Interview with Dan Betts, Managing Director of gold producer, Hummingbird Resources (AIM:HUM) APOLOGIES FOR THE SOUND QUALITY ON MY MIC. TECH ISSUES ON THE DAY 😢
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.
0:57 – Overview of the Company
2:09 – Dealing with Issues over the Last 18 Months
6:01 – Production Numbers: What Have They Managed to Produce in Q3?
8:23, 19:46 – Growth of the Business: Any M&A in Sight? What is Their Strategy and Vision?
11:38 – Share Price and Shareholders: What are the Expectations?
14:04 – Divergent Strategies: What are Their Competitors Doing Differently to Hummingbird?
22:01 – Dividends on the Horizon? What is the Company Worth?
Company page: https://hummingbirdresources.co.uk/
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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.
[04:07] 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.
[06:56] 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.
[08:20] 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.
[11:02] 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.
[13:29] 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.
[15:53] 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?
[17:21] 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.
[19:30] 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.
[21:29] 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.
[25:44] 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.
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