Equinox Gold (TSX: EQX) – The Sum of the Parts Sets it Apart.

A graph of rising gold bars with a red arrow curving up them.
Equinox Gold Corp.
  • TSX: EQX
  • Shares Outstanding: 113.5M
  • Share price C$9.73 (29.02.2020)
  • Market Cap: C$1.1B

We recently interviewed Christian Milau, CEO of large-cap gold producer, Equinox Gold (TSX: EQX). CLICK HERE to watch the full interview.

Equinox Gold Corp.

Equinox Gold is a story most gold investors should be familiar with: it is the model of how to build a gold producer in a short timeframe. This gold producer has had a remarkable rise over the past 18 months. Its share price hovered around C$5 at the start of 2019 and rose to heights of C$13.54 this year.

However, this week has seen even successful gold producers, like Equinox Gold, have their share prices brought to a shuddering halt, and even drop back. Equinox Gold’s share price has fallen this week alone from C$13.34 to C$9.73; this has been a truly extraordinary and noteworthy week of panic selling of a commodity that has been traditionally positioned and heralded as a ‘safe haven.’ It seems that truism isn’t true.

Let’s try to look to the world before the Coronavirus and hopefully the world after it. I know that may seem like a casual, almost dismissive statement, but it is not meant to be. There is clearly great global concern about the near-term impact on society and business, and possibly in the light of the current media spotlight, a normal future seems implausible, but history tells us that we humans persevere, adapt and survive, and we will again.

So let’s look to the future, if we may.

Equinox Gold was listed around 2 years ago, with the prodigious Ross Beaty as the main shareholder; if you are familiar with the school of ‘Bet on Beaty Bets’ investing, it will be no surprise to see Equinox Gold doing so well. Its founding goal was to become a multi-jurisdiction, large-cap, low-grade, bulk-tonage gold mining company.

Assets

Equinox Gold has a promising portfolio of assets:

  1. Mesquite Gold Mine, a Californian project producing 125,000-145,000oz gold per annum with an AISC of US$930-$980/oz and a grade of 0.46g/t gold (exclusive of reserves)
  2. Aurizona Gold Mine, a Brazilian gold mine producing 75,000-90,000oz per annum with inferred Resources of 1.1Moz @ 1.98g/t gold (with an exploration upside) and an AISC of US$950-$1,025
  3. Castle Mountain Gold Mine, an under-construction gold mine with a PFS and production potential of 200,000oz per annum and a 16-year life-of-mine (LOM)
  4. A copper-focussed spin-out operation in the form of Solaris Copper Inc.

Our Interview

Milau covered a variety of topics. Equinox Gold’s targets have been well and truly delivered. Mesquite and Aurizona are up and running, producing at a reasonable scale with a good AISC. Castle Mountain should be ready to rock by Q3/20.

These have not been without their hiccups; after all, this is mining. Equinox Gold has, however, kept things simple and it is reaping the rewards. The portfolio is focussed. The management team has created a relentless mining business for low-grade bulk processing. Equinox Gold’s message is simple: make strong acquisitions, then get that gold out of the ground!

Equinox Gold's Corp.'s share price for the last year.
Despite a late tail-off, what a year for Equinox Gold!

Equinox Gold has a significant 11% insider ownership: another reassuring fact for investors. The management team has succeeded in attracting a diversified shareholder base since the last time we spoke with Milau.

Milau also discussed Equinox Gold’s spending strategy and his view on the gold macro environment. What does the outlook for the gold market look like for 2020? He states this is only the beginning of this new gold cycle. He is conscious it won’t all be plain sailing in the gold sector, but this is in the early stage of the turn (US$17T of negative-yielding debt, solid stock markets and slowing global growth). Is the best really yet to come? Gold investors will be breathing heavily and hoping for more.

Equinox Gold has no intention of being taken out, and why would it? The company plans to become a long-term investment opportunity that can last through several cycles. Equinox Gold has had great momentum for those seeking fast returns, but it now also looks supremely appealing to those looking for steadier returns. Could it be a dividend payer in the next 2-3 years? Milau suggest so, but that is a long way away, and markets change. Let’s focus on today. Can that share price continue to grow at the same rate?  

As a gold producer, Equinox Gold has the rising gold price working in its favour, should the price continue on its recent trajectory. Can the management team start to accumulate cash, given they have been buying ounces in the ground? We appreciate Milau’s pragmatic take on gold margins: Equinox Gold is not rushing to produce and there is no spike in production. Equinox Gold is managing a steady, structured increase. However, the markets often don’t reward pragmatism and sensible management decisions. They often prefer pie in the sky stories of twenty-baggers and miracle proprietary technology. The fact the market has latched onto Equinox Gold with such excitement is a testament to just how solid this project seems to be. 1Moz per annum of gold is impressive, but this degree of investor enthusiasm is rare to say the least.

To continue on this trend of growth, Equinox Gold will proceed to develop its current assets and look at new acquisitions when the time is right. On the 28th January, Equinox Gold announced a merger with Leagold Mining Corporation that will combine the companies, ‘creating one of the world’s top gold producing companies operating entirely in the Americas.’ This should position Equinox Gold even more strongly.

one of the world’s top gold producing companies operating entirely in the Americas

Equinox Gold has recently received Serabi Gold’s C$14M payment for the Coringa project in Brazil, as it targets becoming a 1Moz per annum producer.

As far as remuneration, one of our favourite elements of the story, Milau stated that Equinox Gold has continued with its directors’ remuneration policy of paying them mainly shares. Milau claims he hasn’t cashed any in yet, but we can’t see any reason why he’d want to.

A photo of a Seal with a sign saying 'yes.' The words seal of approval are written underneath.
We Are Big Fans Of The Equinox Story

Equinox Gold is an anomaly. It is an abnormal story of inspired management, favourable prices, excellent assets and, as is always the case in mining, luck. We expect Equinox Gold to keep delivering on its promises for shareholders; the team has shown us nothing to make us believe otherwise. No, they don’t pay us and no we don’t own any shares. In an industry of over claiming and under delivering, we see Equinox Gold as company that does what it says.

Company Website: https://www.equinoxgold.com/

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

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

A graph of rising gold bars with a red arrow curving up them.

Search Minerals (TSXv: SMY) – 10 Years: Anything To Show For It?

The Search Minerals Logo.
Search Minerals Inc.
  • TSXv: SMY
  • Shares Outstanding: 230.7M
  • Share price CAD$0.05 (21.02.2020)
  • Market Cap: CA$10.4M

We recently sat down to interview Greg Andrews, President and CEO of rare earths company, Search Minerals (TSXV: SMY). He answered a lot of difficult questions. Investors will need to watch the video to decide if they think he answered them well…

We discussed several topics, including:

  1. Rare Earths? What Are They And What Are They Used For?
  2. Raised CAD$20M, worth CAD$10M. What Happened?
  3. Struggling To Fill A CAD$500,000 Private Placement: Has The Market Had Enough Of Search Minerals?

This is an important interview for investors to watch, especially for its educational exploration of critical rare earth elements (CREEs).

Company Website: http://www.searchminerals.ca/

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.

The Search Minerals Logo.

Pan African Resources (LSE: PAF) – A Gold Producer That’s Movin’ On Up

A photo of Pan African Gold CEO, Cobus Loots.

We recently interviewed Cobus Loots, CEO of South African gold-producer Pan African Resources (AIM:PAF). CLICK HERE to watch the full interview.

A Decisive, Ambitious Team

One thing that has become very clear after conducting several interviews with Loots is that the Pan African Resources management team gets things done.

Mining is never easy. Mining in South Africa is even harder, but the management team consistently hit their targets.

Pan African Resources is well on its way to becoming a mid-tier gold producer. The team is targeting a solid 185,000oz of gold this year.

Loots ran us through the highs and lows of the last 6 months, including the recently released operational update.

The key highlights from the update?

  1. Pan African Resources is on track to deliver the full-year production guidance of 185,000oz.
  2. Group gold sales increased by 14.7% to 92,941oz (2018: 81,014oz).
  3. The Evander 8 Shaft Pillar project development is progressing according to plan, with steady-state production planned from March 2020.

We’re big fans of the tailings slant on the business because green is very fashionable right now. Some of the best companies we’ve interviewed recently have figured out a way to slot into the green narrative effectively.

Barberton Tailings Retreatment Plant produces a steady stream of gold, c. 25,000oz per annum, and the Shaft Pillar at Evander, an area of developmental focus in the near future for Pan African, could provide 20,000oz, rising to 30,000oz+ “in the years ahead.”

Pan African Resources is now mining more economically, courtesy of a strategy modification: mining at the shaft rather than at deeper levels. The result is an intended sub-US$1,000 AISC for the Pillar project. Solid numbers, and in line with the rest of Pan African’s other operations.

Elikhulu Tailings Retreatment Plant has had a mining feasibility study conducted that is now being independently vetted by a third party, with the view to expand it to a full feasibility study. Loots says it looks like c. 90,000oz per annum, with a 9-year life-of-mine, rising to 20 years with further resource modeling.

By utilising assets with existing infrastructure, Pan African Resources can keep costs down and get things going quicker. This is still a little way off but could be a good addition to the portfolio.

In terms of dividends, Pan African Resources recently released its first dividends for years. Loot states the company was recently one of the highest yielding gold dividend shares in the world, and that is the direction he wants to go in this time round. Let’s see how things turn out.

For now, it’s full speed ahead developing the projects, overcoming issues pertaining to jurisdiction, community and environment difficulties, and getting the share price where investors will no doubt want to see it.

Feel free to check out the full in-depth interview on YouTube. Don’t forget to comment and subscribe. If you have any questions for Cobus Loots, comment below!

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

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

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

A photo of Pan African Gold CEO, Cobus Loots.

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

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

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

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

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

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

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

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

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

We Discuss:

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

Click here to watch the interview.


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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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


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

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.

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

Energy Fuels: I need your clothes, your boots, and your uranium mill.

A picture of the face of the Terminator, Arnold Schwarzenegger, who wears sunglasses and holds a gun up.

If, like me, you are a budding investor, you likely spend hours each night scouring the internet for the latest and best opportunities to make money. From economic revolutions instigated by futuristic technology, to trade embargos plummeting the prices of certain commodities, the world of investment is a complex minefield, which incites fear and excitement in equal measure.

In recent days, a commodity that has captured my focus is uranium; certain American economic news regarding it has intrigued me, in addition to the international surge of attention towards climate change. Following national news coverage in the last few weeks, it has been impossible not to notice seething commuters warring with Extinction Rebellion protestors. What could possibly cause smartly dressed commuters to devolve into a primitive mob? The answer is the increasingly intense climate change debate.

A colour photo of a crowd of colourfully dressed Extinction Rebellion protestors holding a large green banner stating: 'REBEL FOR LIFE.'

This event was one of many occurring in England’s capital in recent months. Additionally, Greta Thunberg’s damning climate change speeches have navigated themselves into the centre of international discourse. An individual wouldn’t be nominated for the Nobel Peace Prize unless their cause was especially relevant.   

One of the key components of the raging debate is nuclear energy. Nuclear-based electricity production avoids carbon dioxide and other greenhouse gas emissions. However, it has been suggested radioactive gas can cause health issues to workers and individuals from communities surrounding power plants. Furthermore, the disposal of nuclear waste is an even more controversial subject, and if one so much as utters the words ‘nuclear weapons’ they can expect a flurry of opinions to be launched at them more explosively than the warheads in question.

One of the primary materials involved in nuclear energy production and military use is uranium. In the wake of a tsunami striking a nuclear power station on the shores of Fukishima, Japan, the energy sector held a review on reactor designs and safety procedures. The resulting financial and psychological tidal wave had a detrimental effect on the industry, one which it is only slowly recovering from. As a consequence, despite offering vastly lower energy costs, uranium seems to have reached a political and environmental impasse and demand has plummeted. When combined with a lingering sense of distrust generated by incidents in Chernobyl, Ukraine (1986) and 3 Mile Island, U.S.A. (1979), and its association with nuclear proliferation throughout much of the 20th century, I was beginning to view uranium as a commodity too contentious to consider investing.

A colour photo of the dilapidated Ferris Wheel in Chernobyl's infamous abandoned playground.

However, after conducting my own research, I have concluded it is an area that can bring big returns to patient investors. The macro story is positive and encouraging. There are billions of USD being spent building new reactors across the world. New technologies mean small, more mobile reactors are being commissioned by countries who previously would have found themselves priced out. High profile individuals are vocal in their support, from Bill Gates to Elon Musk, and the vast scientific community adds additional endorsement to nuclear power being critical to the energy solution. Our current energy sources are not sufficient to cope with a rapidly increasing population and I feel nuclear power can be a green, affordable solution. 

…many of the world’s largest uranium mines are in care-and-maintenance mode.

The Uranium Cycle: I’ll be back.

Uranium is fundamental to the production of nuclear energy. However, current uranium spot prices remain far below what is economically viable to mine and produce ($23.90 as of 31/10/2019). Such market activity has depressed investment. Most of the (≈50) remaining uranium companies are struggling to stay afloat; many of the world’s largest uranium mines are in care-and-maintenance mode (1). These cold, hard facts lead prospective investors to one conclusion: why on earth would I want to invest in uranium? The answer remains the same as any other investment: it can make you money if you play your cards right.

I have studied numerous articles detailing different investment approaches to goods experiencing a low equity price. To me, the most attractive attitude towards uranium investment is the contrarian approach. After recognising where uranium is in its cycle, and the potential for an uptake in the future, this method seems prudent.

However, I can’t exactly go out and buy large quantities of uranium for myself; I wouldn’t want MI5 knocking on my door in the early hours of the morning. A wise investment will require choosing the right companies to invest in.

From an investor’s standpoint, there are 3 crucial elements a company requires to instil confidence in me, or any other investor. If any of these aspects are missing, I think the company is likely to falter and investment should be avoided. 

Investing in uranium: the secret recipe

The three ingredients are as follows:

  1. An experienced management team who have a proven track record for every process: mining, refinement and sale.
  2. Sufficient liquid assets to enable the company to survive until prices take an upturn.
  3. A genuine asset(s), not something purported to be an asset (such as a licence) that in reality is more restrictive to a company than beneficial.

Energy Fuels, the leading U.S. producer of uranium and potential producer of vanadium, has all three, but, perhaps most interestingly of all, it has an ace up its sleeve that is likely to be a real game-changer.

An Experienced Management Team

Uranium is an incredibly complicated commodity to work with. From permits, licences, safety, legislation, regulation, transportation to refinement there are numerous difficulties, not to mention the difficulty of mining itself. The sale of uranium is also far from straightforward, because the buyers are utility companies with long buying cycles and complex purchase criteria. If a management team has not already been through this process from start to finish, they are learning on the job with my money.

A colour photo of Energy Fuels CEO, Mark Chalmers.
Energy Fuels CEO, Mark Chalmers

Energy Fuels has a management team with an impressive résumé. Their CEO/President Mark Chalmers has been involved in the uranium industry since 1976. His vast experience would impart confidence to most investors. As a company, Energy Fuels has been operating since the 70s, and has nearly 40 years of experience mining and refining uranium. I find Energy Fuel’s established industry-related relationships and experience with uranium production/sales impressive.

Sufficient Cash

The brutal nature of the current market has created a tough environment for uranium companies. Murmurs from funds surround the need for price discovery: the spot price for uranium will need to start increasing before they will invest meaningful cash into companies again. It seems clear to me that utility companies have complete control of the timescale of any potential uranium price uptake. In the meantime, if a company lacks the cash to maintain their facilities, they will not be able to survive.

Handily, Energy Fuels has $40-45 million to see them through until uranium prices rise.  In a recent interview with Crux investor, Chalmers expressed a reason for investors to be hopeful of a price increase in the near future.  Energy Fuels and Ur-Energy are hopeful their petition to the United States Government under section 232 and the subsequent announcement of a 90-day Working Group may bear fruit.   

If the group’s report is favourable to the nuclear industry, it is possible President Trump could subsidise U.S. uranium companies via tax breaks and other federal financial boosts, thus allowing prices to rise and profit to be made for investors who climb aboard while prices are still low. However, despite Chalmers stating he would be “shocked” if the government doesn’t rule favourably towards the uranium sector, the judgement currently resides in a realm of definitive uncertainty; the group’s report may not be completed this year as other events take centre stage on the U.S. political platform.

Genuine Assets

A company’s assets are an excellent indicator of if my hard-earned cash will be worthily invested. Energy Fuels have a portfolio they regard as ‘truly unique.’ (2). They have ‘more production capacity, licensed mines and processing facilities, and in-ground uranium resources than any other U.S. producer.’ Energy Fuel’s 100% ownership of numerous promising mines across Arizona, Utah, New Mexico and Wyoming gives them an excellent list of valuable assets.

Furthermore, in an interview with Crux Investor at the WNA, Chalmers explained the versatility of Energy Fuels. The company tries to ‘diversify,’ to ‘keep a strong balance sheet’ and ‘protect shareholders.’(3) The quantity of projects being undertaken by Energy Fuels helps reduce the risk of investment, as if one goes horribly wrong, there are plenty of alternative options to steady the ship.

The diversity of Energy Fuels is further exemplified by their status as the largest U.S vanadium producer. Vanadium has a variety of uses in engineering and redox flow batteries to name but a few. They also provide ‘low-cost environmental cleanup and uranium recycling services, including potential involvement in the EPA clean-up of Cold-War-era uranium mines.’ Investors can find their risk reduced because the company is clearly not a one-trick pony. Energy Fuels is not completely reliant on uranium.

The Game-Changer

When first mined, Uranium isn’t functional for nuclear energy or military use; it needs to be enriched to ≈20% for power and ≈85% for military use. The enrichment process requires the mined uranium ore to be processed in a mill. Energy Fuels own the only ‘fully-licensed and operating conventional uranium mill in the United States.’ (4). This means in the event of a uranium price increase they are the only company ready to go into production immediately. It also means that any competitor will be restricted at their leisure; companies will have to pay Energy Fuels for use of their mill, or face expensive shipping expenses to mills in foreign countries. Energy Fuels will also have control of the timescale of other companies’ uranium production. Chalmers has positioned the company strongly with an undeniable leg-up on the competition.

A photo of three nuclear cooling towers in action against the backdrop of a clear blue sky and a woodland area.

An Option I Could Seriously Consider

Upon conclusion of my research into the world of uranium companies, I have reached the conclusion Energy Fuels would be a potentially sensible investment. I don’t think any other American uranium producer comes close when the management team, business model, cash and bonus mill of Energy Fuels places them in such a commanding position. In the near future, I am likely to invest. I feel my money would be much better served waiting to grow with the sleeping giant of uranium than comatose in a bank account with less interest generated than a taxidermist’s dating profile.

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

  1. https://www.iaea.org/newscenter/news/uram-2018-ebb-and-flow-the-economics-of-uranium-mining
  2. http://www.energyfuels.com/
  3. https://youtu.be/uj1VG8V3igs
  4. http://www.energyfuels.com/white-mesa-mill

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. We provide paid for consultancy services for Energy Fuels. 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.

A picture of the face of the Terminator, Arnold Schwarzenegger, who wears sunglasses and holds a gun up.