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.
- 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
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.
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.
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
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.
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.
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.
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.
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/
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