Troilus Gold: Great numbers, aggressive growth, imminent MRE update, & incoming FS.
TLG.T is an advanced developer with a tier 1 deposit fast-tracking its way through revitalising the old Troilus Gold mine in Quebec's Abitibi. Updated MRE in less than a month and FS by January 2024.
tl;dr:
Troilus Gold is a very brownfield developer that has 8m+ Oz AuEq with great economics and a lot of reasons to believe the sting of inflation can be reduced in their upcoming FS, the first economic study since 2020. Also 260,000m of drilling is being put into an updated MRE that is just weeks away.
Part 1: Brief Overview of Troilus, Part 2: Written Summary of the Interview
All numbers in USD unless otherwise stated.
Part 1: Brief Overview of Troilus
I’ve only been following this one for a little while now, but so far I like what I see quite a bit. Large, bulk-tonnage, low-grade (but not too low) gold in Quebec with lots of preexisting infrastructure. I won’t go too big on this article, as I have plans for maybe a larger look later on, but I still wanted to share the basics of why I like this one. All the big, headline, items clock in really cleanly with Troilus. Take a look at what I mean:
Great resource - 8.1m Oz AuEq
Short term catalysts - 260,000m going into a resource due within a couple weeks and then the bankable FS slated for December or January.
Strong and simple metallurgy and recovery that’s improved since 2020 PEA.
Long mine life - 18+ years (with room to grow from there)\
Base Case Post-Tax NPV ($1450 gold): $576M, and $1.156B at $1950 gold.
Cheap to build: $333M Capex in 2020 PEA. Increasing capex and opex still proves the project economic, as per PEA sensitivity charts.
Therefore, a strong NPV:Capex ratio.
Low AISC.
Nice 15% copper kicker adds funding optionality.
Brownfield work operating largely within the footprint of the old mine.
Strong community and government support.
Multiple legitimate opportunities for economics to improve with the incoming FS to help combat impact of inflation (this is one I will save for a bigger effort post later rather than trying to shoe-horn in now).
Now, just to consider the counter-effects: Yes, low-grade gold is always susceptible to variations in gold prices and, as Justin speaks to in the interview, if there’s issues ramping up the project, they can start to flounder a bit (as he discusses with Canadian Malartic and Detour Lake in their efforts about 10 years ago, but… look at them now). And we don’t know how serious the impact of inflation will be. After spiking up, diesel has settled back down a bit and is now up roughly 10% in Quebec since 2020. We know all the other stories about tightening supply chain issues and upward price pressure. So yes, the final cost of this mine remains an important unknown.
And of course, this sense of unknown risk profiles is only heightened by the fact that Troilus opted to forego their PFS last fall and announced they were going straight to the FS, expected in this coming December/January. Now of course this can start a whisper campaign over all sorts of issues - real or otherwise. And skipping the PFS typically does get my radar up a bit for that exact reason - the unknowns and variables can become too large for me to want to hinge an investment decision on. Were the numbers not great and they’re looking for more time to fix something? We don’t know.
However, Troilus does have a reasonable explanation - due to their very brownfield nature (literally digging into the same open pits as the old mine, using much the same infrastructure, etc) they state they have a very high degree of confidence in their work. And they have a point - their PEA is indeed very thorough - coming in at 483 pages when you might a few more blank or underdeveloped sections from a typical PEA. This is not a new project so much as it is the continuation of an old (though still recent) one. And that’s important.
And being in the heart of the Abitibi, surrounding by mining infrastructure and services, with support of local community and the provincial government (through ownership, even) gives Troilus an awfully stable foundation to pin all their decisions on. There are such lower hurdles for economics there, as I’ve discussed recently.
So there just doesn’t seem to be many dark parts of the map for monsters to lurk in with this project from my vantage. We know what the risks and opportunities are already very clearly. I will keep reading and learning and see what I find, but this resource, with this aggressive growth (260,000m drilled since 2020), with upcoming MRE and FS catalysts over the next 5 or so months, while trading at a 5 year SP low at CAD $85M MC ($10/oz Au; 7.4% of spot post-tax NPV) makes Troilus look like a perfectly asymmetrical opportunity to me for a meaningful rerating if things develop positively. There is a lot of failure baked into that valuation.
Yes there are risks - this whole game is picking companies with risks you’re comfortable assuming. To me, though, Troilus Gold seems like it has been unfairly beat up while still being in a great position to execute and drive the share price up and to the right over the next few months and years. And we won’t have to wait long to know a whole lot more about what they’ve been up to.
Thanks for reading.
-JRI
Part 2: Written Summary of the Interview
(Time Stamps are links to that spot in the interview)
Elevator Pitch
Troilus is a past producing mine. 14 years. 2 million ounces of gold and 70,000 tonnes of copper. Mine shut down for economic reasons and lack of work. Justin’s team bought it in 2017, took it public in 2018. 340,000 meters drilled since then. Expanded it to 8.1M Oz AuEq I/I resource. New resource right around the corner backing 20ish mine life, 300,000 tonnes per year. Low grade. Bulk tonnage. Lots of inherited infrastructure. $350M USD.
Justin’s History
Justin is a geologist by training. Masters and MBA. Multiple positions through his career. Worked as head mining analyst at Sprott Securities. Ran Global Mining at National Bank of Canada. That’s where he really got into the investing side of things. Been a part of a couple successful M&A deals.
History of Preexisting Troilus Mine
Had always known about Troilus. Always felt like it was an outlier for Inmet – they were a base metal company. Produced profitably but they never bothered exploring for further reserves – focus was elsewhere on other world class operations. Troilus then got put on C&M. Not much focus in 2016 on low grade bulk tonnage gold. People watching Canadian Malartic and Detour struggle to ramp up production to profitability.
Share Structure
227 Million shares out. 7ish million RSUs and 12ish million warrants (half each just expired) for pro forma share count of 245ish million. 60% institutionally held. Lots of Quebec Government ownership and support. Management own 10%, Aussie Lithium Co. Sayona owns 9% and Retail the remaining 20ish% or so.
Justin’s Average Cost Basis and Management Compensation and Burn Rate
Justin is the largest individual shareholder at about 4.5 million shares (in addition to RSU exposure). Average cost basis is $1.10. Has never sold a share except to cover RSU tax implications. Troilus does RSU vs. options bc best practice for ESG are RSU not options. Justin is comped at the 50% median of his peer group. The dollar value when exercised counts as revenue to the individual so there is a tax bill. All sales by all management to date have been done purely to cover the tax burden. When done, they are bundled up and sold in a single cross trade. 75% of his performance bonus is tied to share price performance.
Cost-cutting measures
Last 3 weeks they’ve been implemented. Start of mine was 1.5M Oz UG. Now 8.1M Open Pit. Their aggressive approach has shortened timelines. They’ve discovered basically 10 million new ounces in 3-4 years. Up to 7 drills turning at once. Needs 10 geos, 10-14 techs. Millions in salary. Troilus also is not a cheap little low-tech camp in the bush. Active mine site. 40 km of roads. 20 pumps. Heli depot. Full camp. 50mw power station needs to be maintained. Without maintenance the value of this infrastructure is worthless. Camp of 40-50 is now 7-10. Savings of $2M+/month. Some C-Suite adjustments as well. Cut burn by 60-65%. They won’t stop exploring, but they need grade not ounces. Normal evolution, they’re just doing running twice as fast as the average company.
Jurisdictional Advantages – Justin picks a couple favourites
First advantage is you don’t have to fly in. Just as easy as driving on a highway right onto the property. Just over an hour from Chibougamou. Resource town. Resource industry hub. All the benefits of being in the Abitibi. If something breaks down, it can be delivered by road the same day. Has a huge impact obviously on operating a mine.
Very close relationships with local communities. Resource communities. People out there remember the old mine and remember it positively.
ESG standards and Troilus and why it focuses so intently on it. How do they justify it?
There is a lot of greenwashing. Lots of lip service. Approached it as if there was no choice. They want to do it right to minimise any risks. Their plan was always to restart the mine. What do we need to put in place now to make the mine happen later. Social acceptability is huge. Very positive with Cree nation. Strong government and Quebec institutional support. Recognition on multiple levels of the positive impacts of the project. Permitting rquires Troilus to be proactivr with ESG. Voluntary member of multiple driving ESG forces. It allfunnels down to rhe ability to fund the project. They expect funding by Quebec government. If they can’t hit Quebec ESG benchmarks, they would have to go out and get them. Need to make sure they are leaders. Working on zero carbon footprint. Their lsrge Euro shareholders also obey stringent Euro ESG standards. Will hopefully differentiate the project.
These up front efforts pay off down the road. The cost up front can save money later. However, still moves burn rate up.
Local Cree Nation Relations
Justin finds Quebec FN to be generally very progressive and pro-development. Mistissini is a very modern community with lots of wealth coming into it via resource extraction. Very sophisticated resource industry population. The various chiefs have been reliable and straight shooting. Majority of people who have worked at Troilus are Cree.
One of the biggest challenges is managing expectations – lots of eagerness in the community to get the mine active again. Two JVs with them.
Currently working to train their work group with the local communities. Not something typical of companies, but part of their ESG focus.
Where does Troilus find itself right now? (MRE out soon)
MRE is very nearly done. Goal is to have it out within the month and it will be out in that time. Very pleased with the outcome. X22 changed the dynamics of the mine. In 8 months they managed to drill out to feasibility level this 1 km deposit. The goal is to get invested capital out as fast as possible. X22 looks like it can potentially reduce the payback period. Two best mines in Canada right now are Detour and Canaidan Malartic. X22 means Troilus will be able to repay faster.
Discussion of low-grade bulk tonnage
Opportunities for improvement of economics in upcoming FS vs PEA
PEA is based on inferred resources. +/- 35% accuracy. The scale (35,000 tpd) will remain the same. To increase in size, it would require upgrades to infrastructure. Maximising the infrastructure they have to minimise impact of inflation. Mine sequencing will change. PEA started with 87 SW. Now X22. Higher grade, lower strip. Mine life will grow. No more UG planned.
Commodity environment is improving – consistently elevated gold prices. Copper can play a big role in this mine. 15-20% of value will come from Cu.
Any community concerns over open pit and tailings?
There’s already 2 pits there. Still has water in them. They’re permitted to dewater, but they gave a full and thorough consultation process it. Plan is to just combine the two smaller pits. Disturbing disturbed ground should help. Remediation done in the first place was done very well and gives them options to improve. Footprint in terms of disturbed area won’t grow much. The tailings pond remains sturdy. Room to be improved and built up to hold more.
Met work and a discussion of what the 260,000M since 2020 PEA accomplished
90% recovery across Au/Ag/Cu. Very little wildcat. X22 was a brand new discovery and taken all the way to M+I. 70% was infill. 30% was expansion. But a lot of the infill kept pushing the system out, but drilled to M+I spacing.
Upgrade to resource numbers?
Significant growth to the overall number. About the same ratio of M+I to Inferred. They’ve had “unbelievable conversion”.
What royalties are remaining after the 2.5% was bought back? Optionality with streaming copper etc.
Market didn’t like the $20 million NSR buyback deal. Probably some of the best moves they ever made, alongside selling land to Sayona for $50m. Just 1% left NSR to Sandstorm. When you go to finance a large capital project, the goal is always to limit dilution. Project debt, equity component, royalty component. Unburden the asset as much as you can prior to that.
Copper content will be high demand. Lower % copper, but very high content gold. Copper provides a lot of optionality with funding.
Permitting
Quietly well advanced. Permitting is always the hardest timeline to manage. 6 or 7 months into permitting. Project descriptions submitted to province and feds. Multiple consultations. Full EIA writing mode. Provincially they believe they can get the permits starting to be approved by the end of next year.
Discussion of Troilus’ SP struggles
COVID, Crypto, Marijuana stocks. Gold has not been a trendy sector. Inflation is some headwinds. Cost overruns for delveopers trying to engineer a mine and produce. Troilus is absolutely a viable aspect, but the macro conditions have been very challenging. Quebec government has been very supportive. Makes comparison to Artemis where it was a project that didn’t get respect for a long time but is now in fashion. The majority of his peer group is at 52 weeks low. But the gold industry just isn’t getting new flows of funds. The right siing of Troilus helps keep finlation risks at by.
6-12 Month Catalysts and Final thoughts to Justin
MRE coming within the month. Forest fires have delayed FS a bit. If not done by Christmas, it will be the first few weeks of January. And then its fully onto permitting with regional exploration ongoing in the background to keep potential of the belt in people’s minds. 70% of his time is now on project financing. A good debt package takes over a year to negotiate.
Thanks for reading, again.
-JRI
