MetalsTech (MTC.AX) had a relatively quiet summer as the majority of the news flow was dominated by the company’s decision to spin out its lithium assets. A good move as this will establish MetalsTech as a pure gold exploration company and as the market didn’t seem to allocate any value to the lithium assets, it’s better to spin them out into a separate company to unlock some of that value. MTC will distribute 45 million shares of Winsome Resources to its own shareholders and this means MetalsTech shareholders will receive approximately one new share of Winsome Resources for every 3.68 MetalsTech shares held.
The lithium market is on fire these days and one tonne of LCE is currently changing hands for more than $20,000. This obviously rekindles the interest in the entire sector and MetalsTech may very well luck out on the timing of the spinoff as the share price of Winsome may exceed the A$0.20 IPO price right out of the gate.
The MetalsTech share price had a phenomenal run lately thanks to a lack of selling due to investors holding onto shares up until the entitlement date for the free spinout shares and a combination of positive catalysts including the lithium spinout news, and likely also thanks to the resource upgrade and the news-hungry market expecting more drill results from the Sturec gold project in Slovakia. The drill program is indeed in full swing now and as MetalsTech reported visible gold in several holes now, it’s understandable to see the market getting excited.
The current drill program will result in an updated resource estimate which will then subsequently be used for an initial scoping study on the project. As you see, MetalsTech will have plenty of news flow in the next 3-6 months as the Sturec gold project is being advanced towards development.
You can re-read our initial report on MetalsTech and the background of the Sturec gold project.
More high-grade gold at Sturec
A few weeks ago, MetalsTech announced the discovery of visible gold in hole 17 which was an infill drill hole meant to follow up on hole 14 where MetalsTech encountered 10 meters of almost 17 g/t gold within a broader interval of 43 meters of 4.88 g/t gold and 11.8 g/t silver.
Hole 17 is an underground drill hole, drilled from Drill Chamber 2, and the hole is located close to the pit outline used in the 2021 mineral resource update. As you can see on the image above, the location of hole 17 is important as it will basically be able to validate the findings in hole 10, 13, 14 and perhaps even hole 5 which ended at the bottom of the pit outline.
MetalsTech must have an excellent relationship with the lab as the assay results were released just shortly afterwards. While it’s possible to have initial excitement about having visible gold in the core only to receive disappointing assay results, that very clearly wasn’t the case here as the assay results indicate 35 meters containing 3.31 g/t gold and 12.3 g/t silver, including an even higher-grade interval of 19 meters containing 5.09 g/t gold and 12.9 g/t silver.
Those are excellent grades. As MetalsTech would like to develop Sturec as an underground mine to make sure it earns the social license to actually develop the project (an open-pit mine would likely be more difficult to get permitted), geologists and engineers need to see two things: grades and widths.
A width of 19 meters is absolutely excellent. Forget about the narrow vein type deposits you can find in Mexico. Having a continuously mineralized zone over a length of 19 meters at those grades is excellent. And just to give you an idea: at $1750 gold and $22 silver, the gross rock value of that 19-meter interval is approximately US$295/tonne. Of course, you still need to apply the metallurgical recovery rates and perhaps a discount when selling the gold in concentrate to a smelter, but that doesn’t really matter too much with these grades.
The interval was encountered at a depth of 67 meters down-hole. That’s not the vertical depth from surface as the hole was drilled from an underground drill chamber but looking at the long-section we estimate the interval to be within 150 meters from surface. So in theory, it would be well within an open pit outline which makes it even more phenomenal but again, Sturec will be an underground project. A great start of the drill program, that’s for sure.
And MetalsTech continued to intersect visible gold elsewhere. Hole 18 was drilled not too far away from hole 17 and the results from both holes have already been received by the company.
We would like to draw your attention again to the long section of the Sturec project. While hole 17 could be seen as some sort of ‘infill’ hole to double-check the mineralization encountered in holes 5 and 10, hole 18 was actually targeting to fill in a ‘blank’ just on top of holes 13 and 14. As you can see on the image below, hole 18 is slicing nicely through a zone that is currently classified as ‘barren’.
The headline results of hole 18 will for sure have made some heads turn. The drill bit intersected 1 meter of 646 g/t gold and 459 g/t silver within a broader interval of 6 meters of 109.82 g/t gold and 81.7 g/t silver. While the high-grade interval will obviously be capped in a resource calculation, it’s important to know that the remaining 5 meters in that 6-meter interval still have an average grade of 2.5 g/t which should be above a traditional cutoff grade for an underground gold mine.
As this ‘blank’ area also contains high-grade gold (and silver) mineralization, it’s pretty easy to understand the upcoming resource update at Sturec will likely be quite a bit higher than the current situation. And that’s a great position for the company to be in as it will add more credibility to the underground mining scenario. As you may remember, the resource update in June was still based on an open-pit scenario with only a small portion of the ounces classified as underground resource. This will now likely change as MetalsTech will fully focus on developing an underground resource and mining scenario.
As a reminder, the current resources at Sturec stand at 1.52 million ounces of gold and just under 11 million ounces of silver in an open-pit estimate using a cutoff grade of 0.26 g/t gold. An additional underground resource estimate was compiled but this contained just under 150,000 tonnes at 3.55 g/t gold for just 17,000 ounces of gold and 60,000 ounces of silver. We expect the resource estimates to change dramatically later this year with a clear focus on developing a mineable underground resource.
Meanwhile, MetalsTech has completed additional metallurgical test work and the most recent program shows a total recovery of 91% of the gold and 88.4% of the silver using a relatively simple gravity separation and flotation approach (resulting in a concentrate with an average grade of 31 g/t gold and 80 g/t silver). That’s good news as you may remember MetalsTech’s plan is to produce a concentrate and ship the concentrate out of Slovakia for final processing. The concentrate grades reach the ‘sweet spot’ as the aforementioned grades would imply a payability of 96% for the gold and 90% for the silver. There may also be a small penalty payment for the arsenic content, but that penalty would be less than 1% of the total revenue per tonne of concentrate. With this additional metallurgical test work, MetalsTech continues to tick all the important boxes at Sturec.
Spinning out the lithium assets may be a good move in this red-hot market
MetalsTech is currently trading on an ex-div basis with regards to the spinout of Winsome Resources (WR1.AX) which has been the likely reason for the shares coming off of their 80c high and settling in the 40-45 cent range. The record date for the transaction was set at October 7th and anyone who bought the shares after the ex-date (traditionally one or two days before the record day) is not entitled to shares in the Spinco. The shares of Winsome Resources will start trading in November some time and although the pro forma value was set at A$0.20 when the IPO was priced, the lithium market is currently on fire so it will be interesting to see what level Winsome will trade at on its first few trading days.
Winsome Resources will be supported by the second largest shareholder of China Jushi, the largest fibreglass manufacturer in China. The production of fibreglass requires ‘clean’ spodumene concentrate (low impurities are required) so we can likely assume the large shareholder of Jushi is keeping its fingers on the Winsome pulse by taking an initial 9.9% strategic stake. This is along side North America’s Lithium Royalty Corp which has already committed $3 million to the float.
Seeing this new participant further increases the confidence level in the lithium projects owned by Winsome Resources, and those project clearly deserve a dedicated focus and finetuned exploration programs to unlock the value. Having a strong Chinese partner coming out of the gate could make the life of the Winsome management much easier.
Chinese money for MetalsTech
Although Metalstech still has a respectable cash position after banking A$6.7 million in July from the sale of a royalty over the lithium assets, it’s never a wrong idea to add cash to the treasury. After all, MetalsTech is a non-revenue company and thoroughly exploring the Sturec project will continuously require more cash to be spent on the ground.
MetalsTech raised A$2M and the main takeaway is not the amount of cash raised, but where Metalstech found the cash. Chifeng Jilong Gold Mining, a Chinese company, has agreed to invest the A$2M by acquiring 5.88 million shares of MetalsTech at A$0.34 per share.
While Chifeng Jilong is not well known in the western world, the company has a market capitalization of approximately A$6B, which puts it in the same category as for instance Kinross Gold and B2Gold (on a market cap basis). Of additional interest is the Chairman of Chifeng Jilong, who has a history as CEO of Zijin Mining and chairman of Shandong Gold. Two better known Chinese companies that have dealt with western companies and projects on numerous occasions. Zijin Mining acquired Nevsun Resources in 2018 for its high-grade Timok copper-gold project while Shandong is well-known for its attempt to acquire TMAC Resources (TMR.TO) in Canada before political issues derailed that acquisition. And more recently, Shandong was in a bitter buyout fight with Russian outfit Nordgold to seize control of Cardinal Resources.
Chinese companies are always looking for M&A opportunities and although we don’t know too much about Chifeng Jilong, it is very encouraging to see Chifeng take an initial stake in MetalsTech. For them, an A$2M investment is peanuts but for MetalsTech it covers the cost of an additional 6-7,000 meters of diamond drilling.
The press release also contained an interesting additional clause: according to the agreement, MetalsTech will use ‘all reasonable endeavours’ to introduce Chifeng to potential sellers of MetalsTech stock. This would allow Chifeng to further increase its stake in MetalsTech. Keep in mind that as soon as Chifeng moves above the 5% ownership threshold, it will have to announce its stake to the exchange.
Conclusion
Keeping the environmental impact low will be the key to successfully developing the Sturec project. This means the company will focus on an underground resource which should result in an underground-only gold mine. The drill results of the current Fall drill program are very encouraging as the grades and widths of the intervals seem to indicate an underground mining scenario could work. The drill program is ongoing and more assay results can be expected over the next few weeks, but MetalsTech is very clearly off to a good start.
Spinning off the lithium assets in Winsome Resources is a good move as it will allow the market to rate and re-rate MetalsTech as a company with a dedicated focus on gold. The June resource estimate indicated Sturec contains in excess of 1.5 million ounces of gold and the current drill program will for sure add ounces to the June estimate. The main focus will be on the amount of ounces that will actually end up in an underground development scenario.
Busy times at MetalsTech and every additional update with fresh assay results will provide more useful information on the project while every additional hole further de-risks Sturec from a development perspective.
Disclosure: The author has no position in MetalsTech. MetalsTech is a sponsor of the website. Please read our disclaimer.
