Rio2 (TSX-V: RIO) – No Bullsh*t Gold Mining

The RIO2 company logo.
Rio2 Ltd 
  • TSX-V: RIO
  • Shares Outstanding: 181M
  • Share price C$0.67 (19.05.2020)
  • Market Cap: C$102M

There are too many gold juniors to count right now, as they all try to capitalise on a gold price that has risen substantially over US$1,700/oz.

A picture of cartoon gold bars.

However, while all of them want your hard-earned money, not all of them will succeed. One of the most important green lights, and sadly one of the rarest when it comes to investing, is honesty.

Honesty

While it’s fashionable and often sensible to approach investment decisions from an analytical standpoint, Crux Investor has always been of the opinion that the fundamentals of a business are equally significant in your due diligence.

One crucial component is honesty: if investors know truthfully what they are getting themselves into, they will be a lot less surprised and angry if it goes wrong. Mining is mining, and there are never any guarantees, but as long as we are given all of the information and everything is transparent, we can have no complaints if we decide to invest and it doesn’t pan out perfectly.

One company that is a perfect example of this phenomenon is Rio2 Ltd. We’ve previously discussed the value proposition on this platform.

Rio2

Rio2 is a Chilean gold explorer and developer.

We recently sat down for an interview with the CEO, Alex Black. It immediately became apparent that he was a candid, straight-talking executive; it’s little surprise he’s an Aussie. He seems to genuinely want to make money for Rio2 shareholders.

The National Flag of Chile

We’d love if all interviews started off the way our interview with Black did. Just a few minutes in, before we had the chance to even ask a question, Black immediately spoke about Rio2’s remuneration practices. He stated that he wanted to set a precedent. It’s about time CEOs started understanding this: they are working for shareholders, not the other way around.

For a company of its size, Black’s remunerations package is encouragingly modest. Black holds c. 15M shares (from around 181M total). He paid for all of them and has invested a total of C$2.5M of his own money. Black is paid US$300,000 pa, and he doesn’t sit on any other boards or advisory committees. If you compare Black’s annual salary to the amount of money he has already invested, it becomes clear that Rio2 is the furthest thing possible from a lifestyle company. Black has a lot of skin in the game and is aligned with shareholders in a way that is becoming increasingly uncommon.

Mining investment is a game that is so often rigged out of their favour; it’s the reason Crux Investor started up in the first place. We want to tilt the balance of knowledge back to more favourable terms for investors, and with CEOs like Black, this becomes a lot more accomplishable.

A Cruel Market

With such a degree of honesty, investors might be surprised that Rio2 has struggled when it comes to its market perception.

While the share price has rallied recently and Rio2 appears to be gaining some traction, it has been fairly stagnant for much of the last year.

The market punished Black for being pragmatic. He inherited a large feasibility study plan for the Fenix Gold Project when Rio2 and Atacama Pacific Gold Corporation agreed to merge in May, 2018. After conducting an updated pre-feasibility study on Fenix, the resource halved in size. The market winced.

This blow was compounded by water permit concerns in Brazil, and the share price fell further. Black also believes wholeheartedly that Rio2 has been the victim of naked shorting after conducting an internal investigation, and this has had a further detrimental effect, but that will be explored in a future article…

Gold ore

The water issue has since been solved via a temporary workaround in the form of trucking water in from the nearest regional centre 140km away. During our interview, Black is clear to emphasise that this solution works. A 30t tanker truck leaving the centre every 20 minutes should satisfy Rio2’s thirst. Is this an “elegant solution” for a “complex process” as Black claims? the trucking fix should see Rio2 through the start of production comfortably until full water permits can be obtained. It appears to be a dexterous workaround. The costing in the PFS is US$14/t of water, which is baked into the US$1000/oz AISC.

Punishing Pragmatism

While the market can spend a lot of its time dreaming of 20 baggers, sensible investors will recognise the attractiveness of stable, secure, de-risked returns as the base of their portfolio.

Rio2’s move was never going to be appreciated by everyone. It seems strange that the market appears to lack faith in Black’s ability to deliver this project considering that Black and his team have already demonstrated they can make investors money: his experienced management team built Rio Alto from a C$12M company in 2009 to a C$1.2Bn company in 2015 at the time of the acquisition by Tahoe Resources Inc.

The reality is that by reducing the size of the plan, Black will be able to finance the CAPEX much more easily. It has fallen from a sizeable US$400M to just a smidgen over US$100M today. Also in the updated PFS, the strip ratio is lower and the IRR is marginally higher, and while the AISC has increased, future optimisations could well bring it down once the ball has started rolling. Rio2 will now get into production much more quickly and will finance this with relative ease. The company can start taking advantage of an elevated gold price by throwing off cash flow. This cash flow will give the company options and will allow it to consider expanding the resource back to its original level, exploration, and M&A. It’s a smart business strategy that the market now appears to be cottoning on to.

Fenix Gold Project

Investors need to appreciate this operation for what it is: a low-grade, bulk-tonnage gold operation.

Do not sniff at the grade. Focus on the margins, the management’s track record, and the significantly reduced level of risk. What Rio2 has at the Fenix Gold Project is, quite simply, the largest undeveloped gold heap-leach project in America, with 5Moz gold in M&I resources.

Timescale

Investors will now want to know what sort of timescale they are looking at for the first shovel in the ground at Fenix.

Rio2 has been aiming to construct the mine as quickly as possible to accelerate getting into production. Once in production at an initial 100,000oz gold per annum, Rio2 aims to ramp up to a mid-tier production level of 200,000oz gold pa. The commencement of construction is guided for Q4/20: it seems little surprise the market has been getting increasingly excited.

Making It Happen

Rio2 finished up last year with working capital of c. C$16M.

This should be more than enough to carry the company through to the end of Q2/21. Rio2 has recently filed its Environmental Impact Assessment (EIA), which was completed from scratch: no mean feat.

The process of obtaining an environmental permit should be finalised by Q2/21; then, finalising mining permits will move into the centre of Rio2’s vision. Black expects to receive the final construction permit in October 2021. At this moment, it will be time to roll his sleeves up and get gold mining!

Financing the significantly reduced CAPEX at Fenix should be relatively simple, and the process has started, with conversations taking place. Black is very confident there won’t be any bumps in the road. The financial plan should hopefully become transparent by the end of 2020. Until then, investors will want to see Black focus on continuing to drive the share price up while getting the story out to new investors in an exciting fashion.

Conclusion

As I have mentioned in many previous articles, I am a staunch believer in uncovering small, undervalued mining companies and getting in early before the market has recognised their value.

In this instance, I think there is the possibility that there could be a major value discrepancy at Rio2, which could have bee caused by the issues previously mentioned combined with ineffective marketing practices. The market’s value doesn’t seem to match up to the mid-tier production prospects on display.

However, the final decision is for you to make. Why not investigate further? I doubt you will be disappointed.

I’ve reviewed other examples of potentially undervalued companies in recent months. Feel free to check out the articles if you have a spare moment. You could be onto a winner.

Company Website: https://www.rio2.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 RIO2 company logo.

Calibre Mining (TSX: CXB) – An Exciting Gold Mining Story

The Calibre Mining Corporation company logo
Calibre Mining Corp.
  • TSX: CXB
  • Shares Outstanding: 328M
  • Share price C$1.44 (18.05.2020)
  • Market Cap: C$472M

Crux Investor recently carried out an interview with Ryan King, VP, Corporate Development of gold developer, Calibre Mining Corp. (TSX:CXB).

Gold is hot right now and gold investors across the land know it. We’ve heard plenty of gold stories in the last few months that have caught our imagination. However, the story of Calibre Mining is up there with the best of them, and gold investors need to pay attention.

Calibre Mining is a TSX-listed 10-year gold explorer that has recently turned producer. The team at Calibre Mining arrived from Newmarket Gold, acquiring 2 Nicaraguan assets from gold major, B2Gold: El Limon, and La Libertad. The company has just announced its Q1/20 results and they are strong, with solid grades and plenty of cash flow.

King talks us through the plans for 2020 and beyond. Calibre Mining’s assets aren;t necessarily that high a grade of gold, but the team is managing to process the gold resources in an intelligent, highly-economic fashion. This reminds us of Equinox Gold, another one of our favourite gold stories.

Have a watch for yourself and see if you appreciate the business model and value proposition. Let us know what you think below.

We Discuss:

  1. Company Overview
  2. Transition from Explorer to Producer: How and Why?
  3. Business Plan and Corporate Structures
  4. Telling it Right: Share Price and Interaction with the Market
  5. Value for Money: Can They Keep it Going?
  6. Impact of COVID-19 and Measures Taken
  7. Nicaragua as Mining Jurisdiction
  8. The Bigger Picture: Targetting and Monetising the Assets
  9. The End Goal for Calibre Mining
  10. Cash Position and Possibilities at Hand

Company Website: https://www.calibremining.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 Calibre Mining Corporation company logo

Serabi Gold (LSE: SRB, TSX: SBI) – Superb Q1/20 Figures As This Gold Producer Goes From Strength To Strength

The Serabi Gold PLC company logo.
Serabi Gold PLC
  • LSE: SRB, TSX: SBI
  • Shares Outstanding: 59M
  • Share price GB£0.92 (14.05.2020)
  • Market Cap: GB£54M

Crux Investor recently decided to check in on one of our favourite gold stories in an interview with Michael Hodgson, CEO of gold producer, Serabi Gold (LSE:SRB, TSX:SBI).

Serabi Gold has a smart business model that we are big fans of. Hodgson walks us through the Q1/20 figures, and while they are slightly below guidance, they are mighty impressive considering the sweeping impact of COVID-19.

Going forward, Hodgson is now talking the language of bulk gold processing and this is starting to get very exciting for gold investors. Could Serabi Gold be on course for serious share price growth?

We Discuss:

  1. Update on Progress: Q1 Numbers
  2. Ore Sorter Preliminary Test Results: Performing as Expected?
  3. Press Release on Exploration: An In-Depth Look into Findings
  4. Distractions from the Coringa Gold Project or Value Building Exercise
  5. Bulk vs High Grade: Preparation for New Opportunity
  6. Country Dynamics to Affect Q2 Results?

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.


The Serabi Gold PLC company logo.

Serabi Gold (LSE: SRB, TSX: SBI) – It’s bigger than everything we see (Transcript)

The Serabi Gold PLC company logo.
Serabi Gold PLC
  • LSE: SRB, TSX: SBI
  • Shares Outstanding: 59M
  • Share price GB£0.92 (14.05.2020)
  • Market Cap: GB£54M

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

Serabi Gold has been one of our favourite gold stories. Share price has trebled since we started following them. The team has managed to create a strong, stable operation at the Palito and Sao Chico gold mines in Brazil, but with the debt financing agreement (convertible loan notes) for second acquisition, Coringa, looking to be settled, Serabi Gold can push the cross-mine AISC down towards the US$1,000/oz figure, and double production to c. 80,000oz+ per annum of gold.

The Q1/20 production figures were released recently.

– Cash position
– US$14.23M at year-end
– Net cash – USD$5M
– AISC slightly up on 2018: US$1,081/oz
– EBITDA – US$17.2M
– Average gold price received
– US$1,376 – Total mined ore up 8% (at an average grade of 7%)

COVID-19 has negatively impacted most gold producers, but Serabi Gold has managed to successfully mitigate any potential ramifications. It has achieved this through sensible workplace safety practices, and the health & safety stats are also pleasing. Rotating the workforce has been very effective. Any junior gold miner would be chuffed with those numbers. Serabi Gold has now started allocating some money towards exploration for the first time in a while. With its strong cash flow, and with most of its debt finally being repaid, Serabi Gold has now freed up its capital for growth. This could get the market even more excited. The focus is currently on step-out drilling at the west of Sao Chico. Hodgson thinks the company is working its way towards a geophysical anomaly that the company has already been drilling at. There is a possibility the 2 could connect, resulting in some serious upside for Serabi Gold.

What about the much-discussed ore sorter, which could have a further transformative impact on Serabi Gold’s economics? Serabi Gold recently conducted a preliminary test on it. What is the feedback? Hodgson claims the thing is “absolutely singing,” which will be music to gold investors’ ears. He doesn’t have the stats for April just yet, but in March it was upgraded to pass 2,500t at a grade of c. 3g/t, and it screened out a little over 300t at a grade of 21g/t, the rest was 2,200t at a grade of 0.7g/t. Through April, the grades at Palito (50% of feed ore) went up from the usual grade of 6.5g/t to 9g/t. Overall, combined with the non-ore-sorted Sao Chico ore, it is giving the average grade a 1g/t uplift. This might not sound like a lot, but it’s a big change. He expects another healthy increase in the Palito feed grade through April, which will free up space at the production plant to use for better quality material. Smart.

Will the exploration plans distract Serabi Gold from Coringa? It’s certainly a nice problem to have, with organic growth in the company’s “backyard.” Hodgson states Coringa is still just as important. Adding ounces at a low cost gives Serabi the cash flow it needs to grow, and he is not going to forget that anytime soon. Coringa is a very advanced project that Hodgson will continue to focus on. Another focus will be on the areas surrounding Serabi Gold’s producing assets because the company will eventually need to expand its processing plant somewhere. The company has been successful at chasing high-grade veins, but now Hodgson is talking the language of bulk production. However, one of the biggest problems in Brazil is power. He claims the mining infrastructure is improving in the region every day. The company is constantly assessing its cost profile, and its eventual wish is to add in some open-pit production.

Hodgson acknowledges that Brazil is struggling, especially with its lack of medical infrastructure, but states he is confident Serabi will do what it can to keep producing. He states Serabi Gold might not make the guidance numbers it predicated at the pre-COVID-19 start of the year, but if the company reaches 90% of it, nobody will complain, especially at the current gold price. The exchange rate is also on the company’s side.

We Discuss:

  1. 2:17 – Update on Progress: Q1 Numbers
  2. 3:50 – Ore Sorter Preliminary Test Results: Performing as Expected?
  3. 5:41 – Press Release on Exploration: An In-Depth Look into Findings
  4. 14:46 – Distractions from the Coringa Gold Project or Value Building Exercise
  5. 16:49 – Bulk vs High Grade: Preparation for New Opportunity
  6. 18:18 – Country Dynamics to Affect Q2 Results?

CLICK HERE to watch the full interview.

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

Mike Hodgson: Very well, thank you. Good to see you, Matt.

Matthew Gordon: Yes, good to see you. Are you bearing up still?

Mike Hodgson: Yes. Yes. We’re sort of running our operations remotely. We have daily calls, probably two or three calls a day, you know, thank god for Zoom and Skype and WhatsApp and anything else.

Matthew Gordon: It is a game changer. It is a game changer. We have seen your press release and I was interested because it is very different from what you normally talk about and I wanted to kind of get into it. Normally we have this conversation about production and productivity and what’s happening on site, but this is more around exploration at site almost. So, but let’s kick off first. I do need that usual update. So what is happening? Last month you had a bumper month. Have you been able to recreate that in April?

Mike Hodgson: Absolutely. We have. We’ve had another great month. It has really been superb. It is probably, we haven’t quite finalised the numbers yet, but they’re going to be close to 3,500oz, so great way to start a Q2/20, and we still hope that we’re going to be north of 9,000oz for the quarter, which in the circumstances is absolutely fabulous. The guys at site are working really well. We’ve managed to begin to, we’ve got some testing of some tests and we are managing to work out a system of actually rotating about 10 people a week at the moment. So we test people, we bring those 10 people to site. They’re in a separate part of the camp, which is quarantined. They spend sort of eight days there being quarantined and as long as the doctor’s happy with them and they’re all temperature tested, et cetera, they’re all fine they get integrated into the workforce.

That said, the guys at site have been brilliant. I mean, they normally work like 30-15 rostas and some of those guys have been there for 60-days now and they don’t want to leave. They keep going and we’re paying them a little bit of a bonus to keep the enthusiasm going and the motivation, and it is really showing you the numbers. I mean, the health and safety stats, before anyone gets alarmed, are fine: absolutely good. And the production stats are absolutely wonderful. So, you know, yes, I’m just delighted, delighted with the way the operation is going at the moment.

Matthew Gordon: Okay. And what about this ore-sorter? You have kind of done some preliminary tasks and you gave us some initial feedback as to what it has been able to do. Again, is that still performing as expected?

Mike Hodgson: The thing is absolutely singing, I haven’t got the stats for April yet, but in in March, it was upgrading, I think, just loosely in March has given me a bit of an idea; we passed about 2,500t at a grade of around 3g/t, and it screened out a little over 300t at a grade of 21g/t and the rest was 2,200t, the balance, at a grade of 0.7g/t. So it absolutely scavenged all this high-grade Gold.

Now, through April, our Palito grades, eventually go on, the normal Palito grades, because we’re only putting on the Palito part of the deposit at moment, the Palito grades, which generates about 50% of our ore feed, let’s say, the grades would normally have balanced sort of 6.5g/t, 7g/t, and we are basically passing about 9g/t.

So you know, overall, it is meaning, if you combine that with the Sao Chico ore as well, which doesn’t get ore-sorted, it is giving our feed grade at the plant about a 1g/t uplift. Now, 1g/t might not sound like a lot but if your feed grade is 7g/t and it is going to 8g/t, 8.5g/ – big difference. So, it is brilliant. It is working really well.

So yes, I’m looking forward, I mean I haven’t got them yet, but I think they’ll be a very significant contribution and another healthy increase in the Palito feed grade through April. That’s why we’re getting these extra ounces. That’s where it is coming from. It is taking waste out of the feed before it goes to the plant and using that plant capacity with better quality material. That’s the key.

Matthew Gordon: Okay. So that’s great. I mean I guess we’ll get a proper update from you maybe later this month if you can. I want to talk about this press release though. There’s some really nice numbers in here, but I think the bigger story in here is that you’re putting money towards exploration, which you haven’t done for some time. So, because obviously you’re producing, you’re throwing off cash now. So, tell me what you’re aiming to do here, what’s the plan here?

Mike Hodgson: Well, just to touch on your point there about that; I mean, we ever since we put Palito back in production in 2014 and we acquired Sao Chico a year or so later and then put that into production as well, we raised just enough money to do that and not, well, in fact, not quite enough, and we went to Sprott –  a great lender and we borrowed money off Sprott twice. USD$8M, which we paid off, and USD$8M again, which we’ve only got USD$2M left to pay on that and it will be gone by the end of June. So, we’ve basically paid USD$16 million, we borrowed USD$16M of debt and paid it off on a cashflow. So, we’ve never had money for exploration really, we have just been servicing and paying off debt. So, the opportunity for excavation was pretty much parked bar, you know, immediate mine site, head frame explorations, I like to call it, in around Palito and Sau Chico.

But obviously what we did in 2018, we did do a financing. We raised over USD$20M and we did set aside a chunk of money for exploration for the first time in about five years. So, it was great. But perhaps first I’ll talk about the Sao Chico exploration results, which is part of that headframe exploration I just talked about. And that is ongoing program. We have done a couple of releases already this year. It is the continued step out drilling of the Sao Chico extension, westerly, which we’re doing. And I think if one looks at the images in the press release, it is getting very interesting that as we actually stepped out West at Sao Chico, which is all we’re doing beyond the mine limits with surface drilling, we are working our way towards a geophysical anomaly, which is called Cicada, which we’ve also been drilling. And what the compelling thing here is, it is beginning to look like we’ve got the various sort of interesting possibility that this is all going to join up.

So essentially, what we’re drilling is the gap; the gap between Sao Chico and this geophysical anomaly called Cicada.

Matthew Gordon: So, let’s look at that. There’s a couple of diagrams in the press release. Do you mind sort of talking me through those?

Mike Hodgson:  Well, if we look here, we can see the Sao Chico deposit. You can see the mine limits down there in the sort of the South East corner. And that’s what we’ve been mining over the last few years. It is open to the South East, which is the area called Highway. We’ve got no holes in this release on that area at the moment. We are going to go back there, but we’ve been focusing on the area to the West. You can see there, I know it is not exactly showing the scale, but you can see we’ve got sort of 6 or 7 holes now in that area beyond the Western limit of the mine area, going towards that Lake area.

Now, we’ve got some really nice intersections in there, minable grades. Of course, what’s beginning to interest us is, at the same time with this release, we’ve got our first results from the Cicada anomaly. Now, those sort of coloured areas you see to the West there, they’re all to terrestrial or geophysical anomalies, which we obtained from the site last year. And we actually started drilling at the beginning of this year.

We’ve got our first our first sort of start results. So, we’re drilling, not with core drilling here, we’re drilling with what’s RC drilling. So, it is much courser drilling where you just collect rock chips. You don’t get such an accurate sample, but it is kind of discovery drilling. But there’s enough there for us to get pretty excited about. We’ve got three metres at 2g/t, including one at over 5g/t, which is very, very Gold bearing. And the interesting point is it is bang on projection of the Sao Chico ore zone and as we’re moving West it is becoming to become quite possible for us that these things might all join together, which is really very interesting.

So now, if we look at that in terms of the long section, so now we can see long section-wise, the mine on the right hand side, you can see all the levels in blue, you can see the areas we’ve been mining and are mining in yellow. And you can see where we’re drilling all around the edges, obviously to the West, sorry, to the East, at depth. We still have some intersections right down there at the bottom and the mine is going down and down and down. But we’re drawn in a drill, that area to the West of the mind, the information gap as I call it, between Sau Chico and Cicada, that is a terrestrial geophysics anomaly, which we’ve just actually started drilling and got those hits up at the top. So, we’ve got a nice area, about 6,000 to 7,800m there to fill in, and we’re just stepping along, going West, time, time and time. The last intersections we actually got were not so wide, but the structure was still going strong and it was still over 1g/t.

But you can see in there, we’re picking up some really nice numbers; we’ve got over 5n at 12g/t, another sort of 12g/t in there. So right at the top there we’ve got nearly 2 metres to 28g/t. So it is some really nice numbers and a big area to obviously justify extending that mine West as we go. And we’ll just continue drilling that gap all the way to Cicada. And if this thing joins up, we’re sitting on some pretty, some pretty nice resource growth at Sao Chico.

Okay. So here we have the results of that airborne geophysics survey with the geochemistry superimposed. When we first received this, we were pretty, well pretty excited about this because there we have the Palito mine at the top where our plant deposit is, and Sao Chico down there in the Southwest corner.

And never in a moment did we think we’d have this huge geophysical magnetic, anomalous high with all those little black areas. They are the little, they’re the electromagnetic anomaly, which is another type of geophysics, and they are usually an indicator of massive sulphide. So, you can see, there’s a chain of them that sit on the flank – so that big magnetic highlight.

It is a huge feature and it obviously makes us think that there’s a different rock type, a favourable rock type of sulphide mineralization. And we obviously have those black dots that give the electromagnetic highs going along with it. So, what we’ve done, we’ve actually superimposed soil geochemistry over the top and hey ho, we’ve got a nice coincidental Copper anomaly as well.

So, the plan now is to hone in on those anomalies and actually see if we get a coincidental Gold anomaly. And you can see down there on the Cinderella shear, we do. And that’s got a really nice series of contiguous Golden anomolies there. So that’s really excellent. And what we’re going to do there is do even tighter lines like closest space sampling and see if we can join all those, if they become, they join up and actually become a really nice continuity anomaly there, make those drill-ready.

But probably the two that really excite us now is this one area called Calico and Jura, which are over at the West end. Really looking at the closeup apps, Calico and Jura. We, this is an area where we’ve actually already taken the Copper soil samples that were anomalous and re-assayed them for Gold and got some really terrific results. And you can see there at Calico, we’ve got a series of really high grade, 30 parts per billion Golden soil anomalies. And they, interestingly enough, I look at that, I see the orientation of those anomalies and they are exactly the same orientation strike, as we call it as the Palito deposit. So, I think that’s going to be a big stack of veins, just like at Palito. And I’m sure that’s what that’s going to end up being. The geology is very similar, so it really does look like a Palito copy so far, at this stage, from a geochemical anomaly viewpoint. There are only 5km to Palito, so it is pretty easy to actually start something there and truck it up to the Palito plants. That’s not going to be an issue.

And to the South, we’ve got this one called Jura, now, this one probably is even more exciting because it has all the components that you would want to see for some type of scalable deposit. It is over a kilometre in diameter. It has got coincidental Copper, Gold and other elements like molybdenum, tellurium bismuth. Multi elements that you would actually find in a porphyry type deposit. And we already know the rocks that we have are right for that. So, these are the two that we actually want to sort of move forward with and get close to space sampling on, see if we can tighten these up and all being well, drill them in Q4/20 and see what we can find there.

It is looking very much like a Palito: the rocks are the same. It is only 5km from Palito, so it is pretty exciting.

Matthew Gordon: Okay. So what I’m hearing is that you’re very excited. I can hear that and you know how you’re going to tackle it. I guess, people, you know, shareholders and people are looking at you afresh are going to be like, well, is this going to distract you from the work that you’re going to do at Coringa?

Mike Hodgson: I’ve been asked that a few times from investors in the past, and obviously, I suppose it is a nice problem to have. We’ve got such good organic growth upside in our backyard. Look, Coringa is very advanced, established, as you, as you quite rightly say; it is a Palito lookalike and it is going to do very nicely. Thank you.

I think what these results show us is how important organic growth is as well. You know, we can actually add ounces in our own backyard very cheaply. We can actually find satellite deposits which are all sort of built, dovetailed into our sort of plant expansion plans, whether they be at Palito or Sao Chico. So it is important to realise that potential in and around our 2 producing areas to see where are we going to do a plant expansion, which obviously we need to do at some point in time. And  this is what it is about.

I suppose I would like to add though that, you know, when you see something so big on the geochemical anomalies and the geophysical anomalies like this, we are mining high-grade veins at Palito, at Sao Chico and we will be at Coringa. But the scale of these anomalies, the size of them is, and the rock types they’re in, do look very similar to what the Anglo Americans of the world were looking at in Matagroso state in the South. And you know, not that we’re going to jump into bed with Anglo American or RTZ or any major, we’ve had several visits at site about these guys, wanting to come and look at what we’ve got. They’re very excited about it also; about the potential.

You know, these big magnetic anomalies are indicative of magnetic altered granites, which are usually hosts for bulk, porphyry type mineralisation. And so, we’re pretty excited about that we might have something, some real scale in our own backyard. So, you know, all we can do now is work our way through the process, prove the mineability.

Matthew Gordon: That’s kind of interesting to me. So, obviously, you have been used to chasing high-grade veins and you’re good at it, you know, you have been able to do it economically and you are obviously throwing off cash at the moment, but you are now talking the language of a different type of opportunity. You’re talking about bulk. I presume therefore, more homogenous low-grade type activity. Are you equipped or set up to deal with that as well?

Mike Hodgson: Well, a fair bit of water is going to flow into the bridge first. I mean, obviously I think, you know, one of the biggest challenges in the region is power, and that’s why probably high-grade veins work in this part of the world at the moment. But it is I think, I think as every day passes in this part of Brazil, you know, the road improvement and infrastructure improvements happening. You know, I think there’s a lot of will to actually improve the power situation in the region. And certainly, we can look at that. It just depends on the scale. But certainly, one thing that we want to do is, is address our cost profile and you know, adding in some open pit production one day with our sort of high-grade vein in mining is our wish. That’s our wish. And if we can do it organically, all the better, all the better.

Matthew Gordon: Fantastic. Okay. Well look, Mike, it sounds like things are going well. You’re coping with COVID-19, keeping the numbers flowing, which, I guess, should excite the market because I think others are struggling somewhat there. Should we expect more of the same for Q2? Or is it just see how it goes? Because what’s happening in-country, I guess is where I’m getting to?

Mike Hodgson: Well it is, Brazil is struggling and there’s no doubt and there’s no denying that. We are remaining very isolated from what’s actually happening outside. You know, people only need to read the news and see; there’s a lot of, particularly in the north of Brazil, they haven’t got the infrastructure, the medical infrastructure that we enjoy in in Europe or the US. So it certainly is challenging. What we’re doing, we think we have found a formula for rotating the workforce. The workforce has become very, very flexible and they’re working much longer periods of time than they normally would work. And as long as that will stays, we think we can find a way through of having a good Q2/20 and now we think we can have a very reasonable Q3/20. We might not make the guidance numbers that we said at the beginning of the year, but I think if we got 90% of it, no one’s going to complain. And to be perfectly honest, with the Gold price that we’ve got, 9,400, 9,500/Real an oz, and certainly making 3,000 pounds plus months, our cash flow is going to be in pretty good shape.

Matthew Gordon: And is the exchange working in your favour?

Mike Hodgson: Very much so. Very much so. That’s huge. I mean, the exchange rate today is BRLR$5.3/USD$1. BRLR$5.42 you know, our budgets were done at 3.70, so it is a, yes, let’s say that costs 85% in reals, and you know, exchange rate, 9,500 Reals/oz. You know, two months ago it was 6,000 Real/oz, it is a great time to be a producer in Brazil. Well from an economic perspective.

Matthew Gordon: Certainly. Certainly, yes. Mike, thanks very much for that update. You know, your story we quite like and we follow you avidly because I think that the potential is there and I think with, maybe, exploring; the possibility of adding bulk to this high-grade story could be very interesting for you. So, keep us up to date about things going on. I guess it is very fluid at the moment, so I appreciate the phone call.

Mike Hodgson: Many thanks.

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

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The Serabi Gold PLC company logo.

Calibre Mining (TSX: CXB) – I got big money callin’ I’m just tryna play it smart (Transcript)

The Calibre Mining Corporation company logo
Calibre Mining Corp.
  • TSX: CXB
  • Shares Outstanding: 328M
  • Share price C$1.28 (01.05.2020)
  • Market Cap: C$420M

Interview with Ryan King, VP, Corporate Development of gold developer, Calibre Mining Corp. (TSX:CXB).

There are plenty of exciting stories in the gold space right now, but this one is up there for us.

Calibre Mining is a TSX-listed 10-year gold explorer that has recently turned producer. The team at Calibre Mining arrived from Newmarket Gold, acquiring 2 Nicaraguan assets from gold major, B2Gold: El Limon, and La Libertad. The company has just announced its Q1/20 results and they are strong, with solid grades and plenty of cash flow.

At the beginning of 2020, Calibre Mining announced its guidance for the year was 140,000-150,000oz gold production, at an AISC US$1,000/oz figure.

Why did the company shift from long-term explorer to full-speed ahead producer? From years spent assessing and scrutinising gold assets, the management team came to a realisation: if they could obtain the right “suite” of assets, with good geological upside/potential, the right timing, and at the right price, they could make investors a lot of money.

When the gold market was in a downcycle, B2Gold moved it focus away from El Limon and La Libertad to focus on other advanced gold projects. These assets became non-core, and Calibre Mining was able to pounce on the opportunity. In 2018, after share price stagnation, the company decided to pivot away from its exploration past to replicate the management team’s success at Newmont Gold. The company set about attempting to buy producing assets. It did a 10:1 consolidation, conducted a small raise of C$5M (largely from the board). Around 1-year later, Calibre Mining announced its intention to buy the duo of assets, in addition to a C$105M financing. The fact that Calibre Mining was successful, especially considering gold was in a down cycle at the time, is mightily impressive. The company paid US$40M in cash to B2Gold along with US$40M in shares. B2Gold now holds 34% of Calibre Mining. There is one remaining payment of US$15M due in April 2021. This is the only debt. Looks like a strong balance sheet. Calibre Mining has added two producing gold mines to its list of gold exploration assets. It looks like a great portfolio.

So, how is Nicaragua as a mining jurisdiction? King admits it’s not well known, but he has good relationship with the Nicaraguan ministries of labour, mine and transport due to pre-existing relationships. King states that c. 98% of his workforce is comprised of locals. King speaks highly of Nicaragua’s mining code. Mining is key to the country’s economy. King has managed to transform the two assets into something much more impressive than they used to be? How? King has capitalised on the excellent infrastructure (particularly roads) and power services of Nicaragua. The two processing facilities have around 250-300km between them, but there are multiple ore sources spread around Limon, Libertad and Pavon. These ore sources combine with a total of 2.7Mt of installed capacity to create a cohesive, efficient model that allows Calibre to shift and move ores to where they will be most efficiently processed. This was reflected in the Q1 results: 20% of the Libertad Processing Facility’s metal production came from sources that aren’t on the Libertad property. King states he is proving the concept he set out with, and this has been reflected in an exponentially rising share price. From C$0.54 in mid-march, it has shot up to C$1.09 in just over a month. The market has latched onto the value proposition King is offering.

It appears Calibre Mining has managed to piece together some quite ordinary assets and is processing them in an incredibly efficient and intelligent fashion. Equinox Gold springs to mind. King states that investors are buying into increasing grades, which could have a transformative impact on economics. The company US$43M of cash.

We Discuss:

  1. Company Overview
  2. Transition from Explorer to Producer: How and Why?
  3. Business Plan and Corporate Structures
  4. Telling it Right: Share Price and Interaction with the Market
  5. Value for Money: Can They Keep it Going?
  6. Impact of COVID-19 and Measures Taken
  7. Nicaragua as Mining Jurisdiction
  8. The Bigger Picture: Targetting and Monetising the Assets
  9. The End Goal for Calibre Mining
  10. Cash Position and Possibilities at Hand

CLICK HERE to watch the full interview.

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

Ryan King: I’m excellent, Matt. Thanks for having me on the show.

Matthew Gordon: Yes, so where are you speaking from?

Ryan King: North Vancouver, locked down.

Matthew Gordon: Locked down with the family?

Ryan King: Locked down with the family, 3-year-old and 7-year old. And luckily we’ve had some nice weather in Vancouver but today is the first cloudy, rainy day so everyone is locked inside again.

Matthew Gordon: No, well at least the kids get to see you, that’s pretty cool. Well, hey, well, thank you. Thanks for joining us.  A new story for us. We are excited. You’ve done a lot of good things very, very quickly and we’re intrigued to understand a little bit more about the story behind that. But first, why don’t you kick off, give us that 1-minute overview and we will pick it up from there.

Ryan King: Sure. So, Calibre Mining is listed on the TSX. We were an exploration only company in central America for over 10-years. We have transitioned from exploration-only to producing from two processing facilities, multiple ore sources in Nicaragua, and as well, layered in exploration and development. So, we are a Gold producer. At the beginning of 2020, we announced that our guidance for the year was 140,000oz to 150,000 oz of production and around an All in Sustaining Costs of USD$1,000. So, it is exciting to make that transition that we did last year.

Matthew Gordon: Brilliant. Thank you for that. Now I want to talk about why you made that transition. Okay. Because you’ve got the ex-Newmarket marketing team there. You are spending 10-years on exploration – Nicaragua. You suddenly decided, let’s kind of skip this process and we were going to get into production. Right. So that’s a seismic shift in mentality, having spent 10-years at it. Was the exploration side too tough? Was it not giving you the results? I mean, obviously share price tells us a bit of a story, but what’s the reality behind the decision to change?

Ryan King: So the reality was, and you just hit on this, is that the Newmarket Gold team, so if I take us back to 2015, it was Doug Forster, Blayne Johnson, Ray Threlkeld, Doug Hurst the founders of Newmarket that saw good geological upside on those assets and were very successful. We did the deal, I think Newmarket was trading around, it was originally a shell, but when we started, the deal was about USD$0.75c a share, we ended up selling the company for, or merging the company for about USD$5 a share. So, we acquired production, but grew the production and grew the resource base through the exploration potential we saw initially and were successful at that. Similarly, the way Calibre came about was the identification of these assets. Doug Forester, Blaine Johnson, always reviewing, looking for opportunities, because of the success of Newmarket.

They recognised that if we find the right suite of assets with good geological upside and potential, with the combination of the right timing and the right deal, we can make people a lot of money, and ourselves included, and we invest in all of our deals. So really the shift was the success, because of the success of Newmarket. Right? We recognised another opportunity. We had looked at hundreds of opportunities for Calibre to buy production, that have the opportunity to either grow the production or grow the resource base geologically. And we landed on doing a deal with B2Gold. So that was really the shift, it is the historical success we had with Newmarket, we were trying to replicate it.

Matthew Gordon: Okay. But you went out to market, raised USD$100M, which is not easy because you did this in the middle of last year. So, I get that the Newmarket team’s reputation kind of went before them, but you must’ve known obviously what you were walking into. And I guess that then begs the question, why would it be to give that up?

Ryan King: Well, I’ll tell you, we started discussing this, Blayne and Doug started to discuss this idea with the B2Gold executive senior team, 2-years ago. So, you know, B2Gold has been working towards a 1Moz a year Gold producer. It was a suite of Nicaraguan assets that started B2Gold back in 2009, 2010, you know, so these were very near and dear to them; they spawned B2Gold and were a very meaningful part of their production for many years. But 2013, 2014, B2Gold shifted, you know, instead of doing lots of exploration, which they were still doing, they shifted because the recognised an opportunity to acquire an advanced development stage, construction-ready projects and other production opportunities when the market was turning down for Gold. So, they made the right move.

And then these suite of assets in Nicaragua became non-core to them. It became, you know, from analysts models, less than 5% of their net asset value, less than 8% of their production. So, you know, their shift in focus went from Nicaragua to West Africa for Cola as some of their bigger operations. And that was the opportunity, you know.

I think it was not so much about the divestiture of these assets, but it was a win-win partnership because we could focus on these assets 120%, like B2Gold did back in 2009 and 2010, which allowed B2 to then to have a nice meaningful equity position, which they have over 30% of Calibre, and recognise the lift, the opportunity that if these guys are successful – okay, we get a bit of cash, but we get a big equity chunk as well. And if they are successful, which we think they will be you know, that creates the win-win opportunity for both us and B2Gold.

Matthew Gordon: Okay. So, the Newmarket team and yourself, your founders, can you tell me a little bit about the structure that you’ve created there to bring these two assets. So, La Limon and Libertad are relatively low-grade projects which you are developing into higher-grade projects. We will talk about that in a second, I’m sure, what structure did you build on day one for this project?

Ryan King: Yes, so, as I mentioned, Calibre had been an explorer company in Nicaragua for 10-years, over 10-years, and over 10-years you are issued in outstanding shares grows quite significantly and quickly. Right? We had had a few years of success and then went into the doldrums for a while, ended up having almost 400 million shares issued outstanding. So, it was 2018 where the team said, okay, let’s pivot. Let’s now look to try and replicate what we did with Newmarket and go out and buy production, but we’d need to fix the capital structure to do that.

We did a 10: 1 consolidation, right? We did 10:1 consolidation. We then advanced in our work to identify an opportunity to acquire production. And so, after the 10:1 rollback, we did a very small raise. We did raise about USD$5M at $0.45 cents, and largely that was the team that the board of directors, the founders: Doug, Blayne, Doug Hurst, Ray, Russell Ball, myself, put a lot of our own money into that round. Then we brought in some external investors. Sprott came in. Sprott Capital came in for a small bit of that, Rick Rule’s group. And so that gave us the small amount of money to go out and start looking, to start identifying and doing due diligence to make the shift. And then almost a year later was when we identified the opportunity, or got to the point where we could announce the opportunity to buy the production and then do a very significant equity raise, as you just mentioned: 100Mat USD$0.60 cents. 

We wanted to price it right, because at that time, you may recall, pot was hot and Gold was not, type of thing, so it was difficult to say the least, in the middle of summer to go out and raise USD$100M, and you just mentioned this too, from assets that came from B2Gold, who are known as some of the best operators and some of the best explorers in the business. It came from B2Gold. So, there was a lot of trepidation. There was a lot of uncertainty about, you know, these assets have historically underperformed. Now Calibre, the ex-Newmarket team is buying them. So, there was a lot of questions.

So, the structure is, it was all equity. We didn’t do any debt other than a little purchase price agreement that we agreed to with B2Gold. So yes, we have about a 320 million shares out now. After the raise, we raised a total of C$105M. We paid USD$40M and cash to B2Gold. We paid USD$40M in shares to B2Gold. We had a convertible debenture with B2, which we actually have now converted to common shares, so it brought them from 30% to 34%. And then we’ve got one remaining payment to B2Gold of USD$15M, which is due in April of 2021. So that’s kind of the structure. Other than that, we have no debt.

Matthew Gordon: Well you, yes, sorry, did you mention you bought another USD$15M but that’s been deferred until next year, okay. You did say that. You did say that. Okay, cool. I mean that is fascinating to me that you can segue; you can take a company which has sort of been paddling around the exploration pool for 10-years and then suddenly go boom, now’s the time guys. And the market has reacted extremely positively to that. You know, from looking at your shares, again, weren’t doing too much in 2019 and towards the latter half when Gold started to go, and you were, I guess, getting into nearer-term production, so people started paying attention to you. The market dipped this year and you’ve had a quick recovery back to getting back to sort of where you were. Is that, I think that sort of tells a tale that the market is quite interested in your story and they buy what you are trying to create. Is that, would that be fair to say?

Ryan King: You know, I think for us it’s kind of a ‘prove me’ story. You know, we bought production from and partnered with B2Gold. So, you know, these assets, historically; la Libertad and La Limon, the two producing assets with mines and mills on them that we bought and acquired and partnered with B2Gold on, have underperformed. You know, they had underperformed. They had not, you know, there were revisions of guidance down sometimes for production. There were cost guidance up. You know, and so the market was kind of like, yes, we know these assets and they haven’t met our expectations for a couple of years. And so, to your point, yes, I mean, we did this deal. We acquired the production, you know, there was some history and hair on them and so it’s part of our job as the new team with 120% focus, to come in and try and you know, let’s say optimise some of the opportunities, maybe find some more ore, but with that 120% focus, we can maybe shift the narrative a little bit from what the external market thinks of these now with, hey, the Newmarket Gold team that sold their last company for $1Bn.

Matthew Gordon: Well, that’s where it’s getting at, because you know, I’m looking at the share price, the market has reacted, but the reality is there was a lot of hair on this and you have been shaving away at the edges in terms of driving the ASIC down, driving production up, you’ve had your first major quarter, and I guess we’re looking forward to quite a good year and then obviously market reset and COVID comes along. But we will set that aside. I’m interested in how, you clearly understand the need to talk to the market and tell them what you are doing, because like I say with the hair on it and with the legacy issue, not legacy issue, the legacy of the company’s performance, I can understand why the market wouldn’t react to it, but it did. You’ve managed to do that. And I think, I always think that companies that underestimate the need to communicate to the market properly, do not take advantage of the situation. You know, because it’s all well and good having a good team, good asset if you don’t talk to the market… So, what were the kind of barriers that you were coming up against initially, but you know, in terms of what did people not understand? What did you then say to them?

Ryan King: Yes, that’s a great question. I mean, when we look at these assets, we internally see a lot of exploration potential, but because they came from B2Gold, you know, there was a lot of uncertainty and hesitation that there’s probably most of it’s been found, you know, is it really exploration potential? You know, these assets historically have not hit their production numbers. So, what makes you guys think you can do it any better?  – You know, type of thing. And, you know, a little bit of jurisdictional uncertainty. You know, this is central America, Nicaragua, not known for its Gold production, has historically had social unrest issues so tell us a little bit about that. And you know, so there were these hurdles that we had to overcome and still are, don’t get me wrong, this is, you know, we think this is early days. We’ve only had the keys to the assets for 6-months, right? So, it’s been a relatively short period of time. You know, although we ramped up through our due diligence, but a relatively short period of time and we’ve really started to shift the narrative and in how we’re looking at these assets rather than two standalone mines and mills.

What we’re trying to get everyone to see is that is what we see is that amongst the landscape that is Nicaragua, we have two processing facilities. We have multiple ore sources and we can effectively, cost effectively, efficiently feed these mills to maximize production, maximize value near term, and have a focus on production with a margin. So that’s where our view is shifting, and the mastermind behind this is our chief operating officer, Darren Hall, who was at a Newmarket with us. He was at Newmont for over 25-years. So, he rose the ranks over the years at Newmont because he identified opportunities, whether it be for maximizing some production, maximizing and utilization of processing facilities or whether it be some cost savings efforts. So, he’s always walked through operations and you know, it’s like anybody, if they walk through an operation that’s new to it, they’ll likely pick up on a few things that they think they could do to optimise it. And so, it was those fresh eyes that we brought to it, to say, hey, there’s opportunities here. We can start to see them as we’re working through the process. And then it’s just communicating that to the market. But then building trust, you know, it’s slowly but surely, quarter over quarter, drill result over drill result, building that confidence back up with us at the helm. And that takes time.

But to your point, yes. You know, the market with the price of Gold, which has been positively reacting to some of the stuff in the macro landscape has helped us, but at the same time we’ve been executing on what we said we were going to do. And so, it’s, and so I think that’s why you’ve seen this quick rerating and there’s still lots of room, but quick rerating.

Matthew Gordon: So many questions, so many questions. First of all, I have got to ask this one; do you think the price that you paid for this: USD$40M cash, 40M of shares, you felt that was a good price? There’s nothing you would change?

Ryan King: Nothing we would change. And actually, yes, so the total was USD$100M. Nothing, absolutely at all we would change and actually we think we got the timing right. And it’s nice to have a win-win scenario because B2Gold has a big invested stake in Calibre with their 34%. So, it’s yes, no, nothing at all.

Matthew Gordon: Right. Okay. So, and the second component of this, having helped the market understand what it is that you are trying to do, and seeing this, you know, quite reasonable, quite quick rise in share price up; around nearly a buck today. Do you think that you’ve got enough here to keep people interested before they move on to the next new shiny object? Are you going to be able to deliver this big plan of yours and you know, the cash that you’ve got, you are generating free cash in a high Gold market, in a bull market, nice money to be made, but you’ve just been hit with COVID-19, like everyone else. It’s going to impact the numbers somewhat. Can you keep this show on the road?

Ryan King: Yes, that’s a great question. And there’s so many shiny objects out there. It’s hard. You know, what we’re seeing in the marketplace, and clearly the large cap Gold equities are really moving. Right. And then, you know, I think we will see this transition to the mid-caps and then even the junior Gold producers and we’re starting to see early indications of that at that happening, clearly. So, for us, it, you know, it’s heads down, bums up, grind away, try and execute the best that we can on our plan and exceed expectations.

So you know, whether people deviate and pick something else up or another shiny object comes about, that may be the case, and to your point, during this temporary suspension, during this pandemic, we’re actually trying to utilise the time very efficiently and effectively in the sense that, you know, executing on some social programs to help future production and growth for the company. So, you know, utilising this time with technical studies and permitting that we’re doing at the operations. And I think that we will execute on that. You know, even though it may be a very short period of time, a temporary suspension, but from start to finish, it probably takes, you know, 7 to 14-days to get the operation back up and running. And the nice thing for us is that we’re really in a state of readiness to get back up and going very quickly because we have all the materials we need.

Matthew Gordon: Yes. And I’m seeing people giving you credit for that. I mean you announced on the 25th of March, suspension to operations, sensibly, as one showed. We’ve seen a lot of companies talk to us about being able to maintain business as usual and maintaining operational programs because of, well, however they decided to do that. You decided to suspend and not try to kind of muddle through. Why? Why was that?

Ryan King:  First and foremost, health and safety of the employees, the contractors and the families and the communities that we work in. I mean, that is a very key priority and one of our highest priorities in the organisation. I mean, look, we self-imposed our temporary suspension. It wasn’t a rule, it wasn’t something that came down from the government. We just said, look, with a limited testing capabilities, right within country, with the with the limited healthcare service providers and abilities in-country, we need to get in front of this. We need to be proactive. We need to be preventative. Given what we’re seeing around the globe, you know, exponential increases in cases and deaths, we do not want to be part of that. So, we, in a controlled environment, were able to systematically, logically suspend operations, keep them in a state of readiness for when we do see the impetus to restart.

 But we did that, you know, as mentioned, from a health and safety perspective. And so, when we go through this and as we analyse how we restart what we’re looking at doing is, you know, potentially bringing in test kits, you know, we’re working through how do we do that? And, you know, potentially doing a drug and alcohol and a COVID-19 test at the gate, you know, that type of scenario so that we can feel comfortable so that our communities can feel comfortable that, hey, we’re safe. We know that our employees can go to work and know that the company is doing everything they can to test and ensure the safety of our people.

Matthew Gordon: Okay, well, let’s talk about the country because like that attitude. We were talking just this morning with another company with assets in Ecuador, doing a very large social program there. And you know, protecting the indigenous population is obviously critical. You know, it’s very, very important and it’s the right thing to do. But let’s talk about Nicaragua, because not many people know too much about it from this side of the pond. I think people from North America feel comfortable with South America as an investment destination and mining and so forth. But what is it like, what’s the mining code like? What are your relationships like on a provincial and a state level?

Ryan King: So, you know, Nicaragua, for a lot of people, as you just mentioned, is not well known. We have very good relationships. I think that, particularly with the ministries, the ministries of labour, the ministries of mine, the ministries of transport. And the reason we do is because most of the people, if not you know, 99% of the employees, the workforce, the country management for me to go, came and are now Calibre employees. So, we have, for example, all of the general managers stayed, all the senior geologists stayed on site. So, a very, very excellent knowledge base. And I think over 97% or 98% of our workforce is local Nicaragua. And so, a very well-educated workforce. And you know, our VP country manager, for example, he went to school with the Minister of Mines, you know, and he’s been in the mining sector for +30-years.

And so, he’s worked with him very regularly, built up a level of trust, and him with our, you know, as our liaison to the government, it’s been very effective. And he, you know, he has lots of regular dialogue with the Minister, and the mining code is favourable to mining. I mean, it’s appropriate so that, you know, you can efficiently get operations into production, but in a safe and environmentally friendly manner. And what they do in Nicaragua is very interesting: they allow 1% of any mineral concession for smaller miners to mine, and you can actually move them around with the government, you know. So, for example, they’re very good at finding Gold, you know, we use them to help find more Gold. It’s a nice geochemical tool to help understand, okay, what could this be? Another vein structure?  And then you can actually relocate these ASMs around concessions and then develop on a large scale, commercial basis, a new deposit.

And I’ll give you an example: from start to finish, this Lamont complex that we have, there’s a new high-grade vein structure that is now part of our open pit complex, which is called Limon Centra. B2Gold rediscovered that in 2017. They did quite a bit of drilling in 2018, they permitted the project and it took them probably 10 to 12 months from start of EIA to completion of EIA. So that is generally unheard of on a global scale; that timeframe from start to finish for an open pit mine. Now granted, they already had a mill and a tailings facility on the complex, but we are doing it right now. We’re actually permitting one of our projects. It’s called the Pavon. It’s a development stage project. We’ve started the permitting process and Q4, we anticipate an EIA approval, an exploitation approval by Q4 of this year. I mean very favourable.

Matthew Gordon: Fantastic. That’s what we’re getting at; because it’s investors talking about investing into, or thinking about investing into new territories, jurisdictions that are unknown to us, want us to look at the history of the country, you know, mining. I understand from my resources, very important part of income taxes and so forth for Nicaragua. So, and has well-established miners there and have been for some time. Okay. So, I just wanted to cover that off because people get a bit nervous when they’re talking about things they don’t know about.

I want to talk about the assets briefly, because they have segued, from what you inherited, into something else. When did you, again, make that decision and say, well actually I think we’ve got something better than I thought we had? And we’ve ended up with… how do you go about targeting that? How do you go about redistributing your spend, your drilling, or indeed your thinking about how you go about monetising it?

Ryan King: Yes, that really is the million-dollar question of how,

Matthew Gordon: Hopefully a bit more than that, right?

Ryan King: We hope so! I think it really started back in the summer of last year. And, and frankly, you know, for our team, you know, Doug Forester, Blaine Johnson, there was this, okay, there’s opportunity here in the sense that there’s good infrastructure, you know, Pan-American highways, excellent highways. There’s great power and the country and the government have consistently invested in infrastructure. So that’s been a huge benefit because that speaks to some favourable costs to transport things around the country. And so it was really Darren Hall, our chief operating officer that, you know, as he was doing his due diligence, remembering the experiences he had over his career and what had worked and what had not worked, and some of the things he was looking at is, you know, trying to break down some barriers in the sense that you’ve got one mine, it’s called La Limon, one mill, which is 500,000tpd up in, let’s call it the Northern part of the country. So, a smaller mill, but that sort of complex has produced over 3.5Moz of Gold and we currently have between 1.2Moz and 1.5Moz in Resource there. So, this is, I would say, a world-class, low sulphidation, epithermal vein district. Then you go down to the south to the La Libertad operation, which is a much larger mill. It’s 2.2M/t per annum processing capacity, and B2Gold did a very good job investing in that. They built that mill. And so they did an incredible job. So, what he kind of looked at was, okay, you’ve got these two processing facilities, roughly 250 to 300 km between the two, but we have multiple different areas of ore sources, you know, some at Limon, some at Libertad summit, Pavon.

So, you know, now we’ve started to implement this, what we call the hub and spoke approach, so multiple ore sources, a total of 2.7M tons of installed capacity. So rather than look at them as, you know, 500,000 tons here a year and 2.2M p/a, we’ve got 2.7M t of available capacity to process ores. Let’s try and efficiently maximize the value in the near term. And so, we know we’ve got a lot of resources at the Lamond complex. We have no reserves at Libertad, but we’ve got, you know, probably somewhere around 600,000 oz of inferred and indicated resources. So, you know, utilising the resources that we have, but then also maximizing the processing capacities that we have, rather than sinking new capital into expanding mills, let’s look at hauling that material around the country.

And you know, really this started to come out in December of last year, and then, and then Q1, sorry, I should say that it was telegraphed in our Q4 conference call where we said, look, we’re evaluating these opportunities because they look good. You know, the cost structure is good, the infrastructure is good, where we can haul ores 250 kms and process it at our Libertad mill. Because not only because it’s got excess capacity, but because we’re now implementing this new operating philosophy of multiple sources into process and capacities.

And, you know, I think we demonstrated that effectively in Q1: 20% of the Libertad processing facility’s metal production came from sources not on the Libertad property. So, Limon and Pavon; we’re already starting to execute on that proof of concept. You know, we’ve had conversations with the ministry of transport, ministry of labour, and these trucks that were hauling ore around, they get lost in the noise. You know, this is a heavily trafficked Pan-American highway you’ve got to do obviously, or your public consultations with some of the tops and the tails of the communities. You know, it’s that two to four km off of the main highway with some of the local communities, but absolutely no issues that we had in Q1.

And in March we got up to almost 410 a day, hauling ore from Limon down to Libertad, so we think there’s opportunity to expand on that more.

Matthew Gordon:  I get the big idea, I get the philosophy and I get the logistics in terms of what you are putting together here. So, it’s a nice big plan, but you’ve also managed to increase the grade. You’ve managed to reduce the cost. And those can be sometimes a factor of, obviously you are putting more ore through, you are getting more efficient with the process. It’s your first full quarter so I would expect you to, you know, improve things dramatically from there. But I am interested in the bigger picture with what you are trying to do with the region asset because you are in Nicaragua, that’s where the experience is, you’ve been there a long time, you are not going to go off and do M&A in any other country at the moment. You are focused on this. Is that fair to say? Or you are going to surprise us?

Ryan King: Well, I mean, yes, I mean, to be honest with you, we think there’s a lot of value to be unearthed here. There is absolutely a lot of value. So, this is really heads down in execution, but in time, you know, do we want to become a multi-jurisdictional Gold producer? You know, potentially, yes. And look, if somebody were to approach us in say six months, nine months or a year and say, hey, we think A plus B could equal significant higher valuations. We have no social issues, right? We’re all investors. If we do the financial engineering and say, hey, there’s an opportunity here. And you know, one of the things that we’re recognising is that electronic trading in the market is becoming huge. You know: indexes, ETFs, things like this that we’re not in yet. So, we think that’ll be another leg up for us alone, in time. But size is starting to matter as the commodity price goes higher. So, you know, I think it’s important for everyone in this space to not have that huge change of controls and social issues to be able to build a better product for people that want equities that are focused on Gold

Matthew Gordon: Again. You are beating me to it here. This is a terrible interview – you are beating me to these questions because that is what I was getting to, because what I’m hearing, what I’m feeling, and obviously, with the track record of the Newmarket guys and yourself, it feels like you want to build something, but you’ve got to take care of what’s in front of you. You have got to get that right. You’ve just started, right? So, there has got to be some focus, and I get that you are building cash and we will put the COVID-19, I think the market is even putting the COVID-19 thing aside for now. They see what you are trying to do there. There’s some scale, but it also feels to me like you are trying to do kind of like an Equinox situation where they have pieced together some very ordinary assets, but they are processing them in a highly efficient way. And I guess that’s what I want to understand about your mentality of the management team is, what is the end game here? What are people buying into where they come and talk to you for the first time? Look at your projects, look at the management team. Look at the assets and go, what are these guys about? And at this price, can I still make money?

Ryan King: Yes, I mean, a great question. You know, from what we see right now in the organisation, as I mentioned prior to the pandemic, we guided the market on about 140,000oz to 150,000 oz of consolidated production, around USD$1,000 All in costs. (AIC) And even as we learn more about the optimisation opportunities, the integration opportunities, cost-saving opportunities, we’re already starting to see the opportunities, as you mentioned: higher-grade. So, in 2021 we’re going to see grade increasing but actually throughput at the Libertad mill coming down. So, grade increasing, throughput coming down. We think, you know, 70,000oz to 75,000oz will be processed through their, temporary suspension aside in 2020, but because of the grade increasing, you know, by 2022 we could be up to 120 to 130,000oz in our new operating philosophy alone. So, when you think about that and you peel that back, today we’re 140 to 150 on a consolidated basis, by 2022, we could be 200,000oz to 220,000oz and then you layer on all the exploration on top of that. All of a sudden, this story gets very excited.

You know, I’ll use K92 as an example. Everyone’s sort of discredited that, you know, it’s Papua New Guinea, you don’t really know about it. But those guys have done a fantastic job of executing and finding more. If you strip everything away, that’s what we do. You know, we’re always depleting. You have to find more, or you have to do creative financially engineered M&A to create and unlock more value. And so that’s why we’re doing 50,000m of drilling. So, I think, you know, I think there’s a lot of value to be unlocked here with Calibre and these assets and our new approach.

 And to your point, you know, we’re generating great cash so we can reinvest in our business and our asset base to do that. Find more, and we’re already having success doing that.

Matthew Gordon: So this year, you were talking about spending about USD$12M, obviously that will be, I guess, pushed out a little bit. Isn’t it amazing what you can do with cash?

Ryan King: : Yes. When you don’t have to continually go back to the market and sort of say, hey, we’ve got this target we need to, unfortunately, dilute a bit more, raise some more cash to drill this target. With the operations, we’re affording ourselves the ability to be able to reinvest in the assets, find more and unlock more value for our shareholders. But you know, on that note, you know, I’ll just say that during the fourth quarter of last year, one of the big unlocking values for us was, there’s two big ball mills at the Libertad processing facility. Darren identified, hey, you know, we could temporarily suspend or idle out one of those ball mills and still have excellent production. By doing that, we’ve saved ourselves approximately USD$500,000 to USD$550,000pm. And almost by that one initiative, afforded ourselves half of our exploration spend for 2020.

So, it’s all of these little pieces that are coming together to unlock much more value in the bigger picture. I think today our market capitalisation is around USD$250M. We have got USD$43M in cash at the end of Q1. And, and to your point, you know, isn’t it great what you can do with cash. And when you have cash and no significant burns and no big debt covenants like we don’t have, you can really effectively utilise that. And we put that in the ground. We put that into the multiple ore sources, wherever it may be, so that we can help unlock more value. Because at the end of the day, ourselves as management, we own a lot of this equity. We want it to succeed. We want our shareholders to succeed. I think our, we own a little over 5% of the company, all at the same prices that our shareholders do.

Matthew Gordon: Ryan, that’s a fantastic first introduction to the company. I’m delighted to have been able to talk to you. I’m excited to see what you do with this cash optionality that you have. I get the big picture. I guess it’s a case of the way that you go about trying to deliver that. That is what I think I could get excited about here. Let’s stay in touch, pick up the phone when there’s something to say, because we’d be delighted to talk to you again.

Ryan King: Okay. Thank you very much for the opportunity to speak to yourself and some of your subscribers and followers. I really appreciate the opportunity and yes, absolutely, it’ll be a busy year in front of us. We will have lots of news and I’ll be sure to reach out. So thank you again.

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

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Rio2 Ltd (TSX-V: RIO) – I overlooked your heart of gold (Transcript)

The RIO2 company logo.
Rio2 Ltd 
  • TSXV: RIO
  • Shares Outstanding: 181M
  • Share price C$0.53 (29.04.2020)
  • Market Cap: C$98M

Interview with Alex Black, President and CEO of Rio2 Ltd (TSX-V:RIO).

Alex Black is back to talk about Rio2, a Chilean gold explorer and developer, and one of our favourite gold stories in quite a while. The market hasn’t been kind to Black. He inherited a large feasibility study plan, which he halved in size. We appreciate the pragmatism of this move but it was always going to be unpopular with some investors. The water permit situation compounded these issues and caused investors to have concerns. While investors who crinkle their noses at anything less than a 20-bagger might want to check-out now, those who want sensible, de-risked returns should pay close attention to what Black has to say.

While the size of the resource has halved, there are plenty of promising stats. Take the CAPEX: in the updated PFS is has fallen from USD$400M to a smidgen over USD$100M. The strip ratio is lower and the IRR is marginally higher. While the AISC has increased, future optimisations could well bring it down. Rio2 is a low-grade, bulk-tonnage gold operation. Don’t sniff at the grade; look at the margins, look at the management’s strong track record, and look at the level of risk. Rio2 has been hard at work trying to get the gold mine constructed as quickly as possible so the company can get into production. The management intends to increase the gold production rate from an initial 100,000oz pa to a mid-tier 200,000oz pa. Can Rio2 strike while the gold iron is hot? Construction is guided for Q4/20. What Rio2 has at the Fenix Gold Project is the largest, undeveloped, gold heap-leach project in America, with 5Moz gold in M&I resource.

Black then decides to immediately tell us his share position and salary. If only more CEOs could do the same! Black has c. 15M shares (from around 181M). Black paid for all of them and has invested a total of C$2.5M. Black is paid US$300,000 pa. He doesn’t sit on any other boards or advisory committees. Crux Investor is all about transparency for investors, in a game that is so often rigged out of their favour. We like Black’s approach, and he has our respect for this alone.

So, what has been happening since we last spoke? Black starts by stating that, after an investigation, the board at Rio2 is confident they have been a victim of illegal naked shorting. Naked shorting involves the manufacture of shares (never giving lent shares back). Is this one of the reasons causing Rio2 to find pushing the share price up difficult? The Canadian Government currently denies it is occurring. Black, and many other Canadian companies, want to see this change ASAP.

Has the water permit situation now been solved? Black states it has been via a temporary solution until permits are sorted. Rio2 will truck water in from the nearest regional centre 140km away. Black is clear on this: it works. A 30t tanker truck leaving the centre every 20 minutes should certainly satisfy Rio2’s appetite. An “elegant solution” for a “complex process?” This should see Rio2 through the start of production comfortably until full water permits can be obtained. It looks like a smart workaround. The costing in the PFS in US$14/t of water, which is baken into the US$1000/oz AISC.

Rio2 finished last year with working capital of c. C$16M; this is enough to get Rio2 through to the end of Q2/21. Rio2 just filed its EIA, which was completed from scratch. The EIA process should be concluded by Q2/21, then it’s onto finalising permits. Black expects to receive the final construction permit in October, 2021, and then it will be time to get started. The financing process has started: conversations are taking place. Black is very confident Rio2 won’t have a problem getting funded. The financial plan should hopefully become transparent by the end of 2020. Until then, Black’s focus is on driving the share price up and getting the story out there.

We Discuss:

  1. Company Overview and CEO’s Background, Shareholding & Remuneration
  2. Naked Shorting of Stock: What Can They Do?
  3. The Business Plan: Addressing the Feasibility Study & Water Issues
  4. Timing for Start of Production: Funding, Value Creation & Further Actions
  5. Rio2 vs Other Companies: Can They Get to the End Goal?
  6. Advancements, Concerns & Barriers: New Purchased Infrastructure
  7. Market isn’t Listening: Why is Rio2 Invisible?

CLICK HERE to watch the full interview.

Matthew Gordon: Hello Alex. How are you, sir?

Alex Black Hi, Matt. How are things not bad?

Matthew Gordon:  Not bad. Now, tell me, you are not up a mountain somewhere, are you?

Alex Black: I should be, it would be the ultimate form of isolation. But no, that’s our Fenix Gold project in the background. And you can see the tops of the hills that we’ll be mining, and yes, I mean it is a great photo. It gives some perspective to what we’re trying to do and where we’re operating.

Matthew Gordon: Okay. Well, why don’t we do the usual thing, kick off and give us that one-minute overview for people new to the story, and then I will pick it up from there.

Alex Black: Yes. Okay. Well Rio2 is a company that is advancing the Fenix Gold project, which is located in the Maricunga region of Chile, to production and construction first to production. Next year, construction is guided for Q4. And what we have at Fenix is the largest undeveloped Gold heap-bleach project in the Americas with 5Moz of Gold in MNI at USD$1,500. It is the largest Gold heap-bleach project in the Americas. There is nothing else like this in North America, central America, South America. And just to set a bit of a precedent for you today, and maybe a little bit of a gift, I know that you had some issues a couple of months ago where you were interviewing somebody and you wanted to find out a little bit more detail about what they were earning, how many shares they had, how much money they’d put in the company, et cetera. So, I’m going to set a bit of the precedent and actually tell you my position. So, I’m a founder of Rio2. I have about 15M shares which I have paid for. I have invested a total of CAD$2.5M of cash. No bonus shares. These Aussies are lovely, you know, in Australia, they get all these bonus shares given to them along the way. We don’t do that. I bought all my shares; so, USD$2.5M. I pay myself, well, I don’t pay myself; my compensation committee pays me, but it’s USD$300,000 a year.

And just also to explain that my focus is 100% on Rio2. I don’t sit on any other boards and I’m not in any other advisory committees or anything like that. So, I think I’m telling you this because I think the all CEOs should, I mean some CEOs hide guns so they shouldn’t be embarrassed about, you know, the fact that they might not have a lot of skin in the game, but they should declare it. But anyway, investors need to know that on SEDAR for Canadian companies, every year there’s a management information circular prepared. It is filed on SEDAR in preparation for the annual general meeting. And in that document, that’s where people like me have to declare how many shares we have, what we get paid, et cetera. So, it’s no secret really. So, I don’t know why any CEO, I wouldn’t want to tell you this, but I’ve done it and hopefully I’ve set a precedent for other CEOs to put it on the line as well.

Matthew Gordon: Alex, thank you very much. That’s a first. You have stolen a bit of my thunder, but I think that is fantastic of you to be that blunt, because not many shareholders go and do the hard work. You have got a lot of skin in the game and you have paid market.

Alex Black: Obviously, I’ve got the cheapest stock, you know, I was in the story early, you know, I’m not hiding that at all. I think my average price was just over 20 cents for the stock that I’ve got. So, yes, I mean, I did okay in the early days, but I’ve got lots of skin in the game. CAD$2.5M is real money. And you know, I’m going to make this thing work and we’re going to make all our shareholders, including myself, many, many, many more times value than what we are today.

Matthew Gordon: Okay. I love that. As I say, that is a first. Let’s move on and talk about what you have got, okay. So last time we spoke we, we talked about the fact that Rio2 had been a little bit of a darling. Your shares are up around USD$2.50, USD$2.60 ish, back in the day, you know, today they’re sort of sitting around sort of the mid-40s, okay? The market has lost faith with the project and we talked about the two reasons: one was the fact that you changed the feasibility plan, and the second was issues with water. So can you do me a favour? Can you explain to me, I know you have inherited the previous Feasibility. Why did you change it? Remind me why you changed it.

Alex Black: Can I just go back a little bit before I answer that question? Yes, look, when we started Rio2 we took over a shell, a prospect of resources it was called. There was a bit of hype: obviously people thought, okay, you know, Alex Black and his team are back, and our share price ran up to USD$1.80 on the back of nothing because we didn’t have anything. We actually put together a shell with some cash before we found the project. Since then, you are correct, we’d gone from that USD$1.80 down to USD$0.45c today. I think we bottomed out at about USD$0.15c a couple of weeks ago, whenever it was.

Matthew Gordon: Yes, you are back up.

Alex Black: And yes, the buck stops with me and yes, it’s my responsibility to turn that around. But I just want to reveal something to you and also to people that are listening; we have done some research and we are very confident that we’re a victim of naked shorting of our stock. We are doing more research and we are going to take specific action related to that. Now, everybody knows that short selling that occurs in stocks and typically you borrow shares and within two days you have got to return those shares back. Naked shorting is where you never return the shares back. And in actual fact, there’s shares that are manufactured out of nowhere. It’s electronic, it happens electronically. So there’s a group called Save Canadian mining and their website is Savecanadianmining.com. Terry Lynch is a guy that runs that, and he has several founders and sponsors of that website. And it’s all about stopping this naked shorting because it’s illegal. Basically, it’s illegal, although the authorities in Canada, say that it’s not happening, they just say, we checked, it’s not happening. But it is. And people that are helping Terry with the cause: Eric Sprott, Sean Rosen, Rob McEwen and you have got some key industry figures there that have recognised that this is a problem.

Now, this doesn’t just happen to market cap junior resource companies. It happens to all sorts of companies listed in Canada and also listed in the US. So, I just want to say that; that’s not an excuse, but it’s something that’s been happening.

Matthew Gordon: No, I am aware of it. Thanks for bringing it to our attention. We actually have a couple of companies suffering from the same thing at the moment, which we talk to on a regular basis. But when you’re saying that Terry Lynch is going to do something about it, what can he do if no one is recognising that as a thing?

Alex Black: Yes, it’s through examples like ours where we have got investigators looking at the trading patterns behind the scenes of our stock, he is going to lobby groups like IROC and the CSA – Canadian Securities Association. He is going to lobby those guys and he’s going to put a credible case forward and expose that this is going on, right. And it’s all about stopping it. It’s not about stopping shorting of stocks. I mean, that’s a normal thing that happens as part of business, it has been around for donkey’s years. It’s all about stopping the naked shorting. Right? So, I think, I don’t want to spend a lot of time on that right now.

Matthew Gordon: Let’s not, let’s not, but it’s a great topic.

Alex Black: Yes. I wanted to put that out there. I think people who don’t understand what I’ve just been talking about should go to the website.

Matthew Gordon: We will, and we will investigate it for our audience. Let’s get back to you. Can you start with the business plan?

Alex Black: And so, okay, the original business plan, sorry, Matt, the original business plan for this asset, which was prepared by Atacama Pacific, which was the previous owner, was to build a big project. And when I say a big project, I’m talking about 80,000 tons p/d ore putout, spending about USD$400M on capex and producing about 225,000oz, 230,000oz of Gold p/a. So that all sounds fine. It’s ultimately doable. We have spent the last 20-months, that’s how long we have owned this asset, we have looked at it and yes, that’s doable, but we didn’t want to start there because USD$400M, our market value today is USD$80M, so we can’t afford USD$400M. I mean, that’s a fact of life. So, we have scaled the project right down to a point where we can get it off the ground.

And the other thing we have done is we have focused on reducing the capex to the lowest possible amount and also accelerating the project as quickly as we can. Now, to achieve that, one of the key things that we did from a water perspective is we decided, let’s forget about the traditional way of applying for water rights and going through that permitting process and pulling water from the ground. That typically takes, from the time you applied for rights to getting permitted water, it takes in Chile, somewhere between, you know, well on average about five years, right? We can’t wait. We have got a high metal Gold price right now. We just can’t wait. So, we said to ourselves, what can we do to get this project up and running? And we picked a start-up production rate of 20,000tpd and we said, that will work. That’ll get us to a run rate of about 100,000 to 90,000oz pa, but we’ll bring that water up from the nearest regional centre Copiapo, which is 140km away by truck.

And it works, right? Some people have thought about that and gone, ‘hell’. And one thing people should know is we have got a new corporate presentation on their website. It’s got a couple of new slides that elaborate a little bit more on water. People have gone, ‘Oh shit. So, is this like a pipeline of trucks?’ You know, like just can see this stream of trucks going up the road. No, it’s a truck every 20 minutes that leaves the town of Copiapo that goes up there. It’s a 30-ton truck tanker, like a fuel tanker. So, it’s easily doable. Secondly, people have said, well, you’re going to truck from Copiapo through there, when you go through Copiapo and there’s traffic and there’s problems, what are you going to do about that? And in that new presentation, you’ll see we show a couple of routes that we can take either through town or around town. So, I think it’s an elegant solution for a complex problem. Not a problem; I guess a complex process. And what it does is it gets us started and gets us to production.

What are we doing today? We’re actually talking to people that have water rights in and around where we operate because at some point we are going to stop using trucks, because you know, we only want to use trucks for the shortest possible time that we can and then dovetail into another solution and a bigger solution where we can expand this project.

Matthew Gordon: Right. So, tell me, yes, it does answer the question. You have stolen a lot of my questions from me, but that’s a great answer. Can you tell me what you have done around understanding the economics for the short-term water solution? Ie. the trucking solution, do you understand those yet? Have you done a full some kind of study on that?

Alex Black: Yes, we have done, we have done from grassroots, we have built up a costing of what it will cost to truck the water from Copiapo to the project. And I can tell you now, and it’s in the PFS that’s filed on SEDAR: it’s USD$14 a ton. Around USD$14, a few cents more. So, it’s in there. Our AISC that we showed in the PFS was USD$1,000. It’s all baked into that. So, it’s all there.

Matthew Gordon: So, that’s a firm number, okay. I get it. I also get the fact that you want to start and the chances of funding a USD$400M project versus USD$100M capex project is very, very different, even in a high you know, bull Gold market. So, can you just tell me, give me some sort of sense of the timing of all of this, because again, if I’m just looking at the share price, forget the dip of the last month or so, everyone has experienced that. You are back up to where you were, which has been a pretty steady state for about the last year, or year and a half. You have got to start driving up. And I think that can only come if you regained the faith of the market. So now you have got your PFS, you have fully costed the water component and it’s an elegant solution which allows you to start sooner. What next? What are you doing next? Do you need to go and find the money?

Alex Black: Yes, well, let’s go back to the money side. You know, if we were looking to fund this company in the short term, I would be worried. The good thing is, and once again, it’s in the updated presentation, we finished the year, last year with working capital of about CAD$16M, that we have said, and we have actually said in a couple of press releases, because we put out a couple of press releases, which we’ll talk about, in the last couple of weeks, that we have enough funding to take us through to the end of Q2 next year. So even though the share price is a problem right now, it’s something that we think as time progresses, we’ll be able to work upon and get that value up. In regards to, where are we at? We just filed our latest press release was about our falling of the EIA for the project. That is a milestone for us. We had to start from scratch. When we took on this project, we didn’t even have an Environmental Baseline Study done. So, we completed that Baseline Study in January of this year. We prepared an Environmental Impact Assessment Study, which we filed with the Chilean authorities last Friday.

So, how long is that going to take? We, with our consultants and our understanding of the complexity of our study, which is very simple in relative terms, because we have a lease project, we have no tailings. We’re pulling no water from the ground. It’s a very simple process. So, we’re guiding 12 to 14-months for the appraisal and the approval of the EIA, which will be end of Q2/21 next year. And during the process we’ll be applying for certain permits. After the EIA is approved, we’ll be finalising permitting, and we expect to receive our construction permit in about October of next year which will then push us into construction and that’s really good because that’s the start of the summer season so we get to enjoy good weather for the commencement of construction.

How do we get to that point? Because we file the EIA, we have started our finance process, we are talking to financiers right now. We are gauging interest in financing this project, and I can tell you quite confidently, we are not going to have a problem financing this project. So, during this year, hopefully before the end of the year, sometime in the second half of the year, we’ll be able to come back to the market and say, this is their financial plan. And my focus, because of what we’re going through with the low valuation right now and the low share price, my focus is on leveraging the company up as much as I can and as sensibly as I can. Based on the fact that interest rates are the lowest they have ever been, and Gold price is nearly as high as it’s ever been, we should be in a position where we can capitalise on that. Does that answer your question?

Matthew Gordon: It does. But when you were talking though, you reminded me, your track record is pretty darn good. Right? And people bought and backed Alex Black and your track record. Is that same Alex Black still here today? Do you believe in your project? I know you have had a lot of money invested, but do you believe you can get this to the finish line?

Alex Black: Most definitely. I mean, we built two Gold mines in the last 10-years: that was La Arena and Shahuindo as our last iteration as Rio Alto. This has all the hallmarks, all the characteristics, although in different geography, in a different geographical setting to what we did in the past. So, we’re super confident. The simplicity of the project, the characteristics of the project. I mean, and also this is the first time we have started with a resource base of 5Moz on any of our projects because the other 2 projects started off small. We didn’t even know what the future of those would hold.

And one other thing I want to talk about is, and once again, going back to a new slide deck which you’ll find on our website, there’s a page there where we do a comparative and we don’t do a comparative with our development peers – why? Because it is, excuse me, it’s bullshit. Because at the end of the day, most of those development peers will not execute, will not be building a mine anytime soon. So, what I’ve done is I’ve compared our self to two like existing mines and those two mines Marigold in Nevada, which belongs to Silver Standard and Mesquite, which is in California and belongs to Equinox Gold. If you look at them, they’re both Gold heap bleach projects, very similar characteristics, you know, a little less grade than what we have at the moment. They have higher strip ratio than we have. We have a lot longer mine life and you know, same sort of recoveries, metallurgical recoveries, so very similar projects. And that’s what our comparative is, and the best one for me in that group, or in that group of two is Marigold because Marigold produces 200,000oz pa at the moment, it is the Silver Standard, and carries half the market value of the company. The market value of Silver Standing is USD$3Bn, so Marigold as a 200,000oz pa Gold heap bleach project in Nevada carries a billion and a half bucks of value for that company. That is where we’re headed. That is why I’m excited. That’s why I’m motivated to make this thing work; because it is one of those types of projects.

Now, we’re going to start at 100,000 oz but when you look at the expansion potential of this project, once we find additional water, which we haven’t found yet, we will announce that when we find something that that will suit, we can get the production rate of this asset up to 200,000oz to 300,000oz p/a. So that’s why I’m super confident we’re going to get this project off the ground and we’re going to replicate the successes those two companies have had with those two assets.

Matthew Gordon: Okay. Remind me again what apart from the EIA, what else are you worried about?

Alex Black: Not that much. Let me just talk about another announcement we made about a week ago: we announced that we bought some nearby infrastructure to our project. That was announced the week before last. We paid USD$1.5M for an ore processing plant that is located about 20km from our project at an altitude of 3,200 metres. Our project is at 4,500 to 4,900m so it’s really interesting, this infrastructure at 3,200m, you’d drive 20km and you up almost 1.5km. But that infrastructure is an old processing plant. Non-mine related. I mean, the mines have all been extinguished and they were external to the package that we bought. Alt processing plant, which really ,we’re not going to use either because it is a 700tpd plant, not what we bought if for.

Matthew Gordon: Why did you buy it?

Alex Black:  Why did we buy it? Okay. In the presentation you’ll see you a why, but I’ll explain now, for three things: there is a camp there which we have been renting while we have been doing fieldwork at the project, from the previous owner we have been renting it. That camp can be refurbished and be utilised as our construction camp, so that will side on some capex and also some timing. And the other two critical pieces are connection to the power grid, they are connected to the grid. And we will eventually, after we start our project, because we will start our project with generators, and then after we get started, we will then connect to the grid. But there’s a connection to the grid there at that plant. And thirdly, water. There is some underground water, permitted, it’s only five litres a second at this moment and five litres a second actually covers about 20% of our water requirements for what we would have had to truck up the road. So therefore, we’re making a saving on water costs, saving on future power costs. And I can tell you that that USD$1.5M that we spent buying that will translate to tens of millions of dollars of operating cost savings over the life of the project.

So, you know, we’re being smart about what we do. We also sent a signal to everybody that we’re serious, you know, we’re going to build this project and we now have some very valuable infrastructure next door to it and we’re going to go from there.

Matthew Gordon: Well, I think you sent a serious message to everybody in the industry. I think people think you’re putting all the right things in place to build it, but the market is not listening at the moment. So what are they missing? What are they missing?

Alex Black: I’ve had people ask me that. I’ve just attended the World GoldForum. It’s been a conference has been done virtually. It should have been done in Zurich and we have done it virtually. It was pretty successful. A lot of people asked me, and I said, well, you know, unfortunately my name is not Lundin, it’s not Beaty, It’s not Lassonde. And if you look at anything that those guys are involved with, they’ve got super valuations, et cetera. You know, they’ve all done it before. They’ve all created value before. And they have, you know, so I’ve got no beef against that. But when it comes to Alex Black, it is like, hmm, is he going to? Is he going to really do this? You know, is he for real? Because was that stuff that he did in Peru an accident or real? So, unfortunately, I have to deal with that.

We’re, you know, we’re not going to be in production like tomorrow or 6-months or 18-months, we’re going to be starting construction in 18-months. So, for some people it’s not going to give him the fix they want, you know, people are flooding into this market at the producer level. Some are coming down to the developer level, particularly those names that I just mentioned to you. And eventually it will flow. I mean, I’m quite confident that this time next year we’ll be talking about a different looking Rio2, from a value perspective. But that’s my job; the buck stops with me. Totally agree with you. If you look at our share price, I have not performed from that perspective, but I think from an execution perspective, and this is not me, this is my team. We have got a fantastic team here in Lima that have been pushing this project ahead. We will demonstrate that we will translate that execution and delivery into value.

Matthew Gordon: Okay. I believe you. Alex, you need to speak to me more because I like what you’re doing. I can see the steps you are taking. I think you need to talk to the market and share what you’re doing with them because the basic fundamentals of this company are very strong, from our reading of it. You just need to execute on those stepping-stones between now and 18 months. And I, and I do believe you will.

Alex Black: You know, Matthew, the other thing that frustrates the shit out of me really, and sorry, I’m dropping a few swear words here, but I think the people who watch these videos are strong enough to handle it. The other thing that frustrates me is that we don’t exist; if you look at any mining analyst’s report, and we’re not, you know, we know how it works; you have got to pay the Street to be covered by analysts and all that. We are covered by one analyst: Cormark? We did a financing with them last year. The analyst just walked out of the door. So, I think we’re not covered by Cormark anymore. So, zero analysts. But what I want to say is that I’ve looked at a lot of analytical reports on other developers belonging to some of those names that I mentioned to you and we don’t even appear on the comp sheet, like comparable assets, we don’t exist.

But I can tell you, and I want to tell shareholders or potential investors, this happened to us at Rio Alto. It is a carbon copy, and I don’t know why it’s happening again because we have had the track record, but we appeared nowhere when we were Rio Alto. We raised all our money for Rio Alto in the early days in Peru and Chile and then we did a financing in Canada when we were in construction, and it wasn’t until then that we got recognition in Canada and we had a flood of analyst coverage, et cetera. We only did one financing with Rio Alto, a USD$50M financing. We never did anything else in Canada apart from the USD$50M financing.

Matthew Gordon: Remind me, what did that build up to? What was the Rio Alto at its peak?

Alex Black: USD$1.2Bn.

Matthew Gordon:  Okay. That’s not bad.

Alex Black: Yes. I mean, here’s a good example: in Rio Alto, we raised a total in equity, Peru, Chile, Canada, of USD$80M during the whole life, from 2009 to 2005. The rest we borrowed, and we funded from cash flow and we built a company to USD$1.2Bn. That’s the sort of people we are. Now, you can look at the share price, I’m frustrated as all hell about it as well, but we will get there and it’s happened before and I’ve seen it happen before and people were telling us we would never get there and we did. And we’re going to do it again.

Matthew Gordon: Alex, I appreciate your time today. It’s lovely to catch up with you again. I mean, we spoke a couple of months ago, things have moved forward. You know, I’d love to see them move forward more. Do talk to us, pick up the phone, let us know what’s going on, okay.

Alex Black: And I will, and I hope also that CEOs follow my precedent and declare what they put into their various companies. Don’t be embarrassed. Once again, if you’re a hired gun, okay? You know, you get paid a salary. You’re there because you have delivered. You might not call it a lot of shares, that’s fine. Nobody is going to hold that against you, but just declare what you hold. Thank you.

Company Website: https://www.rio2.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 RIO2 company logo.

Exore Resources (ASX: ERX) – Ivory Coast Gold Play With Lithium Exploration Leases

The Exore Resources company logo
Exore Resources Ltd
  • ASX: ERX
  • Shares Outstanding: 589M
  • Share price A$0.05 (29.04.2020)
  • Market Cap: A$27M

Crux Investor recently interviewed Justin Tremain, Managing Director of gold explorer, Exore Resources (ASX: ERX)

A screenshot of the popular 'Gold Miner' game.

Gold, Gold, Gold

Gold had a good year in 2019.

Rising prices led to good market performance for gold producers, but not every gold junior was so fortunate. We think it is important to investigate why the macro story of a sector can fail to correlate with the individual market performance of certain mining companies.

One such company this is true of is Exore Resources, formerly Oroya Mining Limited, an Australian-based gold exploration and development company listed on the ASX. Exore Resources was founded in 1985 and also has lithium exploration leases covering properties of 126km2 in Sweden and 391km2 in Portugal.

Compelling Gold Exploration?

Exore Resources recently acquired what it claims to be ‘some of the most compelling gold exploration ground in northern Cote d’Ivoire, covering 1,345km2, located along strike from Randgold’s 4.2Moz Tongon Gold Mine and Perseus’s Sissingue Gold Mine.’

Ivory Coast?

Exore Resources claims that Côte d’Ivoire is an ‘established and proven jurisdiction for exploration, permitting, and mine development, with an attractive fiscal regime and mining code.’

The Ivory Coast flag against the backdrop of a blue sky on a sunny, mildly cloudy day

There have been 5 gold mines developed over the past 10-years in Côte d’Ivoire, with several recent additional +1Moz gold discoveries at resource definition/feasibility stage. However, Crux Investor was keen to ask about the current operational environment; specifically, the surge of terrorist activity regarded by the UN as ‘unprecedented terrorist violence‘ in the Sahel (West Africa), particularly in the neighbouring countries of Mali and Burkino Faso. Is this really an investable jurisdiction right now? This is a hot topic on the minds of investors, and we have had several recent contributor articles that have shed light on the important subject.

Exore Resources’ flagship asset is right on the border with Burkina Faso, a country that has descended into chaos, with hundreds dead and around 650,000 citizens displaced at the hands of ISGS, Ansar ul-Islam, Boko Haram and al Qaeda amongst others.

Despite the obvious worries and risk, Tremain was adamant that while this is a situation they are monitoring “very closely,” it is not one that will affect their operations. We appreciated Tremain forthright approach when answering this question. Several companies have been rather more evasive. However, we knew investors would want some hard evidence that Exore Resources isn’t at risk. Tremain pointed to the statistical inexistence of terrorist attacks in the Côte d’Ivoire, in addition to the strong government as reasons for investors to feel reassured. He also touched on the heavy local military presence in the area, supported by the French government. As a consequence of Tremain’s confidence, Exore Resources itself does not employ security. Investors might be reassured by this answer, but this is a relevant risk that no company is truly immune from. Let’s keep a watchful eye on how the situation develops.

Business Strategy – A Change Of Plan?

Exore Resources stated it would deliver a Maiden Resource of c. 400,000oz – 500,000oz in September, 2019 to show analysts the company is progressing.

We questioned the benefit of doing so at the time: would the market exhibit much interest? In the end, Exore Resources didn’t deliver a Maiden Resource.

Tremain explains that while the company didn’t deliver on their commitment, the team at Exore Resources has been busy at work. The new intention it appears is to make the Maiden Resource larger after conducting additional drilling.  Tremain claims shareholder feedback was a big factor behind this decision, with shareholders allegedly saying they were very pleased with drilling results and wanted to see continued drilling. The overall strategy is to define a +2Moz resource. Tremain claims the Maiden Resource would have been an interim step rather than a true reflection of Exore Resources’ potential.

Coarse gold

How has the market responded to this strategy? The share price was A$0.07 this time last year, but now sits at A$.06. Has all this drilling actually added value? The market cap stands at A$36M. Tremain has major work to do. Regardless of what he says, we remain very sceptical about Exore Resources’ decision-making processes. Will an expanded Maiden Resource really be the key to getting the market to stand up and take notice? We have no doubt investors will have a lot to say about this. Make your comments down below!

While Exore Resources’ recent drill results were promising, there are question marks elsewhere: does the management team have the technical proficiency or competence to get this gold resource out of the ground economically? Tremain’s “surprise” at the falling share price speaks volumes. Is this team really in control? We will keep a watchful eye over proceedings, but for now, we’re on the fence.

Finances

Exore Resources recently went to market towards the end of 2019, raising A$10M at A$0.085. Around 80% of this investment came from institutional gold investors: is this the sign of informed interest or speculative option money?

Exore Resources has spent AS$8M in Côte d’Ivoire. How much has actually gone into the ground? Tremain says 90%, so why hasn’t the share price gone up? Once again, Tremain is left scratching his head, given the strong drill results. Management who don’t know what’s going wrong? This is often a red flag in our books.

Regardless of how Tremain tries to dress up this new strategy, it is simply more drilling. Is this the same old story? What is the end game? Tremain states he intends Exore Resources to develop a mine and go into production on a large scale, standalone Resource. This is some way off. Exore Resources has a huge amount of work to do.

The quality of the resource isn’t in doubt, but there are lots of moving pieces to this story: a worrying jurisdiction, an ever-changing business strategy, high-quality drill results, and an evolving shareholder base. Exore Resources is worthy of attention but needs to be clearer to the market about where it is going.

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

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

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

The Exore Resources company logo

Rio2 (TSXV: RIO) – An Undervalued Gold Mining Gem?

The RIO2 company logo.
Rio2 Ltd 
  • TSXV: RIO
  • Shares Outstanding: 181M
  • Share price C$0.43 (22.02.2020)
  • Market Cap: C$80M

Gold is especially hot property at the moment.

A picture of cartoon gold bars.

In 2019, the performance of the gold market was excellent, and 2020 has continued in a similar fashion as we creep back past US$1,700/oz. Bull cycles don’t last forever though. If investors want to look for gold winners, they need to start looking sooner rather than later.

I’m a big believer in seeking out small, undervalued companies and getting in early. Simple things like the lack of an ability to tell a story well to the market can often lead to some remarkable undervaluations, and if they are spotted before the market discovers the value discrepancy, investors can expect big returns.

I’ve looked at some examples of undervalued companies in recent weeks; Neometals springs to mind: an Australian mining and processing company with burgeoning green credentials that has been valued at cash by the market despite also having several promising projects. There is no way I believe that these projects have zero value, and there is no way we buy the market’s assessment of pragmatic Chilean gold-developer, Rio2 Ltd (TSXV: RIO), either.

Rio2

Crux Investor recently interviewed Alex Black, President and CEO of gold-developer, Rio2.

I liked his honesty and authenticity; if only other CEOs could take a leaf out of his book… The management team’s track record is fundamentally strong. They have a history of making investors money.

The elephant in the room for Rio2 is that it has a problem with water supply, but it appears to have reached a temporary workaround in the form of trucking the water in. How long will this solution hold-up, and when exactly will the permit go through? Black tells Crux Investor that he will be able to talk more on that point shortly.

A screenshot of the popular 'Gold Miner' game.
If only picking winners was so easy…

Another important element of this story is that Rio2 inherited a feasibility plan, one that they felt was unrealistic for the asset that they bought into. Rio2 recently put out a revised feasibility study plan for its Fenix Gold Project, which halved the resource. Investors are obviously concerned, but this information could actually be positive if investors read between the lines. A smaller CAPEX in today’s fundraising environment should mean getting into production sooner to take advantage of a high gold price. Investors have to learn to not be greedy.

The Model

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; however, things have changed in the last couple of years. Since hitting C$2.85 at the end of March 2017, the share price has fallen to just C$0.43 today. The market cap stands at c. C$80M. This decline will be more concerning given 2019 and the start of 2020’s strong gold performance.

Why exactly has Rio2 struggled? Black explains the primary driver behind Rio2’s fall from grace is changing the expectations of investors by changing the business plan. Reducing the size of the large study plan that he inherited, despite being pragmatic, was always going to be unpopular with some. In addition, the water permit situation has likely caused investors to be concerned.

While Rio2 might have lost some of its sheen, the fundamentals are encouraging. I feel this is a case of the company not explaining the rationale properly, rather than being wrong about the change of plan. Investors who prefer aspirational stories of 20-baggers can keep on dreaming. This management team has built mines before and understands what it is going to take to do the same here. There are no short-cuts or platitudes that will ease the short-term pain. Alternatively, investors could stop searching for a pretty face and look a little beat deeper. ‘Boring’ is not a word that should be in the vocabulary of mining investors.  This might not have the glitz of big chunks of coarse gold, but the gold resource that Rio2 owns could comfortably turn them into a stable mid-tier gold producer in the near future. Will the plan work?

The Plan

As a gold mine development company, Rio2 plans to methodically develop a fully operational mine, but in the shortest possible timeframe to get cash flowing earlier.

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?

The reduction in the scale of the gold project laid out in a 2014 PFS (conducted by previous holders) was seen as especially strange, given the gold bull market. Why exactly did Rio2 decide to reduce the scale of the gold project laid out in a PFS conducted by a different company in 2014? Black acknowledges it might take some of the “sexiness” away from the opportunity Rio2 presents, but he is adamant it is the right way to go if Rio2 wants to get in to production sooner.

Gold nuggets on top of dirt.

On the surface, this looks like a lack of ambition and a bit of a disappointment. In reality, we think this is a smart management team trying to accelerate an investment opportunity for investors at a much lower cost and fund future growth from cash flow. Would raising the capital needed to fund a project of twice the scale have even been doable? If Rio2 delivers a resource at this scale, investors will be wondering why they worried in the first place.

An updated PFS was concluded in August 2019. The scale is clearly down to get cash flowing into Rio2. Will there be M&A and additional exploration expenditure in the future once Rio2 is cash flow positive? The company website remarks that ‘Rio2 will continue to pursue strategic acquisitions with the intention to build a ‘multi-asset, multi-jurisdiction, precious metals company focussed in the Americas.’  That could get investors more excited, but, for now, it is unlikely and distracting.

The CAPEX in the updated PFS has reduced from USD$400M to just over USD$100M. The strip ratio is lower, the IRR is marginally higher, and the AISC has increased, for now. This is a low-grade gold bulk tonnage operation. 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 share price growth.

The Small Print

Black was then keen to explain how his team is different from any other junior: diverse with a variety of specialist roles.

He also discussed 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 concurrently applying for a water permit while generating cash. This could mean investors won’t have to wait as long for value to be added. Again, this looks like adept and agile management making things happen.

He then explained why an EIA should be very straightforward for Rio2 to complete in the next few months. However, Rio2 needs to get its skates on. Investors won’t be patient forever. Rio2 has about US$13M in cash currently. They’ve already spent c. C$40M on the project already, so it is time to see some significant process.

Show me the money, Mr. Black!

Rio2 is starting to telling its gold story more aggressively to the markets. Rio2 needs to figure out a way to win the trust of its existing investors and then needs to find a way to make its story more exciting to new investors. For me, I think making good, safe returns on investments should be the main factor behind your excitement. Black instills confidence and boldness with his honest and pragmatic approach. If Black can show when he can unlock this project, I’m in.

Company Website: https://www.rio2.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 RIO2 company logo.

Serabi Gold (LSE: SRB, TSX: SBI) – But it’s business as usual, Day after day (Transcript)

The Serabi Gold PLC company logo.
Serabi Gold PLC
  • TSX: EQX
  • Shares Outstanding: 60M
  • Share price GB£0.75 (17.04.2020)
  • Market Cap: GB£44.5M

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

Hodgson gives us his take on the 2019 figures, the highlight being the cash position of USD$14.23M at the end of the year. Other notable numbers are Net cash USD$5M; the AISC at USD$1,081 up from 2018; EBITDA $17.2M; average gold price received of USD$1,376; total ore mined increased by 8% at average grade of 7%. The company continues to produce free cash flow and the Brazil Real exchange rate is also helping.

We also discuss the Q1/20 Operational Announcement. Feb production was impacted by an unexpected failure of a ball-mill, which was down for 2-weeks. However the new ore-sorter, allebit in a test period, is delivering astonishing results. Hodgson gives us an indication of the sorts of numbers it is delivering and can expect to continue delivering. The quarter ended up only slightly down on production forecast as a result.

Coringa is still progressing. Progress is slow as Greenstone wanted to evaluate the market to ensure that right amount of capital is available for the company. They have agreed a payment plan with Equinox and Greenstone involving a payment plan. All parties are agreed as money is being paid in a manageable way and allows Serabi to pay down the Sprott debt in full by the end of June. It also means that Serabi has cash on hand at all points. And what it means is that Coringa will, when mining resumes to normal levels, be able to double the production numbers as expected.

Currently it is business as usual for the moment. March figures where above forecast (best aver month on record), and expectation is that April will be similar. COVID-19 precautionary measures have been taken but the company is looking at the situation on a daily basis.

Apologies for not grilling Hodgson, but the line was quite poor, so conversation was difficult to have. They seem on top of things for now and we look forward to resuming normal conversations eventually.

We Discussed:

  1. 2019 Audited Results
  2. Coringa Gold Project: Impact of Covid-19, Financing and Plan Moving Forwards
  3. Palito Gold Mine: Is it Still Operating?
  4. New Ore Sorter Saves the Day: The Potential Future Capacity

CLICK HERE to watch the full interview.

Matthew Gordon: Hello, Mike. How are you, sir?

Michael Hodgson: Very well thank you, and yourself?

Matthew Gordon: Yes. Holed up at home, I guess like you? How have you been whiling away your hours?

Michael Hodgson: Well, a lot of Skype and a lot of WhatsApping and a lot of management through the Wifi to Brazil. Yes, a lot of communication between the corporate guys here in the UK but, yes, it is good Wifi – that’s what you need.

Matthew Gordon: It is. It is. I think it’s going to change the way we work and certainly change the way we interact with our people for sure. ‘Mike, a couple of things happened last week: audited end of year came out and I think today, operational announcement as well. Can we start off with last years audited results? There’s quite a few nice numbers in there. You must be pleased?

Michael Hodgson:  Probably the biggest number, the most important number is cash and we ended the year with over USD$14M in the bank; which is great. It really probably meant that we were generating about USD$1.5M per quarter, more or less. We started the year with about USD$8M. We built that cash up to about USD$8. The plan behind that was to try to accumulate as much cash as possible to actually put towards the effort to start Coringa. That was the plan. It still is the plan but of course, I think that the world has changed ever so slightly since then. But it’s great to have that cash in the bank. All In Sustaining Costs (AISC) came in at about USD$10.80: which is a little bit of an improvement on 2018. That was a function of just optimisation; more ounces, we did over 40,000oz. More, more ounces over the same cost base. Our costs are very stable in real terms. That’s important because, obviously, we are enjoying, did enjoy for much of 2019, and certainly today we are enjoying great economic tailwinds on the Gold price as I call them. Particularly today, the Gold price in Brazilian reals because of that exchange rate. So that has been terrific and that is really helping our All in Sustaining Costs and our continued cash generation as we go into Q2 2020.

Matthew Gordon: Brilliant. I think the thing that people want to know most about is Coringa. So last year, generating positive cashflow, which is great and you ended the year with a lot of cash in the bank, but you are going through a process, and I appreciate that everyone has had things held up with regards to what they are doing because of COVID-19. Is that still progressing?

Michael Hodgson: It is. People will have seen the press release late last week of the rescheduling of the final payment to Equinox through the Greenstone loan. Greenstone have been super supportive. Equinox have been super understanding. At the end of the day, I think it is fair to say that when Corona really started biting at the beginning of March, Greenstone wanted to pause, and we put out a press release, we were somewhat pressured into having to do it but I think the press release was received, I think some of the wording was perhaps a little harsh and people possible misinterpreted. I think there was a general feeling that people felt that Greenstone were getting cold absolutely not. I was in touch with them all of the time. All that they wanted to do was a pause, and they just wanted to say, look, you know, we don’t know how this is going to pan out. We know that the company might need, if for example, our business gets completely interrupted we might need that money. I don’t think Greenstone have got endless amounts of money just to keep supporting all of their investments. They just wanted to see that we were safe and secure and the production was still going okay before we went forward.

Now, we have come to a very, I think, eloquent solution, I think, Equinox, where we are going to start the payments so we can have early drawdowns on Greenstone’s loan, but we do keep the bulk of it there just in case whatever, something might happen. At the end of the day, we are going to make a USD$0.5M payments April, May, June, and then it will go to USD$1M payments. And as soon as the whole international travel bans are lifted we make the bullet payment to Equinox and we get Coringa.

In a way, you know, it’s a very nice solution for us. Probably not quite so good for Equinox; they’re not getting it all in one chunk but they are getting something, they are getting it at least. And we are paying it down in a very manageable way. So I’m delighted about that and we will continue to keep doing that during Q2. And the great thing about doing that is that it gives us some breathing space to pay off Sprott: USD$1.2M per month, April, May, June, so we will be debt-free by the end of June as well, and cash in the bank still.

Matthew Gordon: Fantastic. So that little triumvirate of related parties, they are all happy with this elegant solution?

Michael Hodgson: Yes they are. I mean, obviously, Clive, my colleague, he has had to go around a lot of, they were, the lawyers took a bit of time to get their heads around it. But no, it has all been very much agreed and Sprott are happy. Greenstone are happy and Equinox are happy.

Matthew Gordon: That is good news, especially difficult in the current climate etc. That’s nice to see. So we can expect you to be progressing with Coringa and developing Coringa as part of your new stable, your new portfolio?

Michael Hodgson: Yes. I will just add that we have just taken the precaution of suspending any non-essential activity during Q2 because of, obviously, movement of people is difficult etc. So the idea was to start Coringa in Q2. That’s been pushed back to, well, Q3 at least. Diamond drilling and exploration at Palito and Sao Chico has actually been put on stop. To be honest, the contractors couldn’t keep their people there, they couldn’t keep their supplies coming in themselves. So it was going to stop anyway. So we are just focussing completely at the moment on mine development and Gold production, and we will do that for the next 3-months, and then hopefully in Q3 we will pick everything up.

Matthew Gordon: So you are focussing on Palito, which is making money, but you have set the times back slightly for Coringa in terms of where you spend money for future growth. That makes sense to me. How are things at Palito? Is there anyone working?

Michael Hodgson: Absolutely. Up until now we are unaffected. Completely unaffected. I suppose that the advantage of being isolated but not that remote but at least fairly isolated is that we are completely virus-free. We have a workforce which is pretty local. And we have agreed with our workforce that they all are forgoing their usual 20:10, or 30:15 rotations; they are all going to stay there for the foreseeable future and just work on – the movement of people in Parai is restricted so they are going to stay on because once they leave they won’t be able to get back. They have said that they will stay on working there as long as no new people come to site and we therefore eliminate any risk of bringing this into the site, because we are a camp and as I am sure you can appreciate, if we have someone coming in with the virus, it would go through the camp like a bushfire. As long as we can keep the camp virus-free, and therefore no new people coming in, they all stay there working.

March was terrific. Those three weeks that we put out at the beginning of March we did, as you say, we had a problem in February with the bull mill, an unforeseen failure of one of our main bull mills, that actually took 15-days to resolve and really ate into our February production. We thought that would really damage the quarter but the guys responded in March absolutely magnificently and we posted our best ever monthly Gold production since operations began. Fantastic response – 3,700oz. So we ended the quarter with a very respectable 9,020oz, which was by no means a bad result at all. And I am pleased to say that we have started April absolutely screaming. We are on for a really good April by the looks as well.

As things stand at the moment, we are going to continue with normal business and it will be, we will make the best efforts to keep on to the budget. I think we will have to be cautious and say that we are doing absolutely everything that we can to make sure that we don’t actually have an interruption. We are trying to stockpile as much consumables as we can: mill balls, cyanide, carbon, lime, explosives; these are all things, food as well for the people, we are trying to keep all of these things there to try and keep people at site. We have literally got half of the workforce, well, the normal workforce at site but we are not rotating, so we have just got to try and keep them happy and motivated. So far they are happy, and that’s what we will do.

You know, it would be foolish for me to say, look, we can do this indefinitely; at some point in time we are going to have to, those guys will ultimately get tired and we will have to replace them, but we are not going to do that until we can and when I say we can, that’s with testing. We don’t know where we are with tests. We are trying to get tests, but we all know in this country, tests are very hard to come by. They are all being allocated, quite correctly, to the health services rather than private companies. So we will endeavour, however, to get some tests eventually so we can start to rotate the workforce.

But for the foreseeable future we expect a good April and a moderately good May. We will just do the best as we possibly can, but what can I say? Business as usual at the moment. Probably one thing that I do want to add is that this is one of those things where, I wouldn’t say we knew about this but the impact of the ore sorter has been absolutely phenomenal and probably has come in at exactly the right time. Here’s a piece of equipment that can really improve the grade and it probably was instrumental in the ounces that we produced in March that we could recover and salvage to make a very respectable quarter out of what could have been a poor quarter. And that is still operating today and will be all through Q2 and is really adding some, screening out waste on the Palito ore and really getting the grade up , and the plant is singing as a result. There’s some high-grade going in and some high-level ounces being mined.

Matthew Gordon: If I can just ask, the ore sorter, sorry, I was going to ask you about your Q1 operational announcement but I think you have covered a lot of the components there, so thanks for that. With the ore sorter, I appreciate that it has contributed to you being able to recover some of the losses from the failure at the Ball mill. But can you give me some numbers. Give me a sense of what the future could look like in terms of what is the ore sorter doing for you?

Michael Hodgson: It’s kind of hard to say exactly what – January and February, we were just literally playing around with any old material, just to see what we could scavenge out of low-grade piles to see what it could do, and it was pretty impressive, but March was probably the first month where we really, seriously measured and we fed it with typical run of mine material, lower grade, admittedly, and see what it would actually pull out. These numbers are basically the March numbers. So we fed this ore sorter in March with 2,500 tons at a grade of 3.2g/t. So that 2,500 tons was then separated into 300 tons of product at 21g/t, and 2,200 tons of reject at 0.8g/t. So essentially, we have scavenged all of that high grade out of that 3g pile. All that ore into the 300t high-grade pile and the reject was 0.8g/t. That’s 21g/t and it went to the plant and it was a real sweetener on the typical ROM feed of about the typical 7g/t to 8g/t. You can imagine that 2,500t would have normally been going through the plant and instead we reduced that to 300t.

Matthew Gordon: That’s amazing. And what will the ore sorter capacity be going forward? What sort of numbers will be going through it?

Michael Hodgson: Well, I think in time we will probably pass all of the Palito ore through the ore sorter. I think we will. We will be running at about 250 tons per day. It can easily do that. It is actually capable of doing about 40 tons per hour so it can comfortably do that. In fact, it is so efficient that crushing them becomes our bottle neck; we can’t crush enough. We are now looking at ways of expanding our crushing facility so we can actually…the bottle neck just moves around, that is the problem, but certainly at the moment, all of the Palito ore, the majority of the Palito ore is going through the ore sorter, just screening. And then the plants, the capacity that we liberate, we use Sao Chico ore for because that doesn’t work so well with the ore sorter; it doesn’t need to be sorted because it is sort of 9g long-haul material and that just goes straight in. So this is just the ounces, we are generating more ounces through the processing plant but not by increasing the throughput, just by increasing the head grade.

Matthew Gordon: Mike, that’s really fascinating with regards to the fact that the ore sorter is liking the ore that you are putting through it. Those sorts of numbers are phenomenal. It bodes well for the future for sure. Great to hear that it is business as usual for now. Numbers: and hopefully you can continue to hit those numbers. I know that it is difficult times for you guys. I think that the market is going to give you guys, well miners, a pink ticket for a while because it is exceptional times here. It is nice to see some companies, with the cooperation of their staff, their team, to be able to continue to work. I appreciate the update today. We loved the turnaround last year, with Coringa coming on board I think it will be pretty exciting times this year if we can get back to some semblance of normality soon.

Michael Hodgson: Yes, well we are certainly, definitely, definitely looking forward to that day.

Matthew Gordon: We all are. We all are. Well look, I’m going to let you get back to the sunshine down on the South coast and your WhatsApp and your Zooming. Do pick up the phone if anything does change because yours is one of our favourite stories, certainly here in the UK. We wish you well and we will speak to you soon.

Michael Hodgson: I appreciate it, Matthew. Speak to you soon.

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.


The Serabi Gold PLC company logo.

GoGold Resources (TSX: GGD) – The Excitement Of Exploration With Much Less Risk

The GoGold Resources company logo
GoGold Resources
  • TSX: GGD
  • Shares Outstanding: 222M
  • Share price C$0.55 (07.04.2020)
  • Market Cap: C$122M

Crux Investor recently enjoyed a great discussion with Bradley Langille; he’s the President & CEO of gold and silver company, GoGold Resources (TSX: GGD).

Just before we get started, why not check out another one of our informative gold market articles, or maybe a different gold mining interview?

Gold: Time To Pick Some Winners

Gold has always been my go-to commodity; it’s a safe haven we can all usually retreat to.

A screenshot of the popular 'Gold Miner' game.

Unfortunately, for my portfolio at least, even gold securities haven’t managed to escape the wrath of COVID-19. However, things have been looking up in recent weeks; gold has been building a bullish case for itself off the back of upbeat COVID-19 data and the share prices of gold companies have been moving back in the right direction.

I can’t recall many times where investors have had an opportunity this significant to access exponential growth. There are investors out there who will look back on the next few weeks in many years’ time as the moment they changed their lives. The message is clear: it’s time to pick some gold winners.

GoGold Resources

We here at Crux Investor have an affinity for smart business plans.

GoGold Resources delivers a business plan and fundamentals that are very clever indeed. Let’s get into it: what are the quick-fire facts?

  1. GoGold Resources Inc. is a Canadian-based silver and gold producer with projects in Mexico.
  2. The management has experience building, buying and selling mines. The team has built three mines, and is developed a fourth in Mexico, over the last 24 years.
  3. GoGold Resources has one project generating cash flow, the Parral Tailings Project, in addition to its recently acquired Mexican exploration play, Los Ricos. Langille thinks the project in Mexico is one of the very best remaining undeveloped trends in the jurisdiction.
  4. Historically, the management team has raised over C$800M equity and C$200M debt for their projects. The management team appears to be decisive and does what it says it will do.

COVID-19

I’m perfectly aware of the first question that will be on investors’ minds given the current global health situation: how is COVID-19 affecting GoGold Resources?

Langille explained the COVID-19 ramifications in great detail, starting with the obvious: it has changed many aspects of GoGold Resources’ day-to-day operational practices. GoGold Resources, like any sensible gold producer, is following the protocols issued by the WHO, and sanitation is the order of the day. However, investors will want to know if these new hygiene protocols are anything more than a mild inconvenience. Langille says they aren’t and it is business as usual. The facts seem to support this notion: GoGold’s operational figures have been impressive, and other than a delay in delivering a 43-101 (now due in May), things appear to be running smoothly.

Langille thinks these current market conditions are simply a “broad-based sell-off.” Investors are selling anything that isn’t nailed down. Investors will need to decide if they agree with Langille’s blunt assessment of the situation. Langille thinks the quantitative easing that governments around the world are currently engaging in has historically always been good for gold and other precious metals companies; the evidence says he is right.

Operations

Parral is currently generating around US$700,000 per month; this might not be enormous, but it is definitely significant.

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

Cash flow should never be underestimated. Cash is cash. GoGold Resources has around US$20M in the bank and is owed US$11.5M from the Mexican government. If investors compare GoGold’s cash situation to many of its peers, its uncommonly healthy financial situation becomes obvious. GoGold’s US$25M financing at the end of February looks inspired given current market conditions. Raising capital with today’s rates would be far from ideal, and this is the situation many worse-positioned gold juniors are finding themselves in. All in all, the balance sheet looks robust. Langille is confident GoGold Resources’ share price will bounce back once COVID-19 comes under some sort of control.

At Los Ricos, GoGold is undertaking a 10,000m diamond drilling program of HQ size core in conjunction with a field program of geological mapping, sampling and trenching on the property. This operation has recently increased from 2 drill rigs to 6. The big focus is on the southern end of the 35km trend. Work is also underway at a separate project 20km North. Importantly, deals have been sealed to secure GoGold’s control of the Resource. A drill hole in the northern structure has demonstrated 24m @ 27g/t gold, and Langille claims there many similar holes. The alleged grade of this undeveloped trend is undeniably exciting, but I’ll try to keep my sensible cap on, as should you. Langille believes Los Ricos South will have a Resource size of around 1Moz gold equivalent, but the earlier stage Northern project has the potential to be even larger. GoGold Resources is really distancing itself from its peers now. Stable cash flow at Parral is now being elevated by what looks like immense exploration potential at Los Ricos. If GoGold Resources can create more definitive evidence regarding the resource at Los Ricos, I think that could be a real catalyst moment for market sentiment. These numbers are nothing to be sniffed at.

Timeline

Now, let’s consider the timeline. Los Ricos North is c. 1 year behind Los Ricos South. There should be a definitive gold resource released in the near future for Los Ricos South; is this the kind of clarification that could be a catalyst moment? If investors base their economic assessment around the “anchor” of 1Moz gold equivalent at Los Ricos South, without even factoring in the potential of the north and the existing cash flow at Parral, GoGold Resources is shaping up to be a strong player in the gold space. Even the most pragmatic assessment of GoGold Resources creates a degree of excitement.

Gold ore

It is likely that institutional investors have bought into the holistic business model. On its surface, GoGold Resources is a solid cash-generator operated by an experienced team, with a secure, expandable resource at Los Ricos South and cash flow from Parral. However, if you open it up and look inside, the excitement and risk of exploration at Los Ricos North reveals itself. This is a clever business plan and GoGold Resources is shaping up to be a package that gold investors may really consider.

But what do you think? Comment below and we will respond.

Company Website: https://gogoldresources.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 GoGold Resources company logo