Base Resources (AIM, ASX: BSE) – Mineral Sands in the Pink

Can Base Resources build on the success of their first project in Kenya without shareholder dilution? We interviewed Tim Carstens, Managing Director of Base Resources to find out.

Their ‘new’ project in Madagascar has a lot of similarities to the first project so a lot of learnings and complementary skill sets. Mineral Sands is little understood by investors as it is small market with few players, but it can have very high-margins. Rutile and Ilmenite are both used in the production of pigment ie: to colour paper, plastics, cosmetics. Plus Zircon is used in ceramics & tiles.

They produced some good numbers last year so we discuss the future for the business and find out where that growth comes from. Carstens tell us what he thinks it is going to take for investors to see a movement in the share price. We discuss their plans for project financing at the new project. They are debt free but there is no movement in the share price. When does the plan kick in for shareholders? Carstens also breaks down the shareholder register and what type of investor he is looking for.

Carstens says East Africa is better for business than West Africa but how is he planning to spend the money they made in Kenya? With no dividends on the horizon, where is the value being created? Lot’s of deliverables in the next year to build this Mineral Sands company in the hope of becoming a mid-tier company with only a few peers.

Interview Highlights:

  • Overview of the Business: What are Mineral Sands?
  • Review of Last Year and Focus on Safety.
  • Madagascar Asset: How Will They Get it Financed?
  • Share Price & Shareholders: What are They Doing to Bring Value to the Company? What’s Their Strategy for Growth?
  • When and Why Should You Invest?
  • Deliverables for Next Year.

Click here to watch the interview.


Matthew Gordon: Thanks for joining us Tim. You’re doing the rounds in London. Are you going anywhere else?

Tim Carstens: No, not on this trip. This is one of our regular visits to support the listing over here.

Matthew Gordon: Let’s start off with a minute summary on the business.

Tim Carstens: We’re a pure play Mineral Sands Company listed in Australia and here in London. We’ve got a highly profitable, successful operation that we developed in Kenya. It was Kenya’s first Large-Scale Mining project, and we’ve now picked up the learnings from that and looking to apply it in a new project we acquired about 18 months ago in Madagascar. A very similar style of mineral sand operation, a little bit bigger in terms of capital and looking to bring that into being and create a pretty unique mineral sands company that’s got a very clear growth path, highly profitable. And, something we think is going to have strategic relevance in the sector.

Matthew Gordon: For people new to mineral sands, please explain what it is.

Tim Carstens: In our terms, mineral sands… we basically produce three products. Rutile is the biggest component of our suite in Kenya. It’s the highest-grade form of Titanium Dioxide. It’s about 95%. We also produce a lot of Ilmenite, which is a lower grade form of the same material – Titanium Dioxide. And the majority of both of those go into the production of pigment. That 95% of all of Titanium Dioxide materials go into production of pigment. So, everything you see with a colour.

Matthew Gordon: So, paints, plastics, paper inks…

Tim Carstens: Food dies, you name it, make-up all has Titanium Dioxide pigment. And so, consumption is very tightly tied to a global GDP. Now it’s more of an urbanization and wealth driver, I guess, than industrialization. And then the third component for us is Zircon, which is quite different, predominantly used in the ceramics industry, in glazes and tiles and the like. Also has some other sort of industrial uses as well.

Matthew Gordon: You’ve said this project’s been going 18 months. How did last year go for you, 2018-2019?

Tim Carstens: Well, there’s two parts of the business – first is Kwale the operating mine in Kenya. We got our first shipment away in February 2014. So, we’ve been going for a while there.

Matthew Gordon: That’s cash producing, profitable

Tim Carstens: Significantly cash producing.

Matthew Gordon: Give us a sense of those numbers.

Tim Carstens: I mean last year was USD$113M. That was a record year, revenue was at USD$209M, so very, very significant producer.

Matthew Gordon: Debt free?

Tim Carstens: Debt free. We have now paid out the original $235M project financing that was used to part fund the construction with net cash of $20M. So, a very strong year last year from an earnings perspective. Another very strong year from a safety perspective. We haven’t had lost time injury since February 2014 right across the business. We haven’t had a medically treated injury for two years. It’s an extremely strong safety culture in our business.

Matthew Gordon: Let’s touch upon that, because most people don’t bother talking about.

Tim Carstens: Ours is a less inherently dangerous form of mining than compared to Hard Rock Underground, for example. But yet there’s still an awful lot of moving parts in our business. You know, road transport, a lot of risks. The reason we focus on it is 1. It’s central to sort of how we want to go about doing business. 2. But it’s also a pretty good window in on the performance culture of the business in general. Because you never find a business or an operation that has really good safety performance and poor operational performance because the management disciplines that drive one, drive the other. The other reason it’s really important for us is we’ve come into a country with no history of mining in Kenya, in terms of no large-scale mining. We’re 98% Kenyan workforce. So roughly 1,000 people on site. So being able to embed that sort of safety culture in an environment that’s not used to it is a significant achievement.

Matthew Gordon: You’re also spending a bit of money on some CSR activity.

Tim Carstens: We do spend a significant amount each year. It was about $3.8M last year on community development and environmental enhancement programs. We’ve actually banned the use of the phrase “corporate social responsibility in the business” largely because it’s the language of obligation. Its what companies feel they need to do to be seen to be corporately socially responsible. We take a slightly more strategic view on it. In that for us, we need to have a community and a government that has a felt fair exchange of benefit, mutual benefit with us so that at one level we have a really proud, happy workforce. We have a community that will defend the project or the mining operation against any sort of political interference. And then at the other end of the extreme, we have a community and a government. They’re a fantastic reference for us when we want to move into somewhere like Madagascar, where we’ve now gone. We’ll be able to point to what happened in Kenya. And you very quickly have a government that recognizes you as someone they want operating in the country.

Matthew Gordon: Let’s talk about Madagascar. That’s a relatively new operation. How are things going?

Tim Carstens: That’s going really well. We bought it as a project, so it’s going through the study phases at the moment. We completed the Pre-Feasibility Study (PFS) in March, which reinforced our view of it being probably the best undeveloped mineral sand asset in the world. We’d looked at a lot of projects before we decided it was the one we wanted to go for. We’re now completing the definitive study, which will be out in December 2019. And that will then form the basis for completing the financing for development.

Matthew Gordon: So how are the conversations on financing are going? What are you looking for?

Tim Carstens: They’re going well. We’re looking at a combination of things at the moment. There will be a fairly significant debt package as part of the funding. We’re pursuing two options. One is a classic project financing, very similar to what we did in Kenya. And in fact, involving a lot of the same banks who had a fantastic experience with us first time round. They like the way we do what we do. They like the project and the way it gives them an entry into Madagascar in ways that probably haven’t had a lot of access to before. So that’s one debt funding option. We’re also pursuing in parallel a Nordic Bond, exploring that possibility and looking to put in place something around $350M debt facility. And in parallel with that, we’re also progressing a few joint venture discussions just to sort of understand what might be possible in with some industry plans.

Matthew Gordon: So, things are obviously going well on that front. The share price though. If I look at the history, in 2016, things took off in Kenya. The share price went screaming all the way up to $0.19. Very nice.

Tim Carstens: It’s been a bit of a wild ride almost from the moment we turned the plant on in Kwale in early 2014, our commodity prices were falling. And so, we actually got to the point in February 2016 of having a market cap of $16M. That was the low point when it was A$0.026 cents. And then we saw commodity prices turn and in about the middle of 2016 and share price shot up. We were up in the $0.30s. But we’ve largely tracked sideways since we acquired Toliyara sort of sat in a channel, $0.24 to $0.30 cents somewhere in that range. And to a certain extent, that’s explained by the market needing some more clarity on exactly how we’re going to fund the project.

Matthew Gordon: And that’s what I want to get into in now. If I look at some of the statements in your PowerPoint, you’ve mined more ore, your numbers are generally positive. You’ve paid down debts, you are net debt free. The share prices continued on a general downward slope. It’s been fairly up and down, but the general trend is slightly down.

Tim Carstens: I disagree with that. It’s been trending up for the last 12 months, but I see it’s exactly where it was twelve months ago.

Matthew Gordon: People can get have a look at the chart and work out how they feel about that statement. What is the go forward strategy here? Where are your loyalties? You’ve got loyalty to employees, loyalty to the community, loyalty to shareholders. But what are you doing for shareholders going forward? What’s the growth component to the story?

Tim Carstens: Well Toliyaras is clearly the growth component.

Matthew Gordon: But when does it kick in?

Tim Carstens: Well, on the sort of timetable we’re on, we’re aiming to be in production by the middle of 2022, which will still see us with overlap with Kwale – two operations running. You’ve got that diversity of earnings and extremely powerful earnings profile. I mentally Toliyara based on the PFS numbers is going to spin off free cash flow each year of around $13M. So significant cash flows across the two. One of the challenges in developing an asset in Kenya or Africa generally is getting full value in a share price sense for the earnings you generate simply because of this perception of risk. And that’s particularly exacerbated when you’re a single asset, single jurisdiction company. So, our strategy had always been to let’s go get Kwale up and moving. Use it to build our business model. Use it to build our capital base, our reputation, our scale with a view to then taking all of that to move to the next asset, to get that diversity happening and build a company with a number of operations that smooths that out and starts to unlock the latent value of the earnings.

Matthew Gordon: Do you think you’re telling that story well at the moment?

Tim Carstens:  We’re telling the story as well as we can at the moment, because the key unknown for people is exactly how we’re going to fund it. And we can’t explain it any more than we are at the moment, because we’ve got all these components that are moving forward sensibly. They can’t move forward any faster because obviously completion of a DFS is central to that. It’s a long-term exercise building a business from scratch.

Matthew Gordon: You are throwing out cash, you are paying down debt, and you’re looking after the administrative side of things. At what point do current investors or new investors get interested in you again. Are they going to wait until you get your debt package in place in the new year? Is that the moment they should really be looking at you?

Tim Carstens: I think people are crazy not getting involved now. But I understand why they aren’t. Because, we’ve got a very clear picture of what the value is in this business. And it’s a question of time before people actually see that. As I keep repeating, for a lot of people the lack of clarity around exactly how we’re going to fund it gives people a sense of maybe they’ll go fund raising and that’s something that we need to dispel. The other part to it is that we have a ridiculously supportive shareholder base where the top 20 hold 91% of the stock. The top three hold 65% of the stock at the current share price. No one’s really interested in letting any stock go.

Matthew Gordon: Isn’t that part of the problem?

Tim Carstens: Well, it is part of the problem, no question. But it’s why we need to be a little bit patient with this, because for someone looking to get in in a meaningful way as an institution, you’ve got to get yourself comfortable with the value proposition. You’ve then got to be able to see a pathway through to acquiring some stock in the first place. And then you’ve got to get yourself comfortable. You can exit if you wanted to. So, this liquidity share price standoff is unquestionably one of their challenges. The catalyst for breaking that is quite clearly getting the DFS out. So, that’s the next level of resolution around the shape of the project. But the critical catalyst, as far as I’m concerned, is when we’re able to go out quite clearly and say, here’s what the debt looks like, here’s what any joint venture looks like, here’s how the rest of the funding comes together. And this is what that means for you shareholders. Now, I think if people sit and wait until that happens, they might find they miss out.

Matthew Gordon: So that says to me that you’re interested in institutional investors, not so much retail?

Tim Carstens: No, not necessarily. We’ve made a concerted effort now to really reach out to retail. We just seem to have been more successful in getting to the institutional side of things, we’ve done quite well there. But the retail is somewhere we need to spend more time focusing on.

Matthew Gordon: Why’s that?

Tim Carstens: When you’ve got limited liquidity, they’re the people that are going to set the share price and then the price becomes the price at which blocks trade. And it’s something we do need to…

Matthew Gordon: And do you find that’s a much harder story to tell to retail? You mentioned the Africa component here. Also, mineral sands being little understood.

Tim Carstens: Yeah one of the challenges with mineral sands is there are so few pure play mineral sands companies in the world. It’s not a story that people get to touch regularly, even amongst institutional investors. They don’t see too many mineral sand companies coming around. It’s a less immediately clear sector in the sense that you don’t get a lot of commentary about it, it’s not like people talk about it like what’s happening in the copper price or nickel or whatever. And then you’ve got the Africa factor as well, which a lot of people just aren’t really quite comfortable with what Africa’s about.

Matthew Gordon: With gold, more so than most other minerals in Africa they might be a little bit more comfortable.

Tim Carstens: I always find it interesting that people seem to be more comfortable with gold in West Africa than super simple mineral sands in East Africa.

Matthew Gordon: Gold’s a very big market in terms of value terms and it’s been around a while. And mineral sands is new and it’s a smaller market.

Tim Carstens: It’s more the nature of the countries you’re talking about. There’s a lot more policy volatility in West Africa than there is in East Africa at the moment, except for Tanzania.

Matthew Gordon: I like Tanzania, I’ve worked there.

Tim Carstens:  It’s a great country, an interesting policy environment. People are waiting to see if there is a knock-on effect.

Matthew Gordon: Shareholders are sitting around patiently waiting for this pop. And you think it’s going to come when there’s clarity on your debt package. What are you going to do for them? Kenya generated a lot of cash. You’re hoping to replicate that in Madagascar. Is there some kind of dividend coming down the line or some share buybacks?

Tim Carstens: Shareholders fall into two categories in our world, the shareholders who would suggest that a dividend to be good. And then there is the vast majority who say, don’t be stupid because we’re looking for that growth. We can see the project coming next year. Why would you issue a dividend now ahead of making a major investment next year? So now, while we have every desire to be a dividend payer and its part of the business that we’re building and the diversity of cashflow we’re building, right now is not the time.

Matthew Gordon: Isn’t that the trap that producers fall into, that they create cash and they go, ‘oh, we need to grow, so we need to make an acquisition’. They spend a lot of money on an acquisition, spend money on the CapEx getting that into production to produce more cash, but they kind of forget about the shareholders along the way.

Tim Carstens: As a generalization, that’s fine. But to suggest that we’ve forgotten about shareholders is not really appropriate. Every company has its own peculiarities and its own circumstances. We started at Kwale with an asset that had to short mine life, it had mine life of 11 years. We’ve built an extremely robust business and business model and team. And, the option that you’re talking about would be for us to run that for cash and close the business and moved on.

Matthew Gordon: It’s not quite…

Tim Carstens: Well yes it is, because, you can’t get too close to the end of the mine life at Kwale when we’re talking about mid-2024 without having somebody to replace it. We’re not making the most of our platform that we’ve built if we’re not applying it to something else. And our shareholders have certainly been encouraging us to go down that path and we can see such significant opportunities in the sector because we had been so profitable during the downturn. Even in a downtime, we were still able to service our debt. We were not financially stressed in the way a lot of our competitors were. Which meant we’re able to grab what we think is the best project to add to the portfolio and get to that next level, at which point we will be a very significant cash generator and a completely different set of options at that point. For us, this was absolutely, unequivocally the clear path.

Matthew Gordon: What I’m saying is for institutions who will sit back and play the long game, that’s one thing. For retail, family office, high net worth looking for quicker return, it’s a very different model, Everyone’s got different investment models. Your focus at the moment is around the institutional guys, because it’s around 90% of the business.

Tim Carstens: Not necessarily. We actually found we have a huge number of very long-term retail. I actually take a different view. A lot of the institutions are actually much more focused on short-term performance. A lot of our retail shareholders understand the long game of building this company and they’re involved in it. And the point I’d make to shareholders who are looking for that short-term hit in the yield in the next two years, we’re probably not the company for you. So, I suggest you go somewhere else.

Matthew Gordon: That’s what I’m hearing loud and clear.

Tim Carstens: People can vote with their feet. I got no problem with that. We’ve been very clear about what we’re doing with this business and we’ve got a very clear path on how we develop it.And the shareholders need to choose whether it’s their profile.

Matthew Gordon: So next year, few things happening; the DFS and the raise.

Tim Carstens: Well the DFS will be in December then the rest of the year will be spent very much on bringing together the funding components, working towards being in a position to make a final investment decision to stop the major construction over the course of next year. Now, we’ve given ourselves a fair bit of runway through until probably the end of the third quarter next year to get all those pieces to come together, because there’s a fair bit of complexity in it and when you’re talking about potential minority joint venture participation, debt facilities, we’ve still got to pin down the final fiscal terms with the government in Madagascar. So, all of those pieces need to come together over next year. The other thing that’s getting a lot of focus for us is mine life extension at Kwale. We announced there is a large resource on a separate dune called the North Dune during the year. I’s very big, 171Mt, but quite low-grade. So, we’re doing a study on that at the moment to see what subset of that could make sense as mine life extension. Then we’ve got another couple of areas around Kwale that we’re exploring to see if we can identify more.

Matthew Gordon: Do you want to give us a little summary for investors looking at this from new as to why they should be investing in you guys?

Tim Carstens: We’re trying to build what is a very unique mineral sand company in terms of being a mid-cap company, heading towards having two operations at the moment. We’ve got one very profitable one we think we can extend. We’ve got another world class development asset. We’ve got a business model that’s been very successful in Africa. We do win quite a lot of awards for our environmental stewardship and community engagement. And the whole team that brought Kwale together is still with us. So, the whole team that did it the first time around is there to do it again. We’ve got a very robust financial platform to be able to build that business. But the long term aim here is to create something pretty unique, because in our sector, there is really only Aluca at $3Bn – $4Bn market cap. And then you drop down to Kenmare and ourselves around the USD$200M-$300M market cap. And we’re trying to create something quite unique in that space with a multi-asset sort of business with a growth profile.


Company website: https://www.baseresources.com.au/

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European Lithium (ASX: EUR) – A Giga Factory JV with a Junior Lithium Developer?

Interview with Tony Sage, Non-Executive Chairman of European Lithium (ASX: EUR, FRA: PF8, VSE: ELI)

Can European Lithium plug in to the European EV and battery revolution? They talk about how they think they can attract EU debt funding and a strategic equity partner. Will that partner be prepared to pay more for buying local / greener? Tony talks to us about the realities of how junior miners attempt to get funding and why he believes European Lithium is in a unique position in Central Europe. We are interested in understanding the terms and conditions to their recent €10M convertible note funding facility. If you are a shareholder, do you like terms?

We get his take on the Lithium pricing cycle and timing for recovery. Their Feasibility numbers need the price of Lithium to rise significantly to be economic. Do you agree with him?

We are also fascinated by the fact that European Lithium sits on the ASX (ASX:EUR), Frankfurt Exchange (PF8), Vienna Stock Exchange (ELI) and NEX UK (EUR). Find out which exchanges work for them and why.

Interview Highlights:

  • Overview of the Company
  • The Background Story of European Lithium
  • New Shareholders: Who Are They Targeting?
  • Lithium Market and Geopolitics
  • Standing Out: Can They Get Financing in Today’s Market?
  • Cash Position
  • What Are The Board Preparing For? What Are The Main Concerns Going Forward?

Click here to watch the interview.


Matthew Gordon: Why don’t you kick off with a 1 minute history of the business.

Tony Sage: mine was developed by the Austrian government back in the 1980s. They were looking for uranium but they found Lithium. Unlike any Western company, they actually went out and built the mine straight away without doing all of the work that is required before you start building a mine. What they did is they followed the Lithium from the ceiling of the opening and just followed it all the way down. It’s a beautiful structure inside the mine. But unfortunately, when we took over in 2012, there wasn’t data to prove how they found it. So what we’ve done in the 6 years that we’ve owned it, is mine it So we mined 1,500t. And we also drilled. So that proved, as all Western companies need, is a JORC compliant resource. So we know we’ve got 11Mt of ore there. That that will last 22 years as a mine life. And we completed in that time frame a PFS. So a Pre-Feasibility Study has been completed. It was completed by one of the leading engineering groups in the world, DRA. So that’s basically the premise of our story.

Matthew Gordon: How this has come about? You’re involved with Cape Lambert. Cape Lambert is a shareholder in this project.

Tony Sage: It’s a very interesting background. It started off with a cocktail party. One of my colleagues met The Count of that district in Austria, near Wolfsburg. And they got talking and he’s introduced himself. He was in mining. And The Count said, ‘I’ve got a mine on my property’. That’s where it started. So in 2012, we had a look at it, and invested in his property. We paid him a lot of money for access. And then over time, he enjoyed what we were doing, and he became a shareholder of the company. I didn’t have the funds myself personally. So I used my investment vehicle, Cape Lambert Resources, and we invested some money in. And since then, we’ve got other investors in. In 2012, Lithium wasn’t flavour of the month but in 2016, it became flavour of the month. We kept it private for 4 years. And then we listed it on the Australian Stock Exchange back in 2016-17. At the time Lithium was exploding around the world. But in Australia, there were 41 separate ASX listed Lithium companies at the time. And a lot of those were in Australia, some of those were in Africa, and obviously some in South America. So we were being drowned out by all of the Australian ones. So if you’re an Australian investor, and you say I want to operate a mine in Austria, I would just say you’re crazy. Mining doesn’t happen in Europe. So listing in Australia was an error of judgment. But we got the money when we listed, and we were able to progress the project. But then in 2017, we listed it in Frankfurt, Hamburg, Munich, Stuttgart and Berlin. And from that moment on, it exploded. The investor base moved from 100% Australian shareholders to now 55% shareholding base in Europe. And most of those European shareholders are German or Austrian. There’s a splattering in UK, France, Switzerland. So we realised we hit on something extremely good. If you look at a lot of the social media, our company is clicked a lot more than some of the bigger companies in Europe because of 1. EV, 2. it’s a unique story that a mine is going to be actually reopened 20 years later in a little country called Austria.

Matthew Gordon: I do want to say over the management since experience and so forth, but you talk about shareholders and the split between Europe and ASX. Obviously, it’s a European asset. So you’d hope that people would be interested in Europe, but just looking at your share price. Lithium companies across the world have been absolutely hammered. In fact, what is the Lithium price at the moment?

Tony Sage: We’re going to produce is Lithium hydroxide, at its peak was $22,500 per tonne. And you’re looking probably at $15,000 – $16,000 a tonne now. So it’s dropped a lot in the last 12 months. The actual raw Lithium price, got to just over a $1,000 a tonne. It’s probably trading at $450 to $500 a tonne now. Hydroxide has gone down about 35% over the last 4 months.

Matthew Gordon: Most of the numbers I’ve seen from you is using $16,000 a tonne. So obviously that’s taking a bit of a hit. I’ve read various things from JP Morgan that suggest that it’s going to go lower. What do you think?

Tony Sage: We look at benchmark. We look at Roskill, but we also look at the broader world. China has just announced, it wants to build 1M electric buses. Now you just think about the amount of Lithium required for 1M electric buses. The slide started when one of the biggest producers out of Chile said that they were going to double production, because they had an agreement with the Chilean government to increase their production. It didn’t happen. But that was the initial scare. From that date that was announced the Lithium price actually fell about 15% on the day. Lithium stocks all around the world just went down 10%, 15%, 20% because they thought all this production was coming off. However, 1. that production is not coming on. 2. you’ve got countries like China, who are now announcing that they’re going to be a 1M electric buses. Now, there’s not enough Lithium around today to produce those 1M buses in the timeframe they want. The price will go up.

Matthew Gordon: You’re projecting that. I think like most supply demand stories, there’s two sides to it. We accept that the demand is probably going up because of the whole EV story.  But likewise, as soon as the demand goes up, new entrants come into market or production, which is sitting idle at the moment or on a very low level, goes up. JP Morgan would suggest that there’s going to be double the amount of production out of South America alone into the marketplace. So that is going to affect pricing. It’s a question of where it settles. Production is not going to stay as is. It would be insane to think that. I think people will be attracted to come into the Lithium market again. It’s a question of can they do it economically. And we’ve spoken to a lot of Lithium businesses. You’re right, in the ASX lithium is a dirty word at the moment because people’s shares are underwater. It’s a question of when does the price start to move again? You’re going to get through this cycle into the next cycle. Can you get financed at current levels?

Tony Sage: I think we can. I wouldn’t be pushing ahead, spending already $12M-$13M on the Pre-Feasibility Study (PFS). Spending another $10M on the definitive or bankable, unless I was very confident. We’ve been in discussions with project financiers, quite large ones, European-based. What you’ve got to understand is the broader geopolitical situation. You’ve seen it now with Rare Earths. China has said to the world, we’re not going to export any more Rare Earths. At the moment China produce over 80% of the Cobalt required for EVs and 85% of the Lithium for EVs. Now, if they’re going to build 1M electric buses. And of course, with cars and obviously battery storage… how many batteries do you think they’ll be exporting in 10 years time? So the EU has made Lithium and Cobalt critical minerals. There’s only a few players in Europe that can produce in Europe. 25% of the world’s Lithium ends up in Europe. They produce none at the moment for electric batteries.

Matthew Gordon: Let me understand the terminology. You say critical minerals need to be produced from within Europe. Or have they got the ability to buy out in the wider market?

Tony Sage: Well, OK, let’s go into Hydroxide and Carbonate production. All comes from China. They’ve built one plant here in Western Australia. Who owns it? The Chinese. At some point like they have done with Rare Earths, they could say for their own critical needs, that they can’t export any more Lithium Hydroxide or Cobalt Hydroxide, or Cobalt Carbonate or Lithium Carbonate. At some point, it might not happen, but the security countries like America and Europe as a whole need to have is some production in their own backyard. Ours isn’t going to anywhere near create the supply that is needed by BMW, Volkswagen.

Matthew Gordon: So again just so I understand. Are you talking about production or are you’re talking about processing?

Tony Sage: I’m talking about production of Lithium Hydroxide or Carbonate in Europe.

Matthew Gordon: Right. Because it’s a fairly abundant resource, isn’t it? That’s the problem.

Tony Sage: It is. But mining it economically is the key point. So it is abundant everywhere. So, for example, we just take Pilbara Minerals, for example, 4 weeks ago, they were in big trouble. They got rescued by the Chinese because the price has fallen down, because they’re in a remote location. We’re in Wolfsburg, right near the railway line, 40km from Graz, where Samsung have a battery factory. We’re in an industrial area in Europe where we can export to any country in Europe by train for very little compared to having it from Australia or South America, shipping it to China to get produced in China. All China does buy it for $450- $900 a tonne, and sell it as Hydroxide at $16,000 a tonne to battery makers in Europe. The EU have recognized that. They’ve recognized that with Rare Earths. They were scared by the Rare Earths announcement by China on 2020 no more export. So they’re madly, as with the Americans now, trying to find Rare Earths. But it’s the same problem that will be with Lithium Hydroxide and Carbonate. Forget the raw stuff. I mean, there isn’t a plant in Chile that produces Hydroxide or Carbonate. They ship the raw product to China to get the Hydroxide.

Matthew Gordon: Are you’re saying that Europe is coming up these protectionist policies to be able to produce and process their own Lithium in their own backyard?

Tony Sage: Encouraging policies, encouragement for European mines to be able to produce Hydroxide, Carbonate for the European market.

Matthew Gordon: An encouragement! We’ll talk about the funding program launched by the German ministry, which you mention, in a minute. But if I’m Gigafactory producing batteries, I’m going to go to the cheapest supplier, aren’t I? I’m going to go to the South Americans. So how do you stack up against that?

Tony Sage: Well, 1. the freight cost. We’re not paying $22 – $25 a ton to ship it from there to Europe. 2. if you look at and read our Pre-Feasibility Study (PFS), our cost structure is very good. The number is $6,500 -$7,000 a tonne, whereas 12 months ago we could have got $22,000 for it. Now we can get $15,000. It’s still a very big margin of profit, excluding financing costs, for our shareholders. So we believe we can produce for the European market a safe green, very green supply of Lithium Hydroxide to the European market without any problem with geopolitics. If the suppliers, for example, as we saw 7 months ago, the Argentinian government slapped a tax of 10%-12% on every export, including Lithium. So if you’re a Lithium producer in Argentina, you’ve just dropped 12% of your profit.

Matthew Gordon: Yes, but they’re also producing at $3,000, so they got some margin. Lowest quartile producers.

Tony Sage: Well, in Chile they are, Argentina not so. But in Chile. Yes. Chile is very un-environmentally friendly.

Matthew Gordon: Meaning what?

Tony Sage: Well, they’re producing this from brines, which takes up a lot of water. And which is causing all the grief with the local population. And they don’t want any of those mines to be increased, because if you’ve seen a brines production facility, it’s pretty ugly to the environment. So environmental, ours is all underground. So we can get a big green tick and we’re producing Hydroxide for EVs or other environmentally friendly industries. So I think we get 1. a big green tick 2. the German car manufacturers for example, I think one got into a bit of trouble investing in a Cobalt mine in DRC.

Matthew Gordon: That’s a well-trodden path with regards to Cobalt and DRC and child labour and so forth. Let’s stay away from that. Let get into this. So what I want to understand is how does your project get financed today? I know you did a raise earlier in the year. What are the terms of that. $10M was mentioned. But it was a bit more complicated than that, wasn’t it?

Tony Sage: So it’s a financing facility that we can draw down on. It’s complicated because it depends on the share price at the time. They get a 10% discount to the market. Say we are trading at $0.10. They get it at $0.09. And they don’t do it all at once. So we’ve got the facility there. They can do it when they feel like. So, we’ve only drawn down on that facility $2M and so we got $8 million left.

Matthew Gordon: And you can drawdown in $1M tranches upon conversion of all the notes from previous rounds. That’s the way it works?

Tony Sage: So when they finished when they finished selling those to recoup their money, we can then draw down the next one.

Matthew Gordon: Got it. So it’s a real stagger. It’s not $10M per se. It’s a facility, as you said.

Tony Sage: It’s a facility and it can last 3 years.

Matthew Gordon: So let’s come back to financing, because that’s where the fascinates me. At $15,000-$16,000, you’ve shown your what the economics are here for you. But if I’m a banker, I’m discounting today’s price by up to 40%. So it becomes a question of, can you persuade people that your thesis about price going up is true? And if you can, that’s great. If you can’t, then what are your options in terms of getting this thing finance? Once your DFS is complete?

Tony Sage: Well, 1. the DFS will say whether we’re robust enough. So if the DFS comes out saying this is a very marginal project, I wouldn’t go to any bank with this. That’s one scenario. We’re expecting the opposite because the Pre-Feasibility Study (PFS) was very robust. So I’ll have a very robust DFS. So I go to the bank and I will say, ‘this DFS proves there’s a 40% margin in this. How much can you project finance this?’. They will say, ‘this much’. We will seek some EU funding, whether it’s a soft loan, whether it’s a…

Matthew Gordon: Tell us about that? You talk about the German ministry putting a battery production funding program together of €1Bn. That’s quite a lot of money. But how much of that would be applicable to you? How much of that €1Bn would be set aside for mining?

Tony Sage: Unknown. If we, for example, link up with a battery manufacturer, as a joint application for use of these funds, it might be a larger number. As a miner, by ourselves, I don’t think we would be able to do it. We’d have to link up with maybe an end user. I’m just throwing out names. An automotive maker in Germany or a battery maker in Germany. We can partner up and then apply for that. But separate to that there’s EU funding. It’s called Horizon 2020, and under that, there is a direct application for us as a critical mineral for Europe. We may be able to get a soft loan. So that soft loan might be €50M at a very attractive interest rate, which is probably almost zero repayable over X amount of years. So at the same time, say the number is $400M that we’re looking for. We would do $70M of that in direct equity, and the rest in project finance and or funding from a source like Horizon 2020, or from the €1Bn fund from the German government.

Matthew Gordon: How does someone like Horizon 2020 assess your project and the economics of a project like this.

Tony Sage: The credibility of being the… the PFS is done and the DFS is coming. We would have to present a case to them that 1. it’s very good for Europe. 2. it will create jobs in Europe. 3. it is green. We’re not going to hurt the environment by doing what we’re doing. The three key criteria in Horizon 2020. We take every one of those boxes.

Matthew Gordon: It’s interesting that none of those criteria are about the economics.

Tony Sage: No. Again, it’s about creating jobs. If you look at virtually any government around the world, it’s not really about economics. It’s about creating jobs. This is a fiscal investment by the EU into something that’s going to create jobs and solve the problem, albeit in a small way of producing a critical product for the European industry, rather than being reliant on China.

Matthew Gordon: So potentially that type of money is quite important, because it’s… I’m not saying dumb money but it’s money which is a different set of values or needs from institutional money, who does care about the economics, because they’re buying shares in your business, presumably on the equity side, and want some guarantees that you’re going to be able to mine economically and pay back the debt. So have those conversations been had? How do you know that Horizon 2020 is interest in investing in something like you?

Tony Sage: Well, because we’ve applied, and we’ve talked to the right people at the right agency. And we will await the outcome of the DFS. They’ve got a stringent programme as well. We’ve got to have a document that shows that we will be economic. We will create jobs in a low job area, especially for youth near Wolfsburg in Austria, where we are. So that would create long-term 300-400 jobs, short-term 1,500 during the construction phase. So we are going to create jobs in that. And if you go to the local government in that area, we’ve got two sets of competing mayors who want us to build the plant on their side of the fence. So we’ve got so much support from the local government. We’ve got so much support from the Austrian government. So now it’s one step higher, which is the EU in total. And they’ve got so many other factors to look at geopolitics, which we’ve talked we’ve touched on environment, which we’ve touched on. And most important jobs.

Matthew Gordon: Most important for them. But I’m talking about shareholders wanting to come in and invest.

Tony Sage: But if we get that money. That’s a big chunk of shareholders who will go, ‘wow, that’s great’. That’s $50M, $70M. How are you going to get the other… $300M. $70M of that is going to come directly as direct equity. So that’s roughly 25% of it. We’ve done the numbers with banks. What they’re looking at for the project finance side, and they can project finance probably 60% of the project.

Matthew Gordon: So let me get this straight. I want to get the numbers right. You say $400M required. You’re getting potentially, let’s just say for a second argument, $50M of debt from Horizon 2020 on a 70/30 debt / equity split.

Tony Sage: Half of that.

Matthew Gordon: So I’m just trying to think as a retail /high net worth /family office investor looking at your company going, ‘I think this is a great story. I’m going to invest. How do I feel about Horizon 2020 coming in?’. I guess if they’re putting $50 million towards the debt. Great. But it’s still costing the company, whatever nominal rates that these people are charging…near zero. You’re suggesting. That’s great news. Do I look at that as some kind of endorsement of the project? I guess not. It’s about job creation, and is it green etc. So I’d need to some see who else would be involved with this, is what I’d be thinking. You talk about advanced stage discussions with some of the off-take agreements as a means of… would that be pre-funding in terms of the off-take? Who are some of the names involved with this who would give me some comfort around the validity of the project?

Tony Sage: We’ve signed NDA’s with these companies. But rest assured that a large German automakers and builders of batteries themselves is another company. And let’s go for one other one, which was in the industry of producing electronic tools. Now, the reason I don’t pre-sell the off-take now is, once this DFS is done and people see how robust the project is, you’ve got other suppliers around the world that will say here’s a foothold into Europe. So if we’ve already sold our off-take pre the DFS, we won’t be a takeover target.

Matthew Gordon: Ok.

Tony Sage: If I don’t and the DFS comes out, here we are. There’s a small player in Europe is only going to produce 11,000t of Hydroxide per annum. They are in Europe. They’ve got all these contacts. Wouldn’t it be great to have in our portfolio? So if we’d already sold the off-take is very much more difficult to have that story. I’d like to be in a position where we’re completely transparent. We’ve got no-offtake partner now. We don’t want one now. And we will wait until the DFS is done and we can sign 4 agreements today, if I wanted to. And a couple of those are outside of Europe, but I don’t want to sign one now for that reason.

Matthew Gordon: And I appreciate the insight into the strategy and the thinking. That’s well-noted. So, if I look at the project now, $16,000, which is what you’ve done the numbers on, and let’s say it’s roughly give or take that on any given day at the moment, you’ve got a 25% IRR, which is reasonable. But you’re right on the margin in terms of price in the market at the moment. So you’re looking for this price appreciation to drive not only the IRR, but the NPV of this project up. Are there institutions that you’re talking to or begun conversations with, in anticipation of what the DFS is going to tell you?

Tony Sage: Yes, we’ve got a couple of institutions already in the stock. They bought through the last equity raising we did. So they’re sitting back. I’m going to be completely honest now. Virtually everyone, the two major banks, European banks, and two off-takers want to wait for the DFS. The Chinese obviously don’t care about the DFS. They’ve seen the PFS. But we don’t want to send concentrate from Austria to China for $400-$600 a tonne, and it comes back in to Europe at $16,000-$17,000 a tonne. So we can take easy money now and breeze through the next 6 months, or we can hold tough like we have. Be true to what we want to be able to do, which is finish the DFS. And then go to the two major banks that we’ve talked to and say, ‘right, this is it now. You’ve asked us to be our clients. Can you raise X amount of dollars on the IRR based on this final report from DRA’.

Matthew Gordon: Those are an investment banks as opposed to debt providers. And the current investors are going to be very different from the types investors you’re looking for going forward, aren’t they?

Tony Sage: Absolutely. Yes. Completely different. At the moment, we’ve got, in Australia, we call them mums and dads; in Europe they are called family houses. So we’ve got a lot of family house investors in Europe based in Austria and Germany. We’ve got a little bit of investment, now that we’re listed in London on the NEX. And a few are coming through that. The reason we did that is to broaden our investments spread of investors from Europe, and a lot of family houses in London, and a lot of municipalities can’t invest unless you’ve got some sort of listing in London. So we chose the NEX because it was the quickest to get on. And since we were on, it doesn’t trade very well, because most of the family houses buy on the Frankfurt Exchange where we trade millions and millions a day.

Matthew Gordon: It’s cheap and quick on NEX, but doesn’t necessarily trade or give you the volume of liquidity you need. So how much cash are you sitting on?

Tony Sage: $1.7M in the bank right now. Our next drawdown is $1M, which should come through by the end of October, halfway through November. And that will continue. So in another 3 or 4 weeks, we can draw down another $1M or so on.

Matthew Gordon: So they let you know how they’re doing with regards to selling down the shares.

Tony Sage: Well, we see it because they have to come through us to convert their shares. We’ve obviously got the share register, so we know when they are selling it. So we’re okay for now. Would we want a different funding, partner? Maybe. So, there’s lots of different options on the table. We’re not going to say we’re stuck with this one, but this one will suit us for the time being until we finish the DFS.

Matthew Gordon: You mentioned part of your strategy is, you don’t necessarily want to take off-take partners on board yet, until you get clarity on the DFS, because then you’ll understand what your options are. You’re a small Lithium player. You’re in Europe. That’s a USP for you or your positioning it as such anyway. What are you doing? Some companies choose to hunker down until there is price discovery. The price gets back up. Or some people like charge on at 100 miles an hour. Some people JV. What’s going on with the board’s thinking. What are the things keeping you awake at night Tony?

Tony Sage: Well, the biggest one right now, believe it or not, is geopolitical. Because everything affects everything in this world. Trump’s fight with Xi Jinping, everyone should be worried about, the whole world should be worried about.

Matthew Gordon: We are. That’s why Gold has gone up.

Tony Sage: Yeah, $1,500. I’ve been reading reports over $3,000 an ounce by mid-next year. But if I’m thinking purely of business, that is my number one concern. China already has proven with this Rare Earth announcement that it will try and hold the rest of the world to ransom if it doesn’t get its way. Trump is belligerent on the other hand, and he wants his way. So, that negotiation is very important for a lot of things in commodity prices around the world. So that’s one thing that keeps me awake at night. I think part of the reason that the US now says, ‘I want to buy Greenland’, because I know there’s a whole lot of Rare Earths in Greenland. So that one maybe a parody or a joke from him. But he’s quite serious about getting investment in Greenland. And I think now with the Prime Minister going to visit Trump. He’s come out and said, ‘we want to really be involved in Lithium, Cobalt, Rare earths’, anywhere in the world with any Australian company. So geopolitically I think there will be a resolution coming up, whether it’s in Trump’s favour, China’s favour. Who knows? But that will settle a lot of the nervousness. You’ll see Gold maybe come down a little bit. But I think everyone then will think, right China’s ready to go again. We just saw the spurt in iron ore prices, for example. It went from $60 a tonne back to $125. Because they’ve got rid of their stockpiles and they needed it very quickly. If there is some sort of resolution, China will need to fiscally spend money again and that will increase the Iron Ore price. But that goes on to other things. If they’re building 1M buses, they still need Iron Ore. But they still need Lithium. I look at the whole of the world and think about things that can happen, cannot happen. For the board, we’ve got a very good project in a very good country. The government of Austria wanted to go ahead. The local government there wants to go ahead. We’ve had no environmental issues come forth for us. Being in Europe, you see every time there’s a new mine set up, there’s greenies everywhere trying to stop it. Ours is not like that. It’s all underground. I think we’re in a unique position to go ahead, finalize the DFS, have a document that we can present to project financers, institutions that will take chunks in an equity raising and obviously go to the $1Bn fund people out of Germany and also the Horizon 2020 out of the EU. I’m looking forward very positively and I believe that the Lithium price will start to move upwards from January next year.

Matthew Gordon: We shall see. I think lots of people want to see some movement there. And then it’s a case of what happens next. Do we get a slew of Lithium miners coming into market or not? And how do you take advantage of your unique position in Europe and capitalize on that? Tony that’s a great first introduction to the company. I would love to stay in touch and see how you get on.

Tony Sage: Thank you very much.


Company website: https://europeanlithium.com/

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Vimy Resources (ASX: VMY) – Production in 2 Years with 2.9Mlbs!

Interview with Mike Young, CEO of Vimy Resources (ASX:VMY). Vimy is on a non-deal roadshow in London meeting investors and potential investors. They report that the mood in the market is good because the macro story is well understood.

Mike Young is great value entertainment but he also knows a lot and is very well connected. He does a very good job of explaining the short-term micro and how the financing in the space operates. As well as what is happening with the supply deficit.. Do both sides of the Demand/supply equation understand each other? Mikes doesn’t think so.

Vimy is doing a refresh on the cost-side and they have been talking to debt providers. How are the conversations going? How are they going to market to finance their project? Mike says they are looking for strategic partners, but where? And what does that look like?

Interview Highlights:

  • Mood at The WNA
  • Overview of Vimy Resources
  • DFS: Going to Market and Transport Costs
  • When Will Vimy Resources Go Into Production? When Will We See Contracts Being Signed?
  • Some Juniors Aren’t Going to Make It: Why and How is Vimy Different?
  • Message to Investors

Click here to watch the interview.


Matthew Gordon: You’re here at the WNA Symposium London. What are you here for?

Mike Young: We’re here for the World Nuclear Association Symposium. But we’ve also spent a couple of days on the road with Bacchus Capital.

Matthew Gordon: You’ve been talking to a few institutions, family offices about the potential of raising some money?

Mike Young: Well, it’s called a non-deal roadshow. So basically, what you’re doing is just introducing Vimy to these people in the event at some point the future you might raise money. What’s been good is that the calibre of people we’re seeing is high.

Matthew Gordon: And what’s the mood?

Mike Young: The mood is actually good. I think we’ve come out of a couple of years where the mood’s been bad. And what’s interesting is that the mood of the investors is quite independent of the WNA, because most of these people won’t be at the WNA. But the WNA itself is releasing the WNA Nuclear Fuel Report is the best one that’s come out in the last seven.

Matthew Gordon: But back to these investors.

Mike Young: These investors are people who understand the uranium macro story. Some of them already own uranium shares, and some of the people we saw have small uranium funds. We picked Bacchus Capital on purpose because they did the Yellow Cake float. So, they understand uranium.

Matthew Gordon: So, these investors that you’re seeing, they understood the macro situation, the supply / demand and the economics. What were most of the questions about?

Mike Young: When’s the price going to go up? The constant theme was when are you going to write a contract? They understand the uranium macro. But unless you live in the industry, you don’t understand the micro and there’s a lot of different micros that are pushing in different directions.

Matthew Gordon: Like what?

Mike Young: Well, for example, contracting. I think people expected the Section 232 petition decision to have some sort of effect on the spot price, like it would have in, say, gold, copper, nickel, where there’s a market in a speculative market and it just didn’t. The spot price is basically a reflection of the contracting that’s going on. There was just no contracting. Nobody wrote contracts the day after the Section 232 petition. Now, part of the reason was it was August and it was North America. I mean, the place closes down.

Matthew Gordon: Did you have to explain that to them? Or were they aware of what had been going on there?

Mike Young: A lot of the discussion revolved around exactly how the utilities operate. Why they’re taking their time. The timing and what our expectations were. And as we explained to them, the early contracts aren’t going to be much more than the current term price. And that’s because you’ve got lower cost producers. There’s definitely demand, and we know that open requirement has to be filled.

Matthew Gordon: Well, you say there’s definitely demand, but there’s still timing issues on that. There is no demand today.

Mike Young: No, they’re burning material they bought three years ago.

Matthew Gordon: Demand is coming. The demand story is understood. But did these investors understand that?

Mike Young: No. A lot don’t. A lot of investors are commodity investors. And I made the same assumptions when I started in this space that there’s more immediacy in most other commodities than there is in the uranium.

Matthew Gordon: There’s a lot more understanding of other commodities than uranium?

Mike Young: Correct. And uranium is more like LNG (liquefied natural gas), which are long term contracts. In fact, I was having a discussion in Perth with someone in government and I remember one of the policy advisers say, ‘hey, that sounds just like LNG’. And I went, ‘well, it’s kind of like LNG’. There’s a very small spot market and there’s this time lag. So, I think I think there’s a couple of things at play. People have uranium fatigue. I heard it all before. It’s going to come. It’s going to come. And this is what I mean about the micro. So, some of the things like Yellow Cake, for example, we’ve never seen that before, where a group comes in and buys that much uranium and sequesters it. It’s basically parked. Because they trade on net asset value. You’ve got KazAtomProm which is now Westernised, so two years ago they were behaving…

Matthew Gordon: Partially westernised, surely?

Mike Young: Well, but they still have they still have an accountability to their guidance. They never had before.

Matthew Gordon: Ok, let’s say that’s true.

Mike Young: Well, Riaz Rizvi who’s their chief commercial officer and does the marketing says that’s true. He says that we have to be careful now because we have a responsibility. But not only that, they have westernised their accounting. I mean, when Riaz went in there, they had old Soviet style accounts and they were just churning out the pounds. That’s how they measured it, they weren’t looking at margins. So that’s different. I think the utilities; their buying habits may change. They used to write these 10-year contracts. I think I think that may change. The contract cycles may come down lower. So, there’s a lot of a lot of different things that are interconnected, and some aren’t that are different this time. But the thing is, the Section 232 really focused everyone’s attention here or outside the industry on it, because it was got a lot of airplay. But in terms of the contracting cycle, what will happen over the next 18 months as they fill their forward requirements? The early bird will get the worm, right? The early contracts will get the cheaper prices and they’ll basically climb up the price curve. And because we sit in the third quartile, happily, we’ll be one of the people getting contracts as they creep up the curve and the price increases, because as they continue to write contracts, the lower price material will start to disappear. And as Julian will talk about, the long-term macro. There is a supply deficit. We can see it. We talk about investors not getting part of the or any market. What’s interesting is people in the uranium side don’t get investment side now. What people on the buy side of uranium are missing is just how long it takes to put new production into the marketplace. And that’s really fascinating that both sides don’t quite get the other.

Matthew Gordon: I want to talk about you. You’ve got a couple of assets, Mulga Rock etc. Where are you with those very quickly for people, because I want to talk about them.

Mike Young: Ok, Mulga Rock, DFS finished. We’re looking at a refresh. We want to try and get our capital costs down. Particularly on the mining fleet side. So, there’s S100M there of Australian mining fleet. And we think we’ve got a solution to that. So, we’re working with people on that.

Matthew Gordon: Solution to do what?

Mike Young: In the DFS, we assumed that we would manage and own the mining fleet. Now, that has inherent risk. It’s the cheapest option on paper. But if you have problems in your mining fleet or mining, then it becomes a more significant problem. Whereas you can you can put that risk onto an earthmoving contractor, but you pay a bit more. And it goes onto your operating side. So, things like that, you know, staffing levels, cost of people. 18 months ago, a mine manager was different price than he is today. Things like that. So, we’ve called it a refresh, if you will, that we’re doing that. There’s not much else to do on that. That’s just going to be market driven. So, you know, you get the contracts, you get the debt. We have talked to debt providers on this trip.

Matthew Gordon: This is what I want to talk about. I want to get into the numbers, because you’ve got a couple of good assets. You’re at DFS stage. You know what you’ve got you got a sense what you’ve got your refreshing that. But you’re in this waiting period, this twilight zone, like everyone.

Mike Young: No man’s land.

Matthew Gordon: You’ve now got a sense of the economics of this project. Have you made decisions about how you’re going to go to market? You’ve got lots of options. The DFS tells you a lot of stuff. It doesn’t necessarily mean you’ve got to follow that path as laid out because the market changes, prices change and financing will drive this, the type of financing you get can drive this. You’re having some debt conversations at some point and have some equity partner, strategic partner type conversations too.

Mike Young: We’re having those.

Matthew Gordon: So, tell us about those.

Mike Young: We have put feelers out there saying, if you would like to partner with us coming on as a JV partner.

Matthew Gordon: Where have you gone to?

Mike Young: Everywhere and anywhere you can imagine. China mainly. The US utilities don’t do that. That’s off the table. They just don’t take that risk. They tried it once. They took some shares, but they don’t do that sort of partnership. So, you know, China’s the main one for strategic partners. But we’ve basically started the process of just letting people know that if you’re looking for a strategic partnership, that could be a large equity group, it could be a PE fund. I mean, they do that in gold.

Matthew Gordon: Is this a case of I’m going to hand the keys over this is a strategic partner?

Mike Young: Yes. For example, you earn into 40% of the project through a sale on a fair evaluation and then you have 40% of the offtake.

Matthew Gordon: So where are you with these conversations??

Mike Young: We’re not that far down. In terms of pure debt, we did announce some time ago that we had SOC Gen doing some work for us. Nataxys is now upping their presence in Australia. They’ve just done a merge with a boutique advisement firm. They’re a French bank so they get uranium. We talk to Australian banks all the time. And then there’s some non-traditional style debt here in the city that we’ve said, look, this is our model. We have a minimum contract price. We’ve made it public. It’s fifty-five dollars. We need 55. That’s our floor. We get more. The study was done at 60. The feedback from the utilities is that your price expectations for 2023, when you would likely be in production, are realistic. That’s the feedback. Now, they’re not signing contracts today for that, but they do the maths as well. So, what we do with that is we say, here’s our financial model. Here’s the numbers that we’re inputting. This is the debt we need. And then we sort of flex, how much offtake will you have? Will it be 50%, 75%? And the answer is, well you tell me because you’re lending me the money, we need to know what they payback is. And they’re not things that are announceable. Anybody who understands the space would assume I’m having those conversations.

Matthew Gordon: So, help me understand a little bit of it technically around what DFS has got in it. I imagine it tells you what it’s going to take to get the uranium out of the ground in terms of cost in terms of cost, economics around that. Does it factor in transportation from port to end user? He’s nodding. He says yes. That’s the economics guy.

Mike Young: That’s right. So, he that you’re pointing at, Julian Tapp. He’s sitting way over there because his brain is too big. We couldn’t fit him at the table. So basically, the ownership transfer is at the converter. So, we deliver to the converter and then they take possession and pay us.

Matthew Gordon: And that’s your $55?

Mike Young: Yes.

Matthew Gordon: So how do you do that? Surely it depends where they are in the world and what the cost of getting there right?  Like, you can’t say it’s $55 if you’re selling to China. It’s going to be different price if you’re selling to…

Mike Young: There’s only three places it can go. And that’s France, Blind River Ontario, which it’s delivered at Halifax and then railed.

Matthew Gordon: There’s got to be some variation but not meaningful.

Mike Young: There is a little bit.

Matthew Gordon: I know you’re keeping a really tight ship. You’re not hiring people. You don’t need to hire now, you’ll hire them when you need them. If the price hits $55 and you can get some contracts in place and you can press the big green button, how quick are you to production?

Mike Young: Two years. FID to production is two years.

Matthew Gordon: Build and spitting out product at the other end?

Mike Young: Yeah. So, I think the first year 2.9Mlbs, in year one and then we ramp up to 3.5Mlbs by the end of year two.

Matthew Gordon: So that’s kind of quick into production, there’s no kind of ramp up stage?

Mike Young: To me It’s not. There is a ramp up but it’s because we pre-dig some of the pits and stockpile because the pits will become the tailings facilities. So as part of a build, we actually dig some of the pits and we have stockpiles sitting on the surface so that that assists with your ramp up. So, we’ve got the ore ready to go. So, two years to me, it seems really long, because when I ran that iron ore company, we went from our very first drill hole to ship in four years. Our previous COO, who’s still on our board, Tony Chamberlain, shook his head at me and said, this isn’t an iron ore mine.

Matthew Gordon: He’s right.

Mike Young: I know he is. But, you know, we have to build a camp. The plant’s relatively small. It’s a big mine. It’s 8KM long, 2.5KM across at its widest. We’ll mine it a strip mine. You know, since there’s a lot of dirt to move. But the plant itself is actually relatively small because the front end, we do beneficiation. We wash sand at of the ore, reduce the volume by 50% with no loss in uranium. And so suddenly you’re dealing with a relatively small amount of material.

Matthew Gordon: Relatively compared to a lot of people, two years is a short time just to let you know I haven’t heard anyone today say less. And for some of the juniors who are not producers, it’s three years. So, you’re ahead of the curve there, that’s actually something people should take note of. But what does that tell you in terms of timing for the conversations that you do need to have? I know you’re speaking to utilities, but you can have a different conversation with them today than you will maybe in a year’s time. They’re giving indications about what makes what makes sense to them. But at what point do you actually start talking about contracts?

Mike Young: We’ve been doing that for two years.

Matthew Gordon: No, I mean meaningfully talking about contracts.

Mike Young: Let me let me take you through the process. Let’s go back to our strategy. So, we had to think about where do we want to sell uranium? So, you look around the world, you go, ‘who are the five top countries using this stuff?’. Well, it’s the US, France, China, South Korea and Russia. So, of those five, Korea only buys at spot. And they have some pretty arduous contract requirements, so they’re gone. China and Russia, they’re sourcing their material from the stands. So, they’re not real unless you have a strategic partnership. You’re not going to be selling a lot of material there. And China’s probably going to buy on the spot anyway. So, to be frank, the two countries you want to be looking at are France and US. EDF fuel buyers have told us we’re only going to buy from people in production. So, now you’ve got the US. What’s interesting about that is they’re about 28% of the market. So that’s a big part of the market. So we’re going to do the US. Is there a market for our material? The way the US utilities manage their portfolios is they like to spread the risk and they actually layer cake it. They baseload it with a Cameco and then they’ll actually have these little tranches that are that are absolutely set for juniors from Australia. So, what we did, we went around to all utilities and we said, price being no object, what’s your requirement from Vimy?

Matthew Gordon: Who’s your guy in the states?

Mike Young: Scott Hyman.

Matthew Gordon: He’s full time? You have been thinking about this. You have been having these conversations. You’re readying yourselves.

Mike Young: Correct. And one of the things we’ve addressed previously is our DNA and our overheads. And what was interesting is that conversation came up. What’s your spend? What’s your burn rate? And what we did recently was we had an AGM where we voted. We got permission to do salary sacrifice. The reason for that is I wanted to buy shares in the company, but I don’t want to reward someone for selling them. And this keeps money in the Treasury. And some of our staff, some of our directors have gone to 50%. So that’s one way of saving money.

Matthew Gordon: 50% of what?

Mike Young: Of their salary, they actually receive in shares. So, we’ve done that as a way of saying to people, you can buy shares in the company, but the money stays in the company, which is a really good win-win. It’s a way of saving money. One of the things we had to look at was, how ready do we want to be? To answer your question, when can you push the big green button? You can’t downsize to a point where it’s going to take you two years just to person up again right before you press the button. You want to have your team ready. So, we that’s why we’ve got Scott on board. That’s why we’ve got Julian working part-time. Scott’s working part-time. So, we’ve sort of struck a balance. We downsized the office. We’ve done a lot of cost-cutting, cost savings. We’ve got the team ready to go because this is the sort of market that’ll flip very quickly. One day we’ve got a contract and they’ll cascade.

Matthew Gordon: It may well flip quickly, but the point at which it flips is undetermined at the moment. Today I’ve heard very different views as to where it’s going to go from people inside the industry. And you’d think they would have a bit more of an insight. What’s your take on when this thing starts to motor because some junior companies won’t be able to make it through to the end, because either they need to raise money and can do that, or, because investors are getting better at understanding of the fundamentals of uranium, perhaps that company had their moment in the sun when they could raise money, may not be able to do now.

Mike Young: That’s a really interesting question. And one of the things that Fuel Report does talk about is who is ready. Think of a Formula One race, who’s in grid, who’s in pole. And when you look at that, there’s not very many. And that’s our point of difference. That we have kept the guys on board ready to go. We’ve got no reserve. We’re going through those secondary approvals, the building permits, if you like. Those will be done well before we have all the contracts we need for the debt. My window is the next 18 months. We get contracts and we move into if FID towards the end of next year. That’s my working hypothesis.

Matthew Gordon: We’ve been asking people of the 55 old companies which are around. Do you think many will be around if this thing does go on another 12 months, let alone 18 months? What do you think?

Mike Young: I think some people will fall by the wayside, partly because they were in it for a speculation, not to build a long term mine. And we’re about building a mine and building long term value. When I ran BC Iron that was a $13M listing. And by the time I left, it was a $650M company and it got up to $800M before the iron price fell. We generated a lot of value and that was by getting into production, paying dividends. You just bring on a different class of shareholder. So, we’ve got some major shareholders in Andrew Forest, Sachem Cove, Mike Elkin, Paradise. They’re all there all long. They’re not in this to make a quick buck.

Matthew Gordon: What’s your message to existing shareholders?

Mike Young: Thank you for supporting us and continuing to support us. And we’ve always said this is a long story. And you know, the people that are in, they get that. We’d like to get some share appreciation along the way. That’s what Alligator River does for us. So that’s a shorter-term exploration play with a longer-term development play. So that was part of the reason we brought that in. Because I know through my experience that if you’re building a project, there’s two years of not a lot of news. Isn’t that sexy?

Matthew Gordon: But your point is, so existing shareholders, they’re in it for the long haul. It’s going to be fine. You may get a bump with Alligator River or not, depending on how the market reacts to what’s going on. And it is a question of waiting for this price discovery. That’s the only way you can affect share price, because the reality is it’s out of your control.

Mike Young: It’s existential. Absolutely. Thanks mate.

Matthew Gordon: Good to see you. We love talking to you every single time we speak to you, over here.

Mike Young: Well, hopefully it’ll be more because I hope we get some of these London groups to come in and that’ll give me an excuse to pop by.


Company website: https://www.vimyresources.com.au/

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.

WNA Nuclear Fuel Report Contributor, Julian Tapp, Talks Price Manipulation – Vimy Resources (ASX: VMY)

Chief Nuclear Officer and economist Julian Tapp of Uranium company Vimy Resources (ASX: VMY) did his own research in to the nuclear market and his findings told him that the WNA Report was inaccurate. So he got involved in putting this new and improved version out.

As an economist Julian loves getting in to the detail. He helps us understand what investors should be focused on. And who the winners and potential losers are. Can the 3 biggest players control pricing and effect the chances of juniors getting into production? Julian gives us his opinion. The pricing matrix is very delegate. Manipulation or markets?

If you believe the WNA Nuclear Fuel Report is an important catalyst you need to understand what is in this report. Julian tells us why the report is more commercial and has more rigour in the process of putting the information together.

Interview Highlights:

  • WNA Expectations and The WNA Nuclear Report Overview
  • What is The Importance of The WNA Nuclear Report? What Needs To Be Improved?
  • Big Nuclear Players Could Affect Prices, So Why Don’t They? What Does That Mean For Junior Players?
  • Winners vs Losers & How To Tell The Difference
  • Vimy Resources: Can They Affect The Share Price Before Prices Change?

Click here to watch the interview.


Matthew Gordon: You’ve been meeting and greeting lots of people, sort of finding out what’s the mood is.

Julian Tapp: Everybody turns up for the WNA Symposium. So, you just hang around, talk to people, find out what the views are.

Matthew Gordon: What do you think the general mood is, positive or negative?

Julian Tapp: I think there’s a certain amount of optimism. I know it might sound odd but the past the past few reports, every time the WNA Report has come out, the forecast has got worse.

Matthew Gordon: You’re talking about the WNA Fuel Report. You’ve been involved in it. What was your role in that?

Julian Tapp: Yes, I have. Well, it is quite interesting. Going back a couple of years, when we did the (Vimy) DFS, I actually built a model to forecast world demand for uranium on a reactor basis. When I finished I wondered how it compared to what the WNA had done. I looked at their model and we got similar answers in aggregate. But regionally, there were big differences and wondered how they got those numbers?

Matthew Gordon: Why is that important?

Julian Tapp: I think actually their assumptions were wrong.

Matthew Gordon: That was a couple of years ago.

Julian Tapp: If you look at the current one, you’ll see that the projections are more optimistic. They’ve been raised, particularly the lowest scenario.

Matthew Gordon: What has been raised?

Julian Tapp: The forecast capacity of nuclear reactors operating and getting uranium over the next 20 years.

Matthew Gordon: Got it. And why is it better?

Julian Tapp: A couple of prominent reasons. Firstly, the assumption used to be that the French were going to reduce their nuclear capacity to meet 50% of electricity target by 2025. So, although the previous Fuel Report didn’t have them getting there by 2025, they were trying. Everybody now recognized Emmanuel Macron (French President) had kicked the can down the road. It’s 2035, if you actually listen to what he says. It’s isn’t ever going to happen. So for the pessimistic forecasts they put out, that lower case scenario used to have them losing 20Gw capacity. And that’s now not forecast to happen. In America there was an expectation that nuclear reactors, when they reach the end of their license life or when they just won’t get extended. And again, we had a lot of discussion about this. I kept saying when it gets the end of its life, it doesn’t get an extension if it’s not safe. But please tell me who thinks these reactors aren’t going to be safe after 40 years? They’ll be perfectly safe. Well, same argument where they get 60 years. Will they be safe? Now, sometimes you have to spend money to upgrade them, to keep them going. And if the economics are not good, maybe you wouldn’t pay for that upgrading.

Matthew Gordon: Are they safe? Have there been any incidents?

Julian Tapp: None. There’s never been a nuclear accident that was related to the age of the plant.

Matthew Gordon: That’s semantics. So, have there been incidents? Deaths?

Julian Tapp: Not in recent times. It’s interesting you should also ask that question. Even Fukushima. A vast majority of deaths were nothing to do with it, it was all to do with the tsunami. Now you will see people walking around saying “oh, there’s been one reported death.” Not true. There was a guy who worked at TEPCO who went to the site. He was like a radiation inspector and he got lung cancer.

Matthew Gordon: Unconnected?

Julian Tapp: Well, when you look at the time between when he was exposed and when he got the lung cancer, it was like two years. Usually it’s ten years between being exposed to radiation and radiation he was exposed to wasn’t high enough to trigger that sort of reaction. A different subject to be talked about but nuclear reactors are incredibly safe. A horrible way to talk about it, but if you look at the fatalities or deaths per thousand terawatt hours produced. There was a comment about it in the WNA Nuclear Fuel Report that comes from Lancet in 2007. They said that nuclear is safer than any other form of power. 90 deaths per thousand terawatt hours. I looked to that number and asked where did they get a number that high from. Do you know how much electricity is produced a year by nuclear reactors?

Matthew Gordon: Tell me.

Julian Tapp: About 2,500 terawatt hours. If you’re getting 90 deaths per thousand. Where all these deaths are coming from? Sometimes it’s because they included Chernobyl in the numbers. But I went and found that Lancet article, found out where they got their data from. Traced it all back to a French report in 1991 that assumed that very low levels of radiation spread over a large population would kill a small percentage of those people. The science has moved on from there. That’s simply not true.

Matthew Gordon: Let’s not focus on that, because I think that there’s too many reference points required to have a in-depth conversation. So, let’s come back to why is the WNA Fuel Report important for the industry?

Julian Tapp: I think it’s important for the industry, because love it or loathe it, it’s a reference document that everybody has a copy of it. Financial community, utilities, everybody gets it.

Matthew Gordon: But why this year is it more important? Obviously there have been some changes. It’s a little bit more commercial. Is that fair to say? I don’t mean in the sense that it’s commercial telling you what that nuclear industry is going to do but it’s a little bit more commercial in the sense that it’s giving people in the industry more information about what’s going on.

Julian Tapp: And I would say more rigor in the analysis. Don’t get me wrong, when I say it’s a little bit more positive. Nobody sat down and said it needs to be a little bit more positive. The way the forecasts are done are, literally country by country, reactor by reactor. Which ones are going to be built, which ones you don’t think are going to be built. They just all added up. And that’s was the answer.

Matthew Gordon: It’s on everyone’s desk, on fund managers desks, institutional investors desks, all the utilities, everyone who sits on this thing. What’s it going to do for them? Is it going to change behaviour or is it just a kind of the broad sentiment and things are better? We know the macro story. It’s fine. We’ll just park that. I’ve got that. Read the summary and move on.

Julian Tapp: I think there are a number of things in it. The first thing is since the last fuel report, Cameco have closed McArthur River. They’ve also shut in Rabbit Lake. Langer Heinrich is closed so there’s a new category of what’s called’ ‘idle mines’. And you need to pull them out because traditionally when mines idled, they put them in a basket with reserve projects that might come back at some point in the future. You know, the dynamics are very different from an idle mind than they are for a reserve project. They might get to be developed some time in the future. And that the economics around them coming back are very different. Mostly idle mines are owned by producers, that have other producing assets. And roughly 80% of the market is controlled by three companies. And they’re the three companies that have shut production down because market prices are unsustainably low. People say “oh, well, they’ll turn on this mine when the price gets to a certain level” but when the price gets to that level they will have just seen the profit on their existing mine go up a lot and what they don’t want to do is turn back on supply and see the whole thing collapse again. So, they’ve got a completely different way of looking. And I’m not suggesting that they collude in any way, but it’s the nature of economics. You have an oligopoly and there would be a classic description oligopoly. They’re going to look at the other guy and see what he’s doing.

Matthew Gordon: We saw recently with KazAtomProm and Camecos’ announcements, the marketplace is a little bit of jousting and a little bit of kidology, etc. around what they were saying or what they weren’t saying. Early days when I was getting into the uranium space, trying to understand it, because it’s not like mining. It is mining, but it’s not mining. I was intrigued by this potential control of will it be duopolies or oligopolies. And how you use that to your advantage. New entrants can come in and ruin things for everyone. You’ve got a group of juniors who can’t get the money that they need right now. So maybe this is a chance to take out some of the competition and starve the market of the supply. You can start affecting pricing. Those three companies can affect pricing. I’m not saying it’s a good thing to do or that they’re doing it, but they could do that. Why wouldn’t you?

Julian Tapp: I would say to you what the dynamics will be. They will keep these mines shut, until the price gets to a level where they will make the decision as long as the others haven’t broken. Because being oligopolies, they’ll be watching each other.

Matthew Gordon: There are going to be smaller players who are significantly advanced. Vimy potentially is one, where you’re quick to production. It’s potentially two years from pressing go, assuming it’s fully funded, and getting into production. You could get back into the market before some these big boys could de-mothball some of these operations. Surely?

Julian Tapp: Their lead time would be not dissimilar to ours. They can get back into production two years. KazAtomProm much faster than that. They don’t want to because when the price starts to rise, they’d much rather price kept rising than they turned on production and killed the rally. What about the juniors? When they’re looking around, what they do not want to happen is a 10Mlbs or 15Mlbs a year mine to get started.

Matthew Gordon: Well, that’s my next point. We’ve been told by the past couple of days by some other juniors who are quite close production, that are three years to production. So, if you’re saying the big boys can get into production before them, they’ve got no chance. These juniors have got no chance of being funded, have they?

Julian Tapp: Well, I’m not going to throw stones. If you look at Vimy’s DFS, I haven’t changed my mind since I did the economics behind that. My conclusion was these guys will keep their production shuttered till about $60 a pound. And let’s not discuss whether that’s contract or spot price. Just roughly when they think that $60 is like the sustainable price, they’re going to say if it goes any higher, there’s going to be too many entrants into the market. And once they’ve started, they’ll keep going. So, my view was the price would get to $60, but not go any higher.

Matthew Gordon: That’s price manipulation isn’t it?

Julian Tapp: No, it’s not. It’s perfectly rational behaviour.

Matthew Gordon: Sure it is, someone’s controlling it.

Julian Tapp: One would say, I’m prepared to keep supply cut until it gets to a certain point. And it’s perfectly rational for me to say at, look, if it gets to $70, I don’t know. Some big project in Tanzania is go getting to launched. I don’t want that to happen. I’m going to make sure these guys don’t get the signal they want, when it gets to $60 I’m making a handsome margin now. I just don’t want anybody else coming in

Matthew Gordon: That’s my point. If I’m one of these junior companies and I’m trying to raise money. I’m talking to the institutions and they’re cognizance that this could happen. I’m not going to find institutional investors to give me the money I need, because it’s not in my control. The pricing is being controlled at $60 bucks, is what you’re saying.

Julian Tapp: Yes but bear in mind also that for somebody like Vimy, in order to get finance, we have to we have to be writing some contracts. We’re talking about long-term contracts. Once you’ve signed those long-term contracts.

Matthew Gordon: I want to be clear, I wasn’t talking about Vimy. I was talking about some companies that are in a similar position to you but have got a longer lead time, which I think potentially could cause problems. I want understand winners and losers and what the factors are around that.

Julian Tapp: Yes, the longer your lead time, the more problematic. It’s not just because idle production could get in. But when you have a very long lead time, it’s more problematic in being able to write contracts. So, we’re in a position where we want to write contracts with utilities and you’ve got to write the contract and then go into production. The longer that window into production is, the riskier you’re going to be perceived to be to them, and the less willing they’re going to be to write contracts with you.

Matthew Gordon: Vicious circle.

Julian Tapp: Being two years away from production, it’d be much better if we could be one year away. And two years is fine. Because most long-term contracts deliveries aren’t normally for a couple of years. So, we’re in that window now where we know utilities are looking for deliveries, 2021, 2022, sometimes even 2023 for the beginning date.

Matthew Gordon: Let’s come back to the report, because the question I asked was what is the commercial use of that when people buy that, read that. What are they thinking and doing? And what I’m hearing is the sentiment is positive, but it’s not going to give people necessarily the commercial data they need to make a decision and on its own. Do you think the WNA needs to rethink the way that the report is being constructed again? Are you happy with the structure of it?

Julian Tapp: No I am not. I don’t think it’s any surprise to anybody. Everybody would like to see some discussion around price. Price put into the dynamic. So anti-competitive guidelines, nobody wants to sit down and agree what the price is going to be, which is what the guidelines are designed to stop you doing. It doesn’t seem to me sensible that you can’t have a discussion with people about, let’s say, what happens if the price stays at today’s level for forever? It’s how people do it with things, economic forecasts they don’t know. Let’s just assume the exchange rate stays forever. What does it mean? You know what happens? What interest rate can I use? Well, let’s just leave it at that current level and see what the model says going forward. So, there’s no reason why they shouldn’t put a price in, say, today’s price, spot price $25, $30 a pound. Run that out for the next 20 years. What does that do? That shows a really interesting picture. Basically, supply goes over a cliff and never comes back. So I don’t know if there’s a higher price that would be sensible. Maybe $50, maybe $60, run assumption again but you’re still a bit short. And then that’s the message doesn’t really come across at the moment basically that there’s a problem coming.

Matthew Gordon: If I look at people like TradeTech and UXC, you see the data which they gather and they put together and reports that they put out compared to the WNA, it seems a bit more robust, a little bit more goes into it. And they do talk about price. They need to and they do it on a company, country, industry basis. WNA needs to up its game, it seems to me, if it’s it wants to be a kind of commercial venture? So, what I’m hearing and seeing, and it’s not just you, there’s other people I’ve spoken to about this one. This report needs to do more, doesn’t it?

Julian Tapp: I think there’s measures to try to see what extra can be injected into it for next time round. I mean, this was an improvement on last time. I think there are various people who would like to see some pricing brought into it some way. If you be smart, you don’t have to sit and agree what you think the price is going to be. I said to you, you could use different price decks to show the impact. And to get better understanding. So, what you got now in the forecast is this unspecified supply, and nobody makes a judgment on who’s going to come into it, because you can’t without some sort of price assumption. Some of those are sitting at $80 a pound.

Matthew Gordon: Well, let’s how it’s going to be received. We’ll know in the next couple of weeks what people what people are thinking and we can get that feedback. Just to finish off on Vimy, you’re working there with Mike. Things are going well?

Julian Tapp: Very well.

Matthew Gordon: Confident?

Julian Tapp: Well when the price gets up.

Matthew Gordon: Do you think there’s anything your company can affect to help with share price? Or do we just wait for the price?

Julian Tapp. Look, there’s not much more we can do with the Mulga Rock project that can affect the share price. So, we’re going through the final stages of getting all the secondary approvals ready. That’s not regarded as a job stopper so when we’ve got them I’m not expecting a big uplift. Oh, you’ve got secondary approvals. So, in Angelaly, Northern Territory stuff we found a big haystack. Bigger than we thought it was the haystack. We think there are some valuable needles in there, we’ll continue to look for them.

Matthew Gordon: Thank you for your time, sir. Really appreciate that insight into the WNA Fuel Report. Fascinating what’s happening in the industry at the moment. And I like speaking to an economist. You look at it differently from everyone else which really helps.


Company page: https://www.vimyresources.com.au/

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.

Australian Vanadium (ASX:AVL) – Hitting Milestones and Moving Towards Supplying 5% of the Market

We spoke with Vincent Algar, Managing Director of Australian Vanadium (ASX: AVL) whilst he was in London.

Highlights of the Interview:

  • Company Financials, Investors and G&A
  • Priorities and Focus
  • Value Creation for a Junior Company
  • Vanadium: the Market & Promotion

Matthew Gordon: What are you doing here in London?

Vincent Algar: I decided to come over to London to make some introductory meetings to some funds with a corporate advisory company we working with out of Singapore. So just getting to meet people, following up from our 121 meetings.

Matthew Gordon: And the purpose of that being what?

Vincent Algar: Twofold really. 1. To open ourselves to a new group of investors, primarily an institutional base, PE and family office space. But also to investigate coming here with a potential listing, probably which now looks like around March next year, if it goes ahead in that timeframe.

Matthew Gordon: We should come back to that another time perhaps. For people who are new to your story, why don’t you give us that 2 minute summary and we will pick up some questions.

Vincent Algar: Australia Vanadium is a company that’s been listed for over 10 years. Our main focus is our project South of Meekatharra, which is in the central part of Western Australia. Active mining region and we are developing a project that’ll be about 5% of global Vanadium production out of a magnetite deposit. Very similar in style and geology to that being mined by Bushveld and by Largo.

Matthew Gordon: And that’s a nice summary. So I want to start off and talk about junior miners first of all. So give us a rundown of the finances with regards to the company in terms of market cap share price etc.

Vincent Algar: Currently 1.7Bn shares on issue, which is a lot. The company’s been around for 10 years. We know that, that’s what it is. We’ve got 670,000 shareholders, which is also quite a large number for a company of our size. Market cap currently around $29M-$30M, depending on how it went this week. If we had a good week which is always good in the first part of financial new year in Australia. Sitting with about $4.5M in cash working our way through and deep in the process of doing a pilot study as part of a Feasibility Study.

Matthew Gordon: And you mentioned are you’re working towards the DFS as well.

Vincent Algar: Yes. That is definitely part of the DFS work is to do that part and we’ll spare I’ll spend a bit of time in saying why that’s important that we doing that in a particular way.

Matthew Gordon: So you’ve got $4.5M left. That takes you through to when?

Vincent Algar: Probably take us through to the end of the year. On the run rate that we are going. We are a very small team focused both in our consulting team and internally. And they were focused really on getting that work done in the best possible timeframe.

Matthew Gordon: And are you seeing any pressure from retail investors, institutional investors in terms of managing that G&A a little bit further out? Or that’s what you need to get to and you’re going to have to raise at the end of this year no matter what?

Vincent Algar: Look I think everyone looks at the capital. They look at what needs to be done and everyone will know that we have to do something to make sure that we keep on our time lines to get to the end. There’s two ways to do this. We sit on our hands and go slow, and we know where that goes. That it doesn’t get the project done. Or we push our sleeves up and get on with the work. And that will require us to have the money we need to get it done. Which is one of the reasons why I’m here as well. To make sure we understand the capital markets around what we need going forward.

Matthew Gordon: Because you used the phrase with me when we spoke. And we did this on line but previously. So the thing that can affect dilution most is not being able to raise capital.

Vincent Algar: Running out of money is the worst form of dilution the shareholder can have. That’s a very relevant thing in a junior resource company. Knowing what you’re spending. How you spending it. So being very tight on a budgetary level. Have a budget which is often quite an anathema to some people. But knowing what your budget constraints are. Knowing that you are well ahead of time how you’re going to be spending that money and where it’s going to be going. And what deliverables it’s giving you.

Matthew Gordon: You going to be raising how much do you think? You got a sense of that? It’s a long time between then and now.

Vincent Algar: We could We could finish the work we need to do down to the end of the feed study with between $5M-$10M. So that’s a additional amount of money that at some point we’ll have to put in the bank. And that’s what we were working towards, to either saving our cash to get to that point and then putting that in. But we need to deliver some deliverables to add some value along the way.

Matthew Gordon: And what do your institutional shareholders think of this process?

Vincent Algar: We don’t have a lot of institution al shareholders. One of the reasons I’m here again. We have on our register a couple of people around 2.5%-3% mark. We have people that we may think are institutional shareholders sitting behind nominee companies in that top five.  But there’s quite a lot of high net worth money in our company. And that’s become come in through my Director Les Ingraham who’s nursed the company until I joined in 2014, where he was strongly supported by people around him. He kept the company going and kept the company on its feet. A lot of his own money in and his high net worth friends’ money. That’s where we got to today. That shift of bringing the project to a new level is one of the changes we were looking to make in share register.

Matthew Gordon: I’m going to come back to overhead again, because the conversations I’m with a lot of juniors at the moment, is there are a lot of disgruntled investors. They’re looking at the salaries. They’re looking at the overheads. The way that money is spent. It’s all public information but very few people look at it. But when they do they’re stunned. Mining executives are extremely well remunerated.

Vincent Algar: I certainly can look at what we do, and I don’t turn up on the top 200 lists so I’m okay. But I think junior resource company CEOs. We’re doing something that other people are not doing. We are having a crack at something that is almost impossible to do. You’re trying to find something that is unfindable. You’re trying to then turn that into a resource; 1:100, 1:1,000 will make it to that next level. You’re trying to turn that Resource into proper Feasibility Study. We’re out there on the risk margin taking chances and when we pull that off our shareholders often benefit significantly.

Matthew Gordon: You’re taking these chances with some else’s money and they expect you to behave a certain way. When people are taking not a lot of that risk on their own shoulders. And by that, I mean taking big salary, not necessarily aligning themselves with shareholders and taking a smaller salary with more equity or shares. I can see why that stick in the throat.

Vincent Algar: No of course I can see that as well. But there’s a balance in there for everybody. I think that the best way that I see that in junior company sector is for there not to be so pointy at the CEO end. I think a lot of junior companies are CEO heavy. And they would be far better service by having a technical team at the top. Where those top players are equally remunerated and they all focused on the core objectives of the company. So for example, we just put Todd Richardson on our executive team and COO. He’s come in with a very specific objective of delivering that project and the approvals that go with it at the technical level with his team in budget and on time. My role is to make sure that he has the funds to achieve that. So that’s my role. We’re equals in every other way. And that’s really important part of our structure. I don’t feel that if I go out of the office like I am now that the ship’s listing at the back. It’s very much under control and the projects definitely working.

Matthew Gordon: But in terms of how you remunerate yourselves, are you more incentivise against deliverables, against share price, against those sorts of things or is it all front loaded?

Vincent Algar: Todd got some shares when he came in. I got some performance shares given to me on the way in when we delivered some of our Resources. We have now reached a point at the end of the PFS where we have to lock in some new remuneration for us on the incentive side. But at the same time you got that shareholder view that you don’t want to do that too early for the wrong reasons either. So it’s definitely on our cards to do so. We haven’t locked it in. You want to do that with the blessing of the shareholders and in the Australian market in any market probably other public company you do have to go to shareholders with those direct remuneration opportunities. And they have to approve. I don’t think that in our company where we’re over the top. I’ve definitely seen a lot worse. But I think the most important thing about that is that the executive team is has got a load that I can deliver in the projects. And that is strategically split across key members. I think we’ve got a very good structure in place now in our company.

Matthew Gordon: Generally, I always advise people to take a look at this prospectus and actually understand what they’re getting into to. And if the management team look like they’re keen to get as much money out as possible, as soon as possible then it’s something that you should think about twice.

Vincent Algar: I’d say it’s a good lesson for anybody from a due diligence point of view. Investors should read the accounts. Read the notes. That’s what I was taught. Therefore, you make an investment, look at everything and then form your opinion from there.

Matthew Gordon: Let’s get onto the money side of things. You’re here in London having a few meetings with some institutions and family offices as well.

Vincent Algar: And interviews as well.

Matthew Gordon: So what are you telling them? Because when we spoke last I was impressed by a lot of what you said. You seem to know what you need to do. That’s a big list. So what I’d like to understand is what you think your 3, 4, 5 priorities are? And tell me how you’re going to actually deliver those. Because we’re going to raise money, you need to be clear about that story with people. So what do you think your focus is?

Vincent Algar: But so just take you through a typical scenario when you’re meeting with one of these guys. It either focuses on the on the market. Sometimes quite heavily and what the market is like, because we’ve got a commodity here that when you look at the vanadium price chart, it’s not a pretty thing to behold. It’s very spiky. If people don’t know the commodity, why would you believe that that the price over the next 10 years would be any different than it is now. So a lot of time understanding what the market behaviour is and what we see the forward growth is. And we have to have a view on the forward growth, not only on the price but also on the market demand before you can even entertain looking at the project at all. So that’s part of the conversation. The second point is what have you been doing to get you to this point. What if what have you really achieved in terms of the milestones?

Matthew Gordon: So what are they?

Vincent Algar: I joined four years ago. We’ve taken the company through drilling it out, and pushing the resource up to 90Mt in terms of our target horizon, and getting that through the PFS which allowed us to declare that maiden reserve of 18Mt. Which looks like a first pass mine life of 18 years. If you take that from the total remaining inferred resource that gives you another 2 times that life if you like. Another 30 odd years of life after that, which really is something that people want to see. Is it a long-life project? Yes. Does it have the grade? Yes. Then we talk about the technical side. We’ve found this great Vanadium deposit. Is it special in grade? Is it special in thickness? Those are the things they want to hear. What is it like? Who’s done the same thing?

Matthew Gordon: Is it economic is where you want to get to.

Vincent Algar: Exactly. The PFS indicated that at the price ranges we gave. It’s economic. Is it’s fantastic at today’s price, which is when we look at and go, ‘well it can be a lot better’. What are we going to do to stay in business when we’re in business? And then last thing where are we going to get the capital.

Matthew Gordon: All great questions. Let’s answer a few of them.

Vincent Algar: The project itself from a metric point of view is very comparable to the Largo and Bushveld Projects in terms of the geology. So we know we’ve got tonnages. We’ve got concentrate grades, we’ve developed from our test work and we’ll be confirming in our pilot work, are in line with delivering a high-quality concentrate. Not the best concentrate in the world, not a 3% or 2% like Bushveld has, but certainly at that 1.4%, comfortably for the life of the project. So that’s a really important cornerstone of our delivery. The silica grade needs to be in a very tight space, very low. And that has implications for operating costs so you need to keep it down. We’re very comfortable with what we’ve done so far. We’ve continued to deliver far more work and again the pilot study will confirm that we can get good value at that.

Matthew Gordon: You’re looking for the $4.15.

Vincent Algar: Anywhere South of $4 is good. I think is good. Let’s say you’re looking at an operating margin of $4 on a price it’s $8.60 even if you say in the worst scenario for. So it’s the key thing in operation for us. We want to show in our study work that our operating cost can be comfortably and safely below $4 or at $4. And we’ve shown it in our PFS and we’ll continue to show that in the work we’re doing in the DFS. That is our goal because without that we’re not an option for people going forward.

Matthew Gordon: Okay.

Vincent Algar: The pilot study is about confirming everything and de-risking everything around the process route, to give people a comfort, whether it’s a bank or a small investor or institution, that the work is being done well, it’s being done properly and it reflects the feed that’ll go into the mine.

Matthew Gordon: And presumably a strategic partner? And institutions for sure on the money side, but that’s not necessarily going to come from banks or institutions. Are you having conversations with strategic investors?

Vincent Algar: So now you get to the point of the capital. So the operating cost is part of the study work. But the key thing is then we’ve got a capital number that has scared some people to be honest. And people look and go, ‘Oh it’s a big number’. You look at big projects around the world and it’s not a big number, compared to other projects. But people still look at and go. How are you going to get that money? You’ve got a $30-$40M market cap. You need to raise somewhere along the line you need to raise this to $350M. Now what we are doing in the DFS, is looking at all the options you’ve got to reduce that capital. So by taking things or not taking them away but engineering them out, they don’t have to be there. That’s the first thing. And that’ll allow us to a optimise the capital that we need to get from a strategic investor. They will also help us with de-risking the project as well significance.

Matthew Gordon: I mean that’s not a new model. Tried and tested done before. It’s a question of who you partner with and what they think of the asset that you’ve got. You’re doing something with the pilot plant. I can understand why they would find that particularly interesting because it gives them a better sense of what the economics and how hard this is going to be. So with those conversations, do you then step back let them come in on a project level and take over. Are you incubating this? Or do you think that actually, no I want to bring this into production. I’ll just take the money.

Vincent Algar: So you asked earlier about the key partners. We’ve got a target space that is cross that’s both incoming and outgoing if you like in terms of targeting people who are in the vanadium space, either as converters or as producers, across the world. We obviously we’ve got one MOU in place already. They are a converter. A converter being someone who either makes Ferro from vanadium or who makes VCN and from vanadium. So those are those are the converts space. They’re a very interesting market because they have got money, but they don’t have feed. Then you’ve got the smaller steel mills in China who are probably more likely to be ones that are going to be looking at it.

Matthew Gordon: Those conversations haven’t started yet? You know where to go?

Vincent Algar: There are conversations that we have ongoing. Conversations under CA (Confidentiality Agreement) mainly. Those are not at the MOU (Memorandum of Understanding) level. They’re at the data review level. So we have an active data room.

Matthew Gordon: Those people may have been talking to lots of people. You’re one of them, if they like what they see, they may take it up.

Vincent Algar: It’s more pointed than that. It’s one-on-one MOU review of data. We have a data room. It’s very active. We have a full financial model which is at close to or at banking level.

Matthew Gordon: What I think is interesting is that a $30M market cap company has got this full data room available, because it knows now is the time to be having those conversations. Which means that your market cap is it going up the chance to grow or how does it grow? Where’s the value come from with a small company like this, where someone’s going to come in and take a sizeable piece of the action.

Vincent Algar: Well if someone comes in and takes a portion of the project say the project. Let’s just say hypothetically a corporate comes in. They like this for whatever reason they decide and then they want to make is that the proposal for a project level in. That earn amount and their ability to go through will be at the project level, not at the shareholder level. And that’ll reflect the value that we’ve put in the company. We would say in our presentations, in our model that this is where we think the projects worth. By them coming in validates that whole project for us.

Matthew Gordon: But others I’m trying to get at. I’m trying to understand your strategy. Your model. You’ve got an asset. You’ve only got one asset. Someone going to come in with cash, a strategic., It’s not coming in at the Australian vanadium PLC or Ltd state. They are coming in on the project level, so it doesn’t affect your share price, but it doesn’t leave much room for equity growth there unless you go and do something with either the cash you may receive for their portion, if there is any. You don’t have any other assets. How do you continue the growth component to your story?

Vincent Algar: Well you asked earlier to follow up one of your other questions. Do we want to stay there and do that. So our team is ideally equipped to actually build this thing. So the value creation really sits in the team sticking around and making it happen.

Matthew Gordon: So that will be the type of conversation you want to have.

Vincent Algar: That’s the conversation. We’re saying listen guys, ‘you want to come in and do, but we know that you will not be able to find a better Vanadium team with experience than you’ll find here’, both from a consulting point of view and an internal team point of view. We know what to do here, and we know you know what we what to do here. So we’re going to go and do that. So you come in and we’ll help you do it. At some point that goes past them wanting to do it but we’re then part of the team. So it’s adding value on our side, along the way while they help us do it. So that strategic investor will soften the blow of that funding requirement. It will allow the company to grow the valuation. We just have to look at the valuations of Largo and Bushveld today. A billion dollars and half a billion pounds. That’s where you can head to. So if those valuations are even partially reflected in the share price with those partners in play.

Matthew Gordon: You’ve got to do peer analysis at this level. It’s nice to say, ‘we’re like Bushveld’, but you are where you are.

Vincent Algar: We want to be like Bushveld.

Matthew Gordon: You want to be like Bushveld. But we’ve got to talk about where you are today. And what I’m trying to get out of you is, how do you move from $30M market cap. To $100M to $300M. What are those steps that you’re going to take, apart from the vanadium price going through the roof?

Vincent Algar: No of course. I’m not relying on that because that’s not a thing you can or should rely on. You’ve got to believe that the demand is there. So then when you’re in production you can sell it in to the market.

Matthew Gordon: Give me those steps then?

Vincent Algar: So we’re right at the point where our workflow really is cut out for us over the next six months.

Matthew Gordon: You know what you are doing. Okay.

Vincent Algar: Each of those workflow items are about value. Convincing everyone around us that we have each of those milestones ticked off and moving towards production.

Matthew Gordon: They are. 1. Get the DFS complete.

Vincent Algar: Absolutely

Matthew Gordon: 2. Get a strategic on board. With the prerequisite cash to do so. Then what?

Vincent Algar: Get our environmental approvals in order. And on the table and done. Decide on how the actual final layout of that plant looks. And then start to work on who our vendors are and how we’re going to deliver it. So get down to the dirty part of the engineering as soon as possible. But the environmental approval for us is always going to be a critical path. So as much work we do on the technical side. De-risking technically is very key for us. Our pilot study is essential part of our work. It precedes the DFS engineering component and the FEED study component. It’s something we’re doing now. We’re doing it in a quite an aggressive big way. Just to touch on that point. That will be the thing that defines what the circuit looks like and what the engineering will be. How much it’s going to cost us to build it. So we have to do it properly and do it well. So that is a body of work. But the environmental approval running alongside it is a time critical issue. You might have seen we put out an announcement last week. We signed an MOU with the neighbours West Gold. They’re pretty big fishing in our area, in terms of Gold production. They’re sitting with a lot of water in their pits. Us being able to access their water for our mining operation for the duration, significantly de-risks our water supply. And also it significant risks our environmental approval process, because we’re not risking any access to a deep aquifer. And all the Australian issues around these issues and we’re trying to avoid that because that is a red flag to them. And if we don’t have to go there it’s great. So active things like the MOU with West Gold is a really positive step for us. And we have to put those milestones on the table aggressively. But the pilot and the DFS that follow it are really most important. Those are where the value add comes in, because we can do those two things I mentioned earlier. We can lock in, plus or minus 15% of the operating cost that we would expect. And we can lock in our best shot at the capital reduction.

Matthew Gordon: That’s what I wanted to hear. So in a year’s time looking back, you’ll have done all of those things. What else would you have done?

Vincent Algar: By the end of next year? We’ll have moved through the DFS and started what’s called a Feed Study, a front engineering design. That starts to count how many rivets and pop rivets and pipes and everything that you need to have in the project. That’s really an important part because it finalises down to plus or minus. And getting people involved on the on the engineering EPC itself.

Matthew Gordon: So 18mths plus a little bit, you’re in production?

Vincent Algar: That’s right.

Matthew Gordon: So that’s quite exciting people know where they are. Let’s see what happens in the Vanadium market between now and then. Something you mentioned last time, which might smooth out the spikiness of Vanadium as it currently is, and you hope it doesn’t remain spikey, was the Vanadium Redox Flow Batteries. As a market, we know about the steel rebar etc. But this battery market, everyone’s excited about it. But it’s a nascent industry. It’s early days. You’re all learning. Gives us an update about what you’re doing.

Vincent Algar: I’m in London but I’m on my way to France to the International Flow Battery Forum. That’s a collection of Flow Battery scientists and companies that are involved in this space. Obviously because of the development of Vanadium Flow.

Matthew Gordon: Remind people, these are large, long-life storage of energy which is different from lithium, which is a shorter life cycle.

Vincent Algar: They are large scale stationary energy storage battery, not for EV market. But they are ideal for true load shifting. And where they come into their own is when we are applying lots of renewables to a grid, we need to really learn, on a global level, how we’re going to shift our energy that we capture from our renewables and use it at other times of the day. So Flow Battery sweet spot is around 4hrs-8hrs. So that’s a difference from the high punchy energy that we get of lithium ion.

Matthew Gordon: But these things because the electrolytes, it’s kind of liquid, they can build these things larger and larger.

Vincent Algar: They’re infinitely scalable.

Matthew Gordon: Scalable and reusable which is which is very interesting.

Vincent Algar: And they use a lot of Vanadium.

Matthew Gordon: So vanadium companies, you should if you’re watching this, should also consider them as a battery company going forward. But early days. You are all learning. So what’s something at this conference in France?

Vincent Algar: So the Flow Battery forum has been running for about 9yrs, I believe.

Matthew Gordon: Why is only now that people are taking notice of this?

Vincent Algar: I think if you look back to the history of Lithium Ion you would have found that they had probably a few years of conferences. They took off. And as a group of electro-chemical engineers mainly lots of thesis and proposals.

Matthew Gordon: But almost all of it centred around the benefit rather than any because vanadium is the core of the flow story. We get together but vanity which is a body that ourselves Bushveld and Largo like a belong to, and we have an active promotion effort within Vanitech that is centred around the development of the Flow Battery market. It’s a subcommittee on energy application of vanadium. We promote this to the to the flow battery companies. Principally because they are the ones who will be buying our vanadium to put in their batteries. They’ll require vanadium for their batteries to run. They are our key future customers.

Vincent Algar: And that works a couple of different ways. Okay. So again vanadium companies. Some are going to be fully vertically integrated. Some are not. Depends on capital constraints and skill sets in-house. The reality is for small companies like you. That’s too early to be thinking about but I know you’re spending a lot of time learning about it. Where do you hope that goes? As a collective we would need to create a market. So that’s why as a group, we’ve decided to use the Vanitech marketing platform to promote the use of Vanadium Flow Batteries globally. We do it via aggressive work on Twitter, on social media. By telling people what these batteries are. How they work. Where they go. What they do. And how much vanadium they use. But with the flow battery companies, they need to be educated about us as potential producers. We need to talk to each other and say ‘well what I need to do today?’, that I can produce a product that you can use in your battery. If your battery is different from your friend’s battery. What is the difference in the recipe that I have to give you versus giving him? And do you want to come to me with a long-term agreement to buy vanadium from me. That validates my new market. It is not too early to do that. It validates my reason for incorporating any design. Incorporating in my planning. Incorporating my off-take agreements that I’m trying to get.

Matthew Gordon: Which you hope you’ll get some value tribute to?

Vincent Algar: Absolutely. And we’ve seen it. That’s worked. One of our best early moves in the space was when Cell Cube out of Austria. We signed a sales deal with them while we were their agent in Australia. We’ve probably got $4-$5M on our market cap just for doing that in a few years ago I saw an article about Bushveld the other day and there was a value attribute put on value Bushveld Energy. So that’s a very interesting concept that there is actually a value of this energy component in what we do. We as vanadium companies need to create a market here. And we need to know exactly what that market is. If it’s real. What the requirements are of the products we need to produce for specification for example. So they all need a 99.4% or 99.6% with none of this, none of that. Minor element chemistries are really important. So we have to do some work on that. We can’t just take it out of our plant and there it is. It’s something you have to plan for. But it’s really important because if you have a market like this. It’s worth one or two additional mines at a minimum projection of new production. Again it gives us a differentiation between steel and another market, which at the moment the Vanadium market, spiky as it is, is driven by the steel market. We need to diversify.

Matthew Gordon: That’s the market as a whole. You’re going to follow the crowd. See what happens. Make your mind up some future point. Could you, for me because I think I’ve been maybe describing a company, and I shouldn’t be. How are you describing your company? You’ve got a big asset potentially 5% of the world’s Vanadium market. Depending on what happens now then. How are you positioning yourselves?

Vincent Algar: Some of those words, as you know, because you’ve heard them all before. They’ve been used very often right.

Matthew Gordon: Be honest.

Vincent Algar: So I think you’ve got to look at being able to show is the asset different from other assets. So in this case I do believe it has unique characteristics. It’s not totally unique. But it is a valid asset to take down this path. The only way for me to validate that the best way is to compare it to operating peers. Look at their metrics. Can I match their metrics? And the only way I can do that is match that in my study work. And I believe I can do that. So that’s for me how I validate. We are we good enough basically. Are we good enough to be in production. And the answer to that in my view is yes.

Matthew Gordon: It seems you’ve got the scale. You haven’t got the grades. You’re okay but you’re not 2%-3% as you said earlier. You’ve got to work on the economics in other ways. You talked about innovating and privatisation et cetera. Which was I’m a buyer of. So tell me the second question I ask you. So that’s how you want to characterise your company. How do you characterise your ability to your own investors to deliver in the next six months… the next 18 months?

Vincent Algar: My skill set is being able to sit here and talk to you and get some sort of message across. Being able to work and build a team around the right people to get the job done. So my own experience being resource based and having a corporate history of some sort enables me to be here. But it’s all about building a team that is able to deliver and at any stage I do believe we’ve really got the core of that team in place. With the vanadium experience which is a stand. We mentioned the leadership of a company of the size is really needs to be focused on people doing the job they need to do, and being empowered to do so at the right level. So we think we’ve got a good structure in place. Daniel Harris has got over 40 years of experience in the vanadium space but more importantly as a corporate guy. He’s been in a lot of corporate situations. He’s able to give us the guidance as a mentor, as well as a director that we structure ourselves properly and that the right people are doing the right things at the right time. I’m advancing the cause of funding. Is Todd doing the right thing being back working on the pilot study? Absolutely. He’s advancing the project. Those are the right things to be doing. So it’s about that it is a totally team structure thing. Trying to keep ego out of the structure of a junior company is absolutely essential. And the easiest way to remove ego from the project problem is to share the load at the top. And if you do that you are less likely of having a myopic answer or an egotistical answer which the ore body will always beat you.

Matthew Gordon: Thank you very much for that update. I really enjoyed that.

Exore Resources (ASX: ERX) – Gold Explorer with $10M in cash. Maiden Resource in September

Interview with Justin Tremain, Managing Director of Gold explorer Exore Resources (ASX: ERX).

How does Exore Resources stand out in a busy field of Gold Explorers? The Birimian Greenstone Belt has over 60 +1Moz Gold Resource companies. Which one should investors choose? Exore is in the right region but also leads to a challenge about how to get investors to notice them. We listen to what Justin Tremain has to say on the matter. One of the big plus points is that they have $10M in cash to be able to choose what to do next. We find out how Exore intends to spend their money to create actual shareholder value. What’s the exit?

They are looking to deliver a maiden Resource in the next few weeks. Hoping to deliver 400,000-5000,000 oz. What is Exore doing about promoting their company to retails and what are they saying? We want to find out how they are differentiating themselves in front of institutional shareholders. All licences and permits in place for now and hitting comparable grades for the region if not slightly higher.

Interview Highlights:

  • The Overview of the Company
  • Mining in West Africa and Companies of Côte d’Ivoire
  • Promotion: How Do You Stand Out From the Rest?
  • Cash is King and They’ve Got It
  • Strategy of the company: Why Put Out a Maiden Resource Now?
  • Share Price and Shareholders
  • Assets, Drilling and Permits – Do They Know What They Have?
  • Management Team and Relevant Experience
  • Are the Markets Treating Them Fairly?

Click here to watch the interview.


Matthew Gordon: Could you give us a one-minute a summary of the company and then we could look into some questions after that? 

Justin Tremain:  Exore is a very new company in its current form. It’s only been around for less than one year. We’re a gold exploration company listed on the Australian Stock Exchange with a head office here in Perth in Australia. But our project and our sole focus is on a gold expiration project in the Northern part of Cote d’Ivoire, which we acquired in December last year. So we’ve be aggressively exploring that project over the last 7-8 months, we’ve had a lot of success as our drilling results will show over the last 6 months. 

Matthew Gordon: You’ve been in the current form for less than a year. What was it before? 

Justin Tremain: Before it was just a cash shell, going back some time and had some lithium assets and that’s where the cash came from and then I joined the company. When I joined the company last year it was just a well-funded cash vehicle without a project and looking for a project. We had a $15MIL market cap with $15MIL in the bank.  

Matthew Gordon: Cote d’Ivoire, West Africa, well-known gold producing area, lots of companies in the area. I assume that’s why you decided to go there? How did you get into the project? How did you find it? 

Justin Tremain: It was really the project that attracted us first and foremost. It was a project that I was familiar with, when we looked at the project, we could say that there’d been a lot of early reconnaissance exploration work done by the previous explorer, but not a lot of drilling. And there was a really stellar walk up drill targets, and obviously we had the money to be able to do the project justice. And then when we looked at the country, we really saw a huge opportunity in Cote d’Ivoire. It really is the most stable place in West Africa now. And there’s long been an argument that it’s got the greatest opportunity because it has a very large percentage of the Birimian greenstone belts situated in Cote d’Ivoire, but it just hasn’t had the same exploration focus of the neighbouring countries. Yet it is that now over the last five or six years, the more stable countries now. So, it was really a project that got us that interested first. But then when we looked at the country, we could really see a lot of activity and a lot of interest building in Cote d’Ivoire of the next couple of years. 

Matthew Gordon: I noticed a very interesting chart at the back of your power point, ranking for terrorist activity. I see Cote d’Ivoire is actually below the UK and the US which I thought it was quite amusing. 

Justin Tremain:  It’s a very topical issue for West Africa and really for the world. But in West Africa, in some of the Northern countries, it’s becoming a major issue and it becomes very difficult to take exploration when you have those security issues. And unfortunately, Cote d’Ivoire did have one incident a number of years ago, but it hasn’t had any recent experiences. 

Matthew Gordon: You must get that question a lot with regards to safety. I think there are some countries slightly further North of you that perhaps do have that consideration. Cote de ’Ivoire, great country, I’ve worked there, nice people as well. So, if we look at the Birimian greenstone, it is prolific. In your PowerPoint you say there are over 60  +1Moz businesses there already so it is prolific. But isn’t that part of the problem? It’s all it’s very attractive but isn’t that part of your problem too in that you are one of many gold explorers in the region and you’re trying to stand out. Do you agree that’s a problem? And if so, what are you doing about it? 

Justin Tremain: I don’t really see it as a problem. At the end of the day, large gold discoveries are going to get interest from the market. The issue is getting a land position in the country because all of West Africa is highly sought after. But the ground we have managed to put our foot on, it’s very difficult to get a position like that. We have over 1,000km2 under tenure now and we’re very fortunate that the exploration company prior to us spent 4 years in putting together that package and spent 4 years before they could get on the ground and do any exploration, which obviously becomes a very frustrating and costly period. And when it was done we were able to step in and get started straight away with our exploration. So, the challenge there is more just getting that ground position and we’re able to do that in one transaction. 

Matthew Gordon: That’s a factor of getting land and being able to do mining. But your team also needs to worry about financing, share price…. You have a lot of cash in the bank, and we’ll come onto that in a second, because that’s your plus point. But in terms of promoting the company, is it not a concern of yours that you’ve got lots of people going around telling pretty much the same story and they’re sitting with Resource as well? 

Justin Tremain: For us it’s all about just adding value to the project and undertaking exploration in a very financially prudent and efficient manner. And then drilling results, as we’ve being put out over the last 6 months, will ultimately attract the attention of investors. Then obviously as an exploration company you are beholden to your share price. Do you need to raise further funds at some point in the future? And therefore, it’s important to be able to set yourself apart. But ultimately, that’s just in drilling results and then being able to find Resources. So, I think new discoveries, which we think we’re on to 2 such new discoveries, are always going to generate quite a lot of excitement. 

Matthew Gordon: You do have to do those things, but there’s a bunch of other companies doing exactly the same thing and they’re going to be going back to the ASX or AIM  and reporting the same story as you. So how do you stand out? What is the plan going forward? I know you are early stages, but I’m just interested in your think thinking. 

Justin Tremain: It’s a good question. What actually got me interested in Exore as a company before we had a project was its cash position. I mean, most junior exploration companies don’t have the benefit of having $15M in the bank that they can put to work and therefore really are beholden to exploration results and market conditions over the next 6 months. Whereas we were able to not worry about that, well-funded and not having to worry about raising any capital in the future and able to go about our business. 

Matthew Gordon: Let’s talk about the cash position, because I think that the two things in your favour I think, Aussie gold price. 

Justin Tremain: I mean, really, it’s the US gold price that is generating up interest for us with as we’re sort of US dollar environment in Cote de ‘Ivoire.  

Matthew Gordon: And so, cash. You’ve got what, $10M? 

Justin Tremain:  Yeah, that’s right. I’m just under $10M now, right around doing very active exploration programs. 

Matthew Gordon: So how are you going to spend that? When will that last you through to? You’re going to $30M-ish market cap today. You’re going to spend $10M. What do you want to see at the end of that? 

Justin Tremain:  Well, what got us interested in this project is we wouldn’t be here if we didn’t see the potential for a multimillion-ounce gold project ultimately. And for us that’s 2Moz-3Moz plus, which is a standalone project, which you could then take through to feasibility and ultimately development and production. So that’s our goal, where we sit today. It’s been 6 months and we’ve spent about $5M. I believe we’ll come out with a Maiden Resource in the next few weeks. And that should be a stepping stone towards that ultimate goal of a 2Moz-3Moz project. And I think it would be quite a significant stepping stone towards there and we’ve been able to achieve that with about $5M of expenditure. And so hopefully we can continue to continue to grow that Maiden Resource going forward over the next 12 months. And then when we next come back to the market, we’ll be based on a project that has a Resource firstly, and a much more substantial Resource, than what we’ll be putting out in the next few weeks. And a far more advanced project. 

Matthew Gordon: A Maiden Resource. That’s good. And so, you’re expecting what sort of level? 

Justin Tremain: Oh, it’s difficult to say until we put it out as an announcement. But I think, for us to say it is a material milestone, we’d be really looking for an initial position of for 400,000-500,000oz of gold. And that to us would be a pretty significant milestone to achieve in just 6 months of exploration. 

Matthew Gordon: And why did you feel the need to put out a Maiden Resource now? Shouldn’t you just be drilling, drilling and drilling and put out a meaningful Maiden Resource, 1Moz plus, that sort of level? You’ve got the cash. You’re not under any pressure. Why do it? 


Justin Tremain: Once again, that’s a very good question and something of much debate. We are an exploration company. So, going back to what you’re touching on before, what sets us apart is we want to be able to show that we’ve achieved something tangible in the first 6 months rather than just a whole lot of drilling results and be able say, what does this mean? And that sort of leads us to putting a Maiden Resource out, albeit very much an interim position, that then allows the analyst to say, well, they’ve actually achieved what they said they were going to do in the first 6 months and gives people confidence in what we’ll do in the next 6 months. 

Matthew Gordon: But it’s a very conventional response to mining, is to do it the way that you’ve done it. So, there’s nothing wrong with it because it’s conventional. But if we look at companies like Great Bear in Canada, they’re just drilling. There’s no Resource being put out because they’re hitting the grades. They’re drilling, drilling, drilling. But the analysts understand that. Again, coming back to the thinking of management team.

Justin Tremain: Again, I think it’s a slightly different model for TSX listed companies vs. ASX listed companies. TSX listed companies just like to drill, drill, drill until they have a very substantial Resource, a Maiden Resource. Whereas ASX companies tend to try and show a little bit more progression as the project ways forward. Really for us, we started out as a cash shell, no institutional shareholders, no analysts following. And I think just putting a Resource out allows us to attract some more institutions and we’ve been able to do in the last 6 months, but hopefully attract further institutions to our register, on the back of also some analysts picking up coverage of the company going forward. 

Matthew Gordon: You’ve got all this cash, so you’ve got all the optionality. You can decide how you’re going to spend it, how quickly you going to spend it, how many drills you’ve got running at the same time. But you’re conscious of the share price. What are you, $0.07 cents, something like that? 

Justin Tremain: Yeah, we’re trading around 8-8.5 cents. I wouldn’t say we’re too conscious about the share price over the next 6 months. But we are conscious where the share price may be in a years’ time the share price, it doesn’t happen overnight. So, gaining exposure doesn’t happen overnight. It’s a gradual process. 

Matthew Gordon: But it’s something that you’re conscious of, that you need to be speaking to institutions and Retail. You’ve got about 50% Retail following, mostly Australian. 

Justin Tremain: Yeah, look I think all expiration companies are conscious of the share price because it is ultimately the way they fund the company going forward. And the most critical thing for an exploration company is to try and minimise dilution for its shareholders going forward and therefore the share prices are always a critical thing for our junior exploration company. 

Matthew Gordon: How are you differentiating yourself with your story to those analysts who’ve seen a lot of gold stories out there, there’s a lot of West African gold stories out there, you’re an explorer, high risk stage of  Exploration.

Justin Tremain:  Well, there’s 2 things the really that differentiate us. One is our cash position and therefore, if therefore people who invest in Exore today they are unlikely to be facing dilution in the short term. And then secondly, and ultimately the most important, is the drilling results that we’ve been able to put out which shows that we’ve made a discovery of what we call the Antoinette area and looks like we’re making a second discovery in emerging discovery at Veronique. And that really differentiates us and the grade of those intercepts. And ultimately that’ll come out in our Maiden Resource, we think we’ll be able to show a modest start in terms of quantum. It should be at a pretty good grade for our Resource, which is sitting at surface. 

Matthew Gordon: Right. If I’m looking at comps, like at Cardinal next door, Ghana. They’re sitting up 5Moz, heading towards 7Moz, market cap $130MIL… They’ve been drilling, but they haven’t got the response in the market that they had hoped for. So, are you nervous about the current strategy delivering for you? Or do you have some degree of confidence? If so, where do that come from? 

Justin Tremain: We have a lot of confidence because what we’re talking about is an initial step, it’s just on one very small area at Antoinette. We’ve been drilling elsewhere, step out on that particular area that we’re looking at putting a Resource around within the broader Antoinette area. But also, at this new discovery, Veronique, which we’re not featuring any Maiden Resource but at some point in the future we hope that that will provide a step change to the project in terms of scale. 

Matthew Gordon: You’ve got all the licenses and permits that you currently need to be doing this drilling and you are drilling without any interference or obstruction. 

Justin Tremain:  Correct, actually, it’s a very important point. So, obviously tenure is always topical in a developing country and in Africa. And so it is part of the acquisition of this project at the end of last year, one of the critical conditions was the government approving the transaction, which they did, but also to renewing the permit which happened in the beginning of December. And that was really the final condition to the application. So, in Cote d’Ivoire, we had our permits renewed as part of the mining code for 3 years. And then we have the right to renew those for a further 2 periods, subject obviously to meeting our work commitments. But given the amount of drilling that we’ve been doing over the last 6 months, there is no question of meeting our work commitments.   

Matthew Gordon: You’re hitting similar grades to lots of companies in that Birimian greenstone belt. They’re good grades. Your focus going forward is about understanding how much of it you’ve got, right? Because at the moment, you don’t quite know what you’ve got. 

Justin Tremain: That’s right. I think the grades we’re hitting are at the upper end of some of the other round operating gold mines and just deposits around us. So, I think the grades is reasonably good, reasonably high-grade for surface mineralization. But you’re absolutely right. It’s all about how much gold we can define and the scale of the soil anomalies that we’re drilling definitely demonstrate that potential for that multimillion-ounce discovery. And the area that we’ve been drilling at Antoinette, represents probably, I think 10-15% soil anomaly within that area there. And as I said, we have a number of other very large-scale soil anomalies and one of which we’ve started to drill and have some success there. 

Matthew Gordon: So, let me just understand it better. You’ve started a process. You’ve got a land package, got the licenses, permits, the grades are at the upper end of the Birimian type usual numbers. But where’s this thing going once you’ve kind of built out some scale to it? Where’s the exit point for you guys? Because all of the mid-tier or the big boys are looking for ounces in the ground. And you must be conscious of that. So, what are you doing about it? How do you stand from the 60 other explorers in that region? 

Justin Tremain: My view is, you take the project forward. We’re at the stage of exploration, which I think is really where the value is created, is discovery and defining a Resource. But once we have the critical mass, which in my view is 2Moz-3Moz of gold Resource, then the company will evolve. The team will evolve. And we take that that Resource and project through Feasibility and ultimately develop. That’s where we’ll go. Now, if there’s interest along the way, so be it. But if we’re not taking the project forward and adding value to the project, then we’re not going to attract any interest in the future. So that that would be our strategy. But also, the area that we’re operating in, there is 2 existing operations in close proximity to us already, which have reasonably limited mine life as well, which when we look to these projects was always a little bit of a fall-back position, that there are 2 operating mills in close proximity, which in the next couple of years we’ll probably need additional mill feet. 

Matthew Gordon: And from what perspective? Go and buy those mills or just offer feedstock? 

Justin Tremain: We’d be way too early to tell at this stage. As I said, that’s very much a fall-back position for us. Our current strategy is to go into line and discover a Resource that has the economies of scale to development as a standalone project. 

Matthew Gordon: Have you seen any examples of companies being taken out with 2Moz-3Moz? Is that a normal scenario in West Africa? 

Justin Tremain: You know, there’s a lot of cases of West Africa companies getting to that 2-3MIL ounces and then being taken out. No question about that. I mean, it was a recent transaction within Cote d’Ivoire a few months ago, it was only 0.5MIL ounce Resource. Not a company, but a project held by the company, Newcrest, which Rosco came in and bought. So, that’s an example of a transaction I think that pays from maybe $20M with another $20M to come for 0.5Moz Resources. So, you can put that sort of that as the benchmark against Exore. 

Matthew Gordon: That’s a good one. I think there’s a lot of data that came with that project as well. So that’s a fair point. So let’s talk about the management team, track record and experience in the region and creating shareholder value ie making people money. Tell us a bit about the team.

Justin Tremain: Yes. So the county is chaired by John Fitzgerald. He’s a very well-known mining financier here in Australia. He sits on the board of Northern Star, which is obviously one of the most successful gold company in Australia over the last 10 years. Then myself, I joined the company 12 months ago really with the mandate to secure a project for the company, to put money to work on a project that offered a lot of upside in terms of our exploration potential. Prior to joining Exore, I founded and ran a company that defined and completed a feasibility study on the first gold mining project in Cambodia, so another developing jurisdiction. That company got taken over in 2016 and that company is now taking that project through development. And I remained at that for 12 months before coming across into Exore. And then on ground we have an Exploration Manager who is highly experienced in West Africa, spent the last 12 years purely in West Africa on a gold projects and has been involved in 2 quite significant gold discoveries in the Burkina Faso and some exposure in Cote d’Ivoire. He saw the potential of our projects and that’s why he was keen to join us on the ground as our exploration manager. 

Matthew Gordon: What’s the shareholding structure look like? There’s a big retail component to this, but how much of the management sitting on? 

Justin Tremain: On a diluted basis it’s just under 10% of the company.. A lot of that has been actual shares bought on market. 

Matthew Gordon: Any significant shareholders or significant parties that we should be aware of?

Justin Tremain: As I touched on before, as a cash shell had no institutions on our register yet, in December last year and now we have a number of institutions on our register which our drilling results have attracted that interest and that sort of set us apart from these companies that you refer to. We’ve been able to attract these institutions on our registry in a market that’s reasonably challenging still for exploration. One of those is a North American institution that’s a very active gold fund. It owns over 6% of the company. Then we have a number of Australian institutions sitting below that 5% disclosure level. 

Matthew Gordon: And do you think the market’s giving you fair value at $30M for what you have? 

Justin Tremain: I don’t think too many managing directors would think that. But look, as I said before, there’s a reasonably recent corporate transaction, where hard cash is being paid for fairly modest size Resources of I think 430,000 ounces at the time, which was a transaction at higher than our current value. But ultimately, we’re well-funded. So the share price is what it is. We just keep going and stepping out and producing the drilling results that we’ve been putting out over the last 6 months, which show these projects grow and grow. And ultimately, I think the share price will react accordingly. 

Matthew Gordon: You’ve got 4 projects – there’s  a great chart on page 16 of your most recent presentation. Antoinette, Veronique, Liberty and Project Wide. So they’re all at different stages. You’ve got to allocate your $10M somehow. So where’s it mostly being focused and directed?

Justin Tremain: Really, we have 2 permit areas, the Northern one we call Bogoe project and then the southern one, the Liberty Project. And whilst we call them different project names, they’re actually only about 35km apart. So if we define Resources, depending on the grade, obviously, on either of those projects, they definitely are complementary to each other. 90% of our focus has been on the Bogoe project which within that sits the Antoinette Prospect and discovery and also about 12km to the South, the Veronique new emerging gold discovery. So that that’s definitely our focus and both those areas are quite large. They’re about 7-8km, by 3-4km in width and we’ve really just touched the tip of the iceberg on both of those areas.

Matthew Gordon: And these are relatively shallow deposits as well. Is that right? 

Justin Tremain: Everything we’re drilling is. Open pittable Resources is what we’re targeting. So really in the top 150m. Everything is mineralization, is outcropping at surface there. And our priority is actually drilling the at the top 100m, which is predominantly where the oxide material is, which has also metallurgical and mining benefits. And that is actually one of the advantages of this part of the well in Northern Cote d’Ivoire, the weathering is very, very deep. So to be talking about 60m or 70m of weathering, which is very deep. 

Matthew Gordon: The other thing that’s an important point for people to understand about the gold in this region in the Birimian, is it does make it easier and cheaper to mine. So you’re expecting reasonably good ASIC numbers when you get to that point of understanding it. There are 60 other explorers and developers there who we can use some of their data to extrapolate from.

Justin Tremain: I would say about Cote d’Ivoire as well, which is surprising, is the infrastructure is very good, which then has some advantages particularly in capital cost. We’re no more than 30 kilometres off Silk Road. There’s high voltage power lines throughout northern Cote d’Ivoire, probably no further than 30 kilometres from a high voltage power line, so they have some cost advantages as well and the ground is all very open and the ground is very flat. So we have all these significant advantages when we get to that point. But ultimately, grade is king and what we are defining is pretty good grade when we compare ourselves to other deposits in the region. 

Matthew Gordon: I think I think that’s fair to say. Justin, thank you very much for your time today. That’s been a wonderful introduction to Exore. Very interesting indeed. That’s a fantastic part of the world. We look forward to hearing more from you as things develop.

Justin Tremain: Thanks for your time today and look forward to chatting further in the future. 


Company page: http://www.exoreresources.com.au/

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Argosy Minerals (ASX: AGY) – Technically Competent But Are They in Control?

Jerko Zuvela, Managing Director of Lithium explorer and developer Argosy Minerals (ASX:AGY) joins us for an introduction to the company. They have recently made a Lithium Brine acquisition in Nevada, USA. We ask why, and if this could be a distraction to their core Lithium business in Argentina. We appreciate the mitigation of country risk especially considering recent political and exchange rate turmoil in Argentina.

Jerko also gives us an update on their PEA (they have not updated the numbers since the drop in the Lithium price) and talks to us about Argosy’s hopes to convert the Mitsubishi relationship from an off-taker to a being a strategic partner.

Argosy Lithium has raised AUS$9M in April and have AUD$7.5M at the time of this interview. They also tell us about the need to raise an additional AUS$14.3M to finance their interim 2,000t plant and their hopes to get in to small but economic production. How will retail investors react to this dilution and what precisely does this prove and to what end?

Their main asset is in the Salta Province in Argentina which is a prolific low-cost brine Lithium region. Argosy has a team of chemical processing experts which was a key deciding factor as to why they took up the option to buy the Nevada project. It was a cheap option but possibly a distraction and a cost. They need to decide where they are going to spend their time. Jerko says it is low risk and low cost to move it to the next stage and at that point they will decide how to develop this option.

Jerko feels that new entrants to the space don’t have chemical processing expertise which will stop these newbies getting in to the market. Morgan Stanley suggests that Argentina, Australia and Chile will contribute to an additional 500,000 tonnes of Lithium in to the market by 2025, which is twice the current levels. The question then is, will demand outstrip supply or will this new tonnage drive the price down? Again Morgan Stanley is suggesting that the price will go to circa AUD$7,300 by 2021 (almost half the current rate).

Argosy Lithium has the usual small company problems in a challenging Lithium price market. Lithium is a dirty word in Australia and ASX Lithium companies are struggling with liquidity and to raise finance. Argosy is no different. Existing shareholders need to believe it will work but the share price has been dropping for over a year. Management hope that the upcoming milestones and deliverables will make a difference. That is the hope of many companies in the market.

Interview Highlights:

  • Overview of the Company
  • Recent Acquisition in Nevada: Why Was it Sold and Why Did They Buy it?
  • Why Invest in Argosy Minerals? What Makes Them Unique?
  • Company Financials and Cash Position: What’s Their Focus?13:00 – Deal with Mitsubishi
  • Argentina Asset: PEA Reassessment & Jurisdiction Challenges
  • The Lithium Market: How Does a Challenged Market Affect Strategy?

Click here to watch the interview.


Matthew Gordon: We’re very keen to talk to you about battery metals companies at the moment. It’s very topical. So can you give us a one minute summary on the business and then we’ll get stuck into it? 

Jerko Zuvella: Argosy Minerals is focused on its Rincon lithium project in Argentina in the Salta province. We’ve gone about it in a slightly unconventional way where we’ve gone to produce a pilot plant to produce lithium carbonate product. We’ve been doing that over the last two years where we’ve been in Argentina and really pushing hard to achieve these milestones over the last couple of years as stated. Also we’ve recently acquired a lithium brine project in Nevada as well. So we’re very much focused on the Rincon project, but also adding in the US project as an option down the track as well. 

Matthew Gordon: Fantastic. Let’s talk about the recent acquisition in Nevada. Why have you done that and what’s the problem you’re trying to solve by doing that? Jerko Zuvella: No problem to try to solve. I think what we looked at it for was another potential brine project in a world-class jurisdiction, which Nevada is. Further to that our expertise is very much in chemical processing. Many people think the lithium industry is very much a mining game, but given we produce an end product, lithium carbonate or potentially a lithium hydroxide, they are very much chemical products. And that’s where our processing expertise is via our local partner Pablo Alurralde who was a former director of Processing and Technology at FMC’s operations in Argentina. So with that background and with that knowledge and the fact that we’ve gone and produced battery quality lithium carbonate to date so far in our pilot plant in Argentina, we figured another project to take on that Argosy strategy, to fast track development of projects was a good option for us given the fact that the current vendors weren’t able to develop the project or advance the project. We were able to pick it up very cheaply and therefore we thought a cheap acquisition, a cheap entry point, a low risk opportunity. And if we can do something with it that takes the project further given it’s within 4km of Albemarle’s silver peak operation, the only lithium carbonate production operation in North America. We thought it was a good location adding to our experience and expertise that maybe we can do something with in the future. 

Matthew Gordon: People don’t tend to sell their good assets. So why were they a seller at this time? Is it because of the state of the lithium market? They didn’t have the expertise? They didn’t have the cash?

Jerko Zuvella: They IPO-ed off this project, Lithium Consolidated about three years ago. I think they obviously had limited funds, drilling and associated works in Nevada. Especially in that part of the world brine is not cheap andthey werecognisant of spending all their money on one project even, they’ve got a few other opportunities and they didn’t do a lot of work on it. So, I don’t think it’s quite a fair to say that they’ve given away a good project. We think we’ll turn it into a good project but they very much gave away at an early stage project to focus on other opportunities. 

Matthew Gordon: So you decided to mitigate your risk by moving jurisdictions. You’ve got Argentina. You’re now in the US. It’s slightly safer jurisdiction obviously with what’s going on in Argentina with regards to the politics and exchange rate, etc. Have you got enough money to develop that? What’s your cash position at the moment? 

Jerko Zuvella: We raised on just over $9M in April of this year. So we’ve still got, I think as per the last quarterly about AUS$7.5M in the bank. So that gives us enough funds to be able to do a first stage of exploration at the Tonpahproject in the US, which based on the existing gravity works or geophysical works that are being done. We don’t have to invest too much into the ground to understand the potential of the project. So again, low risk without too much exposure to understand what might be there. And if we’re lucky enough that we do find some good quality brine, as we’ve got obviously next door in the Albemarle project, that’s when we start putting the Argosy strategy tool and look at a fast track development strategy. 

Matthew Gordon: And what does fast track mean reality? Is it permitted? What do you need to get in place and how much cash are you going to need to actually move it to the next stage? 

Jerko Zuvella: Just that first part of your query there, fast track. What we’ve made it out to mean is taking a project from very early stage next to nothing in Argentina to producing battery quality lithium carbonate within the space of a couple of years. Now, when you look at our peers, there’s not a lot obviously in the South American space and given that Albemarle or Silver Peak operations have been in operation for 50 years, there hasn’t been too many other companies progressing into lithium carbonate or lithium hydroxide operations and production. Obviously Orocobre is their main peer and, and they’ve done that over the course of probably about 7-10 years. Obviously we’re not at their stage yet, but we think by proving the process in technology, which is the most critical part of the lithium business, prove your chemical process, prove your product. That means you can obviously fast track development to full commercial scale production at some point in the near future. 

Matthew Gordon: I appreciate you’ve done it in two years and when you compare it to others before you, that’s much quicker. Have you got unique or proprietary IP or do you think new entrants will get into production quickly too going forward? 

Jerko Zuvella: That is the challenge. I think that’s what’s halted a lot of those companies that have gone into Argentina and South America in general, and probably North America around that Clayton Valley area. They all get to the stage where they do feasibility studies and they stopped there. I think the critical part is they don’t have the chemical processing expertise to produce battery quality lithium carbonate product. Now, we’ve seen it in South America, you’ve had the big boys. You know, Poscohas been there for a long time, Eramet has been there a long time,The Sentient Group’s been there for a long time. These guys have been there well over 10 years and none of them are in production. The chemical processing is very much the critical component of this business. And if you don’t have that processing expertise or a person that’s been there and done that for numerous years, like our partner FMC, you just can’t take the project into production.

Matthew Gordon: So it’s not necessarily a proprietary technology, it’s a case of there’s very few people with the relevant experience and track record of doing it. That’s the major barrier to entry. So just coming back to what you’re doing in Nevada in terms of fast tracking that. $7M is not a lot of money. You’ve got two projects now. What’s your focus going to be? How you’re going to spend that money. Because you’re going to need to raise some money presumably at some point in the future too. 

Jerko Zuvella: Definitely our focus and priority and full commitment is still on the Rincon project. We’ve constructed the pilot plant and we’ve got a sales agreement with Mitsubishi Corporation in Japan for the product from that pilot plant. And we’ve also just announced last week non-binding heads of agreement with Mitsubishi again.

Matthew Gordon: I do want to come onto that, but I want to just want to finish off in Nevada because it’s a new thing. You’ve decided to do it. It is cheap but you’re going to spend some money and some time there. I want to understand why you’ve done that. What’s the thinking in terms of the strategy. Why Nevada? Why a new project? And how much time and effort you’re going put into this to take it to what point?

Jerko Zuvella: In the short term, we expect to do some geophysical surveys which won’t cost a lot of money, less than $0.5M. So we don’t need to spend a lot of money to understand what we may have there. Once we know what we have there, then we can set our strategy up. But in the short term or the immediate term, it’s really just going to be finding out what is there to then understand what we need to do thereafter. Without labouring the point, that is not a priority for us at the moment. 

Matthew Gordon: The board or the management teams made that conscious decision. Part of your strategy was to diversify. I appreciate where you say you are going to spend your time but given the current market, the lithium price is coming down, forecasts are coming down, as low as $7,000, if you believe Morgan Stanley, by 2021. The market is challenged. So why go and spend money, time and effort now on a new asset. What’s the strategy?

Jerko Zuvella: Well, the end game is to replicate what we have done in Argentina and obviously what we are looking to do in Argentina. So given there’s an existing operation within 4km or 5km, we think we can do something similar ultimately at our project in Nevada also. 

Matthew Gordon: And what is it that this nearby project is doing that you think is so good, that you want to replicate? 

Jerko Zuvella: It’s the only lithium brine operation in North America producing lithium carbonate. They produce approximately 4,000t per annum from the project and given what we’ve done and what we’re looking to achieve in the near term at Rincon, we think we can apply the same strategy and do the same at Nevada over the course of the next few years. 

Matthew Gordon: Are they making money? 

Jerko Zuvella: Very difficult to understand the financials of Albemarle and SQM at the moment. You don’t keep an operation going for 50 years if it’s not making money, so I presume they are making money. Presuming probably make more money prior to the price coming down. I presume there’s not too much cost there besides the operating costs so you think it’d be, based on industry standards, that it should be a profitable operation. 

Matthew Gordon: I understand that they have been a lowest quartile producer which helps. But as perhaps you don’t necessarily understand the full economics to be able to make that evaluation today. I’m not quite sure I totally understand that the logic of going and spending time and effort on the new asset, but you’re going to make an evaluation and come back to the market and tell them what you’ve learnt, right? So let’s move on to the existing operation. You’ve got a pilot plant, which is fantastic. You’re producing. That’s great. You’ve signed an off-take agreement with Mitsubishi. A big company, well known company. What was the point of doing that? I mean an off-take is just an off-take. It’s just an option, right? And given the market, there’s a lot of lithium around. Is this the beginning of a strategic partnership or is it just a pure off-take? 

Jerko Zuvella: We’d like to think it’s a strategic relationship. As I mentioned for the pilot plant, we signed a sales agreement back in March with Mitsubishi. And prior to that they’d been working with us to get to that point for the previous 12-15 months. We’ve established a good long-term relationship with them. We’ve made it very clear or I think the market has made it very clear, the lithium market, that you do need a strategic partner to develop a lithium project and the reason for that obviously is the limited funding options available. These large companies that we’re seeing enter into the lithium space want security of supply. That’s the trade-off. They’re looking for long term security of supply. We’re looking for finance to build a project and these small baby steps that we’re taking, given we’ve seen some difficulties arise in the lithium market, we saw in Nemaska earlier this year and some others, it’s very difficult to bring new lithium projects into production and therefore these baby steps, the pilot plant moving to the 2,000t per annum plant, which we signed the HOA for our last week. These are the steps to give comfort to these potential strategic partnerships. 

Matthew Gordon: I just want to clarify for your investors, because there’s a lot of chat and confusion in the chatrooms and forums around what it’s going to mean. Mitsubishi presumably have lots of options. Lots of off-take agreements because they are traders. They have lots of options. So it doesn’t necessarily mean that they’re going to give you the money to build a plant. Have you spoken to them or given them indication that that’s what you would like from that relationship? 

Jerko Zuvella: We’ve been very direct with them. Their Japanese counterparty Toyota and Toyota Tsusho have done the same thing with our Orocobre in the past. So we’re using that as a guide, what we’d like to achieve with Mitsubishi in the long run as well. So very much a comparable situation to reference and we’re hopeful that we can move along that same sort of pathway. 

Matthew Gordon: How much money are you looking for? What type of money and what would Mitsubishi’s contribution be to that? 

Jerko Zuvella: In terms of our Capex funding we did a PEA and released that back late last year, which outlined $140M CapEx cost for the full 10,000t per annum commercial operation. And we’ve also released information on this interim step to 2,000T per annum plant and we’ll need about AUS$14.3M Capex requirement to construct that. Now that’s a little bit lower than what we initially required, but that’s because we’ve already invested in the evaporation ponds. We’ve built enough evaporation ponds, currently 38hectares are in operation which can produce enough brine lithium concentrate to produce 2,000t of lithium carbonate product from the planet per annum. 

Matthew Gordon: The PEA came out late 2018. What numbers were you using for that? Because obviously lithium price was very different from what it is today. So the IRR, the NPV… it’s all changed. So have you reassessed those numbers? 

Jerko Zuvella: No, so obviously a lot of those numbers will come down because we use benchmark minerals as price forecasters and they set a price of $13,000 per ton. Obviously, it’s a lot lower now, so we need to revisit that and that’s the reason early this year we made the conscious decision to turn our attention away from moving to full scale production or an operation to this intermediate step of 2,000t. Just a smaller step, lower risk, less cap ex requirement, hopefully a little bit easier to achieve than waiting around for that $140M to come through the door. 

Matthew Gordon: And so you hope that gets you into some sort of cashflow, it won’t get you into positive cash flow presumably?

Jerko Zuvella: No, we expect it to be positive cash flow. We expect our costs to reasonably a little bit higher than what it would be for a full commercial scale operation. But, even at these lower prices, we think we can make some good profits on the stage two 2,000t per annum plant. 

Matthew Gordon: That’s based off of the pilot plant numbers. Can you give us an update on how that’s performing?

Jerk Zuvella: The pilots only been running for about a month and a half now. The first month was just getting things going in a continuous manner, ironing out the few little issues that you do have whenever you start a plant. But we’ve been producing lithium carbonite product. That’s still in its infant stages, but we expect over the next short while to produce at a consistent rate that we can feed into the sales agreement that we have. At the same time, given our limited human resources, we still need to keep fully focused on that 2,000t per annum plant. That’s where we think our best bang for buck is. The pilot plan really is to be able to show the customer that we can produce a consistent quality battery grade product and use the pilot plant for that means. The pilot plant was never really set up to be a continuous production operation. But given the state of the market, we felt that that’s been able to assist us to procure good quality customers and obviously show the market that what we’re capable of. 

Matthew Gordon: That’s going to show the market what you’re capable of technically. Can we talk about the economics around that? Tell us what you think you’re going to be able to do. You’ve got $7.5M in the bank. You’ve got G&A costs and some committed costs. So of the $14.3M for the interim plant, how much are you going to go need to raise to get that going? 

Jerko Zuvella: Well, we’ll need to raise the majority of that amount, if not the full CapEx amount, like you said, we don’t want to be left with minimal funds in play. The existing funds can be used as a bit of a contingency if required but we’d be looking to raise the full CapEx amount and that’s what we’re working on with various parties. Unfortunately, the lithium market is not what it used to be 18 months ago, where companies were making pre-payments and so forth. It’s a little bit more challenging but we’re working as best we can to bring that money in under the most favourable circumstances for our shareholders and try to avoid as much dilution as possible. But being able to bring a project into production, we are obviously very cognisant of some of the debt issues coming around with Australian lithium producers as well. So again, it’s a fine balance to consider the best way to fund this intermediate plan.

Matthew Gordon: It is very challenging to work out how to do this because your existing shareholders will be say, ‘we’re anti-dilutory’. You’re cognisant of getting yourself into a position where this plant will produce. You’ll be able to sell, but is it going to be enough to be able to pay back any debt that you may be able to secure? It’s a tough one. It’s really, really tough. On the ASX, lithium’s a dirty word at the moment. A lot of companies are struggling at the moment. There’s a lot of new entrants thinking of coming in should the price recover. Forecasts suggest it’s not going to. Shareholder’s are a little bit disillusioned. How are you managing this? You’re trying to run a business, but you got to talk to investors. What are you saying to them?

Jerko Zuvella: Yeah, very hard. It’s very challenge.Very hard. It’s been challenging and perhaps that’s why we’re still in a position where we’re in at the moment. We haven’t secured that funding yet. We were lucky enough, we did a good capital raise like I said a couple of months ago to at least give us some options. Perhaps another reason for that optionality in Nevada as well to be able to move that project forward for little or minimal funds. But we feel very confident that we can go and raise hat 2,000t per annum Capex funds in the near term. And once we get that obviously we’re very committed to get up and running on that. We’re obviously started procuring and looking at solutions for plants and equipment. But how do you manage and keep shelve expectations high? Very difficult. What we keep selling to our shareholders is that we think we are one of the very few lithium production companies that we’ll get into production and that we do have the necessary skillset and expertise to take it all the way through. And I guess, the light at the end of the tunnel or the pot of gold at the end of the rainbow really is the fact that we can get into production. We will hopefully be a producing company and you can see with some of our peer comparisons, whether it’s Orocobre or the bigger guys, there is a very large a gap, a market share that could be created if and when we can do that. So the potential upside is still large enough to, to keep out shareholders reasonably satisfied. But obviously that’s very hard to achieve that at the moment, but that’s what we’re aiming for. 

Matthew Gordon: Morgan Stanley forecasts say that Argentina, Australia, and Chile could add as much as 500,000t of lithium into the market by 2025. That’s double what it is today. There’s a lot of new product coming in. It doesn’t bode well for the price. But if you can mine and process cheaply, maybe it’s not such a problem. Brines are well known for being cheaper to produce than a lot of the Aussie rock lithium. So, how are you adjusting your strategy given the change in the market since when you started to today? Very different market place. What’s the mindset here? What are you talking about? What’s keeping you awake at night and what are you doing about it?

Jerko Zuvella: I think we have to be dynamic and we’ve had to be flexible and we’ve gone down this intermediate step now, this 2,000t per annum plan. I think our $48.3M Capex is not insurmountable for a company our size, which is at the moment about AUS$95M market cap company. Worst case scenario eventuated we think we can raise equity to do that, obviously that’s not the ideal situation.  But if we can have a hybrid of structures for financing that we think that is a very much a near term potential goal and something that is achievable and that’s where we’ve had to be a little flexible at the same time. What’s keeping you awake? Obviously maximising shareholder returns, which means we can get our best bang for buck is getting into production of 2,000t per annum. From the discussions we’ve had with various strategic groups. I think that will de-risk the project greatly. It will be a pathway to the full commercial scale of the project, the 10,000t per annum, and sometimes you have to take a step back to go two or three or four steps forward. And we think this intermediate step, secure the funding, once we show that, again in the knowledge that it’s very difficult to do that and they perhaps won’t be as many companies around doing that at that point in time, the market opens up and our strategic partner or partners can see what we’ve achieved, and obviously the main issue is the product quality. And we will obviously be testing that with potential parties all the way through this pilot plant process. And as long as they get the quality specifications that they require, and I don’t think there’s any issue from going from 2,000t to 10,000t in an orderly fashion. 

Matthew Gordon: You’ve got to be able to do that economically, you got to be able to make money. For lithium companies it’s been a brutal year. It’s been especially difficult in Argentina, obviously with what’s gone on with the election, the political scene, the exchange rate has taken a hammering. People forget it’s a really good mining jurisdiction. What’s your perception of what’s going on in Argentina? How’s it affecting Argosy? 

Jerko Zuvella: Touch wood, it hasn’t affected us greatly today. We obviously came into the country in 2016 and President Macri had been elected, so he obviously opened up a lot of business opportunities for foreign investors. We’re obviously still at that position. We’ve got a very good relationship with our provincial regulatory bodies, which obviously control the mineral rights in the country. The provinces own the mineral rights. So we have a very good relationship with the mines department in Salta. They’ve been giving us all of our approvals in good time so we’ve got a very good relationship with them. We don’t see that changing, depending on whatever happens with a Federal election but as we’ve seen if there is a change of government, and what that’s causing in terms of currency devaluation, again, it doesn’t affect us too much.  Most of our costs are in US dollars. The chemicals that we buy, which is the largest of the operating costs, is all based in US dollars. Our local employees are paid in local currency, so when there is a devaluation in the short term, until inflation sort of catches up, it’s actually a benefit for us because our USD is getting us further than it was previously. So as long as the country doesn’t shut down and there’s no protectionist policies coming to play in the near term, we think it is business as usual and will continue being business as usual. And again, quoting Orocobre who built their project and did a great job at doing that, they did that during the former regime. So we don’t think there’s any issues that may impact us too greatly to build a project, no matter what the government at the time or whatever governments elected in a few month’s time. 

Matthew Gordon: Let’s talk about why investors invest in your business. They want the share price to appreciate and want it to grow. We’ve been talking about some dilatory components here. So why should current investors or new investors thinking of investing in you have reason to be hopeful about what the future looks like in terms of share price appreciation. 

Jerko Zuvella: We’ve had some great share price appreciation during the times when lithium was obviously a lot more in favour. But even in recent times, over the last, let’s say 12 months, we’ve been able to have our share price jump substantially based on good announcements, on achieving good milestones year. 

Matthew Gordon: But you’re down. Your year high is $0.28, you’re sitting around $0.08-$0.09 cents at the moment. That’s what people are going to be looking at, isn’t it? 

Jerko Zuvella: Well we think so and obviously our job is to try to get it back to those levels as quickly as possible. Even when we announced the Mitsubishi Sales Agreement back a few months ago, the share price jump from 9 to 16. Those sorts of things, for the short-term retail shareholders, there’s milestones that are coming up that can have immediate impact in the share price. But if you play a bit of a longer game, starting production and selling product to Mitsubishi from the pilot plant in coming months, getting started on the 2,000t per annum plant, again, another big milestone. And building that over the course of the next 12-15 months, we think the closer we get to production, the more the market will appreciate what we’re doing and start valuing us closer to our peers that are above us, which is obviously Orocobre the main one. But even Orocobre who’s in development at the moment, they’ve got a market cap substantially higher than ours, three or four times higher than us. So we think there’s some share price appreciation to be made based on developing our project further. 

Matthew Gordon: Those are hardly your peers though. You can’t compare yourself to Orocobre at this point. I think that’s a bit of a leap. I appreciate there are some good things happening. You’ve been active keeping some things moving, but do you think with the dilution component or your requirement to raise equity, it’s going to be enough to see a meaningful bump? You need to see a sort of three times, three and a half times bump in your share price today. And that’s not going to come from an off-take agreement off the back of an interim plant, is it? 

Jerko Zuvella: Well firstly, let me just say that obviously say we’ve been high share price, but some of our peers, even on the ASX in the spodumene market, they’re valued at probably 2-2.5X our value. Now, they’re probably behind us in terms of development of their projects. So again, sometimes you need to be flavour of the month to get that appreciation in the market, but once we start building and we can show, not only retail shareholders, but institutional shareholders or potential investors, what we’re looking to do and how we’re achieving that. I think once you get interested in the stock, based on what we’re doing, it’s achievable. Going from $100M-$200M market cap in the short term is very much our target and very much something we think we can achieve on the back of moving with those immediate milestones and achieving them in the short term. 

Matthew Gordon: If I look at the people like Millennial Lithium who seen great peaks and they’ve dropped off and they’re trying to do deals in Asia, but the share price has been hammered. I think the general perception in the marketplace, ASX especially, lithium is a lot of white noise, it’s all just chatter. But it’s out of favour. Is part of your strategy sitting back and hoping that the lithium space recovers? Or do you think you are in control of the moving parts? 

Jerko Zuvella: We can’t afford to wait for the lithium market to recover. Obviously that would be a very good advantage and a big advantage for us to do that but these are the times, and these tough times, that you can develop and build projects. And obviously perhaps don’t get the same reward in terms of value as you would have in good times but we think by doing it now when the good times do roll back around, hopefully not too far away, that our appreciation can be multiplied based on the work we’ve done in these leaner times. Now a lot of companies may sit back and wait or put their projects on standby. We’re very much focused on, again, using that word fast tracking our development, building that 2,000t plant, because that would put us in the category of a commercial producer, an economic producer and a profitable producer which gives us cashflow and it makes us very much more marketable to, not only retail shareholders but institutional and much larger funds, because we are going into a space that I think people do realise in the next, you mentioned 2025 the production sort of supply amount and so forth, but in that sort of time frame and sure that’s probably a lot longer than current shareholders would like to think, but there is a game changing event coming along and we have to be patient. But when that does come along, our focus can’t be just on near term share price appreciation, it needs to be on building a business and it’s very much our focus on building a business that’s going to be around for the next 20 years and we need to be able to be patient at times but also at the same time look to maximise value over the longer term rather than just immediate rewards for existing shareholders. If people believe in us, we know we can achieve it and when the good times do roll back we think we can really reward our patient shareholders. 

Matthew Gordon: So you’re looking for investors to get behind you, not traders? 

Jerko Zuvella: All shareholders are very good, whatever shareholders they are. But definitely if people can appreciate what we’re trying to achieve and have got that bit of patience, we think we can do very well for them, yes. 

Matthew Gordon: So what’s the only thing that’s going to stop you? 

Jerko Zuvella: Well, obviously securing the finance. We don’t want to be jumping into any dilutory equity raising, that’s very much last resort but again, sometimes, you need to take a step back to go step forward. But it really is just securing that funding. We are reasonably confident that that will happen at some point in time in the near term. We have a great relationship with Mitsubishi. We have a great partner with that processing expertise in Argentina. We think we’ve got the jigsaw pieces. We’ve been putting them together for the last couple of years, a few more to go. But we really think we can achieve that. I don’t think there’s anything that will stop us. I don’t think I’m being an optimist by saying that. I really do think we have all the jigsaw pieces. We probably even have them numbered so we know exactly where they go. It’s just that taking the time to put them in the right places to allow us to get to where we want to get to. 

Matthew Gordon: So you have all the permits that you need for now. Obviously, you’ll require further, secondarily, tertiary permits as you go forward. Your message to shareholders is, don’t worry, we’re not distracted by our new acquisition. We’re focused on core business. We think the pilot plan has shown us that we can produce and with this interim plant we can get into some kind of revenue, whether or not it’s economic, but it should show that we can move forward with a 10,000t per annum plant, if and when we get that financed. 

Jerko Zuvella: Yes. Our estimates show that based on current sales prices that the interim plant will be a viable proposition. We think that will really jumpstart us moving forward. But very much agree with all your other comments there and wrapping up and obviously we’re very keen to try to achieve that as quickly as possible. 

Matthew Gordon: Just finish off on that because you made the point, are you going to update your PEA financial assessment? I mean given the PEA’s can have a kind of big variance. Are you going to update that based on up to date numbers? 

Jerko Zuvella: It’s not in the immediate term at the moment. We’re very much focused on securing that funding for the 2,000t per annum plant. Once we do that, obviously if there is a strategic partner involved, we will work together with them on whatever is required to achieve the outcome for the commercial scale and if we need to update the PEA to a full feasibility, that’s what we’ll be looking to do. 

Matthew Gordon. Brilliant. Jerko, thank you very much for your time today. Honest appraisal of the situation. I appreciate it. We look forward to staying in touch and hearing how you’re getting on, exciting times. 

Jerko Zuvella: Thank you very much. Appreciate it.


Company page: http://www.argosyminerals.com.au/

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Aura Energy (ASX: AEE, AIM: AURA) – Uranium Cash Flow to Support their World Class Vanadium Exploration

See our interview with Peter Reeve, Executive Chairman of Uranium & Vanadium Explorer, Aura Energy (ASX: AEE, AIM: AURA). Peter worked with Robert Friedland at Ivanhoe so he explains how the big company experience translates to the smaller junior side. He explains the thinking behind their Uranium and Vanadium strategy and how they intend to deliver growth for shareholders.

Interview highlights: 

  • Overview of the Company
  • Mentality and Company Strategy: Choosing Two Very Different Assets
  • Junior vs Big Company Mentality & Experience of the Team
  • Company Financials, Raising Money & Director Remuneration
  • Lack of Marketing: Reasons and Solutions going forward
  • Three Projects and strategy for them
  • Wishful thinking for the Vanadium Story?
  • Views on the Uranium and Vanadium Markets

Click here to watch the interview.


Matthew Gordon: Why don’t we kick off with a summary of the business and then we’ll get stuck into some questions.

Peter Reeve: Aura’s got three major parts to its business.  The first one is the Tiris Uranium project in Mauritania where we’ve just released the Feasibility Study.  We’ve got a Vanadium project called Haggan up in Sweden and we have some fantastic Gold and Base Metal and Battery Metal tenements for exploration down in Mauritania.  Quite a lot of work’s been done on those and that’s an interesting situation, a third off the rank, if you like, before two development projects.  We are focusing on getting cash flow out of Tiris, and with that cash flow help to build the other projects, but we’re also considering each one of these businesses to be essentially separate entities, so we’re trying to fund them separately.  So we do talk about an IPO separately for Haggan and we talk about some form of separate funding for the Gold, base and battery metal exploration. 

Matthew Gordon: What was the big idea when you put this together?  If I look at your track record, there’s some big names in there.  Big company experience, but this is a start-up.  So what are you looking to do?

Peter Reeve:  If I talk to the management team for a start, the majority of the management team and a couple of the Directors came from BHP Billiton.  In fact one of my Directors was my boss back in BHP Billiton when we were 30.   So we’re essentially from big companies and what big companies do really, really well is they do a lot of good, boring, technical stuff but they fail to capitalise on it all the time and commercialise it because big companies don’t have the financial imperative that little companies have. I left BHP Billiton and went out… I did a lot of things.  I became a fund manager, I went to a lot of other mining companies, did some big IPOs and then one of the Directors asked me to come back in.  The reason why I came back in after having run some large companies was because I believed and I still believe that these assets can deliver a very, very large company over time when we get those projects in cash flow.  So that’s probably the core thinking.  Very, very good technical people, very experienced technical people, but hand in hand probably as much commercial impetus as we needed to get these things driving. So what we want to do with the projects is we don’t want to trade shares on the stock market.  We don’t want to flip projects.  We want to cut the ribbon on production for our projects, but obviously it’s a Director’s decision.  If somebody else has a lot of money for projects, of course we’ll sell them, but what we really want to do, we believe the best way to get best value for shareholders, is by cash flow receipts.   You can do it by takeover, you can do it via other methods, but we believe cash flow receipts will ultimately give you the highest valuations.  So we want to get these things into production and make them very valuable for the shareholders.

Matthew Gordon:  That’s about what you want to do.  I’m more interested in the strategy.  You’ve selected Uranium.  You’ve selected Vanadium and Battery Metals.  They’re quite volatile, certainly in the case of Vanadium.  Uranium’s in a tricky position at the moment, but obviously people expecting that story to bear fruit, and Battery Metals, flavour of the month.   Why did you pick on those very different commodities in Mauritania and Sweden?  Two very different types of environments.  Was it a case of they were there or was it case of actually we specifically identified these commodities or these jurisdictions?

Peter Reeve:  Going back to the first comment I made about the fact that the company started and was based on highly technical people well before I joined, we had very, very intrepid geos.  They see rocks and mineralisation.  So it was 2007 / 2008 and they thought Uranium was a very good idea.  So they went and discovered Uranium in Mauritania.  A survey had been sitting there without any work, a radiometric survey without any overview of anybody external for five or six years.  Managed the expedition, went out into the desert and found the first Uranium out there. 

Similarly one of our Directors, had done some work in the Scandinavian countries as a younger geo, and knew that the alum shale ran into Sweden and eventually a long story short, that became a piece of ground they picked and cut the first Resource for Uranium and Vanadium. So the very nice thing again about our company, both those projects were virgin discoveries to us.  They haven’t cost us a lot of money.  We found them out of real geology, so we selected it.

The Swedish government about 18 months ago banned the Uranium mining, as you’re probably aware.   We had done a lot of study on Vanadium in the past.  The Vanadium price had been through low and so we put that in the background, but there are a lot of other metals in it.  When Uranium looked like it was going to be problematic in Sweden, we recut the Resource immediately on the Vanadium side.  Of course, the Vanadium price for a period of time looked sensational and frankly for good projects, it’s still okay now.  And so we recast that project, which we discovered in 2009 / 10.  We recast that as a Vanadium project with some by-product credits.

And then just to flick onto the Gold side of it. Slightly more complicated.  We had a parallel sister company called ‘Drake Resources.’  Drake Resources, under our principle geologist, had put together this Gold package in Mauritania.  Some years ago they raised $10M.  They spent $3M of that on the project and Neil Clifford, who’s my principle geo, conceived that project when he was principle geo for Drake and when Drake decided to do other things corporately, we quickly picked that project up.

So again, it goes back.  Every one of our projects is a technical genesis of our people over a long period of time and we rank our technical people very highly.  Neil Clifford, regardless, is probably one of the best geos in Australia and nobody knows his name.  He’s fantastic.  He found 20Moz of Gold in Australia.  Essentially found the Sun Rise deposit. Our technical people, have driven what we’ve done.

Matthew Gordon:  But to finish off with the strategy.  These projects have been identified and pegged by your technical team.  Was that all done before you arrived?

Peter Reeve:  Discoveries were done before I arrived here. The shift to Vanadium was done under my direction.  I sort of drove a fair bit of that.  The pickup of the Gold and Base Metals and Battery Metals was done under my time as well.

Matthew Gordon:  So on the Uranium project, would you have chosen to do that if you were starting today? 

Peter Reeve:  I’m still a believer in the Uranium price. Absolutely, definitely.  I do believe its something to do, but what I recognised really quickly was the Uranium price. You couldn’t guarantee anybody that the Uranium price was going to go up in the next 12 months, two years or three years, and that’s been right. So we quickly started to diversify.  So what you’re seeing, if you’re trying to get to where we are on strategy, is what we did decide to do, is don’t put our eggs in one basket.  Let’s broaden this out.  We started with pure Uranium.  We’ve not got Uranium, Vanadium, and we’ve got Gold, base and battery metal exploration.  We’ve broadened it right out.

Matthew Gordon:  Juniors have got lots of challenges, but you’re making sure that you’re mitigating that country risk. You talked about the team being technical.  I hear that loud and clear, a very technical team, a very good team, but what about all the other experience or skill sets required?  You guys have come from big companies.  Is there anyone in there who’s been used to running junior companies because it‘s got a whole bunch of different needs?

Peter Reeve:  Well, quite a few of us have been involved in junior companies.  Let’s just say we all came out of large companies, but five or six junior companies are mixed amongst all our experience.  Since 2006/ 2007 Bob Beeson, one of our Directors, junior mining companies.  Neil Clifford, our geologist has done a lot of consulting and worked in junior mining companies.  Will Goodall, our principle metallurgist.  I’ve probably worked now in something of the order of say, five or six junior mining companies.  I’ve been a Director of most of those, maybe investments from Ivanhoe into junior mining companies.  So we’ve got a lot of junior mining experience as well.  Nothing prepares you for a bad time in a junior mining company.  All the experience in the world you tend to run those things because the biggest bucking bull you’ll see in our rodeo is a cakewalk compared to a junior mining company in the sector.

Matthew Gordon:  So let’s talk about some of those things.  Let’s talk about finance first of all.  Obviously with the Ivanhoe you were associated with Robert Friedland.  He could open a lot of doors in terms of the finance, but how are you finding it now going from big boy stuff down to juniors and are some of those doors shut or just polite conversations? 

Peter Reeve:  Robert will go into his grave as one of the world’s best mining CEOs that’s probably set foot on the earth.  And I say that simply by the score card for the number of great operating projects that he will have to his name out there, still putting dirt through the mill.  Nobody at the top of Rio or BHP has done what he has done. 

Going with that, is Robert’s ability.  He’s got a magical offer bottle in his coat jacket and he pulls it out and he passes this little bottle and the investors just hand over money.  It’s fantastic. He’s got some magic about him where he raises money and he does it very, very well, and I haven’t got a clue how he does it.  As much as I sat next to him for five or six years, haven’t got a clue.

Matthew Gordon: So what are you going to do now?  How are you going to raise money?  How do you go about it?

Peter Reeve:  We’ve got to do it more incrementally.  We had a strategy to get the Gold and Base Metals moving through the DFS period for Tiris, but we couldn’t get those tenements granted quick enough for that strategy to come off.  We thought that would be a good strategy to sort of go parallel with that boring sort of development phase because we know investors and share prices go to sleep when you’re trying to develop a project.  But now we’re in a situation where with Tiris in particular, the strategy we are pursuing is export credit agency finance.  Not completely well known but I think perfect for what a junior mining development company does and that’s obviously where a sovereign nation lends the junior money and the quid pro for that is that buy the equipment for its project from that country.

Matthew Gordon:  So you’ve had to look at alternative financing, alternative structures to be able to get this going.  How are you funded now?  How much cash have you got today? 

Peter Reeve:  According to yesterday we’ve got $830,000 in the bank.  We are essentially equity funding all our projects via a corporate.  That’s how we’re doing it. We are looking at various deals.  The IPO for Haggan is another way to relieve Aura corporate from having to fund all their programmes.  If I could find – and we are looking for a royalty interest in the Gold and base metal part of the business in order to keep the funding off there.  So as I said initially, we’re trying to look at Aura at the moment as three distinct businesses and each need their distinct form of funding.

Matthew Gordon:  So is Aura potentially an incubator or a hold co for these assets, which may be spun out into their own vehicles?

Peter Reeve:  It’s not quite as direct as that as a strategy because if I was doing that I would have started the conversation and say, ”Hey, we’re a company incubator and we’re going to spin those things out.”  But you’re right.  It’s a correct pick up, that’s essentially what we’re trying to do.  We don’t want to keep on making shareholders who are here for our Uranium asset fund Vanadium when it might not be their flavour of the month.  We don’t necessarily think everybody’s interested in more primary exploration in Gold base metals and battery metals.  So if we can fund it separately we’ve got less criticism from shareholders.

Matthew Gordon:  So corporate, ie, your shareholders who have invested into Aura Energy are paying for this.  How do you Directors remunerate yourselves?  Are you on big salaries and big warrants, big options? 

Peter Reeve:  The Directors are just on moderate and normal Director’s salaries.  I’m on a salary that I’ve taken for quite a lot of time between cash and shares.  I’ve got performance rights.  It’s just a mix of the norm.

Matthew Gordon:  So your $800,000 is going to last you till when and what’s that being spent on?  Is that mostly G&A?

Peter Reeve:  Oh, no, it’s G&A.  We did a $2million financing, only about two and a half, three months ago, and we were very focused on putting all that money into getting the Tiris BFS finished.

Matthew Gordon:  And that’s been the bulk of the money that you’ve spent since then till now, is it?

Peter Reeve:  Yes, that’s right.  And also the work we’re doing on Haggan.  So we drilled for about three or four months in Haggan.  We’ve now been cutting the core, doing the assays because we’re trying to get a measure, an indicator Resource up for Haggan, a Resource estimate done, a mining plan done so we can release the scoping study very shortly.  So really all are corporate and that money we raised is really focused on getting the DFS done and that’s now ticked off.

Matthew Gordon:  So when do you need to go and raise more capital? 

Peter Reeve: I’m not going to answer that question in an interview because that’s a selective briefing so I’ve got to be very careful with stuff like that.  So we wouldn’t answer when we’re going to run out the money,  We wouldn’t answer when we’re going to raise money again.  We put it out in the quarterly yesterday.  We put out forecasts, the amounts of cash we’re going to spend over a period of time.  So people can make their own decisions on that. 

What we’re trying to do is make sure that every single bit of money we spend is ticking off some form of technical box in one of the projects. So really the money we raised recently was about the DFS and Haggan to that scoping study stage.  And out of that and no money on the Gold, out of that everything’s really got to flow.  Everything’s got to fund itself.  I’m not going to take any more money out of Aura Corporate to fund Haggan.  Not going to take any money out of Aura to fund the Gold and base battery metals.  We’ve got to find alternative sources of funds for that.

Matthew Gordon: You’ll find alternative funds for those two, but Tiris, you think with this export agency finance should also fund itself?  Everything’s fully funded.

Peter Reeve:  The export credit agency finance is a combined package for both Haggan and Tiris, but Haggan’s there’s a time lag so yes, it’s more focused on Tiris at the front end.

Matthew Gordon:  And then just to finish off on the team’s experience.  Uranium’s very different from Gold, Battery Metals, Vanadium.  What’s the relevant experience in the team in those commodities?

Peter Reeve:  Neil was a part of the discovery team for Tiris Uranium.  He‘s a geologist.  He found a fantastic Gold deposit as well.  So good geo’s can do both.  Tiris wasn’t particularly… It was sitting there essentially.  It was a very good survey. I’ve worked in Uranium in Australia 20 years ago. Will is a very, very good metallurgist across many disciplines.  He works for First Quantum.  He works for BHP, so yeah, we’ve got enough experience in the different areas, but what we do and we do it really well, we’ve got a great technical network.  We basically employ 60 year old people wherever we can because they’ve got the best experience and they come on per diom’s and they work for us for a period of time.  So if we need a Gold expert, a Vanadium expert, we go and find it.

Matthew Gordon:  But what about your commitment?  Are you sitting on any other Boards?  How do you spend your time?  How much time is spent on Aura?

Peter Reeve:  I’m full time, but I’m one other Board which I was on before I left. 

Matthew Gordon:  The other thing that I noticed from one of your previous interviews, you said, I think it was in November last year – “We haven’t spent enough on marketing steps, but we’re going to make positive changes.”  Think you’ve done that?

Peter Reeve:  Have we done enough on marketing?

Matthew Gordon:  You said in November that you were going to make positive step changes.

Peter Reeve:  Did I really? 

Matthew Gordon:    On film.

Peter Reeve:  I’ve been around long enough to know that when the Uranium price is sitting still at $24, $25 a pound, it’s pretty hard to go open market Uranium.  I would have said that and I do say that on the basis of commodities doing some good work.  Really at the moment the commodities aren’t doing good work.  Gold’s doing some good work.  Uranium’s not.  Vanadium’s not.  But we still believe in our projects. 

I’m a little bit of the mind where we’ve sort of tucked our baton under our arm for the last 200m, and in tucking our arm under, what I’m really saying is we’ve got all the technical steps done.  We’ve come across the finish line and now is the time to really get out and talk very broadly about getting the Tiris project understood out in the market.  But that said, again, I’ve done thousands of investor meetings in my time, you can imagine, with Robert and people like that, and I’m not going to get a super warm, “Oh yeah, come on, let’s have a talk about Uranium, it’s a fantastic commodity,” because at the moment it’s not.  But we also know the way Uranium moves, that if a few utilities decide to walk through the door at the wrong time, ie together at the same time and sign big long-term contracts, the Uranium price will pop and things will change within a week.

So my favourite saying in business is “Success is where preparation meets opportunity” and that’s what we’ve been trying to do.  We wanted to get prepared and we are so happy and relieved and getting these DFS materials completed and we’re so happy that it’s in such a great condition and it’s got such good stats, and it sits there as something we can now, if you like, park technically and now really push our mind towards the financing and getting out and marketing that completed document.  Being modestly hard to go out and market Tiris without a completed DFS.  Now we really can, nothing holds us back.

Matthew Gordon:  So that’s a long way of saying you’ve consciously decided not to do any marketing because you don’t think the market’s right.  Money’s tight, but now you will up your game in that department.  Is that what you’re saying?

Peter Reeve:  In November when I made that statement, we were looking at… if you go back then, you’ll probably see our presentation we were going to release the DFS probably in about February or March.  It was actually a February date, okay.  What happened was we came across, as you are meant to do in technical studies, we came across a clay issue within the ore and that affected the processing and that delayed the scoping study, much to the chagrin of our shareholders, but that delayed the study by another three or four months.  But it’s the same story.  I wanted to get the study done in February, then get out and market.  Now we’ve belied that by three or four months.

Matthew Gordon: In the interview I watched you were talking about a July release.  So I think it was slightly prior to that.  Let’s just finish off on that thought, which is around the importance of marketing, the importance of talking to the market because especially for juniors who need that liquidity, that increased volume of trading, that comes from retail.  I know with the Aussie market it’s a big retail market and I know you’re obviously listed on AIM as well.  Those are two very large retail markets.  So is your idea to do more promotion now?  Do you believe in it or are you just a technical team?

Peter Reeve:  I was a metallurgist originally, but I’m a very rusty metallurgist now, I like to say.  I did a dozen years out of my 35 in the field and I’ve been really pushing corporate finance since then.  I’ve done a huge amount of marketing.  I think I know how to do it. 

The issue, I suppose, around marketing for us has just been getting a really good sell of a story and I think we’re getting there with both of them.  We’ve made a change to our London broker as well.  We’ve taken on SP Angel, who’s very Resource focused and they are at the moment our joint broker and there’ll be another change coming up to put them more in the box seat for helping us.  So that’s one big change.

Matthew Gordon:  Have they produced any broker reports for you? 

Peter Reeve:  They are in the process of getting a broker report together because we only signed them up about eight or nine weeks ago.  Seven or eight weeks ago, whatever it was, quite recently.  It’s one of our announcements.  But they’ve put some quite good value reports out on us, a full research piece is in the pipeline. 

Matthew Gordon:  Again, just in summary. So you value promotion, the question was timing?

Peter Reeve:  We value promotion very much.  I learned it all the way back when I was a fund manager.  I said that western mining, I’d describe – which under Hugh Morgan was a company that essentially was a little shop front window with the blinds pulled down and we could never get the information out of them, and so that’s what made you really have to have your windows cleaned, your blinds up and your door open.  So now I’m a big believer in promotion.  I would never have been a part of Robert’s group had I not believed in promotion.  I really believe it.

Your only customers for Resource companies, I don’t care what size you are and what commodity you are, your only customers in the world are your shareholders.  We’re all in commodities. Commodities walk out the door.  The only customers we have are our shareholders.

Matthew Gordon:  Glad you said it.  Not many people recognise that. 

Peter Reeve:  It’s number one.  I mean, I’m not saying I always do it as best as I could. I’m sure I can do things better at different times, but I’m a serious believer in it.

Matthew Gordon:  The last presentation on your website is from March, it’s now August.  We’re getting an update on that soon, getting a broker report soon and you’re going to get into the market more?

Peter Reeve:  Yes, absolutely. 

Matthew Gordon:  Shall we talk about your projects?  Let’s start with Tiris.  Again, like to understand the thinking.  Everyone’s got different business models.  Yours is get into production first and then we’ll worry about building out the Resource.  Is that it?

Peter Reeve:  That’s a big part of it, absolutely.

Matthew Gordon:  Tell me more.

Peter Reeve:  We said to our shareholders on Tiris quite some ago – we’ve got a 52Mlbs Inferred Resource there.  We’ve just put basically 13Mlbs into mineable Reserve plus a little bit of inventory, but we’ve got a much bigger conversion to come from that.  But I said to them, “I haven’t got any interest in spending a lot of your precious money on pushing that Resource out to be 30Mlbs or 40Mlbs of Reserve when I can only spend 1Mlbs of it a year.” 

You think of Tiris as 52Mlbs Inferred, 13Mlbs in the reserve mining inventory for the DFS.  We have got a 1Mlbs per annum project call at the moment, 800lbs and something on average, but call it a one million pound per annum project in a production sense.  And we’ve already got some pretty interesting plans to look at expanding that to 3Mlbs per annum over time when we get more of that reserve conversion done.

Matthew Gordon:  So let’s understand where that sits in your strategy.  That’s not a big project.  It’s not particularly high-grade.  It’s Mauritania, with all that kind of risk, but it potentially gives you cash flow to focus on a project that you want to focus on, which is slightly further north, up in Sweden.  Is that right? 

Peter Reeve:  When it comes down to it, just on Tiris, we came out the other day and said that in Australian dollar terms we could make 27 million dollars per annum of after-tax cash flow.  Put that on a 10 to 20 times multiple, which are part of the cycle you’re in, and you can start seeing what a project with a good Uranium price and working could do.  So it will go some way to funding what you do on Haggan absolutely, but Haggan will then stand on its own for a proportion of…

Matthew Gordon:  Eventually it will stand on its own, but right now it’s not at that point.  Again, I’d love to understand junior mining management mentality.  That’s not a bad strategy.  Not the first time we’ve seen it.  It’s worked elsewhere.  Nothing wrong with it, not criticising it.  I just want to understand if that’s your thinking.

Peter Reeve:  That has been our thinking all the way all the way along.  However, at the moment we’re varying that a little bit by bringing in this concept of doing the IPO to fund Haggan in its own right.

One of the other issues with Haggan is that when the Swedish sun rises, we go to sleep.  That’s a pretty good analogy for what happens to projects like that.  I think unless you have a really well paid, engaged and active management team in Sweden, it’s difficult to make projects come alive.   A part of the Haggan IPO strategy is to get enough cash to set up a permanent management team who speak Swedish, who like pickled herrings, who do all the right stuff in Sweden to make projects get ahead and that’s really a part of where we are now.  We want the Swedish project to live in Swedish daylight hours, not try and make it live in Australian daylight hours.

Matthew Gordon:  We talk to management teams who think they can manage projects from the other side of the world.  It’s tougher.  It’s not impossible, it’s just a lot tougher and creates problems.

Peter Reeve:  Really hard.

Matthew Gordon:  So Tiris is in the Uranium space.  Uranium spot price is doing what it’s doing.  The utilities aren’t fully engaged yet.  I think you’ve got to buy into the macro story to get behind Uranium.  You talked about roughly 1Mlbs a year over a 15 year life of mine (LOM), but that depends on the price you can get in the market.  There’s a Resource and then there’s mineable ore and depending on the price that will determine the scale of this opportunity.  So what is your DFS telling you?

Peter Reeve:  In terms of the range of size of the project?

Matthew Gordon: Yes

Peter Reeve:  The conversion of Resource to reserve is very high and the reason is our deposit is, call it an evacuative surface deposit.  Average mine depth is about five metres.  So we aren’t looking at a pit wall which looks like a cone with the gem of a Gold deposit down the bottom and all that sort of thing.   We are in a really good situation where every piece of our ore is accessible, and I believe it’s the sort of operation that, you know, it’s one thing for us to devise us what we do in the DFS – and that’s a step you must go through for all sorts of reasons, the market, events, and Directors and everybody – but when we unleash our operating team on that project, they’re going to do it exactly the way they see the ore in the ground. 

My strong belief, and the geo’s strong belief, is that we will expand each of the Resources in the area now.  I mean, to get a reserve of course, they’ve got them off as nice square blocks because mine engineers like working in nice square blocks.  They don’t like shapes.  And so once we can start showing that there is shape to it and it does go a little deeper, it does go a little further, I think we’ll expand the Resource more than contract it.  A lot of it will convert to reserve or mineable, whatever we want to call it.  Mineable Resource.  And we still haven’t really started to do inspiration outside of the core discovery areas, and I think when we do that …

You know how it is.  You’ve got a plant built.  You’ve got a team there.  You ‘ve got everything set up. The marginal cost of then going out to get that extra bit of ore, which might just be a pot of 5Mlbs, three or four kilometres out, is a lot lower. 

We understand what happens to projects once you get them there and we’re pretty excited about what that will look like, but yeah, I would be hoping one day we’re going to mine 75Mlbs of this thing at least.

Matthew Gordon:  It’s low tech, low CapEx, low OpEx. 

Peter Reeve:  It’s not just low CapEx, by the way.  It’s sensationally low cap ex.  You want to get the odds of marketing.  You go and look at any other junior mining company or any other Uranium hopeful at the moment, and their capitals are mostly measured in the hundreds of millions of dollars.   So to get something sub a hundred with the C1 cash cost of 25, and an all in sustaining cost under 30, there’s not many of us around.  That’s why I make this nice marketing line.  I say that this is currently one of the most compelling Uranium development projects in the world as we speak.  As small as it is, it’s one of the most compelling projects because of that capital and that op ex.

Matthew Gordon:  Let’s talk about Haggan.  You’ve previously said this is the most valuable asset in your portfolio currently.  Tell us why you say that.  You’ve done some drilling recently.  How are you moving that forward?

Peter Reeve:  There’s a lot of metal in that system, just for one.  As I said, the Vanadium concentration has been equivalent almost to the Uranium for a long period of time, probably even higher than the Uranium.  We had to make this change from Uranium because the Swedish government decided that nuclear in 2040’s going to fall out of their energy balance, so they don’t need Uranium.  There was a bit of political stuff going on as you can imagine as well.

But we were fortunate that we had done enough work, we understood enough.  We’ve done a lot of good drilling, so within two or three weeks of that all happening, we recapped the Resource into Vanadium and we had it ready to go.  So now we’ve got cut off grads for our Vanadium deposit and we found what we call a high-grade zone, but it would be better to call it a higher-grade zone.  And that’s a higher-grade zone of about 90Mt of 0.42 per cent of V205. 

But again we’re fortunate.  Alum shale largely comes to surface and so that Resource will be encapsulated in a pit that starts at about 20m from surface and finishes by about 90m.  So again, a very manageable operation. 

Before we were talking about a heap leach, a Uranium heap leach that was going to be 25Mt to 30Mt per annum.  We’re now talking about a project which is Aura Clubs, and about 2.7Mt per annum.  So quite a modest scale project.   We did the capital and operating estimates last year, so again we spent our $80,000 to get one of the independent engineering firms to do the capital and operating estimates for Haggan.  ASX will not let us release that until we have the measured and indicated Resource.  We cannot release that unfortunately with an inferred Resource.  So again, it’s where preparation leads to opportunity.

We’ve got a lot of internal numbers and the project looks very, very good.  We are quite aligned to the idea of the whole battery push, but we’ll sell our Vanadium to anybody who wants it.  But I think the battery push in Vanadium is pretty interesting and when we start to look at the scale of this project, without giving too much away because I’m not allowed to, we’ve contemplated at the moment a 7,500Mt per annum V205 project, that’s about five per cent of the world’s Vanadium.  We sized it because five per cent sounded like a pretty non-disruptive sort of thing to do, but we could double the size of that if we had the right market.  We can make our cash costs go through the floor, and there’s all sorts of interesting technical things that I sort of kind to allude to just at the moment.

There’s a few proprietary things that are pretty interesting about some by-products we’re playing with there which really help that, and make it a really commercially robust project as well.  But what I’m saying is accelerate all our Vanadium, where it’s fallen to, it’s clearly not as good as $33 Vanadium.  But we can make money out of $7-$8 Vanadium and we can make a lot of money out of $7-$8 Vanadium if we expand our project.

And therefore all that then goes back to what are you doing as far as your linkages?  Who are you talking to?  Who do you want to get into bed with?  And we’ve made no secret of the point that we are talking to battery manufacturers, we’re talking to people who can be a part of us in whatever way that is. 

Matthew Gordon:  But how real is that?  All Vanadium producers are talking the battery story.  90% of the market is rebar. That’s the reality and it’s early days in terms of the VRFB.  And again, we have this conversation a lot with Vanadium producers and talk the battery story because it sounds great to shareholders, but you’ve got to have the prerequisite skills in house or you’ve got to have the right partners on board, strategic partners with the right balance sheet to be able to do that.  You’re early stages, so is this wishful thinking or is this actually a reality of what you can do because you think the scale of this will allow you to do that?

Peter Reeve:  Well, so far I’ve had three sort of pretty serious full day conversations in three different locations in the world on this particular battery initiative that we’re talking about, and we’re taking it pretty seriously. 

The Vanadium battery market, and people know that they have a cap on the Vanadium price before they say it doesn’t really work.  I think there’s some really smart things you can do in terms of partnerships to ensure that goes on. 

Matthew Gordon:  You may be treating this seriously, but what does that actually mean?   Are you at latter stage discussions with people, or is it just a process you’re going through?

Peter Reeve:  There is a particular party who we are talking to in some detail.  I would still put it at the… it’s gone beyond the concept stage.  We’re talking how things could work.  We haven’t stayed in each other’s laps yet,  we haven’t gone… You know how these things move along progressively, but it’s quite serious.  We like the story.  I’d like to make it happen. 

There’s a chart that I have in my presentation for March which you might have read.  It’s a battery storage …  At the moment I think that chart says that there’s something in the order of 15Gw to 20Gw of storage capacity.  And in 11 years, they’re saying  now 2030, and they’re saying that might be 300Gw of storage.  Now if that chart isn’t even half wrong, if it’s two thirds wrong, if that was the beer market or the underwear market, you’d want to be in that sector.  So I would just say that if that’s storage graph is even a third right, then it’s not a bad market to be in.  

So I’m a big believer, whether it’s Vanadium Redox Flow Batteries (VRFB) or not, the flow batteries are the ones that do store power for a long period of time, and that’s what interests me.  So I’m a bit of a believer in it.

Matthew Gordon:  That’s the macro.  That’s got nothing to do with you right now.  You’re at the point where you’ve got a scoping study coming out later this month, potentially end of August. 

Peter Reeve:  Yes

Matthew Gordon:  So you’re going to have an idea of what you’ve got then and you’ve got to then work out how you move that forward.  So what are your hopes for between now and the end of year in terms of what you can do, in terms of understanding what you’ve got and then what are you going to do with it?

Peter Reeve:  To push you back a little back there, we found this project ten or eleven years ago.  We spent $20 million on it.  Yes, a lot of it went onto Uranium.  We spent a lot also on Vanadium.  So we really understand this project.   We do know Sweden pretty well, very well.  We know the region, we know the local people, so this is more than just a concept project.  This is a pretty serious thing. So I do believe the next step is do something where we start to get a tie up with some of these people.

Like I say, I would be equally happy to tie up with a steel producer who needs the Vanadium.   I’ve got some people who are interested in that.  They are less interested now that the Vanadium price has gone down, clearly because they don’t feel they need it.  But no, I want to move this to a corporate stage.  I do want to get the IPO done.  I do want to do something with the battery tie up if that’s possible, and I want to do that within a reasonably short period of time.

Matthew Gordon:  So just on the IPO you’re looking to IPO on ASX or AIM?

Peter Reeve:  Because of the waking up in Swedish daylight hours, it’s got to be European time.

Matthew Gordon:  So those are the two projects.  Can you quickly go through the Mauritian Gold, battery metals project?

Peter Reeve:  What we’ve got there is greenstone belts.  All of Kalgoorlie and you’ll notice similar stuff in Canada, is greenstone belt. This is really, really an unusual set of greenstone belts because the only discovery on this greenstone belt is Kinross’ Tazius mine at 21Moz deposit.  Greenstone belts are renowned for not having a single discovery and they are renowned for once you have one discovery and you find another, there’s a raft of different sizes.

Neil, our Geo, talks about something called Zipf’s Law.  Zipf’s Law is that you have a curve from a 20Moz deposit all the way down to a one million ounce and everything in between.  So when you do Zipf’s Law on the Kalgoorlie field, you see 30 or 40 different deposits of varying size.  We’ve got one on this field and it’s Tazius and it’s 20Moz.  

We got our tenements granted and we then did a deal with another party, so we have now tied up about half of that greenstone belt.  All but for one tenement we’ve tied up half the greenstone belt and Kinross has the other half.  We’ve hit mineralisation.  As I said, we bought this for $100,000 in a royalty, but previously Drake had spent $3 million on the greenstone belt, on these tenements.  So we’re not going in there cold and the guy who conceived it and did the work is now my principle geo.

We found mineralisation – what you’ve got to get is you’ve got to get systems size and you’ve got to get grade.  We’ve hit system size with a little bit of grade and we’ve hit grade with not much system size.  We’ve just got to get the two together, but we’re talking about one drill hole.  For the money we’ve spent we’ve drilled one drill hole for every 20sq.m so far.  We’ve got a lot more work to do. 

One of the more exciting parts of it – and the reason why I put on the battery metals, is we did a fence of drilling, 1.6km long.  Again, if you go through that presentation, it’s the bright pink slide.  It was equal holes.  They were about 6m-7m deep.  Pretty well every one of them hit near per cent nickel. So we assayed one in ten and we found Cobalt and the Cobalt was as high as 0.58%. So pretty exciting to get back and look at. 

Matthew Gordon:  So again, early stages but the potential there, greenstone belts in West Africa.  So let’s go a little bit more macro.  What’s your view on the Uranium market? When’s it going to turn?  Is it your area of expertise?  What do you know?

Peter Reeve:  I don’t know anything about the Uranium market at all with respect to how a Uranium market expert knows about the Uranium market, but I make it my job to talk to… We’ve got an off-take agreement for Uranium from a group in London and I talk to them quite often and I talk to other players in London on that.

Matthew Gordon:  That’s Yellowcake presumably?

Peter Reeve:  No, no, that’s a ETF.

Matthew Gordon:  So you’re relying on them but you kind of don’t care.  If the price is right, you’re going to get into production and you’ll start producing.

Peter Reeve:  The big thing at the moment with the market for me, it’s really simple.  I seriously don’t make a habit of trying to count how many reactors are getting built and how many pounds goes into each reactor.  I let other people with a digital mind do that sort of stuff.  What I am focusing on is this big concept  of what happened in 2005.  If you look at, there’s again a chart that I use. 2005 there was about 50 – or maybe it was 2004, there was 50Mlbs of long term contracting in place and with Finn by the next year they had put 250Mlbs of contracting in place.  And that lasted for seven or eight years.  It wasn’t a fluke. 

The current coverage in 2021 and 2022 for long term contracts is four and three per cent.  They will get nervous.  I don’t know when it’s going to be, but they will get nervous.  It doesn’t matter the cost they pay for this stuff, as you well know, but they definitely cant run out of it.  So at some stage they will move. Look, the February results of Cameco, I always read the Cameco stuff.  Their marketing stuff is brilliant.  They’re fantastic at it.  They’ve got teams and teams of people who are much smarter than me focused on it all day long – read their stuff.  They also know these comments about the utilities looking like they’re coming back to the table to start with the balance of doing long term contracting. 

So what happened in 2004, 2005 that leaned to that big explosion in price was seven or eight of the utilities all decided to squeeze through the door at once and of course… I always remember I asked one of the guys in London.  I said, “What happened with that?  What was the max price paid in that clique?” He thought it was about $138 a pound.  And I said, “Do you know the guy who did it?”  And he said, “Yeah, I do. I know him.”  I said, “What sort of guy is he?”  And he said, “Well, he’s a nuclear physicist.  He’s sitting there and he basically had a manila folder and said he needed this much Uranium, and on the day when his boss had walked down the corridor and said “How’s that contracting going?” and he said, “I haven’t got much.”  Well, you’ve got to fix that.  First to bid, first to bid, and kept on going.  So a nuclear physicist running a plant is also looking at nuclear… So these are the sort of things that might happen.  I’m a believer that it’s the utilities charging through the door at once which will give us the…

Matthew Gordon:  What is your outlook on the Vanadium market?

Peter Reeve:  Outlook on the Vanadium market is probably confused, but I would say that getting up to $33 there was clearly a lot of speculation, and I think falling back down to $7, I’d say there’s a lot of play.  Some of the people who need Vanadium, they have confided to me that I don’t think they think it’s going to stay down here, but it’s not going to race back up to $33 either.  We always thought somewhere in the $10 to $15 range was more likely for it to sit and that’s what I think it will go back to at some stage.  But I don’t expect to see, $20 or $25.

Matthew Gordon:  Can you summarise your thoughts on where Aura Energy is going and why you think new investors should be looking at Aura Energy. From what you’ve told me today there’s a lot of things that you’re going to be doing. 

Peter Reeve:  Primarily start with what we’ve got in Tiris.  We’re putting together a very interesting chart just comparing the CapEx on our project, it’s C1 cash cost and the All In Sustaining cash Cost (ASIC) against our market cap.  There is no doubt about it.  We are the most undervalued of the junior mining companies in this Uranium space with a development project, with the low capital and with the low OpEx. 

For me, there’s three things.  The low CapEx means the project’s doable and the low OpEx means you’ll make cash flow and the low market cap means we’ve got room for the share price to go up.

So that’s a good enough reason for any shareholder.  If they can believe that we will deliver what we say we are, that’s a good enough reason for the shareholders to get in.  Then add on to it that if we do an IPO and we retain 70%-80% of that, we’ll get an independent counter attributed into our share price.  That’s number two.

And then number three, when we discover a 3Moz deposit on the greenstone belt in Mauritania, everybody will want to own our shares.  So that’s going to happen as well.

Matthew Gordon: I appreciate your time.  That was a great first introduction to your company.  I know the guys on Twitter are going to be really happy about the fact that we’ve spoken.  Please stay in touch.  Keep us up to date with how things are moving, perhaps later in Q4.  Thank you very much.

Peter Reeve:  Thanks for the time.


Company page: http://www.auraenergy.com.au/

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.

Bellevue Gold (ASX: BGL) – What Makes This the ASX’s Best Performing Gold Company?

Interview with Steve Parson, MD, Bellevue Gold (ASX:BGL). 9 Reasons why Bellevue is the best Gold performer:

  • Bellevue Gold is very much about adding ounces.
  • Globally it’s one of the highest-grade ore bodies and discoveries that has happened in recent times.
  • Growing Gold ounces very rapidly: “18 months ago they were zero Gold ounces, and here they are at 1.5Moz”
  • Cashed up for this years drilling.
  • Have good financial backing, “so we’re not scared to go and drill those holes. And at the moment those holes, if we keep on stepping out, are continually adding more Gold ounces”.
  • It’s efficient. It’s high-grade ounces and “we’ll keep stepping out on that”.
  • West Australia is without a doubt one of the premier jurisdictions in the world to be in. “We’re in the Goldfields region of Western Australia. There are Gold mines all around us”.
  • They have been granted mining tenure. So to get it up and running, is going to be very straightforward.
  • The Gold price is looking fantastic in Australian dollar terms. Highest it’s ever been.

In the next year there will be a very good growth on the Resource space and hopefully for shareholder appreciation as well. Everything you want in a Gold Explorer. High-grade. Open. Opportunity to build a large Resource quickly.

Click here to watch the interview.


Matthew Gordon: Good morning Steve. How are you?

Steve Parsons: Yeah I’m good thanks. Yeah thanks very much.

Matthew Gordon: Good to have you. Thanks for making the time going to get to in your own words gives a two minute summary of Bellevue Gold.

Steve Parsons: Yeah. Bellevue Gold we’re fairly new company. We’ve only been around for a couple of years now. We’re an Exploration company based in Western Australia, in the Goldfields region. So very prolific Gold discovery area. Lots of Gold mines in the area. And we’re exploring the old Bellevue Gold mine and the old mine itself produced nearly a 1Moz of Gold at high rate of 15g/t. And they mined it from 1996 to 1997. A very very profitable mine. However mining stopped back then. And then it was owned by Nickel companies since then, and so we are now drilling our first holes in the last year and a half. And a very good discovery. The latest Resources is 1.5Moz of Gold and it’s soon to grow even bigger than that.

Matthew Gordon: Well there we go. Thanks a lot summary. And before we get into the questions proper. Can you give us a bit of your background or your Geo?

Steve Parsons: Yeah. So look my background is that geology expression geology I studied at Canterbury University in New Zealand and came across to Australia after then I worked for a number of mining companies and Gold companies and then you’re being involved in an expression pretty much my whole time over again.

Matthew Gordon: And have you seen anything like this before? Have you worked on anything like this?

Steve Parsons: I said pretty amazing deposit. I have worked in a couple of amazing deposits in the past though. But for the grade it’s just a real standout. And I certainly haven’t seen anything like this before.

Matthew Gordon: You’ve had a great year. Share prices has trebled. You’ve got a 1.5Moz Resource. You continue to drill. Very high-grade. It’s all good isn’t it? Pretty easy work?

Steve Parsons: If only it was easy like that. It all rolls off the tongue very easily, doesn’t it, when you say it like that? Look the thing was that the project was an outstanding project in it’s day. And that was one of the reasons why me and the Exploration team decided to jump on board on this project. And it had certainly been unloved for 20yrs and we saw the opportunity. And the fact that there was always this thought that the mineralization could continue, but no one ever knew where. And geological called into it and if you’re having success and things are going well, you obviously get the opportunity to raise a bit of funds. And grade and the rate of growth has been so rapid, we certainly had our hits and capturing that market and being able to raise funds and those funds raised. The dollars all go back into the ground and we’re discovering Gold at AUS$15 an ounce which is incredible in itself. So 5 drill rigs on site and the more rigs you have, the more chance you have of adding further ounces. So we sort of back ourselves to continue finding Gold.

Matthew Gordon: So again before we get into the strategy. Your shareholders have got to be pleased. Well first of all, the type of shareholder over the last year changed. You’ve got a lot more institutional on board. And where are they? Are they mainly Aussie or from further afield?

Steve Parsons: The shareholder base has changed a lot over the last 12 to 18 months. We’re very much a retail company. What you’d call a shell company down in Australia, with all Mum and Dad retail investors. And over the last probably 12mths  we’ve grown to be much more institutional. We’d probably be about 40% institutional now. And that institutional register is probably made up by about 50% from the Northern hemisphere, and 50% in Australia.

Matthew Gordon: Are they getting involved? I mean clearly the results have been great. So you’re probably not getting much pushback from them, but what are the conversations that you’re having with the institutional shareholders, with your monthly or quarterly calls?

Steve Parsons: Yeah. Look you know it’s not just institutions that we speak to. I mean I’m regularly be standing on stage and speaking to the retail shareholders as well. And we’v e got a number of outlets we use to get out to those retail shareholders. And of course analysts as well which we update. And look everyone seems to be very happy with the way things are going. I mean over the moon. The share price has been reflecting how well we’ve been going and discovery. And I think people are looking for us to continue on the aggressive step out drilling that we’ve been doing. It certainly looks like the ore bodies are still open North, South, West and East and at depth. So why wouldn’t we continue to step out. I think there is definitely the thought that people want us to add more rigs if we can. And we’ve certainly added rigs as we’ve gone, and had more confidence in the Resources. And so we’re up to 4 drill rigs now on site. And in fact we’ll probably be more than that I’d say very, very soon as well. And then we sort of weighing that sort of step out discovery drilling. Weighing that up versus should we be doing a little bit of infill drilling as well and increasing confidence level of the Resource. And of course that’s something we’ll be doing as well this year.

Matthew Gordon: So you said earlier you’ve not seen anything like this before in your work experience. So how much of this is down to luck? How much of it is down to planning? How much of it is down to delivery through a rigorous process? If you look at what you acquired.. the old .. it was Draig that was the former company.

Steve Parsons: That’s right.

Matthew Gordon: So Bellevue as is now. So did you know what you were getting into? How much data did you have? How much confidence did you have that there was this much Gold down there?

Steve Parsons: Yeah well, after the last company that we were running which was in West Africa. And that was taken over by a North American company, which they’re looking to produce Gold at the moment on. We very much made the team make a  decision, conscious decision, to look down in Australia and to look for a brownfields project and to look for a higher-grade brownfields project. And this was a real standout for us in the fact that, as I said before had been previously owned by Nickel company. The last company to own it was Xstrata, and they exited out of Australia. So the project became available. And for us when you want to find an ore body, I guess you can look either at grassroots, and in time the brand new area. And we’ve had success with that in the past. That that’s a good way of finding Gold, but it takes a lot longer. The other way is to look for Brownfield type project. And for us this was a real standout, because it had historically produced a lot of Gold at a very, very high-grade. That there was a lot of data there in the past. It was all known down the mines department. The previous companies had made a lot of money on it in the past. However geologically there was a fault that had come through, and everyone has said that there’s nothing on the other side of this fault. So that for us that was a real standout, because geologically we thought well that was a 20yrs old geological interpretation. And hey just because somebody says there’s something not on the other side of something, doesn’t mean it might not be there. So we we spent a fair bit of time in those first 6-8mths, before we drill the holes to understand what the mineralization was.

Matthew Gordon: What about that decision you made before you made the acquisition? What made you go for it. You can’t just go ‘Oh let’s give it a go. It’ll be fine’. You must have had some intelligence behind that? What was the thinking?

Steve Parsons: Ah No. I mean you sort of weight these things up. I guess in a sort of risk-reward basis. You can look at it as a sort of a percentage of success. What the chances of success are. And as I was saying before grassroots exploration, it normally takes a very long time. And then of course in a grassroots Exploration in certain countries and jurisdictions is a lot more difficult than others. So if you want to find something in the middle of nowhere grassroots, you’ve got realistically a 5-10% chance of something happening over a very long period of time. And for us literally all our view was that, it had produced a lot of Gold. It hadn’t been looked at for 20yrs which was just incredible in itself. It was a very, very highly profitable mine. And so the chances of finding something we viewed as you know 70-80% chance even though geologically, everyone said nothing or you never find anything geologically there again. But Brownfields exploration, we’d be prepared to back ourselves and thought there would chances of being much higher than in grassroots.

Matthew Gordon: So you’ve thought OK. It’s produced quite a high-grade before.. say 800,000oz-1Moz produced. Has sat around for 20yrs and done nothing. So we’re you a field of one looking at this. Was this geological fault putting everyone off, or was there a bidding process? I mean how hard did you have to try to get this?

Steve Parsons: So the project has actually been bought by Draig Resources. And Draig didn’t have a technical team at the time. They didn’t really know what they had. They knew that they obviously had something good. But their view of it at the time was very much, ‘Oh well its a property. It’s an asset. How are we going to move ahead on it?’. And the thinking back then was from the previous people that were running it, was well maybe some Gold in the old tailings dam, or maybe Nickel nearby. Or who knows what else. But the view was very much because this fault had come through, you’ll never find anything on the other side of the fault. And that has always been the thinking by everyone who’s ever looked at this project in the past.

Matthew Gordon: So how much did you guys pay for it?

Steve Parsons: I have to go back and have a look at what’s on the ASX platform. But I think it was about a $1M, shares bits and pieces as well.  We own the project 100% now. Sorry it’s not on the top of my head.

Matthew Gordon: So you’ve got you’ve got this project. You spend the first 6 months trying to work out what you had. And at that period, were you thinking this could be something significant. Or are you just hoping for a good project something which might stroke the interest of investors, enough to get some more funding to work this out? I mean what we thinking it was.

Steve Parsons: Well our view was very much, Expression is what we’re about. And we’re looking for world class deposits. Somewhere around the world, and this is in Australia obviously, but the view much was, let’s look on the other side of fault. Let’s get this right. Let’s look around it and see if we can find another you know 1,2,3,5Moz of high-grade Gold. That that was without a doubt in the back of our minds. However we also had the view that, worst case scenario we should be able to cobble together a few thousand ounces here, there and everywhere, and hopefully maybe turn it into a small West Australian high-grade Gold mine. Some of the lines of you know 100,ooo or 200,000 300,000 ounces of Gold. It’s a start. And then from there leverage up and look for something else. But we right from the very start backed ourselves and the fact where can we find the next big discovery, below or adjacent to the old mine.

Matthew Gordon: So it’s a well told story in the market. I think you’re well on your way to creating something significant. But what I just want to talk about something, again for new investors thinking of coming in, because there’s still a kind of reasonable retail component to this. And the question is, how do you and your team get that balance between driving the business and appeasing shareholders, in terms of shareholder value, and shareholder value creation? And you’ve obviously done that in the last year. But it’s going get more and more difficult to do that. So what’s the process internally for looking at those things?

Steve Parsons: Oh I mean it’s for us it’s very simple you know. All we’re trying to do is create value at a project level. And if we create value at the project level, then that should in theory come back to create value for shareholders and the share price appreciation. And creating value at project level is.. it’s adding further ounces and more discovery ounces. It’s an converting into a high category as well. So more valuable ounces. That’s drilling deeper, adding, seeing where those Resources continue on to. That’s the sort of thing we try and do, and we try and do it very efficiently, for less than $15 dollars an ounce.

Matthew Gordon: Okay. So the strategy is drill, drill, drill?

Steve Parsons: Yep without a doubt.

Matthew Gordon: Keep it nice and simple.

Steve Parsons: Going back to when the very first started. We literally only had a few hundred thousand dollars in the bank, and so the first drill program was very, very much, ‘where we’re going go. We’ve got a limited amount of money. Best bang for our buck’. We want to make sure that we’re hitting our highest priority targets, as quickly as possible and proving our theories right. We did that with the 1 drill rig and made it made it work. And we ramp it up 2 drill rigs in early 2018. And then we got to 4 drill rigs towards the end of 2018. And here we are now with 5. So it was certainly very happy to keep on adding drill rigs, if the deposits keeps on growing.

Matthew Gordon: So to answer my question of earlier, how much of this was luck and how much of it was planning?

Steve Parsons: You have to ask the Exploration team.

Matthew Gordon: I think they would say it was all planning. Well they should shouldn’t they?

Steve Parsons: Without a doubt I mean look there’s always been luck on this thing, but you’ve got to have a good team that comes up with the right strategy on where to drill. And there’s it’s got have backing from the board to say, ‘hey we back these guys let’s give it a go’.

Matthew Gordon: Well as long as the grades and the ounces keep coming, they’re going to continue to back you because some something’s something’s going right, obviously. So to that point, let’s assume the next 18-24 months continues the same way. You’ve got a big Resource number at the end of that. What’s your endgame here? What’s your business model? There’s got to be a point where you kind of go, ‘okay. I think we’re good now. let’s talk to people about either making acquisitions or being acquired.’ Or do you get into production? What are you thinking?

Steve Parsons: Yeah. Look I mean obviously you’re and you’re in control of your own destiny with things that you can control obviously. And for us right now, that control for us is really about the drill rigs, and the geological understanding, and adding ounces. So very much about just keep on adding ounces for the time being, and then converting those ounces into high confidence ounces. Creating value on the project level. At some point in the near future, it’ll be a point where we go right this this is going be a mine. It’s gonna be a highly profitable mine. This is what it looks like. So that’s sort of the game plan. So this is very much about just that adding ounces.

Matthew Gordon: So you’re not setting any targets for yourselves yet? It’s early days, you are less than two years into this. Things have gone quite well. And you want to continue repeating that.

Steve Parsons: One of the one of the problems, I think with a lot of junior companies like ourselves is, we try and put ourselves in boxes  too early on. And sure, great to get up and running as a mine without a doubt. Fantastic, however that is not our strategy. Our strategy at the moment is very much, the resource is still open in every direction, North South, West, East and at depth. We’re back in to keep on drilling, so we might as well keep doing that. Keep on adding ounces. And then we sort of can get to a point where we realize, well what’s the scale this going to be. And it’s just too early to do that right now.

Matthew Gordon: I accept that, it’s fair enough. So if I may…because this is for investors retail, high-net-worth, family office investors to understand. So we haven’t talked about the project, because I think a lot of information out there. But if you could maybe give us a quick summary that the five key points as to why investors should come into Bellevue Gold now. And perhaps talk about where you think the Gold market’s going as well. If you can cover all of that off for me.

Steve Parsons: Yeah look, I guess the real key thing is, we are a very simple investment proposition. We try not to over complicate things at the moment. So Bellevue Gold is very much about adding ounces. It’s adding very high-grade ounces. It’s globally one of the highest-grade ore bodies and discoveries that’s happened at the moment. We’re growing ounces very rapidly. 18 months ago we were zero ounces, and here we are at 1.5Moz. We are cashed up. We continue to have good financial backing, so we’re not scared to go and drill those holes. And at the moment those holes, if we keep on stepping out on a continually adding ounces. So that’s us in a nutshell. It’s efficient. It’s high-grade ounces and we’ll keep stepping out on that. And look for me personally, West Australia is without a doubt one of the premier jurisdictions in the world to be in. We’re in the Goldfields region of Western Australia. There are mines all around us. We’ve got granted mining tenure. So to get it up and running, it’s going to be very straightforward. And look the Gold price is looking fantastic. And especially in Aussie dollar terms, it’s looking incredible. So all those things are lining up for us and I will certainly see it for the rest of this year. And next year we think to be a very good growth on the Resource space and hopefully for shareholder appreciation that as well.

Matthew Gordon: Thank you. Thank you for that. I forgot, obviously with the the Gold in Aussie dollar terms is the highest it’s been for a while for a long time, if not ever. And you pay for everything an Aussie dollar. So for you, it’s good. So the US dollar has no bearing on your business.

Steve Parsons: Well at the moment the trend in the Aussie dollar versus US dollar has been negative. So Aussie dollar’s going down US dollar going up, which means that US dollar Gold price going up is a very good thing for us in Australia. So we’re pretty much at all time highs in the Australian dollar Gold context at the moment.

Matthew Gordon: Well, look Steve, thanks very much for that summary. It’s nice introduction to your company. We’d love a chance to catch up and maybe get into the weeds of it at a later date. So again thank you for your time. And I’ve had a long day. You ready to go home I imagine.

Steve Parsons: That’s all good. Thanks very much for your time.


Company page: http://www.bellevuegold.com.au/

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.

Jervois Mining (ASX: JRV) – How Important is Cobalt to the Battery Revolution?

How much Cobalt, Nickel and Copper does the world need? We interviewed Bryce Crocker, CEO of Jervois Mining to get his take.

Click here to watch the interview.


Matthew Gordon: Now we saw you back in around 12th March, middle of March. You’d done, or just announcing the M2 story, but you’ve been quite busy since then.

Bryce Crocker: We have.

Matthew Gordon: Why don’t you start. Give us a two minute overview without getting into too much detail, about the recent news. And then we’re going to get in to it.

Bryce Crocker: Well I guess we’re looking at creating a platform that institutional investors can get exposure to battery raw materials. We’re big believers in thematic. We believe the investment alternatives that are open to institutional, and also retail investors, are substandard in terms of quality of the assets, and the quality of the management. And so we’re a group of largely ex-Glencore executives, who’ve come in Jervois and are looking to make a difference.

Matthew Gordon: Okay. So you’re focusing on Cobalt at the moment.

Bryce Crocker: Cobalt, Nickel, Copper because Cobalt obviously comes with both products generally.

Matthew Gordon: Fantastic. Just for people who don’t quite understand where you’ve been, and where you’ve come from. You mentioned Glencore there. Big name.

Bryce Crocker: They’re a large Cobalt producer. I guess I was part of the founding management team in Xstrata. Peter Johnson who’s our chairman. Peter ran WMC’s  Nickel business back in the days and then worked for Glencore for a long time sat on Glencore’s Executive Committee ran their global Nickel assets. So obviously Glencore have always been the largest Cobalt trader we’ve got a group of executives who’ve come out of that platform and now we’re looking to create as I said an investable alternative. We know Cobalt well We’ve obviously got a lot of history and the understanding the DRC to the extent one can understand that jurisdiction and but equally creating something that has decent assets non DRC sourced units which is increasingly.

Matthew Gordon: Why is that important?

Bryce Crocker: I think downstream users are increasingly concerned with the access and supply and the potential of that contaminates or is blended in with other way with regular unions

Matthew Gordon: When you say contaminate,  What’s the underlying issue here?

Bryce Crocker: The difficulty with Cobalt is tracking where units… It’s a complicated flow sheet it’s mined it’s concentrated. Usually it’s leached it’s refined and so it’s blended in a number of phases. And approximately in 2019 you probably had 30,000 tonnes of Cobalt in 120,000 ton market which came from artisanal sources which are essentially men women and children tens and tens of thousands hundreds of thousands in the case of last year. And that material is finding its way through the flow. The Cobalt chain particularly any units that flow through China and that creates challenges. When I was working with Xstrata Glencore we would provide guarantees to our customers to Intel, Dell. There were two limbs that we provided guarantees, on one was the non-conflict material which was obviously quite easy given we control Katanga and Rotunda in the southern part of the DRC well away from any conflict zones. So conflict Cobalt is somewhat of a misnomer but the artisanal issue is real. Nobody wants to have an iPhone or an electric vehicle with a battery that’s essentially represented by a significant component of children which had been working under terrible conditions unsafe conditions in mines underground in the DRC.

Matthew Gordon: It’s the child labour component that people are…

Bryce Crocker: The child labour is a significant social issue both in the DRC and also for Western consumers.

Matthew Gordon: I guess you’re touching upon also there in terms of tracking this there’s some sort of block chain component to it, or is it more basic than that?

Bryce Crocker: These initiatives underway. But I mean I’ve worked in Cobalt for a long time and I can tell you the trading is a complex industry. it’s a niche industry and it’s opaque industry and there’s going to be real value if we can… for those that can create an operating company. So we’re not promoters we’re not looking to kind of assemble an aggregated portfolio of assets and then move on we’re going to construct an operating company. And because we’re constructing an operating company there’s a real value for those downstream users to have sources of supply which don’t involve anything from the DRC at all.

Matthew Gordon: Fantastic. Okay. Let’s go back to the Glencore bit. You come from a big company big exposure big projects around the world and you come into the junior space. Okay so I imagine I’d like you to Tell me that’s a very different environment. I mean how has your thinking had to change for some parts of this or is it the same for all that.

Bryce Crocker: I think it. I mean I’m from the Xstrata side I saw as part of what we sold to Glencore in 2015 but I work closely with Glencore and the rest of the team is largely being Glencore. If you came from a different large Mining company I think would make more of a difference. Glencore is very obviously it’s an owner operated principal type business. obviously junior mining company is different in terms of the infrastructure and the level of support in the…the way we’re set up organisationally is certainly. But I think that we’re a group of like minded individuals who purposely left large companies not because we couldn’t stay employed with large companies but because we wanted to do something different and essentially create a mid-tier company and we’ve got the opportunity at this end of the market. If you look back when we founded Xstrata. The reason why we did that was because the people wanted an investment alternative they had more beta if you like. They’re just purely choosing between Rio, BHP and Anglo. And that was essentially the fund manager investment decision options that they had at the time in London here. And I think what we’re looking to do with Jervois again create something that’s got a management team that is at a different level of quality than typically exists in the junior mining sector. Not always but Obviously management of the junior mining sector is perhaps not as strong as it ought to be and particularly is really focused on getting into operations and creating an operating company. So to take something that was essentially capitalised at a very low level and then build that up over time.  That’s exciting. Building mines and commissioning mines operating mines. That’s… it’s a part of it.

Matthew Gordon: I guess it’s very exciting. You know you’re in control of your own destiny to some degree obviously there’s some variables outside which you can’t control but you’re making decisions here. But sticking on this. As I understand it you’ve acquired two companies since I’ve known you so you’re quite acquisitive. That’s pretty impressive.

Bryce Crocker: We’ve got a couple of shareholder votes to get through. But where I think we’re sitting there is there’s small steps but they’re setting up… they’re important steps to set up the platform of what we want to do.

Matthew Gordon: Okay. And I want to come on to your strategy because I like it. I think it’s a good strategy. I’m interested in the team’s experience but if I look at M&A, you going to require to raise some money for some of this. You know to get this going. I know you’re doing deals, we can talk about how you’ve optimised that and reduced shareholder dilution et cetera but again coming from the larger background, as you say fund managers they had a choice of three or four guys to go to and that’s the background you’ve come from in this junior space I mean have you had to create new relationships? Who are you talking to for funding?

Bryce Crocker: It’s very different. It’s very different. It’s been a learning process for me and then I’ve worked independently since we the management team sold to Glencore in 2013 on behalf of the rest of the Xstrata shareholders and I’ve enjoyed working at the smaller level. I mean obviously our background in association and we work a lot with private equity but equally I think at this end of the market there’s… you have to build up the retail following you need a balance between strategic investors or if you’re frame private equity as strategic. But retail is important. Liquidity is important. If I look at most companies that are sub 100 more market cap there’s an argument as to that their ability to succeed, the liquidity is limited and that kind of creates a lot of challenges for both your clients and institutional clients as well

Matthew Gordon: Well I imagine with the institutions you’re having different sorts of conversations. it’s like they need to see X market cap they need to see why revenue potential near-term revenue. So those are very different conversation. So but you’re getting in there, obviously working.

Bryce Crocker: Yeah so far I mean it’s been a difficult market but we’re excited. Both of these transactions set us up. And in terms of really making that transition to become a producer particularly the Cobalt merger.

Matthew Gordon: Yeah. Well let’s talk about okay. So when I spoke to you, you were telling me about M2Cobalt great asset another great asset, great exploration team. Tell me about ECobalt because I think… The thing I thought quite interesting about that you’ve got a neighbour that lives next door to it this year you might know. Is Glencore not an owner of Assets nearby?

Bryce Crocker: No… Glencore and Blackbird correct, they’ve got the old Miranda close site, correct.

Matthew Gordon: Got it. Okay. So tell us about this transaction.

Bryce Crocker: So I guess why we’re attracted to a Cobalt the Idaho Cobalt project is it has the ability to transition us to become a producer. Much more quickly than could otherwise have occurred. So Kabanga in Tanzania and Kilembe in Uganda, they are assets that are in negotiation with both the governments in their respective jurisdictions they’re exciting assets that shouldn’t naturally sit within companies Jervois size. So that’s why we’re chasing them. but equally if we’re awarded tenure by either government tomorrow realistically they’re three years from first production. So three years is obviously it’s a reasonable period of time in the eyes of capital markets. the attraction of Idaho is  it’s been significant investment at site. They are $100M in, the resource: The quality of the resource is high 0.6% Cobalt, 0.8% Copper. DRC type quality. Without being in the DRC. Small. Smaller than the DRC. That’s 5Mt of inferred resource not 50M or 250M but very high quality and very relatively low development risk. They’ve probably got… they’ve got a pathway for production. Once we finalise the definitive feasibility study when we take control. Once you start that box cut and open the portal you’re 12 months the first door on the mill and then the commissioning is almost instantaneous as opposed to a large metal… If you’ve got a large part metallurgical or hydrometallurgical facility you’ve got a three year commissioning period. Three year construction, three year commissioning very long dated very high risk. This… the CapEx is small.

Matthew Gordon: Why?

Bryce Crocker: It’s executable with a simple sulphide underground mine. The tonnage is… they published feasibility studies on 800T per day. Of which the mine and mill was around $50M at the time they’re increasing that now to 1,200T per day which is the capital is going to rise but not significantly. But these are the type of projects that companies our size should be doing. I don’t want to be a junior mining company, I’ve said it very clearly that where you’ve got a $50M market cap and you’ve got this project that requires half a billion dollars in equity it’s a waste of time. Who are you kidding. You can’t do that. All you can do is sell it.

Matthew Gordon: So tell me more about the deal. How do you structure that? You say “by taking control”, so what does that mean?

Bryce Crocker: So yes, there’s two transactions. There are plans of arrangements so there are no or at market mergers. Both the M2 merger, then the ECobalt merger, independent subsequent transactions. So the M2 circular goes out next week. So that’s essentially a prospectus on Jervois for all intents and purposes. it will contain the PEA on the Nico Young project in Australia. which is our foundation asset that goes out next week and the shareholder date for the M2 merger is 14th of June. There are plans and arrangements. We need sixty six and two thirds voting present for the M2 transaction we have over 50% lock up. High probability of that going through. High probability of both transactions going through but the lock up’s on M2 make it almost arithmetically certain.  The ECS transaction, because the transactions is separate, the circular for the ECS merger will go out immediately after the M2 shareholder vote. Once the positive votes received the ECS shareholder circular goes out and the shareholder date will be the third week of July. So after the third week of July the pro-forma based on current prices the pro-forma of market capitalisation in the group will be approximately $100M

Matthew Gordon: You’re up there. You’ve kind of leapfrogged up to where you got noticed

Bryce Crocker: Yeah I mean we’re not doing it just to get noticed. We’re not in the business of getting bigger. Just for the big… just to get bigger. But for the reasons that I outlined in terms of the asset it does transition us because we’re going to be in production far more quickly than we would have been otherwise. We’ve got a project that’s essentially halfway constructed that we’re going to finish. what it also means…I mean it always, we had a long debate, essentially myself and all of the board we’re all compensated on value per share. So we’re very focused on dilution very focused on how we manage the capital base. Essentially there was an opportunity. Sure, I don’t want to issue shares at 25 cents, I have a perception that that’s significantly undervalues Jervois. But also this was an opportunity where markets are weak, the opportunity for others to raise capital is constrained. And the relative under-performance of other stocks was obviously significant relative to where we were. So it created an opportunity for us to do a transaction on favourable terms and it also means for both M2Cobalt and ECobalt shareholders – they’re along for the ride, they’re part of the story that we’re now moving forward together we have a team that can deploy and can construct and commission finally the Idaho Cobalt project and I actually want to do it now while Cobalt markets are weak, because for all of our shareholders whether they’re currently Jervois, M2 or ECS shareholders we want to be in production when prices recover and prices will recover. That’s one thing to say.

Matthew Gordon: I think everyone’s a big buyer of the EV story, battery metals should be doing well, for some reason at the moment that’s a bit of a lull but it’s coming. I think that’s a story which is well told, you told it you know in various conversations that you’ve had. But I want to talk about, not necessarily about the deals that you’re doing, I want to talk about the deals that you’re going to be doing. So you’ve got a strategy here, your thesis is Cobalt Nickel and…

Bryce Crocker: Cobalt Nickel Copper.

Matthew Gordon: Copper. Of course. That’s your theme and you’re gonna stick with that’. you come from a background of big companies, want to build and mid-tier. You’re up to circa $600 US now potentially when these deals happen. what’s the future look like for you, what is the strategy? Are you going to continue an M&A strategy, are you going to be acquisitive?

Bryce Crocker: I’m a big believer in never boxing myself in especially not where cameras are rolling so I’m not going to say definitively I’m never going to do a transaction because then I’ll come back and do an activity level of X Larry. The audience can replay that. But equally. It’s not a scattergun approach because we want to build an operating company that has to be focused right now.

Matthew Gordon: On what?

Bryce Crocker: Focus on constructing operations and what we have now as part of the portfolio we’ve got essentially a development project in Idaho which needs to be built. we’re in discussions advanced discussions with as I said the governments in Tanzania and Uganda. So the way that we’re looking at from a portfolio perspective is Idaho is going to be core as part of what we do. East Africa is also important. will we not do another transaction? I think it would be… we’re looking at anything else very very carefully. I’m certainly being explicit now in institutions who I made here in London now that we won’t do DRC. up until now we’ve looked at assets in the DRC. We understand as much as one can the DRC and it’s a tough jurisdiction and for those reasons as well with the dealing, because we’re also running through our residual asset, core asset in Australia, The Nico Young project we’re looking for offtakers for that to partner. So that’s not an organisational focus for us, for capital perspective. We’re still managing  it, but we’re not allocating any capital and dealing with the AMS on that. It’s clear that having… having an entity that can provide raw materials that doesn’t have anything coming from the DRC is just…

Matthew Gordon: I get that, but the bit I want to understand is, you know, some companies create value by doing M&A constantly M&A just rolling up and they do drive share price that way, but they forget about the business. What you’re saying is we want to focus on the business. The value is going to be created through developing the three assets that we’ve got but you will look at other opportunities but your focus is on what you’ve got today.

Bryce Crocker: We’ve got our hands full organisationally with what we have. That’s not to say we wouldn’t look at other opportunities sometimes other opportunities come with teams such as the deal in Uganda with M2. We’ve got a team essentially that was already undertaking that exploration. So I’m a big believer in focus and not having a crap shoot and just going out and looking and kind of chasing assets and disparage geographies I think for juniors as well, or for small mining companies I mean obviously we’re heavily focused on Courtney DNA heavily focused on overhead on expenditure and it’s important to… if you really want to move forward projects you can’t do it sitting behind a desk you have to be out there and myself and the board are very hands on. It’s again a different type of culture I guess and our board meets monthly. I’m here in London with Peter Johnson and Simon kind. Now we’re heading back to Africa shortly. BRIAN KENNEDY My non-executive he’s been with me for seven or eight times to Africa since we joined 18 months ago. The board’s hands on we are really… it’s quite a different type. I guess when I look through and when we do these type of transactions with others you do see it level… And it’s fortunate for me the level of support I get from my board is very very different to many mining companies

Matthew Gordon: It’s interesting, the assets at the moment you know you’ve got I think Nico Young with a pre-feas due?

Bryce Crocker: Now. It comes out… the PEA comes out with the M2 circular. so the M2 circular is essentially, it’s a prospectus on Jervois for M2 shareholders, So that contains a 43-101 PEA.

Matthew Gordon: It’s in there OK, great

Bryce Crocker: So there’s a 500 page technical report and everybody’s going to look forward to that.

Matthew Gordon: We might have you summarise it, that might be the smartest thing to do. Okay. And then with Idaho that’s got a feasibility on the way, what’s the timing on that?

Bryce Crocker: We’re working through. Peter and I were there with our, some of our directors last week.  we’re working through and agreeing on what is going to be the work plan. finish the definitive feasibility study. So that when the shareholder vote yes goes through on the third week of July we’re ready to deploy essentially immediately. With regard to the drilling that’s required both to finalise metallurgical test work, improve the quality of the resource before mining.  And also just to really just we think optimise the DFS, the DFS significantly . That will be finished in March 2020. We’re already talking to finances on the debt side with the intention that we’ll construct immediately and then its 12 month runway As I said earlier. First all .

Matthew Gordon: Okay. And then Kilembe, obviously, exploration

Bryce Crocker: We’re making progress with both governments on prog. I mean our intel is very good.

Matthew Gordon: Progress on what?

Bryce Crocker: So if you take them in turn we’ve applied in Bangor in Tanzania. So get back is the best undeveloped Nickel sulphide deposit in the world by another 60Mt of sulphide resource at 4% Nickel equivalent. So it’s on a par with Thompson Manitoba Raglan voices by phenomenal asset. Obviously Tanzania has been through a difficult time politically or as it pertains to the mining industry. We’re talking to government. We’ve applied for what’s called a prospecting licence.

Matthew Gordon: All right. What’s that? And that just lets you continue what you’re doing?

Bryce Crocker: Essentially I mean obviously Glencore and Barrick spend $250M U.S. before the deposit was removed because they failed to develop it. So it’s called a prospecting licence but obviously there’s no prospecting that needs to be done. We just need to update the ESEA update the DFS and that’s a year process. Once we get tenure. we’re negotiating with the government there’s a couple of other parties who are also negotiating but we’re well-placed and the government also looks at us… they look at us credibly because they don’t see a junior mining company…

Matthew Gordon: When you say there’s a couple other parties there, what does that mean, on the same asset? are we bidding here or is it?

Bryce Crocker: That’s not a bidding process it’s a negotiation with the government as to how that money… how the project is best moved forward and you should have stewardship or ownership of that.

Matthew Gordon: And that’s I guess… And having worked in Africa myself for quite a few years, you’re gonna need to give them comfort or certainty and that’s got to come around your ability to finance moving this thing forward

Bryce Crocker: I think the government looks at us and this applies to Uganda as well. I mean if you look at the backgrounds of our boards collectively we raised I think $40Bn US in the mining industry so there’s probably only, aside from my co-founders at Xstrata, there’s a very small pool of people in mining who have done that

Matthew Gordon: True but there’s different circumstances. So you’re a new company. It’s your company your board’s company, shareholders’ company.

Bryce Crocker: But I think the credibility, the government they understand and we can raise the capital that there’s no… They look at us and they see that we have the technical ability to construct and operate mines. And they also I mean, ultimately it comes down to your track record. There’s plenty of junior to go through and say they can raise the capital.

Matthew Gordon: Well that’s the problem for these guys. This happens all too often people come and go “Yeah the money’s tight, it’s fine”, but it’s not, it’s a wing and a prayer. you think the conversations, you’ve been about to lend comfort.

Bryce Crocker: Yeah I think that they look at us and to be honest the financing isn’t…There are issues we’re working around with governments, ability to raise capital was not one of them.

Matthew Gordon: Great. Okay. Well that’s good news. What are the things that they ask you about? Just so, it’d be interesting to know.

Bryce Crocker: they want to under… Both countries want to understand What are you going to do from, how it’s going to be managed. They’re obviously looking at the way we’re building out the business and want to understand what they have as a priority which is understandable. I think there’s a greater focus now on environmental standards on social standards on the with community which places us in a good position because again we come from large mining companies. I’m a big believer in fit for purpose. So you don’t have to necessarily apply the same approach to capital intensity and de-risking in a junior mining company is what you do in a large mining company, you can kind of be more nimble and more agile, faster. But equally things like environmental standards safety standards they’re critical so that… the host governments they, I think, that’s where we have a competitive advantage over others. They do look at us and they look at how M2Cobalt has been operating in Uganda for example the kind of insight they were extremely well regarded. they’ve got a track history. They’ve been in the country as it pertains to Uganda protectorates. And we also through our history kind of know the asset and know the country quite well as well.

Matthew Gordon: That’s true, and what about from their side, of their side of the delivery. I mean what’s the mining code like in these countries? tax, royalties…

Bryce Crocker: Well Tanzania’s well publicised they’ve gone through some changes which have been complex. I mean we’re working through the government with those we’ve said that we believe we have a mechanism where we point whereby we will operate within their existing mining laws and that can be done. Uganda is very much open for business very positive very welcoming foreign investment into the mining sector and obviously Colombia. And the case CCL. See Cobalt refinery is a strategic asset for the country. I mean it when trial committee was operating it was 10% of the country’s GDP approximately.

Matthew Gordon: And You need some reminder of the terms again. You’re gonna be 100% owners of M2 and ECobalt?

Bryce Crocker: Correct. Their plans of arrangement. So essentially they become Jervois subsequent

Matthew Gordon: And you haven’t inherited any risks liabilities and all of that?

Bryce Crocker: Not that I… other over and above what was already in M2Cobalt and ECobalt. But obviously we had detailed due diligence on both

Matthew Gordon: Right. Let’s just recap for investors. Your plan here is to partner for Cobalt copper be a mid-tier. You’re at that phase at the moment where you’re having to have a conversation… no, you are having conversations about financing because you potentially are quite close to…

Bryce Crocker: My background’s in lending and you start conversations early. I mean I want to obviously get the most competitive source of finance and took in this for example Idaho.  And part of that involves making sure that the banks can do their due diligence. You’re not forced into alternative providers that many REITs.

Matthew Gordon: So people when they hear that they make assumptions around dilution. Okay. So…

Bryce Crocker: I think, I mean obviously at some point in time once the DFS is finalised we will be raising capital to, as part of an overall financing package.  To go into production but that’s of a very different base as to where we are now. At that point in time we’ve completed a definitive feasibility study. There’s a debt package in place that’s confirmed because equity is almost in the last path of tips. And I’m also very straightforward I mean people will sit here and I’ll talk, because I could not use equity I mean I could stream, I could use royalties.

Matthew Gordon: But it’s still dilutive…

Bryce Crocker: I’m a simple person and I… shareholders don’t buy our company for me to stream out Cobalt exposure. I think that’s rubbish. I’m not scared of equity and I think that we do it at the right time. Obviously where everyone associated with the company is highly motivated, personally motivated by the value for share. So we’ll finance in a measured and appropriate way. But also not introduce because… Idaho is part of our story it’s not the only story. I’m not going to gear off the company and introduce too much leverage by being afraid to issue equity. but these is the pool of capital that’s open for construction equity is large.

Matthew Gordon: That’s true. And so you’re trying to, again correct me if I’m wrong, you’re trying to move the company from a small player where perhaps it’s got more risk associated with it you know with lower market cap, the ability to raise capital et cetera to survive. You know wherever we are

Bryce Crocker: The company’s survived for a long time it has been on the ASX for 50 years. I just think that I mean we wouldn’t have assembled the board and the management team we had if we were looking to not build out a significant operating company.

Matthew Gordon: Well that’s what I’m getting to I think it strikes me through reading through the various material that is out there about you, you’ve got the mentality of a bigger company.

Bryce Crocker: Most junior mining companies they don’t want to do this because they don’t know.

Matthew Gordon: It’s about survival right?

Bryce Crocker: Well but it’s also this is hard work building mines and constructing operations that’s three or four years of your life you’re not getting back in a part of the world is not adjacent to where you live.  But we’ve got a team that none of us have retired. Everyone’s rolled up their sleeves and got go right on the board and we’re going to make it happen.

Matthew Gordon: Well yeah. Okay. That’s the insider’s view and from an investor’s point of view and again, I’m focused on retail high net worth family offices here, they don’t necessary want to sit around for three or four years with the shares not doing anything. So why don’t you leave it with: Where’s the value coming from. What are you doing and what do you want people to think about when they think about Jervois mining?

Bryce Crocker: Yeah I mean I guess we’re obviously highly focused on shareholder value and it’s not shareholder value just in four years time. I think if you look at what we’re doing we’re creating something because it’s we’re also conscious at the end of the market what’s required. So we are undertaking a drill program currently in Uganda for example. So the PEA which comes out in North America we have to circular as a PEA due to the inclusion of inferred resources. We made a conscious decision not to spend $5M drilling out the resource to measured and indicated to support a higher classification on 43-101 studies. those funds are being redirected to Uganda because as a junior mining companies infill drilling a lateral resource there’s no news flow there that’s going to get our share price going. Uganda is highly prospective it’s the DRC geology crosses the border it doesn’t stop obviously on the boarder and the rock samples that we’ve had published in and you can see the numbers and it’s extremely exciting and that’s where as a junior mining company if I’m going to spend money drilling that’s where I’m going to drill because that’s where I’m going to get in the section that’s going to put a rocket under the stock and do things for retail and do things for us and be able to give us more flexibility. That’s a better use of shareholder funds. If you’re in a $50Bn mining company we would’ve probably spend it elsewhere but it’s at this end of the market. We have to be cognisant of what works from a capital markets perspective but also spending it in the right way insofar as we’re not just drilling for the sake of drilling we’re not promoters we’re not… These aren’t how Mary is that it’s just kind of getting thrown out there hoping that something sticks. There’s… we’re excited by what East Africa represents and I guess from a capital markets perspective we’re trying to create something that’s got some developed world assets stable secure generating cash flow. But you’ve also got for the equity investor and for us as owners of the business that East African upside where if you get it right you can make 10 20 times money or money returns which is what you need. I mean obviously people don’t invest in a company like Jervois they want to invest in a low risk 5%-10% return on mining invest we are going to invest in BHP and Rio. We’re all doing this because we think we can do exceptionally well and generate money on money returns. And essentially the owners of the business alongside us think likewise.

Matthew Gordon: Yeah. And you’ve done it before.

Bryce Crocker: We did it at Xstrata, together with I guess the quality of the team we had at Xstrata was profound. One of the best management teams I think that’s been around the industry and I had the good fortune to kind of sit on the coattails of that and of the quality of the team we’re assembling at Jervois. It’s not everything. The guys we… no one’s , we’re not  alchemists but if you get the right people in place have the right philosophical approach then good things happen and that’s our strategy.

Matthew Gordon: That’s great. Great summary, lovely to catch up with you and see you. I know you’re jumping on a plane tonight but when you come through London do come and see us. Love to hear more about things as they develop

Bryce Crocker: It’s great to talk to you. Thanks for the opportunity.


Company website: https://jervoismining.com.au/

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