Glen Eagle Resources: Toll Milling in Honduras

V.GER, Glen Eagle Resources, gold

In some parts of the world artisanal gold mining is a well-established, but frequently inefficiently run, fact of life. Part of the inefficiency lies in the fact that none of the artisanal mines are big enough to operate modern milling and processing technology. Which can create significant opportunities for companies willing and able to invest in this technology and process the artisanal miners’ ore.

Jean Labrecque, President and CEO of Glen Eagle (V.GER) realized the potential of a toll milling operation when the opportunity to acquire a small, private, Honduran company came his way. The private operator had reached his financial limits without being able to afford modern equipment. Labrecque liked the location in Southern Honduras. “It was safe and it was surrounded by rich deposits.” Labrecque said. “So we bought the whole company.”

In a sense, the “whole company” was a set of relationships with artisanal miners. “The miners bring their rocks in trucks. Biggest truck is maybe ten tons. Even though we’ve asked them to bring the rock loose, the miners put it into 100 pound bags. It is how they keep track of what they are bringing.” said Labrecque, “The minimum grade we will accept is six grams per ton and most of the rock we buy is 10 to 20 grams per ton. The miners usually keep the higher grade, up to 70 grams per ton, and process it themselves.”

“The key thing for Glen Eagle is that we are in the area. Our people know the miners. Our plant manager is the key man. And we have an agent from the area who brings in business.” said Labrecque. “We buy the rock at a set price. We assay the rock first and we pay the miner two weeks after we get the material. The miners know what they are bringing and what they can expect to be paid for it.”

Glen Eagle has built its processing facility carefully. “Right now we are small. We can process 30-35 tons a day. But there are parts on the boat which will let us expand our operation to 100-125 tons a day by next summer.” said Labrecque.
“We’re essentially doing in Honduras what Dynacor Gold Mines (T.DGN) has been doing in Peru for years.” said Labrecque. It is an interesting comparison to make. Dynacor has a new, modern, plant in Chala Peru with an initial processing capacity of 300 tons per day. It enjoys a market cap of $97 million dollars. Glen Eagle is only running 30-35 tons per day through its plant and it is not surprising that its market cap is $11.3 million.

However, making heroic assumptions about the companies having similar business models and enjoying similar margins, when Glen Eagle more than triples its capacity to 100+ tons per day, it is not unreasonable to think its market cap might go to 1/3 of Dynacor’s. It will, after all, have about 1/3 of Dynacor’s milling capacity.

While Labrecque recognizes the comparison he stays away from making those sorts of projections. “We haven’t done any promotion and we won’t until we have something really solid.” he said, “But we’re there now.”

“There” is a press release dated February 1, 2017, Glen Eagle announced that it had achieved a 90% recovery rate from its Honduran mill. This is up 12% year on year and well over the company’s guidance of 80% in its Q1/2016 “Management Discussion & Analysis” quarterly report. The company ascribed this improvement to the deployment of an “atomic absorption spectrometer in the on-site assay lab, which has virtually eliminated the delay in knowing assay values. The procedure also enables the cyanide leach circuit to be adjusted for the character of the incoming material.” This sort of substantial but incremental improvement improves operating margins and sets the company on the road to efficient mill expansion.

Labrecque recognizes that Glen Eagle is entirely dependent on its artisanal miners to bring in their ore. “Sometimes, when our miner have money they relax.” he said diplomatically. So Labrecque is looking at a deposit of around 35,000 tons which Glen Eagle could mine itself.

With the anticipated shift to a 100-125 ton a day capacity, it would be prudent for Glen Eagle to have its own stock of ore to keep the mill running 24/7. Because when the mill is running it produces gold, enough gold that the company had a cash flow of $100,000 in just seven weeks at year’s end 2016. Increasing through put will begin to put glen Eagle in profit from its operations with minimal capital costs going forward.

“That 90% recovery rate was a big milestone for us. We have good control and now we’re making money.” said Labrecque. It would be surprising if the market did not begin to pay attention to this story. The only question is when.

At time of writing Glen Eagle was trading at $0.14 with 77.9 million shares outstanding and a market cap of 11.3 million dollars.

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