Sonoro Chairman’s Letter (Aug 2020)

Dear Shareholders,

The recent closing of Sonoro’s $8 million financing was a major milestone for our Company, made possible, in part, by the support of the Merchant Bank, Palisades Goldcorp, as our lead investor.  In response to the exceptional demand, we were able to increase the size of the financing from an initial $5 million to $8 million.  The consequent share dilution from the extra $3 million, definitely weighed heavily in our decision.  After much discussion regarding the year’s funding requirements, our executive team concluded that the most prudent path was to increase the size of the private placement.  In doing so, Sonoro is not only able to fund its Cerro Caliche Phase I exploration program to test for the presence of high-grade gold mineralization deeper in the epithermal system, but also to continue drilling to better define the near-surface oxide gold mineralization with the goal of assembling results that will support a NI 43-101 compliant preliminary economic assessment regarding our proposed Heap Leach Pilot Operation (HLPO).

This two-track approach: immediately commence drilling deeper targets having good potential for high-grade mineralization, while simultaneously further the exploration of near-surface targets with the potential to support our HLPO, is calibrated to balance the apparent risks of high impact brownfield exploration with a comparatively less risky HLPO development which, if successful, would generate cash flow, reducing the need to raise equity capital in the future.

We’ve all heard the advice that the best place to find a gold mine is near another gold mine.  Our drill program will test targets that are within a regional epithermal system interpreted to supply gold-bearing fluids which have enriched eight historic artisanal mine workings and one active mine.  These historic mine sites are within a 3km by 4km area at Cerro Caliche, where our drilling program will be targeting potential high-grade mineralization. The area has multiple vein systems with high-grade chip and channel samples ranging from 3 to 95 grams gold per ton.

The operating mine – Premier Gold’s (TSX:PG) Mercedes Mine – is an underground mine approximately 9 km southeast of Cerro Caliche.  Prior to 2005, what is now the Mercedes Mine was the location of an abandoned 19th century mine.  That year an exploration hole 15 meters deeper than the historic mine workings intercepted 21 meters averaging 28 grams per tonne gold[1].  Average mine-mill grades at the Mercedes range between 2.49 and 6 grams per tonne gold, with up to 100 grams per tonne silver.[2]

While certainly offering no guarantee that we will be successful, Cerro Caliche’s geologic similarities to the Mercedes Mine site certainly have informed our exploration plans.  As indicated above, the Mercedes Mine is also an epithermal deposit. It consists of several high-grade gold veins deep within the epithermal system’s ideal boiling zone.  This boiling zone is called ‘ideal’ because the conditions, including the gold carrying fluid’s temperature, chemistry and pressure, were just right for the deposition of gold in high concentrations.  In contrast, until now all the drilling at the Cerro Caliche has been shallow, testing the near-surface gold mineralization which exists above the ideal boiling zone, much shallower depths than the Mercedes high-grade gold veins.

The near-surface gold mineralization, which was our previous focus, is contained within hundreds of small veins and veinlets spread over a wide area.  These gold-containing veins and veinlets are dispersed within mostly barren host rock which effectively lowers the overall gold grade.  The low sulfidation epithermal model suggests that one or two deeper high-grade veins are likely to have acted as a conduit for the gold, as it came to the surface to be deposited in the smaller near-surface veins.  Our drill program is designed to test the Cerro Caliche’s ideal boiling zone for the occurrence of deeper high-grade gold mineralization, the existence of which is strongly suggested by the model.  Our Phase 1 drilling program commenced on August 16 and will consist of 6,000 meters of core drilling to test an initial 20 potential Mercedes-style targets.

Sonoro’s Phase I high-grade exploration drilling campaign has the potential to be a game-changer for the Company. In the meantime, we will also continue the work necessary to establish the viability of the comparatively lower risk proposed HLPO, which, by utilizing our local Mexican expertise and equipment is designed to avoid much of the potential disruption caused by the COVID-19 pandemic.  As noted above, a key benefit of the successful execution of our proposed HLPO is that it has the potential to substantially reduce or eliminate the need for future equity financings.

It really is the best of both worlds:  Our proposed HLPO, if successful, has the potential to generate revenues from an already defined inferred resource consisting of 200,000 ounces of gold[3], helping to fund future exploration and possible development of the known near-surface gold mineralization.  The associated exploration drilling, totaling approximately 50,000 meters, planned for 2020-21, will target both infill exploration in zones that were previously drilled, as well as a large number of holes to test undrilled portions of the various mineralized trends along strike and at depth.  It is designed to test exploration targets that our modelling suggests could host between 75,000,000 to 100,000,000 tonnes with grades potentially between 0.3 g/t to 0.5. g/t AuEqR.[4]

It is important to keep in mind that these potential tonnages and grades set forth in the analysis of geological potential are conceptual in nature, as there has been insufficient exploration to define a mineral resource and it is uncertain if further exploration will result in the target being delineated as a mineral resource.  Potential estimates are separate from the inferred mineral resources referenced below.  For a more complete understanding I recommend that you review the more detailed information regarding this new exploration target which is contained in our Cerro Caliche Project Development Report, May 25, 2020, available on the Company’s website.

At the same time, and more immediately, if we are successful in our exploration drilling of Cerro Caliche’s deeper high-grade targets, we believe that we will add considerable additional value to the Cerro Caliche Project.  I must, however, emphasize that, while it is potentially a very high impact drilling campaign, at the same time it is a relatively higher risk strategy; despite all of the positive geological evidence, success is by no means assured.

In my decades of being associated with the development of mines globally, I am happy to observe that we have achieved what I consider an ideal balance of risk and reward.  An additional component is our work directed at expanding and upgrading the already identified shallow gold resources

During the past 21 months that I have been Chairman, we have, in reality, developed a trifecta of potential share price catalysts with varying risk levels, time periods and potential share price impacts.

In closing, I would like to thank you for your support and continued confidence in Sonoro Metals.  I would also like to thank our management, especially Ken MacLeod, our President and CEO, Mel Herdrick, our VP of Exploration and Jorge Diaz, our VP of Operations and the rest of our team for their unrelenting focus and dedication.

With the $8 million financing completed, the stage is set for the coming months to be both exciting and exceptionally rewarding for management and our shareholders and I look forward to giving you the news of our progress as it occurs.

 

Sincerely,
John M. Darch
Chairman, Sonoro Metals Corp.


 

 

 

Forward‐Looking Statement Cautions: This shareholder information letter contains certain “forward‐looking statements” within the meaning of Canadian securities legislation, relating to, among  other  things, a contemplated Phase III drilling program (including metres to be drilled, program budget and anticipated results), identifying and contracting with a China-based EPC company to support the building and operation of a proposed heap leach pilot operation (HLPO), and to provide the Company with debt financing on favourable terms, the suitability of the Cerro Caliche Project to support a viable and profitable HLPO, and the Company’s plans to minimize shareholder dilution through debt financing and the near-term establishment of profitable mining operations. Although the Company believes that such statements are reasonable based on current circumstances, it can give no assurance that such expectations will prove to be correct. Forward‐looking statements are statements that are not historical facts; they  are  generally,  but  not  always,  identified  by  the words “expects,” “plans,” “intends,” “anticipates,” “believes,” “intends,” “estimates,” “projects,” “aims,” “potential,” “goal,” “objective,” “prospective,” and similar expressions, or that events or conditions “will,” “would,” “may,” “can,” “could” or “should” occur, or are those statements, which, by their nature, refer to future events.

The Company cautions that forward‐looking statements are based on the beliefs, estimates and opinions of the Company’s management on the date the statements are made, and they involve a number of risks and uncertainties, including the possibility that further exploration of the Cerro Caliche Project will not yield the results necessary to support the development of a HLPO or mine, the Company will not be able to reach acceptable terms on any agreements with a China‐based EPC firm, the Company will not be able to secure the financing necessary to fund its proposed Cerro Caliche HLPO, or its other exploration and  development plans, and unanticipated changes in the legal, regulatory and permitting requirements for the Company’s  exploration programs for its projects, at  present, all of  which  are  located  in  Mexico, will hinder or block the Company’s business plans.

There can be no assurance that such statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on any such forward‐looking statements. The Company disclaims any intention or obligation to update or revise any forward‐looking statements, whether as a result of new information, future events or otherwise, except as required by law or the policies of the TSX Venture Exchange. Readers are urged to review the Company’s complete public formal disclosure record on SEDAR at www.sedar.com.

THIS LETTER DOES NOT CONSTITUTE AN OFFER TO SELL, OR THE SOLICITATION OF AN OFFER TO BUY, NOR SHALL THERE BE ANY SALE OF SECURITIES OF THE COMPANY IN ANY JURISDICTION IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH JURISDICTION.

 

[1] The Mercedes Au-Ag District, Sonora, Mexico: Geology, Geochemistry and Structure of a Sierra Madre Low-sulfidation Epithermal System; a thesis submitted in partial fulfillment of the requirements for a Master of Science degree in Geology, by Geoffrey K. Burtner Dr. Tommy B. Thompson/Thesis Advisor December, 2013 (pages 2, 36)

[2] Premier Gold Mines Limited – Mercedes Mine, Project # 2907 Technical Report NI 43-101 – April 18, 2018 (page 8); and Premier Gold Mines News Release March 5, 2020 announcing year end results.

[3] NI 43-101 Technical Report on the Cerro Caliche Property, July 26, 2019, Strickland, D., Sim, R.C. prepared for Sonoro Metals

[4] Assuming AuEqR = (Au g/t × 0.72) + (Ag g/t × 0.01133 × 0.30)

Gold: $1,949.90 /OZ
Silver: $26.87 /OZ

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