RNC Minerals (TSX: RNX) – 4th Quarter Results Explored

The RNC Minerals Company Logo.
RNC Minerals
  • TSX: RNX
  • Shares Outstanding: 608M
  • Share price C$0.31 (31.03.2020)
  • Market Cap: C$188M

In the wake of a market reset and the COVID-19 crisis, gold investors will be looking for reasons to stay positive.

Gold has traditionally been perceived as a safe haven investment. That changed several weeks ago, when even the most robust gold stocks took a historic plunge. However, in the last week, the gold price has started tracking upwards again and has recovered well to over US$1,600oz, albeit down from a peak of US$1,700 at the start of March.

Regardless of how intimidating current market conditions may be to investors, they have to spot the opportunity here, and they need to understand the timing too. The gold price dip looks like nothing more than a blip; with gold back moving up towards the (possibly farfetched) dream of US$2,000/oz gold, there are plenty of reasons for gold investors to be bullish.

As I stated in an article earlier this week, if you have decided on an investment thesis, do not abandon it out of COVID-19 induced fear. This fear is unlikely to be derived from the operational difficulties at gold companies because there don’t appear to be very many. This fear is a personal fear of the virus itself, and it is causing investors who previously settled on investment theses to throw them into the trash. There is still an awful lot of money to be made in the gold space, especially given the huge discounts current market conditions have enabled.

Gold nuggets on top of dirt.

So, RNC Minerals: one of our favourite turnaround stories of 2019. The company moved from unfocussed nickel blunderer to refined gold producer in the space of a few months. RNC Minerals CEO, Paul Huet, has sat down with us and spoken candidly on a number of occasions. With stable monthly production well over 8,000oz gold, RNC Minerals investors have finally started seeing a reward for their patience.

RNC’s Q4/19 results have been eagerly anticipated. Now there are available, gold investors will be pleased to see they have lived up to expectations.

So, what are the big headline figures?

  1. “Strong Fourth Quarter Results”
  2. Gold Production: 26,874oz
  3. Adjusted Earnings: C$14M
  4. 2H/19 AISC Guidance BEATEN
  5. NO CHANGE to 2020 Guidance

Some great facts and figures there. Let’s unpack them.

2H/19 was an excellent period for gold production at RNC Minerals. The figure of 51,090oz comfortably exceeds RNC Minerals’ 2H/19 guidance (42,000-49,000oz).

The 2H/19 AISC has also exceeded expectations: US$1,144/oz (guided range was US$1,150-$1,250/oz), and the AISC for Q4/19 is even lower: US1,131/oz, a 4% reduction over Q3/19, and a 12% reduction over 1H/19.

Investors will now want to see this AISC continue to fall towards that magic US$1,000/oz figure, and that is exactly what RNC Minerals has stated it intends to achieve by the end of 2020. The company has reiterated the position in its 2020 guidance: 90,000-95,000oz gold in 2020 at an AISC ≈US$1000/oz. This number clearly assumes that COVID-19 has no great impact on RNC Minerals’ operations; we’ll see exactly how this plays out, but Huet seems confident that recently local hires will minimise the impact. It will be interesting to observe how the intended introduction of an ore sorter could transform these economics further, though this appears to remain some way off. Early test indications suggest removal of 20-30% of the ore. That would reduce AISC dramatically.

RNC Minerals CEO, Paul Huet
RNC Minerals CEO, Paul Huet

In terms of earnings, RNC Minerals continues to impress; it looks like Huet has done a really good job here. Adjusted earnings of US$13.7M for Q4/19 are particularly impressive, especially when you consider the full-year earnings for 2019 are only US$15.9M. It is clear Huet’s turnaround is now moving into top gear and share price growth could well be on the cards. 2020 looks like it is going to be about building cash reserves to give them options with regard to the speed at which they develop Beta Hunt or indeed if they turn their attention to the 5 new drill targets.

Looking at some more detailed finances, the adjusted EPS2 was US$0.02 and US$0.03 for Q4/19 and 2019, respectively. The adjusted EBITDA was US$14.4M for Q4/19 and US$18.3M for 2019.

One of the most important issues for investors to consider right now is a company’s balance sheet, with capital being extremely expensive to access. RNC Minerals has managed to strengthen its balance sheet throughout 2019, with a strong cash position of US$34.7 million, net of a US$3 million debt repayment, and working capital of US$26.5 million. Cash is king; never forget that.

Moving on to exploration, RNC Minerals has been busy drilling. The HGO open pit “production pipeline” has grown, with recent drilling driving mine life extensions of the Baloo and Fairplay North open pits. The recent drilling, combined with a review of a historical exploration database, continues to identify a number of areas at HGO for further exploration, including the Aquarius Project (formerly Corona Project), a newly interpreted 5km structure north of Trident, as well as potential open-pit expansions to both the Mousehollow and Hidden Secret projects, as previously announced on January 23, January 29 and February 27, 2020. We look forward to hearing more about these projects as the story unravels.

There have been other operational optimisations too. At the Higginsville mill, the average availability is up to 97% from 93% in Q3/19. This is huge and should not be underestimated. The numbers should start to show in Q2/20.

RNC Minerals is working on optimising its royalty arrangements. There has been no word yet on how exactly Maverix Metals’ royalty at Beta Hunt of 6% on gold and 1.5% on nickel will develop in the future, though Huet appears fully aware of the situation and seems to be working towards the best possible outcome for RNC shareholders; this is all dependent on if Maverix Metals can be equally pragmatic. Investors will need to keep their eyes on this as it develops. At HGO, the restructured royalty (announced December 19th, 2019) has lowered costs and unlocked ‘significant production potential.’ History tells us that neither side wins in the event of a stand-off. RNC Minerals has options and is producing cash without it and Maverix needs a good year. It makes sense to unlock the value for both companies. If RNC can get an all-in offer around 4-5 that would be a good result. However, as the Morgan Stanley negotiation should us, it’s always more structured than that. Also, with all this cash, would it make sense for RNC to buy out the rest of the Morgan Stanley royalty? We shall see.

Nickel ore
Nickel could become relevant for RNC in the future

In other news, on February 6, 2020, RNC Minerals filed the technical report for the maiden gold mineral reserve at Beta Hunt of 306,000oz (3.4Mt at an average grade of 2.8g/t). Investors will be happy to see RNC Minerals delivering solid numbers to the market as it inspires confidence in these testing times. On May 30, 2019, RNC announced an updated Feasibility Study on its option on nickel-cobalt at Dumont, and claims positive results (US$920 million NPV8%). An interview with Johnna Muinonen is due with CRUX Investor later this week.

The final part of RNC’s Q4/19 Results concerns management appointments: ‘as part of the next phase of RNC’s growth, a number of management changes and additions were made during 2019 and early 2020, with the objective of maximizing the value of each of the assets within the Corporation’s portfolio and advancing RNC’s corporate strategy.’ Will they be doing the same review with the current board members?

All in all, it is nice to see RNC Minerals put its strong performance throughout 2019 into formal writing. RNC Minerals investors will be hoping the market pays attention to this progress, and RNC can start pushing its market cap back up to previous highs; after all, shareholders have been patient for long enough.

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.

China Gold Int (TSX: CGG) – Oh, now look at me and this opportunity (Transcript)

The China Gold International Resources Corp. company logo.
China Gold Int Resources
  • TSX: CGG
  • Shares Outstanding: 396M
  • Share price C$0.65 (17.03.2020)
  • Market Cap: C$274M

Interview with Jerry Xie, Executive Vice President and Corporate Secretary of China Gold International Resources Corp. (TSX: CGG, HKSE: 2099).

China Gold is a big gold producer, with a secondary focus on copper. The company orients itself around organic growth of its two large main gold and copper assets. It does have however very deep pockets if required for M&A. What we found particularly interesting was the companies approach to value. They can buy large-scale projects, but will not overpay. Now, given the relatively cheap cost of the money available to them, paying a premium would not be out of the question, which could give them a competitive advantage.

Founded in 2000, China Gold International has 2 main assets. Its main project is the CSH gold mine, one of China’s largest open-pit gold mines. And the extremely large Development play, Jiama Copper Mine. CSH is located in Inner Mongolia, China, the principal product is gold doré bars with silver as a by-product. In terms of measured and indicated (M&I) Resources, we’re looking at 262Mt, averaging 0.60g/t gold totaling 5Moz of gold at 0.28g/t cutoff gold grade, based on the most recent 2012 Feasibility Study. If fully-optimised, investors are looking at 60,000t per day of ore. The life of mine stands at 11-years (as of 2012), with an estimated LOM CAPEX of US$213M, and an impressive AISC of US$713/oz of gold.

Over at Jiama Copper Gold Polymetallic Mine, in Central Tibet, China, Phase II expansion started commercial production on July 1, 2018. Jiama Mine’s Phase II consists of two series. Each series has a mineral processing capacity of 22,000t per day. The full design capacity of ore processing at Jiama Mine will increase to 50,000t per day. Total copper production in 2019 is expected to reach c. 132lbs, and the expected life of mine is 35-years, with gold and silver credits. According to China Gold’s feasibility study, production is expected to grow to 176Mlbs of copper per year at full processing capacity.

While many gold producers share prices were buoyed by rising gold prices during 2H/19, China Gold International saw a slow and steady fall, now standing at CAD$1.06. The market cap is a sizeable CA$420, with 396.41M shares outstanding. Xie claims the share price issue has been mainly related to marketing issues. A potential easy and cheap fix? He claims marketing on the TSX vs the HKEX is very different, and retail gold investors have either not been told the story effectively, or haven’t been told it at all. So now what? Time for the company to step up its efforts.

Big changes for investors to look out for in 2020 will be cost-cutting and significant development of Jiama, maybe into optimised copper-gold production? Communicating effectively with the North American market will be important too. The management team appears very competent. The assets are large, it is producing and sitting on a lot of cash, but the business strategy and marketing needs to be better understood by the market.

China Gold needs to clearly communicate its strategy and focus to potential investors, and it needs to get the word out. This has the potential to be an exciting story: let’s see how this develops, but this one story we are going to follow with great interest.

CLICK HERE to watch.

We Discuss:

1:52 – Company Overview
3:32 – From Start to Finish: What Did They Set Out to Do? Why Do They Choose to Stay Public?
10:21 – Organic Growth and Restrictions to it: Project Overview
14:36 – M&A and Their Criteria: Can They Afford to be Aggressive?
23:13 – Share Price Dropped When Everyone Else’s Rose: What Happened?
27:38 – 2020 Goals: Building Value and Regaining Control
31:26 – Possible Road Blocks and Concerns Company page:

Company Website: http://www.chinagoldintl.com

Matthew Gordon: Hello and how are you, sir?

Jerry Xie: Well, I’m very good. Thank you very much. Well, thank you.

Matthew Gordon: Thanks for joining us. You’re you’re in Vancouver at the moment. And you’re gonna tell us all about China Gold International today, because it’s a good story. It’s a big successful company. But we want to hear about how you’re going to grow it. But before we do, can you give me one minute summary for people new to the story, so they can understand a little bit about this before we start talking.

Jerry Xie: All right. Thank you. I would love to. This company is named China Gold International. The former name was Jinshan. So many long-term investors still remember that name. Actually we changed the name from 2010 from Jinshan Gold Mine to China Gold International. So, for your information, this company’s founder was Robert Friedland. He set up this small company early 2000s and went to China for the gold opportunities and he found one named CSH. And in 2008, our parent company, which is the largest Gold producer, China National Gold Group. Bought it. He owned 42% of the company became the largest shareholder that basically was the 2008. Two years later, we changed the name to the China Gold International. It had already been listed on the TSX. And in 2010, we duel listed on Hong Kong stock Exchange. So right now, this company has two stock exchange listing. And I think 2010 we inject a one polymetallic mine from our parent company. Right now has the two listings, and 2 producing assets.

Matthew Gordon: Perfect. That’s a good start to this. Okay. So, can I just talk about what it was that you… I understand the history there, but what was it that you guys were selling act to build? Obviously, you are a gold producer. Great, but you’ve listed in Hong Kong. You’ve listed on the TSX. Why did you take this thing public first of all?

Jerry Xie: They original strategy. Actually, the market can take China Gold international and the China National Gold Group as one. We share the same strategy, we sit under the same under the same umbrella. So originally back to the year 2008, the China Gold Group was going out of China. They’re looking for the opportunity to grow, grow the group. So after a screening of would be target, they picked up Jinshan Gold Mine, as the first step. The reason behind that.. they set up the strategy, the criteria. Ideally the company should be a public company. Listed on the TSX or like Australia, somewhere like a very mature, stable jurisdiction. TSX is really the ideal place, public company and also ideally the asset, liquidity in China is easier to access, easier to manage, as a first step. That’s why they picked up this company after that…. We still want to keep that platform because obviously the reality is the Western…the North Americans investors… they want… it’s not really about the Chinese factor. Every time when we were in China people just got confused. So keep this platform. I mean, the listing position will ensure we’re not black sheep. And just  following exactly the rules, the public rules, to keep the transparency. Follow the rules. So that’s the purpose. So easier to access the partner to look.. to find us a real good opportunity.

Matthew Gordon: I mean, that’s a really interesting thing. You say that because I think when people talk about Chinese companies, there’s a mystery to it, in the sense that it doesn’t feel as open and transparent. But as a public company, you must be. You must follow and comply with the rules of both sets of Exchanges. So when you started off that the needs were very different from today. You have successfully, economically, commercially been producing gold. Okay. You have got a lot of cash that you have created, a lot of cash flow that you’ve created since you started. Do you still feel the need to remain public? Because you don’t need to be. You’ve got you’ve got the cash, you’ve got partners who will give you cash facilities. You are in a very lucky position compared to most. So you’re saying you’re keeping the public persona, because it gives you an air of transparency. Is that the driver today?

Jerry Xie: Yes. So that’s really good question. And also, the challenge as well. The reason I’m saying so is because some, like I said, from the beginning from the long-term investors still remember Robert Friedland’s name. A few remember Jinshan Gold Mine. Even though we changed our name from Jin Chang to China Gold International, since 2010. But people still take us as the ‘new company’, When, people sometimes people introduce that say, ‘hey guys, let me introduce a new company to you’. ‘Hey, come on, we’re not new’. We been here with a new name already for 10-years. So you’re right. And we should be talking to the market. Some people are asking, why do you guys still need us? You don’t need money. You are financing with no problem. You can see that our…We do have access, to very low-cost of financing. I could say we’re sitting on the $500M bond that global issuing, very low-coupon. The last one was 3.25%. So this this year, it’s this 3-year term ending year. So we will need to renew that, maybe not $500M. It depends on our needs, but a CapEx, is not as much as during the construction period. Maybe lower. It really depends if any acquisitions happen in the near future, but still not really a strong need compared to our peers. It’s not really for financing on the equity side. But two reasons. 1. is like we said, keep it transparent. When we approach people, if you know, I mean, like Canadian owners, the peers. 70% global gold owners are Canadian companies? No matter where. Africa, South of America. So we have to approach them here. So when they see China Gold International that are listed in TSX and Hong Kong, so that we can build up more confidence and they feel more comfortable to talk with us. 2. Another thing is if we can run this public… the company better. I mean, the better the stock price, if it performance is better, so we can use our stock, to buy the targets. Not like always with cash. So that way you see a higher multiple, if our share price performs better, the higher multiple to buy a lower multiple, that could be very good deal. It’s not always just in cash. So again, combined, it’s a more flexible.

Matthew Gordon: I hear you and I want to stick with this for now, because the thing that… I’ve looked at your company, we’ve done some analysis of your company, you’re in a very good position. But I want to understand the money side of things a little bit more, if I may? So if I look at some of your peers, you’re talking about your Canadian peers here, who perhaps don’t have readily, or not as readily, don’t find cash as readily accessible, and certainly not the types of rates that you’re managing to pick up. So you’re at a slight advantage to them. But so what is it that you’re trying to build? Because it seems to me you could go and buy a lot more ounces in the ground. You can do that. You are already producing gold with good margin today. So but you’re only a $400M company today. What’s the goal here? Surely with the amount of cash you’re throwing off, the cash that you’ve got access to. There are companies struggling who would like some of your cash. What’s the plan?

Jerry Xie: So that’s really depends on what kind of strategy, how to grow this company. That is the question basically you are asking.

Matthew Gordon: Yeah. Tell me that.

Jerry Xie: So basically all the mining companies are similar. The strategy is how to grow their mining company, it’s both like organic and external M&A. So organically, we have the two producing assets. One is purely gold, which in is Inner Mongolia. Naturally one province in China. It’s not a Mongolia country, just adjacent to the border. That is a pure gold. Open-pit, heap-leaching, really conventional like process. Another one is a polymetallic, mainly Copper, but a lots of Gold. You can see that every year we are sitting are 200,000oz. Part of this ounces comes from the by-product of the Polymetallic mine, named the Jiama in Tibet region. So two assets, have two different natures. So for the pure gold, to the CSS Gold Mine. Right now the peak of the production already passed. Well, we look at, we still have like 2P Reserve is about 2Moz. But every company needs pipeline. So if the gold price sitting on its level or looking even higher. So we can look at the deeper Resource or how to utilize that. The grid could be a challenge. Right now it’s open pit. If we could convert that terms on the ground. Maybe the grade cannot support the economics. So maybe they use some block caving. We really need to look at that. The different scenarios. But it’s still a question mark. So that’s like a 6-7-years to go. The other one is a much, much bigger. The Jiama Mine Polymetallic is a huge deposit. It’s only 9% of the area we own. So right now it’s 6Mt of Copper, plus some like a 100Mt, 100% of the Gold is there. Not mentioning the Silver, Molybdenum and small portion of the Lead and Zinc, mainly Copper and Gold. Now gives us a huge potential. Mine life is like a 30-years. Right now is after expansion, ramping up to the design capacity level, which is 176Mlbs per a year. Right now we’re aiming at 145Mlbs. We’re close, but still on the way to ramping up. But the thing is, we need a pipeline. So even though that’s a huge potential there. Copper is good, even though right now it’s not that strong, but still like Copper is Copper. The need is there. The demand is still there. But we are China Gold. We’re still looking for the bigger, multiple commodity, which is gold. So we keep looking for Gold assets, so which turn the topic to what should be the strategy of how to grow this company is by external acquisition.

Matthew Gordon: So you’ve explained the organic component, the organic growth. The restrictions and the opportunities. I get that. So come to the M&A bit. But because again, we’ve been talking to lots of people… we talked about Equinox Gold before this call started. They have gone through a process of acquiring ounces in the ground. They’ve made some good acquisitions. They’re a bulk gold play, low-grade bulk play. But it’s very clear to me what their strategy is. And I would like you to share with me, and the viewers here. Do you see M&A as a big part of the growth going forward? And how aggressive are you going to be? Do you feel you’ve got the finances in place to be aggressive?

Jerry Xie: For the external acquisitions? That’s another topic, right? But organic gave us very strong capability like we have $200M cash on hand. And we’re like $3Bn asset value and about $1.4Bn book value there. We can see that we’re a medium-tier, a second-tier of players. So when we’re going out, we can, like I said, we share the same strategy and same umbrella with our parent company. So every time we’re talking about China Gold International, keep in mind we were strongly supported and backed up by our parent company. So you can see, if people only look at this China Gold International, maybe the cash capability, even though we can access the bond, let’s say we can easily go for another $500M. We can reach more by leveraging the capability of the parent company. Thick line to short, money won’t be an issue. But the thing is, we funded… here is the thing. Every time, every day almost, so many sellers approach us, but not too many really met our criteria. We have our own metric? Where to go, and what kind of commodity, what time of play?

Matthew Gordon: Well, tell us.

Jerry Xie: Let’s come to thematics. Well, we basically.. the principle is project driven. So good quality. Good quality means. We’re looking for the producing mine with some potential. We’re not really focusing on the green or too early stage. We’re not patient enough to wait for that, and the higher-risk. So producing mines with some potential. And also commodity-wise, we mainly focus on Gold and Copper, or silver if it’s good enough, but nothing too much. Jurisdiction-wise, we prefer stable jurisdictions that everyone prefers too. So like Canada or Australia. We know that Australia is more expensive right now than Canada. And if we can see the trend is there is more and more consolidation there. So that real trend is there. We’re open to some countries in South America, and some countries in Africa. But some where we’re not going to like DRC. Don’t get me wrong, I don’t put any a judgment onto these country, but that’s our own judgment, our own strategy. That is our main metrics.

Matthew Gordon: The hard bit here is, as you say, if you set your targets quite high, there’s a lot of competition looking for the same stuff, you know? Do you think you’re going to be able to… you can compete financially, but you don’t want to overpay, necessarily. But you may decide something is worth more to you than it is to someone else. And you know, you’re paying a little premium is okay for you. But how many of these conversations have you got going on, and how close are you to doing something? Because M&A acquisitions excite the market. You’re buying more ounces, because you’re buying production, you’re buying more potential in terms of Reserve / Resource as well. Where are you today? What can you tell us?

Jerry Xie: So that’s turned into a little sensitive topic right now.

Matthew Gordon: But you can tell us, it’s fine.

Jerry Xie: Let’s continue my words. That’s say there’s so many people approaching us. But, I noticed the trend there is a people approach us, not only us, but it’s the approach the larger scale Chinese mining players,  because they know Chinese mining players have lots of cash. That’s why they approach us. People like cash rather than the paper. So that part of the reason, but for us, even though we can access the low-cost financing. We still want to use some paper. If our paper performs good enough. So that way we can avoid too much premium. Reason premium, reasonable, it’s acceptable to us. We can look at the average level  what the premium will be, and we can talk about actual re-valuation thing. But the thing is, we emphasize that producing mine plus the potential, that potential, can make-up that the premium. If we just paid premium, there is no money we can make. All the revenue side is a premium, so we’re not going to do that. So that’s why they can explain why China Gold moves so slow. We’ve been talking about this topic been almost 10-years. Since we listed in Hong Kong Stock Exchange, so many, Cornerstone investors keep chasing us, ‘hey, you guys promised us you’re going to buy this, buy that, but you still don’t take any real action’. But our team, we keep doing that, screening the things. Talk to people quite often. So some deal is really close to… I can’t say too much about it, so that I say it was sensitive, almost to the way joint deal process. And we’re close to writing the cheque. Really, really close to it. Open the dataroom, doing the due Diligence, been to site, did the site visit, valuations there. Ready to Ok, you know, external consultants, IBank, lawyers, we spend a lot of money on this. But eventually people were saying that it’s good… when we figured it out. It’s not that good. It does not meet our strategy metric. Or too expensive or the quality is not that good or our competitors, they offer higher than us. So, for a few reasons to make China Gold look not that nicely in this regard. So they really want to give you a example. I can talk to you about something already happened with people I already know. Many years ago before Lundin’s Gold group went to Ecuador ICN Project, China Gold joined the first three rounds of bidding process. And we were in the first rank. But due to some reason the bad communication, we lost the chance. That time was even better deal. So  I cannot talk about so many things ongoing. Or is it that people don’t want us to talk too much? I have already done that last year in Africa last year, I talked to the media, but it’s not nice to be very careful.

Matthew Gordon: That’s fine. And I understand that. Well, I guess what I’m trying to get a sense of from you is, I think historically Chinese companies have been branded as cavalier with their cash. They just want to get the asset and therefore they overpay, which makes it difficult to make money. What I’m hearing from you is, you’re cautious with your money. You’re sensible with your money. And you’re not going to… you’ll pay a premium if it’s worth it to you, as the sum of the parts of all of your portfolio. But you’re not going to be foolish. Which is good. Which is good. But that leads me to the share price. You’ve seen the share price come away. It was the last half. Basically, when all producing gold company share prices’ were going up. Yours has been trickling down. Do you know why?

Jerry Xie: Yes. That’s a good good question. That’s actually happened to us last September. And our price was not that nice, but it’s not that bad. We were just stable. But it’s not that really exciting, but not very bad. But when we were in the Denver Gold Show last year, September, we keep talking to our institutional investors. Van Eck, something and we talk very good talk, very quick just in that week and we came back to our Vancouver office and we found our share price had dropped a lot. We were shocked to see that, nothing really happen. And we talked to the… because retailer is one thing, but retailer just the follower normally. But I now this space interactions, but to the institution will be taking a leading role. So one more thing I need to add. We duel list this company. It’s really different to market in Hong Kong market and TSX market. TSX side. The Canadian side. The investors really understand mining investment is a long-term thing. But in Hong Kong side people only look like a short-term. They act more speculative, more than the TSX side, but some investor from mainland China they understand mining, but they go through some channels so called the connection between Hong Kong and the mainland development stock Exchange connection. We tried accessing that, but eventually but sat on that for one year because there’s some criteria. Your trading volume, your market… the market value needs be at some level. But China channel was shut down. We’re back to Hong Kong Exchange. So after 2010, we thought Hong Kong investor was understanding the China factor. They fully understanding what Central Asia know you mean. That’s a really positive factor than Hong Kong. So we pay more attention to Hong Kong than to the TSX. So that’s my fault. So we could be talking to the Hong Kong, and Hong Kong most of them are retail. They’re just following. More speculative. So when last year this kind of thing happened, because our institutional investor ‘oh, awesome it’s North American.’ But we found. ‘Oh, wait a minute. We should pay more attention back to the North American side’. That’s why since last October, we’re starting doing more to make communication with North Americans. There market let people the new story. So that’s why it a shock to me. Surprise people say your a new company, and they both say, ‘look at your solid deposit… Resource base, look at your solid management team and your performance. They said you’re a good company compared with some peers. But why are you undervalued that much’. People say, is there anything bad that we don’t know? ‘No, nothing I can tell you… everything has to keep there on chance. It’s the same. We’re still ramping up. But the stock price dropped down. That’s really our challenge. More people knowing about story.

Matthew Gordon: Well, I buy some of that. I do buy some of that. But, once you’ve kind of got the downward movements, very hard to move. Go back up. So going out and telling a story to retail is, I think, a big part of what you need to do for sure. But can you succinctly, very quickly, say what are the things that you’re going to do.. more than just telling the story… What are you going to do with the company to allow people to believe that you’re going to deliver it? You’ve talked about organic growth. You’ve talk about potential acquisitions, but it’s quite hard to make those acquisitions. But those are the big meaningful numbers that you can you can deliver. But what else can you do?

Jerry Xie: You know what? It’s basically right now we’re emphasising ourselves. First on the organic side for now, it’s because the asset that on the purity gold mine are operating very smoothly. Well, like I said, if the gold price is sitting at this level, even though we you know, we don’t do something deeper, utilise a deeper resource. Keep current operation level, it’s still like 160,000oz per year. So that money, if they went to the channel it to improving our recovery rate in the heap and to the profit the drop down this cut to make a bigger room for our profit. So that’s on the gold mine. But not mentioning if the gold price got higher, we can look at a deeper one, as the next step. So for the Jiama, it’s more that complicated. That’s a huge mine. So we would send that in the past few years we’ve done the expansion. We call that Phase 2. That is a big jump. From 6,000t per day processing capacity to 50, 50,000t processing capacity. Given that elevation, the mill is sitting on 4,400m high. So right now they need more time to ramp up, right now on the waste, ramping up. So we are focusing on reaching that design capacity as quick as possible because the Jiama, we say that it’s complicated. It is because the three type of deposit on the surface, 30s XXXXXX it lowers the grade. On the ground, it’s a skarn type. It’s around 0.8% to 1% at highest. The deep is the Porphyry. We haven’t touched it at all. Not touched it. So right now we’ll only work on the surface and the skarn type. So the challenge is the 50,000t per day. 33,000t comes from the surface. 17,000t comes from underground. So we right now are focus on how to increase in the higher-grades ores comes from underground to increase to 17,000t to like a 25,000t, 26,000t. That could make a huge difference to the current situation. But that’s our effort to put in.

Matthew Gordon: And that’s what you want to focus on this year, because you can control that. You’re in control of that, right? With M&A, you’re not in control, I think is what you’re saying to me. You’re on the lookout, but it makes a big impact, a big noise in the market. But you’re not in control. So the Copper Porphyry seems like a very big target for 2020. So what are you actually going to do in 2020 versus 2021? What are the big moments that you’re going to come back to market, say? We have done this. What what are you going to be able to say this year?

Jerry Xie: Like I said, yes. There we are focused on cutting costs in general. In the Jiama most likely this year and that next year, it’s focused on the ground higher-grade zone, increase that. So that’s what we are focused on.

Matthew Gordon: Are you’re nervous about anything. I mean if you got issues around water, permitting, license, infrastructure, all the usual stuff. Meanwhile, is anything that we know?

Jerry Xie: No. Because everyone thinks Mining in Asia really have that risk thing… everywhere is the same. It does mean… in any country it’s the same, even though.. our parent company, we relied on them because there are a operating genius. We relied on them because they have very strong influence in China. They’re Central ISOE. So they have very strong operation team, that has very good in relation to the local governments and the local community. Some people have a different imagination in China, I can tell you mining is exactly the same in Canada or to … mining is mining? You’ll have to try your best to make relations to the local community. If you don’t, your done. So we’re trying so hard to build up there’s a good relationship between local governments and their community, to acquire their support. So nothing else. Right now the environmental protection in China getting more strict, but they have to be kept at a reasonable level. So right now, the people already saying that the government already tolerates that direct to pay more attention to the environmental protection. But meanwhile keep at a reasonable level. So there’s no concern about the license of some challenge like this. The only thing we cannot control is the market. The metal price. Let’s say right now the Corona Virus. That’s really out of hand. You’re out of control you have no idea by that. You can see that. After all our trying to communicate this to the American market, our stock price is coming back a little bit last December to the beginning of January. Look at now. With that virus attack.. Another thing about our strategy is the China Gold Group has owned this company before, they have very strong support to this company. All can being with us, selling Doré to their smelters. They have few smelters, large-scale smelters. Every smelter with refinery. We sell to them at very favorable price. Because China Gold is vertically highly-integrated. If you have been to China. Terminal 3 International Airport. You can see that very big store, physical jewelry store named China Gold. They over 2,000 physical stores. Very influential. If it, you know, take the whole thing of China Gold. It doesn’t matter if it is China International oo China Gold Group, we share the same strategy, the same strength.

Matthew Gordon: Thank you so much for telling that story. It’s new to us. I really appreciate you talking us through that. I’d love you to come back on the show another time. And let’s get into some of these numbers and how you’re progressing things. But these seem to have a lot of very good options available to you. I think you need to help the market be clearer on what your focus is, and how you’re gonna deliver that. I don’t worry about your access to money. I don’t know. And you’re saying a lot of the right things. So I do appreciate the time you’ve taken today to do that. Let’s stay in touch and speak very soon, please.

Jerry Xie: Thank you all very much. And also welcome to hear the feedback from their market and what people really want know. We are fully open. There is really a high transparency, and we are open to all the questions.

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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Novo Resources (TSXv: NVO) – An Unconventional Mining Story

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Novo Resources Corp.
  • TSXv: NVO
  • Shares Outstanding: 179M
  • Share price C$2.58 (06.03.2020)
  • Market Cap: C$461.5M

We recently conducted an interview with Quinton Hennigh. He’s the President of gold explorer, Novo Resources Corp. (TSXv: NVO).

While you’re here, why not check out another gold investment article, or another gold investment interview?

Not all stories in the world of gold mining are easy to understand, especially when they don’t open themselves up to understanding via conventional investment measures. Novo Resources does not have a producing gold asset yet, but the market has given it a sky-high valuation. Why?

We discuss:

  1. The Novo Story: One Hefty Valuation
  2. Novo Resources’ Portfolio Of Gold Assets
  3. Potential For Gold Exploration
  4. Plans To Solidify And Evidence The Share Price In 2020

Company Website: https://www.novoresources.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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Trans-Siberian Gold (LON: TSG) – What Are Investors Missing?

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Trans-Siberian Gold plc
  • LON: TSG
  • Shares Outstanding: 110M
  • Share price GB£0.66 (05.03.2020)
  • Market Cap: GB£57M

Crux Investor recently interviewed Stewart Dickson, Non-Executive Director of Gold producer, Trans-Siberian Gold (LON: TSG).

Trans-Siberian gold is a gold producer located in the eastern recesses of Siberia. Dickson is pleased that Trans-Siberian gold is paying healthy dividends, but the market isn’t responding. Why?

We’ve got multiple gold articles for you to read on this website, in addition to many gold interviews for you to check out.

We discuss:

  1. Russia As A Mining Jurisdiction: People’s Perception vs Reality
  2. Burn Rate And Remuneration
  3. Managers Buying (Or Not Buying) Shares
  4. Telling The Story Differently: Getting The Excitement Back

Company Website: http://www.trans-siberiangold.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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Integra Resources (TSX-V: ITR) – Please do it again, Just do it again (Transcript)

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Interview with George Salamis, President & CEO of Gold Explorer, Integra Resources (TSX-V: ITR). CLICK HERE to watch.

Integra Resources is a development-stage mining company focussed on the acquisition, exploration and development of Gold-Silver properties in the Americas. The central priority of Integra Resources is the advancement of its DeLamar and Florida Mountain Gold-Silver Deposit on the DeLamar Project, Idaho. The management team is the former executive team of Integra Gold, renowned for turning a CAD$15M company into a CAD$590M (sold to Eldorado).

2019 was a good year of Integra Resources, and it has started off 2020 on the right foot. With a market cap of C$146M, Integra Resources has a share price of C$1.25, up from C$0.62 in May. This rise owes a lot to a great 2H/19 for gold, but gold price performance does not usually positively impact juniors so much; it usually mainly affects producers. Is this a sign of the confidence of the market in the management team? Do investors see development and potential production as assured processes in the hands of the Integra Resources team? Two pivotal events affected the share price of Integra in 2019: the release of a PEA, and a revised resource estimate, demonstrating a very low AISC of US$619/oz net of Silver by-product or USD$742/oz gold, and a year 1-10 average annual production of 124,000oz gold equivalent, made up of 103,000oz of gold and 1,660,000oz of silver.

The first point we wanted to cover was Integra Resources’ DeLamar asset: why would a gold producing powerhouse like Kinross have given up an asset if it was so good? Integra Resources acquired the DeLamar asset in 2017 for C$7.5M in cash and the issuance of Integra shares equal to 9.9%. Salamis insists that one key component to be aware of when looking to make mine acquisitions is to look for projects that were shut down in a low commodity price environment. DeLamar was shut down by Kinross because of low gold and silver prices in the 1990s/early 2000s. Therefore, Salamis is adamant that there is “still juice to be squeezed.” Let’s see if this holds true.

So, Integra Gold was the stuff of every investor’s dreams. How does the team plan to avoid being a one company wonder? Integra Resources will be developing a large resource with a great deal of existing infrastructure in a very favourable gold mining jurisdiction. The fundamentals look strong, and it’s hard to question the management team when it comes to technical proficiency or business strategy. Approximately 90% of the DeLamar Project global Gold-Silver resources has now been upgraded to an M&I category; this is a meaningful shift. How did Integra Resources get this outcome? Was it intentional? Mining is mining and even Salamis acknowledges that you have to get lucky sometimes.

Integra Resources has a large base of institutional shareholders. The retail component is smaller. Does this impact liquidity, and does this impact Integra Resource’s business decisions?

Salamis explains that for the next two years, it is full speed ahead in the exploration front; exploration capital won’t be available forever, especially once Integra Resources conducts a feasibility study and edges towards the realm of production. In terms of remuneration, this time around, Salamis and his management team have deployed their own capital to the point of 10% of the company. The principles remain largely the same as at Integra Gold, but with the added benefit of a larger piece of the pie for management, come market growth.

Looking towards the rest of 2020, Salamis will look to continue with this pivot towards high-grade gold exploration and will continue the discussion with the market regarding the metallurgy at Eldorado.

Interview Highlights:

1:39 – Company Overview
3:37 – Why Would Kinross Give up Their Asset?
5:13 – Replicating Integra Gold: The Plan
8:32 – Share Price Volatility and Rise
10:38 – Successful M&I Decision
13:33, 17:54, 21:45 – Shareholder Register and Funding: What Type of Money Will They Look for?
14:54 – Divided Between Business Plans: Which One to Take?
19:22 – Project Overview: What Have They Got?
23:18 – Remuneration Principles
24:47 – 2020 Moments to Look Forward to from Integra Resources

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

CLICK HERE to watch.

Hello, George, how are you, Sir?

George Salamis: Good morning, Matt, how are you?

Matthew Gordon: Not too bad, thanks for joining us all the way from Vancouver. We’re going to hear your story today, Integra Resources, but can you kick us off with a one-minute overview for people new to the story and we’ll pick it up from there.

George Salamis: To know Integra Resources you’re going to have to kind of look back pre-Integra Resources, which was Integra Gold, and I promise to stop using the Integra Gold word by April, which is the three-year mark of the sale of Integra Gold. So it’s a spectacular win for shareholders, obviously a USD$15M market cap, wing and a prayer exploration in Northern Quebec which we turned into a USD$625M takeover by Eldorado Gold. So it’s that same team that decided to stick together and sort of follow the same recipe that original success was derived from, and that is, brown-fields expiration, looking at assets that were perhaps unloved by major mining companies, in this case Integra Resources, the DeLamar Project in Southern Idaho had been dormant for the better part of 20-years, owned by Kinross and we had a feeling that there was a lot that was left behind and that there was a different angle of approach.

So we acquired the project about two and a half years ago from Kinross and at the time, no declared resource and roll the clock forward to today, 4.5Moz of total resources, a main PA study which wraps some pretty compelling economics around the project, and so we are of the belief that this is undoubtedly going to become a mine and it’s going to get a lot bigger, we’re fully financed, got a great roster of shareholders but most importantly this great team that brought you Integra Gold is back, for a second try.

Matthew Gordon: Right, we’ll let you off with the Integra Gold reference for another three months. But that was a huge success. I mean USD$15M to USD$625M and that’s Stephen and Andre etc, and they’re still with you actively on this project. I get that. Why would Kinross give up such a good asset?

George Salamis: It’s a question we get often. And, I worked for major mining companies for half of my career and mining companies do this as a matter of routine. An asset becomes tired. It sits as a liability on their books, whether it’s a reclamation liability or just a straight holding cost liability. And, so, there’s fatigue that sets in and then sort of hopefully the decision is made, we want out of this project, we just want it off the books. And it’s not just Kinross, other major minor companies did it. Placer Dome, for example, the company that I worked for, gave away many assets that are now very profitable mining operations. In this case, Kinross had this asset on their balance sheet for the better part of 20 years and it was shut down due to low Gold and silver prices of the late 1990s, early 2000s. And, so, it was one of these assets, and I think that’s key when you’re looking for an asset to acquire, look for an asset that was shut down during a low commodity price environment, which means there’s still juice left to be squeezed out of it but it was just sort of dropped for reasons of lack of margin in the case of Kinross.

Matthew Gordon: Okay. That’s quite interesting, as a phrase we’ve very little heard. Before we get stuck into what you think you’ve got, can we just talk about the plan when you set out. I know you wanted to replicate Integra Gold, I get it, but was there more to it? Because after the success of Integra Gold I guess you’re thinking, well if it worked there we can make it work again, but if you can explain a little bit about what you saw in this project specifically, which said I think this could be the same thing all over again?

George Salamis: Yeah, well, again, going back to the sale of Integra Gold and the group getting together essentially and saying, we’re going to stick together so what do we want in our next asset? And we looked to all of the attributes that we had and the asset that we got in Quebec that we had just sold, which was tier one jurisdiction, access infrastructure, great, large database to work with, and that I think is key, right? We’re not starting from scratch by any means, and friendly jurisdiction, government support in the case of Quebec, obviously a great mining jurisdiction, the case of Idaho. Same thing, right? We’ve got a very mining-friendly and supportive state government and a large resource.  And, so, it ticked all of those boxes for us. We weren’t about to go to tier-2, tier-3 jurisdictions. Been there, done that. Personally, in my career I’m getting a bit old to be going down that road. And so, the choice was pretty easy.

Matthew Gordon: Okay, and I know, again, it was a big number, USD$625M, but looking back is there anything you learned from Integra Gold process? Could you have got more out of it? Could you have pushed it out longer before you did the trade? Or did you get out at just the right time? And what can you bring into the new project that you learned from that?

George Salamis: Yes, I mean, I don’t that many people really realise that towards the end of the Integra Gold run we were really close to actually putting or flicking the switch on going into production. We had, I think it was, four term sheets that would have seen us fully financed into production, and we were six or eight weeks away from signing those term sheets. So, we were underground, the ramp was going in, we were buying all the expensive gear that you need to get into production, and then Eldorado came along with the bid and then it became basically a benefit analysis. You know, what does this asset look like fully developed by Integra and all, suffering the slings and arrows of getting into production and looking at the landscape of juniors who try and build something, the burning wrecked hulks of juniors out there who try and actually build something and fail, and the risks involved in that versus a premium offer which would put it in the hands of an experienced mine builder, and really the decision was equal at the end of the day.

Matthew Gordon: And you guys must have done quite well out of it yourselves. Very appealing.

George Salamis: We did, yes. We ploughed a fair bit of our own capital back into Integra resources.

Matthew Gordon: Yes. Okay. So, if I look at the share price in May last year, not so hot. It started picking up but it didn’t really start moving until this kind of Gold price surge in sort of late August/September of last year, and you benefit from that, even though you’re not a producer, which is kind of unusual. Most juniors, certainly not in production, didn’t really see that bump. What else was going on around then which kind of got the market excited about what you were doing?

George Salamis: We had two pivotal events occur last year, sort of around the mid-year mark, and, as a geologist, I would put equal importance, PEA versus the revised Resource estimate. I would personally put a lot more emphases on that revised resource estimate and that was key because not only was it a large jump in resources, but it was a large conversion of resource category. So, no longer were we dealing with 100% inferred resource, we’re now dealing with a 90% M&I resource. And that came by a lot of work that our exploration team did on site. So, for the first time this is where the investing public saw a discreet breakdown of the oxidation states of the mineralisation. I’m not allowed to call it ore, by the way, apparently, but mineralisation out on site per oxidation state. So, what’s oxide, what’s transitional material, and what’s sulphite? And that’s important for us because we find ourselves looking at this project as a heap leach opportunity as opposed to a straight milling opportunity, which is what Kinross were basically. It’s how they mined and operated for 20 years. They didn’t care whether this was oxide, transitional, or sulphite mineralisation, they were stuffing all of it through their mill and happy to get the recoveries that they were getting.

Matthew Gordon: Okay. Can I ask? I agree with you. Most companies which put out PEAs last year didn’t make a damn bit of difference to them in terms of the share price or people’s perception of what the value could be. Was that a conscious decision to move the M&I up so much? I mean 90%, that’s a significant shift. That’s a big number, right? Was that a conscious decision, knowing the outcome, or was that just you got lucky?

George Salamis: We have to get lucky sometimes, right? But, no, it was a conscious decision. Look, there’s, 250,000m of drilling that inherited in terms of a database from Kinross. The average spacing is 20m. And, so, if we were to categorise the mineralisation styles and specifically the oxidation states we knew we could get to a large conversion. Did we think it would get to 90%? No. So there was an element of luck there. But we knew that there would be a large conversion done that would occur by breaking down oxidation states.

Matthew Gordon: Like you say, you’ve had huge success in the past. I’m trying to gauge just how smart the team is here because if you have consciously decided to spend that money to try and move that measure indicated, and knowing that you would get that kind of result, that’s really smart, smarter than any story we’ve heard for a long time. But, given a lot of companies last year did, well spent money, and did things which had no material impact on their share price, you know, you’ve got to ask the question, how good or how strong or how logical were most of the management team spending money last year? But you’ve done something quite smart there. I get it. It’s deliberate. A little bit of luck, but deliberate. So, what’s the next big more for you? Or are you going to plateau for a while?

George Salamis: Yes, we’re trying to stay out of the Lassonde curve if you will, which is we’re flatlining for the next four years. In the course of marketing Integra and we all do it, myself, the IR team, we’re constantly polling our shareholders. What do you want to see? What’s important to you? And I would stay it’s split 50/50 between the crowd who just want to see us just explore. They don’t care about studies. Feasibility, that’s boring, it’s like watching paint dry on the wall. And we’ve got another 50% of our shareholder base who actually want to see us take this project as far as we can and de-risk the project with Feasibility Studies, with starting the permitting process which we’ll get to, I guess, later. So, we’re basically trying to satisfy both parties, which is keep the focus on exploration, will we de-risk the project with Feasibility Studies.

Matthew Gordon: That brings us to your shareholder register. You’re sitting with a lot of institutional money in this, a slightly more sophisticated audience interpreting what you’re going to do, what you have done, and what the numbers say, okay? I’d imagine they appreciated what you did with regards to moving that measure at an indicated number of three. And you’ve got a much smaller retail component here, so of the 50/50 balance there, the institutional guys want to see slightly more conventional reporting, Feasibility Studies etc. because it allows them to measure what you’re doing. Or is it different from that?

George Salamis: I would say amongst, and this is just a rough polling, but amongst our institutional shareholders for 50% of them keeping our foot on the gas of exploration to increase the resource size is very important for them. And, of the remaining parties, they just want to see us advance this project to a stage where we can make a development decision ourselves or perhaps in the hands of somebody else, development decisions can be made.

Matthew Gordon: So, what do you want to do? There’re different business models out there. Those are two almost opposing models. I don’t think you can necessarily satisfy both sides. They’re both equally good things to do but you, you’re CEO, you’ve got to pick one. What are you thinking?

George Salamis: Well, I know from personal experience that once a project heads down the path of, okay the Feasibility Study is here, we’re now declaring that this part of the project is now subject to permitting, I know that’s when usually the tap of exploration dollars typically runs dry, because you’re now, all of a sudden, allocating all your financial resources towards feasibility and beyond, if you will. And that’s the boring stage for geologists. I know that for a fact. We have two years to really keep our foot on the gas on the exploration side so, personally, I want to see that exploration accelerate or sort of just keep amping up because we are on to certain aspects of this project where we know we can grow the resource base perhaps to 6Moz or better. I don’t think that that’s going to be a big stretch in the next two years, but personally that’s what I want to see in the near term.

Matthew Gordon: Beautiful. So, 6Moz is a number you’re putting out there, there or thereabouts, right? Why that number? What does that give you? What does that tell people?

George Salamis: So, it vaults us into a different category. Again, just going back to the PEA for a moment, so the PEA study, the first PEA that we did on the project was really a snapshot of a project that we would build if we were to build a project today, down at DeLamar. And so, it was important for us to show a project that had a CapEx that was of a size that we could afford to raise. So, it was important for us to show a CapEx on a heap leach project with a small mill that would cost us circa CAD$200M to build, a company of our size, CAD$150M mark cap probably within range. If we had all the permits to build it today we could do that. However, the next iteration of a PA, which is to come out this year, is going to look at a much larger CapEx, a much larger production scenario, attracting a different crowd of investor, potentially attracting a different crowd of corporate buyer maybe. Maybe not the project that we would build because it’s obviously going to be of larger CapEx to get there but it’s that optionality of the project that we’d love. We’re going to try and maintain that optionality for as long as possible.

Matthew Gordon: Okay, so you’ve got a huge institutional following, you’ve got a big success behind you, you’ve made a lot of people some money, so conversations around capital must be a little bit easier for you, because USD$140M market cap-ish, today is not bad. It’s not bad at all. What are people telling you that they want you to do with regards to the type of financing and the type of raises that you may need to do over the next couple of years?

George Salamis: Yes, it’s funny. The mantra has been for the last two/three years, we don’t like royalties, we don’t like streaming deal, don’t take any debt on, equity only but please don’t dilute us and thanks very much, and invite us to the mine opening in opening. That sort of thing.

Matthew Gordon: I’m sure. Okay.

George Salamis: It’s very much just sort of straight equity and thankfully we’ve managed to raise money at successively higher levels over the last 2.5 years. We’ve resisted the temptation to issue warrants. That was one of the, how should I say? Roadblocks at certain times in Integra Gold. We had to issue warrants in order to get financings done and a big warrant overhang is something we had to deal with in the past. We don’t have to deal with that here now. Equity is it, I guess, is the measure.

Matthew Gordon: Right. And you’re sitting on enough cash to kind of get you through what you need to be doing for the next, how long?

George Salamis: This cash that we have now, just over USD$30M, is going to take us well into the end of the year, perhaps into January/February next year.

Matthew Gordon: Okay. So, maybe now is the time to kind of come on to the projects. Tell us a brief summary of the projects but what are you doing on each of those to kind of bring them up to the level that you want to be up at?

George Salamis: So, again, following this theme of an even split between exploration and feasibility level studies. So, on the exploration front for this year, we’ve got close to 17,000m of drilling to be done and that’s just pure expiration. Understand that in the last 2.5-years a lot of our exploration dollars have gone into twinning zones, slight moderate step outs, just to confirm a resource model. Now we don’t have to do that anymore. We’re doing pure expiration, step outs, at a distance away from the resource envelope, going into new areas that have never been drilled but have all the same hallmarks and signatures that DeLamar and Florida Mountain have, so we’ll be doing, call it, 17,000m of that exploration, with a pivot to higher grade because we’re getting on to signatures that are revealing themselves to be, this is where the high grade is, this is where you need to look for high grade. These releases have shown that in the last few months. In addition to that exploration, that drilling we’re doing, the target generation studies, lots more soil geo-chem, lots more geo-physics, lots more mapping, field mapping, so just to keep that sort of pipeline full of targets to keep drilling. And then on the, let’s call it Feasibility level Study angle, we’ve got about 7,000m of net drilling to do, and that’s essentially collecting enough material within the oxide and transitional material to study Gold and silver recovery variability within these two deposits. And that’s key, right? We’ve got a good sense of what the recoveries could be but for the level of Feasibility Metallurgy that we have to do, we have to start checking out what the variability is within outside and transitional material.

Matthew Gordon: Right. So, you’ve got just over USD$30M. That’ll take you through until January, 12-months-ish. So, you’re going to be smashing through that cash quite quickly drilling a lot of holes and moving these projects on. That’s quite a big deployment of capital, at the end of which what do you do?

George Salamis: Well, we would then have to finish off the balance of the Feasibility Study and, again, I get back to that two-year rule where we’ve got two years to explore the heck out of this project and then we get into feasibility mode. So, my expectation would be another sort of 15,000m to 20,000m of exploration thereafter and then we’re also into sort of nipping and finishing off the last bits of the study.

Matthew Gordon: Right. But in terms of getting equity you’re going to have to get some money in, in 12-months’ time.

George Salamis: That’s the fuel to the machine.

Matthew Gordon: Right. But a similar sort of number. Would you then like to deploy circa another USD$30M in 2021? Is that the idea?

George Salamis: I would love to be able to that, correct. Yes. My sense is that we’ll be raising money at much higher levels because we’ve got a couple of pivotal events to come out this year, kind of like all the expiration, but there’s PA update, which is going to show what we think is going to be a big incremental jump in our production profile, our estimated production profile.

Matthew Gordon: Okay. I need to ask, you guys made, you said earlier, a bunch of money for yourselves with Integra Gold, which is, well done, that’s the name of the game. How did you structure your own remuneration on this? Given you now don’t need to cash, were you much more incentivised towards the success of this company or are you pulling out large sums of cash for yourselves? Where’s the mindset when you set this thing up?

George Salamis: Yes. So, in Integra Gold obviously none of us had a lot of skin in the game because we didn’t have a lot of our own capital to deploy. This time around we’ve deployed our own capital and management, we own 10% of the company now.

Matthew Gordon: Yes, I saw that.

George Salamis: And we finance things and we buy on market, our shareholders keep yelling at us and saying, why doesn’t management buy more stock? So, we buy more stock and we don’t hear from anybody, no pats on the back, thank you. But it’s what we do because there’s good value in our stock. In terms of the remuneration of the group, it’s largely the same as Integra Gold. Because of our success we didn’t all of a sudden grant ourselves doubles and triples on cash and bonuses and so it’s the same.

Matthew Gordon: Okay. So, would you say you’re more incentivised now because you own 10% of the company? If this thing goes where you want it to be, that’s, clearly, you’re going to make a lot more money that way. So, you’re not being frivolous with the cash on yourselves. Okay. Fine. Can you tell us about what you think, you talked about major catalyst moments for this year are? I get the drilling, the exploration, I get maybe that you were aiming for the USD$6M but I don’t know where you’re going to get to by January next year but why do you think the market’s going to react so positively towards that and you’re going to be able to raise money at a higher price come, I guess, pre-Christmas, you’re going to need to start having conversations, aren’t you?

George Salamis: If I look back over the last two-years to sort of judge where shareholder value really took off and what news that was related to, really three things. Top of the list would be drill results and specifically high-grade drill results tend to move the needle far more than anything else and so, I talked about earlier, this sort of pivot to high grade focused exploration. We seem to be on to something there, especially in areas like Florida Mountain and War Eagle So, that’s number one and we’ll have a few of those out towards within the year. Point number two is discussions regarding the metallurgy. Consider this, for the last 2.5 years I’ve been answering questions, or we’ve been answering questions regarding the metallurgy of this project. It was this cloud over the project for two years to the extent that, why did Kinross sell this project in you in either, a, they costed the resource or reserve base, which we’ve proven. Something that would leave something (ENTER THE HOOVER ;-)) metallurgically challenging. In other words, all the good stuff and all the metallurgically difficult stuff has been what’s left behind. And so, we’ve been proven that that’s definitely not the case. And so, any metallurgical data that we put out tends to move the needle as well from a value perspective. And then the third point is the PEA study, the PEA that we put out last year was a big value driver for us. I think that was our big move from $0.90 cents to a $1.10-$1.20. So, we have a PEA update coming out which again a snapshot in time. This is what the project could look like on an expanded, perhaps larger, milling scenario. Again, with a heap reach component to it. But, yes, those three drivers, exploration, news, specifically high grade, met news and PEA I think are going to be the big value drivers.

Matthew Gordon: Okay. And in the presentation, you talk about some of these other opportunity and value enhancements such as the DeLamar, crush, the floatation, concentrate etc. So, you have identified other drivers of value down the line but for now your focus for 2020 is just that, is it?

George Salamis: Well on the PEA update end, correct. So, the PEA update is really going to be the same project that we put out last year in our Maiden PEA except for the fact that there were 2Moz of Gold and Silver, 2Moz Gold equivalent that was not included in that study that was essentially within a qualified zone, if you will, at DeLamar. We didn’t include that in the last PEA. This PEA update that we’re doing will include that +2Moz sulphide below the oxide and transitional zones at DeLamar. That’s going to require milling so the trick for us in studying that is to determine how much of that sulphide can be crushed down or concentrated, loaded, reground and leached on site, we believe a significant amount of it can and will be amenable to that. And how much of that will be crushed, ground, concentrated, floated and then shipped off to Nevada, for example, to somebody’s autoclave or roaster for final process.

Matthew Gordon: Again, just let me ask, because when we’re doing a little bit of analysis about you we were looking at your peers and people, purportedly peers, you know they’re not getting great valuations themselves. Do you think you’ve been fairly valued or do you think you’re getting a lot of credit because of your recent track record?

George Salamis: Do I think we are under-valued? Yes, massively. My dog could tell you that. I do believe it. It’s been, for the last two years, it’s been, we’ve been checking these boxes and we’re getting there and we’ll continue to get up the kerb, so I think there’s lots more value to be derived here, oh, absolutely.

Matthew Gordon: Okay, and you have moved at quite a pace over the last couple of years and I think we’ve had a few questions sent in to us where people are going, hey, where’s the news flow? Because I think you’ve been delivering lots of good news for quite a while. Do you think there’s some good news imminent for people?

George Salamis: Well, so we’ve cranked up the exploration programme again, so we took a bit of a break over the Christmas months, obviously, did the met drilling that we needed to do at DeLamar essentially to support future studies, and now we’re back into exploration mode with that one drill rig. That one drill rig will commence drilling here – it has started drilling already on one very high-grade target called Henrietta, which is something that we had a lot of success in, in 2018. I think the highest silver values ever derived on the project is the hole that we drilled, and we haven’t followed up on it since then, so we’re drilling that now.

That one exploration rig will become two in April/May, and then two rigs will become three in June/July. So, you know, things are going to accelerate here as we hit into spring and summer, on exploration.

Matthew Gordon: Beautiful. Thanks for that, George, that’s a really nice introduction. We’d not heard the story before. We’ve had a good look at you guys and obviously track record and it’s well documented and it’s nice to hear your plans now. It sounds like you’ve got no intention of soliciting unwanted offers for you at this point. As a geologist, you want… there’s a lot of fun to be had in the next two-years.

George Salamis: No way. We want two-years to squeeze more value out of this, because there’s much more to do. At least.

Matthew Gordon: Beautiful. Okay, well George, thanks for running through that story with us. I couldn’t help notice your mug there, do you want to give us a close up of that? What does it say? Weed, Crypto, Gold and Integra. Okay, in that order. Thanks again, George. We will stay in touch. Let us know how you’re getting on and we will share this with the viewers and continue to follow you with interest. Thanks again.

George Salamis: Awesome, thank you, cheers.

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

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Gold: Rio2 – Take Me To The River, Dip Me In The Water (Transcript)

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CLICK HERE to watch the full interview.

Interview with Alex Black, President and CEO of Gold Developer, Rio2 Ltd (TSXV: RIO)

We like Black’s honesty. The management team’s track record is good. They have made investors money. They have a problem with water but have a workaround. They had a large Feasibility Study plan, which has halved in size. Investors are concerned. We ask him why investors should trust him.

Rio2 is a Gold mine development company, focussed on taking its Fenix Gold Project in Chile to production, and its exploration platform in Peru. Rio2 used to be the talk of the town, but things have changed in the last couple of years. Since hitting CAD$2.85 at the end of March 2017, the share price has fallen to CAD$0.43 today. The market cap stands at c. CAD$78M. This decline will be more concerning given 2019’s strong gold performance. Why has Rio2 struggled? Black explains the primary driver behind Rio2’s fall from grace is the expectations of investors.

As a gold mine development company, Rio2 plans to methodically develop a fully-operational mine in the shortest possible timescale. While Rio2’s management team has an impressive track record of developing gold mines, demonstrating technical prowess and adding value, what are they doing today to get Rio2 out of this slump? Strangely, given the current gold bull market, Rio2 has decided to reduce the scale of the gold project laid out in a PFS conducted by a different company in 2014. Why reduce scale? Black acknowledges it might take some of the “sexiness” away from the opportunity Rio2 presents, but is adamant it is the right way to go.

An updated PFS was concluded in August 2019. The scale is down to get cash flowing. CAPEX has reduced from USD$400M to just over USD$100M. The strip ratio is lower and the IRR is slightly higher, but the AISC has increased, for now. This is a low-grade gold bulk tonnage operation, so surely scale is the most important element of this resource? Rio2 will seek to get the gold mine constructed as quickly as possible to create value, increase the production rate from an initial 100,000oz per annum to 200,000oz of gold per annum, and reward investors with returns.

Black is keen to explain how his team is different from any other junior: diverse with a variety of specialist roles. Black also touches on the environmental and political challenges of Chile as a gold mining jurisdiction, with a particular focus on the water licence/trucking situation. Is this interim solution effective? Black is attempting to concurrently apply for a permit while generating cash. This could mean investors won’t have to wait as long for value to be added.

He then explains why an EIA should be very straightforward for Rio2 to complete in the next few months. Rio2 can’t afford to hang around. Investors will want to see results soon. Rio2 has about US$13M in cash currently. They’ve already spent c. CA$40M on the project.

Rio2 is going to be telling its gold story to the markets. What is going to make them stand out? Long-term Rio2 is M&A a possibility? Rio2 will continue to pursue strategic acquisitions with the intention to build a ‘multi-asset, multi-jurisdiction, precious metals company focussed in the Americas.’

Interview Highlights:

1:48 – Company Overview
2:41 – Share Price Decline: What Went Wrong?
4:11 – Background and Business Plan: What Did They Set Out to Build?
10:41 – Finding Value: Why, in a Gold Bull Market Situation, They Choose not to Expand? 19:57 – Jurisdiction: Water, Power and Political Challenges
27:07 – Money Spent on the Project to Date
28:27 – Raising the Share Price: How Will They do it and Why Should You Invest?

Company page: https://www.rio2.com/

Matthew Gordon: Thanks for joining us today. You are going to tell us about Rio2.

Alex Black: Rio2 is a mine building company. We are mine developers. We have built two mines in the last ten years here in Peru: La Arena and Shahuindo, when we were the old Rio Alto. And here we are again with a flagship project in Chile, which is very much a buildable proposition. It’s a large Gold deposit, and obviously, in this video you will learn more about it.

Matthew Gordon: You are after Gold. Let’s start with the big stuff. Share price: you have been absolutely hammered since 2017, for a long time, you were the darling. I remember people talking about you a lot. But since then, it has been on a downward slope. What’s gone wrong?

Alex Black: I think, once we became a mine development company, people’s expectations changed. I’ve had a lot of people ask me the same question and I’d say to people, ‘Look, if you are looking for the quick 10%, 15%, 20% increment in share price, because of drill holes or drill results or exploration results, that’s not us. We are actually in the process of getting a project ready to turn into a mine. This happened, to a certain extent, this happened to us back in 2009, when we started Rio Alto; it took a lot of time to get traction in the market, for people to understand and believe the story. And then, once we did, everything took off from there. Rio Alto started off as a USD$12M company when we acquired La Arena, and on the take out with Taho Resources, we were USD$1.2Bn. So we did create value, we can create value and will create value in this company.

Matthew Gordon: I have seen the track record, it is pretty impressive. Those are big numbers but that’s history. We’ve got to talk about today. What did you start off thinking you were going to build? What was the business plan Day 1?

Alex Black: What we did when we acquired this asset, it had a pre-feasibility study which was put together in 2014. Typical Junior company pre-feasibility study. Big project. Big CAPEX. Big NPV, everything big. Why? Because they were never going to build it. They were looking to flip it and it never happened. So we looked at the asset and we said, there’s some analogies here between what we have seen, both at La Arena and Shahuindo, which we both operated, built   here in Peru. And we said, look, the way we started those two projects was to start small and incrementally build up, and we created a lot of value doing that.

So, going from a USD$400m CAPEX in the original pre-feasibility study done in 2014, to our CAPEX today which is about USD$110 – 115m is a big change, but it is completely doable now because of that gearing down of that particular project. So with La Arena and Shahuindo, we geared down right at the beginning. We had the opportunity to build some pretty reasonable sized projects, which they eventually got to, but we started small and we are going to do exactly the same.

Matthew Gordon: It was another management team that had done this PFS in 2014?

Alex Black: Yes. Let me give you a quick overview of the story: Atacama Pacific discovered this asset in 2010. It was a geological discovery. Albrecht Schneider and Karl Hansen, who were the two principals of Atacama Pacific, they drilled this thing out and low and behold -bang! They hit pay dirt and cobbled together a reasonable sized resource. And the problem they had, because they were exploration geologists, they just didn’t have the ability to then take it that step further. And that’s part of the issue with the market these days; there are a lot of the companies out there with some good geologists, but at some point, they need to step aside and let a mining development team come in and take the project forward, and the company forward, after they have done it because there are too many disasters of people who just don’t know what they are doing in this industry. So in our case, we identified this opportunity. We thought this was right down our alley, being a Gold Oxide heap leach project, and we acquired it and then convinced them that they should be doing a deal with us.

Matthew Gordon: So the previous exploration team came up with a very large Capex number to build a very large scale mine. You then came in and said let’s start smaller, and get some cash flowing, and then we can build it out from there. So this is more like a Phase 1?

Alex Black: Exactly. We try not to call it a starter project, but essentially it is; it is a starter view of the project. And I think that is what not has translated through to the market. The market has gone – ‘oh shit, you know, you’ve got 5m oz of Gold, but you are going to build this really tiny project. Why are you doing that? And so, once again, typically, a Junior company would drill this thing, keep drilling it. We’ve got 1.4m oz of inferred resources here that we could pull a drill rig up to tomorrow, start drilling and convert most of that to indicated. But why would we do that? We’ve already got 5m oz before we even get to that point. So, we are all about building mines and that will translate to value down the track.

Matthew Gordon: It’s one thing saying the market doesn’t understand, but the reality is that that is your fault; you haven’t explained it properly.

Alex Black: What I say to the market, we started off with a reasonable valuation when we did the Atacama transaction. We then ran into this bad market. We raised about USD$7M back in February 2019. We had to put money together because we had to advance the project so that was done very cheaply. What can you do? You have got to go with the market. The market says that you are worth USD$0.30 c, at the time, or whatever it was. And we took the money. And then later on, in August 2019, we did another financing. This time it was a USD$25M financing. That financing was led by Eric Sprott, and a whole bunch of people came into that financing with Eric. When I say a whole bunch of people, people that I don’t even know, they are mainly retail followers of him. So they are the people that don’t understand what they are getting into. They follow Eric and Eric typically gets into stories that are exploration stories, putting out drill holes and things like that. We are not one of those.

He bought us because he could see us as being a little bit different to those other stories that he has been into. So the crowd that follows him watches that and goes, where’s all the juice here? Where’s all the sexiness here? All the sexiness happened back when this thing was discovered, now we’re going to build it.  As you probably know, in the lifecycle of a development company, this is the quiet time because here we go, leading ourselves into the construction phase of the project.

Matthew Gordon: Let’s go through some of the numbers: so you have taken the PFS and said ‘we are going to create a Feasibility Study, we are going to reduce the scale of this project, just to get things going’. So you have managed to lower things like the Capex down to, from whatever it is – down from $400M, strip ratio is lower; the IRR is slightly higher. The AISC has gone up. Because you haven’t got the scale there. This is a low grade, bulk tonnage operation.

Alex Black: Well, there are three peaks there. 1, 2 ,3. And basically, we’ll be mining all three of those. This is an extinct volcano. And you can see, hopefully you can see that photo clearly, but what I see here is terrain that is very accessible, and everything outcrops at surface so we are just knocking the tops of those hills off. It’s a beautiful thing and it’s very simple.

Matthew Gordon: Let’s answer the question the market is asking you, which is in a Gold bull market; prices are USD$1,500, your AISC is about $1,000, so there’s money to be made; surely you can go out and raise capital? You can put it back at the original PFS levels can’t you?

Alex Black: I think we can get the money to build this asset. The good thing is, we raised USD$25m in August. That money will last us all the way through, and we are going to make it last us all the way through to EIA approval. We are about to file our EIA in the next few weeks. And then we are anticipating approval about 12 months after that. Once we have got that, we will be in a position to look at raising a lot more money and obviously, taking a lot of the risk out of… any development project is getting the EIA.

Matthew Gordon: But the question was different; the question was, in a gold Bull market, USD$1,500 or so, you are making USD$500 per oz, you are still going with a smaller project – why?

Alex Black: Because we are a USD$70M valued company. If we were a USD$500M company, maybe we would go harder at this. But one of the key constraints we are dealing with here in Chile is water. Let me just clarify this because it is not as though there is a lack of water, there is plenty of water. We are right near to the Maricunga Salar. There is no mining going on in this district, right?  There’s plenty of water rights in this district. The issue is: applying for water rights is one thing, but getting permanent water rights, which means you can pull water from the rights you have been given, is another thing. That’s the issue in Chile. That’s been generally created by a big demand for water, to the north of us in the Atacama Salar, which is way to the north of us. We have all the big guys: the Codelcos and the Rio Tintos and the BHPs with Escondida, Quebrada etc, etc. There has been a huge drain on water supplies in those areas. So the Government has gone, ‘whoa, let’s just slow down here’. But it is supply that is slowing down for the whole country, as far as water is concerned.

Matthew Gordon: That doesn’t answer the question: are you able to go and have conversations with institutions, funds or strategic partners, to give you more money to do the larger project, yes or no? Or are you telling me that because of the water constraints, people are not minded to fund you for the larger level project?

Alex Black: So, if we had the water rights, and we had permanent water rights for 80 litres per second, which would satisfy an 80 tonne per day mine, we would aim to try to build that. Once again, constrained by our balance sheet and the size of our company; we are a Junior company. So, what we have done is, we have elegantly, I think, we have looked at how we expedite the start up of this project without getting entwined in this water rights, water permitting issue, and that is to truck the water from Cupiapo to the project.

Now -140 kms. And we can do that. It raises our AISC to about USD$1,000 per oz, as you pointed out. That’s at the moment, I think we can show that we are working on bringing that AISC down as we get closer to and into production. But the idea is to bring enough water up. 20,000 tonnes a day requires about 2,000 tonnes of water. So it is about 10% of the mineral that you put on the pad, is required to be irrigated on the pads. So we need to bring up 2,000 tonnes a day of water from Cupiapo, and we can do that in trucks, in tankers. We have costed it out. It’s about USD$1.50 per tonne. That’s haulage costs, water costs, all in costs, to drive from Cupiapo to the project, 140 kms. Eminently doable.  A lot of people go, ‘How do you do that/ Why are you bringing water up in trucks?’ It’s like any other consumable. We are going to bring fuel up in trucks, we are going to bring explosives up in trucks, we are going to bring everything up in trucks.   There’s a major international road that goes from Cupiapo to Argentina, it’s between 15kms to 18 kms of the mine, of this peak. So the infrastructure is fantastic. So bringing up trucks is not an issue. And I want to say that because I’ve had a lot of people go, ‘The only push-back here is the water.’ And I have said, ‘Why?’ We have got a solution for water: 20,000 tonnes a day, 2,000 tonnes of water going to come up the road, every day, eminently doable. We have costed it, we have worked it out and it has been built up into our EIA. What is does do is speed up the EIA process because we are not pulling water up from the ground. So we are going to have an EIA approved, according to our consultants and according to all our officials that we have been talking to, the authorities, etc, we will have an EIA approved in about 12 months. And that’s running fast in Chile, right?

If you look at the latest EIA that was approved in Chile; it was for Salar es Norte: a big project that   Goldfield was, I don’t know, 150 kms to the north of us. They got that approved in 18 months but that involved tailings deposition, permitted water; very complex project in comparison to what we had. So that is what it is all about. And you are right; Gold is USD$1,500.  How long is it going to be USD$1,500? It could be more than USD$1,500, obviously.  The idea is to get to production as quickly as possible. That is what will create value for us and enable us to increase production from our initial rate of maybe 100,000oz per annum to plus 200,000oz per annum.

Matthew Gordon: I agree. I understand the model. You have been very clear about what your model is. Get into production as early as possible to generate cash. You have got to get into economic production.  I know water is the big issue that everyone wants to talk about – let’s just cover it and move on.  So you are trucking water up the mountain, I don’t know how many trucks that is and how many times a day?

Alex Black: I’ll tell you right away: very quickly – 25 trucks going up three times a day. So it is 75, essentially 75 trucks. We are going to have 25 trucks physically in the fleet that will be contracted out. And that means a truck, leaving Cupiapo, essentially, every 20 minutes.

Matthew Gordon: As an investor, all I’m concerned about is what does that add to the bottom line?  You have said it has. I’m more concerned and institutions will be concerned with this interim, this temporary solution is over strikes, or the towns and villages that you go through not liking 75 trucks going through each day, every day.

Alex Black: So we will be bringing the trucks up to the project and depositing the water, we are not going to be building a separate reservoir, we will be depositing the water in a major events pond. The major events pond is secondary to your leach pond that accumulates the pregnated cyanide that you are going to put through the plant. The major events pond will have the capacity of about 2 weeks of water, right. So we will make sure that before we start this project, we will fill this major events pond up and we will keep it filled up which means that we therefore have about 2-weeks of water. So if there is a weather event. Whether there is a labour event, or something like that, we believe that will be a way of mitigating those events.

Matthew Gordon: Well, 2 weeks of events. Sometimes these things can go on; whether it is natural events or people protesting or otherwise. And let’s face it, that happens in that part of the world a lot. So I appreciate that.

Alex Black: Good point but however, but during the latest event that happened in Chile, mining was not stopped anywhere in the country. And the road between Copiapo and where we are was never barricaded or anything like that, for any reason.

Matthew Gordon: Will you be applying for the full-permitted water license while this is going on?

Alex Black:  What we have guided is, we are looking at the longer-term water options, and there’s plenty of them. There are people building desalination projects.

At Copiapo and the coast.They are looking for clients. They are looking for end-users. The off-take we have with the water retreatment facility in Copiapo, owned by Aguas Chanar, we have the right to access up to 80 litres a second, which is for the bigger project, we are pulling 20 litres a second initially and putting them into trucks. We could build a pipeline from Aguas Chanar to the project, that’s still a possibility, we may do that in consortium with other people doing business in the area. Codelco have just mentioned that they are going to apply for exploration rights over the Maracunga Salar for Lithium. There’s going to be quite a lot of activity in that area. Having Codelco, the biggest mining company in the country, as our neighbour is going to be a good thing, I believe.  So there are options that are in the background, that we are working on and as we bring this thing into production, we will be able to say, we are in production now and in year 2, we are going to tap into this water X, whatever it is and we are going to increase production accordingly.. So that is how we see these things playing out, but I just don’t have those solutions –

Matthew Gordon: Today.

Alex Black: Right.

Matthew Gordon: Okay. So at that point, you are going to have to apply for an EIA permit, presumably?

Alex Black: Well, you do a modification.

And that’s the good thing about it; the modification of the EIAs take 6 to 8 months, typically. We have done quite a lot of research on this. Once you have got your first EIA, then it becomes a much easier process o modify and do things.  The good thing here is, and this is what investors need to understand: this is 100% Gold Oxide leap leach. There is no tailings, there is no complex sulphide transition zone, etc. This is going to be Gold Oxide heap leach. Which means no tailings dam. It’s only ever going to be a leach pad. So all the modifications we do to the EIA, will be relatively simple compared to this transitioning into a major sulphide project or a complex project with Copper and other things. There’s no Copper here. This is an anomaly in the Maracunga region: this is an anomaly because all the other Gold deposits in the Maracunga are associated with Copper, complex metallurgy, huge CAPEXand complexity.

Matthew Gordon: How are you getting power to site? Using diesel, or have you got another solution?

Alex Black: There’s a powerline within 15kms of this project. But instead of tying ourselves to the powerline, going through the negotiations, including that in the EIA, which would delay start up of this project, we said to ourselves, I’m going to start this with Gensan, which we did with La Arena, which we did with Shahuimindo, here in Peru. Once you tie yourselves into the grid, maybe in year 1 or 2 of production, Gensan then becomes back up power. So, we are going to start with Gensan and bring diesel up and power it that way. But there is a powerline 18 kms away.

Matthew Gordon: And how does this work? I’ve looked at similar projects elsewhere in the world, the people controlling the water, the people controlling the energy. They put their prices up at their discretion and that has a big impact on your costs. So what is it like in-country with regards to power, water, etc?

Alex Black: Well, in the case of water, we have got a fixed cost on water so there is no inflation built into the cost of the water we are pulling. We are actually using retreated sewage. Which is good from a leaching perspective, probably from other allergical perspectives it may not be, but for leaching it is okay, so we have got a fixed price. Energy:  Energy used to be a huge problem in Chile years ago and now it has stabilised and there is much more power on the grid. But typically, if oil prices go up, Gold prices move and other things – these are things we have to watch and build into our models as we go forward.

Matthew Gordon: How much money have you pumped into this project so far? You have talked to me about USD$7m and USD$25m, so far in cash, but how much did you pay?

Alex Black: Oh, we just did a share transaction; so we did a business combination with Atacama Pacific. We paid a premium – they were lucky because these days, nobody pays a premium.  It was all paper. We have raised in total so far, I’m just trying to do the maths, about CAN$40m, from the time we started Rio2, and here we are.

Matthew Gordon: How much cash are you sitting on today?

Alex Black: Today, about USD$13m.

Matthew Gordon: So you have spent about USD$40m, your market cap is about USD$75m – ish. You have about USD$13m in the bank.

Alex Black: And we are mixing currencies here. Let’s say it is CAN$15m or CAN$16m, sitting in the bank

Matthew Gordon: Sitting in the bank. Okay. So what’s going to happen this year that’s going to change the direction the share price is going in? Are you going to spend that on talking to the market more? What are you going to deliver?

Alex Black: Two things: we are going to be telling the story a lot more. We have just come out of the Christmas/New Year period. We came out with our updated PFS in August/September. We did two shows in Colorado. We went to New York last year. We are going to be going to Zurich this year, to the Denver forum in Zurich in April. We are going to be doing London, Frankfurt – you know, we are going to be marketing, telling people the same story I am telling you right now. So that’s one thing we will be doing. From a news perspective, we will be filing the EIA towards the end of the quarter. That’s a major milestone. We are also in the process of completing all our basic engineering for the project and that will be able to reveal how that looks, what tweaks we have done to the look of the project and traded off on OPEX, CAPEX to get to that point. We will start to talk to financiers about the project, once we get the compete overview of the project that is filed in the EIA, to present to financiers.  We will be doing that.

We also are refining our agreement with Aguas Chanar, which will be to our benefit and we will be announcing that at some point. We are also looking at the future of tying into the grid. We will be announcing things about that. That won’t be for the start-up of the project, but the longer-term future. And we will talk about the impacts to OPEX and future sustaining Capex that we will need to do those various things.

Matthew Gordon: That just sounds like every other story we are hearing every other week. I am trying to work out, what do I need to hear that says, this guy knows where this thing is going, alright? We look at people like Equinox right? They cleverly brough together three quite ordinary projects and did something quite big. You are in a district-wide, you have got Kinross behind you, who aren’t doing too much at the moment, and you are surrounded by some other big names. And you have got Eric Sprott involved in this thing, so why aren’t you offering up a bigger vision?

Alex Black: We have been talking about a bigger vision, and the bigger vision is to consolidate ourselves with other companies. We’ve got a management team that is second to none.

Matthew Gordon: You certainly have. So let’s do something with it.

Alex Black: And let me tell you, for the last three years, apart from doing this acquisition, for the last three years, we have been looking at lots of things. We are completely different to other Junior companies. We’ve got a full team here: geologists, financial people, mining people, environmental people, social people.  We can walk into a mine tomorrow and run it, anywhere, anywhere. And the other thing we come with is our Capital Markets experience, because I’ve been doing this for the last 20 years or so, front-end of companies, so we’ve got all the ingredients. But you think, there are people out there that, us plus them, that would look interesting, like what Equinox has done with Leagold, etc, let me tell you, it is just so difficult. So difficult. And there is entrenched management. Lack of management in various companies, skimming the game like we have. But you try and convince them that putting them together with is would make a lot of sense for the future of the company and also for shareholders, and it is like you might as well be talking to a rock.

Matthew Gordon: You’ve got Eric Sprott who is a big player. What does someone like him see in you? Is there something we need to know?

Alex Black: We continue to try to find deals. We may come up with something in the next short little while and everyone goes, wow, you’ve made the right move. All I’m saying is that until now, it has been difficult. With Eric, he is backing our management team, he has invested in a lot of things. At some point, those things have to perform. My reckoning is that they are either going to perform or he will potentially be a catalyst for consolidation, right?  You can have X number of investments but if they don’t form, it’s like, well why don’t I reduce the size of that pool to buy a factor of 2 or 3 and put things that have synergies or focusses that could be combined, and maybe that’s what he’s going to do. He hasn’t really said anything about that but I’m hoping he does that because at the end of the day, that’s what this business needs: consolidation.

You know what interests me as well? You know, here we are, we have been trying very hard to look at consolidation. Do you think anyone has come to me to say, why don’t you consolidate with us? Not one person has done that. That shows you the state of this business.

Matthew Gordon: At some point, as you say, it makes sense that he has got to pull the trigger because there are a lot of fundamentally good assets, there is some very average management and then there is some exceptional management.  I think your track record speaks for itself. What I’m hearing is: get into production early, earlier than you originally planned, and get some cash flowing.

Alex Black: Get into production that anyone else would do with this project. If this was in the hands of Kinross, they wouldn’t be doing what we are doing, right? If this was in the hands of anybody bigger, they wouldn’t be doing what we are doing. They would be looking at what impact can we make to 200,000+ oz per year, etc. So, we are doing something that nobody else would do with this particular project. But we did the same, and you’ve got to go back, and I keep harping and mentioning La Arena and Shahuindo, we did that there. We started those projects very small: La Arena was 10,000 tonnes a day to start with, focussed on high-grade, outcropping materials, which is exactly what we have here. And so, you know, we have that skillset to be able to do it and to have the vision of what it can become. What the market will eventually do, and this happened with Rio Alto, their market will eventually gel with that and go, yes, I want to be in this story.

The problem is that we are not in production yet. The closer we get to production, the more the interest and value will come into the story because everybody will doubt that we can do this, irrespective of the fact we have done it twice before, that’s just the nature of the market. People go,  ‘Oh, can you do this? You have never built a mine in Chile, have you?’ Etc, etc. It’s one of those things and I’m very pragmatic. I’ve been in the business 40 years.  I’ve been at the front end of the business for 20 years. I’m a technical guy, I’m a mining engineer. All I do, I’ve got a great team of people behind this wall here. Great team of people: second to none here in Latin America. All I do is   just focus on what we’ve got to do, let’s just show people that what we’ve been telling people for the last piece of time, we actually deliver on, and that’s all we can do – is deliver and execute on what we say.

Matthew Gordon: We shall see. Alex, thanks for telling us the story today.

Matthew Gordon: Alex, I appreciate your time, telling that story. It was great to get you to articulate what the plan is and why you’ve been doing it in this order. I can understand that now. I think you have got to get out there and tell the story in an articulate way to the market place, because your share price says; no one understands it. Eric Sprott coming on board – great new addition. I’ll look forward to seeing how your relationship with him develops.

Alex Black: Alright. And I just want to say that I like the way you ask questions; the tenor of the questions that you ask are really good. I think it really suits people who are maybe not so knowledgeable about mining, so you are doing a great job. Keep doing it. I look forward to following up.

Matthew Gordon: Thanks, Alex.

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 Rio2 company logo.

Serabi Gold (LSE: SRB) – Ready or Not At All, So Close Enough to Taste It (Transcript)

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CLICK HERE to watch the full interview.

Interview with Michael Hodgson, CEO of Serabi Gold (LSE:SRB, TSX:SBI)

Apologies for the quality of the internet connection, Mike was dialling in from the country-side.

Off the back of yesterday’s press release, Mike spoke to us to give us a bit more colour on the details about :

  1. The Public Hearing
  2. The result of the first months test on the new ore sorter. Link here to a video of the ore sorter working: https://www.brrmedia.co.uk/broadcasts-embed/5e3a8fe1397af40afa52b27e/event/?previewEventId=5e3a8fe1397af40afa52b27e&popup=true

Interview Highlights:

1:30 – Public Hearing: A Positive Outcome
3:43 – Ore Sorter: How Does it Work?
9:56 – Focus for 2020: Exploration, Drilling and Building Value

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

Matthew Gordon: Hello, Mike, how are you, Sir?

Mike Hodgson: Hi, Matthew, very well, thank you.

Matthew Gordon: Good. Well, look, we saw the press release this morning, thought we’d try and catch you, and it sounds like we caught you at a good time, you’re off to Brazil tomorrow. So, why don’t we talk about the public hearing first of all which you told us about last time we spoke, but it seems to have gone well?

Mike Hodgson: Yes, yeah, I mean, you don’t get a definitive answer in the actual public hearing itself but you obviously… it could go very wrong on the day, so I mean if you have a positive public hearing in terms of like, everyone sits down and listens and all the stakeholders have the conversations and are all heard over 6-hours and there’s no… you know, it’s all done in a cordial manner, which is exactly what happened, you can’t have anything more.

So what we actually have there. It’s chaired by the State Environment Agency, called SEMAS, and they chaired it and all the various stakeholders had their say and we had pretty much overwhelming support, which was great. So they will now go away and digest all of those comments, people’s concerns, people’s wishes, people’s wants, and they will then make a recommendation to a governing body which is called KOHIMA. They’re the guys that actually, ultimately, either ratify it and take it to the board. So they’ll listen to all of the, as I say, all the comments and concerns and they’ll come back, hopefully, with an LP for us, we hope within the next sort of six to eight weeks. That’ll be a great result, we’ll be delighted to get it done so quickly.

Okay, it’s slipped a bit compared to what we hoped, but you’ll remember we had to live through all of those tailings dam problems of 2019 with Brumadinho and how that affected everybody in the mining industry in Brazil. We’ll obviously get the EIA resubmitted and the public hearing still early in 2020 and seemingly gone through in such a positive climate in a way. Yeah, I think we did a really… we’re very pleased. Very pleased.

Matthew Gordon: Well I guess you had the benefit of obviously Palito, existing business, running without any issues and you obviously had the support of the local community from that, so that all helps. And I think people mustn’t underestimate the importance of this, and we’ve certainly spoken to a few companies in the last couple of weeks who are suffering from not being able to get through the process, as it were.

Let’s talk about the ore sorter, because I’ve watched the video which kind of explains it all to me and we’ll put the link up above here now so people can go to that. Can you tell us the impact? You’ve been running it for the best part of a month and it seems to be delivering quite well. I’m looking at some numbers here, so you fed in 1,266 tonnes and you’ve identified 1,076 tonnes of waste, so that’s significant.

Mike Hodgson: Those numbers aren’t really terribly indicative. I put them in there because obviously we switched it on just over a month ago and we’ve been putting through some pretty miniscule tonnages, and we’re just playing around with it really, trying to find the sweet spot. And we’re using different types of ore. Some of the ore is actually sort of more massive sulphide ore. So really, I put those numbers in there to show people, hey, you know, it was a pile of rubbish, basically, sub-economic, very uneconomic material.

We passed it through the ore sorter and we just pulled out 200t at, like, 7g/t and the rest of it is a big pile of waste, and that just shows what this thing can do. And the video shows it, that it’s going in, you know, it’s crushed material which is 80% waste rock and if you look at underground face, underground, if you just eyeball that you can see, well hello, 80% of that face there is waste and 20% of it is a band of ore. That’s exactly what the ore sorter does. When that thing’s all been crushed it can actually eliminate all that waste and just scavenge out that sort of high-grade band of the sulphides where the Gold sits, and that’s what it does.

So I think we can see straight away it’s a very… it’s great at just scavenging out the ore out of the waste. And we won’t put our best material through it because it’s not an exact science, there are always going to be losses. Like, you will get ore going into the waste system and you will get waste going into the ore system, but I think the best way of describing it is, it is a waste remover. That’s what it is, it’s a waste remover and it’s an ore scavenger.

So we are only really using it at the moment and will be only using it until we’ve got this absolutely nailed, we’ll only be using it on our lower grade ore development, which is where we’re just driving along the [inaudible 00:06:06] in its most diluted materials, that’s the material with all the waste rock in, and it’s great for just recovering the ore out of that material and not having to pass all that stuff through the process pond which up until now had been completely constipating our process plans with this material.

So if we get rid of that, first of all we save ourselves, just by getting rid of that material and going for 500 tonnes a day at 7g/t, 400t per day at, say, 9g/t, you’re going to save yourself about USD$1M a year at cost which means the payback on this machine is about 18 months. But, more importantly, what it will do is it will liberate 100t a day of free space, which we can then use again to add more high grade or make our little process plant produce, instead of 40,000 ounces, which it can do today, the same plant with the same size and through-put can do 50,000 ounces. That’s the beauty.

Matthew Gordon: That’s truly remarkable. But it doesn’t actually identify Gold per se, does it? Explain to people what it’s actually doing? They can watch it in the video but I thought it was interesting to…

Mike Hodgson: Very, very important, the distinction. When you look at that video you see that yellow shiny stuff, people I know would be very excited if that was a band of Gold. It’s not. That is a band of sulphides, mostly charcoal pyrites which is a copper sulphide and pyrites which is an iron sulphide. And all of our Gold is very fine-grained contained within those sulphides. So, our ore sorter has two metals that actually split differentiating between ore and waste. What you’re always after with any type of ore sorting, whether it be diamonds or, as we’re doing, Gold, or whatever, you need contra between your ore and your waste, dark contrast. So it won’t work terribly well on a disseminated ore body? On an ore body like ours, which is very sharp, it will. So, what it’s actually doing, you crush it down to about a quarter of an inch, half an inch, so you can see there, an inch to half an inch, and you pass it through either a colour sorter or an x-ray sorter. So, let’s take the colour sorter first. In our case as you’re dealing with video, pink-based and the rest is ore. So you can just simply say, right then, I want to collect anything that’s not pink and it will just literally identify any stone that’s not pink and throw it off on to different belts as you saw in the video and the pink, the granite, will just fall off the edge as waste. Alternatively, you can sort on atomic density which is where you use the x-ray sorter, so it’s a piece of equipment not dissimilar to what we have at airports, you pass through it, and it’s actually penetrating every stone on 1mm centres, so it’s hugely detailed. And there’s a 3D sample so every stone gets analysed for a percentage or its atomic density and, of course, the granite rocks are much less dense than the sulphides and the ore rocks so, again, there’s a big contrast in density between what is the ore and what is the granite. So, again, we can sort on x-ray as well. And, if we really want, we can’t do it at the same time but we can – we haven’t tried that yet – but what we can do, we can sort once on, say, density, save the pile, and then you can pass the pile again and sort on colour. So, the permutations are endless and we’re just at the beginning of this journey really. But we’ve just simply by sorting on x-ray. It seems to be brilliantly separating the waste and putting some more add to the waste. The closing shot of the video you see that little pile and the big pile. We pulled that little pile. That’s now a big pile and before it was just lost in that big pile.

Matthew Gordon: It’s amazing. We were talking to a lot of companies about bringing ore sorters in to improve their productivity and throughput. As you say, the savings are, or can be, immense. You had a great year last year in terms of the share price. Obviously, shareholders, the share register must be quite pleased with your performance. I know you’re excited obviously about the ore sorter here but you’re obviously more excited about bringing Coringa into production. You’re off to Brazil tomorrow you tell me, before we started the call. What are you going to do?

Mike Hodgson: Well, we’re closing in on our sort of three-year, we’re doing, we’re updating our mine plans and our resource estimations. So that’s basically what I’m going down there to actually sort of oversee, have a good look at that. We’ve got some exciting drilling going on at Sao Chico. I just to make sure we can as much of those results into this resource estimate we’ve just done There will be an update coming out too some very couple of intersections on the further step outs yet. That’s not probably get the results on, quite, even the official results, but certainly it’s looking very good. We’ve got some very nice-looking introspection, visual at this moment in time so I’m going to be looking at all of that.

Coringa, a year, well that’s obviously going on very well. We’re, as you know, we talked about this last time, we have Greenstone the convertible loan note coming in at the end of next month, and that will, of course, be the catalyst to us to start work at Coringa, start on the decline and getting on the ground. And, again, the exciting thing about that is getting underground, getting the bulk sample done or getting that earth moving, see how that responds to ore sorting as well. So, I’m completely sold on the whole thing. I mean I must admit when it was all, when we all talked about it, it was about two years ago the scary thing was it basically going to amount to USD$2M on something like this was you know… Well, I don’t want it just to be an ethical success. We really hope it works in earnest. I’m completely sold. I think it’s a paradigm shift in this part of the world with all of its sulphite hosted Gold deposits. It’s going to be terrific.

Matthew Gordon: I think that’s what the shareholders bought into last year when the share price was moving rapidly up having been stagnant for so long. A couple of million bucks and a payback of, as you said, less than a couple of years, 18 months to 24 months. Fantastic. But, also the ability to double your production and get up towards that wonderful 100,000 ounce a year number it has got to be in the crosshairs for you. I mean Coringa could get you up to 80,000 and with your exploration at Sao Chico you’ve got to be aiming higher, haven’t you?

Mike Hodgson: Yes definitely, I think the ease of mining at Sao Chico ore body, that’s why we put a lot of effort on exploration now. We obviously get a bigger bang for our buck with our exploration work that we do there. If we do get a bit of a tiger by the tail there and, at the same time, the space that we’re liberating by cleaning up the Palito ore creates more space to put through more Sao Chico ore, but we’re not dismissing the possibility of being able to sort the Sao Chico ore as well. It might be a different way of doing it, but we are beginning to get some pretty good results on that. So, it’s three deposits. Coringa, Sao Chico and Palito as being sortable in the end. We’re going to squeeze, I was always saying, my comment there, low-grades and tonnes cost, we’re always going to try and get the grade up as much as possible and not just chase scale but chase quality so we can actually get to, you know, 100,000 ounces with mining as high a grade as possible so we don’t actually have the enormous through points that a lot of 100,000 ounce producers have to have to get that level of production. That’s the name of the game.

Matthew Gordon: And that’s the focus for this year or, have you got more surprises on the horizon?

Mike Hodgson: I think if we get a nice big resource increase at Sao Chico and we get successful or we get on the ground at Coringa and we bring back a bulk sample and that works very well with the ore sorter and Palito’s achieving its 45,000oz, I’d be very happy with that outcome.

Matthew Gordon: Very good. Thanks very much. I appreciate you taking our call with regard to this morning’s press release. We were keen to speak to you because it was one of the stories, success stories, of last year, certainly in terms of share price, which is the name of the game after all. So, we’re kind of keen to see how you get on this year and see if you can repeat that success. Stay in touch.

Mike Hodgson: I will Matthew. 

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 Serabi Gold PLC company logo.

Equinox Gold (TSX: EQX) – Gotta do it, gotta do it big, Big, ba-ba-bi-big (Transcript)

The Equinox Gold company logo.

CLICK HERE to watch the interview.

Interview with Christian Milau, CEO of Equinox Gold (TSX: EQX)

Equinox Gold, listed around 2 years ago with Ross Beaty as the main shareholder, with goals to become a multi-jurisdiction, large-cap gold mining company.

Equinox has a promising portfolio of assets: Mesquite Gold Mine, a Californian project producing 125,000-145,000oz gold per annum with an AISC of US$930-$980/oz and a grade of 0.46g/t gold (exclusive of reserves), Aurizona Gold Mine, a Brazilian gold mine producing 75,000-90,000oz per annum with inferred resources of 1.1Moz @ 1.98g/t gold (with an exploration upside) and an AISC of US$950-1025, Castle Mountain Gold Mine, an under-construction gold mine with a PFS and production potential of 200,000oz per annum and a 16-year life-of-mine, and a copper-focussed spin-out operation in the form of Solaris Copper Inc.

Equinox has had a quite remarkable rise over the last few years, with its share price hovering around CA$5 at the start of 2019, now standing at CA$10.95 today. The market cap is an impressive CA$1.24B.

We spoke with Milau about a variety of topics. Targets that were set have been well and truly delivered. Mesquite and Aurizona are up and running, producing at a reasonable scale with a good AISC. Castle Mountain should be ready to rock by Q3/20. Equinox has kept things simple and it is reaping the rewards.

The portfolio is focussed; thus, projects aren’t lying around waiting to be put into production like they are for so many mining companies. Equinox’s message is simple: make good acquisitions, and get that gold out of the ground! 11% insider ownership is another reassuring fact for investors, alongside a more diversified shareholder base than when we last spoke with Milau.

We then move into Equinox’s spending strategy, in addition to the gold macro story. What does the outlook for the gold market look like for 2020? Milau states that his thesis denotes this is only the beginning of this new gold cycle. Milau is conscious it won’t all be plain sailing, but this is an early stage of the turn (US$17T of negative-yielding debt, solid stock markets and slowing global growth). The best is yet to come? Equinox has no intention of being taken out. It plans to become a long-term investment opportunity that can last through several cycles. Equinox appears to have the leverage to make use of a rising gold price. We appreciate Milau’s pragmatic take on gold margins: Equinox is not rushing to produce; there is no spike in production. Equinox is managing a steady, structured increase. To continue to grow, Equinox will proceed with developing its current assets and look at new acquisitions when the time is right. It recently announced a (28th Jan) merger with Leagold Mining Corporation that will combine the companies, ‘creating one of the world’s top gold producing companies operating entirely in the Americas.’ This should position Equinox even more strongly. Equinox has recently had debt repaid to it by Serabi Gold, so it is in an even stronger position as it looks to become more than just a 1Moz per annum producer. Equinox is proceeding cautiously and isn’t getting ahead of itself. As far as remuneration, one of our favourite elements of the story, Equinox continues with its remuneration policy of mainly shares as opposed to a conventional cash salary. Milau claims he hasn’t cashed any in yet.

Interview Highlights:

1:59 – Company Overview
3:17 – Targets Set & Achieved
8:57 – Running a Large Company: How are They Monitoring Spending?
12:49 – Market and Gold Price: Will it Continue?
15:07 – Cost of Production: No Mention of AISC in the Presentation
16:29 – A Means of Being Profitable
19:54, 27:11 – Lessons Learned and Moving Forwards: How Will They Grow the Business?
26:03 – Remuneration: Any Changes?

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

Matthew Gordon: Hello Christian, how are you, Sir?

Christian Milau: Very good. Good morning from Vancouver.

Matthew Gordon: Yes, good afternoon here from London. Long time no speak. I think when we last spoke, you were one of those tiny little USD$400M companies, right? How times have changed.

Christian Milau: Right. The world has changed very significantly; both the market and Gold, but also I think with this recent merger, it has really given us some scale that has come on the radar for a lot of people right now.

Matthew Gordon: Brilliant. Okay. Well, we are going to get into that. Let’s kick off with that usual one-minute summary for people, unbelievably, who may not have heard of your story.

Christian Milau: Yes, so it’s Equinox Gold. We started it about 2 years ago. Ross Beaty is the core shareholder and the largest shareholder. This is kind of bookending his career; building his company basically in parallel to Pan American Silver. So our goals do really create that multi-asset, multi-jurisdiction, larger cap, eventually, investable Gold company that will see through many cycles. We started in Brazil and in California with now two operating mines and a third one being built, being Castle Mountain. And then, with this recent merger here, we are going to add a large mine in Mexico, in Los Filos, and then as well, another three operating mines in Brazil with a fourth one to be built. So, we will have 6 operating mines and 4 growth or development projects with 600,000oz or 700,000oz in annual production now, going towards 1Moz in the next couple of years as we build our profile and portfolio of the company. So really going from, you know, as you said, smaller cap, mid-cap space into that good size mid-cap, to maybe even the lower end of a larger cap space.

Matthew Gordon: Okay. Thanks for that summary and we will get into some of those moving parts in a second. I remember when we talked, as I said, you were only a USD$400M company, but some of the things which we quite liked at the time were the fact that you guys were taking very  small remuneration packages in terms of salaries etc, but you were taking a lot of this in shares. You laid out your plans for us then and you seemed to have delivered those so that is all positive. And I think with Mr Beaty on board, and you talked about Mudabala  as well; there’s potential there. Those things have come on board, Ross has followed his money. You are talking to a lot more institutional players at the moment and you kind of have in a way, buying your success. You are capable of buying the success. Can you just tell us about some of the targets that you set yourselves then and whether or not you feel you have met those today?

Christian Milau: Yes. In a way, they come in two baskets: we set some targets to basically finance and build out our portfolio, which we did, we built Arizona and got it into production in northern Brazil last year and it has been producing very nicely for a couple of quarters now, so that was the first target. Second one was to finance and get Castle Mountain into production, which is basically half way through construction now and will be ready to pour Gold in the third quarter of this year; so months away. And continue to operate that smallish portfolio and deliver some value to shareholders through some liquidity and increased scale. Getting into some of the indices eventually. And I would say that we are well on track to be doing that, but our second sort of basket of growth and opportunity, was really on the acquisition front and merger front and that’s where the Leagold deal falls into this. It sort of doubles the scale of this company and as you said, Ross has followed his money: he’s putting another USD$40M into this deal at market, and you know, we continue to hold a significant portion of the shares and on a proforma basis, I think we will own 11% as insiders, Ross obviously being a large proportion of that. I think that our next closest peer in the 500Moz to 200Moz per year production range is about 1.7%, is what I’ve heard from a couple of commentators. So, really differentiates people. This is long-term business with a long-term course of owner-managers.

Matthew Gordon: Yes. That’s absolutely the case. You set that out at the time and I’m glad to see that continues to be the case today. But can you tell me about some of the targets you have set yourself and why you have set yourself those targets? For instance, you have obviously got a greater institutional shareholder, the Register is much more institutionalised. Why was that important to you?

Christian Milau: Yes, I mean I think the capital pools out there, certainly sit the larger ones in institutional hands and a lot of our peers, and certainly in the USD$1Bn to USD2Bn market-cap sort of range, you know, they are heavily supported by some of the precious metal specialist institutions, but also some of the generalists out there, looking for exposure to Gold, particularly as the cycle turns and it looks like it’s going to continue to turn. And our goal really was to diversify that shareholder base. We have been supported very heavily by the Ross Beaty’s, Lucas Lundin’s, Richard Wark’s of this world, high net worth’s. And I think it is time to also be hopefully give an opportunity for those institutions to come in, and we have seen that slowly happening and I believe that in the next 6 to 12 months, as we become that sort of scalable producer, and we start getting into the indices, you are going to see more and more of these institutions buying in. There’s even anecdotal evidence recently with this high liquidity since we announced the merger, that a few of those funds are already dipping their toe in the water.

Matthew Gordon:  Yes, I think that is the case but these funds have thresholds that you need to be, your share price needs to be over USD$1, or USD$5, or USD$10 for them to come and play. But you mentioned the indices there. That is a game-changer. You now, well, once the Leagold deal goes through, I think you are waiting to hear from the Mexicans as to whether or not that will happen. Was that a big target that you set yourselves back in August, September time when you were looking at, you know, how do you advance this thing?

Christian Milau: Yes, certainly as Equinox Gold, one of our targets was to get into the indices and on a stand alone basis, I know Leagold had the same target in the sense we were a similar size. By getting our assets into production, doing some exploration, continuing to build up our portfolio; both of us and on an individual basis, we were very close and on the cusp of that. You know, needing daily liquidity was probably the key threshold for both of us to meet. We were both doing give or take, maybe USD$1M, maybe up to USD$2M a day on occasions, and now since the merger has happened, you know, quite often we have been doing USD$10 to USD$20M a day. Which is a huge step change and that kind of threshold has really opened the eyes of a lot of larger investors and certainly, we have talked to Joe Foster in New York, who runs VanEck and who potentially could be the largest, or the second largest shareholder in the next 6 months as we come into the indices.

Matthew Gordon:  So it is nothing short of good news all around and when you close the Leagold deal, life is great. I’ve looked at you share price, obviously, like a lot of producers, in August your share price went up, which is great news and the announcement of the potential of the deal around December time, you saw another big spike. So that’s fantastic. So I want to talk to you today about running big companies because, as you know, with size you get cost savings but you also see companies get a little bit lazy, they get a bit fat, they get a bit casual about it because times are good, there is a lot of cash around. And we have seen the industry is littered with such stories. So what are you guys doing? What’s the plan here? Are you going to continue; you want to get to this million oz production a year, which is a great threshold to aim for; very few companies, very rarefied air. But do you feel that with that comes a responsibility to look after the pennies, as it were? Because margins start getting eroded. You are a bulk, low margin business, so how do you, or as a company look at that?

Christian Milau: Yes, I think you are absolutely right and one of those keys is not to lose that focus as you grow. Part of it is about building a culture and a support base that has got that entrepreneurial spirit and flare that continues on. And again, having that largest shareholder being the chairman and sitting on the boardroom table does focus the mind in a sense. And owing shares ourselves: we have been through this a few times before and you learn some lessons along the way. When we looked at this deal, this merger, we set ourselves some targets here, a certain level of synergies to have some cost discipline in it. I think we set a reasonably low threshold because we wanted to be able to deliver on it. And we will look at cost-savings of corporates and in-country levels. There are going to be purchasing synergies. There’s obviously going to be the cost of capital savings and I think that the announcing of the refinancing on the back of this deal already shows that savings potential will come through on day 1.

All the global banks are coming in and reducing the cost of capital. Mudabala continues to support as well. And Ross has been investing at market – no discount, so I can say that we are already showing some of the potential synergies that just will be basically brought into place as soon as we close in probably late February.

Matthew Gordon: Can you just share with us some of those variables? Okay, the cost of capital is usually one of the most single expensive components, you know, that companies have to endure. What are the other areas in terms of the savings you talk about with the completion of this merger and obviously earlier mergers?

Christian Milau: Yes. When we announced this, this was at market, nil-premium merger. In the last year, I think there have been two of them: us and Barrick and Rangold. And both of us were up almost 30% within the first month, so the reaction has been very good. The way we looked at was that neither side was giving away or taking a premium. We were both getting the upside and sharing in it. And I think the synergies required were not necessarily, they don’t have to be large. And what we have articulated is, you know, up to $10M of synergies, I believe there’s probably more there in the mid-term, but you are certainly going to be having two head offices in Vancouver combing into one so there will be I guess, fortunately, some opportunity there to combine and use the best skillsets of both parties.  In Belo in Brazil, we will be combining offices and using the best skillsets there. We’ve got actually the extra scale there now in Brazil and we will be looking at saving on purchasing. And interestingly, Neil Woodyer, he will be the CEO, and I’ll be supporting him here. We did this together in Africa; we sort of went from 1 mine up to 4 or 5. You start getting your purchasing synergies, your scale and your ability to leverage profits, and then there’s the cost of capital savings on the side.

Matthew Gordon: Right. But there’s a couple of things that you can’t control which will impact you hugely. One is obviously spot price for Gold – what’s it actually doing in the market place. And the second thing being that you are a bulk, low-grade operator here, I think your grades with some of these acquisitions, we were talking about 0.3 when we talked last. Obviously, they have gone up a bit so that gives you a bit more room to make a bit more money, but those two components, you have got to closely, well, I suppose with the price of Gold, you can only understand it and have a view in the future. Do you have a view on how long this price is going to sustain for? Let’s start with that one.

Christian Milau: Yes, I guess part of our theory and thesis here is, I know that Ross uses a baseball analogy but in the fourth of 9 innings, you are still in the first part of this cycle turn. You know, Gold has had a decent run, I’d say that it has probably run a little faster than I expected at this stage. We are preparing the business to see through the cycles. We don’t believe it is one way and it only goes up. We think we are in the early stages of this turn here; there are still USD$17Tr of negative yielding debt out there. Stock markets are still doing well, generally. Global growth is slowing a bit. It’s lining up fairly nicely for things like Gold and other commodities generally.  I think our business is going to have the leverage and the ability to take advantage of that Gold price, but it doesn’t need it. We will manage the costs. Particularly at the moment, you are not seeing a lot of inflation coming through in terms of imports for our business at the moment. So you know, it has been a fairly nice and steady environment on that front.

Matthew Gordon:  What do you mean you don’t need it? Everyone wants to make as much money as they can, don’t they? When you say you don’t need it..?

Christian Milau: I guess when you see what has happened in the past in a few of the cycles, if Gold runs up quickly, you tend to see everyone kind of saying,  I remember when I was working in Africa; everyone is making ‘super profits’ which may or may not be the case, Governments tend to want a bigger piece of the pie, employees obviously want more of it, communities do. And the problem is that they don’t recognise that quite often, the oil prices are going up, the input cost is going up, the labour costs are going up. So margins tend to expand and contract as the Gold price moves up. And they do widen when the Gold price moves up but it’s not just a linear relationship where if the Gold price moves up, your costs stay flat. Quite often they move somewhat in tandem, although I agree that your margins can widen if the price goes up. So a steady increase that is slowly happening or managed rather than some spike because of some event or incident is much better for the industry.

Matthew Gordon: Okay, so Christian, let’s talk about the converse there, let’s talk about the bit which you can control to a large degree, which is the cost. So you have got this kind of low-grade ore but it is quite similar across all of your projects? That is the style of ore that you are going to be mining? So how do you keep that under control? Because I’ve had a look at your presentation, you don’t talk about AISC, at all, and I wondered why?

Christian Milau: Yes. I think part of the hesitancy at the moment is that we would like to close the merger with the Mexican Anti-Trust, we expect later this month, maybe even the third week, then we can actually put out combined guidance. We want to be cautious here: theoretically, we shouldn’t be putting out some kind of combined guidance when it’s only been a closed deal. But I think people can see from our prior years’ production and costs, how both sets of assets have performed, you get a good idea, you can see our rough production levels at the mine sites. You can see our All In Sustaining Costs of the mine sites and analysts do a good job of covering us; I think we have 6 or 8 in total and 6 in common between the two. As soon as we close, we can then put out something fairly quickly thereafter that’s on a combined basis and is going to allow us combined board management to get behind it but it’s just a few days too early right now to put that out.

Matthew Gordon: Okay. Fair enough. Now I used the phrase earlier which was, ‘buying success’.  You are buying ounces, okay? You are building this into a large producer and I guess what people are going to be very keen to understand is, are you going to be doing this profitably, or is this just a case of producing enough dollars to be, you know, interesting? It’s a large machine that you are constructing here. You have got similar ore bodies, similar processes and as you say, you are very, very good at it. But if it’s low-margin, is that of interest to Family Offices? Retail? High Net Worth. Are you missing the fundamentals of business here, or are you just in the business of building scale? Again, if I looked back through history, you have got companies that have built themselves up into such a size that they feel they are almost too big to fail. But they do.

Christian Milau: Yes, I know. That’s a very fair question and comment. For us, we set a target of roughly 1Moz. Leagold wasn’t quite so specific, but we have similar goals of building a business in the Americas that is diversified, scalable, investable, and I would say that this transaction is the first catalyst in getting there. What it brings us is some scale, but really the goal of the company over time, is to create a company that, eventually. I suspect that we would sell or divest a couple of smaller assets. We will add a longer life or a new asset that will continue to improve the quality of the assets in the portfolio. And in the long-term, and I’m going to say 2 to 4 years here, we want to be paying dividends. Our largest shareholder wants dividends. Ross would like dividends like he is getting paid at Pan Am Silver and so one of the largest institutions. But we are still a growth company at this stage. We still believe that we can continue to extract some value, create some value through sort of enhancing the portfolio. And so we will continue to do that. And I think that a lot of companies have got caught in a trap of being either single asset or smaller, which I think can be an exciting story in that asset, and you can see some huge stories in exploration plays but they are few and far between at the end of the day, whereas this will be a very liquid, investable company for the long-term and through cycles. And we are not exposed to one single jurisdiction or asset that will cause us challenges if there is an issue. We can weather the storm, in a sense. The other piece of it that I think is really important here is the fact that insiders will own 11% of this which is a very significant amount for a company of this size. I think our next closest peer is 1.7%, in that sort of mid-cap or larger cap space. So it will also have an owner focus from the management team and the board as well.

Matthew Gordon: So, just to help me understand this because I think it’s important that people understand they type of company that you are or are trying to be, and where you are in terms of an investible company for them. So you want that scale. So you want to get noticed by buying these assets, you are saying to me, at some point then, you will take stock and go well, let’s take a look at our portfolio here as some of these things no longer meet the new criteria for this entity, we may offload them, you may cash in, as it were, to some degree, and then go after a different type of profile to make sure that your company continues to be I guess, profitable or more profitable, the grade goes up maybe? Is that the way you are picturing it? How does this evolve, is what I’m saying? I know what you were when we last spoke in August, I know what you are telling me you are going to be after Leagold but what is the thing that you are trying to be? It can’t just be, we want to be a 1Moz company, it’s got to be more to it than that.

Christian Milau: No, we want to be one of the most profitable, long-term companies that can actually see through cycles. We are not building a company to flip it, to sell it, etc. We are basically building something that people can in invest in long-term, and when you put these two companies together, we’ve used some charts that I think are a good analysis of this: combined market caps let’s say on the merger are USD$1.5Bn to USD$1.7Bn. We’ve already had a little bit of a re-rate towards that CAD$2Bn to just over that CAD$2Bn range Canadian dollars for market cap purposes. And when you look at a lot of our peers who are give or take 800,000oz, 1Moz in annual production, a lot of them trade between USD$2.5Bn to USD$3.5Bn up to USD$5Bn. We are only, give or take, half of that range at the moment so what we are creating is something that has some re-rate potential, long-term diversity and scale and investibility, with a growth focus to it at this stage. And eventually, it will become a little more income-generating as you get some yields from eventual dividends here, and that’s when investors have asked about that capital discipline, I think is really well rewarded as well; when you can pay some of that money back to shareholders at the end of the day.  

Matthew Gordon: Right, because I’m thinking about people like IAMGold – at one point, they were USD$9Bn, just under USD$2Bn now. You’ve got B2Gold who have been through the same kind of growing pains and falls in value. So scale gives you, well, I think scale gives you some options here but if you are not looking after the business fundamentals, if you are not looking after margins, if you are not looking after share price, because, let’s face it, when you are a big company, it gets harder to double in size every year, okay. You can buy some of that, sometimes, but again, the business fundamentals catch up with you. So, what are the lessons that you’ve learned by looking at what’s been going on out there? You are an experienced guy; you have worked in large and have built large companies before. And you have got some fabulous people on the board, but what are the things you are concerned about? Or have you just been focussed on M&A, M&A and M&A. What are you talking about, you guys?

Christian Milau: No, for us, there’s also got to be a shift to continue to execute internally, we have got 4 growth development projects where we will make sure that we’ve got a tension on those over the next couple of years. M&A becomes more opportunistic in the future, I would say, where it’s maybe not as front and centre as it was in the last couple of years here. And we’ve got to keep that culture, that spirit, that entrepreneurial style to the way that we approach things and part of that is being somewhat lean and mean, but also, you know, when you bring people into that culture, whether it be leadership at your mine sites or even at the corporate office, they really come with that mentality and experience and really knowing what we are about. And I’ve seen a number of companies overextend themselves where, you know, we are used to putting together that 100,000 oz to 300,000oz, maybe 400,000oz producers into a portfolio of assets. You know, building something now that is USD$1Bn plus in capital would probably be a different strategy for us, we really want to be careful of that right now. There are some deals in size; we have seen a few companies go, alright, now we are going to take on those big ore class projects, but they don’t have the balance sheet for the capital, maybe the experience to actually take it on, and it can very quickly blow up your balance sheet. So we have stuck to our needs in that sense and, you know, adding assets that can focus on our portfolio in that, give or take 400,000oz of annual production. You know, the smaller scale growth and development projects, which I think everything that we have been building and doing, is between USD$50M and give or take USD$100M. You can manage the capital, even if you have an overrun in terms of time or cost, it doesn’t blow up your balance sheet, so I think that’s also very important.

Matthew Gordon: Okay. So who is driving this? You talk about entrepreneurial spirit, okay? And that’s an easy phrase to use but the reality of entrepreneurial spirit is very different in a corporate environment; it can get killed, it can get forgotten. People can, as I said, get really lazy, really quick here, so who… I guess you are going to tell me Ross Beaty… but who is the guy that says, you guys have got to keep this lean and green and mean for a long-time coming? Because if you talk about timelines, we’re going to talk about keeping this thing running, there’s no end in sight, I think it’s hard to keep focussed, so what are the things that you are being told that drive this entrepreneurial spirit that you talk about?

Christian Milau: You are absolutely right: Ross is the key driver of that. I mean, he has built 15 companies over the last 30+ years and you know, it’s about putting a management team in place and keeping incentivising them also, in the right way and this tends to be that long-term link to share price and company performance, rather than big annual pay packages that ultimately reward us just for doing our jobs on a day-to-day basis. And I think that that helps keep that focus. And when we hire, it’s a very disciplined approach to finding people that will fit in with that culture and that really want to roll up their sleeves and be a part of it. You know, we don’t necessarily have a large corporate footprint because a corporate footprint can detach you from what is going on at the mines; if there are layers of people, regionally or even in corporate office, then you know, we have very direct contact on a regular basis with the mines, and to be honest, Ross is on every week or two, just getting an update on where we are going. He makes a tour of the mine site. He just loves getting out there; he is a geologist by background and he loves getting out to the rocks and wants to be out in the field. When you look at the way Pan Am has done, and I would say they have a similar style, and I would say that that is not a bad model that they are looking to emulate to a certain degree.

Matthew Gordon: Yes. Has your remuneration changed since we last spoke?

Christian Milau: No, no it wouldn’t have. I have been at the same all year: I’m still at the bottom quartile and we had a good year, so I did okay this year.

Matthew Gordon: Have you cashed any of it in?

Christian Milau: No, no. I’ve put USD$2M in. It’s still there. I continue to have my RSUs, or anything that invests in a way that I keep a hold on my brokerage account. You know, I see this going much higher. Part of this is the delivery on our business platform and on our strategy and our vision. But also, I believe the Gold price and our markets are at a really interesting point; look at Gold – it has been at USD$1,550 for a while now. I would say that the average person doesn’t recognise that it’s USD$400 higher than it was when we bought the scheme, less than 2 years ago.

Matthew Gordon: Yes, well what the Gold price will do? Who knows in today’s climate, but you know, when we spoke, it was around USD$1,250, USD$1,300, for a long, long time. But again, we will see what happens there. You want to hit this 1Moz number – are you going to be able to do that through organic growth now? By getting your current assets into production, or is there some more M&A on the horizon?

Christian Milau: Yes, we do have, as I say, those 4 development projects and those will allow us to get to that point in the next couple of years. It’s fully funded as well with our new refunding of the balance sheet, which was also a nice reason to be doing this deal, or helpful for doing this deal. Both companies are lightly capitalised; capable of delivering in a methodical way on their strategies, but now we can actually say that the balance sheet is sold and strong. The data at those ratios are very manageable and low, and the cashflow from the operating business will help to fund that as well. So it really will be deliverable in the next couple of years.

Matthew Gordon: And do you intend to keep the company leveraged at current rates or is the idea, to once you actually get cash flowing, to deleverage and actually make it slightly less reliant on debt? Because again, debt can kill companies, large companies, if things turn in the market.

Christian Milau: That’s absolutely the case: we do want to deleverage to a degree. I think this deal is starting to allow us to do that. As we get through these and develop the cash flow assets in the next 2 years, you’ll see that continue. Then obviously, it moves through more steady states and it allows you to start thinking about those dividends.

Matthew Gordon: Beautiful. Christian – great update. It has been a while since we spoke. You have delivered everything you said you were going to. The tone seems to be the same. I’m excited for you guys; this growth has been phenomenal. You just need to get yourself on the GDXJ and the GDX, and who else are you aiming for? The TSX composite, I hear? Stay in touch and let us know how you are getting on. If you come through London, obviously come and say hi.

Christian Milau: Yes. Stay tuned for the next 6 to 9 months; I think there’s a lot that is going to happen here.

Matthew Gordon: Buckle up. Buckle up, guys.

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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Pan African Resources (LSE: PAF) – Strong Management To Make Shareholders Smile

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Pan African Resources PLC
  • LSE: PAF
  • Shares Outstanding: 2.23B
  • Share price GB£0.13 (24.02.2020)
  • Market Cap: GB£287.8M

South Africa is a difficult jurisdiction to operate in, but these guys get things done. The management team has impressed us so far in 2020, and the market is responding.

We recently interviewed Cobus Loots, CEO of Pan African Resources, a South African gold producer.

Investors may also want to read a different gold article or watch our latest gold interview.

We discuss:

  1. Operational Update
  2. Mining Difficulties In South Africa
  3. Big Plans For The Rest Of 2020

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

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

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

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Serabi Gold (LSE:SRB, TSX:SBI) – A Business Model Investors Should Pay Attention To

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Serabi Gold PLC
  • Shares Outstanding: 58.9M
  • Share price GB£0.96 (24.02.2020)
  • Market Cap: GB£56.6M

Crux Investor recently interviewed Michael Hodgson, CEO of Brazil-focussed gold producer/developer, Serabi Gold.

Why not read a different gold article, or even watch one of our latest gold interviews?

Serabi Gold has recently undergone an impressive transformation from a solid performer into a real contender. Hodgson chimed in to give us the details, and even more reasons to be excited for what the rest of 2020 has to offer.

We discuss:

  1. Operational Update
  2. Convertible Loan with Greenstone
  3. Outlook For Gold in 2020
  4. Serabi Gold Strategy For 2020

Company Website: https://www.serabigold.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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