Challenger Gold Limited (CEL) Earnings Call Transcript & Summary

Good morning, and thank you for joining the Challenger Exploration Limited November Investor Webinar. I'm Jane Morgan, the Investor and Media Relations Manager. Today, I am joined by Challenger's Managing Director, Kris Knauer, who will be providing a company update and engaging in a Q&A session. [Operator Instructions] Kris, I'll pass to you.

Thanks, Jane, and welcome to the webinar, everyone. What I'll do is I'll sort of give a 10-minute intro, who is Challenger, just for potential new shareholders and then I'll take a deeper dive into some of the more recent developments and what do these developments mean. So look, Challenger, first point is there's 11 rigs on the ground now. So you're going to get really good news for it for the next 6 to 12 months. South American gold copper-focused company, 2 key assets; the lead asset is very much a Hualilan project in Argentina. Started like as a 0.5 million ounce high-grade resource, open in all directions. We've now made an intrusion hosted sort of discovery sitting underneath the high-grade mineralization, where we integrate resources [ though ]. 9 rigs on the ground, getting better results as we understand the system. We had significant results a couple of weeks ago, we put at best hole 63.3 meters at 9.8 gram gold, which is right down the southern end of our drilling. And then a couple of days ago, 5 meters at 19.9 grams including 3 meters at 32.5. That's the first hole we drilled with the portable rig up in the hill. It was about double the potential to expand the high-grade resource up in the hills and that was the first hole that had been drilled. Regional footprint, 190 square kilometers. That captures 20 kilometers of what we call the greater Hualilan trend strike. Everything I talk about is within 2.5 kilometers here where the drilling has been focused. So plenty of room to expand, really with metallurgy. Cash at bank, $36 million as of September. That gets us through another 90,000 meters. We're at 117,000 meters, about 204,000-meter program in Hualilan. Just started 20,000 meters in Ecuador. We will finish those 2 programs around about June next year, still with about $10 million in the bank. So no need to do a cap raise and I will actually talk to the Ecuadorian drilling program a little bit later as well. There's been a fair bit of interest with Sunstone making a second discovery. And I just want to say congratulations to the Sunstone guys. They actually introduced us to our lawyer in Ecuador, and they've had a long hard slog in Ecuador. But I think now they're on to something, so well done Sunstone. Company, basically, all of the management team have been there, have done that before the start-up and taken it to a big exit. Fully diluted EV $340 million. We're not a $20 million market cap company. But Challenger at Hualilan now, basically, our view is it will be a mine. It's just how big that mine is and who actually owns that mine. We see our peers as companies like resources. They put out our 4 million-ounce resource at 2.5 grams gold in Finland the other day. They've got almost $1 billion market cap, great [indiscernible] who haven't even put out a resource. They've got similar discovery to us in Canada. They've got a $1 billion market cap. Deposits like Hualilan that have grade and scale, they're not your typical $100 an ounce in ground. You've got that grade to start it off, it gives you flexibility. You get something that's going to be multimillion ounces and generally, they're valued at $250, $300 an ounce. So we don't see ourselves as expensive at all. And one of the reasons we will put out a resource into February is, we think the market is now undershot and doesn't value us appropriately. Hualilan project. So I'm showing you the insider view here. Basically, you can see what we call the, [indiscernible]. We are at the Hualilan Hills in the middle of shot and of note where the mineralization finishes, that same hills extends another 6 kilometers further south, totally untested, south of where our drilling is, there's a high grade intersecting one of the old adits. The Sanchez and Magnata Fault, they're 2 East West Faults, you can see there. They control the system. So the mineralizing fluids have come up those faults, they dropped out at fairly consistent mineralization along those faults 5 to 10 meters wide, going 5 to 10 grams gold. You've got a series of limestone units dipping into the right, which is to the east. You can see them there in the hill, they are basically at the slope of the hill and where the fluid coming up faults has intersected the limestones, which replaced along these limestone beds with bodies of massive sulfides. They call them Mantos in South America. It's just a fancy name for basically within bedding plane-hosted mineralization and sediments. And then you can see the yellow there is the intrusion hosted mineralization. Similar orientation to the Mantos; it looks like the intrusives that come along with these bedding planes, and you've got this big zone 1.5 kilometers long, just basically south, there is a Magnata Fault in the zone mineralization and sediments that looks pretty similar to Verde. And where this mineralization stops, there's no reason for it to stop. It's open in both directions. It's just purely the lack of historical drilling and drilling by us because we got so much to focus on. Yes, certainly, we've got a couple of holes north of the Sanchez Fault now. Recently, we're waiting for assays that visually that look like the mineralization extends further north as well as south. And this is just [indiscernible] shale. You can see the old working circled in red, the high-grade mineralization gets basically straight down parallel with slope to the hill, about 15, 20 meters underground. You can see the mineralized intrusives underneath that. And then also in front of it. And from a mining point of view, you just strip it back and take out virtually the entire hill at [indiscernible] which will be open pit. And again, this is just getting sort of 3D. You can see here on the left-hand side, the high-grade loads along the Magnata Fault. We're showing you basically the high-grade mineralization as it extends up out of the grounds into the hill. I'll touch on some of those channel sampling results later on. But basically, we think the higher grades are above ground up in the hill, and we're just getting to drilling that now. On the right, you can see a plan view that basically shows you Sanchez Fault at top of the page, Magnata Fault in the middle of the page, intrusion hosted mineralization, virtually up 1.5-kilometer long continuous zone. You have points to note down here at Sentazon our best hole, 63 meters at almost 10 right at the southern end of that drilling and then another 500 meters south in that [indiscernible] really in at it where we've got 13 meters at 15.5 grams in channel sampling. Again, we really only touched on 2/3 of this nonmineralized trend, and the best results are right at the bottom of the southern end of that trend. And then in 3D, what's it look like? So on top there's is a starting point. That's 0.5 million ounces of high grade skarn in gold. This was done when we're about 1/3 of the way through our drill program. So almost 70,000 meters. What you can see is we've significantly expanded the high-grade mineralization, yet pushed it 3 or 4x deeper. It does hang together well. Still haven't gone up into the hills. You can see the red Verde crossing the hills, but we've really get checked it up with portable rig, which is happening now. And then the purple is the intrusion-hosted materials severely limited there by a lack of drilling. That mineralization is still open in all directions, deepest hole on the Magnata Fault 27.8 meters at 7.3, deepest hole in intrusion hosted material, almost 50 at 2.4 grams gold. And it does look like we're getting better grades in intrusion-hosted material as we go deeper. Just to sort of touch on what the deposit looks like. So I'm showing you Sentazon, which is the extreme southern end. This is the high-grade scale of the Manto. What you can see is on the right inception is stacked high-grade lows, with a big open pit this will all come out. The main Manto, it has now been under sort to speak of [indiscernible] zone and where those 2 join up, you get this big high-grade walls of mineralization, which is where that 60 meters at almost 10 grams is. 40 meters along strike, there's another hole there in this position that got 40 meters at 6 grams gold. And you can see here the blue and Sentazon shows no signs of being closed out of depth. We're waiting for assays, but we've intersected massive sulfides almost 200 meters further down deep. And again, a section -- a second section of Sentazon, it does hang together well. I've heard people say, look at skarn, it's blobby, it's poddy, it does not hang together. You look at that section, and I think that resource when it comes out, will [ lie ] these concerns. This mineralization does hang together. We've got a big consistent body of high-grade mineralization. And this body of high-grade mineralization is going to get much bigger than what we put in the current resource as well or in the coming resource because as you can see there, again, it's open another couple of hundred meters down deep. Magnata Faults. This is showing you the Magnata Faults inspection. We've done another 20 holes awaiting for access on the most recent program, every single hole in the 33 holes in effective mineralization. You can see it's basically a vertical body. We've defined it down to 450 meters. It's actually almost 500 meters. Now that proposed hole we've drilled that the other day. That looks like an intersected mineralization as well. That it's defined over about 400 meters of strike down to almost 500 meters vertically. You wrap a shape around that. You're looking at sort of 3.5 million tonnes, which, again, you're talking 5 to 6-gram material, there is a significant body of high-grade mineralization there. Then you take the Sanchez Fault to the north, which is pretty similar where we haven't finished drilling that out. And also, there's another 200 meters of mineralization mapped in the [ hills ] where we're only going to get through with that man portable rig as well. So certainly haven't closed off the Magnata Faults. In fact, we got another hole below different section of the Magnata Fault back this morning visually. And this intersected [indiscernible] massive sulphides below an intersection that we reported that didn't get much so, it certainly looks like it's not closing off the [ dig further ]. And just to touch on Verde. You can see the Verde here in the cross-section on the left. It looks like the intrusive have come up the zones of [ weakness ] along the bedding planes. So basically, it's brecciated the shale sitting above it. You've got low-grade mineralization in the shale. And then you've got the intrusion itself below that where you tend to get a higher grade mineralization. On the right section, we have now visually anyway filled in all these gaps, and it is one consistent 1.5 kilometer long body. It is 50 meters wide, defined under 300 meters that open 50 million or 60 million tonnes in that kind of shape. So it's got significant scale as well. Recent developments. So first one is hole 397, which 3 meters at 32. The block model there, you can see the sort of historically defined mineralization in gold. In that historical resource is that 250,000 ounces to say. And you can see the yellow is the potential [ updip we maxed ] which is fairly similar size. So you've got a significant potential. You can see the high-grade channel sample there 15.6 meters at 72, including the 4 meters at 200. The whole 397 was the first hole drilled basically just updip where we wouldn't expect to have grades quite as high. Great result. You can see the holes we drilled in blue, assays pending. And now given that we're pretty comfortable we're getting decent results up the hill with going back and infilling with these yellow holes as well. And this is what it looks like. I could have just run with a map. So basically on the right, is a plan view showing where the Manto was defined north-south and then the Sanchez Fault. The red is the access road. You can see hole 397 circled here. and a couple of holes further up the hill that I've circled 300 and 434 and hole 449 in blue there that have results pending. You look on the left, and that's what it looks like in the real world. We're only about halfway up the hill there. But again, there is significant scale. That sort of open pit, you can see there, just level with the drilling rig to the left. It was about 20,000 ounces, about 30 grams a tonne coming out of that open pit, and that open pit trends, the mineralization trends up the hill. So trying to give you an idea of the scale. And then what does it look like? And I get asked how is the drilling up the hill going? So on the left, I've got hole 397 that's top 3 meters there that I've done in the red that went almost 30 grams. This is hole 449, which is further up the hill. It's difficult because it all weathered but you can see there from 34 meters, it is about 1.5 meters there, we think it is weathered in assay and then below that from 48 meters where the rock is a bit fresher. You can see here basically 3 meters that look almost identical to what we've got in hole 397. And then below that as well, there's some interesting sort of mineralization in the [indiscernible]. So potentially quite a big sign there. But we're quite comfortable with what we're seeing in core as we drill up the hill, and we're expecting to get continued good results. This is something that's got us really excited that we haven't spoken about before. On the right, I'm showing you basically a plan view showing the Magnata Fault in the southern half of the Verde zone in black there. This is overlaid on the magnetic data. And you can see here basically hole 440, and that hole was actually drilled chasing a down-dip extension of the main Manto at Sentazon 250 meters stepup. It basically got into interesting looking intrusives where the main Manto [ was meant to be ], guys on site kept drilling, drilled down to 700-odd meters. And that holds in effect as you can see it there on the left there. About 50 meters of mineralized intrusives and then another 30 meters of mineralized intrusives, that also contain 5 or 6 meters of massive sulphides, which are what you can see there in green. And generally, we get that kind of massive sulphides they're going 5, 10, 15 grams gold. So -- we then put another hole 200 meters north on trends simply because we had that hole program. And you can see the hole 450, its drilled through 70 meters of mineralized intrusives and then another sort of [ design ] of semi-massive sulphide. You can see they're in black, the more massive sulfide, and that was under 30 meters of mineralization in sediments. And this is the area where we reported earlier that we've drilled through 30-40 meters in sediments that went in 0.6, 0.7 gram gold. Basically, that's what we see in the Verde Zone above it in the sediment before we get into the main Verde Zone. So the view now is that what we've done is, look, it's offset about 100 meters, 200 meters along the Magnata Fault, But we now think we're into the southern extension of the Verde Zone, and that opens up at least another sort of 30% could be much, much more extension of the Verde mineralization as we go south still open. And the other point there is the magnetic image there. Basically, this Verde mineralization is on the flanks of the mag high. There's really be magnetic high here that we want to get some holes into on the flanks as well [indiscernible], this is the source of this mineralization and whether we've got another repeat on the other side and also further Norte. But yes certainly, exciting development now where we think we found the southern extension of Verde assays pending, but we've got every reason to be hopeful we're going to get some similar really nice high-grade mineralization hosted in intrusives here. This is just the Mag data. We've seen the Mag data. It shows the model is certainly with interesting feature with the high-grade skarn wrapping around it. The red is where we've drilled. And then when you step back and look at the bigger picture again. We don't just have one of these. We've got 4 or 5 of these. The area where we're drilling there. It doesn't sort of come up, but there's another one sitting in here on the Mag data, basically south of #4. But again, as we get deeper at Verde and we go sort of drilling to the east, we're getting a higher temperature assemblage, and we're wondering whether this Anomaly 4 has got something to do with the source but key takeaway here is we've really only scratched the surface at Hualilan. They're not all going to be mineralized, but we don't need much luck to find another Hualilan and all of a sudden, you've then got a tier 1 asset that you're going to have most of the big gold majors chasing. And look, we've already got knocking on the door and talking to us. So there is interest out there at the moment for us in Hualilan. Our response is let us align for 12 months, let's drill this out. We think we're only not even halfway there. And then just to wrap up on Hualilan, on the left there, I've got [indiscernible] discovery scale. Fantastic discovery, is going to get a lot bigger. Wish I owned it. Give us another couple of years maybe we do on something similar, and then this Hualilan to the right. You can see basically, we've got the same 3-kilometer north south footprint with high-grade mineralization. We've got a similar dimension of intrusives. We're really only -- we're really months behind where they are limited by drilling. But if we continue to get lucky, we've got the space here that we could end up with a really large tier 1 gold asset as well. We just need continued luck with exploration. Now I'm going to touch on Ecuador for now because with the Sentazon discovery, there's a fair bit of excitement. We've shown this slide before. Basically, what we've got in Ecuador, just north of where that legend is, Cangrejos, which is a 17 million ounce ore body going through a feasibility study at the moment. It's 16 million ounces at about 0.7 grams gold equivalent. There, I think all-in sustaining cost of production is about USD 600 an ounce based on [indiscernible] it should be CapEx based, but it will end up being one of the largest low-cost gold mines in South America. This is just basically showing you the soil anomalies of Colorado V, which we've seen. I'll now sort of take a deeper dive. So what I'm showing you here is basically El Guayabo, gold in soil map, you can see the anomalies we've defined. You can -- you might see it here on zooming, but basically, our first hole was drilled in black, second hole in yellow and then the blue are the holes that we'll drill in the current 20,000 meters, the gray in a sort of follow-up holes. And you can see some of these holes aren't drilled on new gold in soil anomalies. Some are chasing Mag targets, some are chasing targets from the geophysics. Really, this 20,000 meters will give us an understanding of what's there and allow us to come back and target effectively some better looking targets after we define these targets. So this is just a deeper dive. You can see here the first hole. It was actually drilled between the 2 main gold anomalies. And the reason being never drill your best hole first, if you have drilling problems, you basically lose the core, you really never want to drill what you think might be your best hole from this. Also with basically targeting some high-grade mineralization and some old working there, we extended it down basically to the tag this gold in soil anomaly. What are we looking for? Again, whole one, not in the main gold in soil anomaly, yet if we get a couple of hundred meters of 0.3 grams gold there, I'll be ecstatic because what that tells us is the main high-grade trends in the anomalies are looking similar to Cangrejos. And really, if we get anything at the end of this hole, it's about what do we get at the top half of this follow-through and then circled where basically hole, you can see holes 4 and 5 with the 2 where we're going to drill in either direction -- or sorry, hole 3 and 4, and then hole basically 6 will be drilled to the north there further down. Now these holes are not optimally cited. I would really like to drill them from underneath the anomaly back up across. But unfortunately, we've got access issues. So again be prepared here too, that these next 3 holes may just tag the top of these anomalies, and we know we'll have to come back and drill vertical holes. We're still not sure what the orientation of this system is. We think it's sub-vertical intrusive breccia that's a couple of hundred meters wide, at least 1 kilometer long, but we may drill sort of over the top of this. So it a fact-finding mission. But we should have results from this first hole at about 4 weeks now. And then you look at what we're drilling in Colorado V here. This is, again, the sort of same gold in soil anomalies. You can see the historical drilling 84 meters at 0.5 just off the end. You can see the adit there in black and white checks where we channel sampled that adit land. I think it was about average of 0.6%. And again, not optimally sited. Our holes that we're planning in blue, they should start in Colorado V early in the new year. There's some access issues there as well. So we're going to have to drill from the top of the anomaly, which is the top of a big hill out. That's quite a steep hill. It also looks a whole lot steeper than it is when you've had to go and drink scotch with the Chinese to get a farming deal done, not pleasant when you fall down that hill. But basically, we may have to go and drill a vertical hole there as well. And then Anomaly B, we can actually get in there and drill that thing from the [ IP ], which will give us a better feel for what's there. And then I dig it up some, basically, are we drilling this IP anomaly, yes, we are. So hole 6 will be the first hole we put in here, which basically will get a little bit deeper under the historical holes. We've got 100 meters at 0.6 grams gold, 0.5 gram, 0.6 copper, 0.5 copper, 0.5 gold. And then we planned another hole contingent upon results. But I'd be surprised if we don't drill up at least 2 holes into this first IP anomaly. And then we've got 24C where we haven't planned a hole at the moment, but condition upon results of what we get in hole 6 and a follow-up hole we probably drill a hole in there as well. So those who are waiting for that look out for hole 6, that hole is now [indiscernible] in ready to be drilled as soon as we finish hole 3 and 4. Just to wrap up, this is a photo basically showing Cerro Norte. Looking north, you can see the Sanchez Fault bed. And what I'm trying to show on this photo is the mineralization doesn't finishes with Sanchez Fault. You've got that same trend of the Hualilan Hills going another 4K or 5K north, you can trace it all the way up. So there's no reason the mineralization finishes at the Sanchez Fault. And as I said earlier, with a couple of holes waiting for assays that we've drilled north, we don't think finishes at the Sanchez Fault. So what do you get at Challenger? You basically get [indiscernible] that comes with 9 rigs in Argentina, 3 rigs in Ecuador. We're now comfortable [indiscernible] at large. It's a mine. It's just a matter of how big it is. We're going to put out our first resource based on about 50% of that drilling meters in February. And the reason we're going to do that is we think the market is now undervaluing what we've got. We're feeling a bit vulnerable when we get companies [ swinging ] into your data room. First drilling in El Guayabo, I don't think the market gives us any value for El Guayabo or Ecuador at all. And as you've just seen, we're doing some really nice looking targets. So there's potential there for a near-term upside surprise as well. And then just on strategy, why do the assets work together. And we've had a number of brokers approach us and say, why don't you spin off Ecuador. The real reason we're not going to spin off Ecuador is we're comfortable now, we end up with a mine in Argentina. If you've got a mine doing a couple of hundred thousand ounces or more of low-cost gold and you end up what we hope we discover in Ecuador, which is basically 5 million to 10 million ounces of 0.6 to 0.7 gram gold similar to Cangrejos, then if that stands alone by itself, you don't fund it. But if you're producing a couple of hundred thousand ounces a year of low-cost gold, spending USD 800 million to add another 0.5 million ounces of low-cost gold like Cangrejos, it is not scary, it's doable. And we've really got the asset base in place, with a bit of luck where we can end up almost being an [ ancillary ] producer, which caps at $5 billion, $6 billion, $7 billion compared to the current market cap of $300 million. So thanks. I'll pass over to Jane, and happy to take any questions if there are any.

[Operator Instructions] Kris there's been quite a few about the February results and the numbers that we're expecting out there. Obviously, we cannot able to sort of give the numbers of what we're thinking out. But we have come through with a bit of math that we sort of have announced. So maybe if you want to touch on that.

Yes, sure. Look, firstly, you can't tell people what you don't know yet. What we do say is when we went into this after our $40 million capital raise, what we've said to BlackRock and institutions was -- our view is that every 45,000 to 50,000 meters of drilling is going to get us 1 million ounces [indiscernible], just based on the geometry of the deposit. I've sort of said that publicly, if things were moving away from that, either positively or negatively, more 15%, 20% is material. We have to correct that. I don't feel a need to correct that. So first resource is going to be based on just over 100,000 meters of drilling. 50,000 meters of drilling per million ounces, it's pretty simple math to understand what to expect. And I think really what we're going to do is rather than wait until we finish 200,000 meters, we'll put something halfway now simply because I don't think the market is valuing as to what we've got in the ground and time to correct that. And also, I think, hopefully, there's a decent high-grade component, which surprises on the upside as well.

Another one popped up. So given the large strike extent, do you envision mining essentially being a series of complete long strike, targeting each of the zones or one massive open pit?

Yes. So I think it starts as a high-grade starter pit around Sentazon and Cerro Norte, trading the 5 to 6-gram skarn material for the first couple of years. Then it expands into one big long open pit basically from the Sanchez Fault all the way down to Sentazon, more so than a series of pits. And then there will also be an underground component, some of those deeper higher-grade results in Sentazon and Magnata will end up coming out underground. So you probably more -- there's 1 million tonnes per annum at 5 to 6 grams gold for the first 3 years, 6 million to 7 million tonnes per annum predominantly out of the big open pit, maybe 300,000 or 400,000 ounces of high-grade underground fleet as well. But it's predominantly open pit.

[ Nothing ] popped up just now. [indiscernible] a few that have come through just on the political situation in Argentina. Not sure if you touched on that as well.

Yes. So look, they've had their elections. The incumbents one, the incumbents [ Peronist ], definitely pro-mining which is a positive. I mean having said that, mining is enacted at provincial level in Argentina, which is why half of Argentina's gold mines are in San Juan. It will remain [indiscernible] next door, you never get a mine up. And the Governor also won with a pretty big majority in San Juan. So look, the political situation is quite stable. It's working in our favor because basically, we're doing what's called the blue chip swap where we're paying for things in pesos, converting our U.S. dollars by that which is swap and getting better than official rates. I mean I'm more than comfortable in Argentina. And once we're at the point where we sign a mining agreement with the government probably 2 years out, that locks in the fiscal terms for the life of the mine. So yes, in my view, it is one of the best places in the world to work.

Thank you. Another one. So would any delay to the interim [ MRE ] be considered [indiscernible] come back?

No. Look, I think basically, we've said we're going to get out the resource in February. I think we can do that. Yes, look, it's probably not going to include much of the old component. It is not going to include those couple of holes that I have shown at some -- likely extension of Verde. It's probably not going to include that deeper holes at Sentazon. And I think read that as, really -- we'd probably likely [indiscernible] enough to call it an interim deal resource, but really that's what it is. We're not going to do a scoping study based on whatever the first resource is because I expect that whatever that first resource is, we're going to at least double it from there.

Wonderful. That's actually we've got time for today, Kris. We've gone slightly over. But thank you all for joining us today, and thank you. So if we've missed any of your questions, please feel free to reach out by the contact details on the bottom of our ASX releases. We look forward to update you in the coming weeks.

All right. Thanks very much, Jane. And anyone got any more questions, please feel free to pop me in an e-mail.

Thank you. Goodbye.