It won’t be too long now before the results of SRK’s work on Sonoro Gold Corp (TSX-V:SGO, OTCQB:SMOFF)’s Cerro Caliche gold project in Mexico come in.
As one of the best known mining consultancies in the business, SRK was brought in by Sonoro towards the end of last year to provide an updated calculation for the existing resource base at Cerro Caliche.
The previous number dated back to 2021, when a preliminary economic assessment on Cerro Caliche set out the case for the construction of a mine producing around 45,000 ounces of gold a year over a seven year life.
The costs of such an operation were put at just US$26mln back then, and accordingly the pre-tax internal rate of return rang in at a comfortably high 75%.
But Sonoro thinks it can do better, and with the gold price now marching up past US$1,900 again, what better time to be announcing more gold and improved economics?
The new numbers from SRK will incorporate an additional 7,200 metres of drilling that’s been completed on Cerro Caliche since 2021, and the results of which have included significant high-grade intercepts across multiple areas.
More than 62,000 metres of drilling has now been completed at Cerro Caliche, and all told that should provide a solid basis for a robust operation.
After all, given the quality of the recent drill results, it’s not unreasonable to speculate that the resource might be boosted at least proportionately to the amount of additional drilling that’s been done, which is to say, by more than 10%.
The proof will come when the SRK numbers are released, but there’s enough going on at Cerro Caliche to allow for the idea that when the market at last sees the hard numbers a significant re-rating of Sonoro’s shares might occur.
True, the project still needs to get financed.
But as we’ve seen, even in the earlier study, the capex number is relatively low.
If the new economic parameters, based on the SRK work, can show a higher resource and lower costs, then that already substantial internal rate of return could well attract plenty of eager investors
It seems likely too, that on the current US$1,900 gold price, pay back could be less than a year once all the final numbers are factored in.
Sticking points? – well, some might balk at the previously envisaged all-in sustaining cost of over US$1,300, so it would be nice to see that come down a bit.
And there’s also a final permit pending from the Mexican government.
But Mexico, on the whole, is not a bad place to go mining, and this permit is expected shortly, and without any undue anxiety.
On the upside, it could well turn out that Cerro Caliche is actually playing host to significantly more gold even than the latest SRK resource will show, given that not much exploration has yet been done at depth.
Will it prove to be a million ounce or a 1.5mln ounce resource? Similar mines in the area would suggest it’s possible if not likely.
All of which means that Sonoro offers the chance of a short-term re-rating on the pending SRK numbers, a medium-term re-rating as gold continues to strengthen, and a longer-term re-rating as the resource base grows and production gets established.
Watch this space.