Restart of Mina Tucano Draws Closer

by Jeremy Gray, CEO Tucano Gold

September is seasonally the time when gold is typically sold, but this year the opposite is happening. In our last email to investors on August 23, we had called for a gold price of $2,800 by the end of this month.

However, a ten-year bear market in gold has trained the market not to believe in these strong recoveries, which is a key element in why the gold price is now rising much higher. More importantly, the performance of gold mines has been rather subdued so far compared to this 26% year-to-date rally in gold. Years of disappointment mean that many investors have moved on or are simply not ready to be drawn in again. This is another key element in why mining stocks are entering a new golden era that most will watch from the sidelines.

Importantly, gold continues to decouple from most other commodities. Oil and iron ore seem poised for another downturn as demand continues to weaken. Most base metals are trading poorly, and grains have given back all their 2020/21 gains. Luxury goods prices like watches, art, and wine continue to fall, and cryptocurrencies are also trading down.

The crypto people remind me of the crazy gold bugs of 2012/13 who, after 10 years of rising gold prices, couldn’t accept the reality that they would fall. Years of success do that to you, just as years of hard times make you believe it will never get better.

Interest Rate Cuts of 1% Within the Realm of Possibility

Today, the gold market senses that the global economy is slowing rapidly and that government spending worldwide is too high and inflationary. Central banks are far behind the curve, and debates about interest rate cuts of 25 or 50 basis points could soon expand to 1%. The collapsing commodity prices are a leading indicator of this dramatic slowdown, but also a perfect excuse for central bankers to resume money printing.

I recently traveled to Australia for my mother’s funeral. The ‘Lucky Country’ seems to be entering its first major recession in over 20 years, and the cost of living in cities like Sydney and Melbourne is breathtaking. With the commodity boom now over, I’m only surprised that the dollar isn’t trading below 60 cents, as prices for Australia’s key exports keep falling. My mother certainly experienced the best 81 years of Australian history, and I will miss her dearly.

Back in Brazil, we are approaching the restart of Mina Tucano and believe that the headwinds in commodities that Australia is experiencing also apply to the Brazilian currency. Brazil’s heavy reliance on iron ore, oil, corn, and soybean exports leads me to suspect that the BRL will continue to weaken.

Below are my commodity and currency forecasts for the next 6 and 12 months, for what they’re worth.

Unlike most gold enthusiasts, I believe the US dollar will remain strong. Gold has largely decoupled from the old, historically perceived link. If gold recovers with a stable dollar, this would lead to massive margin expansion for producers outside the US like Tucano Gold, Pilar and Laiva Gold. This is one of the main theses of our new golden era for mining companies and is very different from the last gold bull market when the dollar was weak.

For iron ore, it’s simple: Chinese demand will continue to slow while the iron ore industry has finally moved to build too much new capacity. When China woke up and demanded iron ore in 2003, the industry built new capacity very slowly (except for Fortescue), as they were still plagued by their own downturn between 1988 and 2002. These days, they’ve forgotten what a long bear market feels like, but it’s only a matter of time before massive production cuts occur.

Gold, on the other hand, is a scarce commodity, and we are proud that our operations Tucano and Laiva are among a handful of new mines that will be commissioned in the near future. The gold industry has suffered from a lack of capital for over a decade, at a time when physical demand from central banks and Chinese and Indian consumers is about double the annual gold mine supply.

The classic indicator for the oil price was Saudi Arabia’s unusually large push into soccer, golf, and boxing over the past two years. Since then, the oil price has done nothing but fall.

My big sector tip for 2025 is that BHP and Rio Tinto could return to the gold sector. It seems only a matter of time before names like Barrick and Newmont are swallowed up and become part of a larger, diversified group.

If mergers and acquisitions in the large gold space come from outside the gold industry, this will lead to a massive revaluation of smaller producers like our group of Tucano Gold, Pilar Gold, and Laiva Gold. We are very proud to have acquired three large gold mines over the past four years during the downturn and believe that 2025 will be fantastic for our companies in this new golden era of the industry.

It’s important to mention that all three of our large mills were built with funds raised during the last boom. Yamana Gold spent $250 million in 2011/12 to build our Pilar complex. Nordic Mines spent $400 million in 2010/11 to build Laiva, and Beadell Resources invested $300 million in 2012/13.

Although the gold price is much higher today than it was then, it is impossible for small players like us to get financing to build mines of this size unless you have good relationships in the industry with the big check writers who give you access to high debt and royalties. This is another sign that we are in a new golden era for us mine operators, as it has been a nuclear winter for new gold mines so far. This is another reason why our model is to buy large second-hand gold mines for a few cents on the dollar instead of trying to rebuild them from scratch.

An important point for Tucano is that it will take only one year from purchase to production, while the average time from ‘discovery to production’ is 20+ years. I stole this term from Gwen Preston of West Red Lake , where the period from purchase to production is 2 years. In reality, Tucano is more advanced than West Red Lake because the company has been operating continuously for 12 years and has built up much more infrastructure and drilling. Although West Red Lake is smaller than Tucano, their market capitalization is 5x our current valuation.

Building the infrastructure of our three companies would cost at least $1.3 billion today, and we have more than 8 million ounces in the resource category. The only way we’ve managed to grow our three companies is through the support of our incredible 567 investors who have supported us over the past 5 years when the gold price was much lower than it is today. We really appreciate your support and hope we can finally return the favor.

20,000 Ounces of Gold on Stockpile

At Tucano, we now have over 20,000 ounces in the ROM and on the stockpile next to the mill, which is perfect starting material for the first three to four months of production before we need to mine new material from AB1. It’s free-digging, pre-crushed, and very cost-effective, giving us a potential profit of over $20 million in this strong gold market.

When we acquired Mina Tucano in October 2023, the gold price was only $1,820. Importantly, Tucano Gold has an unusually tight capital structure with only 55 million shares outstanding for the merger of Tucano Gold and Golden Shield. This is because we bought the company for 1 cent on the dollar of its $500 million replacement cost. I firmly believe that this acquisition is the best in the industry since K92‘s acquisition of Kainantu Mining in 2014. Check out our latest presentation on Tucano Gold here.

If you were to halve our internal cash flow forecast for 2025 (to be conservative), we would still achieve a P/E ratio of 1 for the next year, assuming a gold price of only $2,000, which offers significant upside potential for both Tucano Gold and Golden Shield investors.

We are closing this current 80-cent round on Monday, September 24th. The offer includes a half warrant at C$1 with a 2-year term. We started this 80-cent round when the gold price was $2,000 per ounce. With the gold price today being $1,000 higher than when Great Panther last operated, we hope that our future investment needs can also be financed from cash flow. If you would like to learn more about this offer, let us know or download the subscription form here.

Tucano Gold will be presenting at the Denver Gold Forum next week. Leo from Golden Shield will be attending the 4-day event along with Charles, and it’s a great opportunity to learn why we are so excited about this merger and the expansion of our Guiana Shield land package.

In conclusion, I would like to thank our great management and employees in our 3 companies. The last 5 years have been, to say the least, not easy, and finding capital for the growth of our group has taken longer than expected. I firmly believe that we have an exciting future ahead of us and that this new bull market for gold will enable our management to increase production and maximize returns for shareholders.

Best regards,

Jeremy Gray | CEO of Tucano Gold
Jeremy.Gray@TucanoGold.com

Charles Chebry | President
Charles.Chebry@TucanoGold.com

Leo Hathaway | Chief Geologist
Leo.Hathaway@TucanoGold.com

Edward Balme | Head of IR
Edward.Balme@TucanoGold.com