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

The Rio2 company logo.

CLICK HERE to watch the full interview.

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

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

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

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

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

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

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

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

Interview Highlights:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Matthew Gordon: Today.

Alex Black: Right.

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

Alex Black: Well, you do a modification.

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

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

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

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

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

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

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

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

Alex Black: Today, about USD$13m.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Matthew Gordon: Thanks, Alex.

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Integra Resources (TSX-V: ITR) – A Renowned Team And Exciting Drill Results

A gold tinted photo of some US$100 bills and a pile of gold coins with a white Crux Investor logo in the top right, and a white Integra Resources logo in the top left.
Integra Resources Corp.
  • TSX-V: ITR
  • Shares Outstanding: 119.6M
  • Share price CAD$1.25 (20.02.2020)
  • Market Cap: CAD$150M

We recently conducted an interview with George Salamis, President & CEO of gold-silver explorer, Integra Resources Corp.

We regularly discuss interesting gold market proceedings on this platform. Check out one of our other recent gold company interviews, or maybe some of our recent informative gold investment articles.

The management team at Integra Resources is the former executive team of Integra Gold Corp, renowned for turning a C$15M gold company into a C$590 million (sold to Eldorado in 2017). What have they got this time around? We discussed:

  1. The share price increase: doubled in less than a year.
  2. Its flagship asset purchased from Kinross Gold Corp. in 2017.
  3. Promising drill results in 2019.
  4. Exploration plans for 2020.

We were also keen to ask why a gold-producing giant like Kinross Gold Corp. would sell its gold-silver asset to Integra Resources unless it was a dud? We explored some very impressive drill results and big plans for 2020. Do shareholders have a reason to get excited? With these results and a management team with such an impressive track record, maybe they do…

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

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

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

A gold tinted photo of some US$100 bills and a pile of gold coins with a white Crux Investor logo in the top right, and a white Integra Resources logo in the top left.

China Gold Int (TSX: CGG) – Gold And Copper On A Grand Scale

A photo of a silhouette hand picking out a gold Chinese ring.
China Gold International Resources Corp.
  • TSX: EQX
  • Shares Outstanding: 113.5M
  • Share price C$12.6 (21.02.2020)
  • Market Cap: C$1.43B

We recently sat down for an intriguing interview with Jerry Xie, Executive Vice President and Corporate Secretary of China Gold International Resources Corp. (TSX: CGG, HKSE: 2099).

Investors may want to read one of our most recent gold-related articles, or even watch a different gold interview.

Gold had a good year and an especially positive 2H/19. However, China Gold Int. had a negative correlation on its share price throughout 2019. The company operates two producing gold mines that form a low-grade, bulk-tonnage gold operation with a copper by-product. The operational statistics look good on paper, so why this share price tail-off? We discuss:

  1. The Decline In Share Price: Why?
  2. The Gold Market Outlook For 2020
  3. How China Gold Int. Plans To Get The Share Price Back Up

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

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

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

A photo of a silhouette hand picking out a gold Chinese ring.

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

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

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

Equinox Gold Corp.

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

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

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

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

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

Assets

Equinox Gold has a promising portfolio of assets:

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

Our Interview

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

A photo of Pan African Gold CEO, Cobus Loots.

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

A Decisive, Ambitious Team

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

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

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

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

The key highlights from the update?

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

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

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

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

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

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

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

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

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

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

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

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

A photo of Pan African Gold CEO, Cobus Loots.

Salazar Resources (TSX-V: SRL) – The Very Model of a Major General

SALAZAR RESOURCES
  • TSX-V: SRL
  • Shares Outstanding: 126.48M
  • Share price CA$0.21 (21.01.2020)
  • Market Cap: CA$26.56M

I am concerned, when interviewing a CEO, if they are unable to clearly articulate their business plan. Call it an elevator pitch, call it a sales pitch, call it what you like, but if you, as a CEO, cannot tell me in less than 2 minutes what separates your business from the crowd and how I am going to make money, you’ve lost me; big red flag planted firmly in the ground and I am onto the next opportunity.

My other bugbear is when I think I am being misled or the CEO is avoiding answering the question directly. Very few people are smart enough to hide the childlike tells. The furtive look, the eyes searching into the distance hoping to find inspiration to be magically plucked from the air and the awkward squirming in their seat. Non-verbal communication and reading body language in all walks of life is important and accounts for so much of how people see you.

Sometimes it can be fun to set a trap for the CEO: ask a difficult question to which I already know the answer and see how the CEO responds. If it is a mistruth or even a small misdirection, I now know I cannot trust this individual to report properly. Another big, and in this case, terminal red flag.

We tend to begin our diligence from a standpoint that places the burden of proof on CEOs: we will not be giving you our money. It is their job to tell me why I am wrong and why I should. I’m looking for faults in their argument. It doesn’t take much, and I’m off. It’s my money. There are thousands of ways and places I can invest it, so why take a risk?

That brings me to Salazar Resources.

Salazar Resources, an Ecuadorian exploration company, has appointed Merlin Marr-Johnson as Director. A mercurially fabulous name! I’m already intrigued. We spoke to him. Mr. Marr-Johnson is British, very British, and demonstrably intelligent. We set about our task of finding reasons not to invest.

A black and white portrait photo of Merlin Marr-Johnson.
Merlin Marr-Johnson, Director of Salazar Resources

The first thing Marr-Johnson talks about is their business plan. They are gold-copper project developers in Ecuador and Colombia. They have just farmed out their first gold-copper-zinc asset, the El Domo Curipamba VMS (Volcanogenic Massive Sulfide) ore deposit discovery. The PEA conducted at the site shows an economically viable resource.

So, here is the clever bit. Salazar received a royalty payment, courtesy of an ongoing partnership with Adventus Mining Corporation. Adventus has the option to acquire 75% interest in the project by funding initial costs of US$25M over five years; they must provide 100% of the development and construction expenditures up to commercial production after the completion of a PFS (scheduled to be conducted in 2021). Salazar Resources earns US$250,000 per year in advance royalty payments up to a limit of US$1.5M. As operator, Salazar receives an additional 10% management fee (on some expenditures), standing at a minimum US$350,000 annually. Salazar also has the option to lease out 3 of their drills and is fully carried through at 25% with no additional capital outlay needed. Salazar Resources currently has c.$5M in the bank and with this additional reoccurring income and low overhead, Marr-Johnson believes that their exploration programme for this year is fully funded. Marr-Johnson takes time to apply a formula for investors to consider how to value the deal with Adventus. It’s reasonable and not wildly out of line with our numbers. So far, so good. I’m still listening.

Salazar has four other 100% interest options; three are in the form of Ecuadorian gold/ copper/VMS assets with exploration licences: Rumiñahui, a 2,910 hectare exploration licence that hosts gold/copper porphyry targets; Macara Mina, a 1,807 hectare exploration licence that hosts VMS targets; and Los Osos, a 229 hectare exploration licence that features a system of gold/silver veins, combined with hydrothermal breccias and mineralised gold/copper porphyries. Salazar Resources also holds 100% interest in a drill company, Perforaciones Andesdrill S.A, that owns three diamond drill rigs.

A diagram of a VMS deposit.
A VMS deposit diagram

Each asset is at a different stage of exploration or development, and each asset has had differing levels of mapping, soil geochemistry and rock-chip sampling conducted. However, when he spoke to us, Marr-Johnson provided some reasons for confidence. Salazar, in the shape of CEO and ex-Newmont in-country team leader, Fredy Salazar, has a ‘proven track record of discovery in Ecuador.’ In addition, the mining jurisdiction of Ecuador is seen by some to have a huge degree of untapped potential. The major mining companies have flooded into Ecuador in recent years, so there is clearly truth in Johnson’s claims regarding the unexplored nature of the geology. Ecuador could have a lot to offer for investors looking to invest in a region in its mining infancy.

We like the gold/copper/VMS side of the story, but the options keep on coming. Their joint venture with Adventus Mining Corporation was originally intended as a zinc exploration alliance. Adventus Mining was offered a stake in zinc-rich assets but instead opted for two different copper-gold (with some silver veins) sites: Santiago and Pijili. Adventus possesses 80% ownership but is required to fund all activities until a construction decision is made on any project.

So, what does this mean for investors?

Salazar Resources is funded for 2020: no dilution anytime soon. We like the look of their cookie-cutter approach to developing their portfolio of assets with minimal cash burn. If they can continue to replicate the Curipamba farm-out model, the numbers start to look very attractive. There is scale to this project. Marr-Johnson was keen to point out that Salazar does want to develop some of their own projects too.

A robust and, more importantly, refreshingly honest appraisal from Marr-Johnson. So far, no red flags, but this is mining. We are waiting for news on the water permit before we get too carried away, but if that comes, Salazar Resources is something that we can see ourselves investing in.

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

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

RNC Minerals (TSE: RNX) – Turn Around and Take a Bow

Several people stood against the backdrop of a chart. They are trying to push the line back up, and are succeeding towards the end by standing on each other's shoulders.
RNC MINERALS
  • TSE: RNX
  • Shares Outstanding: 606.32M
  • Share price CA$0.47 (15.01.2020)
  • Market Cap: CA$284.970M

What a year 2019 was for Paul Huet and RNC Minerals.  The implementation of a robust gold-focussed business plan delivering consistent production numbers and reducing costs has resulted in perhaps our turnaround story of the year. And just when the market needed to hear it.

A screenshot of the thumbnail of Paul Huet's interview with Crux Investor.
Paul has impressed in his recent interviews with us.

All Change

RNC Minerals today bears little resemblance to the vehicle that Huet walked in to as the CEO at the end of May last year. That’s not to say Huet hasn’t benefited from a good year for the gold price, he has. However, at the beginning of his reign RNC Minerals had just $1.3M in the bank. It ended the year with $37M, of which RNC paid down $3M of their debt to reduce interest payments.

This turnaround hasn’t been because of luck. As far as we have heard in our various interviews with Huet, this has been about giving clear direction to the market and restructuring the company to allow RNC to deliver his vision; now entirely focussed on gold (the fully-funded Dumont nickel project patiently waiting for more signs of recovery in the Nickel market); reducing expenditure in the right areas, but not to the detriment of long-term productivity (always a cheap and quick win that has long-term negative consequences); and better communication, both internally and to shareholders. “That wasn’t so hard, was it?” you can almost hear relieved shareholders saying.

A photo of large nuggets of gold on a muddy surface.
Gold, gold, gold: every investor’s dream.

RNC is producing gold and is, therefore, producing cash. They hit a record monthly consolidated gold production of 9,620 ounces for December 2019, undoubtedly aided by their acquisition of the HGO mine and mill. For Q4/19, production was an impressive 26,874 ounces. A complex, detailed overhaul of RNC’s production processes has likely been the primary driver behind this performance. The grade is a consistent 3g/t and occasional large coarse gold finds will always bring a sprinkle of magic the market so craves. Huet is playing down the ‘magic’ and is keeping employees and shareholders grounded and focused on doing the basic things well. This has been an encouraging start to the Huet era, but there is always more to be done. He needs to drive down the AISC, currently sitting around the $1,150 mark, further towards $1,000. If he can deliver this, we believe the market will react positively. In the meantime, the building up of cash reserves is a very welcome distraction.

RNC exceeded 2019 expectations only because of a late charge for the line. In the second half of 2019, gold production reached a total of 51,090oz, exceeding the top end of RNC’s own production guidance (42,000 – 49,000oz). While there have been ‘minor disruptions’ caused by Australia’s bushfires in December, the consequent regional road closures have had little impact on operations, because stockpiles and Baloo ore were processed during the road closure period. No impact is expected to Q1/20 results. RNC’s supply from Beta Hunt and the delivery of reagents to the mill has now been restored. In addition, its HGO mill is operating at full capacity with feed coming in from both Beta Hunt and HGO. Keeping the mill filled with its own ore is the number one priority. Talk of adding an ore sorter fills the chat rooms and we for one would welcome any news from the company on this front. Productivity can be greatly increased, and costs come down; it is typically a $2M-$5M outlay and is something that pays for itself in 6-12 months (that’s what we read). Let’s wait.

It really is all change at RNC, and this change is particularly evident at the top. There has been a key addition to the board, with the appointment of Chad Williams. Williams is Chairman of RedCloud Securities and presumably brings access to more institutional investors. This clearly suggests the company’s continued move to consolidate more shares into the hands of large institutional investors. Personally, we think this makes sense and will help bring more stability to what has been a very volatile stock, indeed, one that continues to be shorted, something else an increased institutional register can help with.

In light of this change, it would seem opportune moment for Huet to tell us what the remainder of RNC’s Board is bringing to the table.

RNC has been clear, including our recent interview, they will not be going to market to raise capital this year, it is completely off the agenda. There is no ambiguity here as far as we are concerned. There was the stumble on the investor call last year on this topic, so there are those who will keep bringing it up. My take at the time was that the money was needed and it would create financial freedom for RNC Minerals to make the fundamental changes to the infrastructure, people and simply pay suppliers. We haven’t changed our minds since then. It was important. The company was running on vapour.

It’s important to talk about Dumont. It remains on the books as a potentially huge upside given the right market conditions. The JV with Waterton has $3M and covers the overhead costs. How and when it is monetised is down to Johnna Muinenon. She is clearly bright, and they have done a lot of work, but it is the nickel market opening up that will inform her. We can’t see anything happening until 2H/19.

I look forward to the release of the 2020 guidance within the next few weeks, which Huet himself has said will include guidance and production targets (unlikely to include coarse gold targets), costs & savings, AISC target and hopefully talk of more renegotiated royalties. I guess we’ll just have to wait on that one!

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.

Several people stood against the backdrop of a chart. They are trying to push the line back up, and are succeeding towards the end by standing on each other's shoulders.

Orvana Minerals – Are You Buying this Turnaround story? (Transcript)

An aerial shot of Orvana Minerals’ Don Mario gold mine in Bolivia.

Interview with Juan Gavidia, CEO of Orvana Minerals Corp (TSX:ORV).

Orvana Minerals is a multi-mine gold-copper producer listed on the TSX with assets in Spain and Bolivia. Gavidia claims Orvana is a “100,000oz gold producer.” In addition, Orvana Minerals has recently filed a PEA for the Taguas Mining Property golf-silver project, Argentina.

There will be concerns regarding Orvana Minerals’ ability to operate effectively given the disparate locations of its assets, but Gavidia insists regular flights are nothing more than a mild inconvenience.

Orvana Minerals started the year with a share price of 0.16CAD, rising to an encouraging peak of 0.40CAD in August, courtesy of a rising gold price and the announcement of Oravana’s Argentinian asset, before plummeting back down to a worryingly stagnant 0.14CAD as of today. The company has a market cap of CA$19.13m and around $10m in the bank.

Gavidia alleges that market perception regarding liquidity is a large problem: Orvana Minerals has a 52% controlling shareholder. Investors may feel this perception is a reality, but Gavidia insists there is still 48% to play with, but the market simply chooses not to. Another issue is getting the new Orvana story out to prospective investors; since the successful introduction of an operational strategy that focused on lowering unitary costs and extending life-of-mine of operations, while maximizing cash flow, Orvana has seen a reduction from a $1400 AISC to an $1100 AISC. Gavidia hopes to reach closer to $1000 next year.

Orvana Minerals is currently discussing if the TSX is a limiting factor for them, and will make a decision in the near future regarding where the place to be is.

Gavidia cites the company’s production performance in addition to its experienced management team as reasons to climb aboard the Orvana gold-copper train. Orvana has good assets and could be a prospect in the future. However, with gold having as good a year as it has, investors might be worried that a gold company is struggling so much.

What did you make of Juan Gavidia? Is Orvana Minerals a gold-copper company of the future? Comment below, and we might just ask your questions in the near future.

Interview highlights:

  • Company Overview
  • Assets in Different Jurisdictions: How Did They Get a Hold on Them and What’s Their Focus?
  • Turning the Business Around: What are the Changes Being Made and When Can Investors Start Seeing Results?
  • AISC & Cost Cutting Measures
  • Listed on the TSX: What is it Doing for Them?
  • Argentina: Is it a Difficult Jurisdiction to Mine in?
  • Why Invest in Orvana Minerals? What Experience Have They Got?

Click here to watch the full interview.


Matthew Gordon: You’re over here for the 121 conference. What are you hoping to achieve?

Juan Gavidia: To connect with investors. And also with the mining community, because Orvana is ending up now big turnaround process of almost two years now. So, it’s always good to connect with people to give them the good news of our results.

Matthew Gordon: And have you got many investors in Europe, around the UK?

Juan Gavidia: We have some.

Matthew Gordon: You have some but are hoping to connect with some new ones.

Juan Gavidia: All the time.

Matthew Gordon: Why don’t we start off with a one-minute summary for people who are new to the story and haven’t heard it before.

Juan Gavidia: Well, Orvana is now a 100,000oz gold producer, a junior out of Toronto. However, our operations are one in Northern Spain. Astraeus, 60,000oz per year. And the other one in Bolivia, in the Santa Cruz region next to Brazil, which is a 40,000oz producer. So those two assets are the ones comprising Orvana.

Matthew Gordon: So how did you end up with them? Obviously very different jurisdictions. So how did you end up with both of those?

Juan Gavidia: Because Orvanaat the beginning it started off the asset in Bolivia. So, we had a very successful underground operation from 2002 to 2009 with that funding, we acquired the property in Spain, which was an opportunity other time.

Matthew Gordon: What are your hopes? Are you going to just focus on those two assets for now? And how do you split your time, management time?

Juan Gavidia: I mean, the joke is I’m in seat 3J, airplanes version. That’s pretty much the situation. However, it’s going to increase the issue because we also have a project in Argentina in the San Juan province, which is the most mining friendly province in Argentina. There will be an open pit. We are skilled in that to be developed over the next four years.

Matthew Gordon: So you talked about a turnaround process for three years. It’s a long, long, long turnaround process, right? So, what are you hoping to achieve? What does that mean, a turnaround process?

Juan Gavidia: Actually, the physical work was done almost a year and a half ago, which was to change their mining strategy. Before it was mining lower grade hard rock with some softer ground, high-grade rock. Now we are moving into a 50/50 type of depot blending. So, mining is more difficult because it’s softer ground, at a higher grade. So, the mastering of the mining in the softer ground was actually the turn around. That’s pretty much done since late 2018 and we’re just showing up with the goods, with the results.

Matthew Gordon: I’m always uncertain what’s going on in the minds of the management team. So, you had a scenario which wasn’t working for you economically. And you’ve had to come in and to reassess the assets you’ve got and work out how you can turn this business around. But how are you going to do that? The 50/50 planning, is that the solution?

Juan Gavidia: It’s actually been done. In 2019 our fiscal year, which ended in September, was showing pretty much the first full year of the results of the new mining method. Mining method is basically you have an underground body which has two sections; hard rock and soft. Soft, higher ground is higher grade. So, they wait to do this. You need to change the fleet to some extent. You need to change the skills of the crews to some extent. And you need to start doing other types of processes. It’s more like industrial engineering that work. At the end of it, the new processes, the new fleet, the retrained crew produced a higher tonnage of their sulphur ground ore and when we reached the 50/50 that’s when we said we’re OK. the where we reach the 50 50. Now, the end result is the average grade, so before we were almost around 2 grams per ton, we are now above 3. So, the grade is king.

Matthew Gordon: When is this going to start having effect financially for you?

Juan Gavidia: 2019 was the first year where we were very much above the average over the previous years, cash flow positive share, which is allowing us not to require any financing over the last twelve months.

Matthew Gordon: But you’re around USD$18M market cap. It’s not a big company. You’ve got USD$10M in the bank? You’re not seeing a lot of reflection for the work that you think you put in this year in the market. When’s it coming?

Juan Gavidia: So, there is a number of factors. Factor number one, we have our main controlling shareholder, 52%. So that’s a problem with a market perception about liquidity, etc..

Matthew Gordon: Is there much liquidity? Is there much trading?

Juan Gavidia: The liquidity, we have 48% to play with but the market doesn’t play much with our stock. The reason for this is before they turned around, we didn’t have a very stellar performance. So, we are talking to investors. We are coming to these kinds of gathering’s to tell the story because the story in not very good terms was lasting since 2011/2012 all the way to 2016. So, is it too easy to get those results but more difficult to also turn around the perception of the company? So, we are battling the perception. We are also telling the story that the main shareholder is not such an influencing factor in the performance because we are…

Matthew Gordon: Who is this group?

Juan Gavidia: It’s a family office out of the U.S.

Matthew Gordon: A US family office. They’re not involved in the day to day in terms of no decision making, but they’ve got to sit on the board?

Juan Gavidia: The board is only 6 people, 5 are fully independent.

Matthew Gordon: I want to talk about this turnaround because that’s the exciting bit that you want to tell the market. What effect is that having on the AISC because I know the AISC has been quite high?

Juan Gavidia: Well, the cost at the peak of the pre-turnaround situation we are approaching USD$1,400. Now we are approaching USD$1,100, closer to USD$1,000. We’re shooting for the next year to be closer to a thousand. Once you have the fleet catching up on the features of the fleet, once you have the crew caught up with the new processes. And also, we have the infrastructure ahead of us like you have the de-watering, all the ventilation and all the infrastructure inside the underground mine also up to date. Then you are not remediating anything. You’re moving forward. So that creates a more proactive approach, lowering the unit costs.

Matthew Gordon: AISC has been circa USD$1,400 bucks coming down towards USD$1,100 and you would hope at some point to reduce that more.

Juan Gavidia: Not hoping, we’re planning to reach that.

Matthew Gordon: You’ve got a lot of cash going in at the moment and you’re putting in infrastructure so your costs will remain high for a while, but at some point you’re going to have to stop managing…

Juan Gavidia: The underground mine that we are managing in Spain is going to be always be around USD$1,000. Even probably USD$980 or USD$950. But it’s going to always be USD$1,000, it’s underground. And the grades are going to be about 3g/t. If you have a mine of 5g/t or 6g/t, your unit cost goes down.

Matthew Gordon: You’ve got Bolivia, Spain and Argentina. Small company, limited cash, unless you’re going to go out to the market and raise more money because the margins are still small, even at today’s gold prices.

Juan Gavidia: We need to announce that our guidance still in a few weeks, however, we do plan on a strong cash flow position out of Spain for next year.

Matthew Gordon: How do you finance three different locations with limited resources?

Juan Gavidia: Of course, Spain. Bolivia is moving, it’s transforming, it’s repurposing the operation. It used to be underground, moving too open pit. And now we are moving into reprocessing stockpiles and tailings, and that should last at least for another 7 or 8 years. So that’s a very long, non-mining full processing phase for the Bolivian assets. So, that’s a cash flow self-sufficient. Financing for operations in Bolivia is actually very fluid for us. There is a local market. There is a local banking system. It’s also even a local stock exchange in Bolivia. So, we are tapping into all those resources. So, it’s a very self-sufficient situation. You will see in our financial statements that Spain, Bolivia, funding for operations, which is structural, is not a catching up type of financing, it’s local. So, we don’t have expensive funding coming from the usual suspects in terms of mining in Toronto, London, or New York. We’re having out of Bolivia like banking system and Asturias Northern Spain banking system.

Matthew Gordon: Why are you here?

Juan Gavidia:  Because we need to develop things, for instance Argentina. Argentina is our asset that is still in pre-feasibility. So, we need to move into feasibility. That would require extra funding. And eventually we will need to move into JV partnerships. So, basically to tell this story, to improve his stock price, to tell the story about the Towers project in Argentina, JV Partnerships. That’s the main reasons we’re here.

Matthew Gordon: Why are you on the TSX?

Juan Gavidia: Well, there is a lot of opinions around about where to be. ASX, TSX or private. So, in our case, we are discussing that very strategic situation. Actually, these days we will actually have this strategy session with a board every year, and that’s actually happening next week. We may have some news, but in general the VI is to be more liquid in whatever stock exchange we will be in ending or landing. Right now, TSX for sure, but we need to take some actions about our share price for sure. It’s structural.

Matthew Gordon: Something happened in June-July. What was that? Because we saw the price go up and then straight back down again to where it was.

Juan Gavidia: Two factors. We announced the Argentinian assets and we start riding the wave of the gold price up take. So those two were almost like coincidental. We would move up to CAD$0.40. And then we were subject to this pressure and short selling type of strategies. There are some articles about the topic, a lot of people, a lot of companies. And that was what we were facing. We saw the reports about short selling all these mechanics that we face because really the controlling shareholder is not worried in the short term of that situation.

Matthew Gordon: You’re not worried until you’ve got to raise some capital?

Juan Gavidia: So, these days we are selling the merits of the assets as opposed to the market cap of the company.

Matthew Gordon: You think there’s two things. One, the announcement of Argentina and two, the gold price. Clearly your share price has come back down again. That can’t have been just the gold price, even though you’re a producer, it was the excitement of what you were going to do with Argentina. Do you think the market hasn’t heard enough about what you’re going to do there?

Juan Gavidia: Yes. Well, that’s part of the reasons. Usually there is no one single answer for anything. But in this case, we need to continue announcing the next development phases of Tower’s. We are taking the attitude of perhaps a little bit too much time on the legal issues of opening the local subsidiary, moving the actual asset into the local subsidiary, looking to all the mining registrations in Argentina. But that’s ending within the next 4-8 weeks and then we can next announce **** works, moving from PEA (preliminary economic assessment) into PFS (pre-feasibility).

Matthew Gordon: Are you finding Argentina difficult?

Juan Gavidia: That’s paperwork, in terms of corporate registration in Argentina. So, there’s legal issues, not mining permitting. Mining permitting in San Juan province is the most mining friendly in Argentina. That was very, very fast.

Matthew Gordon: Why should people be listening to you versus all the other gold producers out there at the moment trying to catch a break?

Juan Gavidia: Because we have the results. So, we said something to investors, since two years ago, we are announcing quarter after quarter that we are improving. Right now we are completing our fiscal year, 2019, and we have the goods to show. So that’s pretty much what we’re doing.

Matthew Gordon: Tell me about the team that you’re working with. Who else are you working with to help you manage all of this, cut the costs and get the AISC down and go tell the stories to market?

Juan Gavidia: Excellent question. Thank you very much. So, I am a former mining person from major gold mining company and also I am Peruvian, so I saw first-hand performance of experts in countries like Spain, etc. or Bolivia, but also I saw the value of local teams properly developed. So, the emphasis in these last three years has been to, in a very intense way, develop local teams. So, we brought the experts for heavy, heavy in depth advising, consulting on improving the skills of the local teams. So, the general managers of both places, the technical top managers at both places are locals. And we do have IVP operations, which is an expert who is also like me, moving around the sites.

Matthew Gordon: Who on the team has been there and done it before? Who has created shareholder value? Has anyone done any exits? Anyone created larger companies, public companies before? What’s the track record of people knowing what they’re meant to do next?

Juan Gavidia: In terms of track record on how to put public companies in good shape, we have our CFO, which is with us here and then myself. So, we will be working with these since probably 2012. I came a major but the junior is very interesting.

Matthew Gordon: It’s a different world.

Juan Gavidia: I actually enjoy a lot. So we are creating, I think a very good result for the marketplace. We do have all these headwinds coming from the past, but we need to keep pushing forward.

Matthew Gordon: You do need to keep pushing forward. Juan, thank you very much. Really enjoyed hearing that story. First time for us. Stay in touch with us. Let us know what goes on. I like the fact you’re driving the costs down and now you’re trying to tell the story in the marketplace. Let’s see what happens.


Company page: https://www.orvana.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.

An aerial shot of Orvana Minerals’ Don Mario gold mine in Bolivia.

RNC Minerals – To Infinity And Beyon… No. No. Let’s All Calm Down.

A screenshot of Sheriff Woody pointing at a proud looking Buzz Lightyear.

If you’ve been following the topsy-turvy fairy-tale of RNC Minerals, you probably couldn’t help but notice this West Australian article. The contents will provide any prospective or existing RNC investors with more excitement than a late-night extra-terrestrial visitor: RNC is going to make us all rich tomorrow!

The interview cited in the article is with VP Exploration, Steve Devlin, who seems to be very upbeat about RNC’s current affairs, “We have a pretty good idea of what’s controlling this specimen gold now.” He followed up with, “From what we understand, we expect to continue to find coarse gold”

I’ve been attempting to discern whether these statements are new information or if they merely overstate what we already know; either way, it doesn’t seem to marry up with a recent interview with CEO, Paul Huet.

Consequently, some gold bugs are excited and are now claiming RNC knows the location of all its future Beta Hunt Mine coarse gold resource. That’s a monumental statement with nothing backing it up, other than a geologist stating they now have an idea of the geophysical controls.

Some shareholders are likely thinking of purchasing a red carpet for an extravagant Hollywood-esque celebration as the ‘Beta Hunt Fairytale’ churns out even more ‘whopper coarse gold specimens;’ after all, as Devlin says, “I’ve never come across a mine that has got so much coarse gold.”

I can feel the market’s excitement swelling. So, let’s suit up, and get ready to blast off, because… NO. NO. NO. Just STOP for a minute. Sorry to be a Buzz (Lightyear) kill, but you don’t seriously believe this utter exaggerated nonsense, do you?

Let’s get our feet back on the ground.

It’s incredibly important for people to understand the reality of RNC’s drilling program. RNC does not have any certainty when it comes to hunting down coarse gold at the Beta Hunt mine. As RNC drill, they are building up an understanding of the structures and the potential contact points of the coarse gold. Let’s say it again slowly… They have a better idea of what’s controlling the specimen gold now… No more. No less. It’s time to calm down a little. Just breathe. Breathe.

What RNC DO know.

It’s not all doom and gloom though. There are lots of reasons to be optimistic and hopeful of RNC’s future success; reality can sometimes be just as exciting. Consistent, robust success is no less glamorous than more lucrative coarse gold.

RNC is profitably mining 3g/t gold, at 8,000oz per month and processing it through their mill. As they process the 3g/t gold, there is a possibility they will come across large veins of coarse gold with a much higher grade. However, it’s important to remember RNC’s business model works well at 3g/t. Huet has been trying to temper and manage expectations in the market. RNC’s management are pragmatic, grounded, and calculated. The operation is currently operating exactly as it was intended to. The magic fairy dust comes with the reasonably regular large specimens of course gold; that always makes investors tingle with excitement.

A photo of a large pile of coarse gold.
High-Grade Gold From Beta Hunt Mine

Huet has made a lot of changes and has refocussed the company on gold. He is reducing costs, improving productivity, and renegotiating supplier contracts and royalties. Not to say that their Dumont nickel asset doesn’t have value, it does. He has briefed Johnna Muinenon, President of Dumont, to monetise Dumont. We are less clear about the timing of that, but one gets the sense it is coming.

Moreover, talking of nickel, Beta Hunt has a history of nickel; it used to be a nickel mine. Nickel is hot at the moment and people are getting excited about this.  There is a possibility of getting some nickel credit from Beta Hunt again, but there is a long way to go and an abundance of studies to be carried out before the company knows if the nickel component is even economic. So again, I like what the company is saying and doing, I like where it is going, but we need to reign in the speculation and attribute value to what we know and not what we hope.

One factor I believe could change the dynamic slightly would be if an ore sorter was added at Beta Hunt (just one for now). Engineering is required to work out the size, scale, economics, timing and cost. This could improve the productivity of the mine 20-30%, but it takes time. Huet is clear that RNC is not committing to anything until the engineering is done. However, some peer analysis suggests the payback is less than a year and the cost could be funded from cashflow. I’m going to allow myself to get a little but excited about this as it is within the company’s control and not hidden underground.

Business As Usual?

So, where does this leave us? Disappointed and downtrodden? No, not one bit. RNC is starting to provide moderate excitement to the market via its consistently impressive results. We need to see the Q4 results though. There is always a chance that somewhere down the line, RNC could locate more coarse gold which is great. However, there are no guarantees, and we have enough to be excited about without getting carried away. Let’s not be greedy, but my bet is that RNC Minerals delivers 27,000 oz of gold in Q4. Any takers?

CLICK HERE to watch the full interview.

Company website: https://www.rncminerals.com

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

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

A screenshot of Sheriff Woody pointing at a proud looking Buzz Lightyear.