How Northern Vertex Plans To Turn The Corner In Q3 Of 2020

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We met with David Splett, CFO of Northern Vertex, and former CFO of Goldcorp Latin America, to discuss the operational changes that Northern Vertex has made since we last visited with the company in 2018.

The company has seen many positive changes in the past year, despite challenges the company has had in rewarding investors with the types of returns originally forecast in the Moss Mine feasibility plan.

We discuss the following points with David during our conversation:

Land Package Highlights:

  • Overall land package of 10k acres, including 1.5 km surface visible strike;
  • Resource expansion to 360k gold and 4.4 million silver ounces through 2019 exploration and infill drilling programs.

Operational Improvements:

  • Increased daily processing of rock to 7500 tpd;
  • Increase crush size of rock to 3/8″ on the leach pad;
  • Reduced metal recovery time from 120 to 45 days;
  • Decrease in reagent usage resulting in increased recovery rates;
  • Reduction in 60% of water usage;
  • Build-out of the power line saving $200k monthly cost, with a 2 year payback period;

Financial Positioning:

  • How the current high gold/silver ratio saves the company 15% of financing costs in the Maverix Metals silver streaming deal;
  • The convertible debentures due in 2021 and what it means at current share prices.

Additionally, David and I discuss the operational challenges Northern Vertex has had since opening the mine in 2018. Finally, we asked David to provide the roadmap that will provide confidence that Northern Vertex can meet the original financial goals that they laid out in 2017 for their investors.

 

My Analysis

It appears that Northern Vertex has made several improvements in operations since our site visit in 2018. The payoff for some some of these improvements will be seen in future quarters as more rock is processed, more metal is recovered, and daily mine run costs are reduced. Therefore, it is likely that investors will be happy with higher revenues and lower costs than those reflected in recent quarter financial reports.

However, we know that the amount of recoverable metal per ton of rock yet to be mined has fallen since the 2017 feasibility study, where the company estimated 0.76 gpt gold and 9.3gpt silver Measured and Indicated (M&I).

The 2019 infill drill program updated those earlier 2017 estimates to the following numbers:

Northern Vertex 2019 Gold Silver Resources M&I

Source: Company Estimates

The resource estimates for gold have fallen from 0.76 gpt to 0.496 gpt gold and from 9.3 to 6.15 gpt silver. Gold and silver resources have both been reduced by about 34% following the results of the infill drilling program.

We expect that the operational improvements made may offset some of the reduction in resource grades noted. The grade reduction remains puzzling, given past reports have the company producing metal very close to the original feasibility plan rates.

Northern Vertex 2019 Operating Results

Source: Company Financial Reports

A Look Forward

As David pointed out in the interview, the company has the majority of its visible strike to look for higher grades of gold. Some of their recent drill intercepts indicate much healthier gold and silver resource grades than they have been mining.

Indeed, the Oatman mining district has seen well over 2 million historic ounces produced. So, there is reason to believe the company has additional good news for investors coming from their future exploration activities. However, the company will need to nimbly implement their exploration and operations plans to maximize the value their land package holds.

Whatever the outcome, 2020 looks to be a very interesting year for the company.

Author’s Note: You can find my previous coverage of Northern Vertex’s land package, financial profile, management, and feasibility studies in my article history.

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