Operating Report

The Bottom Line

Looking through difficult weather in the quarter, Cerrado remains on track to see gold production growth of 5% or more in 2024. With the majority of capital spending on growth in Argentina behind Cerrado they will see cashflow, free cashflow and production rise and production costs and debt balances fall in 2024, all catalysts for the stock.

The recent political win by Argentinian far right candidate Javier Milei is likely to be a huge catalyst for the entire mining industry and would be in addition the 30% decline in costs Cerrado is expecting due to a recent legal change to foreign exchange rates for mining companies.

As we wrote about in a recent note, Cerrado is one of the most undervalued public gold companies. It offers 100% upside if the multiple trades in line with the next cheapest peer and 450% upside if it simply trades up to the market average.

Ground breaking in Q1 and the completion of financing in Q2 are both likely to materially shrink Cerrado’s valuation discount.

Cerrado is less than 2 years away from generating over 100% of its market cap in free cashflow every year, yet the market is pricing in a 0% chance the brazil project ever sees the light of day. With funding lined up and on track to be finalized by July, 2024, Cerrado offers the most upside in the gold industry in our view.  

Upcoming Project Catalysts

  • Recent law changes in Argentina resulting in a future 30% decrease in operating costs.
  • Q3 results impacted by severe weather conditions but production is back to a 16,500 GEO ounces quarterly run rate in Q4 so far.
  • Significant production ramp (25% or more) expected in 2024 now that heap leach facility is online and producing.
  • Financing for Brazil expected to be finalized by July of next year

Cerrado Gold Inc. (TSX.V:CERT)(OTCQX:CRDOF) announced the operational and financial results for the third quarter 2023 (“Q3/23”) at its Minera Don Nicolas (“MDN”) gold project in Santa Cruz Province, Argentina and reports on its ongoing activities at the Monte Do Carmo gold project (“MDC”) in Brazil. Production results at MDN were previously released on October 24, 2023. The Company’s quarterly financial results are reported and available on SEDAR as well as on the Company’s website (www.cerradogold.com).

Q3 2023 Minera Don Nicolas (“MDN”)Financial Highlights:

  • Gold production of 10,082 GEO in Q3/23, an 11% decrease year-on-year (“yoy”).
  • AISC of $1,703 per ounce during Q3/23 due to difficult operating conditions seen in the quarter resulting in lower production rates.
  • Operating performance has returned to normal in October and November, with sales of approximately 5,600 and 5,470 GEO, respectively.
  • MDN capital program now largely complete, $34.3m invested in Expansion Capital year to date to develop heap leach facility (US$23.9m), pre-stripping of Calandrias Norte (US$5.0m) and exploration (US$5.4m).
  • Expansion program largely funded via short term notes in Argentina to be rolled over to longer maturity.
  • Production expected to ramp up into 2024, generating significant cash flows to rapidly reduce debt levels.
  • Significant opportunity to see a reduction in operating costs and increased cashflow in US dollar terms going forward should depreciation in applicable exchange rate continue post-election.
While these results reflect very severe winter weather conditions resulting in lower production in Argentina, the team at MDN has rapidly enabled us to ramp up production while completing our capital projects and expansion plans from October. With our initial heap leach project operating and Calandrias Norte now in production, we now look to reap the benefits of these capital investment programs moving into 2024 through increased production and significant operating cashflow. Post-election, we remain optimistic for a more accommodative fiscal regime providing for significant accretion to cashflow allowing us to restructure our debt and develop a healthy balance sheet at Cerrado.Mark Brennan, CEO & Chairman, Cerrado Gold Inc.

Argentina Outlook

Going forward into Q4/2023 and 2024, Cerrado’s MDN operations are now positioned to benefit from the completion of its recent expansionary capital expenditure program to grow production with its new heap leach operations, while sustaining high-grade CIL production.

The Company has invested approximately US$23.9m to complete the Heap Leach facilities at Las Calandrias in 2023 and US$5.0m to pre-strip Calandrias Norte to access high-grade ore for the CIL plant.

Exploration spending has totaled US$5.4m and will continue into 2024 as we continue to grow the life of mine at MDN.

Results in October and November are already demonstrating more normalized operations as a result of these investments, with shipments for the two months totaling approximately 11,070 GEOs.

With operations returning to normal, the Company anticipates a significant improvement in cash generation, which should be significantly enhanced with an improved fiscal policy and a more normalized FX regime in Argentina supporting lower operating costs in US dollar terms.

While the near-term cash generating profile continues to improve, the company is also actively working to term out the maturity of its current short term debt profile and roll a significant amount of these obligations as is customary in Argentina.

Argentinian Currency Controls

Starting October 11 2023, by means of Joint Resolution No. 1/23 of the certain Ministries of the Argentinian Government, exporters of gold, silver and their concentrates were allowed to settle their exports at a preferential exchange rate resulting from settling 75% of such exports through the Local Exchange Market and the remaining 25% through blue chip transactions (“Mining Dollar”).

The effect of the Mining Dollar allowed for an approximate 30% depreciation of local costs in dollar terms at MDN during the month of October.

While there is an attractive Mining Dollar in place currently, there is no certainty that such preferential rates will continue.

The Company is optimistic that the election of Javier Milei as President of Argentina, will result in positive changes to the fiscal regime in Argentina and a reduction in or eventual removal of currency controls, which could result in a significant improvement in company cashflows in the short to medium term.

Third Quarter 2023 Operational and Financial Performance

Q3 2023 and Full Year Operational Highlights Minera Don Nicolas

The Company produced 10,082 GEO (“Gold Equivalent Ounces”) during the three months ended September 30, 2023, as compared to 11,284 GEO in the three months ended September 30, 2022. Production was 11% lower in the three months ended September 30, 2023, due to poor weather conditions; with flooding resulting in wet feed which then froze, impacting on throughput and lower than expected overall head grade values.

The average quarterly gold head grade of 3.19 g/t recorded in the third quarter of 2023 represents a 28% decrease as compared to the average head grade of 4.40 g/t in the third quarter of 2022. Ore feed to the mill was impacted by poor operating conditions during the quarter, most notably extremely poor wet winter weather conditions followed by freezing temperatures, resulting in lower than planned mined ore production rates and lower than planned ore grades processed through the mill. Wet ore also reduced plant throughput. Gold recovery of 93% represents a 2% increase in recovery as compared to 91% recorded in the third quarter of 2022. Silver recovery of 65% was 2% lower than the silver recovery achieved in the third quarter of 2022.

Stripping at Calandrias Norte commenced during the quarter with over 1.6MM tonnes of material moved. A further 2.7MM tonnes is to be stripped in October and November and fresh ore is set to feed the mill from December onwards.

Results in Q4 are expected to show significant improvement and benefit from access and limited future stripping required for the Calandrias Norte material and the further ramp up of the heap leach operations.

This new pit is planned to be the primary source of ore in 2024.

During Q3/2023, the team continued exploration efforts to advance several greenfield and brownfield targets with the aim of increasing mine life and expanding the overall resource endowment, while continuing to support the move to underground mining at Paloma.

Las Calandrias Heap Leach Project

At the new Calandrias heap leach project, work continued as the operation remained in the commissioning phase during the quarter. Initial ramp up was impacted by freezing conditions reducing initial irrigation rates which has now been addressed. Finalization of the crushing plant has now been completed, which should also see more consistent feed to the pad and improve overall performance going forward.

Approximately 538 ozs were produced in the quarter.

Production is set to achieve nameplate production rates from January thereafter.

Given weather production disruption in Q3/23 full production is now targeted for January 2024. The Calandrias Heap Leach is the first step in Cerrado’s plans for growing production capacity at MDC. All Argentinian projects continue to be funded by operating cash flow and local debt facilities.

Monte Do Carmo Project, Brazil

During Q3/2023, the Company, together with its numerous advisors, completed the bankable feasibility study (“FS”) announced on November 7, 2023 showing MDC to be an extremely high quality, low-cost robust economic project. A summary of the key highlights is presented below:


  • After-Tax NPV of US$369 million and IRR of 32%
  • Average annual gold production of 94,797 ounces per annum over 9 year Life of Mine (“LOM”)
  • Average AISC of US$711 per ounce over LOM
  • Initial Capex of US$186.6 million (including US$15.8 million contingency)
  • 2:1 ratio of NPV over Initial Capex
  • Annual average free cash flow of $85 million over the LOM, with total cumulative after-tax free cash flow of $562 million over LOM
  • Initial Proven and Probable Reserves of 895 koz of Gold (16.8 Mt at 1.66 g/t Au)
  • Updated Measured and Indicated Resources of 1,012 koz of Gold (18.4 Mt at 1.72 g/t Au) and Inferred Resources of 66 koz of Gold (1.1 Mt at 1.95 g/t Au)

In addition, regional exploration continues on the greater project area aimed at growing the known resources and extending the potential mine life. During the quarter, the exploration focus has been on the Northern extension of the Serra Alta deposit, to the East of the south pit and to the north of Gogo, as well as on testing more greenfield targets such as Divisa and Bit-3 for ongoing development.

The Preliminary License (“LP”) was issued from the InstitutoNatureza do Tocantins(“NATURATINS”) on May 29, 2023 and the License of Installation/Construction (“LI”)is expected to follow within 90 – 120 days of the LP issuance.

The Company also continues to pursue project funding from the UK Export Credit Agency(“UKEF”), which is progressing well, and subject to successful due diligence and other review, is expected to be completed approximately during Q3 2024.

Q3/2023 Financial Highlights

The Company generated revenue of $21.6 million for the three months ended September 30, 2023, from the sale of 11,374 GEO at an average realized price per gold ounce sold of $1,897 and price per silver ounce sold of$23.48. For the three months ended September 30, 2022, the Company generated revenue of $17.8 million from the sale of 10,788 GEO. Revenue from sales of gold and silver for the current period was higher than the three months ended September 30, 2022, due to the higher realized price in the current period.

Cash costs per ounce sold were $1,689 per ounce in the three months ended September 30, 2023, as compared to cash costs per ounce sold of $1,461 per ounce in the three months September 30, 2022, a 16% increase. The 16% increase is a result of higher consumables and material costs compared to the third quarter of 2022, due to lower tonnage milled and processed.

Cash provided by operating activities during the third quarter ended September 30, 2023, was $10.3 million compared to cash used in operating activities of $0.6 million for the third quarter ended September 30, 2022. Cash provided by operating activities before working capital changes in 2023 consisted of $2.3 million as compared to $0.7 million of cash used in operating activities before working capital changes in 2022.

Adjusted EBITDA was $0.1 million in the third quarter of 2023 as compared to $0.7 million in the third quarter of 2022. Current year adjusted EBITDA was lower due to higher expenses, offset by a lower tax expense in Q3/2023.

Net loss for the three months ended September 30, 2023 was $0.4 million, as compared to a $6.6 million net loss for the three months ended September 30, 2022, a difference of $6.2 million.The decrease in net loss is primarily a result of an increase in mine operating margin of $1.2 million, a decrease in finance expense of $0.5 million, a decrease in non-cash remeasurement loss on the secured notes and stream of $1.6 million, and an increase in general and administrative expenses of $0.4 million recorded in the third quarter of 2023 as compared to the third quarter of 2022.

Basic and diluted loss per share for the three months ended September 30, 2023,was $0.00, compared to the basic and diluted loss per share of $0.08 for the three months ended September 30, 2022, a $0.08 per share decrease as a result of higher mine operating margin and lower other expenses.

Duane Hope is a Partner at Capital 10X, he brings over 15 years of communications and research experience to the firm. His research and writing have appeared in publications for North American, European and Asian audiences.


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