Having access to cash is one of the most important tasks for the CEO of any junior exploration company. Without generating any sort of revenue, one is at the mercy of the financial markets to keep the treasury at an acceptable level. When there’s no cash available, a company can’t drill. And when you don’t drill you also won’t have any assay results you can use to market your next raise. This results in a deathly spiral.

So, access to capital is important. And Tocvan Ventures (TOC.V) recently secured an interesting deal with a UK -based institutional investor which will supply cash inflow for the next two years. As the deal is rather unorthodox, we had a chat with CEO Brodie Sutherland to make sure we fully understood all the details.

The incoming cash will be useful to keep the exploration programs in Mexico going.

Tocvan has been busy at Pilar

Tocvan’s primary asset clearly is the flagship project of the company. The most recently completed phase of the extensive drill campaign consisted of seven holes and the assay results from all seven holes still have to be released.

This is following up a successful drill campaign that returned encouraging results from Pilar’s Main Zone where diamond drilling retuned 117 meters of 1.2 g/t Au and 109 meters of 0.8 g/t Au in drill holes 125 meters apart.

The most recent drill holes (currently at the lab) were predominantly focusing on the 4T Extension and Expansion zones as these were new discoveries. The initial drill program that was carried out was mainly designed to figure out if these zones warrant additional work. As you can see on the image below, the seven holes were drilled in different areas and cover a relatively large surface area. An eighth hole that was originally planned ended up not being drilled but will likely be included in the next drill program.

Now Tocvan Ventures is cashed up again, the company plans to start up its drill campaign again around mid-September. Starting right away would perhaps not be the best idea as we have heard reports from other exploration companies in certain areas of Sonora the weather has been abysmal and drill crews had to look for shelter during thunderstorms, thereby greatly reducing the efficiency of a drill program.

So, mid-September it is, and we should see the assay results from the seven holes that are at the lab before the commencement of the next phase of the drill program.

While it will be interesting to see what the 4-T EXP, 4-T EXT and New Trend (hopefully all areas will be renamed if the drill bit confirms the validity of the targets as they sound more like 1-800 phone numbers than anything else), let’s not forget about the validation of the Main Zone in the previous drill programs. We think the drill density on the Main Trend is already sufficient for a resource calculation but Tocvan obviously wants to drill out some other areas to make sure its maiden resource at Pilar meets a certain size to be taken serious.

Pilar Drilling Team

Based on the currently available drill data, we estimate the Main Trend to be approximately 400 by 125 by 80 meters resulting in approximately 10-10.5 million tonnes. If we would assume an average gold grade of 0.5-0.6 g/t, the Main Trend likely already hosts 160,000-200,000 ounces of gold. Clearly not enough to even think about a mine plan as the required critical mass to develop a new mine is larger than that. Half a million ounces (across all zones) seems to be the minimum.

Another important element that needs to be considered before even wondering if an exploration project could be economically viable is the metallurgy. It’s great to have a few hundred thousand ounces of gold in the ground, but what’s the point if you cannot recover them at a profit?

Tocvan has completed an initial metallurgical test program. It actually used the local lab of Minera Castor, a nearby heap leach gold mine which (although not widely advertised) shares a technical team that also did quite a bit of work on Agnico Eagle Mining’s (AEM, AEM.TO) La India mine. Despite these credentials we should keep in mind the lab is uncertified and additional verification in a certified lab is ongoing.

Four samples (with a head grade ranging from 0.4 g/t gold to 5 g/t gold) were submitted to the Mexican lab and the gold recovery rate ranged from 88.9% to 96.9%. That’s very good.

Achieving a recovery rate of in excess of 85% for all four samples is an excellent result and although we realize a column leach test will always yield better results than recovering gold in a heap leach scenario there are three elements here that could explain the relatively high recovery rate.

First of all, when looking back at the 2021 bottle roll tests conducted by SGS, the recovery rate of this year’s program doesn’t even appear to be extraordinary high. The average recovery rate in the bottle roll tests was 90.6% and 91.6% for a sample with a head grade of 0.63 g/t gold and 1.15 g/t gold respectively. So although these column leach tests have a higher average recovery rate, the increase definitely isn’t spectacular.

Secondly, it is possible the samples have a relatively high amount of cracks which would increase the surface area subject to the leach solution and thus directly increasing the leach area. And finally, the Mexican lab used a rapid drip approach rather than using a consistent drip which is usually applied in column leach tests.

While it is quite uncommon for a North American exploration company to use the lab of a nearby mine, it’s important to know that SGS, one of the world’s leading data verification firms, has reviewed the data and according to CEO Sutherland, there was ‘nothing fundamentally wrong’. Additional tests are now conducted at the certified SGS labs to double-check the head grade and tail grade of the samples that were used for analysis.

What about El Picacho?

When we met up with CEO Brodie Sutherland in Calgary earlier this summer, he seemed to be pretty excited about the Picacho project where Tocvan is gearing up for an initial drill program. As a reminder, the project s located about 1.5 hours north of Sonora’s capital, Hermosillo, and is quite close to the San Francisco gold mine currently operated by Magna Gold (MGR.V) although investors may remember San Francisco as the flagship asset once owned by Timmins Gold.

While the San Francisco mine is a large heap leach project with an average gold grade of just over half a gram per tonne of rock, the El Picacho project is dominated by orogenic gold occurrences. Previous operators have taken and analyzed in excess of 2,500 samples with almost 200 of these samples returning an average gold grade of in excess of 1 g/t and 32 samples returning grades exceeding 10 g/t gold. El Picacho currently consists of twelve mining concessions for a total area of just over 2,400 hectares.

Fortunately the company did not have to start its exploration efforts from scratch as Tocvan has access to historical exploration results (including in excess of 6,000 samples divided in 60% soil samples and 40% rock samples) and the assay results from those historical sampling programs (which include an underground drift) will be a tremendous help to define and refine drill targets on the land package. El Picacho is fully permitted for drilling and trenching so the company can get to work whenever it wants to.

There are several distinct areas of interest at El Picacho with San Ramon, Cornea, Jabali, El Puerto and Tortuga being the main ones.

El Picacho – Five Advanced Target Areas

At San Ramon, previous exploration efforts have confirmed the existence of a 1.4 kilometer long prospective trend with several historical workings. A previous operator drilled two holes in the San Ramon zone, both encountering gold with for instance 7.6 meters of 0.73 g/t gold and 10.7 meters containing 0.67 g/t gold. These holes were never followed up on and it could be interesting for Tocvan to get into the field and follow up on these holes.

At the Cornea zone, the company has identified several historical mine workings reaching depths of up to 30 meters along the 2.3 kilometer long prospective trend and finding these historical mine workings all over the place (all five high-priority areas of the project are hosting historical workings to some extent) clearly indicate Tocvan is looking for gold in the right place. It will now be up to the company’s geologists to further work on a ‘plan of action’ by connecting the dots and to drill-test some of the high-confidence targets.

The past few quarters, Tocvan has been busy gathering the data from additional sampling programs and we should see a release on these sampling results soon. CEO Sutherland was adamant the El Picacho property will be drilled this year as he hopes to complete about 1,500 meters of drilling. This will initially consist of lower-cost RC drilling to check if the mineralization continues. And if warranted, we can expect a diamond drill program next year as Tocvan will need diamond drilling to get a better understanding of the mineralized structures.

The recent financing deal needs some additional explanation

At the end of June, Tocvan had a working capital position of approximately C$400,000. The company has been successful in raising a few hundred thousand dollars in several capital raises in the past few quarters but if it wanted to embark on a more substantial drill program, more cash was needed. Tocvan signed an agreement with Sorbie Bornholm, a UK based fund which agreed to fund the company on an ongoing basis in what is rather an unorthodox financing agreement.

Tocvan’s raise was announced as a ‘C$5.125M raise’. That’s just the theoretical amount as the financing agreement will allow for the company to issue a fixed amount of shares on a monthly basis but the share price will determine how much cash will actually be coming in. Allow us to explain the details.

The deal is structured as a unit and convertible loan financing. The unit financing consists of 3.2 million units with one full warrant attached. Each warrant has an exercise price of C$1.20 and a three year term. The second portion of the financing consists of 2,501 convertible loan notes with a face value of C$1,000 each with a pro forma 1% interest rate. Each note is convertible in 1,220 common shares and 1,220 warrants exercisable for three years. The warrants will be 50/50 split between a C$1.30 and C$1.40 exercise price.

Sounds complicated. But it gets even slightly more complicated before we can simplify it. Tocvan and the private equity group have entered into a sharing agreement and escrow agreement. This will allow the company to gradually ‘feed’ the promised shares and warrants to the buyer over a 24 month period. What’s interesting here is that if (or when, for the optimists) Tocvan’s share price exceeds C$1.10 per share, it will see a massive monetary benefit. On the other hand, as the total amount of shares what will be issued on a monthly basis are fixed, Tocvan will see less cash flowing in when its share price is low.

This table is an important one to understand.

Let’s have a look at transaction 6 for instance. The applicable share amount under the sharing agreement is 182,806 shares. That’s what matters. If the share price in six months from now would be 80 cents (a 20 day VWAP will be used to determine the actual conversion), the company will receive 182,806 * C$0.80 = C$146,000 for that month. That’s substantially less than the in excess of C$200,000 you see in the final column and that’s because this financing is entirely in function of the share price.

And this scheme works in both ways. If the share price would be trading at C$2, Tocvan would receive 182,806 * C$2.00 = C$365,000 in cash which is much higher than the budgeted C$201,000 for the month.

So the financing really depends on the share price but with the advantage the total amount of shares to be issued on a monthly basis is fixed. Even if Tocvan would be trading at 20 cents, the maximum amount of shares to be issued during that month would still be just 182,806 for proceeds of just over C$36,000.

We had a long talk with CEO Sutherland about this and he was indicating there could be ‘some’ flexibility from Sorbie-Bornholm in case the market circumstances are dramatically different and depending on the company’s cash needs. But that’s only in a worst case scenario; for now we will just assume all parties will honor all commitments as stipulated in the agreement. But it for sure is good to know this is not one of the typical ‘vulture’ agreements like the normal ‘standby equity issues’. Sutherland seemed to indicate he was very happy to work with Sorbie-Bornholm and there seems to be a good understanding of creating a win-win situation (with for instance Sorbie giving Tocvan some time to come up with potential buyers in case it wants to sell a block of shares).

And the structure of this deal explains why we put the ‘C$5.125M’ between quotation marks. The total amount of cash raised fully depends on the share price and the likelihood of that amount being exactly C$5.125M is very close to zero as the share price of Tocvan will continue to fluctuate throughout the next two months.


The next few months will be busy for Tocvan. We can expect assay results from a seven hole drill program at Pilar while we are also looking forward to see a fresh batch of assay results from a sampling program on the El Picacho project.

The recently announced financing agreement is perhaps a little bit ‘exotic’ but it makes sense as Tocvan will receive a relatively steady amount of cash inflow over the next 24 months but the incoming cash will vary depending on the share price, as we explained.

With the financial backing of Sorbie Bornholm secured, Tocvan can now fully focus on its exploration programs and we should see a drill program completed on both El Picacho and Pilar before the end of this year.

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Disclosure: The author has a long position in Tocvan Ventures. Tocvan Ventures is a sponsor of the website.

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