Atna Resources' pipeline puts it in position to soar
When James Hesketh became president and CEO of Atna Resources in 2009, the company had plenty of promise but no gold production. Today, Atna has two producing mines—Briggs in California and Pinson in Nevada, with excellent prospects for expansion. Yet Atna shares can be had for only a dime. In this interview with The Gold Report, Hesketh explains how he intends to bring his company up to 100,000 ounces a year using primarily internal cash flow and how a rising gold price would reward investors with multiples.
The Gold Report: You have declared your goals as "developing positive cash flow from operations" and "growing Atna Resources Ltd. (ATN:TSX) into a low-cost, mid-tier gold producer." What steps have you taken to achieve these goals since you became president and CEO six years ago?
James Hesketh: Atna and Canyon Resources merged in 2008. The new company had several development assets, including the Briggs gold mine in California, the Pinson gold mine in Nevada, the Reward project in Nevada and the Columbia project in Montana. But we had no production. Our first step was to put Briggs into production, which we accomplished in 2009 with our first gold pour occurring in May. Since then, we've produced about 160,000 ounces (160 Koz) of gold from Briggs.
"Pinson is an underground mine producing high-grade ore on the order of about 13–15 g/t."
We then had to negotiate with Barrick Gold Corp. (ABX:TSX; ABX:NYSE) to consolidate our ownership in Pinson, which we accomplished in 2011. Development commenced in 2012. Unfortunately, the price of gold collapsed in 2013 and forced us to put off the start-up of operations until 2014. Today, Pinson is increasing its production rate as an underground mine.
We now have gold production from two mines in two different U.S. states, which is a strong step toward achieving our long stated goals.
TGR: Tell us about the other members of your management team and the strengths they bring to Atna.
JH: Rod Gloss, our CFO, has spent his career in the mining industry and is key to managing our finances and raising funds. Bill Stanley, our Vice President of Exploration, manages our geological efforts at Pinson as we continue to expand operations there, and he's been instrumental in discovering and expanding gold resources at all our sites. His background includes a number of years with Homestake Mining at the McLaughlin mine, as well as with Cyprus Amax and other companies.
"With Briggs, Pinson and Columbia, we have a good pipeline of development opportunities."
My fantastic board of five members consists of former CEOs and directors of numerous other companies. They are all mining engineers, geologists and financiers and boast a world of experience. We have a very strong and deep team, including the general managers at our mine sites and our 160 employees. I am currently acting as Atna's COO, but we are recruiting someone to fill that position.
TGR: How much gold is Atna producing now and at what cost per ounce?
JH: This year we're projecting 25–30 Koz from Briggs at an all-in sustaining cost (AISC) of about $1,050 per ounce ($1,050/oz). Briggs is ramping down, while Pinson is ramping up. We're projecting 25–30 Koz this year from Pinson at about the same AISC as Briggs.
We anticipate production costs at Pinson to fall as production increases. This year at Briggs we're targeting significant inventory recovery from the leach pads, and that will help lower production costs there as well.
TGR: What are your plans for Pinson and Briggs?
JH: Pinson is an underground mine producing high-grade ore on the order of 0.5 ounce per ton or about 13 to 15 grams per tonne (13–15 g/t). Adjacent to the Pinson mine, we have an open-pit resource: almost 1 million ounces gold at about 1.5 g/t. We published a prefeasibility study for this project in 2014 and demonstrated that it is quite viable at a gold price of $1,200/oz. So our next project will likely be development of a Pinson open pit. Half the project is on private property, and the other half on is on public property. Permitting of the public half will take longer, so for now we're targeting permitting the private half.
"When the new, bullish gold cycle begins, the companies with the most development ready properties will be the winners."
Briggs has about 500 Koz of resource remaining. But there are also four satellite deposits in close proximity to the mine. The key one is Cecil R, which is about five miles from the mine. According to our NI 43-101 resource study, it contains about 73 Koz Measured and Indicated and 100 Koz Inferred resource, which will make a good open-pit project.
TGR: Are you working to integrate Cecil R into Briggs?
JH: We've done preliminary economic assessment-level studies on putting a heap-leach facility at Cecil R but processing the solution at Briggs. There are quite a few synergies—a common office, a common warehouse, gold plant, refiner, etc.—which will reduce the cost of building the Cecil R project.
TGR: Would that require additional permitting?
JH: Yes, California requires standalone permitting.
TGR: What can you tell us about your Columbia project in Montana?
JH: This is an epithermal vein system, high-grade, about 4 g/t. The resource is 742 Koz Measured and Indicated and 454 Koz Inferred. We are not allowed to use cyanide in Montana, but the ore is quite amenable to recovery through gravity and floatation. According to our 2010 preliminary economic assessment, Columbia is strongly viable. We need to do some additional work and get it into the permitting stage.
With Briggs, Pinson and Columbia, we have a good pipeline of development opportunities.
TGR: Late last year you sold your Reward and Clover properties for $10 million ($10M). Why?
JH: We have a lot of properties, and it was time to shore up our balance sheet in order to grow. The low gold price has made it tough for everyone. The sale allowed us to pay down debt and provided the wherewithal to ramp up the Pinson underground mine. Overall, we made a profit on the sale, which is accretive to our shareholders.
TGR: In May, Atna released assay results from Pinson's underground Ogee and Otto zones. How successful were these results, and what are your plans for future drilling at Pinson?
JH: The assays included 26.1 g/t over 12.2 meters (12.2m) and 29.8 g/t over 15.2m at Ogee and 13.5 g/t over 12.2m at Otto. We're continuously drilling Pinson for production, fill-in and step-out. The goal is to convert resources to reserves. The mine has about a four-year reserve life with a resource that's capable of supporting it for a period in excess of 10 years. We've got 48 different high-grade, underground zones identified at Pinson, and we will continue to target the conversion of resource to reserve.
TGR: Will the new discoveries at Pinson raise the overall grade?
JH: These new discoveries are actually average grade for the mine. We're currently mining between 0.4 and 0.5 ounces per ton. That's 12–15 g/t. We're shipping ore directly to Newmont Mining Corp.'s (NMC:TSX; NEM:NYSE) Twin Creeks facilities. Newmont is buying our ore for processing in its autoclave circuit. The cutoff grade must be high enough to support this relatively high cost recovery process.
TGR: Would you prefer to own your own mill at Pinson?
JH: No. Our arrangement with Newmont is quite reasonable. We achieve by autoclave processing about 94–95% gold recovery, which is quite good. The higher the head grade, the more Newmont pays us, on a sliding scale of 71–78% of recovered gold. If you look at the average mining operation, the cost of processing is usually 30–40% of total cost. The cost of building the plant is usually 50% or better of total capital. By selling to Newmont, we avoid having to raise what would probably be $100M to build our own mill. Certainly, in today's capital-constrained environment, this is the most sensible route to take.
TGR: Can we expect a new resource estimate for Pinson?
JH: We'll be publishing resource estimates on a pretty regular annual basis. This is a producing mine, so we don't need to rush out revised resource estimates every time we drill new holes.
TGR: What's the current state of the Pinson open-pit permitting?
JH: We're collecting data for that. We are missing certain rock characterization data, humidity tests and things like that. We must determine the degradation characteristics on our ore and waste for environmental purposes. Many of those tests take six to nine months to complete.
TGR: When do you anticipate beginning open-pit production at Pinson?
JH: That will be determined by the gold market and the availability of financing. It's probably a couple of years down the road yet before we see a real pop in the gold price that will drive new production.
TGR: Are you committed to Atna hanging on to its properties outside Briggs and Pinson?
JH: Yes. When the new, bullish gold cycle begins, the companies with the most development ready properties will be the winners.
TGR: How much cash flow will you generate in 2015?
JH: We anticipate $10–20M. Most will come in the second half of the year as our production increases and costs are reduced. We're currently selling about $4–5M of gold monthly, and we're using that cash to reduce our $19M debt as fast as we can. That's Atna's goal for 2015.
As we continue to ramp up at Pinson, this makes our company more attractive to financiers. We'll pay down as much debt as we can from operational cash flow and refinance the remainder.
TGR: So you will avoid going to the equity markets?
JH: The equity markets are not a very healthy funding source today, and our plan is to pay for 100% of our expansion from internally generated cash. Pinson has been a pay-as-you-go project since we recommenced it last summer. It does take additional time to generate free cash with that approach, but we have now reached that milestone.
TGR: Where do you see the price of gold going?
JH: When we look at the 1997–2003 gold market, we see that the price bottomed out in a six-year down cycle. Using that as a blueprint for the future, I see another year of gold at $1,150–1,250/oz before a strong recovery in the second half of 2016.
TGR: How low would gold have to fall before Atna's cash flow was in peril?
JH: We'd be having difficulties at $1,000/oz.
TGR: How would a rising gold price affect Atna?
JH: Each $100/oz increase would result in an additional $5–6M in additional annual free cash flow.
TGR: Despite two producing gold mines and Pinson's highly prospective future, Atna's shares trade at only $0.10. What are you doing to persuade investors of Atna's worth?
JH: The only way we can persuade investors is to continue to deliver performance. We've got everything. We have high grade. We have gold production. And we've got growth opportunities. But without delivery of the free cash flow, the market won't really be convinced. So we are committed to continually increasing our net internally generated cash flow.
TGR: Have you considered a joint venture or a streaming agreement to advance Pinson?
JH: I'm not convinced either of those options would do anything for us. All they would do is take our pie and slice it ever smaller, and that would not be accretive to our shareholders since we are a relatively small company.
TGR: Where do you see Atna in three years?
JH: I see us with an operating open pit at Pinson, a mature, underground mine at Pinson, potential production increases at Briggs and possibly acquiring other properties.
TGR: How well has Atna come out of the four-year bear market?
JH: When I look at my peers in Nevada, half are in CCAA—restructuring. We're not. We are first of all, a survivor, and second, positioned to launch into the next cycle in a strong position.
TGR: Jim, thank you for your time and your insights.
James Hesketh is president, CEO, acting COO and a director of Atna Resources. He has enjoyed a diverse, three-decade-long career in the mining industry in finance, corporate business development, mine operations, mine engineering and consulting with companies including NM Rothschild & Sons (Denver) Inc., Cyprus Amax Minerals Company, Pincock, Allen & Holt, Inc. and Dresser Industries. He was previously president and CEO of Canyon Resources Corp. and holds a Master of Science degree from the Colorado School of Mines.
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Source: Kevin Michael Grace of The Gold Report
1) Kevin Michael Grace conducted this interview for Streetwise Reports LLC, publisher of The Gold Report, The Energy Report and The Life Sciences Report, and provides services to Streetwise Reports as an independent contractor. He owns, or his family owns, shares of the following companies mentioned in this interview: None.
2) Atna Resources Ltd. paid Streetwise Reports to conduct, produce and distribute the interview.
3) James Hesketh had final approval of the content and is wholly responsible for the validity of the statements. Opinions expressed are the opinions of James Hesketh and not of Streetwise Reports or its officers.
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