Five years ago a private group of Russian businessmen, known as Sibzoloto Partners, acquired the Sergeevskoe gold project in southeastern Siberia, 550 km from Chita, an administrative city near Russia’s border with China and Mongolia.
Sergeevskoe caught their interest largely because the eastern boundary of the project lies just 300 metres west of Klyuchevskoe, a past-producing gold mine. Klyuchevskoe produced 1.5 million oz. gold over its mine life, first under the Irish and the British at the turn of the twentieth century, and later under the Soviets, who took it over in the early 1930s, with mining operations continuing until 2002.
Today the mine is owned is by Sun Gold, a private company run by India’s Khemka family.
The businessmen — led by Sergei Stefanovich — were busy with other projects, and sat on Sergeevskoe for several years before selling 90% of it in early 2017 to Orsu Metals (TSXV: OSU).
Stefanovich, who was invited to join Orsu as managing director and owns 20% of the company, knew Orsu’s executive chairman, Sergey Kurzin, and was confident he could advance the project.
“We have a management team with a proven track record, both geologically and in terms of making money for our shareholders in previous ventures, and this is particularly true of Kurzin,” Stefanovich says. “He made US$4 billion to US$5 billion in previous home runs.”
One of those home runs was selling a company with a chromite project in Kazakhstan to one of Russia’s largest steelmakers — Mechel — for US$1.8 billion. Kurzin also advanced other mining assets in the former Soviet Union, including the Julietta and Kupol gold deposits in Russia, and the Varvarinskoye copper-gold deposit in Kazakhstan.
Orsu director Vladimir Pakhomov is a managing partner of Olympia Capital, an asset management and merchant bank specializing in investment opportunities, primarily in Russia and the Commonwealth of Independent States.
For his part, Stefanovich has spent 16 years in corporate finance, strategy and business development, principally focused on Russia and across the former Soviet Union, including managing a public equity mining fund and serving as director of strategy and mergers and acquisitions for Norilsk Nickel.
Over the last two years, Orsu has invested US$4 million on Sergeevskoe, and last month delivered a pit-constrained resource of 25.09 million inferred tonnes grading 1.47 grams gold per tonne for 1.19 million oz. gold.
“It’s a good number to start, and the plan, of course, would be to see if we can grow it to north of 2.5 million or 3 million oz. over the next two to three years, and uplift the quality, moving it from inferred to measured and indicated,” Stefanovich says in a telephone interview from London.
The pit-constrained resource uses a cut-off grade of 0.5 gram gold per tonne, and the bottom of the pit shell rests at a depth of 200 metres.
The deposit remains open along strike to the west and downdip, and Stefanovich and his team believe the mineralization at Sergeevskoe is likely an extension of the historic mine at Klyuchevskoe.
“We share the border, and we’re talking about the same gold system,” Stefanovich says. “The Klyuchevskoe deposit is 300 metres to the east of us and goes down 600 metres, so why would ours stop?”
Adding spice to the story, Stefanovich says, is that Sun Gold is in the midst of selling a 70% stake in Klyuchevskoe to China National Gold Group, which plans to restart the mine as a large-tonnage open pit, and could acquire Sergeevskoe at some point to add ounces to its operation.
“It’s just a matter of time before they come and speak with us,” Stefanovich says. “But the Chinese are smart guys, and they are never fast to buy things unless they have to, and they don’t like to pay top dollar unless they have to, so I have to make sure our deposit stands on its own two feet.
“By default, the Chinese are a white knight, but that’s not enough. We need to develop this project over the next 18 to 24 months, and then we’ll see how things develop. For now, I’m not betting on the Chinese, but it does present a nice backdrop.”
After completing the resource, Orsu Metals has US$1.5 million left in the bank — enough, he says, to finance a drill program this year of between 3,500 and 4,000 metres. Ideally, however, Orsu would drill 11,000 to 12,000 metres this year and update the resource in the fourth quarter of 2019, or in the first quarter of 2020.
The board has given Stefanovich the green light to raise up to US$1.5 million for the larger drill program, but he is conscious of Orsu’s share price, and prefers to avoid dilution, if possible.
“We’re not stupid, cash is the blood of the business, so I don’t want to starve the company of capital,” he says. But because management owns so much of the company, “we are very much aligned with the success of this thing, and we don’t want to make dilution easy.”
Management and insiders own 35.43% of the company’s issued and outstanding common shares, Sibzoloto partners (excluding management), 14.2%, and Gold Fields (NYSE: GFI), 7.3%.
Either way, Stefanovich says, the company’s exploration costs are low by the industry’s standards.
“We delivered the maiden resource for US$4 million, so our exploration cost per ounce is US$3 to US$4 per oz., and that’s about 50% less than our benchmarks,” he says, adding that the company is run “very, very frugally.”
Orsu is waiting for approval to expand its deforestation permit and expects to restart exploration drilling in June.
“The orebody extends to the west, northwest, and there are some occurrences which we didn’t even touch that may well add significantly to the resource,” he says. “Moreover, grades are creeping up and getting better as we go deeper, so the low-hanging fruit is to go and do deep drilling, and we’ll do that, but we also want to expand the footprint of the deposit.”
The company also plans to do some bulk tests and can do that at a mill 5 km away that is part of the operating Alexandrovskoe gold mine, which was commissioned in September 2013.
“If the ores that belong to us behave nicely, and there’s no reason why they shouldn’t, there could be potential for joint production at their mill,” he says. “It’s good to be sandwiched between two mines — one operating [Alexandrovskoe] and the other soon-to-be-operating [Klyuchevskoe].”
“It would be small-scale,” he says of the potential tonnage Orsu could run through the Alexandrovskoe mill, “but could provide enough cash flow for some purposes, and markets are unpredictable. I won’t want to whittle our shareholders down to nothing, so I must make sure this property can stand on its own two feet.”
To that end, Stefanovich spends 40% of his time away from his home in Moscow, in part to raise the project’s profile, and he is optimistic that Sergeevskoe can make it to the finish line.
“It’s a hard business — it’s not a simple business — and I don’t want to bad-mouth other companies, but many of them are trolling for fish,” he says. “We’ve got the fish, we’ve got it on the hook, it appears to be big, and we think it’s going to get bigger.”
Orsu shares are trading at 27.5¢ in a 52-week range of 17¢ to 34¢. The company has a $10-million market capitalization.