Here’s why Far East Capital thinks the market has overlooked Challenger Gold

• Far East Capital says Challenger Gold has been overlooked by the market
• EBITDA from proposed toll treatment plan of US$70-80m higher than current market capitalisation of ~$70.2m
• Room for further improvement as the high grade toll treatment scenario materialises

Special Report: While gold prices have been trading over the US$2600/oz mark, Far East Capital believes Argentine developer Challenger Gold has been overlooked despite boasting attractive assets.

Far East Capital executive chairman and renowned mining expert Warwick Grigor said the gold small cap had not been fully embraced by the market despite its apparent value.

Challenger Gold (ASX:CEL) recently reached a toll treatment agreement for its wholly-owned Hualilan project in Argentina and raised $6.6m through a private placement backed by Argentine business titan Eduardo Elzstain priced at 4.5c, which will also lead to a Canadian listing before the end of this year.

While the toll treatment agreement is subject to agreements, approvals and preliminary matters such as due diligence, metallurgical work and pit designs, the company believes that these will be settled by the end of November, enabling gold production to start in mid-2025.

CEL has identified four low strip high-grade starter pits that give a potential mining inventory of 478,000 tonnes at 5.8g/t gold.

This consists mostly of oxide, skarn ore with waste:ore ratios of less than 4:1 while making up just 3% of the total Hualilan resource of 2.8Moz gold.

Early work suggests gold recoveries of 83-84% using gravity and cyanide leaching and a 106 µm grind size.

The treatment rate will be 150,000tpa, generating EBITDA of US$70-80m on a US$2300/oz gold price over a three-year period.

Further development

Based on a scoping study that looks beyond the toll treatment plan, CEL expects to treat the primary ore through a 1.5Mtpa flotation circuit to process open pit feed of 12.5Mt at 2.3g/t gold equivalent and underground feed of 3.3Mt at 3g/t gold, 14.7g/t silver and 1.7% zinc.

Gold production from the flotation circuit is expected to be 110-120,000ozpa, while the heap leach for low grade ore could contribute another 35,000ozpa based on a 65% recovery rate.

All-up capital costs are estimated to be around US$300m, including mining fleet and underground development, though not all of this will be required up front.

The $80m for the heap leach won’t be needed until years 2-3, and the underground development capital will be required progressively over the life of the mine.

Research take

Grigor believes CEL is not expensive at these levels, noting that the high-grade toll treatment agreement alone more than accounts for its current market capitalisation of circa $70.2m.

He added that proceeds from toll treatment will make a good contribution to the capex for the larger scale development though additional funding of +/-$100m will be required when the time comes to push the button.

The company has flagged that this will come from a mix of traditional project debt and royalty funding.

The research firm believes that CEL might have been overlooked due to the perceived complexity of the larger development and the funding required, as well as the Hualilan project’s location in Argentina.

However, the latter is looking much better from a geopolitical standpoint due to the mining friendly approach under the government of new president Javier Milei.

Shares in the company had fallen from 9c in April to a low of 4c in August despite the strong performance of gold prices.

While the price has recovered since, Grigor believes there is room for further improvement as the high grade scenario materialises.

“It is difficult to see anything but upside from these levels, particularly if the gold price keeps rising,” Grigor added.

This article was developed in collaboration with Challenger Gold, a Stockhead advertiser at the time of publishing.

This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.