Contact Gold – Big Plans. But Will Need Cash Soon to Deliver Growth (Transcript)

A screenshot of the popular 'Gold Miner' game.

Interview with Matthew Lennox-King, President and CEO of Contact Gold Corp. (TSX-V:C)

Contact Gold Corp. is a TSX-listed gold exploration company focussed on making district scale gold discoveries in Nevada. Contact Gold Corp. has extensive land holdings, predominantly on the renowned Carlin Trend, in addition to the Independence and Northern Nevada Rift gold trends, all of which host a ubiquity of gold mines and deposits. Contact Gold claims these areas offer ‘world-class’ access to gold. Contact Gold’s holdings are 217km2 in size. Projects range from early- to-advanced-exploration, and resource definition stage. Contact Gold Corp. is “100% focussed on Nevada and high-grade oxide gold” all at surface.

Contact Gold Corp. started the year with a share price of CAD$0.37. The market performance throughout the year has been poor, falling almost constantly (despite slight rallies in June and August) to just CAD$0.17 today. In such a good year for gold, Explorers and Developers have failed to capture this upside or indeed the imagination of prospective investors or existing shareholders. Contact Gold Corp. has a market cap of CAD$14M.

Lennox-King attended the 121 conference in an attempt to “raise the awareness profile of the company;” after all, Contact Gold Corp. has only been around for 2 years and lacks exposure in Europe. Contact Gold Corp. is at a very early stage in its development cycle. Contact Gold Corp. is looking to capitalise on a “looming lack of supply” in the gold market presumably from mid to large caps looking to building their inferred category.

Lennox-King states the company currently sits on CAD$1.2M, and has capital from institutional investors to push the project forward for the next year. Shareholders will be hoping for some kind of return soon as Contact Gold Corp. builds its knowledge of what it has. Lennox-King states Contact Gold’s USPs are the strength of its assets and the excellence of its team. The assets have a +2km of strike length with multi g/t gold at the surface. Their plan is a tried and tested formula.

There is nothing revolutionary about Contact Gold Corp.; the extensively experienced management team stands out a little from the abundance of gold juniors in Canada and internationally, but there needs to be more before investors can get excited. Lennox-King pushes the favourability and stability of the mining constituency (Nevada) along with particularly prospective geology as a further reason to believe. There is however an exciting fact about Contact Gold. In terms of remuneration, company directors receive zero cash remuneration and instead receive DSUs. This keeps more capital in the company. Management draws a salary, but Lennox-King claims to have effectively paid his own wage, as he put over CAD$1M of his own capital into the company in 2017. Lennox-King has a “way to go” before he gets close to getting his million dollars back. It’s a similar story for the remainder of the management team.

What did you make of Matthew Lennox-King? Is Contact Gold Corp. any different to other juniors? Are you a fan of the remuneration strategy? Comment below, and we may just ask your questions in the near future.

We discuss:

  • UK Investors Interested in Contact Gold
  • Company Overview
  • Business Plan and What They’re Aiming to Achieve: What Have They Been Doing for the Past Two Years?
  • Cash Position: Burn Rate, How Much They Want to Raise, and How Will They Use it?
  • What Makes Contact Gold Different From the Rest? What’s Their Future Like?
  • Team Remuneration
  • Working with the Board Members: How do They Work Together?

CLICK HERE to watch the full interview.

Matthew Gordon: Welcome to Crux Investor, we’re here today with Matthew Lennox King, he is the CEO of Contact Gold. How are you, Matthew?

Matthew Lennox-King: Very well, thank you. How are you?

Matthew Gordon: Two Matthew’s in the room. It’s dangerous. Right, so you’re here for the 121 conference in London. What are you hoping to achieve?

Matthew Lennox-King: Essentially increase the awareness profile of the company. So, we’re still a relatively new business. We have been around for two years. And while we have marketed somewhat in Europe, we’re still relatively unknown. It’s really for the profile.

Matthew Gordon: Have you got investors over here?

Matthew Lennox-King: We do. We do. Rougher, so they’re one of the funds here in the city. They own about 10% of the company.

Matthew Gordon: Very good. And how did that come about?

Matthew Lennox-King: So, I’ve known John Wang, the PM there for quite a long time. And really, he’s followed the team. He’s followed some of the things that we’ve done in the past. And essentially was looking for more Nevada, gold exposure.

Matthew Gordon: Ok. So, he’s back in the jockey. So, why don’t we kick off with a one-minute summary for people new to the story and we’ll take it from there.

Matthew Lennox-King: Sure thing. So, as I just said, Contact is a relatively new company. We were founded in the middle of 2017 based on a relatively large deal with a big mining focused private equity group out of Toronto. So, we brought the team and the capital, they brought the asset. They remain our 38% backer and we’re 100% focused on Nevada and high-grade oxide gold essentially at surface.

Matthew Gordon: Right. OK. So, you’ve been at it two years. What have you managed to achieve?

Matthew Lennox-King: We have managed to make some very high-quality oxide gold discoveries. We’ve been able to consolidate a land position in excess of 100 square kilometres right in the heart of Nevada’s Carlin Trend, to call it ground zero for gold exploration and production in Nevada. We’ve been able to really round out our shareholder base to where we have a number of both private equity and traditional buyside institutions backing us for the longer-term venture.

Matthew Gordon: OK. So, give an understanding of what your plan is. What’s the business plan here? How are you going to deliver it? Because two years, $10MIL market cap. I want to know what’s going to make this thing start moving, start ticking.

Matthew Lennox-King: Absolutely. So really, when we look at the exploration space, when we look at the gold business, we see a looming lack of supply. We see a lack of high-quality advanced projects. We know that with the team and the asset base we have while still exploration stage, that we have the ability to take something that is, yes, relatively early stage, make discoveries, develop those into resources and high-quality ones at that. With the backers or the Partners, we have, be it Waterton or some of the funds and our own capital we have the ability to both finance, which is obviously key, and drive those discoveries and deposits forward.

Matthew Gordon: So, how much cash have you got at the moment?

Matthew Lennox-King:  We’re currently at about $1.2MIL Canadian. Current shareholders equate for roughly 65% or chunky shareholders equate for about 65% of current issue and outstanding.

Matthew Gordon: You expect them to follow their money?

Matthew Lennox-King: We do. Yeah, that’s certainly been the pattern and certainly been their intention.

Matthew Gordon: Again, coming back to this model thing, it’s a fairly conventional plan that you’ve got there. You’re drilling, building out a resource. Hopefully the market reacts to that. Go raise some more money. That’s the model.

Matthew Lennox-King: Simply put. There’s nothing revolutionary there.

Matthew Gordon: Definitely nothing revolutionary there. So, why would people pay attention to your story versus… there are a lot of gold stories following a similar path. So why should people pay attention to you?

Matthew Lennox-King: Sure thing. And it’s a great question. And I’ll preface my answer by saying I agree there are far too many gold companies out there, certainly far too many gold exploration companies and far too many Canadian gold exploration companies.

Matthew Gordon: There are a lot.

Matthew Lennox-King: There are hundreds, nearly thousands. So, for us and why I think someone would be inclined or should invest in Contact Gold, one is the track record of the team. So, a number of us come back from the frontier gold lineage, if you will. So that was the discovery and ultimate sale of the company to Newmont back in 2011. We have George Solomous of Integra Gold Fame now doing an extra exceptional job at Integra Resources. Our chairman is John Doorward, who has a very long track record at Rock’s Gold.

Matthew Gordon: We like that story.

Matthew Lennox-King: It’s a great story. Not only creating value through transactions, but also building a high margin mine that prints cash.

Matthew Gordon: OK. So, you’ve got a good team, and I know that’s point one and you’ll get on to some more in a second, but you don’t always hit it out of the park. So, there must be more to it than that.

Matthew Lennox-King: Sure. And so, part of it’s the team. Part of it’s the assets. So, we’re in Nevada. I know we were just singing the praises of Rock’s Gold, but we’re not in Burkina Faso. We’re not in Mexico. We’re not in Chile, Peru, Argentina. So, there is that really that stability. There is logical, systematic permitting in place and a real understanding, a need for both exploration, but also mining development. So, it’s sort of the cultural aspect is there, the regulatory aspect is there coupled with really perspective geology. So even though gold mining has been taking place in Nevada really for well over a hundred years, they produce well over 200MIL ounces. There are still really meaningful discoveries being made to this day. And that’s not a million ounces. That’s 5, 10, 15MIL ounces. And those are made by seniors and juniors alike.

Matthew Gordon: OK. What else have you got?

Matthew Lennox-King: Well, we’ve already gotten started. So, we have a team. But on those large land positions that we have sort of 100+ square kilometres. We’ve taken our targeting methodology, which is not revolutionary, but is very systematic. It’s very comprehensive to really mitigate the risk upfront. So instead of taking a rock sample and saying we’re going to drill here, we’ve done extensive mapping campaigns, structural campaigns, multiple geophysical campaigns looking so far as age dating ore rocks through fossil analysis. And all the rest so really building up the weights of evidence. And in the cases where we have tested those targets, we’ve had fantastic success. A gram over 90 meters type thing. So, we’ve seen that this is very effective and we’ve advanced the project to the point now where in 2020 we can really be much more aggressive, chasing these targets.

Matthew Gordon: OK. So, I want to come back to the money side of things because for companies of your size, it’s all about the money. So, you’ve got your 65% of people holding a lot of big positions here. You assume they’re going to follow their money, right? So, do you think the things that you’ve just told me are enough to get the rest of the market interested in financing you? Are you quietly confident that come Q1, you can raise your 5, 6MIL bucks?

Matthew Lennox-King: Yes, I am.

Matthew Gordon: And why do you say that?

Matthew Lennox-King: Really through the extensive marketing that we have done, so while we are small, while we are new, myself and the rest of the board management, we do have those deep relationships on the investing side.

Matthew Gordon: Institutional?

Matthew Lennox-King:  Institutional. To run our business, we’re a little bit over a million Canadian per annum since listing fees, auditors and legal fees of all the rest of it. So, it’s quite lean, quite mean, certainly in this day and age. So hypothetically, $6MIL Canadian raised, that equates to roughly 15,000 meters of drilling. The asset level allows us to push through initial resources, allows us to test some of those very large-scale targets as well. Ultimately, that results in discovery.

Matthew Gordon: So, a lot of it’s going back in the ground, at the end of which you have a resource and then you can raise more money. Coming back to this million again, how do you guys remunerate yourselves? How do you pay yourselves? How confident are you that what you’re getting into?

Matthew Lennox-King: Yeah. So, I’ll answer the question a slightly different way. So, our directors get no cash remuneration. So, they get DSU’s.

Matthew Gordon: Fantastic. Explain to people what a DSU is.

Matthew Lennox-King: So, Director Share Unit’s. So, nothing trades hands beyond a piece of paper until the director leaves the company.

Matthew Gordon: Okay. I like that.

Matthew Lennox-King: It’s great. It means more capital stays in the company. As management we draw salary, though arguably I have been paying my own salary for the last two and a half years.

Matthew Gordon: How do you work that out?

Matthew Lennox-King: In our go public round, which was done a dollar per share in mid 2017, I put over a million dollars Canadian of my own capital in at that time.

Matthew Gordon: How much are you paying yourself now?

Matthew Lennox-King: I have a way to go before I draw down that million dollars. Let’s put it that way.

Matthew Gordon: People can look it up.

Matthew Lennox-King: Yeah, exactly, exactly.

Matthew Gordon: And the other directors as well, are they are doing something similar? Have they put money in?

Matthew Lennox-King: Yeah, everyone’s put in. Everyone’s put in. So, we raised our initial capital at a dollar per share in 2017. Everyone on the team put in at that point in time. Earlier this year we raised 6.85 Canadian. And most of us actually played or participated above our pro rata in those financings as well.

Matthew Gordon: Okay. That’s very interesting because I think it’s a topic with shareholders, for junior companies… when it’s going great, no one really cares. But for small companies with small market caps with no revenue, people are very interested in how the directors pay themselves. So, it’s important to be open about that. So, I think you’ve answered that, but maybe I should ask you again. Why should people be looking at you versus all the other thousands of Canadians. I want you to maybe try answer it from a different way. What does the future look like for you that you can give people a surety or confidence over that they’re not seeing at the moment?

Matthew Lennox-King: Not to compare us to the lifestyle companies, perhaps. But if we look at some of the bits of workflow or milestones that we have coming down the pipe for Contact Gold. So, our principal asset is Pony Creek. That’s right on the Carlin trend. It’s next to a company called Gold Centered Ventures that I’m sure a number of both you and the ultimate viewers will be familiar with. So, it’s got a fantastic address. We will within the month have our major exploration permit, which is called a plan of operations. That will ultimately give us 165 acres of what they call disturbance, meaning drill pad building, road-building, which ultimately gives us the ability to get out and test all these targets that we’re very excited about, but also push the boundaries of the deposits that exist on the ground already. We also have a secondary asset called Green Springs, which is relatively new to the company. It has a much higher-grade profile than Pony Creek does. Looking at grades between 1 and 5 grams per ton, oxide gold in the very shallow environment, 0-50 metres depth, over big widths, 20, 30, 40, 50 meters. So, I think one thing that does differentiate us from many other companies, the lifestyle companies, if you will, is that we actually have legitimate assets, large scale high grades and the ability, not the guarantee, but the ability, the potential, to deliver very large and or high-grade deposits.

Matthew Gordon: I’d say, a lot of CEOs would answer that question in the same way whether they have or haven’t. So, it’s difficult to stand out in that white noise environment. So, I do buy the track record as you’ve got some great names there of people who… and I’m particularly taken by John Doorwood, with the marvel that he employed there, because when I compare to people around him have done a different way, very different valuation, very different results. That’s smart. I mean, how much input do [the board] have? I know they’ve on the board, but they’re not active on a daily basis. How do you engage with them?

Matthew Lennox-King: Yeah, absolutely. So those guys, while they are on the board and they’re certainly not active management, they are very much a part of a team. So, rather than being in the granular day to day, it’s what are the overall fanatic’s? What’s our overall strategy? So, how do we take essentially the raw modelling clay that are these exploration assets, ones that we really like, but how do we actually take those and form them into something that’s going to create value down the road?

Matthew Gordon: So, that’s the conversation I’m interested in. What does that sound like when you talk at the end of each month or however often you talk?

Matthew Lennox-King: Well, absolutely. So, I speak to Johnna let’s say once, twice a week, depending on what’s going on. So, we’ve worked together for many years at this point in time. It all comes down to having multiple exit opportunities. Even at an early stage, I think you need to identify at the end of the day, it’s very rare for someone to do what Rock’s Golds done. Take an exploration asset base and drill it out, permit it, develop it, turn it into a high margin mine. That almost never happens. So, what are the other options on the table? One is outright failure.

Matthew Gordon: Start with the positives.

Matthew Lennox-King: So, that’s obviously not an option. And then the other is do you become part of a wider, solidation play. There’s always the interest in Nevada assets from the mid tiers, the majors, even larger exploration groups who are looking to round out a property position. There is the go it alone, The Rock’s Gold model or ultimately there’s an exit like Integra or Frontier experienced where you have the continued sustained success on the ground, which creates both competition in the market but amongst the larger producing company and you go out in a blaze of glory. But it’s do you make the decisions on the project, so that you keep all those options alive? And it’s fluid.

Matthew Gordon: So, how do you keep all those options alive? I know you’re going to get a bit of money and that changes a lot of things. Gives you a bit more optionality here. And it’s too early to talk about other M&A or anything like that, but you must be looking around you and seeing what’s happening there in the marketplace and there’s a lot of juniors struggling to get cash. They can’t get it. There are some good assets which are stranded in a way financially. So, I guess what you’re saying is one of our unique propositions is we feel we can get the cash to allow us to do the things that we’re planning to do.

Matthew Lennox-King: I would say that is a bit of a differentiator, one thing we were very focused on out of the gate with the company was what does shareholder base look like? Rather than targeting X, Y, Z hedge fund out of Toronto or New York, who’s going to come in, do a fancy trade and be gone. We want people who have a multi-year plan, who have a multi-year understanding of exploration, and that it’s not always a linear progression.

Matthew Gordon: Fascinating. And I think that’s a really good introduction to the story. I like it, I like the team, great team there. I want to see how you raise this money and then what you do with it. Stay in touch. Let us know how you get on. Fascinating. And in the right part of the world. So, we wish you well.

Matthew Lennox-King: Thank you very much. Appreciate it.

Company page: http://www.contactgold.com/

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Nickel – 5 Things You Need to Know Before Investing (Transcript)

Interview with Industry Commentator Mark Selby, CEO of Canada Nickel Company.

Is Nickel the new gasoline?

Selby does a great job in this interview of shining a light on the key drivers for Nickel. And interestingly we discuss financing HPal operations and how to pick Nickel juniors.

After touching on his soon-to-be public project, Canada Nickel Company, Selby delves into the nitty-gritty details of the nickel market. During his nearly 20-year tenure as a nickel market commentator, he has seen a few Super Cycles in the Nickel market. We ask about some of the lessons that investors can learn from. Nickel is a particularly volatile commodity in comparison to other base metals that moves in sweeping super-cycles. Traditionally, this volatility comes from the pricing model of stainless steel, the historical primary driver of nickel use.

Selby discusses issues pertaining to over-supply from low-quality Chinese pig-iron courtesy of rising nickel prices earlier this year. He predicted last month that year year and half of next year to be a tale of two halves. Prices are likely to fall further while the scrap inventory comes into the market, but once it is out of the way, restocking will occur and nickel should rise again.

Selby also touches on the specific geological conditions that nickel necessitates and how Indonesia’s recent halt on exports has affected the market.

He then moves into exploring the exponential nickel potential of the inevitable EV revolution and talks us through the specific structural components a junior nickel company needs to survive in a world of large Nickel producers.

Lastly, Selby moves into the field of mineralogy and gives us an insight into nickel types and classes.

What did you make of Mark Selby? Are you excited by the Nickel thesis? Is talk of the EV revolution cheap or it is going to make you a fortune? Comment below and we may just ask your questions in the near future.

Interview highlights:

  • Overview of Canada Nickel Company
  • Understanding the Nickel Market: Before and Now
  • What are Super Cycles? Where are We Now and What to Expect From Prices
  • What Drives Volatility?
  • Stainless Steel & OPEC Affecting Nickel Prices
  • Geopolitics of Nickel: On Indonesia and China
  • HPLC Projects: Who Can Actually Put Them Together?
  • Influencers of Supply to the Nickel Market
  • Demand: Past and Present
  • Junior Companies: Have They Got Any Chance of Surviving? What Experience do They Need? What Defines a Winner?
  • Nickel Types and Classes: How They Differ and What Investors Should Know

Click here to watch the full interview.


Matthew Gordon: Hi Mark. So why are you in London?

Mark Selby: With Nickel being a metal that’s on investors’ minds, we’re getting lots of attention.

Matthew Gordon: It very much is. And what sort of people are you seeing?

Mark Selby: The full range of high net worth investors, institutional funds. And even corporates who are looking for new projects to invest in.

Matthew Gordon: Please give us an overview of what Canada Nickel is. It’s a relatively new company.

Mark Selby: We are advancing the Crawford Nickel Project. It’s a brand-new discovery. Nickel has very few new discoveries. And it’s very similar to a project called Dumont, which in my previous life at RNC Minerals, we advanced from a Resource, all the way to a fully permitted, full Feasibility Study (FS), construction ready project. And I will be able to take all the learning from Dumont and apply it to this deposit and advance it, we hope quite quickly.

Matthew Gordon: You have quite kindly said you’d give us a bit of time to understand the Nickel market. You’ve been in the Nickel market a long time.

Mark Selby: Yes. I was head of market research at Inco in 2001. And continued to be a commentator on the Nickel market now for nearly 20 years.

Matthew Gordon: We’re starting a series where we’re helping people understand various commodities as they hit certain points in the cycle. Nickel is complicated. So why don’t we talk about some of the background to that prior to 2001. And then we’ll get into some supply demand type conversations.

Mark Selby: I literally joined Inco within a few days of the trough of the Nickel price in October 2001, it hit about $2 a pound or $4,400 per tonne.

Matthew Gordon: The reason I ask is, because people need to understand the cycles to understand how commodities behave. You came in at a particularly interesting time. Was that tough?

Mark Selby: Oh, it was. I knew what I was getting into. I got into mining at that time, because I saw the rise of China and that it was going to transform metals demand and we were going to go through a Super Cycle. I quickly realized when I got in that role how important China was going to be.

Matthew Gordon: You mention a phrase, Super Cycle. It’s a phrase quite commonly associated with Nickel. Can you explain to people what that means and maybe give examples of some of those Super Cycles?

Mark Selby: Nickel is a metal that has always been more volatile than a number of the other base metals. It’s big, but not very big relative to say, copper and aluminium and zinc and so forth. The other part of it is there are some real structural issues in the market that have come to bear over time. If you go back in history, Nickel has gotten to very high prices. In the late 1960s, Nickel got to the equivalent of $50 a lbs in today’s dollars. We went through another Super Cycle in the late 1980s and again in the mid-2000s, so with Electric Vehicles (EV) and everything like that and a decade of under-investment in new supply, we’re on the verge of a new Super Cycle in Nickel, sometime during the early to mid 2020s.

Matthew Gordon: You mentioned another word there, volatility. What has traditionally driven that volatility? And is it something that you see happening going forward? People talk about the EV revolution solving a lot of problems for a lot of companies, apparently? So what is it going to do going forward? Let’s start with where this volatility is going to happen and then why it happened in the past?

Mark Selby: For investors, that’s one thing to pay attention to. We are going to go through some major swings as we go in a sustained upturn. But it’s definitely not going to be a straight line. The things that are specific to Nickel that enhance that volatility, is that historically stainless-steel is the primary demand driver for Nickel. And they have a pricing model that basically builds in the expectation of future price increases. So what happens is you get buying behaviour throughout the chain where people anticipate prices going up, so they stop buying. And then when they think it’s going to roll over, everybody puts their hands in their pockets and wait for the price to come back into the market again. We’ve seen evidence of it already this year. Nickel got to $18,000 a tonne / $8 lbs in September. And as I said when we previously talked, that by the end of the year, it’s going to come off, probably 15% or 20%. And it has.

Matthew Gordon: Explain why.

Mark Selby: Two reasons. As you get a new spike in Nickel prices, two things happen. 1. Nickel Pig Iron (NPI) production. Basically, the Chinese producers have a bunch of ore stockpiles and they turn that into cash at higher Nickel prices. They take advantage of those surge in prices. ‘If I can make money making NPI, I will make NPI’. 2. And the other piece of it is the stainless-steel scrap chain, which is a massive source of feed. Scrap is something that isn’t talked about. But it is a huge factor.

Matthew Gordon: What is scrap?

Mark Selby: Scrap is a big component of stainless-steel production. For most of the stainless-steel producers in the West, more than 2/3rds of their feed is scrap material, Nickel containing materials. Now, it’s not exactly a bunch of stainless-steel knives and forks. It’s actually a blended box of material that scrap makers make to a specific specification.

Matthew Gordon: Literally from scrap yards?

Mark Selby: Literally scrap yards. And then they take 10 of this, 5 of that, 4 of that, 2 of that, 1 of that, put it in a container and that container meets the specifications that have been agreed with that stainless-steel supplier. But what the entire scrap chain does is put a little bit away waiting for high-prices to come and when it hits their number, that scrap comes flooding into the market. So when we hit a price level this past Fall, that we haven’t been to for 4-years. You basically have 4-years’ worth of people putting stuff in a corner that all comes out into the market.

Matthew Gordon: Obviously Nickel has come off the last couple of weeks. That is possibly what the cause could be or is?

Mark Selby: Oh it is, because when lots of scrap become available, then stainless-steel companies don’t need to buy primary Nickel. And so that takes more demand out of the market. And you’ve got more Nickel Pig Iron in the market, as the Chinese producers produce it.

Matthew Gordon: What is the size of each of those markets is? The pig iron and the scrap markets… and how long is it going to remain at the current pricing?

Mark Selby: Next year is going to be a tale of two halves. It’ll probably take us most of the first half of next year to get through that extra amount of scrap that’s come into the market. And that extra amount of Nickel Pig Iron. Prices could go another 10% to 15% lower from here. But, once we work through that scrap, work through those ore stocks, then we come out on the other side and I think the prices start to move higher. Once that inventory is gone, it’s gone. You end up with a big restocking phase that’s happened as people have to come back out and say, ‘OK, well, I don’t have these stockpiles anymore. I need to go buy even more primary material’.

Matthew Gordon: You’ve talked previously about the OPEC of Nickel. What does that mean? Who are the players?

Mark Selby: Robert Friedland at the BMO Conference called Nickel the new gasoline. Which I thought was a great phrase and reflects what is going to be happening as the EV’s move forward. OPEC at its peak controlled about just over 50% of the market. And, we remember all the things that countries and companies did to avoid that supply concentration at that point in time. In the Nickel market, Indonesia, the Philippines and New Caledonia will control a very similar amount of global Nickel supply. Those are 3 countries that have intervened in their mining sector. Those are 3 countries that have financial issues, revenue issues. The temptation for them to put some sort of export duty, some way to capture additional value for the country, is going to be just too tempting. And that will make Nickel assets outside of those areas much more attractive. Was oil outside OPEC a good investment in 1971-1972?; that was a pretty good trade for a good 20yrs or 25yrs. It’s going to create those kinds of opportunities in the Nickel space.

Matthew Gordon: We can’t talk about supply and not mention Indonesia. The big news, 3-4 weeks ago… This Nickel Series is going to be for people of all abilities, a lot of people will know about Indonesia. Some won’t. For people that don’t know much about it tell us about their influence on the marketplace.

Mark Selby: One of the things that’s unique to Nickel is it’s not found in many places across the world. There’re some specific geological conditions that have to occur to have Nickel deposits. So as a result, Nickel supply is relatively concentrated in a few countries. In Indonesia, particularly the island of Sulawesi, and some nearby islands, is basically the Saudi Arabia of Nickel resources. There’s a substantial Nickel resource base that was tapped in the mid 2000s as they mined the ore, shipped it to China to make Nickel Pig Iron. And now what the Chinese producers are doing is building stainless-steel plants on top of the ore body, because that’s the cheapest way to make stainless-steel. And, we’ve seen a massive increase in capacity during that timeframe. And we will need more capacity to come. That’s one of the only places in the world where there’s substantial resource reserve available to be developed.

Matthew Gordon: But they also announced that they are halting exports. That’s had a big impact. Sent shockwaves. Why did they do that? What is the impact of that’s going to be short-term and medium-term?

Mark Selby: They first started banning ore exports about 4-years ago.

Matthew Gordon: They’ve been stop-starting?

Mark Selby: Yes, it’s come and gone into the market a few times. One of the reasons why Nickel has been a difficult metal to invest in is because of some of these dynamics. What is Indonesia going to do or not do as we move forward? In 2014-2015, they put a ban in place, because when you look at the price of ore, as a percentage of the contained Nickel value versus the price of Nickel, when you ship it in ore form, the country is only capturing 15%-20% of the value. Indonesia has a finite amount of Resources. They wanted to see as much value-add happen in Indonesia. So by putting the ban in place, it was forcing Chinese companies to build their plants in Indonesia, as opposed to China. And that plan worked very successfully. Indonesia has seen tens of billions of dollars of investment in capacity. They then changed their mind, and allowed some more exports to continue, partly because the local producers, including a state-run company, PT Aneka Tambang (AnTam), was mining to provide high-grade ore to the local Chinese plants. But they were also… you can’t just mine the high-grade ore, you have to take some lower-grade with it. They were facing mountains of unsold ore that they couldn’t do anything with. Indonesia then allowed exports for a period of time. And this was supposed to continue until 2022. And what the big announcement said ‘we’re going to bring that forward’. It got brought forward to 1st January 2021. And then in the past month or so, there’s been talk of banning, but they’ve actually now allowed some exports.

Matthew Gordon: This driven by what? There’s politics involved. You’ve talked about Chinese companies building plants in Indonesia. They must hold some sway, because of employment, building roads… What are the dynamics?

Mark Selby: It does come down to local stakeholders who are mining ore, and want to continue to sell ore to China and make money that way. And now you’re going to lose that ability and that revenue stream. It comes down to balancing off those local interests versus some of the larger Chinese companies that are there, and trying to find that balance. When they banned it the last time, it was hard fast rule. There is no leakage. And by 1st January of 2020, it will be enforced. And we don’t expect any leakage going forward, because they want encourage that next wave of investment. In terms of HPL plants as well and stainless-steel plants.

Matthew Gordon: And that’s going to come from China?

Mark Selby: Yes.

Matthew Gordon: HPal is not cheap?

Mark Selby: Not cheap at all. You’re looking at $30,000 – $35,000 per ton of capacity that you want, at best. HPL plants built in other parts of the world have faced massive overruns, and have ran up $60,000 – $100,000 per ton of capacity that’s in place.

Matthew Gordon: What does that mean, as a number? If you are looking at the CapEx for a HPal plant, what number are you asking me for typically?

Mark Selby: So if there’s a $30,000 tonne plant, the best example that has been done, is by Sumitomo Metal Mining. They spent about USD$1.4Bn.

Matthew Gordon: These are big CapEx numbers upfront. There are very few people can do that. Not only fund it, but very few people can put that consortium together. The Chinese influence, or the China building plants locally and funding them. How have they structured that? Is it build and operate model?

Mark Selby: It’s different between the NPI and stainless-steel. What they’re doing with the HPL. So the NPI and stainless-steel, you have several large producers and some smaller ones in China, who take the same technology that they put in place in China. Clearly building a carbon copy of that plant in Indonesia. Cut and paste. There you’re looking at $10,000-$20,000 tonne of installed capacity. All the way through to making stainless-steel in Indonesia. So they have expertise in that particular area when it comes to HPL, that’s Hydro Met technology. If you’re making stainless-steel there is no hydro metallurgy involved. What we’ve seen in terms of the HPal plants that are being built in Indonesia today is they are joint ventures between several different Chinese partners, some of whom bring that hydro met technology, people who bring the resources. And then people were able to bring the scope and scale of their existing business to help deliver some capital in there to build the HPL plant. None of them are operational yet. There’s going to be a big TBD to see how quickly they ramp up relative to some of the other plants that have not done so well. Typically, HPal has taken longer and costs more.

Matthew Gordon: We have talked to a few Nickel companies along the way and they drop in very casually that the HPal bomb, the conversations without comprehending. Are there many people in world who can put a HPal project together, not just financially, but technically?

Mark Selby: Sumitomo Metal Mining is the only company that has really done it successfully, that delivered projects that have ramped up relatively quickly and were delivered close to budget.

Matthew Gordon: So that’s important. Because all this is for the benefit of retail. High net worth office investors. These are little red flags, which I’m interested in getting and getting out of those conversations. Sumitomo. Noted. On the Supply side of things, who are the other influences? Who are the other players in the market?

Mark Selby: If you look at the supply today, you’ve got a handful of groups that really control the biggest bulk of supply. You’ve got Indonesian production that we’ve talked about in terms of NPI and to integrated stainless. You have the Chinese Nickel Pig Iron producers that have been taking ore from Indonesia. But we’ll have to get it from the Philippines and a few other countries to continue to produce Nickel Pig Iron in China. You’ve got the larger integrated historical producers. Vale, Inco from the past, Glencore with Falcon Bridge from the past. And then the Russian producer, Norilsk. Each of those are large integrated Nickel producers. AuraMet is a smaller integrated producer and has again been around a long time. And then obviously BHP has their operations in Western Australia. So that large base of integrated, multi-asset producers who Nickel has just one of their commodities, is other important big chunk of supply.

Matthew Gordon: The thing that those guys all have in common is they are vast. Big companies with access to finance. Because Nickel not cheap to put together.

Mark Selby: Yes, it is not.

Matthew Gordon: From investors point of view. You need to so understand when you’re looking at companies you need to understand where they fit in the cycle. I think we will get to the end of this conversation. But in terms of picking winners, it’s good to understand that the thesis behind Nickel. And how companies can actually monetize what they’ve got. So on the supply side, just as a first conversation, thank you very much. Demand. It comes back to our lovely Super Cycles. Demand at the moments is what sorts of levels?

Mark Selby: Demand has continued to be quite robust. That’s one thing people underestimate about Nickel. Nickel demand is grown at an average of almost 5% a year over the last decade. For things like copper and zinc, the comparable number would be 2-3%.

Matthew Gordon: What’s that been driven by?

Mark Selby: Stainless-steel growth. Batteries are just 2% of the market today. It’s a very small amount and is going to grow very quickly and very to a very large number. All of that historical growth has really been driven by stainless-steel and to another extent, alloys and Alloy steel. And the reason it’s able to grow and will continue to grow is stainless-steel is a very small fraction of the overall steel market. So stainless-steel has a lot of properties in terms of long-life, highly recyclable, which are becoming more valuable in today’s economy. Stainless steel continues to steal share from other types of steels. We don’t expect any slowdown in stainless-steel demand growth going forward.

Matthew Gordon: Is that coming out of China as well?

Mark Selby:  Yes, China has been the massive source of demand growth, but it continues to grow in a lot of a lot of other countries.

Matthew Gordon: What are the other common demand drivers for Nickel at the moment?

Mark Selby: The other big one is high Nickel alloys. That’s one of the things with China is that it moves up its economic development curve. You start with carbon steels, you move to stainless-steels. And then when you get into other sectors of your economy that become more important, you start to use Nickel as Nickel, and things like high Nickel alloys that, are used in jet engines, gas turbines. Nuclear power plant alloys. There’s another big chunk of about 15% to 20% of Nickel demand that goes into those types of applications. And every time you’re sitting on a plane, if you look out a window, there’s several tons of Nickel in every one of those jet engines. So as tourism becomes a big part of the Chinese economy, and Chinese tourists start to fly everywhere, they’re ordering thousands and thousands of planes. That’s helping drive Nickel demand globally for those airframe manufacturers.

Matthew Gordon: So you going to stick with the Super ~Cycle because it sounds terrifying and exciting at the same time to me. Where do you think we are in relation to the next Super Cycle? We know the price is today. Where do you think it’s going to get to?

Mark Selby: I think we’ve completed leg one. It’ll be three or four legs. You have a set of conditions that sort of have to unfold over a period of time. What set the stage for Super Cycle today is and when what historically has happened the past is, you end up in periods of underinvestment. To your point on supply, in supply you’ve got a lot of large companies. Well, they chose not to allocate capital to non-Nickel projects over the last decade or so. So most of the existing production has shrunk over the last decade. The existing mines are deep underground mines, or larger scale processing plants. Those are things that you can’t, add something and 12-months and be in production. It takes multiple years to do it. 2 underground projects. Vale finally approved the Voises Bay underground project a couple years ago, but that was announced in 2017 – 2018. First Nickel is not till 2021, and it doesn’t ramp up until 2023. 5-years from announcement to full production. Glencore and Sudbury again new mine in Sudbury called Onaping Depth. The first production won’t be for 3-years, because they’re sinking a several thousand metre shaft, and then it won’t ramp up fully for another few years after that. So with that under-investment, supply can’t be flipped on quickly again. So that’s starts the set the basis for it. And then there’s, a demand surge that comes out of somewhere. So, in the late in the 1960s, when we had the big spike, it was Japan that was growing very quickly. And there had been some underinvestment in Nickel, and they couldn’t catch up quickly enough. They then overbuilt in the 1970s. And in the 1980s, you had Korea and Taiwan industrializing. And so that was driving a significant amount of new growth. And we’d come off 10yr or 15yr of low Nickel prices under-investment as people were rationalizing vastly. That was overbuilt in the early 1970s in response to the big spike in the 60s. And in the 2000s, through the 1990s, Nickel had to absorb the collapse of the Soviet Union. So that was a big Nickel producer and consumer and their consumption of Nickel dropped by 80%-90%. And you had this huge amount of new supply introduced into the market and huge amount of scrap that came into the market, as basically the Russian economy got torn down and sent its scrap to the West. That time period leading up to the early 2000s had seen a significant under-investment in Nickel capacity, and then China came along and set the spike. So in this case, we’re coming off a decade of under-investment in other capacity outside of Indonesia. And we see now electric vehicles on the horizon. Then a big lump of demand that’s coming from the EV story.

Matthew Gordon: It’s fascinating because you’ve seen the replications and so therefore there are patterns, with these emerging economies, as they grow, get ever more demanding consumers. China at the moment is. Where are they in the phase of development? Because if you look at some of the cities and its hugely sophisticated. 1.3Bn people. They don’t all live in the cities.

Mark Selby: And that’s it. The thing that’s important about China is it’s not just one country. You’ve got several different areas that are going through a different stage of industrialization. So the Eastern coastal cities are probably all very up the curve. And then as you moved into the Western Centre of the country, you get less and less developed. So there’s, other parts of the regions that are moving up the curve. And then China’s got its Belt and Road policy. They’re extending that infrastructure build out into their neighbouring countries.

Matthew Gordon: We were there last year, Chengdu, Sichuan… And it’s exciting. There is a notable difference. But it’s coming. That wave is still there. They still have a way to go. This is so much of it. So the demand side of things for China is still encouraging for Nickel suppliers. And that’s not just the EV.

Mark Selby: That’s just 5% demand growth that we’ve seen in Nickel and will continue to see for long time. We don’t see that slowing down anytime soon.

Matthew Gordon: How do companies work out where they fit in to the mix? So you’re looking at these Super Cycles happening and these growth patterns. And, all the numbers point up, the pricing points up, but it takes a while to get into production. It also takes a lot of money to get into production. But before you get anywhere near production… how does a junior company establish itself in a world of giants? You mentioned super huge companies with big balance sheets and access to cash. How does a small company get into the market and establish itself?

Mark Selby: So one of the opportunities and this is actually going to be a fundamental shift, that’s going to happen over the next 3-4yrs. Nickel processing, historically was an oligopoly controlled by Falconbridge, Vale. Norlisk. Glencore. The problem for small miners was, you could build your mine, but then you had to sell your concentrate to somebody. And unlike, copper and zinc, where there’s benchmark terms, they’re negotiated very competitively every year. There was, some fairly, take it or leave it pricing, which transferred a significant amount of that value to the smelter refiner, and away from the miner. Mining is hard. But when you end up having to give up a fairly significant share of that value to the smelter. What’s now going to be changing in the Nickel space? It’s we’re not there now, but over the next 2-3yrs is the Chinese and every other semi-finished, semi-processed material goes ahead and builds way too much capacity to meet the market demand. And then they bid up the price of the feed to a break-even number. With Nickel sulphate for EVs, a massive amount of capacity is required in Asia. They will build capacity to take various Nickel intermediates and then process them into the products that the EV market is going to need. So it’s opening up the door now for smaller sulphide mines to be able to come into production and have competitive pricing for their product in 2-4yrs. It will create the opportunity for some smaller producers to more easily come to market. In terms of laterite ore suppliers, China is going to need ore supplies, because Indonesia is now not going to be supplying it. There’s not a lot of places where you find laterite ore in coastal deposits that you can ship out of the country. But there are some places.

Matthew Gordon: Can you explain the difference between those types of ores.

Mark Selby: Yes. There are two primary types of Nickel deposits. Sulphide is what you think of in Sudbury and so forth. And so that the issue there is generally the mining is expensive. You have to build a deep open pit. Now there tend to be deeper underground mines or bigger open pit operations, processing low-grade Nickel. Once you make a concentrate, because you upgrade it from anywhere from 0.3% to 3% Nickel, up to something that’s 10%-15% Nickel. The processing of it from there is relatively uncomplicated, smelter refiner and it gets them. The tricky part for a laterite project is it is much easier mine. It’s basically a rock that’s been converted to dirt, over time. And in that process, the Nickel and Cobalt gets concentrated in the soil. You literally are just digging dirt. These mines in Indonesia, that ship ore to China, literally just dig it up, put it on a boat. The mining part of its quite simple and cheap, and the processing the mineral that’s the Nickel is in is a very complicated minerals so you have to use a lot of energy either through electricity to melt it all. And that’s how Nickel Pig Iron works. You take all that soggy dirt, dump it in a furnace and melt it and make Nickel Pig Iron ore. You have to use energy in the form of acid to break the bonds, to liberate the Nickel and Cobalt. That’s the HPL process. Those are big, complicated, expensive plants to do that. So one’s easy to mine. One is harder to mine. One’s much easier process, one’s much harder to process.

Matthew Gordon: And while you’re explaining the technical detail, cause there’s lots of talk in the market about Class 1 and Class 2 Nickel. For the audience can you explain what the difference is.

Mark Selby: There’s been a massive amount of airtime about this particular discussion. And the issue is more should be more about how many total Nickel units we have. At the end of the day, you can take a sulphite intermediate and you can make a range of products with it. You can make Nickel Pig Iron, Ferro Nickel via the roasting approach that we had a Dumont. You can take that to a smelter and to make finished Nickel products, and the same thing through the laterite source-based material. Most of that does go to make NPI today, but there’s no reason…there are producers, PT Inco, AuraMet that have produced for a long time that make a product that does go to a Nickel refinery that gets converted into finished Nickel and cobalt products that can be used for the battery sector. I think it’s very important for investors to not get caught up in that particular discussion. The Chinese are going to build lots of processing capacity to process intermediate’s junior mining companies, having processing plants at a location to make a product. That specification as we go to have more Nickel in batteries that the specification for that sulphate gets stricter and stricter and stricter. Are you going to build a sulphate plant and then continue to improve that plant to be able to make that product? You should just focus on making high quality intermediate and then you will have a market to sell that into in the future.

Matthew Gordon: You are saying Class 1 & Class 2 is a distraction for investors, because the market will resolve the economics around that.

Mark Selby: Exactly. There will be short-term dislocations. So, don’t say, today the premiums X, but Nickel sulphate premiums were $2,000 two years ago They’re down to zero today.

Matthew Gordon: So back to our small company. You think it’s going to be easier for junior Nickel miners to actually get into market, be able to, not just find Nickel, dig it out the ground, but actually get it processed in market.

Mark Selby: At a competitive price.

Matthew Gordon: It’s got to be economic. Do you think mining Nickel in the past is advantageous, or do you think Nickel is a relatively easy type of commodity to mine?

Mark Selby: Generally mining is. The bottom line, the technologies, processes that are used are similar. If you’ve run a copper mine, you should be able to run an underground copper mine; should be able to run an underground Nickel operation because.

Matthew Gordon: We’ve talked to some CEOs of commodities and who have not mined in this space, who say you don’t know what you don’t know.

Mark Selby: I would say it’s consistent with the other base metals. Each metal does have its specifics. But you can find the expertise and put it in the place.

Matthew Gordon: I said earlier in the conversation, we’re going to try and work out how we can spot winners. So on a no names. I don’t want to pick any companies out. I want to understand the profile a little a little bit. There are bulk plays. And slightly higher grades. And they each have different challenges. So bulk for me is a little bit below 1%.

Mark Selby: No, it would be below 0.5%.

Matthew Gordon: What are the higher-grades?

Mark Selby: Higher-grades would be 3-4% Nickel. You get some massive sulphide Nickel, smaller players in Western Australia, and then you get another sort of bucket sort of between 1-3% that you could mine underground on a larger scale. Again, the biggest challenge with Nickel, is there’s not many new Nickel discoveries. If you look at the project pipeline of most metals, there’s literally hundreds of gold projects. There are dozens and dozens of copper projects. In the Nickel space there really are a very limited number of projects. And, there’s been a very limited number of new discoveries. When investors start to look at it, there isn’t a big universe of Nickel opportunities with which to invest in.

Matthew Gordon: And we have the pleasure meeting a few people with large-scale . This is a bottom up in terms of resource. But they’re all struggling at the moment, because the money’s just not there for them. But if you talk to institutions or banks, what are they feeling about this? But given the Super Cycle component, how does a financier put together a package based on what they’ve seen go on in the past? Or does it not matter to them?

Mark Selby: Dumont for the first 7-years, Nickel was an out-of-favour metal. There were concerns over the long-term price. It was very hard for people to get their head around building a big $1Bn Nickel project at that point in time. But with the shift over the last 2-years, the thing that’s been fascinating with the EV sector is they want the Nickel now. And they keep asking when can we, how quickly can you double it? Can you double it a second time? They have such massive growth requirements that discussion is starting to change. And I think one of the things, that’s to me is fascinating is you’re seeing literally tens of billions of dollars of investment in battery capacity. But they haven’t necessarily done that for the metal that they’re going to need yet. They’re going to wake up to that reality soon, that if you’re not also building the capacity to provide the raw materials that you’re going to need. It’s going to make it more challenging to make the battery if you don’t have this stuff, to make the battery out of this.

Matthew Gordon: It’s quite confusing for investors, because almost every company that we speak to is pitching the EV revolution …’that’s going to change our fortunes’ and therefore invest in us. Whatever the pitch is, some are more believable than others. We’ve had people talk about the timing of all of these things. The reality is a couple of years away. And realistically not going to be impacted by the EV revolution or price in the market, etc.. Demand in the market at the moment. But the what they what they will say is. ‘Get in cheap, our stock is cheap today. Get in ahead of the crowd’. How do you pick winners? What should we be looking for specific to market? What sorts of what are the sorts of things that should be avoided?

Mark Selby: The things to focus on are… because most projects are expensive. Vale’s new underground mine Voises Bay $1.5 billion. Glencore’s new mine $1Bn. Most Nickel projects are going to require $1Bn or so of CapEx To be able to fund that kind of investment, you need large companies to be interested. I think that’s one of the one of the things to look at is, is the scale of the resource that this company has got going to be attractive to one of the majors who say, ‘I want to grow in the battery material space and I can do that through Nickel’. If in attracting investment from the EV companies, they’re not going to fund 62 little mines to come into production. No, they want larger, long-life, large scale assets that can hopefully grow with them as they grow their businesses.

Matthew Gordon: So what is large scale?

Mark Selby: Nickel is a 2.4Mt market. And if you can produce, 20,000 to 30,000 tonnes a day. That’s a decent size mining operation. So roughly 1% of global supply.

Matthew Gordon: And if you can’t?

Mark Selby: I’d say that’s one class of investment. I think the other opportunity again would be smaller scale, that is produce a concentrate. Just make sure that, they’re using realistic operating cost assumptions and realistic capital cost assumptions, in terms of if they’re restarting a small scale mine. There are some of those opportunities out there today. Some of them are good, and are at a good price. They’ll be able to come to market relatively quickly and participate in the cycle as the Nickel market rebounds. When we were at RNC, we did the joint venture with Waterton. The cash-pool that we did was to sell down part of Dumont to be able to pick up some of these smaller scale restart opportunities. So you could participate in the cycle more quickly. As opposed to having to build a big project for 2-years. I would say that it’s the world scale asset, the sort of small-scale restart or small-scale resource that you can bring into production relatively quickly and cheaply. But again, make sure they’ve got realistic operating capital cost numbers.

Matthew Gordon: You talked about Sumito and HPal earlier. If someone’s pitching to the market, they can build a HPal operation for less than $1Bn. You’ve got to ask does that makes sense to me.

Mark Selby: There’s been one successful person, and that’s the cheapest. They’ve built multiple plants. They built it in the Philippines, which is a very low-cost place to operate. If you use that as a benchmark. And then scale it up from there. If you’re in a higher cost country than the Philippines, then that cost should go up. They only made an intermediate, they shipped an intermediate product that went to their existing refinery in Japan. If someone’s going downstream and going to a final product, that should be another chunk of higher cost. Because some of the less successful plants, if you look at some of the CapEx numbers, they ballooned to $7Bn-$10Bn before they started to work even close to properly. So that’s the upper end.

Matthew Gordon: So the answer is, you would be suspicious of someone saying HPal operate, if you’re spending less than $1Bn, that would be a red flag. Thank you for that.

Mark Selby: I would say justify to me why you think you can build a better than Sumitomo Metal Mining.

Matthew Gordon: Coming back to small companies. They are going to have to find strategic investors. Because with the balance sheet to be able raise the money to be able to invest in a Nickel project. How should companies structure those relationships? Obviously, you don’t want them coming into Pubco, because there’s going to be nothing left of the company. They tend to come in at asset level typically. What do those relationships look like?

Mark Selby: The Nickel projects that will get advanced this cycle are similar deals to what you saw in the copper space. You have an Asian either off-taker or a strategic who wants access to that material? And do they come in on a joint venture basis. They provide a big chunk of the equity capital that’s required and provide the balance of the financing to get that in place, we just haven’t seen it in Nickel yet. But it will be coming.

Matthew Gordon: I’m going to just to thank you because it is. Mark, thanks very much for your time today. Really enjoyed that. I learned a lot. I hope everyone else does too. We’re going to talk about your Canada Nickel company maybe when you when you’re back in Canada. So after that would make you look forward to hearing about that. But thank you very much for helping us learn a little bit more about the Nickel market. If we can talk to you again, some future date with some questions which do come in from a lot of the viewers and subscribers and followers.

Mark Selby: Oh, very much glad to do it. I think this is a metal that people haven’t had a chance to invest in very in very many ways. So, the more educated investors are, the better decisions are going to make.


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Palladium One Mining – Use Your Cranium: Invest In Palladium? (Transcript)

A photo of 6 blocks of Russian palladium.

Interview with Derrick Weyrauch, President and CEO of Palladium One Mining (TSX.V: PDM).

Palladium One Mining Inc. is a TSX-listed PGE and Nickel-Copper exploration and development company. It possesses several assets: the flagship Läntinen Koillismaa PGE-Nickel-Copper Project in north-central Finland and the Tyko Nickel-Copper, PGE Property near Marathon, Ontario, Canada.

The key theme at play is strong fundamentals. Palladium One published their first Resource for the company in September: 1.2Moz of palladium equivalent (split 50/50 between indicated and inferred). Palladium has a strong foundation of demand and limited supply says Weyrauch.

Palladium is an industrial metal: 86% of it is consumed in auto-catalysts, and it is predominantly used in gas engines. Using Palladium allows for cleaner air, making palladium a modern, green solution to transportation headaches is the marketing spin. The slow decline of the diesel engine is resulting in greater future demand.

There has been a structural deficit of Palladium in the market in recent years, and Palladium One is hoping to fill that gap. The market is small at around 10Moz. There are additional applications of Palladium in dentistry and jewelry, but are much smaller markets.

Palladium One is in the process of closing a non-brokered private placement for $3.8m dollars. Renowned Canadian mining investor Eric Sprott is investing $1.2m, giving him a 19.9% ownership of Palladium One. This is only option money for Sprott as Palladium is not large market, nor a key focus for him, but it is interesting to us that he has selected this Palladium asset.

Weyrauch explains another ace up Palladium One’s sleeve: Finland is an excellent jurisdiction with “first-world geological data sets.” This area has been heavily researched and the information is publically available.

Palladium One has a brand new management team and board as of 2019. Dr. Peter C. Lightfoot, a 20-year nickel exploration veteran at Inco and Vale, clambered aboard in September. A real plus, not sure if this is his only focus though. Neil Pettigrew, a geologist with 20-years of mineral exploration experience, serves as Palladium One’s Vice President – Exploration. Weyrauch’s primary experience comes in the world of finance where his experience has been restructuring mining companies and experiencing success.

Weyrauch claims the main obstacle for Palladium One is the same as for every other junior: raising capital. Weyrauch has used the accurate historical data, obtained in Finland, to successfully push the Palladium One story. He claims the reason behind the lack of exploration under previous stewardship at the property comes from economic downturns of Palladium rather than a lack of promise. We shall see.

Palladium One’s strength comes from the fundamental promise of their flagship asset, and the fundamentally robust level of palladium demand.

Palladium One has a market cap of CA$2.94M. It started the year with a share price of just $0.04CAD, rising to a peak of $0.14CAD in April, before falling back to its current value of $0.075CAD.

A concern is the available capital to do what they need to do and getting to a point where the company understand the economics for this project. There will be questions marks around the management team’s experience in this particular field, and the commodity itself. The palladium market is small, and with the impending EV revolution, battery metals would demonstrate enormously greater growth potential in the automotive sector. By the time Palladium One would be ready to mine, would EV be taking hold?

It is a question of whether investors buy into the macro story of palladium, and can trust the team at Palladium One to deliver on an asset that has failed to be mined under several previous companies.

What did you make of Derrick Weyrauch? Is palladium worth your time, attention and money? Do you have any idea what the palladium market looks like? Comment below and we may just ask your questions in the near future.

Interview highlights:

  • Company Overview
  • Palladium: What is it, What’s it Used For and What’s the Size of the Market?
  • Company Financials and Cash Position: How Will They Finance Their Projects?
  • Finland: Is it a Mining-Friendly Jurisdiction?
  • Team Experience
  • Business Plan and Focus: What is the Plan and When Do People See Things Move?
  • Current Constraints: What is Preventing Them from Moving Forward and How are They Dealing With it?
  • What Did E. Sprott Buy Into and Why Should You Invest?

Click here to watch the full interview.


Matthew Gordon:  You’re over here for the 121 meeting a bunch of investors, I guess, and telling your story.

Derrick Weyrauch: Speed dating at its best.

Matthew Gordon: Why don’t we just start with one-minute summary for people new to the story?

Derrick Weyrauch: Okay. Well Palladium One is basically a brand-new story exploration development company and its flagship asset is the LK Project in Finland. It’s a Palladium dominant poly metallic deposit. And we just published our first resource for the company in September. 1.2MILoz of palladium equivalent in all categories split roughly 50/50 between indicated and inferred, indicated 1.8 grams Palladium equivalent and 1.5grams for the inferred, weighted average about 1.65grams. And we’ve got a 38KM favorable basal contact. And this is just covering 1.1KM of that contact. So, a lot of a lot of territory to still hit.

Matthew Gordon: Let’s start off with the obvious question: palladium, what’s it used for?

Derrick Weyrauch: Palladium is really, in my view, an industrial metal. 86% of it is consumed in the auto catalyst. It’s really a metal for providing clean air. Predominantly it’s used on the gas engine. So, you’d see it in the catalyst and basically scrubs the nitrous oxide and carbon monoxide and with increasing environmental standards for air quality, there’s more and more palladium loading and going into the auto catalysts. It’s feeding the demand. The other aspect with the Palladium is that with the demise of diesel that we see going on since the Volkswagen gate, if you want to call that or diesel gate, consumers are transitioning away from the diesel engine into the gas engine. And there’s more demand as a result of that for palladium. And there’s been a structural deficit in supply for a number of years.

Matthew Gordon: What is the size of the market?

Derrick Weyrauch: The global mine productions is about 6.9MILoz, so fairly small. There’s another 3MILoz that come from recycling. That’s roughly 10MILoz market, 6% of which goes into the auto catalyst. There are other applications for jewellery and dentistry and things like that. But it’s for the most part I consider it industrial metal and not so much on the investment side.

Matthew Gordon: You’re a relatively new story.

Derrick Weyrauch: Absolutely. People haven’t really heard of it.

Matthew Gordon: You’ve got a 3, 4MIL market cap. How much cash have you got?

Derrick Weyrauch: We’re just in the process of closing a financing of $3.8MIL so that should close in the very near future. The lead order on that was with Eric Sprott. So, he’s taking about $1.2MIL of that financing, which will give him about 19.9% ownership interest on non-dilutive basis in the company.

Matthew Gordon: You’re in Finland.

Derrick Weyrauch: North Central Finland.

Matthew Gordon: What’s that like to operate in?

Derrick Weyrauch: Finland is absolutely a fantastic jurisdiction. It’s really only been open to private mining investments since the 1990’s. Previously was pretty much state run. And what we like to tell people is Finland has first world geological data sets. The information is fantastic, lots of high-quality mapping, reconnaissance, drilling and whatnot and all that information is publicly available even the assays or rather the core, this is available as well, but because it’s only been open for exploration for 20 odd years, it’s underexplored. There’s a lot of low hanging fruit and we see that in our project, which if this data was available, let’s say in a North American context, it would have been followed up. We have our Murtolampi target, for example. We’ve got a nice 200 meter fence with the number of holes in it going down about 40 meters. All the mineralized holes, for the most part, ending in mineralization. It’s been sitting there for 20 years. Nobody’s ever poked a hole around there or done any follow up work. So, that’s just low-hanging fruit and gives us an obvious target to go after.

Matthew Gordon: Who here has exited, made money for shareholders, built companies…

Derrick Weyrauch: Well, the company’s been completely changed over the course of 2019. So brand new management, brand new board.

Matthew Gordon: Who’s delivered before?

Derrick Weyrauch: So, Peter Litefoot for example, we brought him on the board in September. He used to be the head of Project Generation Nickel Base Sulphides for Inco Valle.

Matthew Gordon: Who’s done it in an exploration company? It’s different.

Derrick Weyrauch: Well, they’re also finding some fairly large deposits in those big boy companies as well. And so, he’s one individual. Neil Pettigrew’s, another individual. He is our vice President of exploration. Also, on the board, he’s actually based in Thunder Bay. And what brought him to Thunder Bay a number of years ago was the Palladium Boom, a couple decades ago that North American Palladium.

Matthew Gordon: And what about you?

Derrick Weyrauch: Well, I’m finance guy by background. 30 years in the capital markets. And most recently, I was the CFO for Jaguar Mining. Did the restructuring there a few years ago and prior to that also was with Andina Minerals, which we sold to Rothschild Mining back in early 2013.

Matthew Gordon: Can you just tell us what the plan is, how you can do it? Who’s going to do it? How are you going to fund it?

Derrick Weyrauch: Well, really, what we’re going to do is leverage off of the data set that’s already available for the project. We have 38KM worth.

Matthew Gordon: What type of company are you going to build?

Derrick Weyrauch: We’re growing a resource base.

Matthew Gordon: That’s the model?

Derrick Weyrauch: Absolutely. To get to that critical mass where you may want to put it into operation or perhaps somebody takes a shine for the asset and decides they’d like to have it.

Matthew Gordon: Hopefully that’s attractive to someone who will take it to the next stage. That’s the model.

Derrick Weyrauch: We’re not currently configured for a development scenario, so we’re not going to fool ourselves.

Matthew Gordon: How do you finance this thing? You’re raising a little bit of money now, and that’s for presumably this seasons’ drilling?

Derrick Weyrauch: It’s predominately for the LK project in Finland. We do have another project in Ontario, a nickel sulphide asset. But the money is really earmarked for exploration in Finland conducting geophysics programs. So, IP as well is a diamond drilling program that we hope to initiate this winter. It’ll be 4-5 meters of drilling. So hopefully we have some very consistent news flow.

Matthew Gordon: Is it seasonal there? Can you drill twelve months of the year?

Derrick Weyrauch: You can drill twelve months a year. As a matter of fact, it’s a preference to drill in the winter. It’s easier to get around. You know, if you if you have a moisture in the soil, not just track right over.

Matthew Gordon: Where are you based?

Derrick Weyrauch: I’m based in Toronto.

Matthew Gordon: You’ve got a local team there?

Derrick Weyrauch: Yeah exactly. But for the most part of the stage, we’re still relying on consultants. We’re early days for us, we’ve only been configured like this for about six months with this management team and board. So, we’re still building it.

Matthew Gordon: When do you get boots on the ground?

Derrick Weyrauch: Well, we’ve had boots on the ground this summer already. So, we have people there working for us, but in a consulting capacity.

Matthew Gordon: When do people start seeing things moved? What do you think people are going to be interested in hearing next?

Derrick Weyrauch: Well, yeah. The key message is that we’ve got a very interesting property package, which is at 38km of basel contact, less than 4km of it has had systematic drilling. Based on the historical data set we get from auto compo and others, we have seen tremendous amounts of reconnaissance, drilling and sampling that’s happened along the contact. So, we know it’s generally mineralised and we know where to go. So, there’s a very good targeting that’s already taken place with only four kilometres of the thirty 38KM trend, having had systematic drilling, our job is really to expand out and grow the resources more. The Kaukua deposit where we announced the resource in September, it’s only 1KM of that 4 where you have got those ounces and that resource. So, our job is to do the geophysics, target into the higher sulphide areas along that contact and drill those out. And we envision having a situation where we have multiple resources, perhaps multiple open pit environments. We’re not really looking at an underground scenario at this point. Our resources are pit constrained, and the pit only goes down to about 275 meters. So, fairly shallow.

Matthew Gordon: How do you manage all of this? How do you watch the pennies? What are the things that are constraining you now?

Derrick Weyrauch: Well, capital is always a constraint when you’re pre-revenue. So, you know, that’s the big issue for any junior explorers. So, you have to have sufficient reason and justification to be able to raise the next chunk of money. So, what we did is we spent the summer validating all the historical information, putting a very robust resource together, pit constrained. We tripled the cut off grade from what had been done by previous operators. And, demonstrating that this is real. It’s not an aggressive estimate by any means. We only used the price assumption of $1100 for Palladium as an example, whereas the market right now is over $1700 per ounce. So, we’ve got that, we show the historical information that we have on the property and then it’s a matter of just systematically working that property. One of the luxuries that we have in this particular situation is we don’t have to come up with any black box magic and new geological theory that’s maybe a little bit out there because this project’s been looked at time and time again. This is more taking a systematic, proven approach and working your way through the process.

Matthew Gordon: Why hasn’t anyone done this before on your property?

Derrick Weyrauch: Well, the property was released by Autocompo’s. They released lots of properties and was sitting in inventory, so to speak. It was picked up by a prospector in 2006, was flipped into a Vancouver junior. They did one program of exploration at the Kaukua area, and they got caught with the downturn in 2008, 2009 and weren’t able to really survive that. The asset, then moved and some additional properties or claims were added to it by another junior out of Vancouver that were able to do one program in 2012. But they had challenges of the 2012/2013 downturn. Nothing’s happened to the project since. It’s just been sitting there and ultimately moved into Palladium One. So, there’s no market awareness, only two real programs and nobody’s followed up on the prior program.

Matthew Gordon: How do you ensure this company isn’t another statistic on the side of the road? What are the things that you need to deliver, stage by stage, to ensure that we’re still having this conversation a couple of years’ time?

Derrick Weyrauch: Well, we need to grow the resource in a prudent way and target the low hanging fruit.

Matthew Gordon: What does that mean?

Derrick Weyrauch: So, we’ve defined a resource right now. Our immediate target is to double that. And we believe we have a path to double that in fairly short order. I’m going to say it’s going to happen in the next program. That might be a little bit aggressive. But, I think in the next year, we would have a good shot of doing that with sufficient amount of drilling. We’ve got a budget now for a drilling program. We’re going to be doing 4-5000 meters of drilling. The reality is that we have to do a little bit of a balancing act. So, there’s a little bit about upgrading the historical information to be able to bring another zone into resource. But then there’s also the aspect of how much more discovery you want to get.

Matthew Gordon: Is that what you sold to Eric Sprott, 19%? But this is really option money for someone like that. But that’s the story he bought.

Derrick Weyrauch: Basically. There’s a resource growth opportunity here that’s not high risk. There’re very limited investment alternatives for Palladium. The fundamentals for Palladium are fantastic. You know, 80% of production comes from South Africa and from Russia. 90% of production is a by-product of other mining operations, whether it be nickel or platinum. As a result of that, producers have little capacity to increase palladium production to meet the demand. The commodities have been in deficit position for eight years and is forecasted to continue. The forecast for 2019 is about 800,000onz deficit in a market that’s only producing 7MILoz. It’s a big problem. And what’s also interesting is the two primary palladium producers globally, Still Water and The North American Palladium, they’ve both been acquired by South Africans taking the money and investing in other jurisdictions, whether it be in Montana or Ontario. So, it’s a market where there’s limited capacity to increase supply from the existing producers. And we think we’ve got a project that’s fairly straightforward. It’s open pit. It’s not very deep. We believe it’s going to grow a few multiples of where it is now on a systematic approach without applying huge amount of risk.

Matthew Gordon: Why should anyone look at your company versus the multitude of other junior miners or early stage companies? Why should they trust you to help them make money?

Derrick Weyrauch: It’s a great question. I think it starts off with the commodity, right? There’s fundamental demand it makes sense for the commodity. Secondly, the asset, there’s limited investment alternatives. If you’re looking for exposure to palladium, Stillwater’s gone, North American Palladium is gone. Where else are you going to invest? You’ve got a systematic, simple approach to increasing the resource so it’s not high risk. On top of that, we’re in a Tier 1 jurisdiction. Finland is a fantastic place to work. Rule of law and systems that’s mining friendly. There’re smelters locally. We’ve got power on the property. We’ve got roads to the property. It’s just a nice jurisdiction to be in.

Matthew Gordon: Ok. Well, we look forward to seeing how this story develops. Stay in touch. Let us know how things are getting on and we will see you hopefully in London soon. Appreciate that. Thanks very much.


Company page: https://www.palladiumoneinc.com/

If you see something in this article that you agree with, or even disagree with, please let us know in the comments below.

Any advice contained in this website is general advice only and has been prepared without considering your objectives, financial situations or needs. You should not rely on any advice and / or information contained in this website or via any digital Crux Investor communications. Before making any investment decision we recommend that you consider whether it is appropriate for your situation and seek appropriate financial, taxation and legal advice.

Orvana Minerals – Are You Buying this Turnaround story? (Transcript)

An aerial shot of Orvana Minerals’ Don Mario gold mine in Bolivia.

Interview with Juan Gavidia, CEO of Orvana Minerals Corp (TSX:ORV).

Orvana Minerals is a multi-mine gold-copper producer listed on the TSX with assets in Spain and Bolivia. Gavidia claims Orvana is a “100,000oz gold producer.” In addition, Orvana Minerals has recently filed a PEA for the Taguas Mining Property golf-silver project, Argentina.

There will be concerns regarding Orvana Minerals’ ability to operate effectively given the disparate locations of its assets, but Gavidia insists regular flights are nothing more than a mild inconvenience.

Orvana Minerals started the year with a share price of 0.16CAD, rising to an encouraging peak of 0.40CAD in August, courtesy of a rising gold price and the announcement of Oravana’s Argentinian asset, before plummeting back down to a worryingly stagnant 0.14CAD as of today. The company has a market cap of CA$19.13m and around $10m in the bank.

Gavidia alleges that market perception regarding liquidity is a large problem: Orvana Minerals has a 52% controlling shareholder. Investors may feel this perception is a reality, but Gavidia insists there is still 48% to play with, but the market simply chooses not to. Another issue is getting the new Orvana story out to prospective investors; since the successful introduction of an operational strategy that focused on lowering unitary costs and extending life-of-mine of operations, while maximizing cash flow, Orvana has seen a reduction from a $1400 AISC to an $1100 AISC. Gavidia hopes to reach closer to $1000 next year.

Orvana Minerals is currently discussing if the TSX is a limiting factor for them, and will make a decision in the near future regarding where the place to be is.

Gavidia cites the company’s production performance in addition to its experienced management team as reasons to climb aboard the Orvana gold-copper train. Orvana has good assets and could be a prospect in the future. However, with gold having as good a year as it has, investors might be worried that a gold company is struggling so much.

What did you make of Juan Gavidia? Is Orvana Minerals a gold-copper company of the future? Comment below, and we might just ask your questions in the near future.

Interview highlights:

  • Company Overview
  • Assets in Different Jurisdictions: How Did They Get a Hold on Them and What’s Their Focus?
  • Turning the Business Around: What are the Changes Being Made and When Can Investors Start Seeing Results?
  • AISC & Cost Cutting Measures
  • Listed on the TSX: What is it Doing for Them?
  • Argentina: Is it a Difficult Jurisdiction to Mine in?
  • Why Invest in Orvana Minerals? What Experience Have They Got?

Click here to watch the full interview.


Matthew Gordon: You’re over here for the 121 conference. What are you hoping to achieve?

Juan Gavidia: To connect with investors. And also with the mining community, because Orvana is ending up now big turnaround process of almost two years now. So, it’s always good to connect with people to give them the good news of our results.

Matthew Gordon: And have you got many investors in Europe, around the UK?

Juan Gavidia: We have some.

Matthew Gordon: You have some but are hoping to connect with some new ones.

Juan Gavidia: All the time.

Matthew Gordon: Why don’t we start off with a one-minute summary for people who are new to the story and haven’t heard it before.

Juan Gavidia: Well, Orvana is now a 100,000oz gold producer, a junior out of Toronto. However, our operations are one in Northern Spain. Astraeus, 60,000oz per year. And the other one in Bolivia, in the Santa Cruz region next to Brazil, which is a 40,000oz producer. So those two assets are the ones comprising Orvana.

Matthew Gordon: So how did you end up with them? Obviously very different jurisdictions. So how did you end up with both of those?

Juan Gavidia: Because Orvanaat the beginning it started off the asset in Bolivia. So, we had a very successful underground operation from 2002 to 2009 with that funding, we acquired the property in Spain, which was an opportunity other time.

Matthew Gordon: What are your hopes? Are you going to just focus on those two assets for now? And how do you split your time, management time?

Juan Gavidia: I mean, the joke is I’m in seat 3J, airplanes version. That’s pretty much the situation. However, it’s going to increase the issue because we also have a project in Argentina in the San Juan province, which is the most mining friendly province in Argentina. There will be an open pit. We are skilled in that to be developed over the next four years.

Matthew Gordon: So you talked about a turnaround process for three years. It’s a long, long, long turnaround process, right? So, what are you hoping to achieve? What does that mean, a turnaround process?

Juan Gavidia: Actually, the physical work was done almost a year and a half ago, which was to change their mining strategy. Before it was mining lower grade hard rock with some softer ground, high-grade rock. Now we are moving into a 50/50 type of depot blending. So, mining is more difficult because it’s softer ground, at a higher grade. So, the mastering of the mining in the softer ground was actually the turn around. That’s pretty much done since late 2018 and we’re just showing up with the goods, with the results.

Matthew Gordon: I’m always uncertain what’s going on in the minds of the management team. So, you had a scenario which wasn’t working for you economically. And you’ve had to come in and to reassess the assets you’ve got and work out how you can turn this business around. But how are you going to do that? The 50/50 planning, is that the solution?

Juan Gavidia: It’s actually been done. In 2019 our fiscal year, which ended in September, was showing pretty much the first full year of the results of the new mining method. Mining method is basically you have an underground body which has two sections; hard rock and soft. Soft, higher ground is higher grade. So, they wait to do this. You need to change the fleet to some extent. You need to change the skills of the crews to some extent. And you need to start doing other types of processes. It’s more like industrial engineering that work. At the end of it, the new processes, the new fleet, the retrained crew produced a higher tonnage of their sulphur ground ore and when we reached the 50/50 that’s when we said we’re OK. the where we reach the 50 50. Now, the end result is the average grade, so before we were almost around 2 grams per ton, we are now above 3. So, the grade is king.

Matthew Gordon: When is this going to start having effect financially for you?

Juan Gavidia: 2019 was the first year where we were very much above the average over the previous years, cash flow positive share, which is allowing us not to require any financing over the last twelve months.

Matthew Gordon: But you’re around USD$18M market cap. It’s not a big company. You’ve got USD$10M in the bank? You’re not seeing a lot of reflection for the work that you think you put in this year in the market. When’s it coming?

Juan Gavidia: So, there is a number of factors. Factor number one, we have our main controlling shareholder, 52%. So that’s a problem with a market perception about liquidity, etc..

Matthew Gordon: Is there much liquidity? Is there much trading?

Juan Gavidia: The liquidity, we have 48% to play with but the market doesn’t play much with our stock. The reason for this is before they turned around, we didn’t have a very stellar performance. So, we are talking to investors. We are coming to these kinds of gathering’s to tell the story because the story in not very good terms was lasting since 2011/2012 all the way to 2016. So, is it too easy to get those results but more difficult to also turn around the perception of the company? So, we are battling the perception. We are also telling the story that the main shareholder is not such an influencing factor in the performance because we are…

Matthew Gordon: Who is this group?

Juan Gavidia: It’s a family office out of the U.S.

Matthew Gordon: A US family office. They’re not involved in the day to day in terms of no decision making, but they’ve got to sit on the board?

Juan Gavidia: The board is only 6 people, 5 are fully independent.

Matthew Gordon: I want to talk about this turnaround because that’s the exciting bit that you want to tell the market. What effect is that having on the AISC because I know the AISC has been quite high?

Juan Gavidia: Well, the cost at the peak of the pre-turnaround situation we are approaching USD$1,400. Now we are approaching USD$1,100, closer to USD$1,000. We’re shooting for the next year to be closer to a thousand. Once you have the fleet catching up on the features of the fleet, once you have the crew caught up with the new processes. And also, we have the infrastructure ahead of us like you have the de-watering, all the ventilation and all the infrastructure inside the underground mine also up to date. Then you are not remediating anything. You’re moving forward. So that creates a more proactive approach, lowering the unit costs.

Matthew Gordon: AISC has been circa USD$1,400 bucks coming down towards USD$1,100 and you would hope at some point to reduce that more.

Juan Gavidia: Not hoping, we’re planning to reach that.

Matthew Gordon: You’ve got a lot of cash going in at the moment and you’re putting in infrastructure so your costs will remain high for a while, but at some point you’re going to have to stop managing…

Juan Gavidia: The underground mine that we are managing in Spain is going to be always be around USD$1,000. Even probably USD$980 or USD$950. But it’s going to always be USD$1,000, it’s underground. And the grades are going to be about 3g/t. If you have a mine of 5g/t or 6g/t, your unit cost goes down.

Matthew Gordon: You’ve got Bolivia, Spain and Argentina. Small company, limited cash, unless you’re going to go out to the market and raise more money because the margins are still small, even at today’s gold prices.

Juan Gavidia: We need to announce that our guidance still in a few weeks, however, we do plan on a strong cash flow position out of Spain for next year.

Matthew Gordon: How do you finance three different locations with limited resources?

Juan Gavidia: Of course, Spain. Bolivia is moving, it’s transforming, it’s repurposing the operation. It used to be underground, moving too open pit. And now we are moving into reprocessing stockpiles and tailings, and that should last at least for another 7 or 8 years. So that’s a very long, non-mining full processing phase for the Bolivian assets. So, that’s a cash flow self-sufficient. Financing for operations in Bolivia is actually very fluid for us. There is a local market. There is a local banking system. It’s also even a local stock exchange in Bolivia. So, we are tapping into all those resources. So, it’s a very self-sufficient situation. You will see in our financial statements that Spain, Bolivia, funding for operations, which is structural, is not a catching up type of financing, it’s local. So, we don’t have expensive funding coming from the usual suspects in terms of mining in Toronto, London, or New York. We’re having out of Bolivia like banking system and Asturias Northern Spain banking system.

Matthew Gordon: Why are you here?

Juan Gavidia:  Because we need to develop things, for instance Argentina. Argentina is our asset that is still in pre-feasibility. So, we need to move into feasibility. That would require extra funding. And eventually we will need to move into JV partnerships. So, basically to tell this story, to improve his stock price, to tell the story about the Towers project in Argentina, JV Partnerships. That’s the main reasons we’re here.

Matthew Gordon: Why are you on the TSX?

Juan Gavidia: Well, there is a lot of opinions around about where to be. ASX, TSX or private. So, in our case, we are discussing that very strategic situation. Actually, these days we will actually have this strategy session with a board every year, and that’s actually happening next week. We may have some news, but in general the VI is to be more liquid in whatever stock exchange we will be in ending or landing. Right now, TSX for sure, but we need to take some actions about our share price for sure. It’s structural.

Matthew Gordon: Something happened in June-July. What was that? Because we saw the price go up and then straight back down again to where it was.

Juan Gavidia: Two factors. We announced the Argentinian assets and we start riding the wave of the gold price up take. So those two were almost like coincidental. We would move up to CAD$0.40. And then we were subject to this pressure and short selling type of strategies. There are some articles about the topic, a lot of people, a lot of companies. And that was what we were facing. We saw the reports about short selling all these mechanics that we face because really the controlling shareholder is not worried in the short term of that situation.

Matthew Gordon: You’re not worried until you’ve got to raise some capital?

Juan Gavidia: So, these days we are selling the merits of the assets as opposed to the market cap of the company.

Matthew Gordon: You think there’s two things. One, the announcement of Argentina and two, the gold price. Clearly your share price has come back down again. That can’t have been just the gold price, even though you’re a producer, it was the excitement of what you were going to do with Argentina. Do you think the market hasn’t heard enough about what you’re going to do there?

Juan Gavidia: Yes. Well, that’s part of the reasons. Usually there is no one single answer for anything. But in this case, we need to continue announcing the next development phases of Tower’s. We are taking the attitude of perhaps a little bit too much time on the legal issues of opening the local subsidiary, moving the actual asset into the local subsidiary, looking to all the mining registrations in Argentina. But that’s ending within the next 4-8 weeks and then we can next announce **** works, moving from PEA (preliminary economic assessment) into PFS (pre-feasibility).

Matthew Gordon: Are you finding Argentina difficult?

Juan Gavidia: That’s paperwork, in terms of corporate registration in Argentina. So, there’s legal issues, not mining permitting. Mining permitting in San Juan province is the most mining friendly in Argentina. That was very, very fast.

Matthew Gordon: Why should people be listening to you versus all the other gold producers out there at the moment trying to catch a break?

Juan Gavidia: Because we have the results. So, we said something to investors, since two years ago, we are announcing quarter after quarter that we are improving. Right now we are completing our fiscal year, 2019, and we have the goods to show. So that’s pretty much what we’re doing.

Matthew Gordon: Tell me about the team that you’re working with. Who else are you working with to help you manage all of this, cut the costs and get the AISC down and go tell the stories to market?

Juan Gavidia: Excellent question. Thank you very much. So, I am a former mining person from major gold mining company and also I am Peruvian, so I saw first-hand performance of experts in countries like Spain, etc. or Bolivia, but also I saw the value of local teams properly developed. So, the emphasis in these last three years has been to, in a very intense way, develop local teams. So, we brought the experts for heavy, heavy in depth advising, consulting on improving the skills of the local teams. So, the general managers of both places, the technical top managers at both places are locals. And we do have IVP operations, which is an expert who is also like me, moving around the sites.

Matthew Gordon: Who on the team has been there and done it before? Who has created shareholder value? Has anyone done any exits? Anyone created larger companies, public companies before? What’s the track record of people knowing what they’re meant to do next?

Juan Gavidia: In terms of track record on how to put public companies in good shape, we have our CFO, which is with us here and then myself. So, we will be working with these since probably 2012. I came a major but the junior is very interesting.

Matthew Gordon: It’s a different world.

Juan Gavidia: I actually enjoy a lot. So we are creating, I think a very good result for the marketplace. We do have all these headwinds coming from the past, but we need to keep pushing forward.

Matthew Gordon: You do need to keep pushing forward. Juan, thank you very much. Really enjoyed hearing that story. First time for us. Stay in touch with us. Let us know what goes on. I like the fact you’re driving the costs down and now you’re trying to tell the story in the marketplace. Let’s see what happens.


Company page: https://www.orvana.com/

If you see something in this article that you agree with, or even disagree with, please let us know in the comments below.

Any advice contained in this website is general advice only and has been prepared without considering your objectives, financial situations or needs. You should not rely on any advice and / or information contained in this website or via any digital Crux Investor communications. Before making any investment decision we recommend that you consider whether it is appropriate for your situation and seek appropriate financial, taxation and legal advice.

Family Office – Major Investor Megeve Investments, Nicolas Banados (Transcript)

A photo of a neat stack of gold bars with 'Serabi Gold' written across the photo.

Interview with Nicolas Banados, Managing Director of Family Office Megeve Investments and Investor in Serabi Gold (TSX:SBI)

Megeve Investments, a non-discretionary portfolio of Fratelli Investments Family Office, is a single-family office located in Santiago, Chile. Its main asset is Chilean retail chain colossus, Farabella. The firm offers asset management and public/private equity investment services. Banados is Managing Director of Private Equity and attorney-in-fact at Megeve Investments. His focus in on direct investment in Latin American companies.

Megeve Investment first invested in Serabi Gold 8 years ago, where Nicolas Banados now serves as the Non-Executive Director for the family office. Megeve Investment already owns a copper company and a gold company in Chile, in addition to a forestry (natural resource) company in Colombia.

Therefore, Serabi Gold sat in a familiar area of the industry and was in a prime position for Megeve Investments to obtain c.50% (now voluntarily diluted down to 32.8% after the 25.3% investment from Greenstone Resource II LP). While the timing of Megeve Investment’s involvement in Serabi Gold was far from ideal given the plummeting gold prices at the time, Banados is still glad he made the decision to invest.

In addition to working on efficiencies at current Serabi Gold operations, Banados is open to the idea of additional acquisitions, like the Coringa Mine, in the future, to further enhance the production capabilities of Serabi Gold and solidify its position as a seriously profitable player. Banados spends a great deal of time working with Serabi Gold to align their strategies, resulting in a more cogent business plan that reduces the risk and provides clarity for existing and prospective investors.

Banados’ primary source of excitement comes from the opportunity for growth and exploration in a huge, gold-saturated country: while Brazil is a developed mining country, particularly of iron ore, the gold marketplace is yet to be fully mechanised.

Moreover, Banados sees immense potential in organic and green-field areas to increase production towards the ‘magic’ 100,000oz/y number. Lastly, Banados touches on South American operations and clearly explains the company’s priorities lie in areas it has established a sense of comfort: Chile, Brazil, Peru, Colombia and Paraguay. What did you make of Nicolas Banados? Are you intrigued by Megeve Investments’ involvement in the Serabi Gold story? Comment below.

Interview Highlights:

  • Megeve Investments: An Introduction. What Sectors Do They Focus On?
  • The Growth Component: How Does Serabi Gold Fit Their Portfolio?
  • Working with Serabi Gold on Increasing Production Capabilities
  • Future for Serabi and Their Investment: Was it the Right Choice?
  • Operating in South America: Positives and Negatives

Click here to watch the full interview.


Matthew Gordon: We are with with Nicolas Banados. He is an investor in Serabi Gold, the AIM listed gold producer. Thanks for joining us here in London. You normally work in South America.

Nicolas Banados: I’m usually based in Santiago, Chile. I travel around Latin America doing our investments in Chile, Peru, Colombia and Brazil.

Matthew Gordon: We’re really pleased to have you here because Family Offices are more and more an important part of the mining investment scene. We’re delighted to be talking to you today to try to understand how Family Offices think. Tell us just a little bit about the group.

Nicolas Banados: Megeve Investments, is the manager of Fratelli. It’s a single-family office. It’s a Chilean family which its main asset is a Latin-American retailer called Farabella. It has department stores, shopping centres, financing consumer loans and supermarkets, it’s a little bit of everything in the whole region. And we manage their other investments, we have public equities, debt, private equity globally, but with a strong focus to Latin America, which is our market. I run the private equity division of the company. We have a five-person team. We mostly do direct investments in companies in Latin America. We operate in Chile, Peru, Colombia and Brazil. Only those countries.

Matthew Gordon: I think you’re being quite modest. It’s a very large group.

Nicolas Banados: It’s an important group.And one of the things that you probably know about family office, is that we don’t disclose numbers.

Matthew Gordon: You started in retail. That’s where the wealth comes from, from a long time. Over 100 years ago, right?

Nicolas Banados: Yes. 120 years.

Matthew Gordon: But you have migrated and morphed into other things.

Nicolas Banados: The family still owns their retailer. They are still active there. I work with the second generation of the family. They are still one of the three brothers. One is still the executive chairman of the retailer. So, what we do here is we want to diversify the family into other businesses, not retail. So, I’m forbidden to do any retail related investment. So, we mostly do traditional industries, mature like mining, infrastructure or real estate. We have a cemetery company. We have a host of investments that we did recently. We have some technology infrastructure businesses as well.

Matthew Gordon: You’re spreading far and wide. Mitigating the retail risk.

Nicolas Banados: Not only to mitigate the risks, but all also to avoid conflict because retail is so important in Chile and Brazil and Peru and Colombia, that any retail investment that we do might have a conflict, so we want to avoid any conflict.

Matthew Gordon: May I talk about the natural resource space? You have got other investments in South America. Where does Serabi Gold sit in that portfolio? Was it one of the latest or earliest or…

Nicolas Banados: Well we have been Serabi Gold or eight years now. In natural resources, we have three mining companies, including Serabi Gold. So, we have another copper company and a gold company in Chile. We have forestry which sits within natural resources in Colombia. That was a Greenfield project. And power which is not a natural resource, but it’s related to in some way. I would say in all these projects we have been investing in the last 15 years. I’ve been with the company 15 years. We have always grown the company and built something. Sometimes like the forestry investment, we build it from scratch. In others like Serabi Gold and the other mining companies, we built a project that was already there, and we funded to build it, the construction of the plant or development of the mine or whatever it is.

Matthew Gordon: These are growth stories you’re looking for. That’s where you get the capital appreciation. Your money is long-hold, long-term money in that you will follow your money and give it a chance to grow, to breathe and become something.

Nicolas Banados:  Exactly. We’re not a fund, so we don’t have to exit. As long as we see a growth story continue. So, sometimes we have investments that have lasted for 25 years. Other investments have lasted all of 3 or 4 years.

Matthew Gordon: Got it. On more of a private equity type investment. But in that growth story, you’re looking for a revenue to start. That’s important to you.

Nicolas Banados: Yes.Within the initial investment that we do and the follow on or the M&A that the company that we’re investing in will do, we always look for, let’s say, projects that can be built just like the hot potato game. This is not what we do.

Matthew Gordon: It’s not a promotional thing.

Nicolas Banados: Not a promotional thing. We just want to make sure that whatever we buy, it’s something that could be built, generate revenues and positive cash flow.

Matthew Gordon: It’s safe to say when you invested in Serabi Gold, you knew what you were getting into. A space you understood, in a jurisdiction you understood and a story which you felt met the criteria which you’ve just outlined.

Nicolas Banados: When we invested initially in Serabi Gold in 2011 when the company IPO’d in Canada, we met Mike Hodgson and Clive Line, the CEO and the CFO. And what we did initially is that they had this project and we wanted to know more. Our initial funding was $200,000 and we funded the PEA of Palito. We funded the project with the objective of after getting that study, if the study was positive, then we will fund the CapEx of the project. So, that’s actually what happened after a few months, it took like 6-months, we received the study, it looked pretty good. So, we funded the CapEx. We went to the market a little bit. It was not so easy to market at that time. The project was built on budget on time. So, in some way the management built a track record with us, which was very important for us. Then we, Serabi Gold, bought a neighbouring project again. We liked it. We said OK we’ll fund the CapEx again. The market still was not so good. Well, that’s what we have been doing. Both are operating today. And then we started to look at other funding sources because we want other people to fund it as well.

Matthew Gordon: I think it’s safe to say that the market has been quite quiet for juniors or producers under a certain level for the last 6-years. You’ve given the chance for the company to survive, because you have a different mentality from institutional money, which needs to see revenues, returns or share price appreciation.

Nicolas Banados: I would say we funded it because, of course there is always the risk of the gold price, but assuming a conservative gold price, we said this investment that we are making, it will have a return regardless of the market, other than gold price. So, we felt confident that the share price can go up or down, but the cash flow would be there. We want to see growth over time, but we want the companies to deliver safe growth. So, it has to grow, but with conservative assumptions. We want Serabi Gold to grow and build other projects and merge with other ones that continue to work. Because in this industry being bigger, it scales the company up, the economics of scales, and reduces costs, that’s important.

Matthew Gordon: You’ve just got your second asset, which the guys are working out how to mine efficiently at the moment, that should double production That takes you towards 100,000oz pa number which everyone wants to see. Your view is that if there are other assets available, that you would encourage the team to consider some kind of acquisition or joint venture etc. that’s your mentality.

Nicolas Banados: Yes, as we have done in the past. We started with Palito, and then we bought Sao Chico, then we bought Coringa. We also see a very good opportunity for organic growth that can be done in parallel of these more inorganic…

Matthew Gordon: So how do you work with the team then? And are you sitting on the side-lines shouting at them?

Nicolas Banados: I sit on the board.We talk often. They run the company.

Matthew Gordon: Do they have the same mentality. Do you want to work at different speeds? Or do you have joined up thinking?

Nicolas Banados: We spend a lot of time aligning the strategy. It’s not that we get to a board meeting and they say one thing and I say the other. That doesn’t happen.

Matthew Gordon: You’re heading in the same direction.

Nicolas Banados: We head in the same direction. There is another board member from Fratelli called Eduardo. He’s a mining engineer and he has worked with Mike before Serabi Gold, other than Greenstone that also brings a strong mining experience. But we talk often, we visit, we help with the local knowledge. Mike knows Brazil very well but having a Latin American investor that can bring help with their banks, with other things and the culture, it helps.

Matthew Gordon: Your view is there’s some way to go on this. You’re happy with the way that the growth has gone, its cash flowing, it’s producing. What is the picture in your head about where Serabi Gold is heading?

Nicolas Banados: Brazil, it’s developed in terms of mining and developed in terms of iron ore, some other minerals, but not much in terms of gold. So, there is a huge opportunity for growth, exploration. It’s probably going to be more brownfield, greenfield projects, not that much because there are not many projects that we can just acquire operating producers. But there is a huge opportunity. It’s a big country with a lot of gold and we have the opportunity there, so we want to grow. Probably I would like to see that faster. But more than that, I would like the products to be delivered, to do it right, is more important. But if we can go faster, then that’s good news for me.

Matthew Gordon: Your team has known Mike for a long time and Mike knows Brazil and you’re heading in the same direction. The path forward all sounds rosy. But at some point Megeve will to monetize this.

Nicolas Banados: When Greenstone came in,we diluted because we thought it was not good for the company that one shareholder owned 50% or more to sell. And so, we decided to dilute, even though it was not the price that I wanted but we decided it was good for the company. Actually, it happened to be a good thing. So, in the future, we’ll probably dilute a little bit more. The company has to be seen as an independent company, it’s definitely not run by us. I’m in Chile. I come here, I can go to Brazil, but I am definitely not running the company. It’s run by Mike and Clive and the rest of the board and the management. And that’s what we believe is the company. And so, we can continue to support the company and we will continue to support the company. But we want also to have more liquidity to open spaces for other people.

Matthew Gordon: Do you think that you made a good investment decision and investing in Serabi?

Nicolas Banados: Yes. The initial investment, the timing of the market at that time was not the best. We were investing when the gold price was $1,800. So, and then it went down to $1,100. Who knew that would happen. Nobody. But I would do it again, definitely because we still see there is a huge opportunity ahead of us.

Matthew Gordon: Do you think they can become a mid-tier producer?

Nicolas Banados: Yes. And I think that Serabi’s also getting the attention of a lot of miners and when a gold company, mid or large cap, want to enter in Brazil. Who are the players there? There are not many. Who has built a mine in the last 5-years other than Serabi Gold. Or one or two?

Matthew Gordon: Not successfully.

Nicolas Banados: So, we havein some way we’ve become a target.

Matthew Gordon: Could you give us a bit of an overview of operating in South America? I know you operate in specific countries and South America, so again some of the questions that we get asked about, especially from AIM. North American investors are comfortable with South America. They know it, travel there, they holiday there etc. Europeans have seen some difficult times in South America.

Nicolas Banados: There are countries in which we do operate and others that we don’t. I would say only the one’s that we do – Brazil of course, Chile is another one, Peru and Colombia and we have one investment in Paraguay. So, we don’t do the other ones. In those countries we feel comfortable about safety. I can travel to those countries. I don’t feel comfortable traveling to some of the other countries. I can travel, I can do business.

Matthew Gordon: Tell me about Brazil, because this is about Serabi Gold, we’re talking about today and the fact that you’ve invested in them. So, Brazil, again, had a bit of a strange few years politically. Bit up and down economically.

Nicolas Banados: All the politics in Brazil happens in Sao Paolo and Rio and Brasilia. We are far from that. We are not in Sao Paulo. We are not in Rio. We’re not in Brasilia, we are not in the cities. We are up north in Parastate. It’s a remote location for business people, but it’s a very good infrastructure for a mining project. And we are very well received because there is not a lot of activity other than agriculture and forestry in that area. And so, we are very well received by the people, by the authorities, because they want new investment in this area.

Matthew Gordon: They want investment, they want jobs, they want taxes, royalties…

Nicolas Banados: The only good part of the political instability in Brazil is that the exchange rate is depreciated and that helps us. So, when noises about Brazil, that’s something people that are taking their money out of Brazil, that’s good news for us because that Real is going down and that exchange rate in in our benefit.

Matthew Gordon: Can I just ask about the Balsonero effect? Do you know much about what’s going on Brazil politically? Should people be worried?

Nicolas Banados: No, there may be more uncertainty in who’s going to run the country. Political uncertainty? Who knows what is going to happen? I don’t know. I have no idea who’s going to be the next President. There is no preferred candidate, but we are far from there. The only important change in environmental law because of Vale problems with the tailings, and there were some changes that we are complying to.

Matthew Gordon: But it’s business as usual.

Nicolas Banados: It’s business as usual. Of course, this trend is restricting some of the legislation. But we do comply with that because we set the standards at a higher level and it’s a completely different size. I mean, I don’t know if you know it moves like hundreds of millions of tons. Whether we are a mine that mines high grade, not high volume. We don’t fear Brazil turning into Venezuela… In Brazil, private property rule of law…. that’s going to stay.

Matthew Gordon: Mike. Clive.  Are they the guys to deliver growth for this company? The growth that you’re looking for?

Nicolas Banados: Yes. They have been for the company for a while. They have been through the tough times. They have delivered excellent results in building and operating projects.

Matthew Gordon: You trust you trust them with your money?

Nicolas Banados: Yes. We trust them with our money. In addition to Fratelli, I personally, I am aninvestor in Serabi Gold as well. I’ve put my own money in, my savings.

Matthew Gordon: So, you must trust them. Nicolas, thank you so much for talking to us. I wish you well with Serabi Gold and your other investments.

Nicolas Banados: Thank you very much. And thanks for having me.


Company page: https://www.serabigold.com/

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RNC Minerals – Has The Scale & Returns That Strategic Partners Need (Transcript)

A group of four mining workers stand proudly in front of a huge hunk of gold ore.

Interview with Johnna Muinonen, President of Dumont Nickel (TSX:RNX).

Production-ready, shovel ready, development-ready. Dumont Nickel has been positioned as a free ride for shareholders, but the reality is that Dumont may hit the market at just the right point in this cycle for RNC Minerals shareholders. Completing their upgrade of the PFS means that strategic partners will look at Dumont as a shovel ready project which is fully optimised say Muinonen.

We ask what the brief is from the board. What is the timing? What do you think about what you heard? We also discuss the timing and nickel market forecasts. How relevant is the EV revolution to estimates and at what point Dumont and RNC makes decisions about the timing as to when the company monetises this asset for RNC Minerals shareholders.

Let us know what you think about Johnna Muinonen. Does she make you confident? Does RNC Minerals know what it is doing?

Interview highlights:

  • RNC & Dumont: What is the Situation? Best Way Forwards: How Much Control Have They Got Only Owning 28%, What Will They be Able to do?
  • Analysing Dumont: What is There and How Expensive Will it be?
  • Market Dynamics, Nickel and Gold Cycles: How Does One Affect the Other?
  • Opinions on EV’s
  • Value Creation for Shareholders and Dumont Potential
  • What Can They Do in This Cycle and How Will it Affect RNC Shareholders? Financing Talks: Why Invest Now and Why are People Hesitant?
  • Production Values and Cash Generation Potential

Click here to watch the full interview.


Matthew Gordon: Hi Johnna. You are here in London.

Johnna Muinonen: Yes, for LME week.

Matthew Gordon: A lot of Nickel people here for that?

Johnna Muinonen: A lot of nickel people here for that. So, it’s always a good week to come to London because everybody’s here so you get to meet everybody.

Matthew Gordon: RNC is moving to be a gold focus business, but it has this very large nickel play in the shape of Dumont. So, how’s that panning out? Because if I look at some of your presentations from June, you have about 15-20 pages on Dumont. But if you look at the presentation today, 4. What’s happening?

Johnna Muinonen: With Paul coming in as CEO we are really a gold focus company. No question about it. However, what I’d like to talk to you about today is that we own 28% of one of the largest undeveloped sulphide projects in the world. And we feel that we can add value to RNC shareholders by looking at various options for Dumont moving forward.

Matthew Gordon: That’s 28%. Waterton own the balance. What do they do?

Johnna Muinonen: In 2017, we sold 50% of Dumont to Waterton. They’re a private equity firm. They are now our partners and Dumont. Dumont is fully 100% owned within the JV. We are now 28% and Waterton is 72%. RNC remains the operator and manager of the JV. We do all the technical work for Dumont as well and then work with Waterton in terms of looking at strategically moving the project forward. Financing and marketing.

Matthew Gordon: What does that actually equate to? You mentioned a phrase ‘for shareholder value creation’, as directive from Paul. Is there a time line on that? What are the options on the table? What are you thinking about doing here? You’re only 28% shareholder.

Johnna Muinonen: We’re not getting a lot of value for Dumont in our share price. We do feel that we want to make sure that we maximize that value for our shareholders. We are looking at strategic options. That was my directive from Paul on the board when I took on the role as president Dumont Nickel that we need to look at, what could we possibly do to actually get some value for Dumont to our shareholders, to RNC. And that could really involve several different things. We’re looking at options around spin outs, potentially a sale, potentially we hold it until nickel prices come up a little bit. So, everything’s on the table.

Matthew Gordon: The G&A is quite low. Not a lot of overhead associated with it right now.

Johnna Muinonen: So, let me explain a little bit the way the JV is funded. When we got into the JV with Waterton, Waterton funded our portion of the holding costs for 5-years. So, they funded a portion of the costs. Currently, all the work that we have planned that we’ve done to date, we pay 28% from within that funding. So, currently the work that we have planned for the next, say 18 months to 2-years is currently fully funded within the JV. So, it is a bit of a free carry for RNC right now.

Matthew Gordon: Waterton is dependent on you to inform them as to what to do. They’re a private equity firm, they’re not miners. They’ve stumbled across mining assets or they’ve funded mining assets, but they’re not by any means experts. How does that relationship work?

Johnna Muinonen: It’s been a bit interesting and we’ve been doing it for almost 3-years now. We’re getting pretty good at it. What it really works is the JV is structured, it has a board. Waterton has two seats on the board, RNC has two seats on the board. We have a technical committee below the board, which is made up of, again, two people from Waterton and two people from RNC. Essentially, the way it works is we look at the work that we believe needs to be done. And generally, this is in concert with Waterton. We don’t show up one day and say, hey, we need this amount of work. We do talk through and we meet regularly to talk through what work do we think would be value added? The feasibility was one of them, about probably close to a year and a half ago, we started talking about, OK, we have a feasibility study from 2012. It’s getting a bit stale. Costs are getting a bit old. We all believe in the nickel market eventually starting to rise and we wanted to get ready for it. And so, between them and us, we discuss what would the scope of it be? How would we run it? Who would be the engineer? And then once we sort of decide that the budget and the scope and get that approved through both the technical committee and then into the board, we then go off and execute.

Matthew Gordon: That’s the dynamic between you and Waterton. What about Paul Huet, the CEO of RNC. He’s a gold guy. You guys have also got to agree about the best way forward. So, it’s great giving you a directive saying maximize shareholder value. But, as you say, this is dependent on price of nickel now, when you believe the next cycle is and what you can do in this cycle, right?

Johnna Muinonen: There’s a lot of moving parts. And right now, we’re just starting to work through that, because the reality is there isn’t a lot of benchmarks out there about value for development nickel projects, because the reality is there aren’t a lot of development nickel projects out there. it’s not like copper or gold where you can go out and benchmark a whole pile of sales purchases. So, it does become a bit more difficult to sort of really quantify Dumont’s value.

Matthew Gordon: We know it’s a big project. It’s going to require a lot of money. You’ve got to bring in strategic partners. They’ve got to bring a lot of money, maybe technical knowhow, but maybe you guys got that covered. Give us an overview.

Johnna Muinonen: Dumont is a very large scale, low cost, long life asset. It’s a billion-ton reserve. It is going to produce in the first phase, which is seven years above 33,000 tons of nickel annually, expanding in year seven to 50,000 tons of nickel annually and over the 30-year life will produce 39,000 tons of nickel annually. We are located in the Abitibi region of Quebec in a very active mining region. We have lots of local support. So, we have all of the pieces in place to be ready for the next boom. If we look at what work needs to be done to get us into production, we’re talking about a 30-months to 33-months, both engineering and construction. So, from financing, the reality is that’s the lead time. But if you look around the world and you look within sort of low risk jurisdictions, there isn’t a lot out there of scale. There’s lots of smaller operations that will produce sort of say 10,000-15,000 tonnes of nickel a year in Australia, in Brazil, in smaller mines in Canada, in Europe. However, there’s really when you look at sort of the world landscape of sulphide deposits, there really isn’t anything or a lot that’s out there in a development ready, production ready, shovel ready type build like Dumont, which is what I find exciting about it.

Matthew Gordon: Dumont’s got that. There aren’t too many others, or if there are you can count them on one hand. What are the numbers involved? Because large scale means large cost.

Johnna Muinonen: We are looking at building a 50,000-ton concentrator which is large, but it is well within the scale of operation in the area. So, we are right located just outside of Amos Quebec. We’re on an all-weather highway and we have a powerline that runs 5km north of the project. And within 10km, there’s two other large open pit mines of similar scale. So, there’s lots of experience in the region on that sort of scale of operation. But it is a large project. It is $1Bn initial capital.

Matthew Gordon: That’s a lot of money.

Johnna Muinonen: Absolutely it is.

Matthew Gordon: Is it a normal number?

Johnna Muinonen: It is a normal number. When you’re looking at building a 50,000 tons per day mine and mill, you’re looking at $1Bn.

Matthew Gordon: So, that must restrict or give you a very good sense of who you can go and talk to?

Johnna Muinonen: Oh absolutely.

Matthew Gordon: And what are they thinking? Because they’re looking at ‘can we do something this cycle?’ Are you guys ready? Or is it next cycle, in which case, when’s that?

Johnna Muinonen: If you had asked me the same question 10 months ago, people would’ve been like ‘$4 nickel, $5 nickel’, not so sure. I think over the last sort of 3 or 4 months of interest we’re getting more calls. We’re getting more calls, getting more inbound interest by various people who do want to talk. And they’re not small players. They’re people that want to talk about when does it fit? When are you ready? What does it look like? And the $1Bn is a big price tag. But when you start to break it down into pieces, you look at there will be a senior debt facility in that probably to the tune of about $500M. There’ll be some equipment financing. The equity cheque at the end of the day to pull it off, take a loan as part of that, maybe a small stream of the precious metals, potentially. The equity portion of that is probably in the $300M range. So, when you start to break it down like that, it’s not we’re going to go out and build $1Bn… We’ve got to go raise that.

Matthew Gordon: And you’re 28% of that?

Johnna Muinonen:  And we’re 28% of that. Exactly.

Matthew Gordon: And so, again, it depends on what’s happening in the rest of RNC that will determine what the cost of that money is and where indeed where you put it in, project level, presumably. How do you go about having those discussions with people about the cost of that money and how do you retain as much as possible, because your brief is’ shareholder value’, right?

Johnna Muinonen: Yeah, absolutely. Absolutely.

Matthew Gordon: You’re 28%, so you’ve got to create some shareholder value, more than it is today.

Johnna Muinonen: Which is arguably not much, I’ll admit that.

Matthew Gordon: I certainly think you’re not getting much credit for it and I think it’s partly the company has said, ‘Oh, and you get Dumont for free’, that kind of strapline, which is a little bit disingenuous’.

Johnna Muinonen: Yeah. No, no, I mean it really is. I have heard that said ‘oh and you get Dumont for free’. Well I mean if you look at it, if we look at even the two commodities, I realize we are a gold focused company, and our real focus is on the gold assets in Australia. No question about that. But in a rising nickel price environment, where you’re starting to get interest and excitement around people realizing the world’s going to need a lot of nickel in about five years’ time. Where are we getting that from? Dumont has the real potential to add value to RNC.

Matthew Gordon: Is that part of your equation then? It’s like maybe we’re be better waiting for five years?

Johnna Muinonen: We’ve talked about it. Absolutely. Because Dumont is funded within the JV. And I think that’s where we get that whole ‘oh, we get it for free’. You know, the fact is, is that we are funded for several years within the JV. And so, it is a bit of a free carry. So, it is a bit of nickel exposure, future opportunity. However, in the short-term, looking at our shareholders, looking at the focus of the company, we may want to do something sooner rather than later. And like I said, we’re not about to put up for file, so we’re not in a rush. We have cash in the bank.

Matthew Gordon: You’ve got cash in the bank. The costs of running this thing for another 5-years is negligible in the scheme of things. Not negligible in terms of dollars. You’ve got salaries, permits to maintain all of that kind of thing. But you’ll do the math and work out whether you just deal with it now, focus on gold or you wait 5-years because the upside could be because of demand story. It’s going to be better for shareholders.

Johnna Muinonen: And it’s hard because you can’t predict the future. And so, if you look at today and you say, well, maybe the best option for shareholders, do something now, to clarify the structure, be a pure gold company. Maybe that has more value now than having two assets. And being, personally, I know people say it’s confusing. Are we gold or are we nickel? What are we? So, maybe there is value, but it is a bit of a…nobody has a crystal ball. So, you can’t really say, well, in 5-years’ time…

Matthew Gordon: It’s not distracting you financially or otherwise?

Johnna Muinonen: We have a team in Australia that’s fully dedicated to the gold. That is their focus. We have a smaller team within Canada that works on the Dumont story.

Matthew Gordon: How does RNC make the decision about timing? Because obviously the gold part of the business is moving along. It’s normalizing relationships in the marketplace as people understand the business plan. Is there any pressure from what’s happening in the gold side business, which affects your decision making on the nickel side?

Johnna Muinonen: I think the gold side is ramping up. We’re coming along there, the gold side. Like you say, it’s normalizing. We’ve seen a lot of success recently. We’ve hit a couple more pockets of the higher-grade gold. So, that is moving forward. And really, with Graham in Australia and Paul, they really have that managed. Because Dumont is funded within the JV for RNC’s portion, there’s no real immediate need for us to take cash from profits in Australia and funnel it towards the nickel. So, at the moment we are under no immediate pressure to do anything about it. However, we are in an interesting nickel market right now, very much more so than when we completed. So, when completed the fees back in June, nickel was $5.50 a pound. Nickel is now hovering between 7.50 and 8 dollars a pound. The stocks on the LME are almost at an all-time low. So, we’re in a very different place. So, we want to make sure that we do look right now at taking advantage of this current nickel price to see if there’s that appetite. But at the end of the day, we’re not going to fire sale Dumont.

Matthew Gordon: Sure. But neither are you going to decide rashly, because nickel is famously volatile, right? You’ve been through various super cycles of nickel and they last a long time. And I think we talked about it, bits of scrap metal getting to the market if the prices stay high for long enough. And that’s going to again, give us a false impression of supply for a while.

Johnna Muinonen: Absolutely. I agree. If we look at right now, this recent price action is really somewhat artificially generated by Indonesia exclusively. Where Indonesia has restricted the export of ore into China to make NPI. So, originally, they had restricted as of the end of the year, but then people were starting to massively export ore above and beyond their current permits. So as of Monday, they announced that it was shut down completely. Whether or not that’s going to be permanent or going to be for a few weeks until they figure out what’s going on, we don’t know. However, it’s definitely a supply control versus demand. With this rising nickel price environment, it is going to draw out stockpiles of stainless-steel scrap of ferro nickel that has been sitting in people’s backyards waiting for nickel to go above five or six dollars.

Matthew Gordon: I think we know which backyards.

Johnna Muinonen: Yes, we do. So, we will need to chew through that as an industry.

Matthew Gordon: How long?

Johnna Muinonen: Probably, next year into Q1, Q2. It’s not a huge amount. However, there is some. And stainless is still pretty soft in terms of the demand side of things.

[17:39] Matthew Gordon: And that’s going to affect prices?

Johnna Muinonen:  It will. Absolutely.

Matthew Gordon: But it will bounce back up?

Johnna Muinonen: I mean long term, we have seen year on year deficits in nickel production into the industry. We’re on our third year of deficits. I believe next year the International Study Group is predicting another small deficit. We are seeing these deficits. We do need new nickel to come online at some point in time. And that’s really just the stainless-steel story, you start to overlap the EV’s story on top of that. I think the challenge with EV’s is nobody’s quite sure how fast, how much and when. But it is definitely out there. EV’s especially within China, within Europe, all of the large major auto companies are now announcing major plans for EV cars to come out, various models. But it’s a bit uncertain about timing. And I 100% believe it’s coming. I personally drive an EV. I think that once you drive them you realize exactly why people love their EVs. But it is coming. I do think it will probably be slower and I think if you really look at the industry on the OEM side of things, specially within the historical the OEMs, they have so much infrastructure built into building internal combustion engine cars. That is going to be a very hard tide to change quickly. They have billions of dollars invested in plants and invested in manufacturing lines. Plus, you just need to ramp up the battery and cathode supply side. There’s a huge amount of capital that will need to be spent to actually make all these batteries. It’s not just tomorrow. So, when we look at Dumont, the one thing I’m very excited about is if you look at the world of nickel and you look at nickel sulphide deposits the reality is there just aren’t that many or any nickel sulphide deposits that are currently permitted in a low risk jurisdiction that can produce something in the order of 30,000 to 50,000 tons of nickel annually for 30 years. And that’s where I think Dumont’s value really is.

Matthew Gordon: How long did the last cycle last?

Johnna Muinonen: Oh, I mean, the down cycle, the reality is that we haven’t seen a true nickel bull market since 2007/2008 really. I mean, there was a bit of a bull market 2010 when RNC first IPO’d. We sort of lucked into a window there back in 2010, but otherwise it ran up a little bit 2013. But we haven’t been in a true bull market for a while.

Matthew Gordon: We’ve seen some pretty big numbers forecast. What are the conversations internally with Waterton.

Johnna Muinonen: There’s sort of two conversations. One is how do we maximize value for RNC shareholders? And then how do we maximize value for Dumont within the JV? And what does the structure of the JV… It’s a JV between two partners.  

Matthew Gordon: Why are those two separate things?

Johnna Muinonen: Not necessarily. Maybe they get cleared up in one step. Well, in terms of ownership, in terms of how Dumont is owned. And maybe there’s options around things like potentially… to get to your point of you can’t predict the future, looking at an alternative for Dumont that separates it in some form from RNC, but potentially RNC retains an interest of some sort of upside potential. I don’t know exactly what that looks like. But maybe there’s something there where you kind of look at doing the best of both worlds. You create a clean gold company, a clean nickel company but RNC at some level retains some sort of upside interests. We are talking about that, looking at that, what does it look like? Adding a new NSR onto Dumont’s probably not doable but revamping something around that or something. But there are options that we’re looking at because that really for RNC shareholders, that would start to reduce some of these short-term risks of just selling it. It removes the management in Operation and Distraction.

Matthew Gordon: So, these are not unusual considerations in the mining space and those conversations have happened before. But if I’m a long-time, long-suffering shareholder, I am asking the question, ‘how long do you guys need to monetize this?’

Johnna Muinonen: I’ve been there almost 10 years now.

Matthew Gordon: 10 years. Mines can take 10 years to get into operation. So, this has had, because of the nature of the nickel market… I must explain here. It’s not like gold. It’s not like copper. So, you can go in fits and bursts, but people are saying, ‘just get it over and done with. I need to see something now’. What do you think it could do for RNC if you did do something this cycle?

Johnna Muinonen: If we did do something this cycle, first of all, in the short-term, there might be a potential to offer RNC some sort of initial consideration. RNC has some debt outstanding. There’re opportunities for capital spend in Australia as well, potentially. If we could monetize Dumont in some way, some short-term value. I think longer term having or retaining some sort of upside consideration is really where that’s where you get exposure to the nickel prices. The last time nickel ran, we went from $1.98 up to $25 a 1lbs. Nickel is the most volatile of the base metals, it goes the highest and it goes the lowest and it dives the lowest. So, having some exposure to that long-term, I think that that’s how we go about adding value.

Matthew Gordon: What do you think you need to deliver for this cycle to be able to put you in the position, to give you the opportunity to have those conversations?

Johnna Muinonen: We’re completing the updated feasibility study. We had to do that just because if we had not done that, we would be trying to market Dumont with an outdated study. So, that was done. The next stages: one is off the back of that study. We need to make sure that our stakeholders, which include the government, including the local communities, are all updated on the study, as well as updating things like closure plans, updating looking at our CFA’s, making sure that we don’t need to do anything there or if we do, start to take care of that. Because what we want to make sure is we build Dumont as a shovel ready project, which essentially means what is shovel ready? Shovel ready means that you have your permits in place. You have your land ownership. You have your surface options. You have your mining lease. You have your closure plans. You have your technical study up to date. So, making sure all of those things are maintained because updating your Feasibility Study. That Feasibility Study forms the basis for all of those sorts of feed forward information flow to the government as well. So, the next in the short-term, making sure that we have all of that, maintaining our shovel ready status, that is very important. A couple of things, some of the more optional ones, are really around looking at some of the value-added opportunities that we saw come out of Feasibility Study. So, in the feasibility study, we saw some opportunities around automation, truck automation, just like the EV story, just like all of the things, haul truck automation is coming along faster than… so, by the time Dumont gets into production trucks of that scale will almost all be automated. So, we want to look at that because that adds significant value. We want to look at potentially magnetite off-take. We want to look at some technical equipment choices. So, there are a few things we’d like to look at over the next sort of 6-months to look at how is there an opportunity to add more value to Dumont? Because that really speaks to investors who want to come in to say, what are my upsides? Here’s the project, what else could I get?

Matthew Gordon: But you can have these conversations now because you’ve got to leave something on the table for them because they can go, well, maybe we automate this. There’s an opportunity margin for them, right? Are you having conversations now?

Johnna Muinonen: We’ve had ongoing conversations with people over the last three to four years.

Matthew Gordon: Who?

Johnna Muinonen: The major mining companies, nickel companies. We’re talking with downstream OEMs. Battery companies, as well as trading firms.

Matthew Gordon: But some of those are more realistic like those OEMs, EV revolution, a couple years out, mining companies, they know who you are and you’re one of a handful of big, large scale operations for nickel. So, why aren’t they knocking at your door now?

Johnna Muinonen: I think they’re keeping they’re in a bit of a wait and see approach right now.

Matthew Gordon: What are they waiting for?

Johnna Muinonen: I think they’re waiting for a couple of things. I think that they’re waiting for the nickel demand side of the story to become much stronger.

Matthew Gordon: They’ve got to have a view on this, because they must be looking at nickel, reading the same reports I’m reading going, it’s all good, right? So, why not come in now? What’s stopping them?

Johnna Muinonen: A history of greenfield nickel projects that have not been successful. Now they’re much more complicated than ours. They’re very much higher risk jurisdictions, much more complicated flow sheets. Dumont is a very standard mine and mill, as opposed to some of the very complicated HPALs or a laterite projects that have been blown out the water.

Matthew Gordon: By complicated, do you mean more expensive?

Johnna Muinonen: Technically complicated, which then leads to more expensive, significantly more expensive. We are a mine and a mill. On a scale of simple, people know how to build mines and mills.

Matthew Gordon: People should be attracted to that. You’re saying people still just aren’t committing because the nickel price is doing what they think it should be doing.

Johnna Muinonen: I think that they’re still in a wait and see mode. Absolutely they have forecasts. I mean, absolutely. They think that the future of nickel is, ‘we are about to enter a bull market over the next 12-months to 18-months’. They’re keeping in touch. They’re making sure, knowing what’s up, knowing what’s happening. But I think people are waiting to see the demand side start to get a little bit stronger. I just think that with the supply restraint in Indonesia…We were at $5 a pound 3-months ago. I just think most people haven’t quite caught up and there’s still there’s a bit of a disbelief that now we’re between $7.50 and $8, let’s just have a wait and see for a bit.

Matthew Gordon: They want some consistency.

Johnna Muinonen:  Do we make it through this next quarter? Do we see the price fall back? And if so, how much does it fall back? How much scrap is really out there that’s going to come into the market?

Matthew Gordon: That’s a question of pricing. How much they are going to pay. Not a question of if, it’s a question of what’s the optimal timing for us to work out how much this is going to cost us? Is that what you’re saying?

Johnna Muinonen: I think in some ways. I do think that whole EV story… I do believe in the EV story. But I do think the question on speed that it’s going to advance and the timing. I think that most people are still somewhat bearish on some of those estimates. And so, people are still taking that wait and see. Everybody believes that the EVs are coming and that batteries are going to be a significant consumer of nickel moving forward. But timing! Is it really 2023 or is it 2025? What are we really going to need this nickel to come on board? And then with the run up that’s been so sudden and somewhat unexpected, I think people are just sort of wait and see. So, keeping in touch and making sure they know what the updates are, what’s happening.

Matthew Gordon: If someone puts a $1Bn, gets this thing built out for you. What do they expect to make?

Johnna Muinonen: If you look at the free cash flow of the project over the life of the deposit, somewhere, EBITDA $200M annually. It’s a large cash generating project. It is a low cost. Overall our C1 cash costs over the life of mine (LOM) are just over $3 – $3.22 are all in sustaining cash (AISC) per pound on a U.S. dollar basis is just under $4 at about $3.90. So, when you’re looking at projects to invest, because the thing about nickel, I talked about it before, nickel is the most volatile of the base metals, it jumps the highest and it falls the lowest. If you’re going to invest $1Bn in the project, you need to make sure that that $1Bn is going to be paid back. You have to make money.

Matthew Gordon: And there’s a cost to it.

Johnna Muinonen: And there’s a cost to it. There’s interest there. There’s a cost to that to everybody. The reason why I believe in Dumont, one of the reasons, is just because of its scale. So, we have a 30-year life project. That 30-year life allows you to take advantage of those peaks and valleys of the nickel cycle. And because it’s such a large scale, low-cost project, you are profitable along that that entire time. Any investor that comes in has that time on their side to be able to get back their investment. Because nickel, unlike copper, it does really go up and down. When you look at some other projects that are $300M – $500M to invest, but only are 10-years, you can really easily miss the price cycle.

Matthew Gordon: The cost of building the plant, aggregated at over 10 years versus 30 years. We understand that. Johnna thanks very much for coming in. Brilliant to catch up with you. We understand your brief. Monetise this for shareholders. That’s what they want to hear from you in the next few months. How you going to do it, what are those discussions are developing and what it’s going to mean for them.

Johnna Muinonen: Our focus is shareholder value. And the board and Paul have given me very clear direction around looking at what we can do with Dumont to maximise shareholder value.


Company page: http://www.rncminerals.com/

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Regulus Resources – Credible Copper Company Creating Cash Coppertunity (Transcript)

A map of Regulus Resources' assets including the Antakori Project.

Interview with John Black, CEO of Regulus Resources (TSX-V:REG).

In the mining country of Peru, Regulus Resources specialise in identifying promising copper or copper-gold exploration projects. Large copper and gold projects are in high demand and short on the ground.

This team thinks they have the perfect asset for a major mining operation to extract. Regulus has a market cap of $120M and while the share price rose in March to $1.92 after promising drill results (34 holes with 820 meters of a 0.77% copper equivalent), they’ve now receded down to around $1.36.

Regulus Resources is an excellent example of a copper/gold company in the evaluation period of its life cycle. There is clear potential exemplified by the level of investment by management in Regulus projects, the experience and track record of the management team, and their strong list of assets.

However, Regulus Resources has work to do before investors can think about scheduling an extravagant party with no expenses spared upon the sale of their shares. While no hitches are expected, Regulus Resources is still waiting for a permit to come through for their asset in the North of the property, which isn’t the fastest process in Peru. Liquidity of their stock is an issue: a symptom of the company’s position in its life cycle but also because the stock is so closely held by a just few insiders, c.70%. Regulus Resources is conscious of this as they enter their next round of fundraising.

Capital is available but management must decide what type of investor they want to come in at this stage. Regulus Resources needs to convince prospective retail investors their copper/gold project has what it takes. This can take a significant amount of time and not all investors are willing to play the long game.

Regulus Resources is in a heavy drilling phase that has only just begun and there is lots of work left to do and funds to raise. The management’s track record suggests that they are capable of creating real value for shareholders by developing exploration assets. While Regulus Resources looks like a safe, stable investment, with solid if unspectacular long term prospects, it looks unlikely to be making shareholders money anytime soon; that will require them reaching a point where larger mining operators come in and bring it through to production. For the patient investor, money is certainly there to be made, but just how long is the long-term? What did you make of John Black? Let us know in the comments below.

We Discuss:

  • Company Overview
  • Update on the Jurisdiction: Permitting Processes in Peru
  • Share Price Bump in August: How are They Continuing to Grow the Share Price: Working the Cycles: Can They Raise Money and How?
  • Focus and Strategy: Have They Got the Money to Make it a Reality?
  • Creating Value: Should You Invest in Regulus Resources?

Click here to watch the interview.


Matthew Gordon: We spoke to you back in the beginning of May. Can you give us a one-minute summary for people new to the story?

John Black: We have a company that we’re a group of seasoned explorers and we specialize in identifying large copper or copper gold projects at a relatively early stage, but at a stage when it’s clear that it will be a fairly strong project. We capture those projects, we drill those out, and then ideally, we deliver a large, economically robust resource to the market at a time when major companies are looking to acquire these type projects.

Matthew Gordon: You have project’s in Peru. Peru’s a well-known mining region and district. You’re surrounded by some big name companies. How have things been since we spoke in May.

John Black: When we spoke in May, we had just put out first resource estimate on the project. So, between indicated and inferred resources, we announced over a 500Mt resource of attractive copper gold grades on the project. And we were just entering into our Phase 2 drill program. Our Phase 2 programs designed to be about 25,000m. We’re about halfway through that program and we’ve been announcing some very eye-catching drill results from that drill program.

Matthew Gordon: You’re waiting for a permit to come through. Any reason to believe that that won’t come through?

John Black: No. The good thing about Peru is it’s a mining country. It’s a fairly standard process. It’s a very transparent process in the sense that there’s no jumping the queue or anything like that. The frustration that many of us have with Peru is that sometimes it’s a slow process and you don’t know exactly when it comes out. But ours is fairly straightforward. And it’s just a wait now. We anticipate that we’ll have the permit by the end of the year.

Matthew Gordon: And no challenges or issues from that neighbour?

John Black: No, not at all. No. The fact that we’re next door actually helps us. We’re more of a brownfield situation and we’re in Northern Peru, we’re in Cajamarca. We’re in an area that is a mining community in the area. And we don’t have indigenous community issues or anything like that. We have good support from the local communities on moving forward. So, it’s just a just a process. The process now involves a number of other ministries, not simply just mining. You have to check off with other interests in the country. And that’s good for us. That means that it confirms that we have broad support to go forward with what we’re doing.

Matthew Gordon: When we spoke in May, your share price was about $1.45. It’s about $1.30 at the moment. But you’ve had this peak, had a bit of a run up in August, September. Can you tell us why that was?

John Black: What we’re seeing and is an interesting pattern in our space right now as we drill the project out. We’re drilling lengthy holes into a fairly large deposit. And so, we have drill results coming out about every two months. And we’ve been announcing some rather spectacular results. Results that came out in September included hole 34 with 820m with a 0.77% copper equivalent. Eye-catching results on that. That catches the market’s interest. We tend to see a run up in price. But we’re fighting headwinds right now with trade tariffs affecting copper price and affecting sentiment in the copper space. And so, we tend to see a pattern where we have good news results in a run up and then we drift back off until we get the next good news coming out. We believe the results we’ve been putting out warrant more steady, positive results that accumulate over time on this. But our trading pattern has resulted in kind of flat for the year.

Matthew Gordon: Yeah, it’s kind of flat overall. I was just interested in that peak because you went up to circa 175, then back down at 130. It dropped off rapidly. And you’re putting that down to trade tariffs and commodity price as a result of the trade times. Right? But are you at that kind of funny stage in terms of your drilling. You’ve got about four rigs, is that right, in the ground at the moment?

John Black: We’re currently drilling with four rigs. Yeah.

Matthew Gordon: OK so that’s giving you meaningful data, that you’re that kind of funny stage where you’re waiting to tell people what it is that you think you got there in the ground and how do you sustain, how do you consistently convey what it is that you’re trying to do or trying to be to enable the share price to actually start going upwards?

John Black: Well, the good thing is this is not the first time we’ve done this says as a company. Our business model is to get on a project like this and drill it out. We have good access to capital, we have good supporters, good shareholders on this. And so, we focus on steadily drilling the deposit out, demonstrating the size of it and de-risking it. It’s kind of a funny market that we’re in right now is there’s a lot of positive sentiment for copper in particular. And when you talk to major mining companies, they’re all trying to position themselves to have large copper deposits. There’s a general consensus that there will be a looming shortage of copper as we see further electrification of vehicles. And quite frankly, we’re not putting too many new mines on in production is an industry right now. However, in the short term, there’s uncertainty. I mentioned the trade tariffs. It’s partially centred around that, maybe global economy as well on this. And so, I’ve described it as the most positive yet, cash poor market that I’ve seen right now, where everybody seems to be in agreement that copper is a great place to be, but everybody’s waiting for it to happen. And so, everybody’s watching. They’re taking a look, but they’re afraid to be the first movers on this. We see this commonly in the market when we’re on a market, bottom or lower spot on this. Nobody wants to go first. Everybody wants to wait. Everybody agrees it’s a good idea, but they need to see those breakouts and sustained breakouts. Quite frankly, it’ll be mostly in copper price for us if we see, for example, trade tariffs resolved between the US and China or a general more positive feeling on global growth. We will most likely see the copper price move and then names like us will be in a very good position because we’re working on a large deposit, one that’s very attractive for people to acquire. And so, we kind of look one to two years out is where we want to be, and it’d be nice if our share price was steadily climbing and that, but we know we’re building the base so that when the positive sentiment comes back, then we’ll probably see a rather sharp uptick for names like ourselves and many others.

Matthew Gordon: So, what’s the thinking for you? I mean, how do you deal with these cycles? OK so you’re a bulk play. You’ve got some credits with gold, silver. So that’s kind of appealing. But it’s very it’s a low-grade belt play here. Do your shareholders like, Route One I think one thing was someone who was on board, do they say we’ll continue to follow our money? We believe in the thesis, we believe in this management teams’ ability to deliver this project. Will they continue to fund you or are they now sitting back and also waiting to see what the market does?

John Black:  No. Route One’s, a very steady supporter for us. They’ve actually encouraged us to go out and take advantage of these low spots in the market, both to acquire projects. Quite frankly, the Anta Kori project we had, we acquired it in 2014 when the market was even a more difficult situation right now. So, we like these soft spots in the market. It’s a good time to acquire projects. It’s a good time to work on them. It’s easier to get drill rigs, prices are cheaper. Good qualified people are available. So, the important thing is to have access to capital and be able to work steadily in these periods where the market’s struggling a little bit more. Then we’re building up the resource, we’re building up the project that we want to have when the market hits that boom. And then the thing about our business is it’s very cyclical when we have these low spots, we always see the high spots come back on it. So, it always seems a little scary while you’re waiting for them. Yes. But we’ve been through this a few times before. And that’s the important thing, is to work steadily, focus on project quality. You want to have a project that stands out. We believe we have that with Anta Kori. You mentioned a key point is it’s not only copper on this project as a strong precious metal’s component to very significant gold content. So, we kind of have some protection on metal prices. Copper is down a little bit now, but gold’s up a little bit, too.

Matthew Gordon: Where you were in 2014 and having Route One encourage you to buy something in 2014 is different from today. You didn’t have assets then. You have assets now. The market, the cycle is at a low point now. What is Route One telling you to do today? Because they’re not saying go out and buy more projects, are they?

John Black: Well, in general, and it’s not just Route One, we have a number of backers that encourage us to do what we do, as well as our own personal philosophy on this is it right now is Regulus we’re on to a very, very good project. We’ve recently spun out a new company called Aldebaran on a very encouraging copper gold project in Argentina as well. And so, we’re not aggressively seeking new projects right now. But you always keep your eyes open. Projects like what we have with Anta Kori and Regulus and what we have with Altar and Aldebaran are very hard to find. It’s an industry we’ve been able to, as juniors, put our hands on a number of these over the last 15 years or so, reveal the full potential for them and sell them to majors. It’s been a very good business model for many of us to do. We were very successful in our first company Antares when we discovered the **** deposit and sold out to First Quantum. We’re back on another one that we think we can do again. But it’s harder to find those right now. And so, groups like Route One or others that back up are always encouraging us to keep our eye out if we see another one of these rare, rare opportunities. We’d certainly tried to put our hands on it, but we’re, as you mentioned an interesting point, right now we’re onto a very good one with Anta Kori and Regulus. And so, we’re really in the stage now where we’re focusing on drilling it out, showing the full size, de-risking the project, having it ready so that when the market enters into a stronger phase than it’s in right now, interestingly enough, that’s when the major companies acquire projects is when copper prices are high. It’s because they’re cashed up and they’re looking to grow.

Matthew Gordon: I understand that. So that’s the M&A components. And then towards the end that you think answered the question, I was going to ask. So, what have you as a board or a management team decided to focus on now in this low cycle? And have you got the cash to be able to do that?

John Black: Yes. Essentially, in these low cycles, capture a good project, which we have and now focus on drilling it out, showing the full size, de-risking it, having it prepared to be ready when the market comes back more strongly than it is right now. And we see the roots of that. We see the major companies clearly indicating they want to have very good projects and they’re looking. We’re not quite into a strong M&A phase. Capital right now, we have we have good, strong supporters and for good projects we’re seeing access to capital is, I wouldn’t call it easy, but it’s there for good projects and good teams. And particularly those with a gold component. There’s been a flurry of financings for gold related projects recently and we can play. Both aspects of this project as being both copper and gold say.

Matthew Gordon: So relatively easy. And I know you’re stressing the word relatively. Where would you be getting this money from? You’re not yet looking for strategic. You want to maintain control, to prepare, as your word, the company to get the best outcome for your shareholders. Is that fair to say?

John Black: That’s fair to say. Yes, absolutely.

Matthew Gordon: So, who are you talking to? Or who will you be talking to with regards to raising the next round of capital? What type of money are you expecting to bring in? How much? What are you going to do with it?

John Black: Well, there’s been an interesting phenomenon really in our space recently. If you look at most of the major financings that have been done for larger amount of moneys for serious drill projects. We’ve seen a migration away from the traditional private placement in our space and we’ve seen an increasing number of strategic placements, major mining companies, putting money into interesting projects that they want to monitor, even at a relatively early stage. And in some ways, it’s acting as a proxy for their expiration efforts. They’ve realized they’re not generating sufficient projects themselves. So, they just get a toehold into a group like this. And so that’s something we’re very aware of and we’re constantly in discussions with potential groups to do that. And then the other alternative is to do a more traditional private placement, which has been difficult for us, partly due to competition from other high risk, high reward opportunities like the cannabis industry or prior to that cryptocurrencies. So that’s drawn a lot of funding away from us. We’re starting to see that come back into the mining space, particularly for gold right now, so right now we really have two principal avenues that we’re exploring. One is a strategic placement from a variety of major mining companies or private equity funds that want to have a toehold into an interesting project like we have or always with the opportunity to go in a more traditional private placement. They have their pros and cons. The strategics are very attractive, but you have to watch out for strings attached. You can’t be wed to one company by simply having them make a minor placement into you.

Matthew Gordon: Right. And with all your experience and your track record, what’s that telling you with regards to the amount of money that you think you’ll need to have in the kitty to be able to prepare this company for some kind of exit?

John Black: Well, our business model requires us to do a lot of work on a project. When we acquire the right project like we have our hands on right now, we’re into a heavy drill phase on this as we drill that out and so our burn rate, the amount of funding that we need to progress the project is approximately 20-$25MIL Canadian per year. We’re nearing the point where we need to get set up for next year on this. And so that that would be approximately the amount of money somewhere between $15-20MIL is what we’d be looking at raising in any variety of manners between now and, say, the end of the year.

Matthew Gordon: Right. And then I guess then comes the question again, using your experience, you’ve been there, done it before, is do you think you then reassess the situation at the end of next drill season and then work out what you want to do? Or do you say, well, that’s the moment where we’re going to have meaningful conversations to try and monetize this, have a monetary event?

John Black: Really, we’re right on this as we’ve put out our first resource in March, we’re in our Phase 2 drill program. That’ll be about 25,000 meters. We anticipate we’ll finish that about the end of Q1 or sometime in the first half of next year, which will allow us to put out an updated resource about mid-2020. At that point, we’ll make a decision on whether we put a preliminary economic assessment around that or if we still feel the project is quite open for expansion we would enter into a Phase 3 drill program. Our strategy really is to demonstrate the full size of the project and identify the best areas of the project before we enter in to putting economics around it. You really don’t want to start too early on that because you want it to have the best foot forward when you put your first look at what the project might look like, the full potential of the project.

Matthew Gordon: And where do you believe that shareholders get the most value? At what stage? Obviously, the PEA, Phase 3 I think you’re calling it, has some benefits, but PEA’S you know, I think they vary in terms of the numbers, in terms of what they tell you. It’s preliminary. Do you think that the company will see more of an uplift if it gets into a pre-feasibility stage? Or do you think a PEA is the point you could exit just as meaningfully?

John Black: If we look at the lifecycle of a junior mining company or really any mining company on this, there are two really notable points when you see a lot of increase in value in projects. Well, one is between the discovery point and approximately the completion of a pre-feasibility study. It’s the drill definition. You’re onto a good project. You’re revealing the size of it and you’re de-risking the project to confirm that it could be economically developed. There’s a very sharp increase in value in the project at that point. And then there’s another increase in the ramp up right before you go into production. But sometimes that space between completion of a pre-feasibility study and production is a long period of time and it’s a risky time for a single asset company like ourselves. And so, our business model is to identify projects as close to that discovery stage as possible. Ideally, we acquire them after the discoveries been made, but maybe not fully realized by the market or the group that is offering it to us. And then we reveal that discovery. That’s exactly where we’re at right now in the Anta Kori project. And then typically we notice that up to about a pre-feasibility stage, it’s a good time for us to be investing money and showing that. If we’re on a very strong project at the time, we complete a pre-feasibility and we’re in a good market, a robust market with good metal prices, it’s highly likely that a major mining company would like to take it from us. It seems strange that they let us add that much value to it, but they want to have certainty it’s there. So, it’s not simply it’s a large project. They want to have it de-risked and be comfortable with it. So, we typically see our role as working up to about that pre-feasibility stage. And then ideally, we pass it on to a company that has skill sets to develop the project. We’re not miners. We’re good at identifying projects and discovering them, revealing the full potential on them. But then it’s best for us to pass that on and that results in an earlier return for our shareholders. So, we like that early monetization at about a pre-feasibility stage. A good project and go to a PEA. Sometimes they take a little bit longer. It depends where the market is in terms of price and how robust the project.

Matthew Gordon: Right. So, people think to have a view on the price of copper at the moment, looking at chat rooms and forums, people seem confident in the management team’s ability to deliver this. I think the question’s always been around timing. That’s their only concern. It’s not a case of if, it’s when, which is good. It doesn’t do much for your liquidity, though. So, what do you want to say to new investors or potential new investors looking at this as an investable proposition?

John Black: Yeah. For somebody looking at a project, liquidity is an issue that we were quite conscious of as we go into a round of raising additional funds. So, that will be a consideration on when we bring in new funding. It’s nice to go to one source, or same shareholders or steady hands that way. But we do realize that liquidity is important. So sometimes bringing in new investors could be advantageous to us. So, we’ll certainly have that in consideration. But for those that are looking for a project right now, a good management team that has done it before, is a very important way to identify good opportunities in our space on this. Our group has successfully completed our business model once with Antares, which resulted in a very nice return for our shareholders. We learned a lot in that process and we believe we’re on to a better project now and a chance to do that again. It does take some patience on these. So, we’ll be building value. We’re the type of investment opportunity where you accumulate when prices are weak like they are right now. And you sit on that and wait for us to have that monetization event. A lot of values added very quickly as we approach that point in time when we can monetize the project.

Matthew Gordon: John, look I appreciate the catch up. Sounds like you’re sticking to the business model you know. You’re very clear. My interpretation is that, you know you’re not miners, you’re not pretending to be minors, not pretending to get into production like some management teams do, even though they’ve never done it before. You’re clear of what that point that you’re looking for is and how you’re going to get there. I guess what we will like to see is how you fund that and what the cost of that money is. As you say, it’s cheap to come in now, but not necessarily good for existing shareholders. With that dilution. But if it allows you to deliver an exit that like, I guess everyone’s going to be happy.

John Black: Well, it’s not like we’re rock-bottom prices by any means that right now at all. We’ve identified a project and that shows we have a market cap of about $120MIL right now, which shows that we’re on to a good project. It’s a good intermediate stage with us right now. And the real trick now is to make that next jump up. And we’ll do that by continuing to deliver the drill results we’ve been doing right now. Should that increase in resource, a critical stage to watch for us is that we anticipate we’ll have the permits that let us make that next jump to the north. And by moving to the north, we’re have the opportunity to increase the size of the resource that we’re on. But we also anticipate that the quality of the resource is greater to the north. As we move to the north, we’re moving into an area, the project that has cleaner metallurgy with it and is associated with better quality ore, so we think that that’s a critical stage for us and that’s a great opportunity for people to get into the company before we make that jump to the north. Once we’re drilling to the north, if we don’t deliver the results, we anticipate that we’ll see from there, that’s the type of point when we’ll see not just a jump, but a sustained jump in the value of the project.

Matthew Gordon: It’s a bit early, but we’re coming up to tax loss season in Canada. That’s always a tough one for juniors. Is that going to affect your decision making as to the timing of raising money?

John Black: Tax loss is kind of a funny one. It’s always hard to predict. I mean, we are coming up to that time of the year when that’s mentioned a lot on this. Keep in mind, many investors are not just in our sector, they’re in other sectors as well where they may have a lot of tax benefits on this. So, it’s kind of hard to tell. Investors have their reasons to be selling. If there are those that want to sell for very good reasons right now. That just creates an opportunity for other people. So, I view the end of the year this way as a great time to look for opportunities for good prices in solid projects with good management teams and to position yourself well for those, in particularly in the copper space. We will see a point in the not too distant future when we see a price increase and any company on a very good project right then is likely to see a substantial increase in price. So. it’s a great time to patiently position yourself for one or two years down the road.

Matthew Gordon. Beautiful. Thanks for the summary, John. Appreciate your time. Stay in touch and let us know how things are getting on.


Company page: https://www.regulusresources.com/

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Aldebaran Resources – Copper Gold bought cheap with Regional Scale (Transcript)

A wide photo of the Altar copper-gold project in San Juan Province, Argentina.

Interview with John Black, CEO of Aldebaran Resources (TSX-V: ALDE).

The third company from Regulus Resources’ management team, Aldebaran Resources is an “exciting” copper-gold play based in San Juan Province, Argentina.

Their flagship project, Altar, is a large copper-cold site obtained for a discounted value from a different mining company. Aldebaran, in conjunction with precious metals mining company, Sibanye Stilwater, are currently in the process of re-evaluating the project. Drilling began in January 2019, but time must be taken for exploration and the conduction of a logging program.

While the well-established track records of the Regulus Management team will instill confidence in many a prospective investor, the financials are slightly concerning. Share price has been as high as 90, but this year it’s plummeted down to 35. The company is also sitting on significantly less cash than it was in February, which begs the question: if the value of shares has gone down, how has Regulus used its cash reserves to add value?

Another concern will be the priorities of the management team. With so much already on their plates with Regulus, is Aldebaran a fledgling project that will find itself neglected? John Black offers some reassurance; a drill program on another Aldebaran project has begun in Aguas Calientes, and the primary asset, Altar, demonstrates immense potential, with over 2.5 billion tonnes of low-grade copper-gold mineralisation, and the promise of significant zones with a much higher grade.

The Route 1 group are significant shareholders with nearly 50% ownership of Aldebaran. This can provide long-term stability but for retail investors, there will be concerns regarding such high ownership levels from a single group. Will Route 1’s priorities align with the remainder of Aldebaran’s shareholders?

What did you make of John Black? Is Aldebaran Resources a promising prospect, or is it more of a pipe dream? Comment below.

Interview highlights:

  • Company Overview
  • Company Financials and the Share Price Drop of 2/3: What Happened?
  • Getting the Share Price Up: Will it be Possible?
  • Challenges and Opportunities for Raising Money
  • History of Aldebaran and its Potential

Click here to watch the full interview.


Matthew Gordon: We recently spoke about Regulus. Want to talk about the spin out which is Aldebaran. Could you give a one-minute summary for people new to this story, please?

John Black: Aldebaran is the third company from our same management team. Our first company, Antares Minerals, was sold to First Quantum in 2010 for about $650MIL. From that, we formed Regulus, which has the exciting Anta Kori Copper Gold project in northern Peru. And then we recently identified the opportunity for another exciting copper gold project called Altar, which is in San Juan Province in Argentina. And that forms the flagship project for Aldebaran. And it’s a large copper gold project. It’s one that was drilled out and previously purchased by a mining company. It was not a good fit with that company. And we identified an opportunity to pick it up for pennies on the dollar. We’ve captured that. We’re in the process right now of re-evaluating the project ourselves. And in the very near term, you’ll begin to see us demonstrating the full potential of this project.

Matthew Gordon: Beautiful. Thanks, John. Let’s start with the money side of things. So, you’re sitting on quite a bit of cash at the moment to develop the Aldebaran project, somewhere in the region of 11-12MIL bucks, is that right?

John Black: Oh, no. We’re actually at about $5MIL on the project right now.

Matthew Gordon: OK sorry. You’re right, that’s from February 2019. Good. Just sticking with the financials, share price, it’s been as high as 90, this year’s down at around 35 at the moment. What do you put that down to?

John Black: Well, when we captured this project, what we did is we had projects in Argentina as part of Regulus Resources that we had parked while we focused on the Anta Kori project. But we realized we had value in those. But we needed a little bit more to form a solid package of projects: a solid portfolio projects in Argentina. So, when we saw the opportunity to acquire Altar, we saw the opportunity to spin out and form a new company in Aldebaran. And we spun that out at a set price that was based on what our principal investors were willing to put in to get that setup at. And then the market settled that price down into where the market saw that, at that time. It’s a new project or a project that hasn’t been seen for some time on this. It’s in Argentina, which is a little bit less of a mining country. And so, we’ve seen a natural drift off on this as many of the investors that received Antares shares as spin offs, decided that they wanted to cash those shares out and put the money to work on projects that maybe had a more immediate opportunity to. And so, we’re now in the in the phase where we’re quietly putting together the Altar project and we’ll begin to reveal that value on the project over the course of the next year or two. And we’ve also just set up to begin to drill on our Aguas Caliente phase. So, a lot of the drift off has just been it’s a new company. There are projects that have not really seen much news on, as we’ve set it up in the years, it’s kind of in that initial stage where we’re consolidating and putting everything together, but we’re now in a position to begin to put out new drill results with the Aguas Caliente drilling. Aguas Caliente is a high-grade cup or high-grade gold silver opportunity that we see in Argentina, that drilling will start on in the next few weeks and we’ll soon be able to reveal how we see the Altar project and what the potential value is. And so, it’s a great time to get into a quiet story that’s just not really noticed by the market.

Matthew Gordon: Okay. I think as denoted by me getting the cash position wrong, your PowerPoint is from March 2019. You talked about starting to tell the story and I know you’ve got a PR presence, foreign personnel on board to start doing this. And you spent clearly 6-7MIL bucks since we last spoke. So, what are you going to be able to tell people about what’s happened to date?

John Black: We’ve recently just come out with the drill results from the field campaign earlier this year at the Altar project. And so, we drilled four long holes into the system, discovered a brand-new zone on the system, and have announced some very long consistently mineralized intervals. We’re talking about intervals of 800-1000-meter intervals of a +.5% copper equivalent with higher grade zones within those. So, that drilling was done to help us understand better the geometry of the mineralization in the system. We’re currently relogging the existing 115,000 meters of drilling that had been completed previously on the project, and with the new drilling and our re-evaluation of the old drilling on this, we’ll be able to present to the market over the next several months how we see this project really looking. It’s known as a very large but low-grade deposit and we view that that is what it is. But within that, there are distinctly higher-grade zones. And we want to reveal the importance, the economic importance of those higher-grade zones within the deposit. So, there’s a lot of geologic work we have to do in the background on this. We have put some of those results out quite recently. And they’re there for those that want to look for a good opportunity like this. But we’ll be able to show that in better ways in terms of how those higher-grade zones look in the in the course of the next few months.

Matthew Gordon: Right. So, it is interesting bit for me as a shareholder, I make money by share price going up. The share price has been hit, there’s been some resetting, I think you’ve called it, also maybe some market conditions, market nervousness around trade wars. And as we spoke with Regulus, you spent 6-7MILbucks within the last six months. You’ve no sense of whether you’ve got a dollar for dollar return there or not because the share price is down. What do you think you’re going to be able to do with the next 5MILbucks, which is going to drive to share price back up, or is that just not going to be possible for you?

John Black: We wouldn’t be spending this money if we didn’t think it was a good investment. We think of this money as our own money. We’re heavy investors. And keep in mind that as management we own nearly 18% of Aldebaran. And so, we think very carefully when we put this money in. Our business model is predicated on us identifying opportunities that we can capture at a bottom in the market, either due to lower prices in the market or in the case of Altar it was a project that was held by a company where it didn’t fit, and they were willing to part with that project. So, we captured this project for much less than it would cost to drill out, what’s known on it right now. And then it takes us many times a number of years for us to either drill the project out or in this case, to partially drill it out, but partially re-evaluate and identify clearly more economically viable portions of the project. So, this project is one of the larger copper resources that’s out there in the hands of a junior, potentially available for a major mining company to acquire. Major mining companies are not finding these projects themselves. And many of them are very optimistic that there will be a necessity for a lot more copper in the future as we see further electrification of vehicles and other things that drive copper price on this. And so there will be, I believe, in the next few years be an increased demand for these large copper projects. And we’ve put our hands on a great one right now. And a lot of times when we do that, when we initially acquire, this is not the first time we’ve done this. With the Hickory project we suffered through a couple of years when our market valuations were really low, even though geologically we knew we were on a great project. The same thing happened with Anta Kori and Regulus. And now we’re beginning to reveal the value on this one. I just view with Aldebaran right now, we’re in that early stage where we’ve put our hands on something at a great acquisition opportunity on this. We’re beginning to invest the money into it to reveal, but sometimes the full reveal of that value doesn’t come until just a little bit later on in the project. But there’s not an instant X number of dollars increase in price of our business. A lot of times you’re putting that money in. You’re working on showing the full potential of a project and then that potential gets revealed when we can show the project in its full potential on that. And that just takes us a little while to set up.

Matthew Gordon: Sure. So, you’ve got 5MIL bucks on the current run rate. That suggests another five months burn, right? Is that about right?

John Black: No, it’s very lumpy in this company right now because that’s very dependent on when we’re drilling on this. And so, what our plans are right now is, is that we will be drilling the Aguas Calientes and Aldebaran, we have the Altar project, which is our flagship project, the large copper gold play opportunity. But we also have a series of other projects at earlier stages and one in particular has caught our eye called Aguas Calientes. We have very encouraging high-grade copper or high-grade gold silver material on the surface and we’ll be drilling this for a high-grade gold silver epithermal vain opportunity in the course of the next few weeks. So that’s a relatively small drill program. We’ll spend about a $1MIL Canadian on that, which will result in the potential for a new discovery on this and results to come out soon on that. And then in the background, we’re putting everything together to be able to define what the next stage at Altar project is. Probably the first stage of that is to reveal the full potential of it. So, people can begin to see what that opportunity is. And that will determine how much drilling we’d need to do. We have a lot of drilling in Altar already. We have a lot of data there. So, it may be simply having us reveal what’s there by being able to better present in a different light the information that we already have.

Matthew Gordon: So, here’s the question. You’ve got 5MIL bucks left. You outlined some of the ways you can spend the money and I guess you’ll prioritize that in the way that your experience tells you to prioritize that. You expect some of those things to have an effect on share price. If they don’t, your market cap stays the way it is. You’re going to need to raise some capital. It’s going to cost you what it’s going to cost you. How are you going to approach that? I know you’re going to tell us story in the market. Really, really well. You’ve said you’re going to start telling the market really well. How do you approach the fund raise when you’ve done these things deliverables on your three projects and the market doesn’t appreciate it yet? They’re not listening to you. Just go ahead and raise small amounts or do you try and say I need to raise 12 months’ worth. What’s your thinking?

John Black: Well, our thinking really on this we’re just as I mentioned, we’re just kicking off a drill program in Aguas Calientes, so we’d like to see what those results are. They have the potential to dramatically change the situation on the project. We will be able to better reveal the full potential of the Altar project as we complete our relogging program and can present that in a little different light. I think what you’ll see us showing is the higher-grade portions of the deposit, which are still extremely large. The current resource is over 2.5BIL tonnes of low-grade copper gold mineralization. On this we view that within that 2.5BIL tonnes there are significant zones of much higher grade that form a deposit by themselves, if you will. And so, we’re in the process of being able to put that together to reveal that. When we show the results from the program at Aguas Calientes we will show our full thoughts on where we’re going with the Altar project. We believe that will warrant an adjustment in the share price on this, which would allow us to raise capital with less dilution. But the important thing is that we move projects forward on that. So, we do have the capability of raising capital somewhat independent of the share price on this. It’s just always best for ourselves as current shareholders and all of our other shareholders to do it at increasingly higher prices.

Matthew Gordon: What does that mean? What do you mean we can raise this independent of share price?

John Black: Well, we have some very supportive shareholders. This is a bit of a different structure to a company on this in that we have a group called Route 1 that’s been a strong backer for our team all the way back to the Antares days and they’re strong supporters for Regulus and they own nearly 50% of Aldebaran. Sibanye, the company that we acquired the project from has 20% of the project and his management, and we have 18. So, it’s fairly concentrated shareholders on this. And there’s alignment amongst the shareholders on this that the important thing is to move the project forward. Ideally, we’d love to do this. Our goal is to increase the value in the company, certainly by the end game, which we view as monetization and selling the projects to a mining company at the end of this. But we’re focused more on that end game than we are on day to day on this. But we do believe that the results from Aguas Calientes have the opportunity to bring us back on the map, if you will, on this. And we believe that when we’re in a position to reveal our full vision on what Altar is and what the full potential is, that that’s likely to result in an increase share price. But there are other factors that are beyond our control, like copper price or other things that could affect us as well. So, we have some time on this. And when we’re in a position where we don’t like our share price on this, the important thing is to roll out additional information, so people can understand better what we have and to be cautious. You don’t spend as much, you don’t raise as much on this when your lower share prices. But it’s important that you keep the company moving forward.

Matthew Gordon: But isn’t that kind of your problem. Based on that maths you’ve got 12% of free-floating shares, haven’t you? You’ve got 50, 20 plus 18. Liquidity’s the issue here, right?

John Black:  You’ll notice that many of the companies that do well, this is not terribly different than some structures of, say, some of the Lundeen companies and others where you have large concentrated holdings from groups that are very comfortable in the long term on this. It almost becomes a little bit more like a private company structure on this. And sometimes when you’re in a market bottom, that’s a little easier structure to have than when you have a lot of liquidity in a tough market. Liquidity is your friend when the market’s robust and going up, but your enemy when it’s going down on this. And so right now what we focus on is setting the project up, acquiring the project which we’ve done, and then setting it up and getting ready to begin to reveal that. And as we reveal that, and we raise additional capital, that’s where we anticipate we’d be bringing in new investors and increasing that liquidity. But the nice thing is it doesn’t take too much interest in us to move us pretty quickly right now, too, because it’s there not very many shares available. So, if we deliver the results that we believe these projects will deliver, a little bit of demand will have a sharp increase in our share price.

Matthew Gordon: Potentially. I think that’s a kind of fine balance. We’ve seen a few companies over this side of the pond who’ve had too much in the hands of one or two shareholders and it’s killed their share price, it had the opposite effect. It’s a balancing act. I appreciate that. But also, it gives me an insight into how you guys are thinking in terms of taking this forward. You know, you believe you’ve got the ability through your current shareholders to get you to a point where you’re comfortable to go out to market and it put some more shares in the market. Understood.

John Black: Keep in mind one thing on this, if we had a project that required a lot more drilling to reveal the full potential on it and a lot more investment on it, that would be one challenge. But here we acquired this project under very good terms, but it’s a project that actually has quite a lot of drilling to it. The Altar project was drilled out by a junior company like ourselves called Peregrine Metals and sold to the Stillwater Mining in 2011 for almost $500MIL U.S. cash at the time. It then stalled. The company that purchased it was not a good fit for the project and it disappeared off the map. So, we acquired it for much less than that. So, you know, right now, when you take a look at our market cap and the size company we have, we have the option to turn 80% of a project that at one point was valued in cash at over nearly $500MIL U.S. and when the copper market was robust. If we returned to that type of a copper market on this, we believe we can show that there’s more to this project than was even known then. And much of that we can do from simply relatively low-cost work to re-examine this and recast the information that’s there so people can better understand that this is not simply an enormous low-grade deposit, but there are distinctly economically more attractive higher-grade zones within it. That’s what we want to reveal to the market. That won’t cost us too much money to do that. That’s a lot of geologic work. We did spend some money this year for the drilling to gather information to better evaluate what we have. But we’re now in a position where we can reveal quite a bit of information about this project without a particularly large spend on it to go forward. And we believe with that information on the table, we’re likely to see a different valuation.

Matthew Gordon: So how much money has gone into this company in total then?

John Black: The way we structured this is as I mentioned at Aldebaran was a project that was acquired by Stillwater Mining for $487MIL in 2011. We acquired the option to pick up 80%. So, we had the option to earn 80% of the project for $15MIL U.S, which has been paid and for Sibanye, which was the new owner of the project after they acquired Stillwater, has 20% of Aldebaran as part of the process. And we need to spend $30MIL over the course of 5 years to acquire 60% and $25MIL additionally to go to 80% on the project. So, over the course of the next 8 years, we need to spend $55MIL total to acquire 80% of the project. We’re well ahead on this, we’ve just completed our first year on this and we’ve spent approximately 7 or $8MIL into that work commitment. So, we don’t have to work at that pace right now. We can a little slower as markets a little bit slower on this. But we anticipate we’ll spend that money to acquire the 60% interest within the next four years. So, we have we have time to do that. What we need to do now is to better demonstrate to the market what the potential of this is first. And then we anticipate over the course of the next few years, we’ll see, most likely, an increased interest in these type projects from major companies. And that will likely come as a predicted supply gap in copper emerges and we start to see copper prices move up. And so that will provide us a better environment to raise money at less dilutive costs.

Matthew Gordon: So, you don’t feel you’re under any pressure with regards to money as it stands because you can control the pace at which you move forward.

John Black: We can control the pace of it and we have good supporters on it and we’re on a great project with much more value than is currently revealed in our share price on this. But we don’t want to spend all of our effort just trying to get that up in the short term. We really want to set the fundamental situation so that the end game is there. We focus on that maximum value at the point that we would monetize this project by selling it to a major mining company.

Matthew Gordon: Okay. Look John, I think that’s a great reintroduction to what’s going on with Aldebaran. Fascinating. I think if people can pick shares up, might be worth having a look. Well, stay in touch. Let us know what’s going on. Sounds like a bit more drilling to happen as those results come out. Give us a call. Let us know how you’re getting on.

John Black: Yeah. Keep an eye on these Aguas Calientes. That’s a second project in there that has potential to emerge as something pretty exciting on this. And then the real fundamental part of the company to watch is how we reveal that value in Altar. And we’ve discussed a little bit on where the share price is right now. But in our previous two companies, we suffered through these same points where even though we knew we were on a great project, a lot of times takes a while for the market to see that. And the important thing is, is that we will be able to move the project forward. We will have access to the capital we need. We’re no risk of concerns that way.


Company page: https://www.aldebaranresources.com/

If you see something in this article that you agree with, or even disagree with, please let us know in the comments below.

Any advice contained in this website is general advice only and has been prepared without considering your objectives, financial situations or needs. You should not rely on any advice and / or information contained in this website or via any digital Crux Investor communications. Before making any investment decision we recommend that you consider whether it is appropriate for your situation and seek appropriate financial, taxation and legal advice.

Hummingbird Resources – No Problem. It’s Mining. +110,000 ounces (Transcript)

A close up photo of a Hummingbird taking flight with green foliage in the background.

Interview with Dan Betts, Managing Director of gold producer, Hummingbird Resources (AIM:HUM).

An honest and candid conversation with Dan Betts about the highs and lows of mining gold in Africa.

They had a tricky 18 months but they overcame and found workarounds to be able to deliver +110,000oz. Challenges with water and a legal case a distraction. All resolved and they move on, aggressively. Hummingbird is producing more cash with improved margins and paying down debt. We like their prudent approach to mining and cash retention and their ability to solve problems when they arise. Allowing them to grow and deal with unforeseen issues. Gold grades are consistent. Q3/19 results are on schedule having played catch up for most of the year.

Is it trading at a discount to free cash flow multiples? What do you make of the way the dealt with investor concerns? Leave a comment below. We like the management team and is one we will follow with pleasure.

Interview highlights:

  • Overview of the Company
  • Dealing with Issues over the Last 18 Months
  • Production Numbers: What Have They Managed to Produce in Q3?
  • Growth of the Business: Any M&A in Sight? What is Their Strategy and Vision?
  • Share Price and Shareholders: What are the Expectations?
  • Divergent Strategies: What are Their Competitors Doing Differently to Hummingbird?
  • Dividends on the Horizon? What is the Company Worth?

Click here to watch the full interview.


Matthew Gordon: So, why don’t you kick off and give us a one-minute summary.

Dan Betts: So, Hummingbird is a gold producing company. We have a gold mine in Mali called Yanfolila that produces in the region of a 120,000oz of gold a year. We started as an explorer. We still have an expiration project in Liberia. We took that through development and we did M&A. We acquired the Yanfolila project. We financed it, built it. So, we’re slightly unusual in that regard in that we’ve been through the entire mining process, I suppose from grassroots exploration all the way through to today where we’re a producer.

We were just talking again before the cameras came on. You’re sort of 9th generation now, is that right?

Dan Betts: Yes. So not in Hummingbird’s. So, to be clear, if you go back. Yeah. Hummingbird’s been around a while, but not 9 generations.

Matthew Gordon: You were saying about some interesting ways people used to find gold in the streets.

Dan Betts: Yeah. Yeah. Under the Hatton Garden, in the sewers and gold washed down the tanks and all the rest of it. But, our family business is a gold refining business based in Birmingham. And yeah, my brother and I we are the ninth generation and it’s through that business that we had a network in the gold world and that hummingbird’s origin started, I suppose.

Matthew Gordon: So now you’re in Africa with Hummingbird. I’ve worked in Africa for quite a few years. It’s a great place to do business that can occasionally be tough.

Dan Betts: I think always tough but it’s exciting.

Matthew Gordon: You’ve had a sort of interesting last 18 months and we’ve knocked some of those things on the head and talked about those because you are producing plus 100,000oz so something’s going right but let’s deal with some of those small fires and how to deal with them on the way.

Dan Betts: You’re probably only as good as the challenges you overcome. And I remember my first chairman was a guy called Ian Cockerill who was the CFO of Goldfields. And when we were discovering gold in Liberia and then we listed the company and everything was seamless and going smoothly. He said, you have no idea how lucky you are. He said mining is a difficult business. And he was right. I have those words ringing in my ears now, so the last 18 months have been challenging. I mean, we built Yanfolila on time, on budget. We wrapped it up and everything was going great guns. And then we had a few issues, few operational issues. Difficult to summarize, really. I mean, a number of different issues hit the performance and it’s been really 12 months of working through those, whether they are geotechnical issues with the pits and the wall stability, which is well documented. Recovery, dilution, mining issues, performance, plant, just building a business, building the team. And you know, we’re here today and we are producing on budget on our nameplate capacity to the costs we originally thought. And we’ve overcome a number of challenges, which I suppose are inevitable as a new producer with our experience, you know. Looking back, I suppose we could have anticipated a few of those challenges better. But, you know, I think, touchwood, we’ve come through them.

Matthew Gordon: I only ask because it’s important for people to understand investors, to understand the complexities of mining. I repeatedly say mining is tough and you need to find workarounds and get to the end point because people only care about the end point. So, you’ve had flooding to deal with, so you’ve had to reinforce the pit walls, rules etc. and that’s impacted on production slightly?

Dan Betts: Well, so if you go back to Q4 last year, it impacted production significantly. Q4 last year, in Q1 this year, we were way down on production. And obviously that impacts your costs and the AISC was way up. We have to do a considerable amount of extra waste moving on the pushbacks of the walls to accommodate this wall stability issues. And as you also say, de-watering extra pumps, extra resources into the de-watering of the pit so that it wouldn’t happen again. But you know, today it’s middle of October and we’re at the end of the subsequent rainy season. And, you know, Q3’s results, which are just out, are good through the wettest quarter. So, I think we’ve learned a lot from the trials of last year.

Matthew Gordon: Yeah and then of course the Taurus situation – now resolved – what happened there?

Dan Betts: We’ve settled with Taurus. We’ve taken a very practical approach to the claim they brought against us. I think it shows that we’re able to be practical, non-emotional, and I think that’s in the past. I think best we move on from that one.

Matthew Gordon: Ok that’s fine. I’m just trying to show people that, you know, the business of mining is a complex business. And things come along, you know, curveballs come along and you have to deal with them and move on so I appreciate you dealing with that.

Dan Betts: That’s absolutely right. They do.

Matthew Gordon: Let’s talk about the business. You’re forecast this year to produce what? How much?

Dan Betts: So, our guidance is 110-125,000oz for the year. It is meaningful. And we were well behind the curve ball after Q1. So, we are maintaining that guidance. So, yeah, I mean, I can talk to Q3’s numbers which are just out where we’ve just over 30,000oz for the quarter and the AISC for the quarter’s 850 an ounce so a great result.

Matthew Gordon. That’s a great result. Significantly down from where you’ve been, obviously.

Dan Betts: That’s right. So, if you look at the last four quarters, we’ve had reducing costs and increasing production quarter on quarter as we’ve come to terms with and overcome the challenges that we’ve already talked about. And that means we’re deleveraging fast. You know, we’re paying down the Coris debt quickly.

Matthew Gordon: Where are you with that?

Dan Betts: So, I think total gross debt at the moment in the company is about 49MIL at the end of Q3. So, by the end of the year, it’ll be more like 32 when we’ve paid down all the other loans and things in the business say 32MIL gross debt at the end of this year, we’ll be in good shape.

Matthew Gordon: Well, for sure. And obviously with the gold price, all the producers have a nice little bump going into August which is good news for you guys. So, you’re producing cash. You’ve got to get that balance between paying back at a rate which you are obliged to and also keeping enough money in the business to grow.

Dan Betts: Grow and to accommodate unforeseen issues. I mean, to be prudent, but yeah, that’s right.

Matthew Gordon: Okay that’s exactly what I’m talking about, it’s having that capacity to deal with these thing’s as they come along. So, let’s talk about, if you don’t mind, talk a bit about technical about Q3. Have you seen grades continue as you expected? Or are you having to get more out of the ground to get those ounces?

Dan Betts: The grades in Q3 have held up as per the plan. And so, to be honest, Q3 has performed as per our DFS and our studies. I mean, it’s performed how we expected it to perform. So I’d say we’ve got back to where we expect to be.

Matthew Gordon: Right. Okay. So again, I’m just trying to understand where the companies going to. So, you’re producing cash. The margins are increasing because your AISC is down. Obviously gold price is up. You are continuing to hit targets. What are you going to be doing with all of this cash that’s in debt to pay down? But what are you going to do in terms of the growth component to this? Is there a growth component to this?

Dan Betts: Well, initially, the priority is to, you know, one quarter is not enough to do Q4 and Q1 and to build the reputation of a proper mining company that can deliver. So that’s our first priority. And I think, you know, a lot of people say, oh, hummingbird, it’s trading at a very a discount to free cash flow multiples and all the rest of it. But I think it’s fair enough for people to be a bit cynical, having travelled the last 12 months with us, so the onus is on us to deliver and that means being reliable and showing performance for the next couple of quarters, which is the key. I don’t think, you know, people get carried away with all the when are you paying a dividend, all the rest of it. Let’s just get the job done. What’s the saying one sparrow doesn’t make one summer and all the rest of it. That said, you know, Yanfolila has a relatively short mine life. It has resources outside of the mine plan. And extending that mine life and investing in exploration and underground studies and other deposits that we bring into the plant are a focus and an increasing focus. So, I would say in my mind that, you know, if I’m looking at risk, number one risk is you’ve got to deliver to plan because we failed to do that over the last 12 months. We’re now doing it. We’ve got to show that we’re reliable and trustworthy, but, you know, pretty close second is to extend the mine life and show the future of the project. And, you know, ultimately further than that show, that Hummingbird has more to offer than just Yanfolila, you know? So much of my time and effort has been about building a business and a team and skills and people and a board and relationships all around the world. And how do we leverage off that to take it forward and build real value? And ultimately, Yanfolila is a relatively small, relatively complex mine. That’s what it is. You can’t change what nature put there. So, if that’s our school and we turn out to account, we proved to be a reliable, efficient mining company, for me that’s tremendously exciting. I mean, think what we can do with that and what we can build and go forward. That slightly more nebulous, right. So intangible and in the future. And let’s just stick to our knitting and get Q4 on the money. Q1 on the money and build out the tangible future.

Matthew Gordon: I think that’s right. You know, like I say you’ve hit a few bumps along the road in the last 12-18 months. But you dealt with them and you’re hitting numbers and the market’s gone with you in terms of price of gold etc. And you are doing all the right things in terms of driving to AISC down, so you’ve got a bunch of skill sets in house. But you do have this short life of mine relatively, and you do need to do things you just talked about in terms of showing growth potential alongside delivering over the next 2-3 quarters for the marketplace because your share price has been relatively erratic, I suspect because of the reasons you’ve always said. What are the existing shareholders saying to you in terms of… are they saying let’s just the steady the ship and we’re still here? Or are they making demands?

Dan Betts: I don’t think there’s a consistent answer to that. I mean, every shareholder has a different view and a different conversation. But I mean, generally speaking, the view is, you know, be sensible. Pay down your debt, manage your cash flows, deliver to your performance and the value will come through. And I mean, I agree with that. And, you know, for me, it’s always been a game of you got to keep your options open. Things change. The game changes, the markets change, gold price will change. And if you’re absolutely dogmatic about this is what our 10-year plan is going to be and we can execute it. It’s not gonna work. I mean, we’d have gone bust carrying a huge project in Liberia and not being able to fund it.

Matthew Gordon: Let’s skip onto Liberia momentarily. The last time I saw you, many years ago, Liberia was something we were discussing actually back then. So, what’s happened? What are you doing with that? Is there any value there?

Dan Betts: There’s tremendous value there but not in our share price. I mean, you know, we own a 4.2MILoz gold deposit in Liberia, which we hardly touched the sides of. I mean, if you actually, you know, knowing what we know now, if you go back to how little we knew, then we found 4.2MILoz of gold on a discovery cost of $7 an ounce, never hitting a blank drill hole. I mean, it is actually an extraordinary success. And then the story kind of took over, the market took over and the market tanked. We couldn’t fund it. It needed to be big, the CapEx number, all these issues.

Matthew Gordon: Wasn’t Ebola somewhere in there?

Dan Betts: Ebola, everything. And then we compounded all of that by doing an M&A deal, funding a project in Mali and building it. And actually, for the last four years, Liberia’s really been on care and maintenance. But we still own it. Gold’s now 1500. There’s a lot more interest in deposits like this. I mean, if you look at Cardinal Resources or someone like that, there’s a lot of similarities, right? Except the only thing that’s a big difference is ours is worth zero. So, in terms of optionality and ways to create value, I’d say it’s a massive optionality for Hummingbird.

Matthew Gordon: Well, okay. Let’s talk strategy. So, you gave an example. You’ve got Cardinal building up the ounces next door in Ghana, reasonably close by. You’ve got Rocks Gold, who’ve taken a different strategy, they’ve said no we’re got a short-life mine we’re going straight into production, generate some cash and buy another asset which they’ve kind of done, right? So, two different strategies going on there. So, what are you guys thinking of doing? I mean, you’ve hotfooted from a management meeting so you’ve discussed various things. Is this something that’s on the table at the moment or is it still in care and maintenance mentally?

Dan Betts: No. So, I think the environment is right to take Liberia forward in terms of strategically and this might sound like a bit of a non-specific answer, but what I want is create value, create value for Hummingbird shareholders. For the market to go, oh, my God, we’ve forgotten about this. There’s value there. Now, does that mean I need to build it? I’m not sure that will create that much value because people will see it as a challenge for Hummingbird, another small company, dilution, where’s the CapEx going to come from? If I could attract partners, investors in a way that suddenly Liberia was being re-engineered or the 4.2 was becoming 5 or 6MILoz with a redo in a feasibility study because power costs could have changed and different ways of looking at that. I think there’s tremendous potential with a fresh pair of eyes. Four years later to come back and go, wow, this is like the most exciting exploration province in West Africa, which I believe. Let’s take another look at this. And if I could do it in a way that was non-dilutive to Hummingbird shareholders with a partner who had the credibility, skills to do that.

Matthew Gordon: I mean, 4.2MILoz here, Cardinal next door coming up with between 5 or 7oz, I can’t quite remember. You know, whatever their market cap is, 130 million bucks, something like that. The Berimium Green Stone, it’s prolific. There’s alot of companies there. What type of company or strategic partner, someone who is going to come with money and skills are you looking at? Have you spoken to anyone? Or is it just a consideration at the moment?

Dan Betts: Yeah, it’s a consideration. I mean, you know, I don’t have any scoop to disclose for the purpose of the interview. But I mean, I’m talking to lots of people. And that’s the answer. And they’re varied and diverse. And they’re not all just, you know, capital markets listed in Toronto or London or Australia. It’s a more diverse world than the investment community realizes I think.

Matthew Gordon: For sure. I always ask the management team about the thinking, what’s going on ahead? What’s the strategy? What’s the business plan? How are they going to deliver it? Who’s going to deliver it? So, you talk about it may be zero value attributed to the Liberian asset at the moment and you I’m going to try and create value there, we’re thinking about how we go about doing that. So, I’m just interested in that process and timeline. And how much money do you throw at it? How much internal resource do you throw at that before you can bring strategic on board?

Dan Betts: You know, you need to play the cards as they’re dealt. And it depends on the conversation you have with a potential partner and how they want to structure the deal and whether it looks attractive. But in terms of strategy for taking Hummingbird forward, I think our focus is more on free cash margin, trying to focus on a lower-cost producer of a more manageable size. In places where we think we have a competitive advantage. Now we have a competitive advantage in Liberia. I mean, yes, we’ve been there for over a decade and we know everyone. But the rest of it doesn’t really fit with that strategy. It’s gonna be a big mine. It might fit better with somebody else’s strategy, but we can help them in a way that nobody else can. So, in terms of being involved in the journey, taking up the value curve, fully involved in that. In terms of actually building the project, I’m miles away from that if you see what I mean.

Matthew Gordon: Yeah, there’s a lot on the table, it’s whether the stars align, and everything comes together, you’ve got the optionality because it’s costing you time or money at the moment and quite a lot of cash elsewhere. So, let’s come back to Mali. What else are you sitting on except for the mine itself? You’ve got a lot of greenfield, brownfield exploration going on elsewhere and so on. What else is happening?

Dan Betts: Well in the country, that’s a big question. But I mean, if you go to our mining permit, there’s a number of deposits ranging from resources that we are doing studies on for underground or extending open pits or bringing in other open pits into the mine plan. But also, there are targets to find new resources. We’ve also got the largest shareholding in an expiration company called Core Gold, which was created by us with it as a joint venture with some colleagues of ours. And, you know, we’ll keep a watching brief on that and see how that develops, because that could also provide potential feed or to the Yanfolila project and also provide extending the mine life. So that’s our thinking behind that.

Matthew Gordon: So, how much of that do you hold?

Dan Betts: Give or take 20%.

Matthew Gordon: So that’s exploration optionality for you. Have you got any agreements with them or is it just equity position?

Dan Betts: It’s just an equity position.

Matthew Gordon: Okay, so back on your own assets, things that are in your control. I get that we’re focused on generating cash and free cash flow. But on the growth component of the story, if you can just tell us a bit of what’s happening.

Dan Betts: Sorry to be specific. Do you mean on our license or do you mean general M&A heads up what’s going on in the country?

Matthew Gordon: On your license, if there is any, it’d be great to talk about that.

Dan Betts: Yeah, well, there isn’t.

Matthew Gordon: What does the board charge the management team with doing on that front?

Dan Betts: Right. So really if you go back to, we have to go back 12 months. We have to go to when we had issue at the pit and we basically closed ranks. Did this pushback, focused on cashflow and survival and performance. We cut our expirations spend last year to accommodate that. And really for the first half of this year, it was all about working through the challenges. So, it’s really only now this quarter that we can lift our head up again and focus on the wider picture and building the business. But I mean, a lot of work has been going on in terms of conceptual studies for potential underground extensions to the pits, to the Resource, Commander East Resource and Commander West Resource and also other identified resources such as East and West that we could look to bring ore into the plant. And what would be good about that is that oxide resources. So, they’d complement the fresh rock as we get deeper in the pits. So that’s what we’re focusing on.

Matthew Gordon: Ok so, you generated some cash. And I know you’re paying off a bit of debt, you’ll have a lot less in a year which is great. How do you use that? Do you fall into the kind of producer trap of basically any money you generate has to go to trying to generate more ounces in the ground? Or would you leverage yourself?  I know you’ve got a bit of debt, but can you get more in there, debt that is, so that it’s non dilutionary?

Dan Betts: It’s a catch 22 because people will only lend you more debt if you’ve got a longer mine life to borrow against.

Matthew Gordon: You talk about dividends. You’re not paying dividends now, it’d be crazy to, but at some point shareholders are looking at that.

Dan Betts: I’d love to be a dividend paying gold miner, but you don’t want to do it at the expense of the future of the company. So, it’s a balance. I mean, what I always said at the start and I’d like to get back to that is, you know, be disciplined, don’t spend more than 15% of your free cash flow on exploration. And with that 50% of free cash flow, replace and increase your reserve base. That’s okay. And it just kind of feels right based on experience, I guess. But, that’s kind of where we’re at.

Matthew Gordon: Understood. That’s an interesting number. No ones ever put a number on…

Dan Betts: I think trying to build a discipline into that sort of thing is important. And, you know, we haven’t been able to because we’ve been fighting different issues. But, you know, we need to now apply that discipline from here going forward I think and in terms of dividends, I mean, it’s a question that goes round, round, round and again, it’s a catch 22 because mining is extremely dynamic. The markets are extremely volatile and you commit to something and you’re small single asset project like ours, something goes wrong, then you’re not going to be able to repeat it and then you’re gonna be exponentially punished because you didn’t maintain your dividend or improve it. That said, it would be great to return excess cash to shareholders. I mean, what else are you going to do with it unless you find an outstanding project?

Matthew Gordon: It’s always nice when the management team say it’s nice to do it, we want to do it. How do you plan to put yourself in a position where you’re able to do that? Clearly, the current market, as in the last quarter and hopefully going forward with the price of gold, you can.

Dan Betts: Well it might not last. But I think we want to build a gold business and I don’t have a roadmap for exactly what that will look like going forward 10 years. So, you want to maintain some optionality, but you want to build a reputation for being disciplined and prudent. So, for me, conceptually, if you get to a position where your net debt free, your cash and your gross debt meet zero, it would be nice to signal something to the market. Now, whether that’s a dividend or a special or a buyback or something, I’m unclear. And this isn’t happening right now, you know, but we need to start thinking about it as a board now. And next quarter and early next year, because hopefully it will happen quite soon.

Matthew Gordon: Well, the other bits are steady appreciation of the share price. Steady, not meteoric, not hockey stick. We all love that but that’s not realistic. So, you know, steady growth, there is liquidity in stocks. People can get in and out, and feel they’re made some money with you. Getting guidance from the company as to the things they’re putting in place to help accommodate that as best one can.

Dan Betts: I know that everybody that invests in Hummingbird, myself included heavily, is you see the share price, it’s there, it’s on a screen. This is what you’re worth. It’s not what you’re worth. It’s the price. You know, we’re back to that age old argument of price versus value. And the value of Hummingbird is massive. You know, the relationships, the people on the management team experience, the problems we’ve overcome, the experience, those are all intangible values. They’re not in the price. So, we have to leverage that value. And over time, it will come through in the price.

Matthew Gordon: Yeah. I mean, cold harsh view of this from a shareholder who’s bought in at one price and they’re sitting on 20, 30% lower than you are. Not saying yours are, but if they were you can sort of see why all of that doesn’t really matter. I think it’s a great story, I think you’ve dealt with some pretty tricky things and still continued to produce. I’m not down on the company, I’m just saying from your perspective, thinking of the shareholders, current and new to come in it’s given that guidance as to what the future looks like and you’ve done some of that today, but a bit more of the growth components to when and you’re at a point where you can do that, I don’t think you’re there yet.

Dan Betts: Yeah, but I mean, I take you back to when we listed Hummingbird and we raised some money specifically to explore, to take a small resource as large we could take it. We didn’t even have a target. And over the next three years, we found, formally announced, we were the most successful explore in West Africa and what happened to our share price? It went down 60%. So, even if you deliver on what you say, if you know the market, if you’re the wrong side of the market, you’re going to lose. So, the market wants one thing, whether it’s value or growth or discipline. And then lots of people chase that and they say, okay, this is what we’re going to be. And then the market changes. So, for me, I want to build financial discipline. I want to focus on free cash margins so we’re protected. I want to build a reputation as someone that can operate and deliver. And then let’s see where it takes us.

Matthew Gordon: I think it’s a great place to finish. That’s been a great summary. Thanks very much. Great to catch up again. I think that’s fascinating for people who are new to this story. I’m not sure who it’s new to because it’s around the world. It’s also quite a good explanation of what the next couple of quarters are going to look like if you continue to deliver those.


Company page: https://hummingbirdresources.co.uk/

If you see something in this article that you agree with, or even disagree with, please let us know in the comments below.

Any advice contained in this website is general advice only and has been prepared without considering your objectives, financial situations or needs. You should not rely on any advice and / or information contained in this website or via any digital Crux Investor communications. Before making any investment decision we recommend that you consider whether it is appropriate for your situation and seek appropriate financial, taxation and legal advice.

Magna Mining – How Do Private Nickel Companies Compete? (Transcript)

A wide arial photo of a large nickel mine.

Interview with Jason Jessup, CEO of Magna Mining Corp.

Magna Mining Corporation is a private nickel company incorporated in Ontario, Canada in 2016. Their primary purpose is on the acquisition, exploration and development of nickel-copper deposits in the Sudbury Basin of Ontario, Canada. Magna made its first acquisition, Ursa Major Minerals in 2017; Magna became owners of the “rather advanced” and “world-class” Shakespeare Mine, Ontario, an open-pit nickel project that was in commercial production as recently as 2010/11 via toll milling, with approximately 490,000t of nickel ore tolled. The mine also possesses all the major permits, and Magna Mining sees it as central to their play. The mine was acquired by a contrarian strategy when nickel was around $4/lb and nickel projects were about as appealing as diving into the mine itself head first.

Jason is originally from Sudbury, and has vast experience as an operations manager at mines for large corporate and junior companies; this latest project is familiar territory. The president of Magna Mining is Vern Baker, an MBA holder from Stanford University with decades of mining experience, though shareholders might be concerned his priorities lie elsewhere as full-time CEO of Jaguar Mining. The remainder of Magna’s team is comprised of experienced, highly-knowledgeable individuals. The team looks exciting, but there will be question marks around whether Magna is the priority, given many of them have heavy involvement with other corporate entities.

Magna has big aspirations of becoming a 50-year, +$100M company, but they have a long way to go before they can get off the ground. Magna Mining needs to raise money, locate acquisitions, make acquisitions and then go public. These are big steps that have to be implemented before they can proceed forward to even the earliest mining of nickel. For some Magna might be an intriguing long-term proposition, especially if they buy into the almost unanimously supported EV narrative, but for many investors, it might seem Magna has bitten off a little more than they can chew. Perhaps Magna might be ready to go by the time the EV revolution finally kicks off.

Magna Mining implements a roll-up strategy via opportunistic growth, where key assets are identified based on promise and past performance and then acquired. Magna is in ongoing discussions regarding non-core assets in Sudbury, but is the stage of this project all a little early for investors to consider getting involved?

Some might argue it’s a great opportunity for investors to get involved at an extremely early stage while stock is cheap and potential is yet to be extracted. The team at Magna has an excellent track record in nickel, and are certified experts in the field of mining metals. Nickel itself is a commodity with great potential, so perhaps Magna is a company to explore. The Shakespeare Mine’s Capex of $150M is particularly unique and the surrounding area of Sudbury is as good as it gets for facilitating mining.

What did you make of Jason Jessup? Does Magna have the potential you require as a potential shareholder, or is it more of a pipe dream? Comment below.

Interview highlights:

  • Company Overview
  • Team Experience and Track Record
  • Genesis of the Project: What is Their Main Focus?
  • Challenges Going Forwards: Is their Goal Realistic, Bi-Products, Costs and Strategies to be Applied
  • How does Magna Mining Stand Out?
  • Assets: Can Shakespeare Become a Profitable Asset? What are They Planning for the Mill?
  • What is the Future for Magna Mining, if the Market Changes or Stays Stagnant?
  • Finding Funding and Remuneration
  • Why Should You Invest in Magna Mining?

Click here to watch the interview.


Matthew Gordon: Now this is an early stage project, but it’s a nickel project. I think people are excited about nickel at the moment so why don’t you give us a one-minute summary and we’ll get into it.

Jason Jessop: So, Magna Mining is a private company. We incorporated in Ontario in 2016. And really, the purpose of our company was to consolidate nickel copper projects in the Sudbury base. So, we’re very focused on one particular region. This is a region that we have a lot of experience in. I personally live in Sudbury. I’ve worked here for different companies over the past 20 years. So, this is really where we’re comfortable. In 2017, we made our first acquisition of Ursa Major Minerals. Ursa Major owns the Shakespeare mines. Shakespeare is a nickel, copper, cobalt, platinum, palladium, gold open pit project that has tons of resource. It is you know, it’s rather advanced in that it wasn’t commercial production in 2010-11 through toll milling, approximately 490,000 tons of ore was toll milled through a mill here in Sudbury. It does have permits, all the major permits to build a 4500-ton open pit mine with a concentrator and tailings storage facilities. So, this really attracted us to the project. And, you know, we were I would say very strategic. And when we purchased it because nickel was in that $4 range, people were not really looking at nickel projects, but we understand the fundamentals behind nickel. And when people are not talking about nickel is a time to make acquisitions. So, we’ve been able to advance the project over the last couple of years, de-risk it further. And we’re pretty excited to move into up to the feasibility study and in a position to make a construction decision in 2020.

Matthew Gordon: Perfect. Okay. Thanks. That’s something. Appreciate it. I’m interested in this story because it’s early stage. You’re private, we talked about that, but with all things Canadian it eventually gets listed. So, I would love it if you could share with us the process that you’re going to go through to kind of get it to that point. So, for our subscribers and followers and investors I’d love to maybe start with who’s on the team. So, tell us about you and then tell us about the team.

Jason Jessop: Sure. So, as I mentioned, you know, I’m from Sudbury. I’ve worked for a number of different companies here. You know, I really started my career in Sudbury. I was management at one of the mines here in Sudbury. Spent about five years working there. You know, great company, great experience. But after five years, I recognized that I probably don’t fit within a large bureaucratic company like that. So, I went to work for another up and coming junior that was in the basin. Those who don’t know FNX mining in 2002, they were a junior company, share price about 25 cents acquired five pass producing mines through good exploration and creativity and entrepreneurial spirit. They were able to bring three of those mines back into production, made some significant discoveries at them. And you know, before the financial crisis of 2008, had a share price of approximately $40. So huge success. And I was really fortunate to be part of that team and see that growth.

Matthew Gordon: What did you do there?

Jason Jessop: So, I was an operations manager at two of the mines here in Sudbury, brought one of them into commercial production. I helped raise another one from 300,000 ton per year production to over 800,000 ton per year. So, you know, I was heavily involved in the operations side of the business. And after 2011, we had merged with another company, gone a little bit bigger. And I thought there were some opportunities, maybe work for another junior. So, I’ve spent a couple years in the corporate development field doing work in royalty space as well as junior mining structuring deals and finding acquisitions and evaluating projects. And in 2016, saw an opportunity here in Sudbury to do something again similar to the experience I had and that’s when we formed Magna.

Matthew Gordon: And who else is on the team?

Jason Jessop: So, our chairman is Vern Baker. Vern Baker is a professional engineer, he has an MBA from Stanford. Vern was the V.P. of operations at F&X Mining. We worked there together. Vern was a great leader and actually a really great mentor of mine. And we kept in touch after we both left. And, you know, we all see this opportunity in Sudbury to take some of these non-core assets and be very successful, mining them differently than some of the majors.

Matthew Gordon: But he’s says here he’s full time CEO at Jaguar Mining.

Jason Jessop: So, yeah, so he’s our chairman. He’s also a CEO of Jaguar Mining in Brazil. So, he joined that team in August and he’s helping them unlock the value in their operations in Brazil.

Matthew Gordon: So, what’s his actual day to day with you on this particular project?

Jason Jessop: You know, we communicate weekly. He’s involved is as much as needed. So, he is available. You don’t get to see him probably in person as often as I’d like to. But, you know, he’s a great leader and a great collaborator to bring teams together.

Matthew Gordon: Right. And what does that mean for you and in terms of what you’re trying to do now? So, he’s giving you advice or still mentoring you or…?

Jason Jessop: Yeah. Well, he you know, he’s the chairman of the board. So, you know, on board decisions and large decisions, he obviously gets involved. You know, he’s still very involved in the strategy of how we move forward. And we have a few other opportunities that we’re looking at. So, he gets involved in that. One of the things that we’ve done here, and I think this is really what speaks to the experience, and I can get into some of the rest of the team but, you know, our experience working in FNX and in Sudbury is really based around people, and I think that’s what differentiates us from maybe other groups that have tried to do something similar in Sudbury in the past. We are a very successful group because of the culture. So, you know, Vern, I would say from a cultural perspective, you know, he sets that tone for the group and we provide a lot of ownership to the people that work in our team. So, we’re a small team. You know, we wear many hats. But right down to, you know, the guys that go out to site and do one monitoring and, you know, the care and maintenance work. We give a lot of ownership to our people. And that’s the successful culture that we saw at FNX Minings, we recreate that. Now, as far as the rest of the team, our CFO and co-founder of Magna is Derek Wayrauch. Derek is a CA by background. He’s been an executive or board member of a number of publicly listed companies over his career. Currently, he is the interim CEO of Palladium One, which is a junior palladium company explorer, and has a property in Finland. So, all the nickel property here in Ontario. Derek, you know, at this point we do not need a full time CFO. So, he acts as our CFO and as a board member. You know, Derek and I speak almost daily and are quite involved, especially on the financial side of the business. And Peter Litefoot is our V.P. exploration. Peter is a veteran of the Sudbury base and spent a lot of his career as a chief geologist for international nickel targeting. And he really wrote the textbook on Sudbury deposits and the origin of Sudbury Igneous Contact. So, Peter, he really leads our exploration in and around Shakespeares, as well as evaluations of other non-core assets that we’re looking at.

Matthew Gordon: I notice you’ve got a bunch of other strategic advisors and let’s not get into that. We can maybe post this presentation up at some point for people to look at. You’re kind of like I’m bringing the band back together here. Some people you’ve worked with before, people who’ve experienced success together and you think… What do you think actually? We just want to do a project. We just want to work together. I mean, that was the genesis of this? What was the idea?

Jason Jessop:  Yeah. So, you know, we have big aspirations here in Sudbury. We don’t want to be just a little single asset junior who hopefully we can get to a point where we’re a $50MIL or $100MIL company. We have seen the success. It can happen. And like I mentioned in the past with our group. So, we really have big aspirations. There’s a few things that we see. So, by having Shakespeare and building the mill, it gives a real strategic presence in the basin. And there’s a number of deposits that either don’t fit well with the majors or have metallurgy that maybe isn’t conducive to the large mills they have here in Sudbury, for example, Valley’s Milford process, probably 35,000 ton a day. So, it’s a huge plant. You can’t customise for a small or small percentage of ore coming in. So, having this opens up a lot of opportunities to negotiate and find other feeds that can be higher grade than our open pit ore.

Matthew Gordon: Come back a bit for me here. You’re getting into the project. Come back a bit. Tell me like a helicopter view. We are trying to be what? A major nickel producer in the Sudbury region or globally? What’s the idea?

Jason Jessop: So, absolutely. We are looking to become, I would say, a mid-tier producer in the Sudbury region. We’re very Sudbury focused. We’re leveraging the experience of our team. And, you know, and I would say our advisory team is very important to us. Again, a lot of former F&X people who have a lot of first-hand knowledge and insight. So, that is what we are focused on. You know, I would say that we are not experts in mining exploration, in mine building. We’ve not built a mine in the Congo. We have not operated a heap leach gold operation in Chile. What we have done very successfully and what we are experts on is exploration mining in Sudbury and building mines in Sudbury. That is really where our expertise is. So, this is where our focus will be.

Matthew Gordon: So, what’s the challenge going forward then? You know what you want to be, you’ve articulated that clearly and it makes sense. And that’s the experience, you know what you know. What are the challenges? You’re talking about building this thing into a mid-tier. You’re going to need to raise money. You’re going to have to find acquisitions. You’re going to need to make those acquisitions. And go public, I suspect at some point. How do you manage all of that? Is it realistic, first of all?

Jason Jessop:  We believe it’s realistic. We believe that we have a great strategy. We have a team that’s done it before raising money, I think, you know, is always a challenge in the junior space and being a private company, especially, you know, in the past couple of years as nickel prices were quite depressed. Yeah, it was absolutely challenging. Again, we were able to keep our GNA cost quite low and be really focused, continue to de-risk. Going forward we have we believe in this better nickel environment. There is a lot more opportunity to raise capital. Having a project and a company that’s focused in a great jurisdiction, there’s a tremendous amount of metal endowment in this region. And, you know, with the combination of not just nickel, but also some really considerable by-products of copper and cobalt and platinum and palladium and gold. We have seen a lot of interest in and we think that getting the capital once we have our feasibility study done for project financing, is quite reasonable. We’re not looking at raising $500MIL to build out Shakespeare. Our CapEx is not completely finalized, but we’ll be in about $150MIL Canadian range. So, it’s manageable. We have a good by-product credits, so there’s opportunity to use a precious metal stream as a portion of that project financing without taking away from the overall economics to much of the project. So, there is some strategies we’re working on right now as far as moving that forward. As for other projects in the basin, because of our success in the past with many of our team members, finding the capital to make these acquisitions, we believe is very possible. It’s very doable. And the challenge always is, is dealing with major so as being a smaller private company, we get asked the same kind of questions a lot of people do. Where are you going to get the capital? Do you have the support? Are we wasting our time negotiating with you now? We’ve been here for a while now. Like I said, I’ve been working such for 20 years. We’ve built long standing relationships. We know, a lot of the people and the players. And now that Shakespeare has moved forward over the last year, we have developed more credibility, I would say, with some of the other companies that are in the basin where they see a strategic benefit in working with us. So, obviously a deal is never done till it’s done. But I would say in the next year, we should be able to secure some additional projects in the basin that will have synergies with our Shakespeare mine.

Matthew Gordon: This is where it starts getting interesting for me. Okay. You’ve got a long track record in the basin. That’s correct. You know, people. Right. But like you say, they’re only going to go with you if you’ve got access to capital. Right. Or this is strategic benefit. You’re saying some people are interested. There are interested in your knowledge, presumably. But it still comes back to the issue of availability of cash. Right. Availability of good projects because no one gives the good projects away for free. Right. So, you’ve got to either step up and pay a premium or pay a price for it or you’ve got to deliver them something which they don’t have. And, you know, what is it about you guys versus the bunch of other people I’ve spoken who have experience in this basin? Why are they going to go for you? Personal relationships?

Jason Jessop: Yeah, I think there’s a little bit. So, one of the things, we’re not looking to buy a World-Class deposit in the Sudbury Basin. Those aren’t for sale.

Matthew Gordon: Well, tell us about that. What is it? Do you find small assets? Roll them up and together? Is that the idea?

Jason Jessop: That’s what we’re looking at. So, we’re looking at projects that are, you know, ideally past producers that can be brought back into production relatively quickly, but just do not make sense for the cost structure and the way that larger companies operate. And, we have an in-depth understanding of that. Again, going back to our experience, taking mines that were, very very low priority and would’ve never restarted under a major company. We were able to take those, approach things differently, keep cost structure low, you know, use mining methods that probably haven’t been used in the Sudbury basin and in 30 years, very selectively mined some of these deposits and create a lot of cash flow. Now, it isn’t on the scale that really moves the needle for a major company, but for a junior company, it can create a tremendous amount of cash flow. And so, these are the opportunities we’re looking at. And we have experience in doing it before. I wouldn’t say it’s easy. It definitely it comes down to having the right team, the right culture, the right approach, and having a CEO that asks the right questions from the people, so they can stay focused on what’s important. So, I think we have a lot of credibility with people, they know what we’ve done here before, and that gives more confidence that if they do a deal with us, at the end of the day, there’s going to be some benefit to them. Most of the deals that we’d be looking at doing in one way or another have some tie to the owner’s long term, whether it’s an off take or royalty or something. So, they don’t want to sell something that the end of the day really there’s no long-term benefit. What’s the point? So, we have developed some confidence, I would say, in some of the discussions and people, you know, in the basin.

Matthew Gordon: So, first things first, you’ve got to get Shakespeare moving. You’ve got to get financed and you got to be able to… I think you’ve talked about doing various studies and sort of understanding what it is that you’ve got and try to understand the economics. That’s fair enough. And if you do that, you might be able to persuade someone to give you the money to be able to develop this thing. So, from what I read, it’s the standard sort of low grade, about .3, that sort of level? But you do have the copper credits, which is a good thing. So, the low grade means you need scale to get the economy’s going there. Do you need to do these other acquisitions to kind of give you that scale? Or do you think Shakespeare has got the potential to actually become a meaningful project in its own right?

Jason Jessop: Yeah. Good questions. So, Shakespeare is a, I would say you describe it in a lower grade category, but it’s not overly low grade the because of the by-product. So right now, it’s sort of sitting in that, .65% nickel equivalent range. And that’s why it really requires about a 4500 ton per day plant, running it at 2000 tons per day. You just don’t really get the payback you require. So, I think we have a good-sized plant that sort of permits our, currently, 4500 tons per day. You know, one of the things that has held back Shakespeare in the past is it only has, you know, in the 2006 feasibility study, about 11.5MIL tons of reserves, which at 4500 tons a day gets it about a seven-year mine life. And so, people look at that as a seven-year mine life’s way too short. You know, it doesn’t kind of meet our hurdles, but there is tremendous exploration potential. So, to get back a little bit to why there’s a seven-year mine life, in 2002, Ursa Major optioned the property from Falcon Bridge and they made a discovery in 2003, about 150 meters to the east of the West Deposit, which was the known historic deposits, about 2.5MIL tons. And, you know, had a great intersection, followed that up and basically drilled out over the next two and a half years, about 14MIL tons of resource. Now, this was at a time in 2005 where nickel was starting to take off and they saw an opportunity here. Let’s get this permit. Let’s do a feasibility study and get it into production and take advantage of these rising nickel prices. So, they continued in 2006, completed a feasibility study, 2007 received permits for construction. So, they did a great job. But after 2005, there really wasn’t a focus on exploration anymore. They had enough to get going once for cash flowing. We’ll continue to drill out, extend the mine life. And that was the strategy. 2008 came along. You know, everything stopped. And it wasn’t until 2010 that they were able to actually start up through toll milling some production. But when we acquired the property, you know, it was really an orphaned asset. The owner had become very non-core. There was no institutional knowledge left. So, it took us a lot of work to pull together all the data, the historic work that was done, re-interpreted, take this store, geophysics, reinterpret that. What we found was there’s a tremendous amount of exploration potential and we’re quite excited about it. In 2018 we did some drilling in an area between the east and West deposits. So currently the project has two separate pits. As per the 2006 feasibility study. What we were able to do, we drilled this EM plate between the two deposits in an area it was previously believed to be unmineralized and every hole hit exactly where we expected in resource grade mineralization. Now, we had a budget that didn’t allow us to continue to keep drilling. So, we’re hoping to continue that drilling and bring more of that material in between the two pits into resource. By b doing that, we should be able to deepen the West Pit and expand the resources considerably. There’s also a zone that has very little understanding. Two holed intersected it in the 50s. One of the early drill campaigns. It has 103-meter intersection just to the south in what would be the foot wall of the west deposit. And there’s no follow up drilling. So, it’s a very large resource grade type intersection zone. Currently, it’s about 750,000 tons in resource, but there’s no drilling around it. Up dip, it’s open. Incidentally, we found some mineralization on surface, I guess long and short as we really think through exploration, there’s a lot of potential at Shakespeare. It’s really been underexplored. And we think there is tremendous scale. Right now, taken the resource 21MIL tons, we believe we can add another 5MIL tons of resource with additional drilling around the West deposit.

Matthew Gordon: All right. OK. Those are the kind of exploration statements I would hope you would say and expect you to say. But if we come back to what you’ve got today, I do want to talk about this mill component because again, I want to understand your thinking. I’m fascinated by the way the management think, because you make or break companies with good decisions or bad decisions. So, around this mill, right now, today, 4500. You say you have a permit for that?

Jason Jessop: So, we have the permits, the closure plan and major permits for the mill and tailings storage facility and mine.

Matthew Gordon: Beautiful. So, how long does it like the mill of that size take to build?

Jason Jessop: So, once you start breaking ground, assuming that there isn’t delays to long lead item components. It’s about an 18 month build. But let’s say 18 to 24 months.

Matthew Gordon: And what does that mean for you in terms of your ability to kind of hit this cycle? I mean, you’ve got to have a view on how long this cycle is going to run, how quickly you can get into production and does this mill, the cost of this mill, prohibit you in a down cycle from actually operating? What are all the economic factors you’re trying to manage? The rest you’re trying to mitigate, because you’ve got to have a view of the future. You’ve got to have a view of what you can do today and what happens if there’s a down cycle, right? And, you must have then had contingencies and plans and said maybe, maybe we just can renegotiate the terms with… I think is a couple of other mills locally, aren’t there? Get better terms with those guys? So, how did you get up measuring those things up against each other, if you did do that?

Jason Jessop: Yeah, that’s a good question. We get asked that a lot. You know, once the mill is built and we’re in production, it might actually have a pretty low C1 cost. You know, again, we’re not finalized the feasibility study, but from all the internal work we’ve done we’re gonna be somewhere on a by-product basis, you know, sense of a dollar, a pound, nickel… So very good C1 cost. As far as a toll milling idea, we definitely have looked at that and a lot of people said, you know, why don’t you just continue to keep toll milling and create some cash flow? It is an option. It is an option. Now, I don’t see it as being the best option for us. Again, you talk about these larger mills in the basin and you know, they are really set up to process a massive amount of certain ores. And because our ore is, it’s done great recoveries, but it’s not the same as a standard Sudbury contact, 2% nickel ore. So, I don’t think we’re gonna get as good of terms as necessary as we would want. And, is it worth investing? I think that if nickel went to $10, there’d be an opportunity during our construction stage to be shipping ore, as we’re stripping, start some early production through some toll milling for maybe a year or two until the mills up and running. That’s definitely a possibility. And I think we could make some pretty good cash flow from that. Long term, I just don’t see it as being the best option for the company, because really at some point, you do not have final control over your destiny. If they say, you know what, we’ve decided we don’t want your ore anymore. What do you do? So, you know, there may be some opportunity to create some cash flow in the short term, depending on metal prices. But I think that, the real focus is to get this built and be a low-cost producer. As far as how we can tie in other projects, you know, Shakespeare on its own has a reasonably good payback. If we can extend the mine life, you know, the NPV goes up significantly. But if we could add in another deposit, let’s say another non-core Sudbury deposit that has higher grades, higher margins and add that in at 1000 tons a day, displace some of our open pit ore. Well, the economics of that, they’re fantastic.

Matthew Gordon: Well, yeah. Look, I don’t envy a junior mining board at all because there’s so many ifs and buts. You know, if it gets to 10 bucks and if we can find an asset, if we can’t, it’s kind of like me playing with a spreadsheet of, you know what ifs. I could make I make a lot more money if my shares went up in price every day. I’m trying to piece together the kind of the roadmap that you go through. So, what I’m hearing is you’ve got to get Shakespeare nailed down, get that where you want it to be in terms of what you know about it, to be able to go and have intelligent conversations, sensible conversations with either money, people with money. And you’re not public yet so you’ve got some options, right? Strategic partners who may be just money and offer you different types of money or an operating company which has cash, which again, once you kind of have to somehow under their wing. I mean, you’ve got to look at a multitude of different options and you must have these sorts of conversations each week. I suspect to look at how you move forward, right?

Jason Jessop: Yeah. And it’s actually interesting. You know, we have a lot of irons in the fire, especially in the base metals space. You know, there’s just a limited number of players. So, you want to get to know all of them. So, we’ve had a lot of discussions with a lot of different players. You know, at this point, we may want to partner with a producer already, look for a strategic investment. We have been talking with a lot of private equity groups who are quite interested. They like the team. They like the space. They like the opportunity and the de-risk nature of the project based on the permits. So, there is a lot of opportunity out there. There’re three majors operating in the basin. You know, we have regular discussions with all of them. And, you know, we’re quite optimistic about the opportunities we have here. So, we do need to be, you know, flexible, see opportunities, weigh them against other opportunities and risks. And, yeah, we’re doing that on a regular basis, since it’s part of the exciting and fun part of it is this way.

Matthew Gordon: Well, it’s exciting till you run out of cash and then it stops becoming exciting. And I appreciate you’re private and we don’t have to be worried too much because you’re not public yet, but you will be. So, how have you financed this thing so far? I mean, you know, you’ve been in it two years.

Jason Jessop: Yeah. So, we started off with a very small sort of friends, family, type route. Raised some money. And, we brought in some strategic sort of investor from Vancouver, David Elliot from Heywood. So, David came in and he’s been a very supportive shareholder. David Elliot and his group own about 20% of the company. And they’ve been they’ve been great. You know, we are looking for that sort of next strategic partner to put in another piece of money. Right now, we need about $2MIL to finish the feasibility study update and do some of this high priority exploration drilling adjacent to the deposit. As well as finalize some of the minor permits and engineering to get done. So, you know that that money… there’s interest out there being a private company. It gives you some opportunity to get money from maybe some places where, from private equity groups that are looking to take a bigger stake in a company, but, you know, being private also has its drawbacks where some investors just can’t invest because they don’t have that opportunity for liquidity. So, we talk to lots of people. We keep our GNA costs extremely low. So, we really want to make sure that, we’re doing what’s right for our shareholders, keeping the money that we’re raising, going into advancing Shakespeare, advancing our strategies. And so, we’ve been able to do a lot, I’d say, for a little. And it’s one of the reasons we’ve been hesitant. Up until now to go public, because just the extra costs associated with that. But, definitely I would say once we have our feasibility study done and it looks positive with hopefully some exploration success, it would be a time we’ll definitely look at…

Matthew Gordon: So, how much is the management sitting on at the moment? They have shares in this, I guess? Have you bought shares?

Jason Jessop: So, you know, management has lots of that. The two founders, I myself and Derek, we have about 47% of the company currently. Neither of us have taken any salary or compensation. I don’t even have options in the company. I am really working hard for the other shareholders that are putting their cash into the company. And I believe so strongly in that I’m willing to do that. It’s a big picture.

Matthew Gordon: That was my next question. Were you paying yourself? You’re not. That’s good. So, the money that’s been put in today is going to board in costs from outside costs at the moment, right? Okay. And then the next 2MIL. Would that continue to be the case?

Jason Jessop: Yeah. You know, at some point I wouldn’t mind paying myself a modest salary if the board agrees.

Matthew Gordon: What does more modest look like? A company of your size, what’s modest today?

Jason Jessop: Yeah. You know, probably more than 5000 a month, and less than 1500.

Matthew Gordon: So, we’ve just seeing some fantastic salaries on here. And I do ask the CEOs, you know, what they’re earning because the public company it’s easy. I can take a look. But they don’t like talking about it. Look, I think it’s been a great introduction to you, which is the important thing here for people, so when you do go public, they can sort of see what you’re like and what you’re thinking has been like and what your plans are or were from the start of this and track back and see if he delivered on those. So, I do appreciate that. Do you kind of give us the three reasons why people should be continuing to follow your story?

Jason Jessop: Sure. So, I’d say first and foremost is really like I mentioned earlier, I think that our team is unique. I think that we have a group that’s been successful before. We’re not trying to do something that we’re not experts in, that we don’t have experience in. We’re really trying to leverage the knowledge and the experience of the team in a region that we have deep roots in. So, I think that that’s sort of the biggest thing. Next, Shakespeare is a unique nickel development project. I don’t know of any other nickel development projects that are out there in a good jurisdiction that could be producing concentrates in two and a half, maybe three years and have a CapEx of 150MIL. So, it’s really unique de-risk. Great. You know, we have a great region we’re working in here, being in Sudbury, we have every service provider. You know, workers go home every night, so you don’t have the camps, which allows us to keep operating costs lower than a lot of projects. So, I think that’s great. And then the third thing is really our broader strategy, the consolidation strategy, to grow in the Sudbury basin. I think that is something that all of our investors currently have really seen as sort of a key reason that they want to get in early and take advantage of that, because the potential is great. If you believe in nickel, I think that we are one of the best stories out there.

Matthew Gordon: Well, yeah, it’s definitely the story of the moment. And I think, Cobalt and Lithium have been through a lot in recent years. And, you know, gold hopes that it is the new story, but people are interested in nickel. It’ll be interesting to see how you guys get on.


Company page: http://magnamining.com/

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