Fiore Gold (F, TSX-V): The Beneficiary Of Someone Else’s Bankruptcy

After years of effort, Midway Gold poured its 1st Gold bar at the Pan mine on April 2, 2015.

They’d finally reached the finish line!

“Pouring of Gold at the Pan mine marks the beginning of a new chapter at Midway,” CEO Bill Zisch boldly stated.  “While we have had many hurdles to overcome during development and construction, our team has persevered and maintained a focus on initial Gold production.”

Becoming a “producer” is no small feat, but Midway had done it, embarking on a new chapter!

2 months later Midway filed for chapter 11 bankruptcy.

Wait, huh?  From producer to bankrupt in 2 months?

Yep, it was quite the turn of events (I don’t think I’ve ever seen a company declare bankruptcy so fast).  Pan was marketed as a “simple” and “easy” run of mine operation. Open-pit heap leach – just scoop up the material, stack it on the pad, shower it with some chemicals, and recover the Gold a few months later.  No sweat. Nothing to worry about.

Midway had done all the testing and studies.  All the specialists, consultants, and engineering firms were in agreement.  Projected economics showed Pan to be a real money maker!  The Commonwealth Bank of Australia recognized the opportunity, and after doing their own due diligence on Pan the Commonwealth Bank of Australia provided a $55 million loan facility to Midway.

All-in, more than $100 million was spent building Pan.

Fiore acquired Pan (and Gold Rock) out of bankruptcy in 2017 for $5 million – pennies on the dollar!  

It kind of boggles the mind when you think about how many studies were done and how much money was spent, yet mistakes were made.  Simple mistakes were made under the watchful eye of smart professionals who ended up looking pretty dumb.  Those simple mistakes proved fatal for Midway, unfortunately, but their death breathed life into Fiore (they’re a huge beneficiary of Midway’s bankruptcy!).

At this point you might be wondering what happened, how did it all go wrong so quickly?

I don’t know all the technical details, but I do know stacking 3 million tonnes of “clay” on the leach pad didn’t help with permeability.  Clay!  How and the heck do you end up with a leach pad full of not very permeable material?  That just seems like a simple mistake that isn’t excusable, it becomes like a layer cake. Midway never recovered the Gold they were supposed to because of all the clay (actual recoveries weren’t even in the neighborhood of what those economic estimates said they’d be).

Under new management, led by Tim Warman, Fiore has officially cleaned up Midway’s mess.  Part of cleaning up the mess included blending rocky material in with the clay. They basically had to go back and redo the stack, blending the clay with rock until they reached the right balance.  This 1 thing alone really helped with leaching, permeability, and ultimately better recovery rates.

Fiore has substantially derisked the mine and they’re now reconciling to within 3% of Pan’s reserve grade.

“We’ve addressed all these things through a combination of additional drilling, we drilled another 45,000 feet.  We completely updated the resource model, alteration model, and geology model, all from scratch.” – Warman.

To help ensure those grades stay very close to reserve grade (0.51 g/t Au), Fiore assigned a geologist to the pit, so someone’s supposed to be in there monitoring things.  Additionally, they revised their ore stacking procedures and utilize an onsite assay lab.  The newly installed crushing circuit, largely paid for via cash flow, is expected to add another 6,000 or 7,000 ounces atop Fiore’s existing production base.

Total production for Fiore’s fiscal year 2019 came in at 41,491 ounces, an increase of 21% versus the prior year.  We should be anticipating a number closer to 48,000 ounces in 2020, hopefully with vastly improved operating cash flow metrics with help from higher Gold prices.  A 10,000-m drill program at Pan is currently underway to support a new resource and reserve estimate, along with an updated life of mine plan to be published mid-2020.

Gold Rock, Fiore’s 2nd asset, is already federally permitted and is envisaged to provide the next leg of growth for the company.  When combined, Pan and Gold Rock give Fiore one of the largest land packages prospective for Carlin-style deposits in all of Nevada.

Bottom Line:  By owning shares of F you are positioning yourself to really benefit from Midway’s mess.  Fiore’s results since buying the mine out of bankruptcy in 2017 offer ample evidence that they’ve got the Pan open-pit heap leach mine figured out.  The stock has “GARP” written all over it.  Fiore has great potential for further discoveries within its 200 sq. km land package, prospective for Carlin-style Gold deposits, plus production growth (they’ve got a viable multi-year plan that gets them to +100,000 ounces per year).  With a U.S. market cap of $30 million and approximately $10 million cash, the price is very reasonable.