Southern Gold Ltd (ASX:SAU) is targeting epithermal gold-silver systems in the southern part of South Korea.
The area has typical volcanic arc ‘ring of fire’ geology, and yet has received little modern exploration.
The company has secured 12 projects to date, some of which are regarded as world-class exploration targets.
Seven of these projects came from the acquisition of Asiatic Gold in 2016.
A further 5 have been generated by Southern Gold from a long pipeline of more than 100 identified targets. A number of projects are being drilled over the next few months.
Following is an extract from Orior Capital’s research report on Southern Gold:
Exploration portfolio looks cheap: Despite this rapid accumulation of high-quality projects, and the likelihood of further growth in the portfolio, Southern Gold has a current EV of just A$18.0m (~US$12.4m). Two of Southern Gold’s development stage projects, Gubong and Kochang, are held in a 50:50 JV with AIM listed Bluebird Merchant Ventures (BMV.L). Stripping out Bluebird’s current EV of A$13.1m (£7.0m), suggests the markets are valuing the whole of Southern Gold’s exploration portfolio of ten projects at just A$4.9m. This seems cheap given the strong sampling and drilling results to date, the fact there are a number of drill campaigns to be reported over the next several months, and given that the Gubong project is now development approved.
North Asia peers trade at higher valuations: Two companies listed in Canada, Irving Resources (IRN.CN) and Japan Gold (JG.V) are exploring for gold in a similar geological setting in Japan. Japan Gold has a current EV of ~A$34m and Irving Resources has a current EV of ~A$138m. Southern Gold looks relatively cheap compared to these peers.
World-class exploration portfolio: In addition to the two joint-ventured development assets, Southern Gold owns 10 exploration projects located in the southern part of Korea. The highest priority targets are Weolyu, Beopseongpo, Deokon and Neungju. They are all highly prospective epithermal targets that have returned very high-grades in surface rock sampling, and are being drill tested now and into 2020. Each of these has potential for a meaningful discovery. Deokon and Beopseongpo, in particular, are regarded as a world-class exploration targets.
Target rich environment: In terms of geological exploration, Korea represents something of a time warp. The country lies towards the southern end of the Japanese Volcanic Arc and has a geological setting that is highly prospective for gold-silver mineralisation. Despite this, apart from the work of Ivanhoe Mines in the 1990s, very little modern exploration has taken place. This reflects two things. First, the mining industry in Korea was shunned from the 1960s as Korea set about industrialising. Second, an understanding of the various types of epithermal minerals systems has only been developed in the past 25 to 30 years. The geology in Korea is analogous to that in Japan, which hosts several world class mines of various epithermal deposit types. Southern Gold’s Weolyu project has similar geology to the Hishikari mine which has produced 242.2 tonnes of gold and has grades of 30-40 g/t according to Sumitomo Metal Mining.
First mover advantage: Southern Gold has assembled a hugely experienced exploration team. This is led by CEO Simon Mitchell who spent two years as the Managing Director of Korea gold exploration company, Asiatic Gold. Mr Mitchell joined Southern Gold in 2015 and Southern Gold acquired Asiatic Gold in 2016. Craig Panther, one of the consulting geologists, is an epithermal mineralisation specialist and has vast experience in Pacific-rim geology. Doug Kirwin is a technical advisor to Southern Gold. Both Mr Panther and Mr Kirwin were involved in the discovery of the Eunsan gold mine in Korea, as well as Oyu Tolgoi, Mongolia.
More than 100 targets identified, 12 projects secured: These factors, Korea’s excellent yet under-explored geology, and Southern Gold’s first mover advantage, have enabled the company to identify more than 100 targets. So far, management has conducted an initial review of 20 projects and applied for tenure on the 5 most prospective after field verification. With some 80 targets, still to go, and Southern Gold field teams active in the field, there is a very high chance the portfolio will continue to grow. This is not simply a “land grab”. Southern Gold assess a wide range of targets through on-the-ground fieldwork. Only prospects that demonstrate surface or near surface mineralisation and the potential to become a tier-one discovery are applied for. This systematic and rigorous project selection process has enabled the company to build a portfolio of potentially tier-one prospects that are technically and socially de-risked.
Korea is a superb jurisdiction for mining: Korea is an industrial powerhouse boasting the 11th largest economy in the world. It has some of the best infrastructure globally – Deokon was visited by high-speed train and highway – and superb communications. There is a high degree of economic freedom. Korea ranked 5th in the 2018 Ease of Doing Business Index (Australia was 18th), and 29th in the 2019 Index of Economic Freedoms (Australia 5th). Korea’s mining law is straightforward and transparent. There are no mining royalties, no government free carry, and no licence fees or security bonds. A number of government subsidies are available for mining activities. So far, Southern Gold’s engagement with the various Korean government entities has been excellent. As an example of how efficient things can be, the company announced the discovery of the Golden Surprise zone at Deokon in July 2019, and drilling was approved in October 2019.
Significant share price catalysts: Over the next few months, Southern Gold’s share price is likely to be driven by exploration outcomes, further developments at the joint venture projects, and by a greater understanding amongst investors of the opportunity that Korea presents. Specific catalysts include reporting of the first drilling of a major new vein system at Beopseongpo (4Q19), first modern drill testing of the high-grade Deokon project (4Q19), drilling for maiden resource at Weolyu (2H20), the drill testing of earlier stage projects including Aphae and Neungju in 1H20, further development progress of now-approved Gubong JV project, and the expected approval of the Kochang JV project.
There is a Korean proverb, 개천에서 용 난다, “gaecheon eseo yong nanda”, which means “a dragon rises from a small stream”. In ancient myths, dragons rise from the depths of the ocean, not from small streams. The saying refers to people that have risen from humble beginnings to achieve great things. With a portfolio of world-class exploration projects, any of which could be ‘company makers’, Southern Gold may be just such a dragon.