Southern Gold Ltd (ASX:SAU) is building a strong South Korean exploration position and is drill testing its targets, many generated over the past two years of fieldwork.
After switching focus from Western Australia to South Korea, the gold explorer is now busy drilling and maximising the chances of making a world-class gold deposit discovery.
It has also secured significant funding, largely from ‘technically astute’ institutional investors looking at the long-term prospects of the company.
Earlier stage of exploration
Southern Gold principally operates an exploration business focused on its 100%-owned projects in South Korea, which largely comprise a portfolio of epithermal gold-silver projects.
Several of these targets are high-quality exploration projects, where high-grade gold and silver mineralisation have been demonstrated on surface and subsequently in scout drilling and these encouraging projects will see second and third stage deeper diamond drilling.
The company divested its assets in Australia, including the Cannon Gold Mine which was on care and maintenance, to Aurenne Group Holdings Ltd for $2.5 million in August 2019.
The company continues to build a high-quality portfolio of epithermal gold-silver targets in the South-West district of South Korea, with the addition of several new projects such as Daeam Valley, Geum-Mar and Jangwhal.
This project generation work is ongoing and is expected to add tenements to existing projects and extend targets to new areas of interest in due course.
In addition, much of the financial year has progressed projects to the diamond drilling stage.
Drilling productivity, measured by the number of drill metres per day, has increased significantly and drill core recovery has greatly improved.
Drill programs have been completed at Beopseongpo (Hand of Faith, Golden Palm, Spider Zone, Lotus North), Aphae and Deokon (Shin Adit and Bonanza Zone) projects.
➢ Weolyu Gold-Silver Project: With high-grade shoots being defined, the next phase will see diamond drilling depth extensions and looking for additional veins in the footwall and hanging-wall of the Moonlight and Surprise Veins. The diamond drilling started targeting the ‘Moonlight-Surprise’ trend, with the first hole completed to 340.6 metres.
➢ Deokon Gold-Silver Project: Significant potential remains along strike and the Thorn Zone remains untested. 105.29 metres of diamond drilling was completed at Shin Hill, with peak assay results of 0.57 metres at 2.56 g/t gold and 453 g/t silver from 101.71 metres.
➢ Aphae Gold Project: Drilling has intersected both mineralised breccia, with relatively wide low grade intersections and narrow very high-grade quartz-sulphide veins. This drilling has demonstrated that the mineralised fluids that have penetrated the structure at Aphae are gold and silver endowed.
➢ Dokcheon Project: Regulatory approvals were received for its scout drilling program which is set to kick off in the coming quarter.
➢ Janghwal Project: Historical mining adit discovered with a grab sample returning 6.7 g/t gold.
➢ Beopseongpo Gold Project: While initial drilling results at the Hand of Faith target confirmed an epithermal system, geochemistry and the low levels of gold and silver grades intersected at Golden Palm, Lotus North, Spider Zone and Hand of Faith have downgraded the project. One or two vein targets have not been tested but these are now deemed lower priority.
Well-funded for 2021-22
Following a series of capital raising exercises in the year, SAU is now well-funded and well-positioned to complete significant discovery drilling in 2021-2022.
It completed an interim $2 million rights issue earlier in the financial year, followed by another $4 million to cover its activities in 2020.
There was subsequently $10.2 million raised post financial year end in an institutional placement, which saw it secure the backing of several institutional investors, including:
➢Crescat Capital LLC, a Denver-based resources investment group with a strong gold investment thematic, that is also advised by Quinton Hennigh, technical director of Irving Resources Inc (CNSX:IRV) (OTCMKTS: IRVRF) (FRA:1IR), a Canadian-listed group actively exploring in Japan.
Deal with Ausino Drilling Services
Southern Gold has also signed a legal agreement with Ausino Drilling Services Pty Ltd.
Describing the deal as a ‘drilling for equity’, it will grant 10 million performance rights to Ausino, subject to shareholder approval, which will vest on the delivery of services.
Ausino’s invoices will be paid 75% in cash and 25% in vesting performance rights, on the basis that each performance right has a deemed value of US$0.11 per share.
The maximum value of the performance rights is US$1.1 million of a total of US$4.4 million of delivered services over a term of four years.
This arrangement removes the significant uncertainties in corporate arrangements in South Korea and provides momentum to the provision of high-quality drilling services over the coming years, as well as reduce the cash cost of drilling.
The financial year saw the appointment of two new non‑executive directors – Douglas Kirwin and Michael McNeilly.
In early 2020, Kirwin joined the board after acting in an advisory capacity to the company, signalling the closer engagement in the company’s progress and stronger advocation of its strategy in South Korea.
Metal Tiger’s chief executive officer McNeilly was appointed following the completion of significant investment by Metal Tiger in the company in early 2020.
Gubong and Kochang JV for sale
Southern Gold has become a non‑proceeding joint venturer in its two projects Gubong and Kochang in South Korea.
It is effectively offering its 50% interest for sale or corporate restructure, with joint-venture partner Bluebird Merchant Ventures PLC (LON:BMV), having the first opportunity to make an offer for the assets.
The sale of the joint-venture is in progress, with a price to be determined by an independent expert and the sale is expected to conclude in early 2021.
Modest impact from COVID-19
The COVID-19 pandemic had a modest impact on its business.
Expatriate geological staff continued to support field operations remotely using digital technology and some adjustments to sample freight destinations were made to ensure tighter turnaround time on analytical results.
Chairman Greg Boulton and managing director Simon Mitchell said: “Most importantly our staff and contractors have not had any direct impacts or illness and the company has managed to steer the business into a drill-intensive phase and maintain exploration momentum.”