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

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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