Goldgroup Mining: Small Gold Production in the US with Large Growth Plans

Key Concepts

Gold Group Mining: A mining company operating in Mexico.
Sierra Prito: Gold Group Mining's currently producing mine in Mexico.
Penos: A fully permitted, former mine in Zacatecas, Mexico, being evaluated for production or sale.
San Francisco Mine: A former large producer, open-pit, heap-leach mine in Sonora, Mexico, acquired by Gold Group Mining through debt purchase.
Heap Leach: A mining process where crushed ore is piled and leached with a chemical solution to extract gold.
Plan of Arrangement: A legal process for corporate restructuring, used by Gold Group Mining to gain full ownership of the San Francisco mine.
Organic Growth: Growth achieved through internal expansion and exploration, rather than acquisitions.
Synergies: The combined effect of two or more companies or projects working together, which is greater than the sum of their individual effects.
Exploration: The process of searching for mineral deposits.
Resources: Quantities of minerals that are estimated to be recoverable from a deposit.
Mine Life: The estimated period of time a mine can operate profitably.
Concession Taxes: Taxes paid to the government for the right to mine in a specific area.
Operating Capital: Funds required to run a mining operation.
Margin: The difference between the selling price of a commodity and its cost of production.
TSX Venture Exchange: A Canadian stock exchange for emerging companies.
OTC QX Board: An over-the-counter market for trading securities in the United States.
Frankfurt Stock Exchange: A stock exchange in Germany.

Company Overview and Current Operations

Gold Group Mining is a mining company with operations in Mexico. The company currently has one mine in production, Sierra Prito, located in Mexico. Significant improvements have been made to this mine, resulting in a doubling of production in recent weeks to over 4,500 tons per day processed through crushing and heap leaching. This increase is attributed to new, high-performing contractors.

Future Projects and Acquisitions

Gold Group Mining has a second project, Penos, which is a fully permitted former mine in Zacatecas, Mexico. The company is currently evaluating whether to put Penos into production or offer it for sale.

A recent and significant development is the acquisition of a majority stake (approximately 53%) of the debt from a bank for the San Francisco mine. This mine, located in Sonora, Mexico, and in close proximity to Sierra Prito, is a former large-scale, open-pit, heap-leach producer that went into receivership around early 2021. Gold Group Mining anticipates achieving full ownership of the San Francisco mine within the next 1 to 2 months through a plan of arrangement, which is currently being submitted for court approval. The company intends to bring the San Francisco mine back into production by mid-next year.

Production Projections and Financials

With the San Francisco mine, Gold Group Mining projects an annual production of around 40,000 ounces of gold. This, combined with the current production from Sierra Prito (expected 25,000 ounces annually) and the potential for an additional 8,000-9,000 ounces from leaching the existing heap leach pad at Sierra Prito, would bring the company's total annual gold production to approximately 60,000-70,000 ounces. If the Penos project is also brought into production, it could add another 10,000-12,000 ounces annually.

The company boasts a strong treasury, with approximately $24 million in cash. They have raised over $35 million in the last five months, indicating a favorable market for accessing capital.

Organic Growth and Exploration

Gold Group Mining is actively engaged in exploration at the Sierra Prito mine. While previous owners did not invest in exploration, current efforts are identifying promising zones and resources. The company anticipates adding resources and potentially extending the mine life of Sierra Prito to 5-8 years or more, contingent on continued drilling and exploration success. Both Sierra Prito and the San Francisco mine are open-pit, heap-leach operations, suggesting low operating costs.

Synergies and Mine Acquisition Rationale

The proximity of the Sierra Prito and San Francisco mines (approximately a 2-hour drive apart) presents significant synergies. The main highway to Hermosillo passes by the San Francisco mine, and Sierra Prito is about 1.5 hours away from this route. The San Francisco mine was shut down due to lower metal prices and undercapitalization. Magna Gold, the previous owner, faced challenges with open-pit pushbacks and the time required for leaching, especially during periods of low metal prices. Gold Group Mining views this as a prime opportunity to increase its production profile and market capitalization.

Risk Mitigation and Project Status

Gold Group Mining considers its projects to be low-risk, with existing outlined resources. The San Francisco mine is estimated to have enough resources for at least a 10-year mine life.

To bring the San Francisco mine back into production, an estimated $7 million is required to settle outstanding government concession taxes and labor issues. An additional $15 million in operating capital is estimated to be needed to cover the period until full production is achieved, accounting for the time lag in gold recovery from leaching.

Profitability and Margins

At current gold prices, the estimated margin for the San Francisco mine is between $1,500 to $2,000 per ounce. With a gold price of approximately $4,000 per ounce and estimated costs around $2,000 per ounce, this results in a substantial profit margin. This profitability is expected to complement the similar cost structure of the Sierra Prito mine.

Community Relations and Permitting

Gold Group Mining has a well-established relationship with the community at the Sierra Prito mine, which has been in operation since 2013. The company notes that the Mexican government has become more favorable to mining since the new president took office, although improvements are still needed. The CEO, who has 30 years of experience in Mexico and was the founder of Luca Mining, expresses confidence in the company's team and its ability to navigate the Mexican mining landscape.

All of Gold Group Mining's projects are fully permitted. Sierra Prito is an established mine with straightforward expansion permits. San Francisco is permitted for production, and Penos is also fully permitted, though it would require approximately $20-25 million in capital costs to build as a small-scale mine. The company is not yet committed to building Penos.

Stock Exchange Listings

Gold Group Mining trades under the ticker GGA on the TSX Venture Exchange. The company is also listed on the OTC QX board in the United States and on the Frankfurt Stock Exchange in Germany, making it accessible to a broader investor base.

Conclusion

Gold Group Mining presents a compelling investment story with a combination of producing assets, strategic acquisitions, and organic growth potential. The company is in production, increasing its output, and has a clear path to significantly expanding its gold production profile through the acquisition and reactivation of the San Francisco mine. With a strong treasury, fully permitted projects, and favorable market conditions for gold, Gold Group Mining is positioned to generate substantial cash flow and value for its shareholders.