Welcome back, everyone. Next, we have Cerrado Gold Inc. It trades on the TSXV under the symbol CERT and on the OTCQX under the symbol CRDOF. It is a Toronto-based gold production development and exploration company, and we are happy to welcome the Vice President of Investor Relations, Mike McAllister. Welcome to the conference, Mike. We are looking forward to hearing your presentation.
Thanks, Anna, and thank you, everyone, for taking the time to attend. Cerrado is an interesting story. We are not your typical junior. We are not an exploration story. We are actually in production at our Minera Don Nicolás mine in Argentina. We also have two projects that are in development and well advanced, including the Lagoa Salgada project, which is located in Portugal. It is a VMS deposit. It has precious metals, as well as copper, zinc, and some tin. Finally, we have our Mont Sorcier project, which is in Quebec, and that is going to produce high-grade iron ore, which trades at a premium to the market. But right now we are producing gold at our Minera Don Nicolás project in Argentina.
I like to drive this point through as we go through the presentation, that our goal here is to continue to grow the company, driving substantial cash flow as we expand and grow. At the same time, we do not want to dilute or want to have very limited dilution of the project as we move forward. I will be making some forward-looking statements. I seek safe harbor. So where we are today, Cerrado Gold is a steady-state gold producer. We acquired this project in 2020, and we acquired it from white good manufacturers in Argentina that were trying to import U.S. dollars. They really did not understand the project. They spent about $200 million to build this project, and were never able to get it running properly. We acquired it for about $55 million.
We ramped production up right away from where they had it at about 16,000 ounces a year, up to 40,000 the first year, and then into that 50,000-55,000 range up until last year. This year, we are bringing in some underground material that is higher grade material, and so that is allowing us to increase our production this year. So we are guiding 50,000-60,000 ounces, and as indicated on our last quarterly results call, we feel that we are likely going to be at the upper end of that production guidance. Going forward, with the exploration program that we are doing and the underground material, we think we will be able to ramp up production past that 60,000-ounce mark next year and towards that 100,000-ounce mark in the coming years.
What we are doing here is at this project, for the first half of the year, we produced about 28,000 ounces. In the second quarter, that was 15,000 on a run rate that is 60,000 ounces a year. However, the second half of the year is expected to be stronger than the first half as more of the material comes in from the underground. We are quite excited about that. This mine is cash flowing north of CAD 100 million a year. At the PEA study, which was done at $2,100 gold, it cash flowed CAD 50 million a year, free cash flow of CAD 25 million. Obviously, that is going to be much higher at today's metal prices, considering we have removed our streams, we have removed all the hedges, so we are essentially working at spot prices now.
One of the things that is happening here is the mine life is on the shorter side. It was less than three years now. What we have done is this year we focused significantly on an exploration program. We are drilling 50,000 m on surface on several targets to provide higher grade material to the CIL plant. We also have gone underground, as I mentioned earlier, below Paloma, and while we have started mining the initial 20,000 or 30,000 ounces that we have there, that is not why we went underground because we know this ore body is open at depth. We are doing 20,000 m to open that up and to bring in those higher-grade ounces into the ore body or to our resource. Then finally, we acquired a property close to us called Falcón.
That project had about 250,000, 300,000 ounces on it, but at more of a historical nature. So we are drilling another 5,000 m there to bring that into our current mine plan. All of this drilling is going to accumulate into an updated preliminary economic assessment, which will have an updated resource, and that is expected in the first quarter. We will drill to the end of the year. We have four drills that we own and are very productive, and as I mentioned, we will drill that to the end of the year, and then we will accumulate all those results into an updated PEA, which is expected to demonstrate an extended mine life and higher-grade material for the operations going forward. As I mentioned, we also have two other operations that are undervalued but yet well advanced. We have the Lagoa Salgada project.
That previously had a feasibility study, but we are updating that feasibility study, and that should come out later this year. The upgraded feasibility study has had a lot of work done on the metallurgy, and on the process and the flow, as well as we will be using higher metal prices, because the original one, I think we used $1,700 gold. We do expect to see improved economics on that. Right now, we are going to be submitting our environmental and our construction or our RECAPE permits in the beginning of December.
The government has about 120 days to come back to us. We are saying the end of the second quarter, just to give some time in there because things can always be delayed. But by the mid-year next year, we should have our permits in place, and by this time next year, we expect things are going well.
We should be in a position to be breaking ground on this project and starting this towards construction. That would be an 18-month construction period. Then longer term, as I mentioned, we have the Mont Sorcier project, which is located in Quebec, Canada. We are advancing that to a feasibility study, which is underway right now. We're actually doing a little bit more drilling and some trade-off studies and work on that. So we do expect that to come out in the first half of next year. Around the same time, we'll start our permitting on the project. What we're looking for at this project is when it's in full production, 8 million tons of production per year. We have the ability to produce a 67% iron ore concentrate.
Looking at iron ore prices, 62 is your base level, 65 is a premium, 67 is even better. So we would probably see about a 30% premium over the base level iron ore prices. So this project would be very profitable producing direct reduction iron, which is suitable for the green steel transition, as it can go directly into an electric arc furnace. So a very desired product in the marketplace. Then finally, we are well-funded to development. We had about CAD 25 million in the bank at the end of the June quarter. We also recently had a CAD 10 million private placement from Eric Sprott. We had bought back the Sprott royalties and he still wanted to be involved, and he saw value in the project. So he put in CAD 10 million at market value, and he got a half warrant for that.
That's priced about CAD 1.50 above the share price at the time. So he believes in the project, and he wants to be involved still with us. So we still see strong cash flow from production, which is going to continue to improve our cash position and our balance sheet. We're well-funded to bring these projects to production without any further dilution to the market. As you can see here, this is done at lower metal prices in this case of the project, I don't know if you can see my mouse, but the MDN project, again, that was done at $2,100 gold. Lagoa Salgada was done at $1,700 gold.
But even at these much lower metal prices, you can see here the value creation that's happening in the next five years, going from EBITDA of CAD 44 million, again, this is at much lower metal prices, to when we bring in the project in Lagoa in Portugal, which will bring us up to over CAD 100 million of cash flow a year. Then when we bring in the project in Quebec, that's going to have significant cash flow from that project. That would bring us to almost CAD 500 million of cash flow. Again, this was at previous metal prices. Looking just at the project in Argentina, the EBITDA on that obviously is going to be north of CAD 100 million. So, there's obviously a lot more growth. We'll be updating this chart as the updated technical studies come in with updated metal pricing.
To simplify this whole project, looking at it, we are going from a current 55,000 ounces approximate production, adding another 50,000 when Lagoa Salgada comes in, and then when the project in Quebec comes in on a gold-equivalent, very rudimentary comparison. You can just see the growth here. We are going from something that is 55,000 ounces up to something that is over 300,000 ounces of gold-equivalent production. So there is a significant value creation curve here happening in the next couple of years. Again, you can see here the stable production growth that we have had. We acquired the project in 2020. We ramped up production right away. We have been running at that 50,000 to 55,000 ounce level. We started with open pit. We started adding some heap leach, and then now we have gone into the underground. So it is a combination of all three of those.
Between what we are bringing in through the extended life of mine, improved production, and other projects such as Falcón, we believe that we can get to that 100,000 ounce level in the coming years. There is still a lot of value proposition here between our brownfield growth, the project growth we have at our existing operations, and the other two projects we have. We have been doing this for a long time. We have a very strong onsite leadership. We have a lean structure, so we operate very efficiently. We have a lot of capital allocation discipline in terms of funding our growth, repaying our debt, and our capital return to investors. You can see here, this is our capital structure. The price is off a little bit. Gold price has come down a little bit in the last few days.
We are somewhat affected by that, but still, we have a very good year. We started the year below CAD 1. We have hit a high of CAD 2.83, so we have seen some significant growth in the share price. We believe there is still an ability to grow that price further, and I will talk about those drivers coming up. In terms of our share count, we have 142 million shares outstanding. We do have a few warrants. Those are for Mr. Sprott, and they are at about 360, I think. We do have a few options and RSUs for employee compensation that are vested over time. Fully diluted, we have just under 160 million shares. Again, average volume is about a half a million shares trading a day. The market cap of the company on a Canadian basis is about CAD 364 million.
We do have about CAD 25 million in the bank. We have additional funding still owing to us from pending option on a land package in the very south part of our Argentina property, as well as a previous sale of a Brazilian asset. So we have about another CAD 15 million coming into the coffers. Looking at our analyst coverage, we do have three different groups covering us, an average price of about CAD 3.80 Canadian. In terms of ownership, management has just under 10%. Institutions have about 23%, including Sprott and OC Investments & Management out of California. Free float is still very strong at about 68% for the company. Again, we have spent more than CAD 40 million on this project in terms of drilling, in terms of expanding heap leach, completing feasibility studies. So a lot of work has gone into these projects.
As I mentioned, at Minera Don Nicolás, we're updating the feasibility study, or, sorry, the PEA, and we'll be looking to put that out in the first quarter next year. We're targeting a five to six-year mine life, as well as extended production next year. Lagoa, we're finishing the feasibility study. We'll complete our permits. We'll have ourself into construction, if everything goes well, around this time next year. That would with the original study, CAD 75 million of cash flow. With today's metal prices, that would probably be closer to CAD 100+ of free cash flow a year. Finally, Mont Sorcier, again, we're finishing the bankable feasibility study in the first half of next year. We'll complete our environmental and construction permitting. That takes about two years, and we should be in construction there in the first quarter of 2029, coming into production in the first quarter of 2031.
You can see that that project brings a significant amount of free cash flow into the coffers for the company and for the shareholders. Taking a closer look at our projects. This is the Don Nicolás project in Argentina in a very prolific mining district called the Deseado Massif, which is in Southern Argentina near Patagonia. We have some very good neighbors. The blue area is our concessions. Around us, you have Pan American's Cerro Moro project, which is just to the east of us. To the south of us, you have Cerro Vanguardia, which is owned by AngloGold. Off to the west of us, you have Newmont's Cerro Negro and Hochschild and McEwen's San José project. So, very prolific area. A lot of gold produced in this area in the last 20 years.
However, we believe that this is still a relatively junior mining camp, and there's still a lot of opportunity and growth still to come from this region. As I mentioned, our mine life is a little bit shorter than our peers. However, we acquired this mine in 2020. We went into several years of COVID where we weren't allowed to drill. We could have hardly anybody on site. However, we've come out of that now. Gold prices come up, and we've put our money behind our mouths, and we're actually really drilling on this project. As I mentioned, about 75,000 m between the surface, the underground, and the Falcón property. Looking at our neighbors, though, you look at Cerro Vanguardia, they started drilling in the late 1990s, which is AngloGold. They had about 1 million ounces.
They started with open pit, they then added in heap leach, and then went underground and saw their resource grow up to over 6 million ounces in about 20 years' time. Newmont started with about 600,000 ounces. They grew that to about 6 million from underground, then going to open pit, and now they're starting some heap leach. But they grew that in a shorter timeframe, albeit they did have an acquisition of Goldcorp Inc. during that time to help speed up the growth of the resource. Pan American started with about 6 million. They're up to about 1.7 million. This is not one of Pan American's key assets, so they're not putting as much attention on this. But the overall picture here shows you that drilling is what is needed in this area, and that's where we're at right now. We own four of our drills.
We have three diamond drills, as well as an RC drill. We are drilling on this property. We will continue to drill over the coming years as we own these drills. Am I saying that we are going to have 6 million ounces and be as big as these guys? No, but I am also not saying that we are not going to be that big. We just need time to drill. I think the drilling program this year, when we bring it out in the first quarter, will demonstrate our ability to continue to expand and to grow this mine life, and potentially grow as large as our neighbors. Again, this is a spoke and hub operation. The mill is located in the middle here. Up to the north, you have Paloma, which is our underground.
It was a previous open pit, and we are mining below that open pit now. Calandrias is our heap leach operation, which is providing steady state operation and gold ounces. We get about 45,000 ounces a year from there. The remainder is coming from the underground and some open pit targets. We expect, again, as I mentioned, our production to grow. This year, we should hit close to 60,000 ounces, and next year, we do expect to grow beyond that and, as I said, towards 100,000 ounces in the coming years.
Calandrias, again, you can see the heap leach operation happening here. We get about 45,000 ounces a year. We also are getting production from the underground, and we are doing significant drilling in the underground. It is hard to see in this image, but there is a white hashed area, which was the original open pit. It is not that big.
It was designed at $1,700 gold. It would have been much bigger if it was designed at today's gold prices. However, as you can see, everything is open at depth and a long strike from there. We have three portals in the bottom of the open pit we are mining from, and we are also setting up drill platforms below ground to mine that off and to do 20,000 m of drilling, which should provide further extension to the mine life and further high-grade ounces to put through the mill. We are doing a significant exploration program across the property. We have a 10-km stretch where we have multiple properties that we are focusing on right now. Currently, we are drilling at Sulfuro, Baritina, and Falcón on the surface. We are doing 50,000 m, as I mentioned, 20,000 m below ground.
We want to bring in a higher grade feed for the CIL and as well to extend the mine life. Those results will all be part of a PEA coming out in the first quarter of next year. Just to mention again, this is the Falcón acquisition. With this acquisition, although it is historical resources, this would bring us back to a five-year mine life with the ounces that we have here. Beyond that, however, we cannot officially say that yet until we drill it off, bring it into our own resources, it is historical, and produce that PEA report in the first quarter. Once that happens, we will be able to state the longer mine life. However, this is part of an area we believe there are several concessions around our upper north part of our property. Calandrias is where we have our heap leach.
It's just to the northeast of us is Falcón. Most of the resources occur in this Marcia concession. However, there's seven different concessions here, and we'll be drilling on those. We believe there's further upside on this property to bring this an increased resource, as well as several other properties in the area that we've been acquiring. We only paid CAD 2 million for this acquisition and a 2% royalty on that area. Moving over to Portugal, we have the Lagoa Salgada project, which is located on the Iberian Pyrite Belt, which is a prolific VMS system that scans between Portugal and Spain. We're located on the Portugal side. The project is located in excellent infrastructure. We're about an hour and a half south from Lisbon. We run right beside the state highway, the state rail lines. We're about 45 minutes to a port to ship our concentrates.
You can see there's a copper smelter just on the other side of the border in Spain. So very great infrastructure for the project. We're moving this forward. We actually are submitting our environmental as well as our RECAPE, or construction permits, at the end of December. We do expect to have that by the end of the second quarter, and by this time next year, be in construction on this project. We have over 20 million tons of resource, and we only drilled 40,000 m to get that. It's a very prolific area with a lot of opportunity for expansion and to grow this much larger. Looking at the metals production, this is based on the previous feasibility, which had an NPV of CAD 147 million and a 39% IRR.
We do expect those economics to improve significantly with the work that we've done on the metallurgy and on the restructuring and resequencing of the mine. Even then, it's still a good project. You can see the metal breakdown. Zinc is the highest individual metal, but we still get 40% precious metals production out of this project, as well as some copper and tin, which are all critical minerals and doing very well in pricing. If you look at the cost curve there, you can see for our first five years, we're at $0.59 a pound for zinc equivalent, $0.79 for the life of the mine. Zinc has been trading in recent times closer to $2. So we will see very good margins on this project. Again, as I mentioned, there's a lot of opportunity to expand this project.
We have two ore bodies, the north and the south. We know through some deep-penetrating radar and seismic surveys, we have another ore body below us, which we believe is a copper-rich area. The area that we're all working on, it's hard to see in this lower map, but it's about a 1-km area that we've worked on, and we have an 8-km trend on the property. So similar to Sandfire and Lundin, these mines have been around for 20+ years. They started with one or two clusters, and they've continued to expand along strike and at depth. There's no reason that we can't do the same. It's just going to take drilling and time, but there's significant opportunity to see this project grow over time and become much larger than what the initial production capacity would be.
Finally, we have our Mont Sorcier project in Quebec. Here, again, it is located about 500 mi north of Montreal. It is up near James Bay. One of the things that is great about this project is all the infrastructure we need is pretty much in place. We would need to build a 25-km rail spur from the mine to the town of Chibougamau, which is where the rail head is. From there is 370 km of rail, which is owned by CN, which is a national carrier, which we would have capacity to. It is only running at about 30% capacity. That would take us to the Port of Saguenay, which is a deepwater port where we could load the product onto ships. The government has just spent about $200 million revamping that port, and they do not have many customers yet.
It is in development, and so we have already secured our access there. Again, we like this project. Quebec has great infrastructure. You have low-cost hydropower. We have deepwater port access. We are finishing our feasibility study on this project, which will be out in the first half of the year. We do expect to start our permitting, which would be about two years, looking at construction, breaking ground in 2029. We had completed a PEA on this project, looking at 5 million tons per annum of 65% copper, and that had an NPV of $1.6 billion, an IRR of 43%, payback of less than two years. What we are going to be looking at now is 8 million tons, initial 4 million, a couple of years later, 4 million added on again, to keep the cost down.
We will be producing a high-purity green steel direct reduction iron at 67%, which will also have very low silica and aluminum, which will command about a 30% premium over the market rates. The original cash flow on this would have been about $350 million. Free cash flow would have been $235 million. That is for a 21-year mine life using only about a third of the resource. So it is this huge resource. This could be a much longer, much bigger project. So we will continue developing to grow this.
However, the updated feasibility study should offer a significant insight into what this project could be, and so I would very much be excited and look forward to that. Again, this just shows you that if we have over 1.3 billion tons of resource, it is a 21-year mine life, and that is only using one-third of the total resource.
This could end up, if we stayed at the same production rate, potentially go up to 50 years, or we have the opportunity to expand beyond that 8 million tons. Again, a very long life, big project that will continue to provide funding for a long time. Cash balance, again, is CAD 25 million. Free cash flow, first half of the year, has been CAD 57 million. We should be north of CAD 100 million in terms of EBITDA this year. We do have additional cash coming into the coffers. So we do not expect to have to go to the market. We are well-financed. We are working with the UKEF, United Kingdom Export Credit Agency, as well as Banco Santander in Portugal, TD Bank here in Toronto to finance and fund these other projects moving forward, as well we will have our own equity stake to put in this.
We believe we can advance these projects without any further dilution to shareholders. We are a growing gold producer in Argentina, potentially looking at other opportunities as we see them. We have two excellent projects that are under development and well advanced and coming to production, the one in the very near future and one in a couple of years. Again, very exciting opportunity, and we think that there's a significant opportunity for further growth as we continue to advance the project. With that concludes my presentation. I'll turn it over to Anna to open it up for questions from any shareholders.
Wonderful. Thank you, Mike. Yes, let's jump into some questions. As these assets mature, does it make sense for all three to remain inside one public company, or could shareholders ultimately realize more value through a sale, partnership, spinout, or other transaction?
Yeah, sure. First and foremost, we want to have cash flow. All of them will provide substantial cash flow, which would benefit shareholders inside the current company. However, we're not married to these projects. They're all good projects. We like them because they have a lot of growth. But at the right time, if somebody wanted to take one of them off our hands for the right price, we're not going to hold back. If they're willing to pay the right price for it, we would look at that. Even with the R&R project, we want to finish the feasibility study on that and see where we lie. Does that end up going to a joint venture? Does that get spun out? It's a possibility. I can't give you a firm answer right now.
We need to evaluate that once we have the feasibility study completed.
What is the most realistic path? A negotiated permitting solution with the government, prevailing through the courts, or redesigning portions of the project?
Yeah. Their biggest issue, we did get a turndown on our first permits. They are saying it was related to water. We have done further water studies, which we are submitting. We have had multiple negotiations with the state, with various levels of government. From what we are seeing, the project is being very much supported at this stage. In terms of APA, that is being combined with the Ministry of Forestry. We have had meetings with the officials from that. They want to see this project built. We are quite excited that we should see better success.
One of the things they are allowing us to do is to submit our environmental and our construction permit concurrently, versus one after the other to save time, given the previous issue that we had. We are very optimistic that we should see these permits come by the end of the second quarter next year.
You are evaluating whether producing 65% iron concentrate could actually generate better economics than producing 67% because the additional premium for 67% may not compensate, is that correct?
Yeah. One of the things we are looking at in trade-offs right now in terms of the feasibility study for Mont Sorcier, as announced in a press release, is the market ready to pay for 67%, or will we just at 65%, where the market seems to want to pay right now? The trade-off is that if we do not concentrate to 67%, we would save a lot on construction costs in terms of crushing equipment and various other things that would have to be done to get it to 67%. Could it go to 67% later if the market is ready to pay for it? Sure. But right now we are looking at whether it makes sense to stay at 65% until the market hits that demand for that 67%. That is one of the trade-off studies that is happening right now as part of the feasibility study.
How do you determine the point where maximizing margin becomes more important than maximizing product grade?
That's what the trade-off study is going to do. It's going to see, is it worth it to maximize the margin, or is it worth it to not have the margin and have the lower grade? That's the whole point of the trade-off study. I'll have a better answer for you with the feasibility study results.
At Mont Sorcier, you've delayed the feasibility study because you've identified opportunities to reduce the strip ratio and simplify the flow sheet. Which of those optimizations has the potential to move project NPV or IRR the most?
The one area that we're doing some additional drilling on has a higher grade. It's got lower strip ratio. We're doing a drill program on that right now, which should conclude around November, which will be included in the feasibility study. That also has a much lower sulfur rate, so that could potentially delay the inclusion of a sulfur flotation circuit. There's a definite opportunity with that area that's being drilled to see an increased NPV on the project.
Perfect. Well, Mike, thank you so much for your time and presentation today, and please come back with some more positive updates.
Great. Thanks so much, Anna. Thanks, everyone.