Private gold producer Pilar Gold is currently keeping its intentions regarding an IPO open. However, the company is presenting more concrete plans on how it intends to increase its existing gold production in the state of Goiás, Brazil, from the current 45,000 ounces annually to 125,000 ounces per year over the next two years.
The pivotal point is the producing Pilar mine with its 4,500 tons daily capacity, which Pilar acquired from Equinox in April 2021 for $38 million USD. Since then, Equinox has held a 9.9 percent stake in Pilar. With a production of >100,000 ounces of gold, Pilar would not only achieve a spectacular turnaround of the Pilar asset, which Equinox considered marginal. Pilar would automatically join the elite club of larger gold producers, which would then make the company a prime candidate for an IPO.
Largely Protected from Cost Inflation?
The way Pilar intends to achieve its goals differs from the path of most competitors. Pilar doesn’t need a new or larger mill for its expansion and is thus largely protected from the CAPEX inflation currently plaguing the industry. Instead, the company simply wants to process higher-grade ore with higher gold content from satellite deposits in the centrally located Pilar processing plant. In this way, the average grades are to be increased from today’s 1 g/t gold in 2022-2023 to 2 g/t and in 2023-2024 even to 2.8 g/t – with comparatively modest investments.
Pilar Production Records Best Month in Three Years in June
Apparently, Pilar has already succeeded in improving the productivity of the Pilar mine since the acquisition. CEO Jeremy Gray proudly announces this in his latest shareholder letter. According to this, the Pilar operation in Brazil recorded its best month in three years with a daily average of 138 ounces produced in the first 26 days of June, compared to the average of 112 ounces from January to May. The production matched that of June 2019 and is comparable to the four-year record of 162 ounces per day in September 2018. Had there not been a scheduled shutdown in the last four days of the month to reline the ball mill, Pilar would have achieved an annualized rate of 50,000 ounces in June. Upon inquiry, Gray confirmed that the company achieved positive EBITDA in the past month.
At the moment, the focus is on restarting Caiamar, which is expected to deliver a grade of 3.5 g/t. In parallel, exploration is ongoing at the Sertão project, which consistently reports spectacularly high gold grades of several ounces. However, a resource does not yet exist. Therefore, as a publicly listed company, Pilar could not make statements about future average grades or even mine life. Nevertheless, the drilling indicates that the former operator of Sertão, Troy Resources, left a lot of gold behind when it closed the mine in 2006 after producing 260,000 ounces at a grade of 29 g/t in open pit mining in just three years. Currently, Pilar is awaiting several drill results from the laboratory for Sertão and promises another update in mid-July.
New Financing Round Begins
Following the successful 70-cent financing round at the beginning of this year, Pilar is currently launching a $1.00 round with a full warrant at $1.50 per share. This values the company at C$207 million, with the raised funds to be directed towards Caiamar and Sertão.
Conclusion: The founders of Pilar Gold come from the financial sector. Pilar is the first producing mining company they are managing themselves. Initially, there was considerable skepticism about how Pilar Gold would perform operationally in the long term. Apparently, the management has succeeded in assembling a well-functioning team in Brazil that manages the daily challenges of production. The stable production at Pilar forms the backbone for future growth. Without the infrastructure acquired from Equinox, it would be extremely difficult to bring each of the surrounding assets into production individually. In the case of Caiamar, the production alone would not be significant enough in the eyes of the market, and for Sertão, investors might wait to see when the CAPEX trap would strike during the required financing. However, Pilar now has the rare opportunity – for gold companies – for largely cash-flow driven growth. If the satellite strategy works out and especially if Sertão proves to be the company-maker it appears to be at present, Pilar will have done everything right. The whole is greater than the sum of its parts. We wish Pilar the best of luck and look forward to the IPO – hopefully in a better gold market.
