Superior Gold (TSX-V: SGI) – Getting Back to Basics, Chasing a New System for Improved Grade (Transcript)

We interviewed Superior Gold’s CEO Chris Bradbrook. He says that they are getting back to basics which will help them deliver a lower All In Sustaining Cost (AISC), and they are chasing a new system to make Superior Gold cash positive again.

Click here to watch the interview.

Matthew Gordon: Hello Chris, how are you?

Chris Bradbrook: Morning. I’m good, thank you and yourself?

Matthew Gordon: Not too bad. Where have you come in from?

Chris Bradbrook: Where have I come from? I was coming from Perth. I’ve been in London since Saturday.

Matthew Gordon: Jet setting life you lead. You’re going to tell us a little bit about Superior Gold. Why don’t you give us a two-minute elevator pitch on the story just to set things up and we can, perhaps, dive into it.

Chris Bradbrook: Well we bought this asset in October 2016. And essentially what we saw, what I saw, was an asset that’s been in continuous production for almost 30yrs. So, it’s not like we were showing up and saying, ‘we’re the smart boys in the room that know how to run it’. It obviously was a stable mine. It had been in Barrick for a number of years and they’d sold it to Northern Star, so it had kind of been buried within a bigger portfolio. The price was right. It was only AUD $40M. The infrastructure to replace would probably cost you about US $2.5Bn in today’s dollars. So, anything you did to grow it, it was all we could be quick, low capital intensity, had a large resource base. It was a sixth or is the sixth largest historic gold producer in Western Australia. So, I saw a tremendous asset with great opportunity that basically had been unloved. There’re so many examples where companies have taken an asset like that, and that’s what matters to them, and they work, and they make it into a success. So that, fundamentally, was why I like the asset, and a first-world location.

Matthew Gordon: You bought into a producer with existing assets in place. At a price you felt was reasonable.

Chris Bradbrook: Correct.

Matthew Gordon: Yeah, fine. Let’s deal with last year first. So, what happened? Almost a year ago today your price is about three times what it is today. There’re a few things that happened, why don’t you talk us through that?

Chris Bradbrook: Well, if I may, I’ll go back to the year before, first – 2017. So, our first 15mths of operation, we were putting about US $2M into the bank every month. So, we were running it as a business, making money. That was the philosophy. That’s what we wanted to do. And then in 2018, we started hitting a bit of a wall and we really struggled with the operations. And the grade dropped. We were trying to figure out what it was. And ultimately what it turned out to be is that the previous management had been essentially harvesting what Northern Star had left us, but not replacing it. So, there was no ability once we used up what was already planned out to… with flexibility.

Matthew Gordon: This must have been part of the data set which you inherited?

Chris Bradbrook: Yeah it was but, of course, you assume your management are replacing what they mined, but they weren’t. So basically, we had to pull everything apart last year to figure out what it took to do it. We changed over management. We put in more technical people.

Matthew Gordon: You’ve got a new COO.

Chris Bradbrook: Yes. So that, I would say, that was the final piece of the puzzle. Even with those changes it still wasn’t happening. So, we sent Keith Boyle, who is now our COO, down there for three months. So, I said ‘look, tell me what is going on?’

Matthew Gordon: What did you discover?

Chris Bradbrook: Well first question I asked him was ‘is it the ore body?’ Because if it’s the ore body then you’re out, game over. He said, ‘categorically it is not the ore body’. He said, ‘you’ve got the right people’. He said there’s…. you need to basically focus on a basic operational thing, it is absolutely fixable. And as a result of that, he spent six weeks, three months and he liked what he saw. So, when I offered him the job, he’d done his due diligence and said, ‘Yeah I want the job’, so I think that’s really a testament to the asset. And the deal is he’s based out of Toronto but for the next six months he’s living on site. He’s not coming home until he’s got it back on the track.

Matthew Gordon: So, let’s come on to him specifically in a minute and get back to what he discovered and what he thinks he sees in this. He’s looked at the operations. Your costs are quite high, the AISC is quite high. Certainly the 2019 numbers look quite high. I mean, is he looking at optimising that or is that something you think needs addressing or is it something more fundamental than that?

Chris Bradbrook: Well I mean in terms of the cost it’s all about grade. Because for the first 15mths we all running an AISC at about a US $1,000. So, we were making $200-$300 an ounce margin.

Matthew Gordon: But still, you know, mid-level rather than what …

Chris Bradbrook: It’s not the cheapest mine, but it’s not the most expensive. But really what drives it for us, is our unit costs are already low. So, it’s all about grade. You get the grade back to more like a 4g/t stope grade. That’s when you’re going to make money.

Matthew Gordon: So, when you said the unit cost, what do you mean by that?

Chris Bradbrook: Well, you know, what it costs you to move a ton of rock. We’ve got a very stable handle on those. We’ve got them low. So, what then drives it is how many ounces per gram are you going to get per tonne.

Matthew Gordon: But you can move volume of dirt efficiently and with the equipment you’ve got, and no need to change that. You just need to get higher grades.

Chris Bradbrook: Correct. And if you look at the ore, what I can say for the first 15 months we had a good solid plan and we were mining around 4g/t grade and making money. When that plan, the long-term plan kind of evaporated, for want of a better word, we basically had …go to the easy stuff, which is like 2.5g/t to 3g/t. And there’s loads of that. But it’s not making you the money. So basically, one of the first things Keith has done, is he’s gone ‘OK, let’s put together a life of mine plan (LOM). Where are the gaps?’ So, you actually now can… don’t mine that grade, mine that grade, because that’s going to make us money. So, it all sounds probably very simple but often these fixes are. You just need someone to come in with a fresh set of eyes and say… and I was just down there for five weeks. So, between me and him, we were basically worrying everyone to death. Just saying ‘look this is what we got to do, let’s get it back’. And it’s not like we’ve not done it, that’s the point. It’s not like we’ve had this for 2.5yrs and we’ve never made it work. We did. We did make it work. We just have to go back to what we did. And we’re already beginning to see the changes and it’s that’s simple.

Matthew Gordon: So, tell me about those, so you’ve made some quick fixes.

Chris Bradbrook: You know a quick fix is really getting people focused on the plan and maximising grade.

Matthew Gordon: So, what were they doing before?

Chris Bradbrook: Well as I said it was because they were, I think, they were so frantically trying to get stuff through the mill, they just go to the easy stuff. So there never was that long-term planning going on. And so, we’ve instituted that. For example, one of the things you want in an underground mine, you want three months of developed stopes laid out ahead of you. So, if something goes wrong with your plan, you’ve got an option. We didn’t have that. In the time Keith’s been there, we’ve already gone from no stocks, to a month’s worth of stocks. So, we’re already seeing that change. Then we found out that because they were being a bit, I guess, frantic with their efforts, they were diluting the ore. That was amplifying the grade issue. So, all these things we’ve been put in… just basically forcing the guys to basically run to a higher standard. And I guess you’d always like to think that people just do that. And initially I kind of wanted to run the company lean. And for a single asset, I was thinking ‘well why do I need a COO?’ Well it turns out, you know, when things aren’t working you do need someone like that, that can step in and say, ‘okay this is what needs to be done’. And at some point, when we’ve got this back on the track, we will be looking at other assets and you need a COO for multiple assets.

Matthew Gordon: Again, let’s come back to M&A as an option in a bit. So again, what are the other kind of quick fixes? He’s looked at the plan and he said, ‘here’s what we need to focus on’, is there anything else?

Chris Bradbrook: No. I mean when you say it out loud, it always surprised me how basic it sounds but often things in life are like that. But it is all about having the plan, stick into the plan, having the flexibility, so if something doesn’t work… So, in other words, you say ‘OK if this goes wrong, how are we getting it back on track?’

Matthew Gordon: Right. Any other new hires that you’re thinking about, having learnt that a COO is quite important to you?

Chris Bradbrook: Well no, not really. Because we’ve got all the people we need at site. Keith has made a difference, a big difference, no doubt about it. And we’re looking at the… what I was saying, the dilution. I mean that’s a big thing. But that…

Matthew Gordon: Dilution of?

Chris Bradbrook: …basically we’ve taken too much of the waste. So, we’re mining it more efficiently, see you mine to the grade you planned. Because that’s, you know, obviously, if you mine… if you’ve got 5g/t stope plan and you dilute it to 2.5g/t. I mean you’re not going to make… you might take more ounces out, but you’re not going to make as much money.

Matthew Gordon: So, you haven’t been sold a dud in this instance?

Chris Bradbrook: Oh no, not all. I mean, like I say I think one of the things to remember is, this is an asset that’s always been in production. Some assets…

Matthew Gordon: But have they mined the good stuff out of it? I guess that’s the question people are asking.

Chris Bradbrook: They’ve mined the easy stuff. But I think also part of the thesis was that we could make money with what we know is there. But there’s something else there. I mean I’m absolutely convinced of it. There’s got to be another…. it’s a big system. So, we will find more.

Matthew Gordon: So, what are you doing in terms of identifying this new system or potential new system?

Chris Bradbrook: Well I think part of it is really pulling apart what the asset is. I mean you’ve got a drill database that’s all digitised. And if you were to drill those holes today it would cost you a US $1Bn. So, it’s an incredible exploration tool. So big a big part of that is pulling that apart, figuring out.

Matthew Gordon: Who’s doing that?

Chris Bradbrook: Well we got our geologist at site and consulting geologists. And we are probably going to give the database to, there’s a group in Toronto called Gold Spot. And they do big data mining. And I think ours is a big-enough set, they’ll probably be useful for that approach. And so, we’re doing what we can because that absolutely is our best exploration tool.

Matthew Gordon: So, let’s talk about some of those longer-term strategies. You mentioned M&A as a potential, but do you feel that you’ve got to sweat this answer first, or can you concurrently look at potential M&A activity?

Chris Bradbrook: Well you need the currency right. I mean we’re so beat up we just don’t have the wherewithal to look at things.

Matthew Gordon: Can I ask how much cash you’ve got?

Chris Bradbrook: Well we got US $15M. Our enterprise value is US $20M. It’s insane. So, I mean the bet anyone would have to make is, OK if you believe what I’m telling you, that the fix is there. We are so ridiculously cheap that it is a really good opportunity. Right now, the market’s pricing is as though we’re going out of business, which just is not going to happen.

Matthew Gordon: Well I guess that’s why you’re here today, to answer those questions about what the future looks like. So maybe talk to some of those things. So, you’re going to sweat the existing data and try and see what you’ve got there and optimise all that activity. M&A is that a realistic opportunity for you, got US $15M of cash, where I guess it’s allocated towards current activities.

Chris Bradbrook: Yes, we’re very focused on the asset. However, when people show us stuff, I mean, you’ve got to be prepared. So, you’ve got to learn about what’s around so that when you are ready, you’re ready in terms of your knowledge. So, we definitely look at things and turn stones over. But our focus is the mine. But absolutely, I mean one of the things we learnt from this is, if we’ve been a multi asset company and we started hitting these issues, we could have pulled people from other operations to help us out. So that has showed us, just from that point alone, having multiple operations is a good thing. And investors are obviously asking for it. They don’t like… you know, you live and die by what happens at your one asset. And investors generally get uncomfortable with that.

Matthew Gordon: Would it make you nervous, I mean given you’re, you say, undervalued, that’s a claim I think most people make.

Chris Bradbrook: If a CEO doesn’t think his company is undervalued, he shouldn’t get out of bed in the morning. But we are.

Matthew Gordon: You are the one? Great. Does it worry you or make you nervous about the cost of raising capital in this market with your current situation to do M&A activity, would you feel that you would look at optioning stuff, deferred payments. I mean, how would you tackle an M&A process?

Chris Bradbrook: Yeah, I mean you’re right. I mean, where we are right now our cost of capital is high. But like I said we’re really viewing M&A more now as we just want to know what’s out there, so that when we are in a position to do it, we’ve already done our background work. We’ve already talked to potential partners. But the first thing is we’ve got to get this sorted out. Get the market believing it. Get a share price that reflects it and allows us to actually go do stuff.

Matthew Gordon: Okay. Right. So, you’re looking at optimising the current processes, operations, hope for higher grades. Being able to identify higher-grades. Reduce that AISC down. You feel with this new COO, you’ve got the right leader for the technical team in the country. And we should be positive about the future. Is that the correct message?

Chris Bradbrook: Correct. Absolutely. But yes, totally focused on fixing the operation right now.

Matthew Gordon: Let’s talk about the team. Just tell me a bit about you. What’s your background, relevant to the operation?

Chris Bradbrook: My background?  Well technically I’m a geologist by training. It’s been a while since I’ve actually done geology, so I worked in the industry from 1980 to 1995 and then I was an analyst for about six or seven years. And then I went back into industry. I was V.P. Corporate Development for Goldcorp, but this was when all they were was the high-grade Red Lake Mine. And then when I left there, I formed New Gold. Which was a very different company to what it is now. It was just the New Afton Mine or deposit at the time. So, we raised the money to build that. And when I left there I started up a company called Crocodile Gold. Which really kind of led me to all my knowledge base in Australia. But that became Newmarket Gold, now part of Kirkland Lake Gold and the Fosterville Asset, which drives their valuation, was part of Crocodile Gold. And then when I left there, I was looking for something else to do. And ultimately this was what came out, Superior Gold.

Matthew Gordon: So, you don’t sound very Canadian.

Chris Bradbrook: No, well, I’m a Canadian technically because I’ve got my citizenship there.

Matthew Gordon: Okay. So, you’re based over there. From the U.K. originally. But with an asset in Australia.

Chris Bradbrook: Correct. Yeah, I like first-world assets. I really like Canada, Australia and certain parts of the States. So that is really our strategic focus.

Matthew Gordon: There’s a new COO on board. You told us a little bit about him in terms of what he’s done, so what is his background?

Chris Bradbrook: Well, the press release outlines this. He’s worked for small and large companies. North America, internationally.  He’s done everything from operating as an underground manager, to a general manager, to a COO to feasibility studies, raise money. So, he’s got an MBA too, he’s is a mining engineer. So, he’s got lots of strings to his bow. He understands all the various parts that matter to a public company.

Matthew Gordon: But you’ve got him focused on cutting costs and finding ore?

Chris Bradbrook: Well you just look at the problem in front of you and say this is what we need to do. So, and again like I say, he spent six weeks at site knowing full well what I needed and still said ‘you know there’s a tremendous opportunity, I want to be part of it’.

Matthew Gordon: Okay. And so, who else is on the team? If we look at these constituent parts for companies of your size. Technically you need to know what you’ve got. Whose looking after the financing and finances of the business?

Chris Bradbrook: One of the financiers is our CFO, Paul Armstead.

Matthew Gordon: What’s he’s charged with doing? What have you asked him to do?

Chris Bradbrook: Well quite simply, is make sure you know where the money is. Don’t do anything stupid with it. And if we are in a situation where we need money, give me the heads up well in advance. In terms of actually raising money, we’ve had to do it, that typically will fall to me.

Matthew Gordon: Tell us a bit about that. So, your shareholders are what, institutional at the moment?

Chris Bradbrook: Largely institutional. Canadian, some US. One or two in Europe but basically, it’s a North American shareholder base.

Matthew Gordon: Any names in there that we’d recognise?

Chris Bradbrook: Yeah, I mean well, Northern Star, our biggest shareholder.

Matthew Gordon: That’s presumably part of the deal?

Chris Bradbrook: Part of the deal it was. Century Select which is now CI Investments. They are a large shareholder. Donald Smith.

Matthew Gordon: They’re a Canadian promoter.

Chris Bradbrook: Donald Smith’s out in New York.

Matthew Gordon: Sorry, I meant the CI guys…

Chris Bradbrook: Well I wouldn’t say a promoter. I mean they’re a big blue-chip Canadian fund. I’m sure they be a bit worried that you called them a promoter. So those would be some of the big shareholders. We had BlackRock at one time. RBIM. So, we’ve had actually a pretty good list.

Matthew Gordon: How big is your retail following?

Chris Bradbrook: I would say it’s reasonably big. I would say we’re probably about 10%-20% retail.

Matthew Gordon: Again, mainly Canadian?

Chris Bradbrook: And North American and Canadian. Yeah, I mean every now and again I’ll meet someone from Europe who has picked the story up.

Matthew Gordon: Is there much liquidity in the stock at the moment?

Chris Bradbrook: It’s better. When we first start out, I mean, we were, because of those bigger shareholders, there wasn’t a lot of big float. So, liquidity early on was tough, but it’s better now. I mean we’re not trading millions of shares every day but a few hundred thousand usually and then every now and again you’ll see some blocks.

Matthew Gordon: And those are clearly the institutions trading in and out. But what’re the retail guys doing for you in terms of… do you think people understand the story?

Chris Bradbrook: Yeah, I would. I mean because, I’ve done this a few times, I’ve always valued retail. I mean, one of the challenges of retail is making sure they understand what you are by. I think from the questions I get from retail investors, they do actually understand.

Matthew Gordon: What questions do they ask?

Chris Bradbrook: Well they ask the same things you’re asking, which says to me they’re not off in some strange place asking questions that aren’t relevant. They absolutely understand what matters to us. They ask the same questions institutions do. Which is the same questions you’re asking, because it all boils down – there really are two or three key questions for our story.

Matthew Gordon: Absolutely and that people need to believe you can deliver against those.

Chris Bradbrook: Oh absolutely. I think I’ve got a decent track record of doing what I say. And I am actually totally confident that we are fixing this.

Matthew Gordon: Fantastic. So, who else is on the board that we need to know about in terms of active members of the board.

Chris Bradbrook: It’s a very small board and it was done deliberately. We’ve only got five people on the board. And I think with… you know at this basic level the board’s job is based and make sure I do my job. Or management does their job. But I think with a smaller company you kind of want people on who are willing to roll their sleeves up and help you. Because we just don’t have the numbers of people. So, our chairman is Marc Wellings who is former investment banker at GMP. He ran the London office for a few years as well. We’ve got Tamara Brown who is a V.P. Investor Relations at corporate development for Newcrest in the Americas. There’s myself. There’s Rene Marion who was chairman of Richmond. He was former Barrick and Erico. Really good mining engineer understands capital markets. Well, he was the chairman of Richmond when it got sold. It went from $30M to a billion dollars. So, he’s seen this movie before. And he worked for Barrick on this asset. So, he knows the asset.

Matthew Gordon: So, but is he an active participant?

Chris Bradbrook: Yes. Yeah, I talk to all of them regularly because I use their expertise, like Rene. I mean very important for us as an operator. So early on when I was trying to figure out what was going on, I said well, what would you do? And actually, Keith Boyle came through a recommendation by Rene, when I said well ‘who you know out there who would be a good person to take a look at this’. And then we’ve got one nominee from Northern Star.

Matthew Gordon: Yeah. And are they, I mean, they obviously must know a lot about this asset. And the fact they’ve stayed in says something.

Chris Bradbrook: I think they’d like to see us grow.

Matthew Gordon: Right. And it wasn’t just like option money … we’ll just do a deal, take a piece of shares.

Chris Bradbrook: We could have raised… we raised enough money, we could have just paid them out cash. There were a couple of things. I think they like the opportunity in the business model. They thought they could make more money. They saw that we could be a building block, I believe. And selfishly for us, I knew that the number one question I get asked was, well why would Northern Star sell it. So, having them in with someone in the Board.

Matthew Gordon: So, go on then. What’s the answer?

Chris Bradbrook: What’s the answer to that? Well I mean, you got to look at… because this what we’re doing here is really kind of what they built their business model on. But within about three months they bought four mines. They bought this one. A mine called Jundee in Australia, a mine called Canonabell in Australia, and mine called Candana. The three of them they got running the way they wanted them very quickly, so this became a bit of a head-scratcher for them. So, they decided to run a process…

Matthew Gordon: In the sense of what?

Chris Bradbrook: It just wasn’t going where they wanted as quick as they wanted to. But they actually gave us the entire operating team that we needed. So, the team that made a success for us when we took it over were the people that had been working for them previously. So, they were very important to us in getting it working.

Matthew Gordon: Thanks for that. So, let’s talk about last year in the context of, how do you think it went? What would you have done differently? I think you’ve answered some of these questions already. Can you try and summarise that for us?

Chris Bradbrook: Well look, I gave you the reasons why it didn’t go the way we wanted. So, what would I have changed? Well I guess like, as in all these things, you say well you know, early when it first started going wrong, we probably should have been more dramatic in trying to fix it immediately. But you sort of think the next quarter wasn’t bad. Okay maybe now we’re back on track and then late last year, you could see it was beginning to go off the rails again. So yeah, I think, if I really knew what I know now, I would definitely have moved faster.

Matthew Gordon: Hindsight mining…

Chris Bradbrook: Well yeah but, you know, we were asking all the right questions. I had the board involved. And we were, ‘well what is this, what do you need’. And yeah, you know that really is hindsight. I mean it’s just like you’re peeling away layers of what it takes to get there.

Matthew Gordon: Okay. And again, you’ve dealt with this slightly, this year what should shareholders be looking out for in terms of what you’re doing?

Chris Bradbrook: Well quite simply, on a quarter by quarter basis, they just need to see that we’re improving how we’re operating. We’re back to making money. That is simple as that.

Matthew Gordon: So, making money or cash flowing?

Chris Bradbrook: No, making money because, I am all about free cash flow. And like I said when we had the asset going the way we wanted, we were making money, and I mean making into the bank US £2M a month.

Matthew Gordon: Get back to that as quickly as possible….

Chris Bradbrook: Yeah. And you know we built a second mine, an open pit mine, all internally generated. We’ve never raised money since we went public. So, we must be doing something right.

Matthew Gordon: Debt free. So, there’s no kind of funky financing, sitting in the background, looking to clobber you?

Chris Bradbrook: No, and if you look on the balance sheet, you’ll see a small number for debt. It’s because we’ve leased financed the equipment. And then it just shows up as an ongoing cost.

Matthew Gordon: Very normal. So, give us your five reasons why you think investors should be looking at you and investing?

Chris Bradbrook: Well look. First world, that’s a start. Your first world location. A substantial asset where there’s tremendous exploration potential. 100,000oz producer with an enterprise value of US $20M. We will be going back to free cash flow. We’re one drill hole away from a discovery. At some point we will…. we’ve already expanded the Reserves and the Resource. But if we find something new high-grade. I mean there was an ore body there at one time. That’s part of our mineralization called Timaur. And it was a 1Moz of 0.5g/t. So, if we found another one of those. Yeah, we’d be happy. But that’s…but this is what happens with these assets. I mean Fosterville, I mentioned before, Kirkland Lake Gold. That was 3yrs ago a refractory ore body at 4g/t and everybody ‘knew’ it was rubbish. They drilled some holes and now they’re mining 50g/t. I’m not saying we’re going to find 50g/t but I’m just saying that’s what happens to these systems. If you try and understand them, you drill in the right place, there will be extensions. They don’t just end. And then this system, this is an immense system. It really is.

Matthew Gordon: Okay. I appreciate your candour and honesty in dealing with these issues. To put your hand up and say ‘we’ve had issues. We acknowledge that, and we know what they are. And we’ve put things in place to fix those. The investors should bear with us and look forward to what we’re gonna try and do this year.’ I think that’s quite a positive message.

Chris Bradbrook: Yeah. We’re telling them they should do something, clearly, it’s up to them. But I look at our share price and it’s been a downward trend since last April (2018).

Matthew Gordon: You think there is some upside there?

Chris Bradbrook: Well US $20M enterprise value for the story I’ve just told you, usually you get those valuations because people think you’re going out of business.

Matthew Gordon: You’d get that for the equipment, wouldn’t you?

Chris Bradbrook: Oh yeah. I mean look. You’d sell it… if we sold the asset today, you’d sell it for more than that.

Matthew Gordon: Right. Well look Chris, thanks for your time. I appreciate that. Do come back and keep us abreast of the story as it develops with the new plans, especially with the data mining element. That sounds very, very exciting to me. Thank you very much.

Chris Bradbrook: All right. Thanks a lot.

Matthew Gordon: Appreciate it.

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