Karora Resources (KRR) – Fundamentally, Delivering on Every Front

Karora Resources Inc.
  • TSX: KRR
  • Shares Outstanding: 608M
  • Share price C$0.54 (25.06.2020)
  • Market Cap: C$328M

Interview with Oliver Turner, SVP, Corp. Dev of Karora Resources. (TSX: KRR)

Karora Resources is one of the mining turnaround stories in recent years. In just over a year, CEO Paul Huet and his team have overseen a remarkable transformation. RNC Minerals, became the strong, consistent and commercially sensible gold producer, Karora Resources.

Today, it was the turn of Turner the impressive to sit in the Crux hot seat. Having previously interviewed Huet and the President of Karora’s Dumont division, Johnna Muinonen, we have great expectations for Karora representatives. He is a well-spoken, articulate professional.

It has been 12-months of consistently hitting deliverable after deliverable for Karora Resources, and there is a reason the share price of this gold producer has only been heading North. From the transition away from Nickel to gold, to the sale of its 28% stake in Dumont, to the elimination of the Morgan Stanley NSR royalty on HGO operations, to the acquisition of Spargos Reward in Western Australia to add some higher-grade feed into Karora Resources’ mill, there seems to be a rigour and thought to the planning, and management of market expectations.

The most recent corporate actions have been even more encouraging. The 1:4.5 share consolidation was done in the best interests of shareholders and tightens up the registry. Moreover, getting Maverix Metals’ royalty down to 4.5% on Beta Hunt gold production was an excellent game of chess and eventual negotiation, driving millions into the company’s bottom line.

We Discuss:

  1. 1:40 – Oliver’s Background & Experience
  2. 3:01 – The Turn-Around of Karora Resources
  3. 6:43 – Selling Dumont; Closed Deal?
  4. 8:53 – Outcome of the Maverix Deal: Expanding Shareholder Registry
  5. 11:13 – The Business Plan & Strategy Going Forward
  6. 13:37 – Higher Grade Discovered @ Beta Hunt: Implications & Plan
  7. 18:44 – Higginsville: Potential & Plans
  8. 21:22 – M&A In Other Parts of the World, A Consideration?
  9. 22:52 – Revised Resource Estimate Expectations
  10. 25:33 – Shaping Karora Resources: Discussions on Corp. Structure
  11. 27:45 – Discussions with US Generalist Funds: Thoughts to List on NYSE?
  12. 28:56 – The Future: End Game & Options

CLICK HERE to watch the full interview.

Matthew Gordon: Why don’t we kick off and tell people who you are and what, what your role is at Karora?

Oliver Turner:  I joined Karora just about a year ago around the Denver Gold Show which is round about my anniversary right now and joined as the Head of Corporate Development for Karora Resources and heading up investor relations in tandem with that.  And was brought in alongside Paul to help with the corporate turnaround of the Company, cleaning up the capital structure, bringing in new investors which we have been tremendously successful at in terms of changing the shareholder register and, and just executing on the plan that we had laid out for you and for the markets in the third quarter of last year.  It’s been quite successful. 

And that little bit of my background, I come into the industry from the mining engineering side of things and thereafter ended up over on the sell-side part of the business at an investment bank called JMP Securities where I worked for 7 years in equity research covering names in the junior side of the spectrum all the way up to mid-tier producers and got to know Paul Hewitt, our CEO very well than via covering Klondex mines which were his previous success.  And at JMP we had quite a bit of success while I was there in building companies of this size from junior producers into effective higher-margin, mid-tier producers. 

Matthew Gordon: Is it a Nickel company? Did you lay out a plan for what you needed to do?

Oliver Turner: Yeah, I think we’ve executed very well on the plan that we had laid out to the market a year ago, you’re right.  If you fast forward back towards just prior to the Higginsville transaction, this was a company that had a very exciting asset in Beta Hunt that had produced obviously some high-grade coarse Gold nuggets but had no real stable mine plan and also had the second-largest undeveloped Nickel deposit in the world in Dumont that had been sitting there for quite a while.  When Paul came in and, of course, our operator in Graeme Sloan and then myself, we had to focus this company on what we wanted to be and ahead of a strong Gold cycle we knew we wanted to be 100% focused on Gold so we’ve executed that corporate strategy with the divestment of Dumont which we announced earlier this year.   

We retained upside for our Nickel investors in the fact that we can get up to $48M on that sale but $11M into the bank right upfront, so that was very, very important.  We needed to provide a stable operating base so the acquisition of the Higginsville mine and mill was absolutely critical for providing a stable operating base and allowing us to consistently deliver production every single quarter while improving margins and provide that reliable resource base and delivery of production that has allowed for the next tier or quality of institutional investors to enter this story. If we’d had this conversation a year ago on camera, I would have told you we are around 8 or 9% institutionally owned at that period in time.  Today we are well over 55% institutionally owned and we have some of the best mining investors in the business owning our stock, the guys who got in early to very successful stories previously. 

On top of that, we also have significant investment by US and UK generalists which are now coming into the sector and seeing Karora Resources with what we’ve done over the last year in providing that stable base of operations, a cleaned-up capital structure and a top-tier board and management team.  We provide them with a very, very compelling investment thesis which they’re obviously enjoying the success of right now.  I think we’ve executed on that strategy very well.  And the last bit I’ll touch on which we did layout to the market, of course, was that focus on costs.  We had 4 remaining areas we wanted to focus on, royalties which we’ve obviously been very successful with and just transformed the future of this company.  The GNA top 20 vendors and then, of course, personnel. 

So, as you’ve seen our best report card, of course, is our quarterly performance and quarterly reports are all-in sustaining costs or continuing to decline, we continue to target that $1,000 US grants mark.  We’re very confident we will get there, that’s taken a lot of discipline and a complete overhaul of the prior business in order to arrive at where we are today.  It’s very successful.

Matthew Gordon: Do you think that was a fair price for what you off-loaded there, which is a significant Nickel project?

Oliver Turner: It is, and obviously the Nickel prospects and the offshore vehicle world are quite strong but let’s not kid ourselves here.  This is not an asset that we were going to build ourselves, that we were willing to dilute our shareholders for, you know, it’s $1Bn plus to build that asset.  We are not experienced-based metal producers, that asset belongs in the hand of a much larger company who can afford to put that capital in and doesn’t need to blow up their capital structure which we have very carefully repaired over the course of this year in order to build it. 

It is important for us that we did retain some upside on a potential future sale which we made sure that we did with that divestiture into Waterton and if you look at the actual sale price or the potential proceeds for Karora investors, the $48M is actually more than the entire 72 prior per cent had been divested for.  So, we believe those are very good, a very good deal for Karora shareholders and that capital being reallocated into our Gold projects will definitely drive strong returns.

Matthew Gordon: You know in the back of your minds, you’re not reliant on that in any way clearly but is there an expectation that something will come through?

Oliver Turner: Yeah, look the partners that now have the 100% ownership of the asset in Waterton are talking to other parties about a potential sale.  Much like we were, I mean its Nickel price dependent so when the Nickel price spikes more people come in knocking at your door when the Nickel price rolls over, they go away for a little bit. We’re confident that they will be able to move that project at least into the hands of somebody that will develop it but, more importantly, is that we get the cash upfront right now and any potential future sale we still get to benefit in.

Matthew Gordon: You both walked away with what you wanted but then there was a little kind of chink at the end there where Mr Eric Sprott walks in, I mean, what happened there?

Oliver Turner: Yeah, no we were very excited to have Eric increase his ownership and we’ve been working hard with him to find him a block of stock to increase his ownership.  Not only is he excited about the prospects of Beta Hunt but also our Spargos Reward, high-grade additional pit there and then let’s not forget that we have some extremely high grades also at Higginsville.  Both were with respect to the open pit, but also our Aquarius deposit so Eric wanted a large block of stock, we were trying to find it for him. 

That was sort of a natural fit, Mavericks were … you know they were a good counterparty to negotiate with over the course of this year but ultimately, of course, they are in the business of increasing their royalty portfolio and deploying cash into new royalties, so we were able to find a solution where the $13M was able to be sent to them from Eric Sprott’s purchase of those shares.  They get to go out and buy more royalties, they also get to participate in what I’m calling a bigger pie at Beta Hunt.  With this royalty now reduced, it’s incentivising us to explore more and also increase the economics for them as the deposit grows.  But at the same time, we’ve bought in a fantastic investor in Eric Sprott who now owns more and is excited to see what we uncover there.

Matthew Gordon: Do you expect him to be a long-time holder?

Oliver Turner: Yeah, absolutely, I mean if you listen to any of Eric’s discussions, he has a very bullish view both on Gold and Silver in this space and things further.  We’re just at the beginning of a very strong cycle in both those precious metals especially given the monetary debasement that we are seeing in the United States, so, we expect him to be there for at least allowing us to execute on our plan moving forward and we’re happy to have him.

Matthew Gordon: How do you view that cash that you’re producing now?

Oliver Turner: You’re absolutely right, we are producing strong free cash flow at these prices but it’s not just price-driven, it’s also the hard work we’ve put into reducing that cost profile across both assets, margins are improving, obviously, significantly and we want to make sure that while we’re, obviously, very excited about this Bull cycle but that we’re prepared for any downturn of the Gold price.  We don’t want these assets to be dependent on a certain Gold price in order to work, we want to be resilient through Bear and Bull markets so we’ve now well-positioned those assets under Graeme’s excellent leadership over there in Western Australia to be very resilient to metal prices moving forward.  We will generate free cash irrespective of the Gold price. 

How do we look at our capital balance now, I mean, capital allocation is something, where we’re deciding between, do we deploy on organic growth profile projects, do we deploy into exploration, are we out there looking in the market for other opportunities?  Again, we’re focused on being prudent stewards of capital, we’re not going to throw away dollars here and we’re not going on a shopping spree just for the sake of going shopping.  So, every dollar that we look to spend, we look at the potential return on that dollar and we make our capital decisions accordingly. 

We are very excited to announce, obviously last week, that we increased our exploration budget by 50%, $5M, and just for your viewers for some context there, West Gold was spending in the range of hundreds of thousands of dollars per year at Higginsville, due to the fact that that royalty was basically overlaying it for over 10 years so this was the largest exploration budget that both of those assets have seen in a very long time.  $50M deployed into both of them and as far as we’re concerned, given the success that we’ve had in the past and, obviously the recent announcement of last week, we think those are dollars very well deployed.

Matthew Gordon: High-grade Nickel, were you expecting to see that?  Those sorts of numbers?

Oliver Turner: Historically it’s really interesting looking at Beta Hunt, I mean Beta Hunt actually used to be two separate mines.  There was the Beta mine and there’s the Hunt mine.  Both of those mines were Nickel operations that were actually in place for over 40 years.  One of the massive advantages that we have at Beta Hunt is there’s over 400kms of infrastructure in place already and the announcements that you saw last week are actually a perfect example of us leveraging that infrastructure.  If you look at the cross-section in our second release, there on the Larkin Zone, we actually drilled off the Larkin Zone from a drift that’s been in place for over 30 years.  Not only do we have excellent drill base for exploration, but we also have these drifts in place for, basically, immediate mining or mining whenever we choose to do so. 

It’s been absolutely outstanding to have that infrastructure in place and now being able to take advantage of it.  With respect to the Nickel, the Nickel was obviously mined for an extensive period of time and our exploration and geological theory was always that the Nickel basically sat right on top of the Gold where we’re currently mining.  That’s been true in A-Zone and Western Flanks where we’re mining to the North of that Alpha Island Fault.  We knew, or we at least had the theory, that those Shear Zones that were mining very continuous economic free cashflow generating Shear Zone, irrespective of coarse gold, those Shear Zones would continue South of the Alpha Island Fault and that sitting on top of those Shear Zones would be this Nickel what we call, a Nickel Trough. 

Now that Nickel Trough called the 30C, which we announced last week, on top of that Larkin Gold Zone, is the first Nickel discovery at Beta Hunt in over 13 years.  So, we’re extremely excited about it.  Those will provide some pretty fantastic by-product credits.  I mean some of those intercepts were over 7% Nickel, that’s $1,000 a tonne rock, it will be meaningful going forward and we want to make that into part of our stable mine and production plan to further improve the costs that we’re already working on.

Matthew Gordon: Why not go chasing the easy, quick wins?

Oliver Turner: Yeah, absolutely, I mean if they’re easy I guess we’d all be doing it for sure but the big difference here is, is with the acquisition that mill last year and this is, you know, this is Gold price rally and agnostic here, let’s go back to $1,250 to $1,300 US grounds called.  The acquisition of that mill in Higginsville took our milling costs which were previously toll milling costs from AUD$45 per tonne down to AUD$29 per tonne and obviously in our last quarter we had a significant improvement on that as well so that has drastically changed the economics and the future of Beta Hunt.  Beta Hunt is economic and free cashflow generated at the average grade and what we are doing now is we are long hole stoping those entire Shear Zones which grade somewhere in the range of 2.8 grams per tonne, and we’re taking them out in the proper geotechnical sequence in which they should be mined, in making money, even if we never hit another oz of coarse Gold. 

Now, do we think there is more coarse Gold?  Absolutely.  Do we know where it occurs?  We know the setting it occurs in and we know that across those Shear Zones, there is 16kms of where this pyritic sediment crosses those shores on which is the environment in which that Gold drops out.  But it’s not a matter of if we’ll get the coarse Gold, it’s a matter of when we will get the coarse Gold and we’re taking things out in a proper mine plan.  We extract the entire Shear which includes the coarse Gold and at the front end of our mill, we have a gravity circuit in which we get 100% recovery of that coarse Gold.  This is a stable operation which is going to be economic without coarse Gold but all the coarse Gold that we encounter is, for lack of a better term, gravy on top and will go directly to our bottom line.  It’s a stable producing operation, it’s something in which institutional investors are very, very interested in.  Obviously, we have that very exciting coarse grade Gold kicker but we’re not going to go tunnelling just search for these nuggets.

Matthew Gordon: Higginsville, what’s the plan there? What are you going to be trying to deliver this year?

Oliver Turner: Higginsville has been absolutely outstanding, since we took off that and completely eliminated the Morgan Stanley net smelter return royalty, one of the impacts that COVID did have on Western Australia is that third parties basically weren’t coming to the site.  We were not … anybody that wasn’t mining Gold, wasn’t at either site.  So that did impact exploration drilling over the course of the North American summer.  We’re very happy to announce that we do have drills turning back at both sites, we have 2 drills on the ground at Beta Hunt, we’ll be adding another drill in the fall, we have 2 drills turning at Higginsville and we’ve also sourced another drill there.  But what we did do during the course of that drilling hiatus was we conducted a very large gravity survey at Higginsville.  400kms2, we announced this in our first release last week, of our 1,800kms2 land package and the area that we’ve focused on that was the Salt Lake area. 

The Salt Lakes are an area that, regionally speaking, some very large deposits have been found by Goldfields.  And in fact, our own deposit that we are currently mining, called Baloo, sits on the Salt Lake itself.  So this gravity survey actually identified some very large anomalies which could be analogous to some of those deposits, we’re going to do further work here and drill test them, of course, but there are definitely some very, very interesting exploration targets that we will be following up on this year.  Not only that but of course inheriting this property from West Gold who was unable to drill most of the property, we have a list of 32 round fields targets at Higginsville.  There is no shortage of targets, we have high grade, underground targets in Aquarius, we have high-grade open pits in areas such as Baloo and Fairplay North.  We have larger high grade, potentially lower mining costs projects like the Palaeo Channels called Challengers, so, there is certainly lots for us to work on. 

And recently we announced that we have already started mining Hidden Secret and Mouse Hollow which previously were actually 2 open pits and deposits which, based on the drilling that we did earlier this year before the COVID pause, actually have joined into one larger open pit and we’re hitting some outstanding grades on that.  We announced a hole that was 25g over 4ms, 17ms below the surface so definitely pay dirt and as is the case with most of these open pits in Western Australia, it looks like there will be underground opportunities under several of them as well and we’ll certainly be exploring that in the future. 

Matthew Gordon: Do you feel the need to mitigate the country risk? Do you feel the need to look outside of Australia, maybe deploy cash elsewhere or invest in other, outside of Australia?

Oliver Turner: Yeah look so we’re obviously very active on the corporate front as well as working on our own projects here given Paul and my experience in the capital markets where we’re shown a lot of assets and we’ve certainly looked at a lot of different companies and we’re only going to do things that will be per share created for our shareholders and we’re very, very focused on 2 things.  When we’re talking about our own projects, it’s margin per tonne of rock, when we’re talking about potential corporate additions it’s per share or creation and that is, the perfect example of that actually was the Spargos acquisition which we acquired for AUD$4M, unbelievably creative per share and we’ve actually already begun some development work there and we’ll be getting a drill turning there shortly with the target, of course, of getting some of that ore into the mill by the second quarter of next year. 

But in terms of diversifying away from country risk, I mean, the honest truth here is that Western Australia is the number 1 jurisdiction ranked by the Fraser Institute last year for mining in the world and what we are focused on corporately as a mining team and as a corporate team is not diluting the jurisdictional quality of our assets, so anything that we do look at will only be in top-tier or tier 1 jurisdictions.

Matthew Gordon: What are you hoping for?

Oliver Turner: Well, you know obviously we can’t talk numbers’, but we can certainly talk direction.  We expect things to move positively in the right direction.  There are definitely several levers that we can pull that will be positive for resource and reserve estimates at both assets.  Obviously, we’re in a dramatically different metal price environment right now.  That said what we’re seeing a lot of the industry do is remaining conservative on resource and reserve prices.  What we don’t want to do is add ounces at the cost of grade or margins, so we are margin focused.  One of the big, you know, basically accomplishments this year that will obviously play into our resources and reserves is those royalties.  Those royalty renegotiations have dramatically reduced the costs of mining at both assets so that will play into our resource and reserve estimates and then of course with the drill bit, we’ve had tremendous success at Higginsville, pre-COVID, hiatus and precautions, we’re back, the drills are turning again. 

We’re getting some good results coming in and then Beta Hunt, we already announced last week some of the initial success we’ve had there.  And when you take a look at Beta Hunt and the strike extents that we have drilled off there so first of all with the new Footwall Zone and Western Flanks North, 160ms of Footwall Strike Flank, looks like that can grow.  It’s immediately adjacent to infrastructure, once again, in very, very continuous.  When you look at the new Larkin Zone, which we discovered South of the Alpha Island Fault, we’ve delineated 400ms of strike extent and we think we can add another 300ms there and if there’s anything that we know about Beta Hunt it’s that the Shear Zones are extremely continuous. 

It’s very homogenous material, easy, stable mining so those areas will … if they don’t make it into this resource from reserve estimate, they’ll certainly be building to future resource and reserve estimates and one of the benefits that we have is what we did last year.  So, last year, prior to the kind of change in management, there’s a 40,000m drill programme that cost about CAD$7M.  It added 1Moz to the resource, so it goes to show how continuous the Shear Zones are, so we expect Beta Hunt to certainly replace depletion and we expect to add oz there as well.

Matthew Gordon: What are the things that you are discussing with regards to the corporate structure that you need to create?

Oliver Turner: Yeah, so we’ve already done a few of those things this year.  I mean one of the major accomplishments was, of course, was voted on by our shareholders and was the share consolidation of the 4.5 to one rollback that we executed earlier this year.  That has been transformative for our liquidity.  So, one of the important things to realise is that when you’re, when you have a tighter share structure and you become investment grade for a whole new slew of institutional funds, not only does it help bring new investors in which is what we’ve seen with US generalists but it also improves your liquidity.  Our market makers are more institutional now.  We’ve seen liquidity improve in volumes, improve since the day of that consolidation so that was, you know, a tremendous step forward in terms of repairing our capital structure and getting it into investment or institutional investment-grade quality. 

Obviously, we have our $32M worth of remaining debt.  We’re in discussions for renegotiating that debt and on more favourable terms and making sure that this is a leaner coupon company moving forward just in case metal prices do stress us further.  So, those are some of the areas that we’re talking about with respect to corporate structure and making sure that we’re better prepared.  In terms of generating market interest going forward, Paul has talked about it in some past interviews and we’ve been out there into the market, talking with the fact that we’re focused on building an organic growth profile. 

Obviously, it’s no secret there that we have some tremendous upside of both properties ahead of us and we have a 1.4Mt granite mill that is at a 100% capacity so how do we increase the oz output of that mill?  There are several things that we’re looking at internal projects right now.  We obviously have some extremely high-grade projects that we can pull from, from the mining perspective so we will be rolling out an organic growth profile to the market and attracting new investment that way down the line as well and that plays, obviously very important, into our capital allocation decisions.

Matthew Gordon: Do you think it would be at all beneficial for you guys to think about listing on the New York Exchange?

Oliver Turner: Well look, I mean, there are certainly arguments for that with respect to increasing trading liquidity, getting more market exposure, there are even arguments for listing on the Australian Stock Exchange.  Look we have a lot of Australian investors knocking down our door just begging me to get into the store for us to be Australian listed and you know, historically speaking, over the last 3 to 4 years the Australian market has been much stronger than the North American market.  But what we’ve seen over the course of the year, you know on the TSX has been an absolutely incredible Bull market both with respect to capital flowing into the sector but also with respect to foreign investors buying TSX paper so we’re certainly not closing the door on evaluating listing on other exchanges but we’re certainly very happy with how things have performed on the TSX and with the calibre of investors that we’ve attracted to this listing. 

Matthew Gordon: Have you got the energy to go another year or if someone came knocking, is it time to think about what they put on the table?

Oliver Turner: Well look, we’re very excited about what we have ahead of us in terms of what we want to execute this year, for sure.  We know that this company ultimately is going to be worth a lot more tomorrow than it will be today but obviously any imbalance that we have, we evaluate those for our shareholders and ultimately speaking we want to do what is going to provide the highest per share return for people that own Karora stock.  We’re all shareholders in the company ourselves so we’re directly aligned with our existing shareholders and you know, we’d love to execute on what we have ahead of us, ‘cause it’s going to be exciting, we’re excited to put it together and get it out there into the market and then deliver on it operationally as we have in the last year.  With respect to energy, I think we’re probably more excited now than ever.  We’ve built a very stable investible base in this company from the company that a year ago was, quite frankly, borderline un-investible so for institutional quality investors, so, we’re excited to move forward with that.

Matthew Gordon: Great stuff, a great turnaround story.  I appreciate your time Oliver, thank you.

Oliver Turner: Thank you very much Matt.

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

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Karora Resources (KRR) – Reduced Gold Royalty Frees Up Beta Hunt Mining (Transcript)

Karora Resources Inc.
  • TSX: KRR
  • Shares Outstanding: 608M
  • Share price C$0.54 (25.06.2020)
  • Market Cap: C$328M

Interview with Paul Huet, CEO of gold producer Karora Resources (TSX: KRR)

Hot on the heels of the announcement about the acquisition of Spargos and the proposed name change to Karora Resources.

Finally the news Karora Resources investors have been waiting for, a renegotiated royalty package with Maverix Royalty. Maverix has agreed to reduce the Royalty on Beta Hunt gold production from 7.5% to 4.75% from July 1, 2020. Karora will pay US$5M and issue 35.1M shares at C$0.506 to Maverix. The US$5M will be paid in two equal installments of US$2.5M million, one on closing and the second payment in January 2021.

Karora Resources had reduced work at Beta Hunt whilst negotiations continued. The royalty to Maverix, together with the state royalty totalled 10% making it less economically attractive than their other properties. The company had paid C$30M in royalties since it owned Beta Hunt.

With the reduced burden Karora Resources can start to mine again and the market will be hoping that it can once again find these course gold pockets which brought it to prominence. The economics at its average grade of c.3g/t is attractive, but the magic of the course gold is what captures the imagination.

The management has been very discreet during negotiations, but now are revelling in the opportunity add to their large ore pile. The relatively inexpensive ore sorter testing result should be imminent and should removed 20-25% of waste which will drastically increase the feed grade to the mill. More margin. The business is already throwing off free cash flow. The company has options. The questions is what will the new sequence and focus of operations be.

We Discuss:

  1. 2:19 – Maverix Royalty Renegotiated: An Overview
  2. 4:47 – Why Was the Renegotiation Needed and What Benefits Will Karora Reap from it?
  3. 7:35 – Deal Structure and Explaining the Multifaceted Terms
  4. 9:12 – Potential of Beta Hunt 1
  5. 11:00 – 4 Promises of Reducing AISC
  6. 13:18 – Plans for Dumont
  7. 14:27 – What We Say, We Deliver: The Future for Karora Resources

CLICK HERE to watch the full interview.

Matthew Gordon: Paul Huet, how are you doing, sir?

Paul Huet: Hey, Matt. How are you today?

Matthew Gordon:  Yes, good. Good. Long time, long time.

Paul Huet: Yes. It has been a couple of weeks, right?

Matthew Gordon: Exactly. It seems to be, I don’t know if you are in the mining business or the media business; you have got so much news coming out that you are everywhere. And this week’s news does not disappoint. Finally, some news about the Maverix negotiation. Tell us all about it.

Paul Huet: Yes, nobody could be happier than us. This has been a long time coming. We all know that this deposit has been saddled with an onerous Royalty for a very, very long time. It has always been one of our main objectives from the beginning; one of the things we said we would focus on to get that AISC down to USD$1000 p/oz is Royalties. And look, I couldn’t be happier today to say that, coupled with Maverix and Morgan Stanley together, Matt, we have reduced the Royalty in Western Australia, you have got to understand – we have got like 18,000 square kms here. We have reduced the Royalty in about a 6-month period by about 10%. We just reduced the Maverix one by 2.75%, but everything together at a 10% haircut in Royalty. Let me tell you what that could mean for us: a 10% reduction in this district here, at Beta Hunt alone, there was a Royalty there between Maverix, that everyone knows about – 7.5%, plus the 2.5% from the State. Look, we are all in this together in Western Australia. We are not going to get away from that 2.5% from the State. But let me share with you some of the numbers that we have paid since acquiring Beta, that 10% Royalty alone, we have paid off in excess of, right around CAD$29M, or about a little over AUD$30M.

Just to give you an appreciation of the flavour of the 10% that we have, it was impossible for us not to focus and fight for our shareholders. Look, this is a tremendous step for us and a way forward. We know have laid out the foundation. From the beginning we have said that we are taking control of this company. We will take control step by step. We will deliver one thing at a time. We will remain focussed and we will continue to tick the boxes. And we are doing that.

If you think of the upside of Beta Hunt. Let’s talk about what we haven’t been talking about; in 7-months, have you seen me talk anything about Beta Hunt? How many people have called me, saying, what’s going on at Beta Hunt? What’s going on at Maverix? It is time now. It is time. We owe it to our shareholders to start talking about this mine. We owe it to our shareholders to start drilling.

Matthew Gordon: Why did you feel you needed to do it? Weren’t you able to mine Beta Hunt anyway? Surely you are making money at these prices.

Paul Huet: Yes, look. What we are doing is thinking long-term, Matt. We can’t think short-sighted. When we have this deposit. We are currently mining on approximately 1km. This thing has 4 shears now. 4 shears that have about 4kms each. We have got about a 16km strike here. Think about that in your mind. The current resource that we have here today is based on that 1km. We have zones in the Fletcher, we have other zones that we haven’t discovered. We spent money in 2019 – recall – we spent about AUD$7M to drill. We added almost 1Moz. We added 1Moz. Imagine what this does to set ourselves up, and our shareholders, for the future. What we are doing to preserve cash, this is about, on its own a $47/oz reduction in AISC alone.

Now, when you just look at the Resource we have together, you say, that’s about a break even. But when you think, well, they are only on 1km, is there more coarse Gold here? Look, I’ll be the first to say it here: there has got to be more coarse Gold here. And I believe there is more coarse Gold here. Will we be able to predict it better? We need to mine it at a different rate. We could start exploring at different rates. We could start drilling here. We finally found a path that is mutually beneficial for their shareholders and ours. Now it is time to unlock this asset and really start drilling it and see what we can really do with this thing.

We have given this thing in decades. Now is the time for us to deliver.

Matthew Gordon: What I’m hearing is that it didn’t make economic sense for you to be doing anything at Beta Hunt whilst you were negotiating this. You weren’t making money. Is that what you are telling me?

Paul Huet: No. That’s not what I’m saying. That’s not correct. We were still making money. It is important that we, again, we don’t think it is short-sighted, we have got to think of, okay, if we have 1.2Moz today, we added 1Moz by drilling last year. We will continue drilling. If this thing is 3Moz, 4Moz, this thing is surrounded by deposits of 3Moz. Is there a reason to suggest it would be less? Of course not. It is only constrained by the drill bit. Unlocking this and thinking long-term, this is a win for our shareholders. Hands down. You can see it in the results. We are seeing institutions just love what we are doing and then buying it up saying, ‘Wow. You know what? These guys are delivering on all cylinders. They are doing what they said they would do.’

Matthew Gordon: I get it. But it has cost you money. Talk to me about the deal structure: why was it structured like that? It seems multi-faceted. Who came up with that structure?

Paul Huet: Let’s think of, again, let’s talk about what we have actually accomplished. Look, I don’t like dilution either. This was not dilution. It was accretive. This was the right ting to do for my shareholders. No matter what. When you think back and look in 6-months from now, you are going to look back and go, hmm, I may have been mad for 24-hours, but I see what the institutions are seeing. I see what management believes. I see what the board believes. And boy, this really did unlock a lot of value. They were kind of stuck there in quicksand. Look at them go now! Let them start drilling. Let them start announcing about Beta Hunt. Let the world get excited about Beta-Hunt again, because we have been excited about it, but then sitting here with muzzles on our mouth being unable to talk about it.

So, to me, it is a win-win. I will say one more thing: look, think back – 10% Royalty in a district like Western Australia, surrounded by ounces of Gold everywhere. USD$27M is what we ended up paying for everything, for all of these Royalties. For 10% Royalties. We paid USD$14M in cash. Don’t forget that – USD$14M. $13M for a strategic investor to come onside with us. And again, non-dilutive. Very accretive. Watch what happens. Watch us deliver. Again, I have been saying, we have had a strategy from day 1. We have been focussed. We are in control. And this is another bit of evidence that is actually very true.

Matthew Gordon: What is interesting to me is, because you haven’t been able to say anything to the marketplace some commentators, some retail have been going nuts because they see the potential at Beta Hunt. But by the sound of what you are saying and the enthusiasm you have shown, you know too what could be under there. Is Graham Sloan desperate to get back underground? Or get back on ground?

Paul Huet: Graham is ecstatic about this. He is so ecstatic about the opportunity. But I think there was always a disconnect in this; the more I market, the more I understand about the company since I have been CEO, I don’t think people fully appreciated the onerous Royalty we have had at Beta Hunt, Matt. 10% Royalty. Just think about that – a 10% Royalty. We paid, I just told you the number, we paid CAD$29M for a 10% Royalty. We have now removed that full 10%. Not all at Maverix. But at 10% there. We have paid that since we have owned Beta Hunt. Just think of how onerous that can be. People I know didn’t appreciate or understand. When we talk about it, I go into meetings and people go, ‘Well, I had no idea it was 10%. I didn’t know it was like that.’ They remember the coarse Gold. They remember that. We certainly believe there is more coarse Gold, but we have to set this up for long-term and we have to make it work at the average grade. When you start looking, if this thing goes to 2Moz, 3Moz, it will be at that average grade, there will be pods of this coarse Gold included in it. Now, that coarse gold won’t be penalised with that extra 2.75%, nor will the average grade. Again, opening up so many opportunities for us and look, I just can’t wait to see what happens over the next 6-months.

Matthew Gordon: When we met in Toronto you made 4 promises to me: you said you were going to take care of Royalties, and three other things. Can you remember?

Paul Huet: There were 4 things that I promised that we would do to reduce AISC. Royalties – number 1, I said. Done. Again, trying to find any company in the last 6 to 9-months who has been able to approach 2 different companies, reduce the Royalties commitment by 10% in such a jurisdiction, by the way. Don’t forget where we are. We are in the number 1 jurisdiction in the world. Royalties – number 1.

2. Top 20 vendors – we said. We are going to approach top 20-vendors. We have done that. We are now working down the list, actually. We said, we were so successful. That was so successful, we got anywhere form a USD$40 to a USD$60/oz saving in that. It was because we now have a balance sheet. We now have a mill. We have a strong operating team. People believe in us. We were able to negotiate different contracts with vendors. They are not worried about not going paid, like Beta Hunt was going bankrupt before the discovery of the Father’s Day Vein (FDV). Those same vendors are the same ones that we have to use, so try to knock on their door where you have got a guy who supplies tyres for your scoop, and says, ‘Last year you didn’t even pay me!’ Today they are like, ‘You are one of our favourite partners. You pay us on time. In fact, I’ll give you a 3% discount.’

So it was Royalties. It was vendors. It was personnel. Look, I can’t tell you how proud I am of Graham and the team over there. What they have done in Australia, with the new management team, with the whole new team behind them are following, we have reduced the turnover rate, we know, by 87% down to 16%. We have improved productivity rates by about 30%. We have improved mill efficiency. Every metric you look at has been improved. That has a direct impact on our All in Sustaining Costs as well.

The 4th one that I have always been focussed on has been G&A. And I am still focussed on it. We have reduced G&A significantly. There is still more room. I don’t think we are there yet and I am not satisfied with it. We will get to that USD$1,000 p/oz.

Matthew Gordon: I think people have now see you, since you have arrived, as a Gold company. You still have a Nickel component in there. Are you going to be able to do something with that at some point? Is that a focus or have you just forgotten about it?

Paul Huet: We have been very, very focussed on a lot of other things, as you know. Simply put, at this stage we still own 28% of Dumont. When you look at our share price. I don’t think that myself personally, that there is any value there. We have to find a path or a solution to create some kind of value. Is that perfectly mapped out? No. Is it something we are working on? Absolutely. We will continue to find options. We have been so focussed on getting these other things done in Western Australia and covering ourselves for laying the foundations for this company, to really unlock the value and really start being a top-tier Gold producer. Our next steps are really going to be increasing Gold production here.

The Nickel asset, at some point in time we will find a way to create value for our shareholders. It is that simple.

Matthew Gordon: And I’ll just kind of finish off here because you have had a succession of things that you have done; you have really taken control of this company. It is a company that is in your own vision now, I think. You have done the name change – great. There has been talk about becoming a Gold company. You have done that. You have talked about reducing costs. You have done those things by addressing costs in a rising Gold price environment – nice. You have also got the luxury of cash now, which your company didn’t have a year ago. So that has given you optionality. I still haven’t forgotten about ore sorters. I haven’t forgotten about potential M&A. I haven’t forgotten about all of this exploration that you have talked about doing. You must be pretty excited about the rest of this year? I mean, after what was a horrific start, yes?

Paul Huet: Let’s just go on your momentum here about taking control. Let’s think about this strategically here. And that’s the way we have been thinking about it from day 1. We said, where does the company start? Where does any company start, Matt? It starts with its shareholders. That is where we have an obligation; me and everyone else. We have an obligation to our shareholders. We have attracted institution after institution. We have more than 18 new institutional shareholders supporting this stock. The next the in the puzzle is the board; what have we done? We have made tremendous changes to the board. We now have a board that is made up of a very strong team of executives, that is focussed on what our strategy is with respect to Gold.  

Our executive team- next thing. New CEO, new CFO – Graham and his team – you can never, ever underestimate the value that Graham and his team bring to this table. They are essential to our success. When you start ticking boxes and you start thinking, okay, then the buy the mill. Then they do the financing. Then they start production. This company was a Nickel company when I took it over! You know, when I did my own due diligence, I met with people, institutions, and they said, well, Paul, I’m not sure of the focus, of the strategy. First it is Nickel. Then it is Nickel-Cobalt. Then it is Nickel-Cobalt-Gold. Until you grow up and you figure out what you want to do, then I don’t think I can invest in your company. We are full stop a Gold company and we are focussed on that. We have a Nickel asset that we will find a way to create value with, but look, we are heading in the right direction. We are ticking off a lot of boxes to set ourselves up for the future to create some organic growth.

Spargos is a great way to create some bolt-on growth. That is proceeding extremely well. Our due diligence is coming well, in fact, our numbers actually appear to be better than some of the numbers that we saw from the original group. The resource is coming together really good. The grades are being supported. I have even seen some of the initial work that has higher grade. I am very excited about that closing because that creates optionality for us. That leads us to one technical problem that I have: what’s the technical problem? 30 years I have been mining: Newmont, Kinross, Great Basin Gold, Klondex. I have never, once in my career had the problem of having too much ore. This is the greatest problem a CEO can ask for. I got too much ore – what a problem! It’s a technical issue. Will we overcome it? No doubt. We will overcome every technical issue. We will find ore sorters, or we will upgrade the mill. Having the problem of having too much ore at the mill – I have always had the reverse. I have had a phone call at 6 in the morning where someone says, for every company that I’ve worked for, ‘Hey, there’s no ore in front of the mill.’ We are going to have to make a toll-milling agreement because we can only feed the mill at 60%. We are in a great position. Spargos provides us with optionality, provides us grade. We just need to finish that up and it is going extremely well.

Organic growth is coming. We have seen it at Higginsville. Look at the success we have had at Higginsville. Now let’s unleash the beast at Beta Hunt and see what happens.

Matthew Gordon: Paul. I’m excited. I kind of feel that you should run for President, because I would vote for you. It’s fantastic. Very excited about what you are doing there. Very excited.

Paul Huet: You can’t not be passionate about this. How could you not get passionate about what we are doing? How could you not believe in it? We are just keeping our heads down, we are delivering, we are answering all calls. We are making sure that we tick those boxes that are so important for our success.

Matthew Gordon: That has come across loud and clear. I joked in the beginning that this has got continuous news flow. And it is good, positive news flow. You have got a very aggressive drive to turn things around there and I think you, well, this is no longer about a turnaround story; I think that’s gone. That ship has sailed. This about building a mid-tier business with a lot of optionality.

Paul Huet: This is Karora Resources, Matt.

Matthew Gordon: Yes. It’s fantastic.

Paul Huet: This is about Karora Resources, yes.

Matthew Gordon: Okay, Paul, I had better let you get on with your day. Did you celebrate Canada Day yesterday, being Canadian?

Paul Huet: Look, I’m a Canadian. I can’t help but celebrate it. But I still came to work because I am in the US.

Matthew Gordon: I was trying to work out whether you could take Canada Day and get 4th July in?

Paul Huet: Let’s face it, let’s be honest here, Matt, I’m the CEO of a Gold company. I work 7-days a week; it doesn’t matter – Canada Day, it is irrelevant – you work 7-days a week as the CEO of a Gold company. And that’s okay. That’s my life and I have accepted that. I’m thrilled with what we are doing here.

Company Website: https://www.karoraresources.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.

RNC Minerals (RNX) – Share Rollback Clearly Good for Retail Shareholders

RNC Minerals
  • TSX: RNX
  • Shares Outstanding: 608M
  • Share price C$0.57 (23.05.2020)
  • Market Cap: C$347M

Matthew Gordon Interviews Paul Huet of RNC Minerals, 14 May 2020

It has all been enabled by solid gold production numbers and the resulting cash. And it hasn’t happened by accident, or just because the price of gold has risen $500 in the last 8-months. This turnaround story, led by CEO, Paul Huet, has happened by design and rigorous planning.

Exciting Moves

The recent news flow is also by design and rigorous planning. Some exciting moves by the company; buying back of the entire Morgan Stanley Royalty; the acquisition of Spargos Reward; a name change; and a rollback. Shareholders are being asked to vote on these in June as they require shareholder approval.

Not that we can imagine why shareholders would want to contradict the companies recommendations, we thought we should look at the moving parts again.

Morgan Stanley Royalty

RNC Minerals has managed to eliminate the Morgan Stanley royalty that has stood for decades. This move is worth tens of millions to the bottomline, and this should have a truly transformative impact on the company’s ability to profitably fill the Higginsville Mill, which is the name of the game.

Spargos Acquisition

A group of four mining workers stand proudly in front of a huge hunk of gold ore.
Beta Hunt Coarse Gold

The Spargos acquisition is super smart. It adds higher-grade ounces to the RNC feed for their mill. It also signals to Maverix that the negotiation on their Beta Hunt royalty just got serious. RNC Minerals has all the feed it needs for several years and is happy to play the waiting game. Beta Hunt is a significant proportion of the Maverix revenue. And it hard to see how RNC Minerals makes money mining their under the current royalty agreement with Maverix Metals. Maverix needs to come to the table with a reasonable offer or be prepared to write down its revenue forecasts from Beta Hunt for the foreseeable future. Tough play by Huet, but absolutely in the interests of the company and shareholders as always.

Karora Resources

The name change is a no-brainer. Institutions and gold funds still think of RNC Minerals as the Royal Nickel Company. Why, I don’t know, but they do. We’ve had those conversations ourselves. I don’t care what the new name is and to focus on it is to miss the point. Huet has instigated wholesale change in the company. It is producing gold; it has a mill; it has c.$40M cash; it has removed a large royalty component to costs; it has replaced the operational team; reduced costs; reduced AISC; consistently delivered ounces through fires, floods and COVID-19; it has made cheap accretive acquisitions; I can go on and on. The point is it has been all-change throughout the company, and it’s time for Huet to put his stamp on the things. I’ll give him this one without missing a beat.

Share Consolidation

In addition, a share rollback is what investors have been waiting for. For savvy investors this isn’t a case of why, but why haven’t they done this sooner. This move, if voted through transforms the company from junior to mid-tier territory. It is especially good for long suffering retail investors. Why?

US Generalist Funds cannot invest in penny stocks. The roll back removes this barrier and opens RNC Minerals up to significant global trading accounts. Finally! And as a +100,000 oz producer, it gives the company a capital structure in line with the piers it aspires to compete with. Perhaps this next reason is a little forward looking, but not out of line with current aspirations for the company, should the company be in a position to look at M&A in the US, and potentially a listing in the US at some point in the future, it takes them past the required $3 barrier. But perhaps the biggest component which is often forgotten, by retail investors in particular, is the ability to use margin.

Prior producer consolidations have all been well received. Companies who have successfully consolidated: Americas Gold & Silver, Endeavour, Eldorado, Equinox, Golden Star, Leagold, Teranga, TorexGold. Verus Peers the average performance metrics look good:

+26% 6-month; +44% 12-month; +32% 24-month

Other important factors to consider in another article are:

  1. Improved per share metrics – greater analysis accuracy, better financing pricing, lower commissions for those charged on a share basis
  2. Institutional / Banker / Broker support – these guys want a rollback so they can support the stock
  3. Increased institutional investment eligibility – gets company out of the penny stock territory and into significantly increased liquidity
  4. Increased institutional investors should reduce shorting
  5. Current gold bull environment is positive

If you are a shareholder, first of all congratulations, this company is finally going places. And secondly, my take on the shareholder vote is show confidence in the CEO who has turned this ship around and vote with the company and its recommendations and look the future because it is bright.

Company Website: http://www.rncminerals.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.

RNC Minerals (RNX) – An Eliminated Royalty And An 11:1 Rollback: Exciting Times Ahead?

The RNC Minerals Company Logo.
RNC Minerals
  • TSX: RNX
  • Shares Outstanding: 608M
  • Share price C$0.50 (14.05.2020)
  • Market Cap: C$301M

Interview with Paul Huet, CEO of gold producer, RNC Minerals (TSX:RNX).

We’ve covered RNC Minerals with detailed investigative articles for much of the last year. Make sure you check them out.

It seems like we just got off the phone with Huet! The gold producer has been hitting it out of the park recently with good news after good news. This latest update could top the lot…

RNC Minerals has managed to ELIMINATE a royalty that has stood for decades and this could have a truly transformative impact on the company’s gold mining economics.

In addition, a share rollback could be just what gold investors have been waiting for, but why has it taken so long? Why not earlier? A crucial watch for gold investors.

We Discuss:

  1. Morgan Stanley Royalty: Timeline, Terms and Possibilities
  2. Share Consolidation Proposal: Reasoning and Shareholder Benefits
  3. What to Look Forward to Next?

CLICK HERE to watch the full interview.

Company Website: http://www.rncminerals.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.

The RNC Minerals Company Logo.

RNC Minerals (TSX:RNX) – Will A Name Change And A New Asset Propel This Gold Producer Forwards?

The RNC Minerals Company Logo.
RNC Minerals
  • TSX: RNX
  • Shares Outstanding: 608M
  • Share price C$0.50 (14.05.2020)
  • Market Cap: C$301M

Interview with Paul Huet, CEO of gold producer, RNC Minerals (TSX:RNX).

RNC Minerals has been some turnaround story. The gold producer has been in top gear for the last 12 months, and this is mainly down to Huet’s excellent stewardship.

We’ve covered RNC Minerals with detailed investigative articles for much of the last year. Make sure you check them out.

What is Huet’s latest update? The gold producer had excellent Q1/20 results, and now a name change is on the cards, as RNC Minerals looks to shed its legacy issues. RNC Minerals is a nickel company no longer. Gold is the order of the day, and lots of it.

In addition, the new gold acquisition, Spargos, could be an absolute game changer. 2020 could have a hell of a lot to offer for gold investors.

We Discuss:

  1. RNC No More: Name Change Announcement
  2. New Acquisition: What Do They Know and When Will They Have News on the Economics
  3. 2020 Plan: What’s to Look Forward to?

CLICK HERE to watch the full interview.

Company Website: http://www.rncminerals.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.

The RNC Minerals Company Logo.

RNC Minerals (TSX:RNX) – I watch the ripples change their size (Transcript)

The RNC Minerals Company Logo.
RNC Minerals
  • TSX: RNX
  • Shares Outstanding: 608M
  • Share price C$0.50 (14.05.2020)
  • Market Cap: C$301M

Interview with Paul Huet, CEO of gold producer, RNC Minerals (TSX:RNX).

RNC Minerals is a great turnaround story in the gold space. CEO Huet returns to talk us through the latest updates for the stable gold producer with exploration potential.

After becoming a much less nickel-focussed company, RNC Minerals could now have a name change to match. RNC Minerals could become Karora Resources (TSX: KRR). This is dependent on shareholder approval, but he claims that shareholders have been keen on a name change for a long time. RNC Minerals has been suffering from some legacy issues when it comes to marketing, and this appears to have put off some of the larger funds. Huet had already wiped then strategic plate clear, but now the name change could be the final step to clearly communicate the new value proposition that RNC Minerals has to offer. RNC Minerals may be completely separated from its confused, nickel-focused heritage. This is precise, focused marketing, and Huet sees it as a long-time coming.

Away from the new name, RNC Minerals has been busy working on a new acquisition: Spargos. RNC’s heightened cash flow and the Morgan Stanley renegotiation have allowed RNC Minerals to look at potential M&A much more actively. Huet sets an aggressive timescale of Q4/20, but a realistic timescale of Q1/21. The company has just signed a “definitive agreement” on Spargos, and it is just c. 45km from RNC’s plant. This gives the company 90 days of exclusivity. He claims that while the company still has to conduct its final due diligence, but the veins in the resource are a higher average grade than their underground Beta Hunt mine (excluding coarse gold). There are over 130,000oz in the resource that are over 4g/t. It’s looking like an average 3g/t grade in an open pit. RNC Minerals is now much less reliant on Beta Hunt, and this matters for shareholders. Huet thinks Spargos could have a transformative impact on RNC Minerals’ economics. The proximity to the mill is another game-changer.

Has this opened a lot of doors for RNC Minerals? Will the optionality increase the share price? Will Higginsville operations get ramped up now?

What did you make of Paul Huet? Is RNC Minerals a stock you’ll consider in the near future? Comment below: we will respond to everyone.

We Discuss:

  1. RNC No More: Name Change Announcement
  2. New Acquisition: What Do They Know and When Will They Have News on the Economics
  3. 2020 Plan: What’s to Look Forward to?

CLICK HERE to watch the full interview.

Matthew Gordon: Hey, Paul, how are you doing?

Paul Huet: Hey, Matt. Long time no see, right? Is it two days now?

Matthew Gordon: It must be all of two days. But you have some news? I don’t know why you couldn’t have told me on Friday, hey?

Paul Huet: Well, look, I said we’d talk soon, on Friday, I remember saying that and then hanging up and kind of chuckling in the background, anticipating that we would likely talk on Monday. It is good to see you again and we have got some very exciting news.

Matthew Gordon: Yes. There are 2 things that we are seeing here: we are seeing a name change and an acquisition. First of all, the name change: what are you proposing that you are going to call yourselves?

Paul Huet: Yes, look, Matt, we ran an internal process and we have come up with a new name – Karora Resources. More importantly, this is something that we have been working on for a significant amount of time now. Back when I joined the company as CEO, we started saying our strategy would be different. We didn’t want to neglect or underestimate that we still have our Nickel operation in Quebec, but the fact is that we laid down a strategy and we said to the market, and to the street that we are a Gold producer.

One of the things we learned as we were marketing is that we were being dismissed by some of the larger funds, actually. When some people were looking at registers, I actually went to the Indaba show in Cape Town, and I had 2 guys walk up to me, and the said, ‘Look, we presented to you, we had no idea you were a Gold company, because it comes up as RNC – Royal Nickel.’ So it was a bit of a disadvantage for someone who doesn’t know us.

Rebranding has always been part of our strategy. I have been saying now for months; the only thing that hasn’t changed is the name. Well, today, you see a new name and the same similar focus. I will say that the precise focus that we have had is still going to be maintaining following through with our strategy. So, new name – long time coming. Exciting. And I am very happy about that.

Matthew Gordon: Karora Resources – how are you spelling that? How are you saying that?

Paul Huet: K A R O R A. And the ticker is going to be KRR. Now, Matt, look, I don’t want to get ahead of myself here; it still needs shareholder approval. We are going to announce this. It is going to be included in our management information circular. It is going to be voted on by our shareholders, they have to vote on it. But clearly, we have been hearing a message for some time now, from even our shareholders – when are you going to change this name? We are not a base metal company, we are a Gold company.

Matthew Gordon:  Okay, so it still has to be voted on, but you are saying that you have changed everything else in the company, this is the final piece of the jigsaw for you, and you think that it will probably help people who have seen you as a Nickel company in the past to understand what you are. Okay. Well, look, good luck with that. I can’t wait to see the designs and whatever else you do. But it sounds like it is much in demand.

The second one – slightly more important to me because you guys, and I have been saying this for a while, you guys are now throwing off a lot of cash – a lot of free cash here. And it is giving you a lot of optionality, especially since you did that Morgan Stanley renegotiation. We talked on Friday about the exploration optionality that you have, and you have got that, especially joining up a couple of these zones that you are looking at. So, great optionality for you but you have also gone and decided to go and do something else with your money.

Paul Huet: Yes. Look, perfect timing, new name; Karora Resources, a new acquisition. Look, we have made a definitive agreement on an asset that is 45kms from our plant. It is a great opportunity for us in the fact that, look, we have an asset that is 45km from our mill, the grade in the resource that they have, look, we signed a definitive agreement, we have still got to conduct our final due diligence. But the grades in the resource are higher grades than are underground at our Beta Hunt mine. Now, that excludes the coarse gold. But I am talking about the average grades. So, this provides us with more flexibility. In fact, there are over 33,000oz in this resource in Spargos. Spargos is the name of it, that’s over 4g/t, so we are talking about an average grade of, say diluted, in a 3g/t, in an open pit. Open pit is cheaper, hands down, mining than it is going to be underground.

We have been saying for months now; we have been saying we have a strategy on reducing our costs. How are we going to reduce our costs? We said we are going to focus on 4 things. We clearly demonstrate that behind the scenes, we are fighting for our shareholders, we are going to create some optionality via that mill. We are so much less reliant on Beta Hunt and that matters to us and that matters to our shareholders. If we want to turn on more at Higginsville, and this property here could, look, if we really are really aggressive – let’s call it Q4/20, realistically, probably Q1/21, what does that mean? It means that 2021, our plan, once we execute this thing and we sign this thing, our plan is going to be significant and we will have the flexibility – it will be significantly different than what it is today where we are not so reliant on Beta Hunt.

So, at the end of the day, this thing here opens a lot of opportunities for us, never dismiss that grade, that high grade. Open pit, nearby our plant, you know, you talked about cash, but owning that mill in that district and that area, really provides us that option. We are the nearest player to that asset. It made a lot of sense to us to acquire that asset.

Matthew Gordon: How much data do you have? When do you start to understand how much money you are going to be able to make by putting ore from there, Spargos, into your mill?

Paul Huet: Yes, so look, by signing this definitive agreement, we have given ourselves a 90-day exclusivity period. The truth is that this definitive agreement is buy-in, we have obviously done some work behind the scenes. We are going to refine that work. Our hope is that we can get to site. We want to get to site so that we are seeing a bit longer exclusivity period. With a thing this size, you wouldn’t normally see a 90-day exclusivity period. I think with Higginsville, we closed that in a quicker timeframe. The intent here is to give us the time that we need to get to site ourselves and some of our people in Australia, and then drill down into the numbers.

Look, let’s face it; last quarter, at Beta Hunt, we were, call it 2.6g/t, 2.7g/t, this thing could be 3g/t or higher, in an open pit, open pit costs are cheaper than underground; it is that simple. The average grade of this is higher grade. The Gold price is the same. The recovery; we are going to find that out during our complete due diligence but the test report suggests that we are going to get very good recoveries on this. This is really a no-brainer for us and our shareholders; creating optionality and a very good use for some of that cash that we have.

Matthew Gordon: That’s what this is about. I think that shareholders, and certainly the conversations that we are having with our subscribers and followers is that they are wondering what you are going to do with all of this cash this year. And I guess you are staring to answer those questions. You are buying up cheap Gold in the ground, you are looking at exploring your current assets and seeing what you have got there, and all towards the end of feeding your mill so you are in control of the costs there. All of that is pretty exciting.

Have you got much more to look for this year or is it going to be just all exploration?

Paul Huet: Look, we have still got our heads down on some key initiatives here. We remain steadily focussed. Look what we have done in the last 7 to 9-months; turning this whole company around. You know, I think we have still got some excitement in front of us and look, our drill bit; that program needs to unleash some really spectacular results.

Matthew Gordon: Okay, okay. Well, look, thanks very much for the update; I know it was a quick one, but it was very interesting. I like the name change. I think it adds that freshness to the story when it is not under duress; you are not doing it under duress. You know, acquisitions with the cash; you are creating more dollars – you know, $1 equals more than $1 when you do that, so I think that is great.

Keep it going, buddy. Nice story so far. I hope it continues for you.

Paul Huet: Thanks, Matt.

Company Website: http://www.rncminerals.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.

The RNC Minerals Company Logo.

RNC Minerals (TSX: RNX) – Ooh na na, what’s my name? (Transcript)

The RNC Minerals Company Logo.
RNC Minerals
  • TSX: RNX
  • Shares Outstanding: 608M
  • Share price C$0.50 (14.05.2020)
  • Market Cap: C$301M

Interview with Paul Huet, CEO of gold producer, RNC Minerals (TSX:RNX).

Hot on the heels of the announcement about the acquisition of Spargos and the proposed name change to Karora Resources.

RNC Minerals has agreed to pay $9M (30% $2.7M immediately, the remaining 70% paid over 30-months $1.26M every 6-months). The Morgan Stanley royalty elimination is a highly accretive transaction. The 2% + 1.75% NSR buyback effectively lowers the mining cut-off grade. The Morgan Stanley royalty covers ~2/3rd of the 1.22Moz historic M&I Resource (18,790 kt @ 2.0 g/t) and 0.68Moz historic Inferred Resource (10,634 kt @ 2.0 g/t) at HGO as well as large portions of our exploration targets. This is a significant move. And the resulting contribution to the bottom-line will be felt for years. We calculate it to be in the tens of million of dollars.

In addition this week RNC Minerals is proposing a share consolidation. 11:1. We discuss why and why not sooner.

And welcome to new addition, Roger Huet….

We Discuss:

  1. Morgan Stanley Royalty: Timeline, Terms and Possibilities
  2. Share Consolidation Proposal: Reasoning and Shareholder Benefits
  3. What to Look Forward to Next?

CLICK HERE to watch the full interview.

Matthew Gordon: Hey Paul, how are you doing, Sir?

Paul Huet Hey, Matt, how are you?

Matthew Gordon: Yes, not bad. It’s not quite a daily occurrence, but it is kind of getting there – you are throwing out the news like it’s going out of fashion. So, hot off the heels of Spargos and the rebrand situation. You’ve also announced this Morgan Stanley renegotiation. Do you want to talk to us about that? What happened? How long has it been in the works? Why couldn’t you have told me Monday?

Paul Huet: Well, it wasn’t completely signed on Monday. It’s been in the works for months now, actually. When we announced our renegotiation back in December of 2019, that was phase one. We were always working on phase two. We had a strategy and a plan to do everything we could to get this royalty eliminated. And this really, as you know, we’ve been talking about it for some time, opens up this district, this royalty. And we have been in this area for approximately two decades, almost 20-years, so now we are just further taking advantage of what we started. We started with phase 1, quickly did some drilling. Identified 5 areas. Now phase 2 comes along. We wipe out the last 2%. We take out the NSR component of the legacy portion of that royalty. This is a game changer for us. This really gives us flexibility, optionality. This is an opportunity where a company takes advantage of spending USD$1 and where it creates USD$2 to USD$3 for our shareholders. This is the best way for us to be spending our money to create value for our shareholders.

So, I’m obviously, I’m jazzed, I’m excited. It’s one more step in our strategy. One more thing, part of our focus. We’ve been in control for a long time now. This has been part of our strategy. We’ve executed on it.

Matthew Gordon: Okay. I mean, a couple of things there – what price did you end up paying for this?

Paul Huet Yes, it was USD$9M. Just think of it this way, look at it this way, Matt; today we have at Higginsville, when we bought Higginsville, we had 1.9Moz in our resource; measured, indicated and inferred. That’s all three categories. I know you’re supposed to split them up. We have 367,000oz of 2P reserve. You start looking at these numbers here, these things pay themselves back quite, quite quickly here.

The first 5%, of it was phase one, you can effectively say from the beginning to the end, a royalty that’s been in place for two decades, we’ve really paid USD$9M. It was always part of our strategy to continue doing what we’re doing. So, for us, again, the dollar spent was worth USD$3 for our shareholders in return as we continue to unlock this district here.

Our backs are not against the wall anymore; we now have Spargos. We’ve got Spargos in play here. Let’s say we get that completed, it could be as soon as Q1/20 that we’re mining in Spargos. We have no royalty here at Higginsville. We have more flexibility and optionality than we’ve ever had in our lifetime. Not so reliant on Beta Hunt.

The grade at Spargos is actually higher grade than our underground at Beta Hunt. And I know we’re talking about this royalty, but all of these things together are part of a larger strategy. It’s that simple. Yes. I can’t help but be excited about eliminating the royalty.

I’ve been mining for 33-years, Canada, the US, Australia, South Africa; it’s very uncommon that a mining company can actually repurchase or buy back, or eliminate their complete royalties. It is a very challenging thing to do. And how many of us look at ourselves in the mirror and think we’re a little bullish on Gold here? I’m certainly bullish on Gold. I think what’s in front of us is pretty exciting.

So, 1.9Moz of measured, indicated, inferred, is without a drill hole. That’s without any drilling. We inherited that resource. Once we start drilling this thing here, it could double, then we’re going to look back in time and go, man, are we ever glad we were aggressive? So, I’m very proud of the team. I’m very proud of the success. I think it is an amazing step forward for the new company as we proceed.

Matthew Gordon: Look, I can hear that you’re as pumped and excited as ever. I’ve been talking to people in the market about what the generation of this free cash flow that you’re producing now: you are making money, month after month, quarter after quarter, and it’s giving you optionality, which is great. And it’s a case of the markets looking at you to what you’re doing with it. And you’re saying you are going to put that into the exploration of these five new targets you’ve identified. You’ve made this acquisition at Spargos. You’ve renegotiated the Morgan Stanley deal, which is obviously fantastic. So those are all options that you’ve got under your control and I think that sends a big, loud message to the market, which I think is fantastic, but you’ve also done something else. You’ve also done a, or you are proposing a share consolidation? Why? Why have you done that?

Paul Huet Yes, so, actually, let’s clarify that: so, we put that in our management information circular based on the heels of our shareholders. This is us as a board and as a company listening to our shareholders. We have had a large amount of institutional shareholders, even some retail shareholders, some very significant retail shareholders have said to us, why wouldn’t you do this? We said, let’s pose the question to the people we work for – our shareholders. Let’s put it in the management information circular and allow our shareholders to direct us by voting on it. What are the advantages? Look, there’s some clear-cut advantages here too, Matt. Let’s face it, our larger, our biggest shareholder base is in North America. We open up the door for funds that can buy over a dollar. Right now, there are a tremendous amount of institutional funds that we would love to see in our shareholder base register that don’t exist, only because our share price is below it, USD$1.

Secondly, it also unlocks opportunities for funds with margin accounts. It creates opportunities to buy with margin accounts. So, opening that door will create an opportunity for us to get additional shareholders, which is certain. In fact, I actually had a call with one large retail person who said, you know what? You’ve actually, if you do this, Mr. Huet, you’re actually going to give me free money, and I didn’t understand what he said. He said, let me clarify; my own margin account will be created by you doing this in my retail. He’s a retail shareholder. He said, I’m now going to have an extra USD$50,000 that I’ll be able to do whatever I want with because their share price is over a certain price and it’s not a penny stock anymore.

Look, from the USD$0.19c we were at, our low at USD$0.50c here, we are 2.5 times there. There’s a lot of room here for opportunity and growth for us. I’m always a firm believer that you can’t go wrong if you listen to your shareholders. You’re not going to make everybody happy, but you should always at least listen to what they have to say. And this is a perfect example of us doing such a thing.

Matthew Gordon: Okay, well look, Paul, I’m a big fan of the turnaround story that you were a huge, huge part of, a driver for, last year. There’s been a lot of change, a lot of change in the last week. Is there much more to come? Is there more we should be looking for?

Paul Huet Look, we will never be sitting on our heels. We’re an aggressive team. We’ve got a new name. We’ve got a good shareholder base, a good board, strong executive team, very focused. There’s no doubt that there’s some opportunities and some value that we’re prepared to unlock in Western Australia and other areas of the Gold sector. So, I’d certainly say, keep an eye on us because we’re going to continue to deliver. We’re going to continue our production. It’s our first year, again, You know, people underestimate and they forget. You know, it wasn’t that long ago that we didn’t own a mill. We didn’t have any production. We didn’t produce 8,000oz a month. We didn’t have a large treasury. We had no cash. We have USD$38M in cash, but next month here are hedges are going to be gone, Matt.

So, as things come forward for us, we’re starting to make money here. We’re generating good cash at these prices. So, I’d say it’s a pretty exciting time. We have just got to remain focused, continue to deliver on our strategy and continue to have a strategy. Putting together a strategy and a plan and executing on it – you get things done. So, again, I’m quite excited. It’s been an exhausting week. It’s been a very exciting week. I have got to tell you, on a personal note, I adopted a little baby boy. So, whether I’m supposed to say that or not, he’s my seventh child. I’m a very proud father and tired daddy, but very focused and happy to work for my shareholders.

Matthew Gordon: That is fantastic. I’m talking about the adoption of the baby boy – congratulations! Number seven to join the clan. That’s amazing.

Paul Huet: Number seven: Mr Roger Hewitt. Amazing little 4lb, little beautiful little boy.

Matthew Gordon: Oh, well done. Congratulations. Obviously, well done with the company as well, but that’s great news. Paul, I better let you go. You’ve got to get back to the family, Joyce, and the kids. So, thanks very much for making the time today. I appreciate the phone call. I really do, but you know, let’s speak soon.

Paul Huet: Alright, let’s stay in touch, Matt.

Company Website: http://www.rncminerals.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.

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RNC Minerals (TSX: RNX) – Outstanding Q1/20 Results For This Gold Turnaround Story

The RNC Minerals Company Logo.
RNC Minerals
  • TSX: RNX
  • Shares Outstanding: 608M
  • Share price C$0.50 (14.05.2020)
  • Market Cap: C$301M

We recently decided to carry out another interview with Paul Huet, CEO of gold producer, RNC Minerals (TSX:RNX).

We’ve covered RNC Minerals with detailed investigative articles for much of the last year. Make sure you check them out.

The Q1/20 results are outstanding and Huet is delighted. We expect gold investors will be too. RNC Minerals has managed to hit its gold production targets in the midst of the COVID-19 pandemic, while most gold producers have fallen asunder. This is excellent management and long may it continue.

Now, gold exploration and share price growth appears to be on the cards. Let’s unpack this…

We Discuss:

  1. Q1 Results: Headline Numbers and Great Success
  2. Continuing the Winning Streak: How Will They do it?
  3. Strengthening the Cash Position: Free Cash Flow and Optionality
  4. Possibilities for Exploration: A Look into Trident and Aquarius

Company Website: http://www.rncminerals.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.

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Jervois Mining (ASX: JRV) – Cobalt Has Been “CRUSHED.” Now What?

The Jervois Mining Limited company logo
Jervois Mining Ltd.
  • ASX: JRV
  • Shares Outstanding: 642M
  • Share price A$0.19 (14.05.2020)
  • Market Cap: A$122M

Have a watch of our recent interview with Bryce Crocker, CEO of Jervois Mining (ASX: JRV).

Jervois Mining is an ASX-listed mining company with a focus on cobalt, but with significant exposure to nickel and copper. Jervois Mining has assets in Uganda, Australia, and the United States (the main focus).

Crocker was incredibly honest during our interview. He is clearly aware that COVID-19 has thrown a spanner in the works of the EV revolution, especially on a consumer level: will they even be able to buy cars after this crisis is over?

The EV market is already relatively small (2M) compared to conventional gasoline vehicles (100M), but Crocker thinks that the position of his cobalt assets, in America rather than the unstable DRC, could be highly advantageous. Will the U.S. government see cobalt as a strategic commodity? This has been touted before, but it remains to be seen. Will green energy and, therefore, cobalt, win the day?

We Discuss:

  1. Company Overview
  2. Grim Outlook for EV Revolution: Predictions Post-COVID-19
  3. Jervois Mining: Survival Tactics Involving the US
  4. Green Mining to Prevail: Hope for EVs
  5. BFS Completion Timeline
  6. Negotiating Deals at Present or Waiting for the Pandemic to Pass?
  7. US & Cobalt: Outcomes of Nationalisation
  8. Contributing Value to Jervois Mining: What Takes the Cake?
  9. Plans for Non-Core Assets: The Future
  10. On Listing in the US

Company Website: https://jervoismining.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.

The Jervois Mining Limited company logo

Jervois Mining (ASX: JRV) – Thought that was always the plan (yeah) (Transcript)

The Jervois Mining Limited company logo
Jervois Mining Ltd.
  • ASX: JRV
  • Shares Outstanding: 642M
  • Share price A$0.19 (14.05.2020)
  • Market Cap: A$122M

Interview with Bryce Crocker, CEO of Jervois Mining (ASX: JRV).

Jervois Mining is an ASX-listed mining company with a focus on cobalt, but with significant exposure to nickel and copper. Jervois Mining has assets in Uganda, Australia, and the United States (the main focus).

The company is hoping to benefit from the much-discussed and much-distressed EV revolution by producing raw battery materials. COVID-19 appears to have put a real spanner in the works of the EV thematic, though Crocker suggests the US government is viewing cobalt as a strategic commodity, and Jervois Mining could benefit.

Crocker paints a “profoundly negative” picture of the impact of COVID-19 on EV global supply chains. COVID-19 hasn’t just compressed cobalt demand, “it has DECIMATED it”. China was down c.80% in Q1/20 and the West is down 40%-50% in Q2/20. Some companies are losing as much as “US$100M per day.” There is no positive scenario near-term. Crocker expects a massive “dislocation” of the supply chain across 2020, and says people aren’t expecting it.

How does Jervois Mining plan on taking advantage? Do its hopes lie in the hands of the US government? Government subsidies for EV manufacturers are starting to flow back in, but they have been crushed because their export markets are off; this is particularly true of China. It’s also very difficult to be bullish when it comes to aerospace right now. Who knows when the airline industry could recover? There is a lot of uncertainty right now.

Crocker claims cobalt is a unique commodity, with 75% of cobalt coming out of the unstable Democratic Republic of Congo. The supply chain looks incredibly fragile as it is, and COVID-19 has worsened problems. The major mines in the DRC are still operating. Some borders are still open, but the border with South Africa is closed, and the border with Zambia is an “unmitigated disaster,” with queues stretching as far as the eye can see. The cobalt mines are stockpiling aggressively, and a lot of the highly-technical major projects are being canceled because of key minds being repatriated. The outlook for cobalt is very binary as to what is going to happen in the DRC. Crocker expects to see COVID-19 peak in the region in the first few weeks of June. Cobalt investors will need to keep their eyes peeled. The impact could be “profound.” COVID-19 is going nowhere in the short term, and the DRC already has logistical issues: the cost of trucking copper and cobalt out of the country is US$300/t.

Crocker is actually very happy with Jervois Mining’s own position in a stable jurisdiction with a “half-built” cobalt project. He has always claimed the US is the most strategic market in the world for cobalt, and claims the country is fast catching up China. The US has no domestic cobalt mines, and Crocker thinks it is timely for Jervois to be at the forefront of this.

Cobalt has always been of geopolitical importance to the US, and now it is even more so. Crocker expects green mining to prevail as the US government tries to create jobs in 2020. Crocker remains coy on the government’s plans for possible nationalisation, but claims cobalt is “up there” because of its importance to aerospace and critical industries.

Crocker expects the BFS by the end of the year. It’s nearly finished, there are just a few things to sort on the offtake side (metallurgical test work). Travel restrictions have caused delays. Jervois Mining has c. US$7M cash to see the company to midway through 2021. Away from Jervois Mining’s core Idaho assets, Jervois has been clear it wants a partner to form a JV for the Nico Young nickel-cobalt project in Australia. The rest of the projects will have their day in the sun, but right now there is an emphasis on keeping a tight balance sheet. This seems sensible. A Tanzanian acquisition is also on the cards.

We Discuss:

  1. Company Overview
  2. Grim Outlook for EV Revolution: Predictions Post-COVID-19
  3. Jervois Mining: Survival Tactics Involving the US
  4. Green Mining to Prevail: Hope for EVs
  5. BFS Completion Timeline
  6. Negotiating Deals at Present or Waiting for the Pandemic to Pass?
  7. US & Cobalt: Outcomes of Nationalisation
  8. Contributing Value to Jervois Mining: What Takes the Cake?
  9. Plans for Non-Core Assets: The Future
  10. On Listing in the US

CLICK HERE to watch the full interview.

Matthew Gordon: Hey Bryce, how are you doing, Sir?

Bryce Crocker: Matthew,I’m well. How are you?

Matthew Gordon:  Not too bad. Not too bad. Surviving. What’s that bike in back? I meant to ask you. What’s that bike in the background? You look like a serious road bike kind of a guy.

Bryce Crocker: That bike is a specialised brand; a bit of free advertising, but it is a lot more technically advanced and capable than its jockey.

Matthew Gordon: Blimey. That seat looks terrifying. That’s the thing I would say to you, not sure I could cope. Right, why don’t we kick off with a one-minute overview of Jervois mining then I will pick it up from there?

Bryce Crocker: Yes, thanks. We are ASX-listed and we are excited to be a creating battery raw materials company, a producing battery raw materials company. We are focused on security of supply chains, supporting the rest of the industry which has clearly become more topical in recent weeks and months with the unfortunate arrival of COVID and the impact on global supply chains.

So, we are a group of executives who came from larger mining companies, and I guess, what I wanted to cover today is that we don’t typically talk about the commodity; but I did want to talk about Cobalt because it is very interesting, and if you look across all of investor presentations, you will see nothing in Cobalt and nothing in any of our statements, but it is an area where collectively as a team, we do have a lot of background. We do look at what we have as a competitive advantage, and it is. It is fascinating what has happened.

Matthew Gordon: I think we both want to talk about the same thing actually, because we talked to you previously about the company and where you are at, and we will get on to that but I wanted to talk to you specifically about what you think is happening, because of COVID-19, how you think it is going to affect buying behaviour, investment in the EV thematic, which obviously you play into with your Cobalt. What do you think the impact is going to be on all of that?

Bryce Crocker: Profoundly negative. Profoundly negative. Anyone who gets up and says otherwise doesn’t understand the physical dynamics of what is happening in the market and hasn’t really thought around what the implications are. I think Cobalt, it is interesting for a couple of reasons; I mean demand, it is not weakening – it is getting crushed. Completely decimated. I’ve never seen anything like it. You have got China orders, probably down 80% in Q1/20. All of the Western order makers: 40, 50% in Q2/20. Most of the big oil producers losing USD$100M per day, per day. And so you have had, from a supply chain perspective, you have had this massive disruption and we are just really at the start. And I think this is where this is interesting, if you look at what is going to play out over the next 3 to 6-months. We are really at the start of this process because COVID-19 from a supply perspective has really just started. We have got customers who aren’t buying or can’t buy because they are locked in their homes. Manufacturing facilities that are shut. So, if I am a steel mill, and I am getting ferronickel, ferrochrome, ferro cobalt – all of these deliveries, I don’t want that. That’s getting pushed back to the traders who are pushing back to the producers, and this shock is getting pushed through the system and is going to take time to flow through.

 But if you look at what is happening to end demand on Cobalt, I mean, electric vehicles, there’s no positive scenario in the near term as to what is happening for EVs, clearly. Orders are being crushed. But as you look forwards, I do think that the Chinese are trying to come back on. Their biggest challenge, from what I understand, is that really their export markets are off. They are trying to turn their economy back on, get those order flows to try to start again. They are obviously, again, it is the incentivisations, the government prioritisations for electric vehicles, that’s flooding back in.

But any way you look at it, electric vehicles, the numbers are fluid but it is going to be a significant, significant reduction. Even over last year, and we are talking growth rates that have gone. So that’s the bad news on EVs. But is that a structural, permanent shift? I can’t talk about that. I don’t believe so, but it is going to create a massive dislocation in the supply chain across 2020 that people weren’t expecting.

 So that’s on the electric vehicle side, which is obviously Cobalt Chemicals, Cobalt metals – aerospace: it’s pretty hard to be positive on aerospace right now. I would suggest that this is 30% to 40% down. Oil and gas – it is pretty difficult to be positive on oil and gas type exploration drilling, so cobalt gasses etc.

So, demand is bad, but I think, taking away from that, Cobalt is kind of unique because you have three quarters coming out of one country that is highly unstable so, we all hope that Africa, including the Congo, gets through COVID. We are sitting in a part of the world where we are relatively very fortunate. There are some other parts of the world that don’t have the health infrastructure. The majority have immunocompromised complications because of HIV which don’t have the efficiency of the governance, perhaps, that we are able to rely on in the West. We are all hoping that Africa holds together as a continent, particularly the DRC because there is no safety net in the DRC if something goes wrong. But clearly, with three quarters of the Cobalt coming out of the DRC, for context, it is twice the size of OPEC on the oil market, so, it kind of matters.

In terms of what we are seeing and hearing on the DRC, the major mines are still operating. Some of the smaller ones: KiPOI*, Isoko, Kisavari are shut. But the big mines, the Katanga’s, TENKE’s etc, they are continuing to operate. The border currently is back open, obviously you have two borders to get the product out of the DRC: you have got to get through Zambia then you have got to get across from Zambia to South Africa. South Africa is shut, so the port of Durban is shut. There is material coming out to the east, through Dar es Salaam, material is coming out from Mombasa, traders are using alternate exit routes.

For the trucking, I mean, if you have ever been to the DRC, the border with Zambia is an unmitigated disaster at the best of times: just queues stretching as far as the eye can see and a lot further. So that is obviously there now. You do have Sulphur and Lime and consumables coming across. The mines in the DRC are stockpiling aggressively on the expectation that there could be some disruptions. Expats are gone. In a simplistic and broad statement, but a lot of expats with their families in South Africa, they didn’t want to be sitting in the DRC, so a lot of the critical technical expertise, major projects are being cancelled.

So, I think it really depends. So, the outlook for Cobalt is very, very binary to the situation in the DRC. They are behind us. The advise that I have seen is that the COVID-19 peak is coming; you are looking at June, week 1 June, week 2 June, in terms of when it is likely to genuinely flow through. Clearly, the potential market impact is profound. Cobalt, Metal Bulletin SG grade is trading at about, I think, around USD$14/lbs, USD$15/lbs, so that is inconsistent with demand getting completely destroyed. If you look at what has happened in the oil market, obviously, that shows what happens when demand disappears, which illustrates with the Cobalt market, there is this uncertainty there about what is going to happen in the DRC.

The Chinese refineries have inventory for now, but that inventory is not going to last multiple months. There’s material obviously sitting in Durban, which is waiting to get out, as and when the ports open again. But COVID-19 is also not going to go away. One of the greatest challenges of the DRC is logistics. It is one of the most painful places to get consumables in and to get a product out anywhere in the world. It will probably cost you USD$300/pt to get it out on the back of a truck; whether it is Copper, Cobalt hydroxide.

Zambia has installed a 14-day quarantine period, so if you are a truck driver, you come in from South Africa, you get a 14-day quarantine period upon entry to Zambia, you go into the DRC, you come back, you get another 14-day quarantine period. Trucking delays are probably up only 2 to 3-days currently. There is no shortage of guys wanting to drive the trucks, for now.

If South Africa, Zambia and particularly the DRC, they are different, there is potential for social unrest in the event of these big mine closures, clearly, to use the artisanal supplies as an example, people aren’t mining, you don’t get women and children mining artisanal Cobalt because they choose to do that versus open a corner stall selling clothes, they are doing that because it gives them the option to put food on the table. Many people are working at the big mines; they are big employers. The social implications of these sites shutting is profound. I don’t profess to have a crystal ball. I don’t know which way it is going to go but the potential market dislocation is obviously enormous.

What is highlighted in our conversations with other ERMs and other end-users, clearly the DRC has been there and people have been uncomfortable with certain aspects of the DRC, whether that is governance, whether that is the artisanal mining, for a long time, but now they are looking at the security of supply chains and realising that this really is a profound risk to their business. Being reliant on a critical component for electric vehicles, or for steel production from a part of Africa which is obviously a long, long way from you having the confidence that you are going to get the product that you need on time.

Matthew Gordon: Okay. That’s a fairly devastating picture you are painting with regards to, obviously, demand, which, as you say, you are not quite sure when that kind of comes back on because it is a kind of slightly dislocated logistic supply chain at the moment. So, if the Chinese come on earlier than the rest of the world, we are sort of playing catch up there. I know that you were talking about Cobalt in the DRC because Cobalt is a big part of the DRC economy. Can I just ask, before we get onto you, what do you think it is going to mean for the other battery commodities: the Nickels of this world, the Lithium, the graphites, et cetera. Are they as disrupted as Cobalt?

Bryce Crocker: No commodity has 3/4 of supply coming from one country. Clearly, Indonesia is incredibly important for the Nickel market, and clearly other countries are important for Lithium. I don’t pretend to know as much about the Lithium market, but from what I see, there was an expectation that Lithium was in over-supply before this began, so that kind of implies that Lithium is in for some challenges.

Lithium ion batteries, the components are subject to discrete market forces. Nickel is going to be a core component of the battery, moving forward. Everyone wants a car that is going to go a long way and gets there quickly. That’s obviously a big part in what is going in with the success of electric vehicles because everyone wants to get there quickly and get there fast and gets there safely, hence the significance of Cobalt. If Cobalt was easy to engineer out, we wouldn’t be having this discussion. There have been a lot of smarter people than I am, looking at this for a long time, but as of today, it hasn’t been possible to engineer out in a way that provides the same performance et cetera, as an 8.11 or one of the high-Nickel NCA chemistries, Panasonic, Tesla’s…

Matthew Gordon: Okay. Well, I guess the whole EV market is going to be dependent on the lowest common denominator coming through, and you are suggesting that is Cobalt, because of the dynamics in the DRC. So, let’s get back to you; what are you going to do about that? How is that going to affect your business? Because we have been reading about your and talking about your Idaho business. There has been lots of conversations about conversations that you have been having in the US with US funders. Is that your route out of this?

Bryce Crocker: Well, if you gave me a choice of, in this type of environment, what mining project would you like to have? I would take a Cobalt project in the United States with moderate capital, that is half-built. That is, as opposed to other alternatives that I could have on my plate, that is not bad. I think that I’ve always said that the United States is the most strategic market in the world for Cobalt, period. Because of the importance to aerospace, because of the importance to the steel industry and increasingly, because of the importance of electrification. The US automakers have been behind those in China but they are catching up fast, or they are planning to catch up quickly. I think that being in the United States, the United States has no domestic Cobalt mining, it is all imported, so, for us to be at the forefront of that is obviously, it’s timely and I think it does provide an opportunity.

If you look, Cobalt was always geopolitically important to the United States, now you are in a situation where anything you can do to create economic growth and jobs in the second half of 2020 and into 2021 in the US is going to be enormously important. I mean, we are all seeing the news out of the States. We are all seeing the levels of unemployment rising at quite terrifying rates.

We are already getting traction with what we want to do. Now, I think there is an opportunity to really have a profound impact and build a mine during a period when the US and Idaho is looking to create economic growth once we come out of this situation.

Matthew Gordon: It sounds logical, but it is also enhanced, I guess, by this wave of nationalism which is spreading across the US; US first. We have also read about the support that you are getting for this. You say that this is timely. This is absolutely timely for you. You have recently submitted some RPFs, is that right?

Bryce Crocker: So, this is in terms of our debt financing process. We are working the site pool with potential lenders. We will be finalising the bankable Feasibility Study for Idaho shortly to provide that to the banks on an NDA level, so they get an updated financial model. We did provide indicative term sheets in January. We have made a decision at that time not to make a final appointment. We want to progress the PFS and get to the position where we can really differentiate between the options that are available.

This is an asset which, there has obviously been USD$100M which has been spent so it is a part-way constructed mine in a great jurisdiction. Clearly, I mean, the capital markets, I spoke a little about what has happened in terms of industry on the supply chains. Capital markets, again, they have lots of volatility, but equally, lots of liquidity getting pumped into the system, I guess. USD$10Tn between fiscal injections in the US and monetary easing, certainly that is having an impact in terms of debt capital markets remaining open and banks willing to lend. And clearly you will have seen an impact in terms of what’s happened to the Dow in terms of the last 30 days or so,

So, I think as we move forward, we have moderated the timeframe because we didn’t think it was the right time to be pushing someone to go through credit right now, just given the uncertainty. I mean, we are optimistic on the future. I am in transparent in that I think demand right now is crushed but I don’t expect that to last indefinitely. I do expect there are also going to be pushes that come out of this, if you like, like COVID-19, that are difficult to judge now. I think everyone in the city is getting to like having clean air with oil use being down by 30M to 40M barrels per day. People are going to Venice and seeing jellyfish – it is things like that. But I think that it is difficult to judge what the environmental flow-through will be in our governments when they come back on and revitalise the industry, are they really going to want to revitalise industry and reallocate their capital towards ICEE production rather than taking the opportunity to use it as, essentially, a step change on the EV side.

Matthew Gordon: Right, just tell me a little about the types of institutions that were submitting bids? Because if you look at people like BlackRock, I mean, that’s the one that people are talking about, they are segueing away from coal, they are segueing away from oil, and they are moving into and investing into cleaner and greener opportunities. So, are you seeing more of that? Or is it just the usual players?

Bryce Crocker: No, I think that ESG is a big deal. I mean, I know there is a debate between you and the companies you speak with. What does COVID-19 mean for ESG? Is it on the backseat for a period? My personal view is that I don’t think it will. I think that ESG is here; it is an important part of investing. It is in the matrix of any decision-making. Also, the electrification of vehicles is something that is fundamentally important, and I think that it is going to be a criterion, if we had a coal mine up in this part Idaho, we would be having very different discussions. We would be having discussions with many of the lenders, the commercial banks aren’t in the business of funding coal mines, and equally on the equities side, a lot of investors are also, I think looking at ESG. If you want to invest in Cobalt, you have either got to go to the DRC, which is very difficult within an ESG type framework, or a lot of the other projects are large capital, long lead time, high technical risk in varied jurisdictions, not without exception, but as a general rule, some of the better projects are located in more challenging jurisdictions than the developed world.

So, again, this is where Idaho is nice; I mean, it is small. You know, I like small, I like low-risk. It’s a good way to start a business.

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


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