Melvin Herdrick
Vice President of Exploration | Sonoro Gold Corp
Encouraging Drilling Finds Multiple Intercepts of High-Grade Gold
Q: How has the company progressed from a gold exploration and development company to a producer at its Cerro Caliche project?
A: Sonoro has completed almost 55,000m of drilling, of which just over 7,000m will be used to update our existing 420,000-ounce measured, indicated and inferred gold resource. With this drilling, together with metallurgical and other studies, we completed an updated preliminary economic assessment in June for a 15,000-ton-per-day heap leach operation. Our preliminary mine plan is now complete and we have submitted our environmental impact study to the authorities. We expect to complete a new mineral resource update in the coming weeks and anticipate an increase in the size and grade of the mineralization. We are also advancing discussions regarding project debt finance. We are well along the way in terms of becoming a gold producer. Regarding the project’s location, Sonora is the most prolific gold-producing state in Mexico, with over 32 percent of the country’s gold production being mined in Sonora. Mining has been carried out in Sonora for hundreds of years, so the locals are very pro-mining. At the same time, there is a ready supply of experienced miners and skilled contractors. This all makes for a very good working environment.
Q: What are the highlights of the company’s updated Preliminary Economic Assessment (PEA) and what message does it seek to convey to the mining community?
A: Our initial PEA was already very positive and the results from the recently-updated PEA are even better. For example, the project’s after-tax net present value was increased from US$41.5 million to US$53.5 million and the after-tax internal rate of return went from 32.4 percent to 45.6 percent. The initial capital costs dropped from US$32 million to US$26 million and the project’s cash costs fell from $1,227 per ounce of gold to US$1,206. Annual production is estimated at 45,000 ounces of gold over a projected mine life of seven years. Our plan is to keep drilling the property’s extensive near-surface oxide gold mineralization with the goal of extending the mine life. As a result, we expect to lower the per ounce cash costs. I think the message the PEA conveys to the local mining community is that Cerro Caliche is well on its way to becoming a mine and for the local industry there will be more businesses and jobs in the pipeline.
Q: What do you think the new geological information that was not included in the PEA will show in the updated resource estimate scheduled for fall 2022?
A: The drilling was very encouraging, with multiple intercepts of high-grade gold, in many cases near the margins of our conceptual mine pit shells, which is ideal in terms of adding to the potential to expand the existing gold resource. For example, at El Colorado, hole SCR-299 intercepted 10.67m, averaging 9 grams per ton of gold and SCR 286 cut 27.4m, averaging 5.36 grams per ton of gold, below and slightly southeast of the existing pit shell. I think we should see a pretty meaningful increase in mineralization. The multiple high-grade intercepts we encountered at El Colorado and beyond give me reason to believe the western zone will provide a boost to the size and grade of the mineralization in this sector.
Q: How are the company’s efforts to extend the life of the Cerro Caliche mine developing and what factors make you believe this is possible?
A: It is too early to speculate regarding what we can accomplish in terms of extending the mine life except to say that we are very optimistic. I believe if there is an increase in the resource as we expect, in a few weeks it should be very clear what kind of mine life increase is reasonable. We say this because we already have the potential for a sevenyear operation, which is demonstrated in our PEA. Once our mineral resource is updated, we can then calculate how it incorporates into the current mine plan and from that, how it impacts the mine life. We are excited to see what the impact will be given the significance of last year’s drilling results.
Q: What is the permitting status for Cerro Caliche and what has been the biggest challenge you have faced?
A: We have submitted our Manifesto de Impacto Ambiental (MIA), which is our environmental impact assessment, and expect to file shortly the change of use, or Autorización del Cambio de Uso de Suelo. It has been a relatively straightforward process. Our area is already quite disturbed from previous mining so there are no competing interests. At the same time, we have Agnico Eagle’s Santa Gertrudis project close to us to the north and the Mercedes Mine about 8km to the southeast on the same geological structure. Also, the Cerro Prieto Mine is adjacent to us on the western boundary. We are in an area where the government and locals are very supportive.
Q: What has been the greatest exploration discovery for the company in 2022 and how has this impacted the company’s plans?
A: The most significant exploration results this year came from the El Colorado zone where we intercepted high grade gold mineralization on the northern, western and southern sides of the planned pit shell. We also deepened the mineralization at Colorado, suggesting the potential for an enlarged and deeper pit shell. These are pretty substantial intervals, such as SCR 286, which returned a 27m interval averaging 5.36 grams of gold per ton. More moderate but still very good results were returned as we increased drilling density in other zones. Having said that, we expect that some very good holes from last year should end up contributing to our upcoming resource update. The overall impact of these results should allow us to continue developing the project as we originally planned.
Q: What will be the main objective of your next exploration program and in which area will you focus?
A: Part of our drilling will be to test for on-strike southeastern extensions of El Colorado, San Quintin and several other newly-mapped mineralized zones to the west of El Colorado. We have reported some really good high-grade gold intercepts, so it is a priority to see if these zones will continue. We also plan to drill further to the northeast on the El Rincon plateau where we see a great deal of potential and where we have established that the oxide gold mineralization begins at surface and extends to a depth of 30 to 50m. It could be ideal
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for bulk mining. This is another area where we think we can add ounces, so drilling to define it is among our objectives. We have only assessed approximately 30 percent of the property’s potential, so there is a great deal of drilling and exploration ahead of us.
Q: What would make 2023 a better year for Sonoro Gold and what are the biggest opportunities?
A: We expect to construct our proposed mining operation in 2023, so it is shaping up to be a transformational year for the company and its stakeholders, which means shareholders, the Sonoro team and the nearby community because our proposed operation should really add to employment and contribute to the economy. Building the mine and starting production should make 2023 an exceptional year.
John Darch Chairman and Director | Sonoro Gold Corp
Transparent Strategy Results in Confident, Loyal Investors
Q: What is the chief reason why Sonoro Gold brought you back into the mining world John?
A: I have been overseeing the finance and development of mines globally since the 1980s and looking back there have always been five essential components to successful mining ventures. When I took a hard look at Sonoro, it was evident that it had all five. To begin with Sonoro already had a diversified and success-driven management and operations team with extensive expertise. That team was committed to what I consider the second component, that is, a potentially viable gold deposit; supported by a recently updated PEA And I anticipate the economics may improve as we work to advance the project. The third component is the share structure. The same talented management are major shareholders so they are motivated: Insiders hold over 26 percent of 143.47 million Issued and Outstanding shares. Sonoro also has a very loyal and sophisticated retail shareholder base across Canada, US, Germany and Switzerland. The fourth component is the Company itself which has developed a clear Business Plan and Execution Strategy to build a gold exploration and development company with as minimal shareholder dilution possible. The final component is the company’s ability to successfully secure equity funding which is evident in the millions of dollars we have raised to date.
Q: Why do you believe in these components and how is the company putting them into practice?
A: In my decades of experience with developing mining projects, it is evident, in my opinion, that the odds of success rise significantly if the company already has a resource with potential economic viability, such has been the case for Sonoro. As outlined in our updated PEA, the proposed project has a pre-tax NPV(5) estimated at USD $84.4 million with an IRR of 74.9 percent and an after-tax NPV(5) estimated at US$53.5 million with an IRR of 45.6 percent. Payback period of 2.2 years. SRK Consulting is currently updating the resource to include the most recent drilling, which contained multiple higher-grade intercepts and demonstrated the expansion of several known mineralized zones. It should be very interesting to see how things will change in the near term.
Q: What would you say has been the most significant recent challenge that the company has overcome recently?
A: The main challenge we have overcome recently has been shared with so many other junior exploration companies. Most of us in the sector have been forced to navigate very turbulent global markets with limited cash and nervous investor sentiment. That being said, having seen this before in our collective experience we are now at a point where we are working towards several key de-risking milestones. Our MIA environmental permitting approval process continues and we anticipate soon announcing an updated 43-101 resource estimation.
Q: Your share price has been relatively stable as compared to some of the others in the sector over the past year, what do you attribute this to?
A: I believe that there are two principal reasons. The first is our valuation, as our PEA indicated we have an estimated after- tax
NPV(5) of US$53.5 million and yet our market capitalization is only around US$12 million. I believe this makes our shares a bargain and evidently many of our shareholders feel the same way. As we advance the project, we anticipate this should change and our share price start to reflect the intrinsic value of our Company and the Cerro Caliche project. The second reason is that we aim to be transparent and highly communicative with our stakeholders. We try to ensure our shareholders receive an accurate, consistent flow of information so they are aware of our development plans and understand the opportunity being a shareholder brings. We are very engaged with a large group of retail investors and use methods including Reddit AMA (Ask Me Anything) to engage with anyone who wants to learn more about what we are doing and why. As a result, a growing number of investors are aware of our strategy and the steps we are taking to turn Cerro Caliche into an operational mine. Our investor base and other stakeholders are loyal and confident in our future success as a result.
Q: What is the most important role that your experienced team plays in driving the company’s success and reputation?
A: We cover the spectrums from discovery to operations. For example, Mel Herdrick, our Vice President of Exploration, has been involved in discovering a half dozen major gold and copper deposits in northern Mexico and the Southwestern US. These include a 2-million-ounce gold deposit called the Los Planes and the La Colorada, which is now being mined by Argonaut Gold. Our Vice President of Operations, Jorge Diaz, has been developing and operating mines in Northern Mexico since the 1980s. One of the better-known mines is Alamos Gold’s foundational Mulatos mine. The Mulatos mine has already produced more than 2 million ounces of gold. Our combined success is as a result of many years of proven results so it’s a great team to be a part of.
Q: How can investors, especially from Mexico, capitalize on the Cerro Caliche project and what are you doing to attract them?
A: As I mentioned earlier, I believe Sonoro shares are an exceptional value at this time. Quite often, in my experience, the actual development phase is characteristically a time when shares like ours trade sideways as there are few pivotal events that can be game changing. To many sophisticated investors, however, it is an ideal time to invest because the project is in the permitting phase and the path to a higher valuation, that is potentially going into production, is higher. We are currently working to secure the project financing required to actually build our planned mine. I am very committed to transitioning Sonoro from mine developer to gold producer, so this transition phase is sometimes seen as a good opportunity for investors. On top of this is the project’s potential for growth. We have only drilled a third of the known gold zones, so we have confidence that there is good potential for upward revaluation just from going into production with what we have now as well as to continue with the potential for more growth. I mentioned Mel Herdrick, who has half a dozen major gold and copper deposits over his notable career, he believes that we are just getting started. Our strategy remains constant: get into production to create cash flow so that we can organically fund further exploration & drilling campaigns
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to expand the company while minimizing dilution. This is intended to maximize the benefit to our shareholders.
Q: How is the company reaping the benefits of having a comprehensive business plan and an execution strategy that generates revenue within 24 months?
A: By having a strong business plan, we reduce the amount of money and time needed to begin gold production. Investors understand this and having a smaller first phase means less money is required, which in turn minimizes share dilution. Once in production, we later use the cash flow to grow organically. It is a very difficult market for any company that needs to raise money, so the closer we are to beginning to generate our own cash flow, the more valuable we should become. In addition, the principal benefit of having the backup of a strong financial group (lenders and investors) is the ability to continue to raise money as we progress. It has been a very difficult market and we really stand out as a company that can finance its activities.
Q: What fundamentals make a company a success and how intrinsically is it related to the message you want to convey?
A: As I stated in the beginning, we have a strong management and technical team with a potentially economically viable project supported by a filed PEA, located in a mining friendly jurisdiction surrounded by excellent infrastructure and highskilled workforce. The key message has three components. First, Sonoro is led by a team that has the required skills to transform the company into a successful producer. Second, as the PEA indicates, Cerro Caliche is a potentially viable project that we are committed to put into production. Third, we have completed multiple drilling campaigns and work programs at Cerro Caliche and are now in the permitting phase, working to secure financing. I believe our progress toward becoming a gold producer may only accelerate from here.
The Five Essential Components
John Darch
Chairman and Director | Sonoro Gold
John Darch, Chairman & Director of Sonoro Gold discusses the components for a successful company, going beyond for the local community and legacy.
Transparent Strategy Results in Confident, Loyal Investors
John Darch
Chairman and Director | Sonoro Gold
John Darch gives his five essential components for Sonoro Gold to materially increase the size of its operations and gold resources.
Continued Growth Expected when Cash Flow Starts at Cerro Caliche
John Darch
Chairman and Director | Sonoro Gold
Sonoro Gold expects greater gold resource at Cerro Caliche and increase the projected life of the mine, says Chairman and Director John Darch.
Investors Perceptive to Opportunities when Presented Factually and Openly
John Darch
Chairman and Director | Sonoro Gold
The most important thing for any entrepreneur to do is always to listen, especially those who are knowledgeable and experienced, says Joh Darch, Chairman and Director at Sonoro Gold.